BizLawBuz …. The Power of Know

Michigan’s New Law and Fines On Texting While Driving in Michigan

Accidents attributed to distracted driving
With a tremendous amount of hoopla, Michigan’s law banning texting while driving took effect this past July 1, 2010. In so doing, Michigan joined somewhere between 14 and 23 states (the reported numbers vary widely) and the District of Columbia, that have taken this approach in an effort to deal with the growing problem of distracted drivers. A summer 2009 study by the Virginia Tech Transportation Institute found that the act of writing a text message while driving substantially increased the chances of becoming involved in an accident. According to figures published by the National Highway Traffic Safety Administration, accidents resulting from some form of distracted driving resulted in 6,000 deaths and 500,000 injuries in 2008. Overall, distracted drivers accounted for almost 80% of all accidents and 65% of near accidents, nation wide. Here in Michigan, some 3,315 accidents were attributed to distracted driving in 2009, with 900 of those specifically linked to some sort of cell phone use.

The new Michigan Vehicle Code
Despite the media attention, reports of that which the law allows, and that which the law prohibits, have varied widely. It’s not all that long and complicated, so I thought it worth while to reprint it here, in its entirety. The law, now part of the Michigan Vehicle Code, can be found at Michigan Compiled Laws Section 257.602b.

257.602b.
Use of wireless 2-way communication device for text messages while operating motor vehicle; local regulation; penalties

Sec. 602b. (1) Except as otherwise provided in this section, a person shall not read, manually type, or send a text message on a wireless 2-way communication device that is located in the person’s hand or in the person’s lap, including a wireless telephone used in cellular telephone service or personal communication service, while operating a motor vehicle that is moving on a highway or street in this state. As used in this subsection, a wireless 2-way communication device does not include a global positioning or navigation system that is affixed to the motor vehicle.

(2) Subsection (1) does not apply to an individual who is using a device described in subsection (1) to do any of the following:

• (a) Report a traffic accident, medical emergency, or serious road hazard.
• (b) Report a situation in which the person believes his or her personal safety is in jeopardy.
• (c) Report or avert the perpetration or potential perpetration of a criminal act against the individual or another person.
• (d) Carry out official duties as a police officer, law enforcement official, member of a paid or volunteer fire department, or operator of an emergency vehicle.

(3) An individual who violates this section is responsible for a civil infraction and shall be ordered to pay a civil fine as follows:

(a) For a first violation, $100.00.
(b) For a second or subsequent violation, $200.00.

(4) This section supersedes all local ordinances regulating the use of a communications device while operating a motor vehicle in motion on a highway or street, except that a unit of local government may adopt an ordinance or enforce an existing ordinance substantially corresponding to this section.

Distracted drivers scare the daylights out of me
Is the law working? It’s too early to tell. I do know this. As someone who rides a motorcycle, distracted drivers scare the daylights out of me. On a motorcycle, I am pretty much at eye level with drivers, and can easily see what they are doing. Just this past weekend, on a trip to the west side of the state, I encountered numerous erratic drivers; you know the ones, driving too slow, too fast, drifting in and out of their lanes, and so on. In every instance, the driver was either talking on a cell phone or texting while driving. Very scary stuff.

The prohibition couldn’t be simpler: don’t read, type or send text messages while driving.

Duane L. Reynolds

Revocation and Restoration of Tax-Exempt Status

Nonprofits subject to IRS annual reporting requirements
Until recently, most U.S. nonprofit organizations were not required to file an annual information return with the IRS. Beginning January 2007, all that changed when even the smallest of nonprofits became subject to IRS annual reporting requirements. The only exceptions were state organizations, churches and their affiliated organizations, and certain religious groups. Nearly all others were required to file some version of Form 990, and the failure to do so for three consecutive years would mean automatic loss of the organization’s tax-exempt status.

New nonprofit filing requirements
It has now been three years since the implementation of the new filing requirements, and the IRS estimates that perhaps 20% of all nonprofits may have lost their tax-exempt status on May 17, 2010 (the annual filing deadline for nonprofits with a December 31 fiscal year end), for failure to file an information return for three consecutive years.

When nonprofit tax-exempt status is revoked
Revocation of tax-exempt status is a serious matter for a nonprofit. It means that its income is now subject to tax, and that an income tax return must now be filed. It means that the organization can no longer accept tax-deductible contributions, which could potentially mean a loss of its entire base of support.

