2014 Legal News

  •  Business Law – Pennsylvania. Recently Pennsylvania became one of about a dozen states to date to enact legislation allowing for the formation of “benefit corporations.” These are for-profit entities in which, among other differences from “standard” for-profit corporations, the directors are required to consider the effects of their decisions on a number a different parties other than the shareholders. As part of its formative purpose, a benefit corporation must intend to create a “general public benefit” (likely attached to a more specific “benefit” purpose; e.g.: improving public health, advancing scientific knowledge, supporting the arts, etc). New corporations can be designated as benefit corporations and existing corporations, subject to certain guidelines and rules, can amend their charter to become one. But, as even the brief information here suggests, there are significant restrictions and requirements placed on these entities, such that, at least in some instances, existing Pennsylvania corporations may be able to reach much the same “end result” as these new entities, while avoiding some of their constraints. 
  • Tax Law – U.S. – Severance payments are taxable wages under the Federal Insurance Contributions Act.  On March 25 the US Supreme Court ruled that severance payments made to involuntarily terminated employees are “wages” under the Federal Insurance Contributions Act (FICA) and are taxed accordingly. In this case the employer had made severance payments to several terminated employees and paid the employer’s FICA taxes on those severance sums. Subsequently, the company applied to the IRS for a refund of those FICA payments, arguing the severance payments were not wages. When the IRS failed to reply, the company went to court, but ultimately lost. The Supreme Court distinguished between unemployment monies and severance payments, with the latter held to be “wages” under FICA, and so, on which FICA payments are due.
  • Employment Law  – Pregnancy protection – City of Philadelphia & New Jersey.  
    • Recently Philadelphia amended its “Fair Practices” Ordinance to expressly prohibit discrimination based upon pregnancy, childbirth and related medical condition(s). Importantly, companies with Philadelphia locations must provide written notice of this new ordinance to all employees by April 20, 2014 (and to new hires thereafter). On April 1 Philadelphia issued an approved form of such notice, which, like many other employees notices, must be “conspicuously posted” in the workplace. The new ordinance may also require updates to applicable employee handbooks and HR personnel for Philadelphia operations will need to know how to handle this added requirement. Further information is available from our firm upon request.
    • Similarly, New Jersey recently amended its Law Against Discrimination (“LAD”) to include LAD protections for employees as to pregnancy, childbirth and related medical condition(s). The NJ law, like Philadelphia’s, calls for employers to provide “reasonable accommodation” to such an employee. Also as with Philadelphia’s ordinance, there are parameters and some “gray areas;” but reasonable accommodations might take the form of rest periods, modified work schedules, certain job restructuring etc. Like certain similar “disability” laws, unreasonable accommodation requests can be turned down, but careful review would be called for beforehand. And, again, like other similar laws, “retaliation” against an employee seeking to exercise rights under this law can be it own separate legal violation. Again, apprised HR personnel and good employee handbooks are important.
  • Litigation – U.S. – “Whistleblower” protection under the Sarbanes-Oxley (“SOX”) Act – Includes employees of private contractors and subcontractors. The US Supreme Court has ruled that employees of private contractors providing services to public companies (to which SOX generally applies) are protected from retaliation for exposing public company misconduct (i.e.: for “whistle blowing”). In the case, Lawson v. FMR LLC, certain private companies were engaged to advise and manage publicly traded mutual funds. When several employees of these private companies, after exposing alleged fraud, were fired by their private employers, they claimed illegal retaliation under SOX. The Supreme Court said that the proper reading of that portion of SOX shows that Congress intended to encourage the reporting of circumstances like suspected fraud, including by outside contractors (consultants, CPA’s, attorneys, etc.) engaged by SOX-covered public companies. The Court rejected a SOX interpretation that would only protect employees of public companies from whistle blowing job retaliation under SOX, noting that, among other things, certain industries (such as the mutual fund industry) contract out much of their work, such that a more narrow reading of this part of SOX might defeat its purpose.
  • Intellectual Property – Trademarks/New Internet Domain Names. – The Internet Corporation for Assigned Names and Numbers (“ICANN”) is in the process of gradually releasing what is expected to eventually be over 1300 new generic Top-Level Domain names (gTLDs). Some, of many (many) likely examples: “.technology,” “.clothing,” “.land,” “.builders,” “.club,” “.loan” and so on… . The business opportunities may be readily apparent. A related challenge may be protecting already owned trade and service marks against cyber-squatters, etc. ICANN has been providing certain relevant methods, as have some domain name registry companies. An overall business/legal strategy may certainly be worth developing. 
  • Labor Law – U.S. – Are student athletes really “employees?” What about medical students acting as hospital interns? Other kinds of “working” “students?” Where is the law headed? Why does it matter? Presently, various and conflicting decisions are being made in assorted regional offices of the National Labor Relations Board (“NLRB”). Many such decisions likely will be appealed. And it may all end up before the US “Supremes.” Why it matters: if “employees,” then employee rights under the National Labor Relations  Act (“NRLA”), with union implications, etc; if mere “students,” then not so. Much is at stake, including for potential “employers” of same.
  • Real Estate/Federal Contractors – New Affirmative Action Requirements - After a recent unsuccessful court   challenge by Associated Builders and Contractors, builders and other federal contractors (except if excluded by either the stipulated small size of federal contract(s) or the small size of the contractor company’s own workforce) must implement revised affirmative action plans geared to increasing the number of disabled persons in the workforce to 7%. Updates to job applications and new reporting requirements are part of the arrangement, as well as a requirement that the “plan” must, among other things, address related recruitment. Certain federal contractors (again, based on the value of their federal contracts and/or the size of their own workforce), must also include military veteran hiring in their revised affirmative action plans. 

