A plan or arrangement containing non qualified deferred compensation features may have to comply with the requirements of Section 409A of the Internal Revenue Code. Non qualified deferred compensation features can be present in any plan or arrangement which provides payment for services subsequent to the year in which the services are performed. A contract providing, for example, that an employee will be paid on December 31, 2017 for performing services for his or her employer in 2016 could be subject to Section 409A. Non qualified deferred compensation features can be in bonus plans, employment contracts, plans and arrangements for the payment of retirement benefits, phantom stock and stock appreciation plans, discounted stock options, separation and retention plans, post retirement fringe benefits, certain types of split dollar life insurance arrangements, top hat plans, Section 457(f) plans, change of control agreements and similar plans and arrangements. (more…)
Did the Federal Reserve Board overstep its authority when it defined someone who guarantees the debt of another as an “applicant” for credit? It’s an issue seemingly about as sexy as watching white paint dry. Still, of all the cases on the U.S. Supreme Court’s docket during the 2015–2016 term, which was so defined by the unexpected death of Justice Antonin Scalia in February, the one that stood out most to me was Hawkins v. Community Bank of Raymore, a case that boiled down to exactly that question. That’s because Hawkins touched on so much more than what an “applicant” is or is not.
What Is Reg. B, and Why Does It Matter?
Hawkins originated in Missouri and concerned validity of Regulation B (“Reg. B”), a federal lending regulation under the Equal Credit Opportunity Act (“ECOA”) intended to guard against marital discrimination in credit transactions. Reg. B protects applicants for credit who meet a lender’s creditworthiness requirements individually from being forced to procure their spouse’s guaranty on the debt, and it arguably protects the guarantors themselves as well. In other words, if an obligor can show the only reason she was required to obtain a personal guaranty from her spouse was because she had a spouse, she likely has a defense under Reg. B. (more…)
On May 11, 2016, a new federal law protecting trade secrets (the “Defend Trade Secrets Act”) went into effect. Prior to the law going into effect, remedies for trade secret theft were governed by the laws of the various states, which laws often provided for a lack of uniformity in enforcing trade secret protections. The new federal law has many facets to it, but the major change brought about by the law is that now, companies that have been the victim of trade secret theft have the option of suing under the federal statute, which allows for federal court jurisdiction and should provide for more uniformity in trade secret protection. (more…)
A closely-held corporation can benefit from having an outside director with special expertise (e.g., strategy, marketing, HR, technology, finance and international business). However, potential outside directors are often reluctant to take on the role of a director of a closely-held corporation because of fiduciary obligations and other potential liabilities (e.g., environmental, employment discrimination, unpaid wages, unpaid taxes and regulatory liability).
A corporation can derive many of the benefits of an outside director, while avoiding many of the problems, by appointing an advisory board. An entrepreneur with a closely-held business may also be reluctant to dilute authority with outside directors, but may be comfortable with an advisory board which renders advice but has management authority or responsibility. (more…)
When it comes to corporations, LLCs, and other entities, people tend to focus on their birth rather than their death, with most available literature being on the pros and cons of different types of entities and how to go about creating one. But for reasons similar to why the birth of LLCs and corporations is a regular, ongoing need for many of our clients, so too is the death of these entities.
Of course, a classic example would be when a business ceases operations and is liquidated. There are plenty of more routine reasons why this might happen though. For example, an entity might be created for the specific purpose of holding one piece of real estate that is being developed or renovated. Once the work is done and the developer sells the real estate for a profit, what happens to the entity? Often, the entity, having served its purpose, is put through the dissolution process. (more…)
Employee Relations and Social Media Create a Toxic Mix
Businesses use social media to build their brands. Social media discussions, however, of employee relations issues frequently harm an employer’s brand. For example, recently a soon-to-be former Yelp employee blogged about her impoverished lifestyle because of the Bay Area’s high cost of living and the meager wages that Yelp paid her. She called her post Open Letter to My CEO. Yelp’s CEO then wrote five tweets about the Yelp employee’s post, including one in which he denied any personal responsibility for the decision to fire her and any connection between her blog post and her dismissal. CEO’s Response (see Feb 20 Tweets). In her own Twitter post, however, the employee disputed the CEO’s explanation for her employment’s termination: “[T]he HR lady & my manager straight up told me that the letter violated Yelp’s ‘Terms of Conduct’ and that’s why they had to let me go.” An online controversy ensued between those that supported the employee as a champion of exploited workers and others that viewed her as an entitled Millennial who needed to accept the responsibility for her situation and to overcome it by working more than one job and getting roommates. For an example of the entitled Millennial side of the argument, see Open Letter to Millennials. (more…)
Preapproved, defined contribution plans, such as 401(k), profit sharing and money purchase pension plans, must be amended and restated to comply with recent changes in tax and ERISA laws by April 30, 2016. Failure to timely amend and restate your company’s preapproved, defined contribution plan by this date could cause it to be disqualified for tax purposes causing your company and plan participants to incur additional taxes and penalties.