IRS list of nonprofits whose tax-exempt status has been revoked mailing
So what does this mean for individual donors and grantmakers? The IRS is apparently waiting until 2011 to send out letters of revocation and to publish a list of nonprofits whose tax-exempt status has been revoked. Until that time, individuals can still deduct charitable contributions and grantmakers can still make qualifying distributions to those charities. Beginning in 2011, however, foundations will need to amend their pre-grant due diligence process to include confirmation that a charity has not lost its tax-exempt status.

Welcome relief for small nonprofits only
In the meantime, a press release issued by the IRS on July 26, 2010 offers welcome relief for small nonprofits only. Small exempt organizations have a one-time opportunity to either (1) file their missing returns by October 15, 2010, or (2) engage in a voluntary compliance program. The first option is for very small organizations that are eligible to file Form 990-N (known as the “e-Postcard”). The second option is for somewhat larger organizations that are eligible to file Form 990-EZ.

Organizations that file Form 990-N can simply go online and complete their filings electronically. Organizations that file Form 990-EZ must both bring their delinquent returns up to date and pay a compliance fee.

Regaining nonprofit tax-exempt status
For charities that receive an IRS revocation letter next year, all is not lost. A nonprofit can regain its tax-exempt status by filing a lengthy application (Form 1023 or Form 1024) with the IRS and paying the applicable user fee. (Unfortunately, this application process applies even to organizations that did not have to apply in order to gain their initial tax-exempt status.) Reinstatement will usually be effective as of the date the application is filed. However, if a nonprofit can demonstrate that it had reasonable cause for failing to file returns for three years, reinstatement will be effective as of the date of revocation.

Donor and Grantmaker Questions
Whether you are a donor with questions about an organization, a grantmaker that needs assistance in revamping its due diligence processes or a charity that fears it may have lost its tax-exempt status, the attorneys at Wright Penning & Beamer stand ready to assist you.

Lee Flaherty

…there are still protective measures that businesses and individuals can take to attempt to limit their exposure to liability if a child is injured….

Michigan Supreme Court: Parental Waivers are Unenforceable

Previously, we informed you of a Michigan Court of Appeals decision from 2008, which held that a parent’s waiver of liability for a child’s personal injuries is ineffective. On June 18, 2010, the Michigan Supreme Court decided that the Court of Appeals reached the correct conclusion: parental waivers are unenforceable. The Court reasoned that parental waivers are an attempt to contractually prohibit a minor from filing a lawsuit. Since parents cannot legally contract on behalf of their children, such waivers cannot be enforced.

While the Supreme Court decision solidifies concerns over heightened liability for commercial recreation establishments, schools, and churches, it does not prevent the legislature from crafting a law that specifically authorizes the enforcement of parental waivers. In fact, a bill is currently pending in the Michigan House of Representatives that would allow a parent or guardian of a minor who participates in a recreational activity to sign a written waiver releasing a person (the sponsor or organizer of the activity, or the owner or lessee of the property) from liability for resulting injuries. The bill would authorize parents or guardians to sign the waivers in advance of the activity. It is unknown at this time, however, if and when the bill will become law.

For now, we are operating under the Supreme Court decision; but there are still protective measures that businesses and individuals can take to attempt to limit their exposure to liability if a child is injured. First, to reiterate our advice from our prior email blast, establishments and individuals should act prudently, maintain adequate insurance, and continue use of pre-injury waivers (while at the same time understanding the potential ineffectiveness of those waivers). Also, some establishments may want to investigate the suitability of contracts that provide for the parents themselves to “indemnify” (or reimburse) the establishment for any losses that arise from the injuries that a child suffers while participating in the activity at the establishment. While parents cannot contract for their children, they can enter contractual commitments of their own. An indemnification agreement would essentially have a parent agreeing 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.” While not nearly as clean or as risk free as a release, such an agreement would at least provide one additional tool to use in defense of an injury claim.

For additional information, feel free to contact Wright Penning & Beamer.

Julie Pfitzenmaier

These days it’s hard to listen to the radio, watch television or go on-line without being inundated by ads pitching the latest and greatest do-it-yourself, on-line, estate plan documents: who needs those money grubbing lawyers anyway? One thing all of these pitches have in common is the assurance that the forms are legally valid and binding. Truth be told, “legally valid” is not a tough threshold to meet. If the person signing the Will (or trust, or, you name it) has the requisite mental capacity under the laws of the state where the document is being signed, and the document is signed, witnessed, or notarized in accordance with the laws of the state, it is legally valid. Legal validity, however, is only part of the story. Imagine the shock years down the road when it is discovered that an estate plan put in place by well meaning parents, intending to provide for each other and their children upon their disability and eventual deaths, does nothing of the sort.

