BizLawBuz …. The Power of Know

Regularly, I have business clients tell me with confidence, “I don’t need to worry about hiring this new employee even though she has a non-compete with her former employer. Those agreements aren’t enforceable anyway.” Just as often, employers complain, “He can’t go to work for my competition! He has a non-compete agreement with me.” Who is right? At the risk of sounding like a lawyer, I have to say, “It depends.”

Covenants not to compete (non-compete agreements) are contractual arrangements in which one party (typically either an employee or a business seller) agrees that he will not engage in certain competitive activity to the detriment of the other party for some specified period of time. In some jurisdictions, like California, state law prohibits this type of agreement in the employment context. Other jurisdictions, including Michigan, expressly permit non-compete agreements by statute. However, even where they are permitted, these agreements are typically subject to certain “reasonableness” standards. The Michigan statute, for example, provides: “To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.”

In practice, this means that any given covenant not to compete is presumed to be enforceable but it is also subject to attack under a claim that it is not “reasonable.”

Because non-competes are legally permissible, employers should take advantage of the opportunity to protect their business interests by seeking reasonable non-compete commitments with their employees. To minimize the risk of a challenge, employers need to exercise restraint and craft restrictions – especially as to duration and geographic scope – as narrowly as possible. Additionally, employers should be leery of hiring an employee from a competitor if that employee previously signed a non-compete agreement with the competitor.

On the flip side, when an employer believes a former employee is violating her non-compete agreement, it must evaluate the cost of enforcement against the actual harm it expects to suffer. To gain any meaningful benefit, employers typically will need to file a lawsuit quickly and ask the court for some sort of preliminary injunctive relief. This means legal costs will be compressed and accelerated as attorneys ramp up for what is effectively a trial within a trial at the hearing for the preliminary injunction.

My advice? Take a cautious approach. If you are considering hiring a new employee who already has a non-compete agreement with her former employer, do not assume that the agreement won’t be enforced or that the former employer will not drag you into court to fight over it. If you are the former employer, and you wish to take action to enforce the agreement, you need to do a cost benefit analysis to ensure that the benefits of enforcement justify the cost of getting there. If you do not have non-compete agreements in place with your sales and management staff, you should. And if you do, conduct a full review to make sure they have in fact been signed and that they have been tailored narrowly to satisfy reasonableness requirements under the law.

Dirk A. Beamer

Parental Waivers Do Not Count For Much
In June of last year, we informed you that the Michigan Supreme Court held that parental waivers were unenforceable. At the same time, we were optimistic that the Michigan Legislature would pass a law that would give effect to parental waivers. Well, the Legislature did give us a law - MCL 700.5109: “Release for injury of minor during recreational activity” - but many are questioning whether the law changes anything.

Statute carves out large exceptions
MCL 700.5109 states that a parent or guardian of a minor may “release a person from liability… for personal injury sustained by the minor during the specific recreational activity for which the release is provided.” So, mom or dad can release the YMCA from liability for Jimmy’s soccer injury if the release was specific to the soccer activity. That’s not a bad start, but the statute goes on to carve out large exceptions, whittling away the strength of the statute.

Statute only applies to non-governmental non-profit organizations
The first exception (and the most glaring problem) is that the statute only applies to non-governmental non-profit organizations. If you operate a for-profit business that provides recreational activity, this statute does not apply, and you are not protected from liability - period. Representative John Walsh, R-Livonia, sponsored the bill and said that private, for-profit organizations weren’t included in the statute because “they probably have a greater opportunity to buy insurance.”*

When an individual or organization initially released is open to a lawsuit
Next, if the statute does apply to your organization, the release can only apply to an injury or death that resulted “solely from the inherent risks of the recreational activity.” Therefore, if Jimmy trips on a little divot in the soccer field and injures himself, as long as no one knew about the divot, the release could block a lawsuit against the non-profit organization. This is because tripping on an uneven patch of grass while running on a soccer field is likely an inherent risk of the sport. But, if the organizer, sponsor, owner, lessee, employee, agent, or other person causes or contributes to the injury or death through negligence (for instance, if the employee knew about the divot and forgot to warn the kids or take corrective action), the release is ineffective, and the individual or the organization initially released is now open to a lawsuit. With regard to this carve-out, Rep. Walsh stated, “[W]e still preserve the right to sue if there’s negligence involved, improper equipment, poor coaching, things of that nature. We didn’t want to leave the parents without any recourse, but we wanted to protect volunteer coaches and non-profits[.]“*