Employment Law:       

  •           Family & Medical Leave Act (“FMLA”)Employee’s Right to Return to Work. The US Federal Third Circuit Court, covering Delaware, NJ & Pa (as well as the US Virgin Islands) has finally set a standard measure for when an employee’s right to return to work is triggered under the FMLA. The employee (here, ironically, working for a hospital) provided her employer with her doctor’s note stating that she was fully cleared to return to work. The employer’s rejection of the full medical clearance, and eventual hiring of a replacement worker, violated the FMLA. Essentially, once an employee submits a statement from his/her health care provider stating that he/she can return to work without restriction, the employer’s duty to reinstate the on-leave employee is triggered under federal law (assuming, of course, your company is large enough to be governed by the FMLA). If there is still uncertainty, as may often be the case, about the employee’s ability to perform his/her essential functions (a conditional return-to-work note, etc.), the employer may ask for more clarity from the health care provider. But recall, under the FMLA, the health care provider, not the employer, determines whether or not the employee is up to performing the essential job functions.       

  •          New Jersey “Bans the Box.” legislation prohibiting employers from inquiring about an applicant’s criminal history in the initial employment application process. The New Jersey law prohibits employers with 15 or more employees from posting job advertisements indicating that they will not consider individuals convicted of a crime. The law also prohibits employers from asking about a candidate’s criminal history during the application process, such as by using a yes-or-no “checkbox” sometimes found on initial job application forms, or at any other time before or during the candidate’s initial interview. Violating employers can be hit with stiff fines. Effected HR personnel should modify any contrary practices, including (as we have written before in other respects) being sure current application “forms” are legally compliant. (Now 5 states, and a number of municipalities, including Philadelphia, have adopted similar legislation.)                        

