BizLawBuz …. The Power of Know

You Get What You Pay For

I regularly receive inquiries from law school students (or their parents) asking whether our law firm offers unpaid internships that might provide exposure to the legal practice. As someone who routinely cautions employers about wage and hour issues under the Fair Labor Standards Act (FLSA), I am wary of the prospect of having someone working in our offices without receiving a paycheck. In a recently published Fact Sheet (Fact Sheet #73) the United States Department of Labor (DOL) reiterated the DOL’s six-prong test to determine whether an intern is truly exempt from compensation.

Six points must be satisfied
Under the DOL’s test, each of the following six points must be satisfied if the employer sponsors the internship but does not pay compensation to the intern:

1. The internship mirrors training that would be given in an educational environment;
2. The internship is for the primary benefit of the intern;
3. The intern works under close supervision and does not displace regular workers;
4. The employer gains no immediate advantage from the activities of the intern and, on the contrary, may actually have its operations slowed by the intern;
5. There is no guarantee of employment at the end of the internship; and
6. The employer and the intern both understand that there will be no compensation paid to the intern.

The most difficult point to satisfy
The most difficult point to satisfy is the fourth, to-wit, showing that the employer does not receive an immediate advantage. Using our office as an example, an intern who spent most of her day filing papers or updating the computer database would probably be entitled to compensation. On the other hand, if the intern spent most of her time performing legal research on general practice areas – as opposed to a specific, pending case – this prong would likely be satisfied.

Who receives the benefit
The best advice is to focus on who truly receives the benefit. If the employer is making accommodations in its workplace to allow a student to explore career objectives – and if the accommodations are as much of a hassle as a benefit to the employer – the employer is probably on the right track. Additionally, if an actual internship program is established and coordinated with a local school or university to complement student education, that internship program would be viewed much more favorably by the DOL.

You get what you pay for
At the end of the day, you really do get what you pay for. If you expect to get a day’s work without paying a day’s wage, you can also expect a critical eye from the DOL.

Dirk A. Beamer

In September of last year, we told you about the Genetic Information Nondiscrimination Act of 2008 (GINA), which went into effect November 21, 2009. GINA applies to employers with 15 or more employees. It prohibits discrimination in employment on the basis of genetic information, and it strictly limits the disclosure of that information.

How employers can ensure compliance
The Equal Employment Opportunity Commission (EEOC) is charged with issuing regulations to implement the employment-related provisions of GINA. On November 9, 2010, the EEOC issued its regulations, giving more insight and assistance into how employers can ensure compliance with GINA. Here are some highlights of GINA and the corresponding EEOC regulations:

• GINA is concerned primarily with protecting individuals who may be discriminated against because an employer thinks they are at increased risk of acquiring a condition in the future. (GINA would not protect against individuals discriminated against on the basis of certain forms of breast cancer that have a genetic basis, for example, but would protect an individual whose parent experienced early-onset Alzheimer’s disease.)
• GINA prohibits the use of genetic information in making decisions related to terms, conditions, or privileges of employment, including hiring, firing, and opportunities for advancement. This prohibition is absolute and there are no exceptions. Employers must make their employment decisions based on the individual’s current ability to perform the job.
• Genetic information includes: information about an individual’s genetic tests, or those of their family members; family medical history; requests for and receipt of genetic services by an individual or family member; genetic information carried by an individual or family member or of an embryo legally held by the individual or family member using assisted reproductive technology.
• GINA prohibits employers from requesting, requiring, or purchasing genetic information.
• There are some narrow exceptions where an employer may acquire genetic information. For example, genetic information was acquired inadvertently (e.g., manager overhears a discussion between co-workers; supervisor asks employee about his general well-being or that of his family member; manager is connected to employee on social networking site and employee provides family medical history on her page). An exception also exists where an employee is asking for leave under FMLA because family medical history is a necessary part of the certification process.
• To lawfully request health-related information from an employee (e.g., to support an employee’s request for reasonable accommodation under the ADA, or a request for sick leave), the employer should provide a warning to the employee similar to the following:
• The Genetic Information Nondiscrimination Act of 2008 (GINA) prohibits employers and other entities covered by GINA Title II from requesting or requiring genetic information of an individual or family member of the individual, except as specifically allowed by this law. To comply with this law, we are asking that you not provide any genetic information when responding to this request for medical information. “Genetic information,” as defined by GINA, includes an individual’s family medical history, the results of an individual’s or family member’s genetic tests, the fact that an individual or an individual’s family member sought or received genetic services, and genetic information of a fetus carried by an individual or an individual’s family member or an embryo lawfully held by an individual or family member receiving assistive reproductive services.
• Employers must tell their health care providers not to collect genetic information as part of an employment-related medical exam.