Our recommendations
Unfortunately, it appears that we find ourselves in precisely the same situation as last year – parental waivers do not count for much. Accordingly, we continue to recommend that organizations and individuals act prudently, maintain adequate insurance, and continue use of pre-injury waivers (understanding the limits of those waivers). Additionally, contracts that provide for the parents themselves to “indemnify” (or reimburse) the organization for any losses that arise from a child’s injuries may still be a viable option. While parents cannot contract for their children, they can enter contractual commitments of their own and agree that, “If my child is injured while participating in your activity – and if that injury leads to a claim against you – I will reimburse you for the cost of that claim.” Again, this tool is not nearly as clean or risk free as a release, but it might be useful in defending an injury claim.

*Brian Frasier, Esq., New Law Allows Some Parental Waivers, 25 Michigan Lawyers Weekly, 1 (2011).

Julie P. Cotant

Meeting certain criteria
There is a little known exception to the rule that a homeowner can claim a Principal Residence Exemption on only one residence at a time. In response to the sluggish real estate market, Michigan enacted a law in 2008 allowing a homeowner who has acquired a new residence to claim a Principal Residence Exemption (PRE) on both the new residence and the homeowner’s prior residence if certain criteria are met.

How to take advantage of the dual exemptions
The homeowner must file a Conditional Rescission of Principal Residence Exemption Form with the local assessor. The Conditional Rescission allows the homeowner to claim dual principal residence exemptions for up to three tax years if the previous residence (1) is not occupied, (2) is for sale, (3) is not leased out, and (4) is not used for any business or commercial purposes.

When you must file
If you happen to move out of your home and rescind your principal residence exemption at that time in order to claim it on your new residence, you can reverse the rescission by later filing the Conditional Rescission Form if it appears that your old home will remain on the market for a while. Just remember that the form must be filed by May 1 in order to be effective for the current year. Also remember that the conditional rescission must be renewed annually. If you have a conditional rescission that is effective for 2011, you must file again by December 31, 2011, in order to claim the exemption for 2012.

Restrictions
There are several other restrictions that apply. For example, if you move out of your previous residence and do not purchase a new one, the conditional rescission is not available. It is also not available if you move to another state, or if you lease out your former home even if it later becomes vacant again. If you need assistance in determining whether dual principal residence exemptions may be available to you, please call us, or visit Wright Penning & Beamer’s Michigan Property Tax Appeal website www.PropertyTaxAppealSpecialist.com where we have provided answers to frequently asked questions about the Conditional Rescission of Principal Residence Exemption.

Lee Flaherty

Determining Whether Your Business is Covered
Few pieces of federal employment legislation have proven more difficult to untangle and to administer than the Family and Medical Leave Act of 1993 (FMLA). At its core, the FMLA allows eligible employees to take as much as twelve weeks of unpaid leave to deal with their own or a family member’s medical needs with the assurance that their jobs will be held pending their return. That sounds simple enough, but administering FMLA leaves with your work force can be a real challenge. And if you run afoul of the FMLA’s requirements, your business can face a claim for back pay, future pay, liquidated damages (basically a penalty), mandatory interest and attorney fees. For all of these reasons, it is imperative that covered employers understand and comply with the FMLA.

Who is a Covered Employer?
An employer is covered by the FMLA if it has employed at least 50 employees for each work day of 20 or more workweeks in the current or prior calendar year. This includes all full or part-time employees on the payroll, including unpaid employees (e.g., someone out on an unpaid FMLA leave still counts toward the 50). It does not include employees who work outside of the United States or its territories.

Notice that the test is not whether the employer currently has 50 employees. It is based on the current or prior calendar year, and it is based on any twenty weeks in that year. The weeks need not be consecutive.

Joint Employers and Integrated Employers Beware!
More than once, I have had clients tell me they needn’t worry about the FMLA since they lease their employees from a Professional Employer Organization (PEO). In most of these instances, the business will be deemed a “joint employer” along with the PEO and will be equally responsible for assuring compliance with the FMLA.

Likewise, two or more businesses with closely entwined ownership or management may be deemed “Integrated Employers” whose workforces will be counted collectively to test the 50 employee FMLA threshold. According to the applicable federal regulations, courts will analyze the following factors to decide whether multiple employers are integrated under the FMLA: (1) common management; (2) the interrelationship between the companies; (3) whether control of labor relations is centralized; and (4) the degree of common ownership or financial control. Typically, courts will be especially influenced by common management and shared control of the labor force.