I recently had the opportunity to help a young couple with very small children, where one spouse was facing a life threatening illness. They were referred to me to review their revocable living trust. I was under the impression that it had been drafted by another lawyer, and, therefore, my initial review was not clouded or prejudiced in any way. As I went through the document I was appalled at what I perceived to be the utter incompetence of a fellow practitioner, and, quite frankly, dumfounded as to why and how any attorney could pass something like this off on unsuspecting clients. The document was grossly deficient in a number of particulars, and, more importantly, would not have accomplished the desired result of providing for the surviving spouse and children upon the disability or death of one of the parents. It was then that I learned that in their haste to insure that the surviving spouse and children would be provided for, the couple turned not to a lawyer, but to one of the popular on-line sites for their estate planning needs, which included a revocable living trust (for which they paid a fairly sizeable sum I might add).

To enumerate and explain the deficiencies in the document would exceed the space allowed here, so I’ll only touch upon three, specifically:

1. form
2. concept, and
3. substance.

First, from the standpoint of form, although touted by the website to be a Michigan specific document, the terminology used was not consistent with, or reflective of, Michigan law. This past April 1, 2010, the Michigan Trust Code went into effect, changing many aspects of Michigan trust law. Those changes had not found their way into the document.

Second, the document was premised upon property law concepts that are not followed in Michigan. Admittedly, this is where the explanation can get technical and complicated, so I’ll convey only the basics. Insofar as property ownership between a husband and wife is concerned, 40 states follow concepts derived from, and based upon, English common law. There are 10 states, however, that characterize property owned by a husband and wife pursuant to concepts that can be traced to French and Spanish civil law. Those states are said to be “community property” states. And, even within these groupings of common law and community property law jurisdictions, there are many variations. The salient fact remains, however, that property owned by a husband and wife is treated differently in community property and common law jurisdictions. Michigan is not a community property state. Yet, this document, although touted to be a Michigan specific document, employed community property terminology and concepts.

Lastly, there are many reasons why people need estate plans, and trusts in particular, ranging from tax savings to probate avoidance. For people with children, the primary need for a trust is to provide for the children upon the death or incapacity of one or both parents. Without a trust, minor children will receive their inheritance when they turn 18; all of it. Because that is rarely a good idea, trusts are the means of providing a method for holding property and administering it for the benefit of the children according to a detailed plan of distribution determined by the parents, in advance. The trust document I was asked to review contained none of these provisions. Although this couple had a number of children, upon the death of the second spouse to die, the trust assets would simply be held for distribution to each child as he or she turned 18. The document contained no provisions for the administration and distribution of the trust property for the care of the children while they were young.

Was this a legally valid and binding trust? It was. Would this trust have fulfilled the intentions and desires of this young couple and the needs of their family? Not even close. The problem is that they had no way of knowing that. For users of these on-line documents, it will be years or decades before the ultimate beneficiaries will learn just how bad the documents are. Merely filling in the blanks on a form is no substitute for the expertise of an experienced estate planning attorney. There is a reason why we dedicate our working lives and energy doing what we do.

Duane L. Reynolds

Wright Penning & Beamer is pleased to announce that Dan A. Penning has been named a FIVE STAR Wealth Manager by HOUR Detroit magazine in its June, 2010 issue.

As detailed below, more than 11,000 wealth managers practice accounting, business planning, estate planning, financial planning, insurance and investments in the metropolitan Detroit area. Out of the 11,000 wealth managers, only 686 of the top-scoring wealth managers were named a FIVE STAR Wealth Manager for 2010. Out of the 686 wealth managers, only 50 attorneys were included in the list and Penning was named as 1 of the 50 attorneys.

The following is an excerpt from the article accompanying the naming of the FIVE STAR Wealth Managers in HOUR Detroit magazine and reprinted with permission:

” . . . Well over half of the consumer responses in the Detroit area indicated it is difficult to find a wealth manager they trust and rely on. Wealth managers, broadly defined, are those individuals who help you manage your financial world and/or implement aspects of your financial strategies. Common examples of wealth managers are financial advisers, life insurance agents, accountants, tax advisors, attorneys, etc. With more than 11,000 wealth managers in the Detroit area, how do you find someone who listens to you, represents your interests and operates with an emphasis on integrity and service? HOUR Detroit magazine can help. The magazine formed a partnership with Crescendo Business Services to find out which wealth managers scored highest in overall satisfaction.

