Under the act, an employer may not discharge, demote, suspend, threaten, harass, discriminate or take any adverse employment action against an employee whistleblower for reporting or participating in an investigation of a suspected act of fraud against shareholders. If an employer violates the act, a host of remedies is available to the employee, such as having employment reinstated and receiving back pay with interest and compensatory damages that may include special damages in the form of litigation costs, expert witness fees and reasonable attorney's fees.
While the act's focus is on publicly traded companies, private companies are not immune. For example, a private company that is a subsidiary of a covered publicly traded company may be within the act's scope.
An employee does not have to do much to come under the act's protection -- it is automatic after providing an employer or the federal government information about conduct the employee reasonably believes violates the fraud provisions of the U.S. Code Title 18, any Securities and Exchange Commission rule or regulation or any federal law relating to fraud against shareholders. An employee must only have a "reasonable belief" about the company's perceived wrongdoing. Even if that belief is entirely wrong, the employee still is protected from adverse action by the employer.
The employee must only demonstrate that the whistleblowing activity was a contributing factor -- not the only factor -- to any adverse employment action taken against him or her. And a "contributing factor" does not mean "significant," "motivating," "substantial" or "predominant;" rather, it requires only that it affects the decision to take the adverse action.
Once an employee makes that showing, the employer must come forward with its position and prove by clear and convincing evidence that the same adverse employment action would have been taken even if the employee had not engaged in the whistleblowing activity.
With the weight of the act on employers' shoulders, it might be expected that charges alleging retaliation due to whistleblowing would be successful, but so far, that hasn't been the case. Of the nearly 200 charges filed since the act was implemented in July 2002, only two were found to have merit.
Does this mean that companies can forget about the act? No, because at least one employee successfully challenged his employer under the act. In that case, the company was held liable for terminating the employment of its CFO because of his protected whistleblowing activity, which included his refusal to certify a quarterly financial statement. The employee showed that his protected conduct was a factor in terminating his employment based on the short time between the activity and his termination date.
The company's attempt to show that the timing had nothing to do with the employee's protected activity was rejected because it was not believable. As a result, the company had to reinstate the CFO, provide him lost pay with interest and reimburse him for his litigation costs, expert fees and reasonable attorney's fees.
Given the risks and rewards associated with the Sarbanes-Oxley Act, employers are well-advised to review the act and its possible application before taking any adverse action against employees who raise issues regarding accounting and securities practices. Daniel L. Bell is a partner with Brouse McDowell. He specializes in employment law. Reach him at (330) 535-5711 or firstname.lastname@example.org.
But despite all this important planning, one major financial question continues to go unanswered year after year. Should the government decide how the estate taxes that each of us is likely to owe are used, or should we be the ones making that decision?
While we are alive, the government allows us to use our assets in any way we see fit. But this can give us a false sense of security, because if our estate exceeds $1.5 million in 2005, anywhere from 37 percent to 48 percent of its value already belongs to the government.
Whether the money comes from insurance proceeds or the sale of an asset is not the government’s concern. The money is going to be collected. But what so many of us don’t realize is we can decide how the government’s share of our assets will be distributed when we die if we make our wishes known.
We first have to consider the alternatives. The one that requires the least thought and effort is to let the government decide, and our estate taxes will be spent on such things as the national debt, repairing highways and bridges, and welfare.
A second alternative is to make the decision ourselves. If we do this, our estate taxes can be spent in any number of ways, such as supporting organizations that are important to us, funding hospitals and foundations, endowing colleges and universities or helping out a favorite charity. We can even direct that our tax dollars be used to benefit our friends and neighbors, because bequests to local organizations often qualify as tax deductions.
There are numerous trusts, charitable-giving strategies and ways to bequeath assets that have the added bonus of simultaneously:
- reducing estate-tax liability
- sheltering assets from creditors
- providing the retirement income needed to maintain our standard of living
- rewarding a favorite charity with a tax-advantaged gift
At the same time, these varying solutions can help us:
- avoid depletion of assets, should we require long-term nursing home care
- make sure assets are distributed according to our wishes after we die
Through the use of trusts and other strategies, individuals can gain tremendous flexibility in creating plans that satisfy their needs and provide for the needs of their heirs. But even after utilizing some of these strategies, there will still be a tax to pay. There is also an entire array of charitable giving strategies, including the charitable remainder trust.
Charitable remainder trusts enable individuals to simultaneously make a charitable gift, enjoy a tax deduction, remove taxable assets from their estate, and generate an income for themselves, their families or anyone else they choose.