You Can’t Comply if You don’t Know Your Obligations
Though cumbersome, compliance with the FMLA can be managed effectively with proper attention and planning. The first step is determining whether your business is covered and conducting periodic checks for any change in its status. If you need help, please feel free to give us a call.

Dirk A. Beamer

As the world grows smaller thanks to technology, Wright Penning & Beamer finds itself with clients and friends literally across the globe. We welcome new friends and new opportunities, but we still trace our values, like our roots, to the Michigan communities we call home. Like many of you, we are grateful for opportunities to give back when and where we can.

Founders Festival
The entire Farmington area - and much of southeast Michigan with it - celebrates its roots annually at the Founders Festival. Throughout the weekend, festival goers will enjoy fine wine, great food and live music at Alley Regally - hosted by the Greater Farmington Area Chamber of Commerce and Legato Salon, with proceeds to benefit the Farmington/Farmington Hills Afterschool Program. Wright Penning & Beamer is happy to join other local businesses as a sponsor of this venue.

Annual Duck Race
Capping off the Festival weekend, the Farmington/Farmington Hills Foundation for Youth and Families sponsors its 7th Annual Duck Race on Sunday, July 17th at 3:00 p.m. at Shiawassee Park. As a corporate sponsor, Wright Penning & Beamer will launch its decorated duck.

(Artwork courtesy of the Beamer children but with no resemblance to any attorney they might know).

If you have ever thought we’re “all wet,” come out on Sunday for proof!

Farmington Farmers and Artisans Market
Starting in May and running through harvest time, the Farmington Farmers and Artisans Market brings fresh Michigan produce, exceptional baked goods, fine art and a variety of unique, artisan-made products to downtown Farmington. Wright Penning & Beamer is delighted to join with our friends at Mid-American Studios and Montgomery, Wiethorn and Burke, CPAs, in sponsoring live music at the market every Saturday. Enjoy the sights and sounds every Saturday from 9:00 am to 2:00 pm at Riley Park in downtown Farmington.

Leelanau Conservancy Annual Picnic and Auction
In Suttons Bay we are supporting and serving as a sponsor of the Leelanau Conservancy’s 2011 Picnic and Auction. The Conservancy’s Annual Picnic and Auction will be held Thursday, August 4, 2011. Over 700 people attended the 2010 auction and over $100,000 was raised to help the Leelanau Conservancy in its mission to conserve the land, water and scenic character of Leelanau County. If your schedule permits, attend the picnic, donate an item, make a bid online or in person and volunteer to make this annual event a success. Visit their website at www.theconservancy.com to get your tickets to support this event too!

Suttons Bay Fireworks Display and Celebration
Another important community event Wright Penning & Beamer sponsors is the Suttons Bay Annual Fireworks Display and Celebration held during Labor Day weekend. It’s a way for us to give something back to the families of the local community at the close of the summer season. Held at dusk at the Suttons Bay Marina Park. Grab a blanket and pack a picnic basket full of snacks and beverages and join us after sunset to enjoy the fireworks display as it lights up the night sky over Suttons Bay. It’s a fun night for all who attend.

None of these events would be possible without the tireless efforts of community leaders and countless volunteers. We share our heartfelt thanks with our many friends and neighbors who work hard to celebrate and strengthen our communities. Whether in Farmington or in Suttons Bay, we look forward to seeing you “downtown” and “down by the bay.”

Dirk A. Beamer

On March 24, 2011, the Equal Employment Opportunity Commission (EEOC) published the much-anticipated final regulations regarding the Americans with Disabilities Act Amendments Act (ADAAA), which was signed into law by President Bush in September 2008, and took effect on January 1, 2009. These regulations significantly change the existing legal framework on disability law, and employers should be aware of how the regulations impact their obligations. A couple highlights of these new regulations and their impact are addressed below.

Impairment that “Substantially Limits” a “Major Life Activity”

The ADAAA defines “disability” as:

• A physical or mental impairment that substantially limits a major life activity;
• A record of such impairment; or
• Being regarded as having such an impairment.

The regulations now provide more guidance to assist in determining whether a “substantial limitation” exists. Employers should note that the regulations make it clear that the term “substantially limits” should be construed “broadly in favor of expansive coverage.” It is not intended as a “demanding standard.”