Again, employers should take great care when dealing with their employees’ genetic information. Feel free to consult with me or another employment law attorney at Wright Penning & Beamer regarding compliance with GINA in your organization.

Julie Pfitzenmaier

The text message scandal that toppled former Detroit Mayor Kwame Kilpatrick highlighted the potential uses and abuses of employer provided cell phones and handheld devices. Notwithstanding Kilpatrick’s fall from grace, legal questions remain about whether an employer can access an employee’s personal text messages — even if those messages were sent or received on an employer provided electronic device. In a case now pending before the United States Supreme Court, Quon v. Arch Wireless, a California police officer successfully sued his municipal employer, as well the municipality’s electronic communications service provider, after supervisors accessed sexually explicit text messages between the officer, his wife, and his mistress. The police officer had failed to reimburse the city for text charges that exceeded the city’s stated monthly character limit. As a result, his supervising lieutenant started to monitor the officer’s text messages to separate personal charges from work-related charges. The supervisor soon learned of the police officer’s steamy love triangle, and, “somehow,” this information was leaked to the public.

The Fourth Amendment:
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Reviewing the claims against the employing municipality, the federal appeals court determined that the cop had an “expectation of privacy” in his personal text messages and that, consequently, the employer had violated the Fourth Amendment’s restrictions against unreasonable searches and seizures when it accessed those messages. Even more surprising, perhaps, was the court’s decision to hold the third party service provider liable under the federal Stored Communications Act for disclosing the text messages to the employer in the first place. The Supreme Court has agreed to review the Fourth Amendment claim, but it will not revisit the decision against the service provider under the federal statute.

We’ve used this forum in the past to remind employers of the need for clear, written policies that explain the employer’s expectations regarding computer and electronic media use. The Quon case underscores the problems employers continue to face when handling these issues. Although non-governmental employers do not fall under the Fourth Amendment, they still need to stay clear of employees’ reasonable privacy expectations. Additionally, they need to be aware that — unlike email messages — text messages are typically run through a third party provider, not the employer’s own network server. Consequently, both the provider and the employer face greater risks if they access or disclose those messages without the employee’s explicit permission.

The bottom line? Establish and publish broad policies governing the use of employer provided electronic equipment and media, and consult with corporate counsel before peeking at potentially private emails and text messages.

Dirk A. Beamer

Still wondering how the federal Patient Protection and Affordable Care Act (”PPACA”) will affect you or your business? Not sure what changes you may need to implement to avoid penalties? You’re not alone. While the nation attempts to navigate the overhaul of the health care system, here are a few key points to help you understand some aspects of this complex law:

Dependent Coverage
For all employer-sponsored health care plans that provide coverage to dependent children of covered employees, PPACA will now require that the dependents’ coverage continue until the dependents turn 26 years old. This requirement is effective for all plan years beginning on or after September 23, 2010.

Penalties for Individuals
Starting January 1, 2014, individuals will incur a penalty for each month that they do not have health insurance coverage. In 2014, that penalty cannot exceed $95 for the year. In 2015 and 2016, the maximum penalty increases to $325 and $695, respectively, for each year.

Penalties for Large Employers
PPACA defines a “large” employer as one that employs 50 or more full-time employees working 30 or more hours per week. Large employers must offer “acceptable” health care insurance to employees starting January 1, 2014, or face penalties. “Acceptable” coverage means coverage that is affordable to the employee.

If a large employer does not provide any coverage, and for that reason an employee qualifies for a subsidy (or “premium credit”), the employer faces a monthly penalty, calculated as follows:
No. of full-time employees – 30 x $166.66 = Monthly Penalty
The $166.66 represents 1/12 of $2,000.