A retirement plan is preapproved if the Internal Revenue Service has reviewed and approved the form of the plan which an individual plan sponsor may use to amend and restate its plan. These types of preapproved plans are called “prototype or volume submitter plans”. A preapproved plan consists of an adoption agreement, upon which a company can select the specific provisions which will apply to it and its plan participants, and an underlying plan document which contains provisions that are generally applicable to all defined contribution plans. Typically, a plan administrative company, a mutual fund family, other financial institution or a law firm will submit the general form of an adoption agreement and plan document to the Internal Revenue Service for approval. Once the form of an adoption agreement and plan document are approved by the Internal Revenue Service, the firm submitting the form will have its customers or clients use those documents to amend and restate the individual plans for their companies. Almost all plans now sponsored by employers are documented on preapproved forms. (more…)
Often in my practice I’ll write documents that call upon a client who owns all or part of a limited liability company (“LLC”) or other entity to sign more than once on the same signature page. This may seem silly, but it serves an important purpose. Sometimes the dual signature is required because the client is both the manager and a member (owner) of the LLC, and sometimes it’s because the client’s signature is required both as a representative of the LLC and in his or her personal capacity. In any case, whether a person’s signature is meant to bind their company or just that person individually is an important distinction.
A key benefit of the LLC entity structure is that individuals who wish to start a business can do so with a great deal of flexibility and relatively little formality required. Providing a hybrid between the pass-through taxation of partnerships and the limited liability for owners provided by corporations, LLCs have become the dominant form of entity for most types of businesses, from mom-and-pop shops, to real estate holding companies, to subsidiaries of large corporations. LLCs are inherently simple; and yet, even simplicity has its complications. (more…)
In today’s age, people and enterprises often routinely record personal and business communications for a variety of valid reasons. However, those persons and companies residing and doing business in Illinois should become familiar with the Illinois Eavesdropping Statute (720 ILCS 5/Art. 14) before recording conversations or allowing third parties to sit in on phone calls. This statute is rife with provisions that: impose restrictions on both law enforcement personnel and civilians on recording conversations and electronic communications; impose criminal liability and civil liability for violations of the statue; and set out exemptions from that liability.
The statute received recent publicity in connection with cases involving the prosecution of citizens for recording police offers and court personnel. In 2014, in response to decisions of the Illinois Supreme Court adjudicating its core provisions unconstitutional, the Illinois legislature amended the statute. The statute has long been recognized as one of the nation’s strictest statutes criminalizing eavesdropping and the amendments do not do much to change that distinction. As noted, the statute not only criminalizes eavesdropping, it provides for civil liability for its violation. Here are some of the more significant features of the statute. (more…)
The Illinois Supreme Court recently resolved an outstanding question under Illinois law of whether the Illinois Workers Compensation Statute is the exclusive remedy against an employer by a former employee claiming damages for asbestos related injuries, including long developing cancers. In Folta v. Ferro Engineering, 2015 IL 118070 (Nov. 4, 2015), in a 4 to 2 opinion by Justice Theis, the Court specifically held that the Illinois Workers’ Compensation Act (820 ILCS 305/1) prohibits an employee from bringing an action for damages for an asbestos related cancer in circuit court against the employer, even if the employee’s injury or disease first manifests after the running of the time limitations provided under the Act.
James Folta was employed as a shipping clerk and product tester for Ferro Engineering from 1966 to 1970, where he was exposed to asbestos containing products. In May 2011, James Folta was diagnosed with mesothelioma, a cancer primarily associated with asbestos exposure. One month later he filed a civil action in Cook County Circuit Court against 15 defendants, including his former employer, Ferro Engineering, to recover damages. Folta sought relief against Ferro Engineering under several theories including negligence. (more…)