Furthermore, the term “major life activity” should not be interpreted strictly so that it unintentionally creates a demanding standard for determining existence of a disability. “Major life activities” include major bodily functions such as hemic, lymphatic, musculoskeletal, special sense organs and skin, and cardiovascular functions, to name a few. The activity need not be one that is “of central importance to daily life.” Consequently, many more activities may be covered by the ADAAA.

Examples of Impairments
Impairments can be permanent or long-term, or episodic and short-term, and under the regulations and rules of construction, there are certain impairments that will always be considered disabilities: including, for example, diabetes, epilepsy, major depressive disorder, autism, HIV infection, obsessive compulsive disorder, bipolar disorder, cancer, and post-traumatic stress disorder.

Conclusion
At the end of the day, employers should focus on how they might reasonably accommodate an employee’s impairment, rather than on determining whether a disability (or substantial limitation) exists. While the regulations are useful in clarifying the focus and meaning of the ADAAA, they also may increase employers’ exposure to liability if reasonable accommodation for an impairment is not afforded to the employee. The analysis will center on whether the employer met its obligations and whether discrimination occurred, and no longer on the question of whether the individual is substantially limited in a major life activity.

For additional questions regarding the ADAAA and how it might apply to your business, please contact Wright Penning & Beamer.

Julie P. Cotant

For several years now, Michigan Medicaid recipients have been waiting apprehensively for the state to implement a program whereby Medicaid benefits paid out during a person’s lifetime will be recovered from that person’s estate after death. Generally called “estate recovery,” this program is required by federal law. Michigan submitted its proposed program to the federal government four years ago, but cannot implement it until the feds approve it. That approval is expected at any time.

In anticipation of the federal approval, on July 1, 2011, the Michigan Department of Human Services will publish new policy detailing how it proposes implementing estate recovery. According to the new policy, estate recovery will only affect people who began receiving Medicaid after September 30, 2007, Medicaid recipients over age 55, and recipients who are permanently institutionalized regardless of age.

When estate recovery takes place
Estate recovery will not take place until after the Medicaid recipient dies. If the Medicaid recipient is survived by a spouse, by a child who is under age 21, or by a child who is blind or permanently disabled, then there will be no estate recovery until after those persons die.

The state may decide not to pursue recovery at all if recovery will create an “undue hardship.” Undue hardship exists when the assets of the Medicaid recipient are the sole source of income for surviving family members, such as a family farm or business. It also exists when the home is of “modest value” or when a survivor would become eligible for Medicaid if estate recovery were to occur.

Asset preservation strategies
Importantly, the state will only seek recovery from a decedent’s assets which pass through probate court. This means that a number of asset preservation strategies are still available, such as joint ownership, ownership subject to a life estate, and beneficiary designations on accounts and life insurance policies.

Assets exempt from estate recovery
Finally, there are certain assets that are exempt from estate recovery. For example, the state will not pursue recovery if the cost of recovery is expected to exceed the value of the asset.

The Department of Human Service’s new policy answers a number of questions, but it does not contain a lot of detail. We will still have to wait for the program to be put into practice to see just how it will affect Medicaid planning.

Lee Flaherty

As someone who earns his living in the court room (or trying to keep things out of the court room), I have done my share of belly aching about the imperfections of the American judicial system. It takes too long and costs too much money to get matters to trial. Judges can be indecisive and sometimes inhospitable. Juries are not as informed and attentive as we would like. Yet, for all my griping, my personal travels over the last few months have reminded me emphatically of how uniquely special and important is our system of government and its deference to the rule of law.

On May 12, my wife, Jessica, and I traveled to Akron, Ohio to attend a special session of the United States District Court for the Northern District of Ohio. More than 20 federal judges, along with numerous elected officials, attorneys, and community members, gathered to pay tribute to the late Sam H. Bell. Judge Bell was appointed to the federal bench in 1982; he took inactive status in 1998. I had the privilege of clerking for Judge Bell for two years after I finished law school. He was the epitome of what a judge should be: learned, disciplined, courteous and fair.

Judge Bell treasured our country’s history, and he spent a lifetime upholding and defending the Constitution. At every opportunity, he spoke of the importance of an impartial, independent judiciary to a free society. He reminded us of the central role the federal judiciary played in establishing and defending three co-equal branches of government in the early days of our republic, as well as the pivotal role played by brave federal judges - deaf to public criticism - in defending the civil rights of all Americans. Judge Bell was an exceptional man, and working for him was one of the great honors and pleasures of my life.