If a large employer does not provide “affordable” health insurance coverage, the monthly penalty assessed for each full-time employee that qualifies for a subsidy because of the lack of affordable coverage is 1/12 of $3,000. This penalty is not based on the number of full-time employees; only the number of employees that qualify for a subsidy.

It is still unclear whether the penalties imposed by PPACA might still be less than the cost of providing acceptable health care insurance, as some critics of the law have suggested.

Julie Pfitzenmaier

Talking Business on Social Networking Sites

Whether you personally post or tweet, chances are good your company’s employees participate actively on any number of social networking websites. According to the Pew Research Center, adult use of such sites accounted for almost fifty percent of the internet activity in America in 2009. Aside from its personal and entertainment value, social networking can be a valuable tool for fostering successful business relationships. The blurry line between personal and business use, however, can create unforeseen risks for your company, including the risk that posted comments by your employees will be treated as official statements from the company.

Consider the case of an overzealous sales representative who proudly brags about the company’s products online (so far, so good) but in the process decides to talk trash about a competitor. Does the competitor now have a libel or slander case against your company? Or how about a company supervisor who offers the following recommendation on LinkedIn for a subordinate who is also pursuing an approved sideline business: “I have worked with Sally for five years and have always found her to be hard working and high performing.” If the company later lets Sally go for poor performance, can the supervisor’s post be used as evidence that Sally’s performance was fine and that she is being discriminated against because of gender? In both instances, the answer is probably “yes.”

Employers must be careful in monitoring or regulating employees’ personal, online activity too closely. If you track employee use regularly, you are bound to learn information that you would have preferred not to know and that may actually limit your ability to supervise and discipline the employee. Nonetheless, when it comes to employee comments about workplace activities or relationships, serious thought should be given to updating the company’s handbook or policy manual to provide some basic “dos and don’ts” governing this category of online statements.

Questions? Give me a call … or just post them here on our blog.

Dirk A. Beamer

The Patient Protection and Affordable Care Act was enacted in March of 2010. One of the first provisions to go into effect from the Act is the small business health care tax credit. The purpose of the credit is to encourage small businesses to offer health insurance coverage to their employees for the first time or maintain coverage they have, and to help small businesses that employ primarily low- to moderate-income employees.

The IRS touts “three simple steps,” which can be found at http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf, to determine if you qualify for credit in the 2010 tax year:

1. Determine your total number of employees (not including owners or family members),
2. Calculate the average annual wages of employees (not including owners or family members), and
3. You pay at least half the insurance premium for employees at the single coverage rate.

If for 2010, your total number of employees is less than 25, the average annual wages is less than $50,000, and you satisfy #3, the credit is likely available to you. The maximum credit, which goes to employers with 10 or fewer full-time equivalent employees and annual average wages of $25,000 or less, is 35 percent of premiums paid by eligible small business and 25 percent of premiums paid by eligible tax-exempt organizations.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return. For tax-exempt organizations, the IRS will issue further instructions on how to claim the credit.

Julie Pfitzenmaier

Paying your competitor’s attorney fees in Non-Compete Cases

After seventeen years practicing law, I find that most business clients appreciate the services I have to offer and are willing to pay a fair fee for them. But I have yet to meet a client who feels at all inclined to pay the legal bill of a competitor who has just sued. That’s like being thirteen and kissing your sister. Yet when corporations sue each other over the alleged theft of a valuable employee, the dispute can quickly become a fight over attorney fees.

Any time you hire a competitor’s current or former employee (or independent contractor), you face the risk of a lawsuit from the competitor alleging improper interference with a contract, or some other form of unfair competition. If the employee had a written agreement not to compete with the former employer, the risk of such a suit is all the greater. Risk assessment needs to be part of the hiring decision so you can decide whether the potential employee’s attributes justify the risk. In performing that assessment, you have to consider the possibility of paying not only damages but also the cost of your own – and even your competitor’s – legal fees.

If the competitor goes to the trouble of suing you, it will probably bring every plausible claim available against you. In non-compete cases, this usually involves a claim that the employee and you have conspired to steal the competitor’s trade secrets and proprietary information. In most lawsuits between business competitors, each side pays its own legal expenses – win, lose or draw. But under Michigan’s version of the Uniform Trade Secrets Act, a prevailing plaintiff can recover attorney fees if it shows that the defendant willfully and maliciously stole a trade secret.

