2012 Legal News



1. Tax Law - On the very edge of the year-end “ fiscal cliff,” Congress passed and the president signed into law the “American Taxpayer Relief Act of 2012.” The Act includes changes to the federal estate, gift and generation-skipping transfer (“gst”) taxes. Notably:

  • The marginal federal estate, gift and gst tax rate will go up to 40% from 35%;
  • In 2013 the applicable exclusion amount for estate and gift tax purposes, as well the gst exemption, will be $5 million, indexed for inflation (approximately $5.25M in 2013)
    •  State death taxes will continue to be deductible in calculating the federal taxable estate;
    •  The unified credit or exclusion (or “exemption”) will remain portable for estate and gift tax purposes, but not for gst tax purposes; and
    • The changes are made “permanent” to the extent that the sunset provisions contained in prior law (which eliminated its provisions at a date certain; hence the “cliff”) are not contained in the new law.

2. New Pension Plan Disclosure Regulations (ERISA)In order to claim certain Federal ERISA law protections, and also to avoid potential personal liability exposure for plan fiduciaries, covered pension plan sponsors must comply with sponsor-to-participant new fee disclosure requirements instituted by the U.S. Department of Labor. The date for plan sponsors to provide the initial disclosure to plan participants is August 30, 2012 Plan sponsors must take steps to make participants aware of their rights, responsibilities and options in their pension or profit-sharing plans and sponsors are also generally responsible for their vendor’s noncompliance. The new disclosures are quite specific and must also be presented via formatting called for in the regulations.


3. Employment Law – Independent Contractor or Employee? As we have written (and “warned”) of before, this topic is a “hot one,” particularly with the IRS, which stands to collect lots of money from companies that dodge payroll taxes by misclassifying workers. (See, for example, our section from 2011 below, describing an “amnesty” program the IRS had established.) On the other hand, properly established and maintained independent contractor relationships can be quite valuable for the participating parties. One topic we have seen many times in that regard is whether/how to restrict the contractor as to company confidential materials and customer contacts. Best practices may depend on each circumstance, and advices from your professional advisors; but drawing up sensible restrictions as to use and disclosure of information and carefully crafted non-solicit and/or non-compete terms, so as to be protectiv,e but not at the same time in violation of a legitimate independent relationship, can be very much in a company’s short and long term interests.


4. Trademark Law - An Arizona has filed an action to cancel Google’s trademark protection, arguing that the word “Google” has become merely a generic term, meaning simply “to search for something on the Internet.” If a term becomes “generic” – as in, no longer a source identifier – it can lose its trademark protection. Think “Band-aid,” “Kleenex,” and “Aspirin.” “Google,” in fact, has been recognized by several dictionaries to be a transitive verb now, defined as “to search on the Internet.” We’ll see what happens to the word “Google” as far as a trademark; but the word-to-the-wise here is be sure you know how to properly use and protect your trademarks – and, when unsure, consult your legal counsel.


5. Franchising and Social Media - Social media often provides inexpensive promotional opportunities to franchisors and franchisees, but it is not without substantial and inherent risks, including franchisor compliance rules in regulation states. Franchisors may attempt to gain a clear understanding of the logistics of each social media venue and determine which websites can be most beneficial to their business. Franchisors often might establish not only rules and restriction regarding social media use, but also suggest the ways in which social media can be used most effectively. Technology and social media are constantly changing and evolving, so it is important that a franchisor’s social media policy is flexible enough to accommodate these changes. Franchisors also often monitor social media websites, even if the franchisor chooses not to use the sites for advertising, as it is may be an important way to learn what consumers and competitors are saying about the business. Constructing a useful and legally compliant social media policy can potentially be key in capitalizing on this cost effective form of advertising.


6. Employment Law – NLRB Update - Last year we wrote about the National Labor Relations Board’s 2011 rule that required employers to notify employees of their rights under the National Labor Relations Act (as to unionization rights, rights to consider unionizing, etc.). At the time, the rule was not going to be effected until January 1, 2012. The enforcement of the rule was delayed until April 30, 2012, but has again been suspended, pending court review. It is believed by some commentators that the NLRB is promoting the use of the Labor Relations Act as an enforcement mechanism for unrepresented employees, even in the absence of union organizing. The NLRB has also tried to pass what is commonly known as the “Quickie Election” Rule. But push-back to that has also been strong. That rule, designed to shorten the time for union representation elections, was struck down by a D.C. Federal Court because it did not receive the requisite three votes from the five-member Board. As these items indicate, the NLRB has significantly shifted its focus to non-unionized workplaces, and employers should be aware that the manner in which they enforce their policies might now receive opposition from administrative agencies, the courts, and the NLRB. (If you oppose these recent NLRB forays, you might want to let your federal legislators hear from you.)