The Selection Process

Crescendo administered a survey, by mail and phone, to approximately 1 in 5 high-net-worth households within the Detroit area. An additional 4,200 surveys were sent to financial services industry professionals.

On the surveys, recipients were asked to evaluate only wealth managers whom they knew through personal experience, and to evaluate them based upon nine criteria: customer service, integrity, knowledge/ expertise, communication, value for fee charged, meeting of financial objectives, post-sale service, quality of recommendations and overall satisfaction.

Both positive and negative evaluations were included in the scoring. Only wealth managers with five years of experience in the financial services industry were considered. . .

Then, before finalizing the list, wealth managers were reviewed by a blue ribbon panel. The blue ribbon panel was comprised of individuals from within the financial services industry. Although panelist comments were incorporated into the final score, safeguards were built into the review process to reduce the ability of panel members to influence the composition of the final list on the basis of company affiliation.

An Elite Award

The resulting list of 2010 FIVE STAR Wealth Managers is an elite group, representing less than 7 percent of the wealth managers in the Detroit area. Only 686 of the top-scoring wealth managers made this year’s list. . . . ”

Penning offers his experience and expertise in estate, business and cottage law planning to Wright Penning & Beamer’s clients through our offices located in Farmington Hills and in northern Michigan from our office located in the historic “Train Depot” in Suttons Bay, Michigan.

By the time you read this, I will be basking in sunny Arizona while attending a conference related to one of my volunteer interests. (Well, maybe not “basking.” The temperature is expected to exceed 100°!) As virtually all of us volunteer in some capacity at one time or another, I thought a review of what expenses we volunteers can claim as tax deductions might be helpful.

I’ll set this in the context of a real-life example. Some of you still make periodic trips down to the Gulf Coast to help with post-Hurricane Katrina recovery efforts. If you are going down as a volunteer with a charity and your out-of-pocket expenses are not reimbursed, then your travel expenses and possible other expenses can be deducted as long as they are properly documented. This is true whether you’re a laborer building houses, or a board member attending meetings.

In any case, only expenses directly related to your volunteer service may be deducted. Typical examples are the cost of transportation, meals and lodging. (Sorry, probably no deduction for the admission to Dolly World on the way through Tennessee, or the cost of replacing your cell phone after you accidentally drop it into fresh cement.) If you purchase items such as food or building materials for the charity you are working with, then those items are generally deductible, too.

Under no circumstances, however, may you deduct the value of your services. Your 40 hours spent hanging drywall may save the charity considerable expense, but that’s not a gift for which Uncle Sam is willing to give you a tax break.

In order to be deductible, your expenses must be reasonable, and there can be no significant element of personal pleasure associated with them. This doesn’t mean you can’t take a day to relax in the course of a week spent building homes, but the element of pleasure must be minor when contrasted with the importance or duration of your charitable service. (There is, unfortunately, no bright-line rule on how to measure when that element of personal pleasure ceases to be minor!)

As you would expect, you must maintain careful records of your expenses. If you intend to deduct your mileage (this year’s charity rate for vehicle mileage is $.14 per mile), then you must keep a detailed mileage log. If you prefer instead to deduct your actual cost of gas, then you must keep receipts. If a receipt’s charitable purpose is not clear, then describe that purpose right on the receipt.

If an expense exceeds $250, then you must get a written acknowledgment or receipt from your charity. The acknowledgment should describe the expense incurred and state whether the charity provided you with any goods or services in return. If you did receive goods or services, then the receipt needs to give a good-faith estimate of their value.

We Americans are extraordinary in our willingness to give of our time and our money. That generosity of spirit is one of the many things that make our country exceptional. Continue to volunteer wherever you can, but don’t miss the opportunity to take advantage any tax deductions that may become available to you as a result!

Lee Flaherty
Wright Penning & Beamer

Speed Traps and the 85th Percentile

How are speed limits set in the first place?
A Michigan State Police Lieutenant made news recently when he confirmed publicly a fact many have long suspected: in many places throughout the state, speed limits are set artificially low. Speed limits that are too low result in speeding tickets which equate to revenue for cash strapped local units of government. This assessment was then confirmed by a local police chief whose jurisdiction includes a stretch of one of the most heavily traveled roads in the state. As the road crosses into his city, the speed limit drops to a point that, as he admits, likely cannot be justified. The city has no intention of raising the speed limit, however, because of the revenue it generates for the city. A state lawmaker believes that the problem of artificially low speed limits has gotten so out of hand that he has introduced legislation that will force local communities to correct speed limits that are set too low. The question then becomes, how are speed limits set in the first place?