Just as I have never met a client anxious to pay a competitor’s lawyer, I have also never met a client (whether a corporation or an individual business person) who believes he acted maliciously in his business dealings. Unfortunately, there is scant case law in Michigan clearly defining willful and malicious conduct under the Uniform Trade Secrets Act. As a result, in virtually every non-compete case brought naming you as a defendant, you will face the argument – and the risk – that you did act maliciously.

Most non-compete cases start with a request for an immediate injunction to stop the alleged unfair competition. This requires the judge to conduct a hearing that resembles a mini-trial at the outset of the lawsuit. The judge’s decision whether or not to grant the injunction will be widely viewed as a barometer of the ultimate merits of the case. Consequently, many cases settle once the judge grants or denies the injunction requested, if not before. In the mean time, the parties – and the suing party in particular – will have incurred substantial legal bills in a short amount of time. (In one case I defended, the opponent racked up about sixty thousand dollars in fees in the one month between filing and settling the case.) With the judge’s decision on the injunction having effectively resolved the merits of the claim, the parties are left to fight over who should foot the bill for having brought the matter to court.

Obviously, the judge’s decision on the injunction will either strengthen or weaken the suing party’s claim that you acted maliciously. Either way, both sides will need to consider carefully how much more legal expense they are willing to incur solely to fight over who should pay the fees to date. If the case appears ready for settlement even before the judge rules on the request for an injunction, you still may face a fight over attorney fees. I have seen plaintiffs with no real damages become all the more insistent that they recover attorney fees as a matter of principle to ensure that the perceived misconduct does not go unpunished. If you are defending, do you buckle and pay some portion of the other side’s fees, or do you hold ground as a matter of principle? If you hold fast, you may end up paying far more money in the long run, albeit to your own attorney rather than to your competitor’s. As a colleague once told me, “It is perfectly appropriate to stand on principle, once you have acknowledged that principle is expensive.”

How do you avoid the distasteful dilemma of paying some portion of a competitor’s attorney fees? While no answer is full proof, there are steps you can take to minimize the risk:

1. Fully assess the risk going in. When interviewing potential employees, have them confirm in writing as part of the interview process whether they have obligations under an existing non-compete agreement. If they answer “no,” it will be harder for a competitor to show you acted willfully and maliciously in the hiring process. If the answer is “yes,” then you know you face a greater threat of a lawsuit and, consequently, may not want to hire the individual. (One caveat: if you do hire the individual notwithstanding his written admission of an existing non-compete, you may strengthen the argument that you have acted with malicious motives.)
2. Avoid trade secrets. If you do hire a competitor’s current or former employee, be extremely vigilant in instructing the new employee and all who work with him that you will not condone any using or sharing of the competitor’s proprietary information and trade secrets. Monitor the situation for compliance. This will make it harder for your competitor to seek fees under the Uniform Fair Trade Practices Act.
3. Assess your risks again. If you do find yourself in a lawsuit, make sure your initial assessment of your potential liability includes a proper allowance for attorney fees. It rarely makes sense to hold fast to an unreasonably low settlement position, only to spend far more in defense than what you could have resolved the case for early on.

By their nature, non-compete cases force the parties to spend considerable legal fees early in the process, often before either side has a solid understanding of the damages suffered. Many times, the actual damages a suing competitor is able to prove will be far smaller than the fees incurred. Given the attorney fee award provisions under the Uniform Trade Secrets Act, you could find yourself fighting to avoid a fee award against you, even in a case where you have caused no measurable harm to your competitor. Try your best to understand your risks before making the hire. That doesn’t mean you won’t make the hire if the employee is worth the risk. After all, most thirteen year olds would kiss their sister — for the right price.

Dirk A. Beamer

“Here is a timely reminder about COBRA benefits from our friend Kirk Radford at Taligence – HR Consulting & Solutions:”

President Obama and Congress have once again extended the COBRA subsidy. Approved yesterday, the Continuing Extension Act of 2010 provides a 65% subsidy of COBRA premiums for individuals who lose group health plan coverage because of an involuntary termination between March 1 and May 31, 2010. The subsidy is available for up to 15 months.