7. “Social Media” – Recently, the CFO of fashion retailer Frachcesca Holding Corp. was fired, apparently for “tweeting” information about his company on social media sites prior to it being released to the public, an affront to federal SEC regulations respecting publically traded companies. Social media postings from company employees need to comply with various regulations as may be applicable to your business (think SEC, FTC, FDA, NLRB, etc). A company’s social media policy might also consider the following:


  • Mostly anything written on the Internet can be traced back to the author;
  • Employees generally cannot be prohibited from posting on social media sites using the company’s name or trademark for noncommercial use;
  • Employees generally cannot be prohibited from posting on social media sites regarding complaints about wages, terms and conditions of employment, or working conditions; and
  • Employers may be legally liable for asking employees to disclose their usernames and passwords for social media sites. (In fact, a number of states have recently passed legislation to that effect.)

As technology is constantly expanding and evolving in the workplace, it can be critical for employers and employees to understand and consider the legal implications surrounding the use of social media. A well developed company social media policy can be very useful.


8. Health Care Law – US Supreme Court Begins Long-awaited Arguments –Today (3/26/12) marks the outset of an almost unprecedented allotment of “argument time’’ by the US Supreme Court this week on challenges to the federal Patient Protection and Affordable Care Act (“Act”), a/k/a “Obamacare.” (The last time the high court gave one matter this much time was 47 years ago.) The challenges arise in the context of 3 consolidated lawsuits respecting the Act and the major issues are virtually all fundamental US Constitutional issues, going very much to the core of what our federal government can/cannot compel a citizen to do, namely:  

            a. Whether the Act is beyond Congress’ powers under the US Constitution because it includes a mandate that individuals must obtain health insurance or pay a monetary fine; and (2) whether the federal “Anti-Injunction Act” bars suits by challengers to the Act since, if the “fine” in the Act is a tax, someone must first be assessed the “tax” before challenging it.

             b. Whether Congress may make federal Medicaid funding contingent upon States providing expanded health care, so forcing States into accepting conditions that Congress would otherwise be unable to directly impose; and (2) whether the individual mandate that requires Americans to purchase health insurance, if deemed unconstitutional, may be  severed from the rest of the Act, and

            c. Whether the entire Act must be invalidated because its mandate requiring individuals to obtain health insurance is non- severable from the remainder of the Act (the Act failing to include a typical “severability” provision).

Among the parties challenging “Obamacare” are a majority (26) of the States and the National Federation of Independent Business.

Today’s argument was essentially limited to whether the Anti-Injunction Act, dating back to 1793, bars the Court from going any further at present in examining the health care law. (See “tax assessment” topic above.) Observers of today’s argument say the Court seems unlikely to rule that it cannot go forward with its examination. So, it looks like the rest of the arguments will continue this week (for 3 days) as scheduled.


9. Contract Law – No “success” needed for “success fee” — A recent NY court decision, involving the shuttering of the Borders bookstore chain, held that a broker was entitled to its commission on the liquidation of about 400 Borders stores even though it’s principal engagement was to find a going-concern buyer and it had little to do with the eventual liquidation. The investment banker/brokerage firm, Jeffries, was challenged by the Borders bankruptcy creditors committee when it sought its fee, with the committee arguing that the eventual liquidation was handled by other parties, not Jeffries. While that was correct, and Jeffries, despite its significant work, could not obtain a going-concern offer, the committee still lost its case. That’s because Jeffries’ engagement letter provided for two fees due to it: $5.5M if it obtained a going-concern buyer or $1.5M if Borders was sold through liquidation. Nothing in the engagement letter – a legal contract here – required that the broker handle the liquidation. Instead, Jeffries got the lower fee if: a) it ran a sale process with respect to Border’s assets; 2) it marketed Borders’ assets with respect to an asset sale; or (3) it provided material services in connection with the sale or liquidation of such assets. Its efforts at sale satisfied some if not all of these criteria.

            One “moral’ here – contract terms really do matter, even in the context of sometimes seemingly less “substantive’ engagement letters.


10.  Employment Law – “Wage and Hour” lawsuits continue to multiply – The number of employee lawsuits against employers based on the federal wage and hour laws were up more than15% between 2010 and 2011, according to federal judicial caseload statistics. Most of the filed cases are collective actions, rather than single plaintiff claims, but over the last 10 years, all such federal cases, collective or not, have increased more than 325%. These cases are based on the long-standing federal Fair Labor Standards Act, which covers matters such as minimum wages, child labor laws and, where employers often get significantly “hung up,” overtime pay eligibility.

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