There are a number of ways to begin this process. An adviser who specializes in planned giving and estate taxation can help you determine your current and future income needs, as well as how to make sure your estate is distributed as you wish. Of course, you should consult with your tax and legal advisers before implementing any specific strategies.
We all have a unique opportunity to decide how our assets will benefit others, both while we’re living and after we’ve passed on. But we also have a chance to determine how what we will owe in taxes is used. Isn’t it a decision better made by us than left to Uncle Sam?
Jan Bell is owner of Bell & Associates Planning in Atlanta, an affiliate of National Financial Services Group. Her planning strategies focus on the conservation of assets for present and future generations through business and estate planning. Reach her at (770) 399-0417 or Bell_Jan@nlvmail.com.
You may be wondering whether a click is really as valid as a signature. The answer is often yes. Two recent laws have removed many of the impediments to making online contracts legally binding: E-SIGN, The federal Electronic Signatures in Global and National Commerce Act, and UETA, The Uniform Electronic Transactions Act. Ohio is one of 28 states that have adopted some form of this Uniform Law.
These laws state, in general, that electronic signatures are as good as paper signatures. But they do not change the centuries-old doctrines governing contract formation -- we still need an offer, an acceptance and consideration. The parties also must have intended to make a contract.
The new laws simply provide a basis for the parties to agree to do business by electronic methods. The old principles still apply, and often require a review of the surrounding facts to divine the parties' expectations, but now that's being done in the online environment.
So how do you know if your click-through agreement is valid? It's not always easy, as Netscape discovered in the decision Specht v. Netscape Communications Corp. Netscape had offered free software on its Web site and provided an online contract for a user to consent to certain terms.
The court found a lack of proper assent to the online transaction because users were not required to indicate assent to contract terms prior to downloading the free software. The contract link itself was located under the button to download, allowing users to get the software without reading or agreeing to the terms.
Because it was possible to get the software without assenting to the agreement, the court ruled the terms of the Netscape agreement were not binding, specifically the terms requiring arbitration of claims. Simply put: the order in which events occur can be very important when determining the enforceability of an online contract.
Based on a review of court opinions, E-SIGN and UETA, a picture is emerging of the disputes regarding the validity of online contracts. What these authorities suggest is that the determination of the existence of a legally binding agreement is often a fact-intensive analysis. Nonetheless, certain strategies can reduce the uncertainty.
* Give customers the chance to review contract legal terms before committing to a purchase.
* Give customers a display of the economic terms of the order prior to purchase.
* Give customers an opportunity to correct any errors in the economic terms.
* Require customers to assent to the terms.
* Give customers a final chance to reject or confirm the transaction.
* Confirm the transaction prior to delivery, typically by a separate e-mail.
* Maintain transaction records to prove assent and the terms of the agreement.
Would an online transaction that does not do all of the above fail to result in a binding agreement? No, not in all cases. But depending on the circumstances, there easily could be a misunderstanding between the parties as to the legal or economic terms.
It's not surprising that there's confusion on this subject -- the idea of conducting business electronically is relatively new. But just as a verbal contract can be legally binding, so can an electronic one.
If your organization is looking to use electronic contracts as part of its regular business, consult your lawyer beforehand about the details of the process and its content. Anker Bell is an attorney with Vorys, Sater, Seymour and Pease LLP. Reach Bell at Vorys, Sater, Seymour and Pease, (614) 464-6400 or www.vssp.com.
If a buy-sell agreement has not been drawn, you may not have planned sufficiently for the future. The agreement decrees how a business, or a share of a business, will be transferred upon death, disability or retirement.
It can be between partners, a business entity and its stockholders, or an owner and a key employee, and it determines who will receive a business or its share and how the sale or transfer will be funded, and provides a means for paying personal estate taxes after the transfer.
There are three types of buy-sell agreements -- a stock redemption plan, which is an agreement between a corporation and its shareholders; a cross-purchase plan, which is an agreement usually among shareholders or partners; and a wait-and-see buy-sell plan, which offers flexibility and tax and economic advantages that take the best from the first two options. In the third scenario, a corporation can exercise its buy option or waive its right, thus triggering the cross-purchase option.
Regardless of which buy-sell plan you choose, consult with a professional to help avoid tricky tax and procedural pitfalls. Equally important, a financial professional can present appropriate funding options.
Nearly 25 percent of all business successions don't go as planned because of a lack of adequate funding to carry out the plan. The number is even higher among family businesses because, while many family business owners spell out transfer arrangements, they don't plan how to fund the transfer.