  • Business Law/IP – Non-Disclosure Agreements – Wise or Not?  Especially relevant for inventors, but used, too, in many other “confidential” pre-deal business situations,  are Non-Disclosure Agreements (“NDA’s”).  The problem is: Will an inventor/entrepreneur either turn off potential investor(s) and/or too much slow the investing process if first insistent on a signed NDA/  Many reports suggest that, especially in the fast-moving tech work, NDA’s are a thing of the past. But the disclosing party ought to think hard before casting off this potential protection from concept/product “theft.”  Things to consider: Is your info truly “confidential?” To whom are you disclosing/can you generally “trust” that party? How quickly is the market moving for your goods/services? Can you perhaps disclose “just enough” to initially interest an investor group without an NDA, then maybe get one signed in the next discussion round? And, for inventions, would a provisional patent be wise to consider? Be practical, yes; but also be smart.
  • Franchise Law – Franchisor Held Not Liability for Acts of its Franchisee’s Personnel. Although the decision was in a California case, with CA being often so “pro-plaintiff,” it may have import nationwide. In a suit for sexual harassment against her employer, which was a Domino’s Pizza independently-owned franchisee, the plaintiff also sued the franchisor, Domino’s Pizza. She alleged that the Dominos franchisor exercised sufficient control over its franchisees to be considered vicariously liable for the acts of personnel of its franchisees. The lower court bought into this and refused to dismiss Dominos Pizza/franchsior from the suit, citing control elements and also suggesting that the franchisor had involved itself in employment decisions of its franchisee. The CA Supreme Court  reversed, finding the franchisee had implemented its own sexual harassment policies, made its own hiring/firing decisions, etc. The franchisor Dominos was, consequently, let out of the suit. The elements of business control in the franchise model should be carefully considered, documented, and followed.

  • Business/Fiduciary Law – ESOP’s & Fiduciary Duties. The US Supreme Court this year clarified (at least somewhat …) the duty of prudence that employee stock ownership plan (“ESOP”) fiduciaries owe to plan participants. The “presumption of prudence” will not exist and ESOP fiduciaries, instead, are subject to the same standard of prudence and liability as any ERISA fiduciary, importantly except for the duty to diversify investments. This issue in particular arises because ESOP’s are designed largely for investment in the stock of the employer company, but employees can get pretty angry when their retirement accounts suffer large losses as their ESOP continues to purchase declining value company stock. In a challenge to such an investment practice by their ESOP fiduciaries (also company officers, as is often the case), a group of ESOP-invested employees argued that their fiduciaries breached their duties of loyalty and prudence found in the Employee Retirement Income Security law (“ERISA”). The Supreme held that there should be no “presumption of prudence,” indicating that ESOP fiduciaries are subject to the same duty of prudence as any other ERISA fiduciary. However, since an ESOP is not a diversified plan by its very nature (again, often investing almost entirely in the employer’s stock), the high court recognized that the statutory exemption for losses due to a failure to diversity assets was to remain in place.

  • Real Estate Law – Pennsylvania. “Good news” for home builders.” “Bad news” for subsequent purchasers. The Pa Supreme Court, in a case of first impression, has ruled that home buyers, other than the buyer who buys directly from the builder, cannot maintain a suit against the builder for breach of the implied warranty of habitability. In this case the second owners of a home alleged that water infiltration through windows resulted from original construction defects. But, as these owners had no direct legal relationship with the builder, the Court rejected their “habitability” claim.  Of course, persons buying new homes directly from the builder are not impacted by this ruling.  

  • Health Care Law – We have written in prior Legal Updates about the National Labor Relations Board (“NLRB”), which administers the National Labor Relations Act (“NLRA”), and its incursions into non-union workplaces, including as to matters that restrict the ability of employees to discuss certain matters, i.e.: matters sometimes deemed “confidential” by management (e.g.: compensation packages, etc). In a rather complex case coming from Kansas, but dealing with the NLRA – which has national application – a hospital system deemed certain alleged patient care investigatory matters as confidential. The hospital, which was unionized, did so in large part based on its interpretation of what seemed to be relevant, and pretty clear, state law, which mandated confidentiality. The “net net” at the hospital level was that 2 nurses charged with violations of patient care standards were denied the presence of union reps at their peer review hearings and those reps were denied access to information on the particular allegations. The NLRB Judge was not impressed with the hospital’s reliance on the state law and held that the employer violated the nurses’ right to engage in “protected, concerted activity” under the NLRA (by barring the union reps from the hearings and from the case information). So, once again, and unionized or not, it is wise to be careful about deeming certain personnel matters as confidential- sometimes what can be “confidential” is as “clear-as-mud.”


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