One week to the day after our trip to Akron, Jessica and I flew to central Europe, where we spent 12 days sightseeing with my brother and his wife, both of whom work for the State Department at the U.S. Embassy in Slovakia. As we traveled through the former Czechoslovakia, we enjoyed Bratislava’s historic view of the Danube, Prague’s architectural splendor, and many happy respites over local beer, wine, and cuisine. Yet for all their old world charm, the Czech Republic and Slovakia both struggle to establish and embrace true western democracies after a legacy of imperialism and cold war communism. Corruption is rife at all stages of government, include the judiciary. Cynicism and despondency easily take root without a legacy of accountability to the rule of the law.

We face many challenges as a nation. But we can take pride in - and draw lessons from - the enduring nature of our Constitution and the ultimate victory of the rule of law. Even when we have gone astray (think of the Dred Scott decision or the Watergate scandal), law and order have prevailed in the end without sacrificing individual liberty. This legacy has been purchased and protected at a great price. Countless Americans have given a lifetime of public service, like Judge Bell, or have placed their own lives in harm’s way to protect that which we hold dear.

Traveling much closer to home, I attended the funeral service last week of George Baditoi. A World War II veteran, George returned to Michigan safely to embark on a distinguished sixty year career as a CPA and a tax attorney. Quietly, but on a daily basis, he exemplified the same model of hard work, intellect, and integrity in his private practice and on behalf of his clients that Judge Bell displayed in his court room. George was devoted to his clients, his family, his country and his God. He was a long and dear friend of Wright Penning & Beamer, and he will be sorely missed.

I have been blessed to know great men. In the cases of Judge Bell and George Baditoi, greatness lay in hard work, humility, and a firm belief in things bigger than self. May we all strive after such role models. May we answer when duty calls. May we cherish and defend the blessings of a free society, ordered and maintained by the rule of law.

Dirk A. Beamer

In 2004, Michigan enacted the Identity Theft Protection Act to address theft and illicit use of personal, financial, or other sensitive information. In 2006, and again in 2010, the Legislature amended the Act to address new schemes designed to obtain personal information under false pretenses. The most recent amendments took effect April 1, 2011, and aim at addressing actions such as “phishing” (using emails and false websites to obtain personal information) and imposing harsher penalties for violators.

The Act specifically prohibits an individual from doing the following with the purpose of inducing a user to provide personal identifying information:

• Using email or other form of communication under false pretenses purporting to be by or on behalf of a business, without authority or approval of the business
• Creating a website that represents itself as belonging to or being associated with a business, without the authority or approval of that business
• Altering settings on a user’s computer, device, or software program that would cause any user of the internet to view a communication as belonging to or being associated with a business without the authority or approval of that business

The Act also criminalizes obtaining, attempting to obtain, selling, transferring, or attempting to sell or transfer personal identifying information with the intent to commit a criminal act, and imposes harsh penalties for violating the Act’s provisions, including imprisonment and fines up to $75,000. A civil right of action has also been created bearing penalties that begin at $5,000 per violation or $250,000 per day that a violation occurs.

Julie Pfitzenmaier Cotant

Wright, Penning & Beamer is pleased to announce its sponsorship of the Music at the Market series for the upcoming 2011 season of the Farmington Farmers & Artisans Market. In doing so, Wright, Penning & Beamer, with offices in both Farmington Hills and Suttons Bay, continues its heritage of serving not only our clients, but the communities in which we practice, in the firmly held belief that our success as a firm is inextricably tied to the success of our clients and the communities we serve.

The Farmington Farmers and Artisans Market is located in the Walter E. Sundquist Pavilion and George F. Riley Park, situated on the south side of Grand River, just east of Farmington Road, in downtown Farmington. The Market, which takes place from 9 AM to 2 PM, every Saturday from May 7 through November 19, has become a Saturday morning fixture and weekly destination for many throughout the region. Offerings include an abundance of fresh Michigan produce, plants, and baked goods, as well as a wide variety of hand-crafted artisan made products, including soaps, fine art, jewelry and photography. This season’s offerings will also include classes on select Saturdays on topics such as gardening, cooking and fitness.

Complete Information concerning the Market, as well as anything and everything happening in Downtown Farmington, can be found on the website for the Farmington Downtown Development Authority.

Information concerning the musicians who will be appearing each Saturday from 10 AM until 2 PM as part of the Music at the Market series, can also be found on the Farmington Downtown Development Authority website.

Duane L. Reynolds