When a business owner is disabled or opts out of the business for other reasons, other owners get first crack at that share of the business. Of course, they need the money to acquire those shares. When a business or its shares becomes available because of the death of an owner or shareholder, surviving owners again get the first option to buy, even though the business interest is usually willed to a family estate.
Most buy-sell plans include the stipulation that surviving family members, if not previously involved in the day-to-day business operations, sell their interest to surviving owners. Cash received for this interest helps meet family estate tax obligations. It also ensures the business is in the hands of the people best qualified to run it.
Self-funding, borrowing and insuring a buyout are the three basic ways most plans are funded.
With self-funding, surviving owners or shareholders can pay for the business interest outright or through an installment plan. Buyout funds can also be accumulated through the establishment of a sinking fund, a savings plan in which business owners put aside money on a regular basis for the sole purpose of buying shares when they become available.
This funding arrangement helps money accumulate for the future, while at the same time earning interest. Borrowing provides the money up front, with interest payments figured into future payments.
But what if death or disability happens before enough funds have accumulated to meet the buying price? Or what if borrowing becomes tight because the departure has an adverse affect on business? And, can a deceased owner's estate afford to wait for an installment plan?
That's where insurance comes in.
Bought by either the company or by partners on each other's lives, insurance is the surest method of providing cash when it's needed. Through a variety of insurance programs such as split-dollar, in which an insured owner and other partners split the cost, tax-advantaged savings can be accomplished now while future payout is guaranteed.
Whole life insurance, which builds cash value, can also provide funds when events other than death trigger a buyout clause. Many companies sell disability insurance to specifically meet buy-sell needs.
The existence of a buy-sell plan ensures the orderly transition of a business. A proper funding vehicle ensures the money will be there when the time comes.
Plan for the future now. Your business depends on it.
Jan Bell is the owner of Bell & Associates Planning in Atlanta, an affiliate of National Financial Services Group (www.nationalfinancialservicesgroup.com). Her planning strategies focus on the conservation of assets for present and future generations through business and estate planning. Reach her at (770) 399-0417 or Bell_Jan@nlvmail.com. Securities and Investment advisory services are offered solely by Equity Service, Inc., a Registered Broker/Dealer and Investment Adviser, 1050 Crown Pointe Parkway, Suite 1000, Atlanta GA 30338. National Financial Services Group is independent of Equity Services Inc.
No matter how your business is faring in the current economy, familiarity with recent employment law changes can benefit your bottom line and reduce the risk of costly legal battles.
Generally, federal and state wage and hour laws require that hourly employees be paid at least minimum wage and an overtime premium if they work more than 40 hours in a work week.
Employees are exempt from the overtime premium requirement if they perform certain types of managerial, administrative or professional duties and if they are paid on a salary basis, but many employers incorrectly classify employees, creating costly overtime liability.
Recently, the U.S. Department of Labor proposed new rules designed to make it easier to determine whether an employee is eligible for overtime. The proposed rules update the original overtime rules, which were established more than 50 years ago.
Most employers' health benefit plans are subject to COBRA, which allows eligible employees to continue coverage in their group health plan at their own cost. The Department of Labor proposed rules requiring covered employers -- generally, those with 20 or more employees which offer employees a group health benefits plan -- to update the forms they use to notify employees and their dependents about their COBRA rights as well as the procedure for notification.
Another health care issue arises under the Health Insurance Portability and Accountability Act, which imposes privacy rules on employers' group health plans to protect individual health care information and control the way such information can be used or disclosed.
HIPAA regulations became effective for most employers in April, and in April 2005, new security rules will require policies to prevent improper disclosure of protected health information.
As our economy wanders along, some employers face staff reductions. It's best for employers if personnel are "at-will," meaning the employer or employee may terminate the relationship at any time, with or without cause.
Employers should strive to maintain the at-will status of their employees by using appropriate language in employment application forms, policy manuals and other written materials pertaining to employment-related benefits.
But even at-will employees cannot be discharged for reasons prohibited by law -- for example, because of age, sex, race, national origin, color, pregnancy and disability -- so it is important to thoroughly and accurately document the reasons for a termination decision.
Employers should also create and circulate harassment and discrimination policies and train employees regarding such policies to avoid liability for harassment and other discriminatory conduct.
Knowledge of these and other employment law issues can help employers avoid costly legal pitfalls and take advantage of the benefits of having employees. Daniel L. Bell (email@example.com) is a partner with Brouse McDowell. Reach him at (330) 535-5711.