Justified on the basis of public safety
The right to set speed limits is an exercise of the police power of the state and is therefore justified on the basis of public safety. Speed limits are intended to reflect a reasonable and safe speed that will facilitate the safe and orderly flow of traffic under normal conditions. Research has shown that the majority of motorists operate their vehicles in a safe and reasonable manner, hence, traffic laws and speed limits that reflect the behavior of the majority of motorists are the most successful. The inverse is also true: traffic laws and speed limits that arbitrarily restrict the majority of motorists encourage violations, lack public support and rarely achieve the desired result. Speed limits are not to be set based upon unreasoned opinion but upon thorough traffic engineering studies. Those studies include an analysis of such factors as the number and types of accidents that have occurred, the number of cars traveling the road, their speeds, the presence of pedestrians, the physical condition of the road surface, hills, curves, number of lanes, driveways, intersections, and so on.

A certain speed is intuitive to the majority of motorists
The primary method for establishing a proper, realistic and safe speed is something known as the 85th percentile. The 85th percentile speed is the top speed at which 85% of motorists will drive on any given road at any given time without regard for slower traffic congestion or weather. The 85th percentile speed is the speed that most motorists consider safe and reasonable, pretty much without regard for the posted speed. In fact, research has shown that artificially raising the posted speed above the 85th percentile does not necessarily result in faster speeds, just as artificially lowering the posted speed below the 85th percentile does not necessarily result in lower speeds. It is not really a conscious decision to drive at a certain speed but one that is intuitive to the majority of motorists.

Established traffic engineering practices
Michigan law provides that all traffic control devices placed anywhere in the state must conform to the national standards set forth in the Manual on Uniform Traffic Control Devices and must be placed in accordance with a written traffic control order. This includes the setting of speed limits and speed limit signs. Sections of the Manual provide that speed limits are to be set based upon traffic engineering studies made in accordance with established traffic engineering practices. Further, speed limits should be within 5 mph of the 85th percentile speed.

Unrealistic speed limits are not followed
While realistic speed limits are generally followed, unrealistic speed limits are not. Absent strict, continuous, and visible enforcement, artificially low speed limits will be ignored. And any adherence that does result is limited to the immediate time and immediate area of the enforcement (i.e., speed traps). If you find yourself getting a ticket in an area where the posted speed limit just doesn’t seem to make sense, you might consider asking the municipality for a copy of the traffic control order and the engineering studies upon which the speed limit was based. If the speed limit is not within 5 mph of the 85th percentile speed, and, no other unique and distinguishing factors exist, you just might have a defense. You might also want to keep an eye on the pending legislation.

Duane L. Reynolds

Minors, alcohol and underage drinking
As we approach the season of high-school proms, graduations and graduation open houses and parties, it is important to remember the basics concerning alcohol, minors and underage drinking. What may seem like a harmless or innocent circumstance in providing a minor with an alcoholic beverage can result in negative consequences lasting a lifetime to both the adult and the minor child.

Zero tolerance by police officers
The laws are simple. First, it is against the law for a person under the age of 21 to consume any alcoholic beverage or have any bodily alcohol content period. If a minor child is determined to have consumed an alcoholic beverage or have any bodily alcohol content, they can be charged with a misdemeanor leading to fines, court-ordered substance abuse counseling, and in the case of multiple violations or offenses, up to 90 days in jail. You may have heard that many police agencies have made enforcement of the “minor in possession laws” (”MIP”) a top priority. There is typically a zero tolerance by police officers who have reason to believe a minor has consumed or is in possession of alcohol.

Civil cause of action for damages
Next, it is against the law to sell or furnish alcohol to a minor. What some individuals don’t realize is that someone who furnishes alcohol to a minor, who is then involved in an accident causing bodily injury or death to another individual, is guilty of a felony punishable with imprisonment of up to 10 years. Finally, in addition to criminal penalties, Michigan law provides the ability for an individual who is injured by a person under 21 years of age who is under the influence of alcohol in an automobile accident or any other occurrence to pursue a civil cause of action for damages against a “social host” who provided the alcohol to that individual. It is also important to note that several homeowner insurance policies have, over the past few years, become much more stringent in excluding such occurrences from insurance coverage in the event a civil cause of action is filed and pursued against a social host who provided alcohol to a person under the age of 21.

Think twice before you pour
The rules are simple. The consequences are clear. Underage individuals who drink alcohol, and the persons who provide them with the alcohol, will face severe consequences. It is important to keep these important facts in mind when planning your upcoming graduation celebrations.

Dan A. Penning

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