Profit-Sharing Contributions Can Be Held Awhile

Q: My company collects our voluntary contributions to our profit-sharing plan and then waits a month before turning them over to the custodian of the plan. Is this legal? If not, what are the consequences of this action?

--R.H., Los Alamitos

A: The U.S. Department of Labor has ruled that employee contributions must be turned over to a profit-sharing trust at the earliest date on which the contributions can reasonably be separated from the company’s general assets, but in no event more than 90 days after the amounts would have been paid if you had received them as wages.

We cannot say whether 30 days is too long. It depends on what is reasonable under the circumstances. For example, if there are few employees and a single payroll location, 10 days may be appropriate. Large employers with several locations, different payroll periods or different payroll centers may be able to justify a delay of up to 90 days before turning over the contributions to the plan.

An employer violating this rule could be liable for breach of its fiduciary duty and/or a “prohibited transaction,” and be required not only to pay a fine to the Department of Labor, but also to make up lost earnings to the plan.

--James J. McDonald Jr., Attorney, Fisher & Phillips, Labor law instructor, UC Irvine

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Q: As a mid-level manager, I am often asked for references from previous employees or I am seeking references for future, potential employees. What can I ask an applicant’s previous employer to satisfy my need for information regarding their work quality, attendance, etc.? How should I answer questions directed at me regarding previous employees of mine for both positive and not-so-positive references?

--M.C., Rancho Santa Margarita

A: Your apprehension and reluctance to provide information on current, previous or prospective employees is justifiable due to a proliferation of lawsuits in recent years.

Recently adopted legislation protects written or oral communication between a former employer and a prospective employer with regard to the former employee’s job performance and/or qualifications, if the communication is made without malice and based solely on “credible evidence.”

However, discussions about a former employee’s “constitutionally protected” activities, such as union activity or workers’ compensation claims filed by the employee, are not considered protected communication between you and a prospective employer.

When making background checks on applicants, it also is important to set up safeguards to ensure that the information is job related.

Reference checking is an acquired skill. I recommend that anyone responsible for reference checking be educated on the do’s and don’ts of the trade, as well as the techniques to obtain and disseminate reference information effectively without exposure to litigation.

The safest course still is for an employer to respond to inquiries only in writing, and only with confirmation of the employee’s dates of service, title and rates of pay. If you still wish to give an employee a positive reference, give the employee a letter of recommendation, which speaks for itself.

--Elizabeth Winfree-Lydon, Senior staff consultant, The Employers Group

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Q: The company that I work for has been having severe financial problems over the past five years. The company filed for Chapter 11 bankruptcy protection and came up with a reorganization strategy that includes eliminating upper management positions. Although my company continues to assure the employees that it is doing fine financially and that we are in no danger of losing our jobs, I am continuously hearing rumors from other associates and from customers that we are going out of business. Is is possible that my company is holding back information from employees? Why would they do this?

--D.I., Long Beach

A: It may very well be the case that your company is holding back some bad news. On the other hand, it could be telling the truth or engaging in “wishful thinking,” relaying what it hopes will be true.

When companies willfully withhold negative information, such as an impending collapse, from employees they usually do so in an effort to keep stress levels down and productivity up, and to stem the early departure of employees who will seek and find other jobs.

Even when companies are conveying positive news, rumors to the contrary can still run rampant. That is why it is important that organizations establish and maintain a policy of honesty and openness with their employees. If a company has a track record of honesty and credibility with its employees, it can effectively combat potentially destructive negative rumors.

Ron Riggio, Professor of industrial psychology, Cal State-Fullerton