The extension also applies to those who initially lost group health plan coverage because of a reduction in hours and then experienced a termination of employment between March 1 and May 31 of this year.

NOTICES MAY BE REQUIRED
Because the last COBRA subsidy extension already expired, individuals who experienced an involuntary termination since March 31, 2010 and have already received a COBRA election notice will need to receive an updated notice explaining their rights under the extension. These individuals are entitled to a special election period, even if they previously declined COBRA coverage. The updated notices must be sent by June 15, 2010.

We expect the Department of Labor to issue additional guidance and an updated election form(s) soon.

Kirk P. Radford
Taligence - HR Consulting & Solutions
www.taligence-hr.com

Dirk A. Beamer

Over the last several years, Michigan has experienced extraordinary job loss. One fruit of those job losses has been an unusual number of business start-ups. All over the state, laid off workers have “reinvented” themselves, sometimes going back to school to pursue a different or more advanced degree, and sometimes going into business for themselves doing either the kind of work they have always done or something entirely new.

Online Resources
The federal government continues to develop online resources for the benefit of business owners. Among the recent resources posted by the Internal Revenue Service is a virtual small-business tax workshop that you can access at http://www.tax.gov/virtualworkshop. The virtual workshop consists of a series of nine videos covering a number of topics of interest to small business owners, particularly those who are just getting started. Lessons cover topics such as how to set up and run your business, how to file and pay your taxes using your computer, how to set up a home office or a retirement plan and how to manage payroll.

Taking Advantage of SBA Loan Programs
The U.S. Small Business Administration also has a number of online resources for small business owners. Several videos and podcasts can be accessed at http://www.sba.gov/training. Among the topics covered by the SBA are how to develop a business plan, how to survive in a down economy, and how to take advantage of SBA loan programs and federal government contracting opportunities.

The Need for Tax or Legal Counsel
These online tools don’t replace the need for tax or legal counsel, but they can help you make better and more efficient use of both your time and our office, which in turn can save you money. If you are considering a new business venture or you need our assistance with a legal matter affecting your ongoing business, please contact any of the attorneys at Wright Penning & Beamer. We would be pleased to help you!

LeClair L. Flaherty

In response to challenging economic times, a number of employers have announced reduced work hours or “furlough” days. Generally speaking, reducing work hours for hourly employees is a safe and fair way to help control labor costs in difficult times. When dealing with salaried employees who are exempt from state and federal overtime pay requirements, the rules become more complicated.

To qualify an employee as “exempt” from overtime pay, an employer must, among other things, pay the employee on a salary basis. This means that exempt employees are paid a predetermined amount for any given workweek regardless of variations in the actual amount of time spent working in that workweek. Just as the employee will not be given extra pay for working more than 40 hours in a week, the employee will not be docked pay for working less than 40 hours in a week. The one exception is that an employer may choose not to pay any salary for a given week so long as the employee truly did no work that entire week.

When reducing work hours, requiring salaried exempt employees to work one less day per week would not in and of itself permit the employer to reduce the employee’s weekly salary by one-fifth. It is safer to require salaried employees to take mandatory unpaid vacations in increments of one full week. The employer must give strict instructions that the employee not perform work (such as handling emails or voice messages) during that week.

Another alternate would be for the employer to implement an actual salary reduction to correspond with anticipated reductions in hours worked. This is permissible so long as the reduction takes effect for a consistent and foreseeable period of time. The employer may not manipulate the salary from week to week in order to correspond with fluctuating work hours.

The bottom line is that employers should not require salaried exempt employees to take unpaid time off in less than one week increments. If you must make salary reductions, you can do so, but those reductions cannot fluctuate from week to week.

Finally, keep in mind that some employee benefit plans require the employee (whether hourly or salaried) to maintain a minimum number of hours worked per week. Employers must be careful not to disqualify an employee from benefit eligibility inadvertently by reducing the employee’s hours.

Wage and hour laws can be confusing. Do not hesitate to contact a Wright Penning & Beamer attorney if you need additional information or clarification.

Dirk A. Beamer