Revisions to receivership statute in Ohio brings clarity to the process

Changes to Ohio’s receivership statute will expand the circumstances under which a receiver may be appointed, as well as authorize “free and clear” sales, which is perhaps the most anticipated aspect of the revision, says Matthew A. Salerno, a director at Kegler, Brown, Hill + Ritter.

“Seeking approval of ‘free and clear’ sales is not new, but the explicit authority to do so was not found in the current version of the receivership statute,” Salerno says. “The revised statute expressly provides a receiver with the ability to sell property free and clear of liens through a private sale, a public or private auction, or by any other means that the court determines to be fair.”

These changes are scheduled to take effect March 23.

“The revisions create certainty with respect to what a receiver can do, they create clarity of process and in theory, you’re creating some guidelines and procedures that should make the process more efficient for the parties involved,” Salerno says.

Smart Business spoke with Salerno about the revisions to the statute and the role receivership plays in the business sector.

What factors drove the new revisions to Ohio’s receivership statute?

As the number of receivership cases grew, so did concerns about clarity of process. Differing interpretations of a receiver’s ability to sell property developed. All of this contributed in some way to the changes.

For a lot of years, people have said receivership is sort of like bankruptcy outside of bankruptcy. The bankruptcy code and the case law that has come out of it is very well developed. Questions about what you can and cannot do have already been litigated, thought through and dealt with. More specifically, the ‘free and clear’ sale process in bankruptcy is well developed. This is very useful because the more certainty you can offer, the better for all involved.

Buyers want to know that they are getting what they are getting free of claims against the asset that might have been held against the prior owner or the seller. Sellers want to know that the process used to sell the property was valid and authorized. Title companies want to be able to insure title without concerns about process or the authority underlying the sale. Lenders and creditors want an efficient and effective process. Bankruptcy gives you that, but it can be expensive.

There are quarterly fees for a company operating while in bankruptcy. There can be legal fees for parties that don’t exist in receivership proceedings. It follows logically, then, that receiverships have grown in popularity as a restructuring alternative to be considered.

But unlike the bankruptcy code, the Ohio receivership statute was relatively short. The translation most people took from it was you can do pretty much whatever the court says you’re allowed to do. The changes to the statute provide more clarity and guidance.

How have the circumstances under which a receiver may be appointed been expanded?

Under the revised statute, a court can appoint a receiver if the mortgagor has consented or there has been an assignment of rents and leases. Furthermore, a receiver can be appointed to manage the affairs of a corporation, a partnership, a limited partnership or a limited liability corporation.

In addition, ‘priority consideration’ is to be given to the proposed receiver that is suggested by the party seeking the receivership.

How does the revised receivership statute help the business sector?

Ohio’s revised receivership statute can help the business sector because it provides a process that can be used to stabilize or revive a business. It can be used to preserve or protect asset value, or to continue business operations in order to find a way to create value on a go-forward basis. It can be used to buy and sell property, and to protect collateral and creditors.

If you need to make use of a judicial proceeding for any of these purposes, then you should be happy with the changes to Ohio’s receivership statute.

Insights Legal Affairs is brought to you by Kegler Brown Hill + Ritter

Careful when performing employee background checks

Employee background checks are an effective way for an employer to learn more about a job applicant. Inquiring about a person’s education, general work history, criminal records, credit history and references may be important, but obtaining such information could lead to serious legal issues. There are, however, ways to avoid trouble with the law and get the necessary information.

“Employers should obtain proper signed authorization from applicants before conducting employee background checks or investigations,” says Alfredo Sergio, an attorney in the Employment Law and Commercial Litigation groups of Semanoff Ormsby Greenberg & Torchia, LLC. Doing so, he says, may save a company from defending itself against a lawsuit.

Smart Business spoke with Sergio about background checks, social media and the importance of obtaining consent.

How should an employer go about obtaining background checks?

Employers often want to obtain consumer reports about potential employees’ credit, financial history, education and general background information. Because many of these areas of inquiry fall under the Fair Credit Reporting Act (FCRA), it’s important for employers to inform applicants what type of information they are going to seek and then get written permission from the applicant before obtaining it. Also, under FCRA, the applicants must be provided with a summary of their rights.

If an employer plans to take action based on the information they receive — for instance, not hiring someone because there is a blemish on their record — the employer must notify the applicant that they are not being hired because of something that was identified on a background check. A procedure should be in place where the applicant can be provided an opportunity to clarify or explain the situation within a certain timeframe.

How should criminal history background checks be handled?

In Pennsylvania, the Criminal History Record Information Act defines what employers are legally permitted to ask applicants regarding their criminal history. In many cases, in order for criminal history to be considered in the hiring process, candidates’ transgressions must be related to their job function — for instance, if someone with a drunk driving conviction is applying to be a truck driver.

Also, it is important to be careful when asking about criminal history in the beginning stages of the application process. Some states and municipalities have adopted ‘ban the box’ initiatives that make it illegal to ask an applicant about arrest or conviction information early-on in the application process. In such jurisdictions, the employer should notify those applicants who are top contenders for a position that an offer will be contingent upon passing a background check.

Can employers use social media when conducting a background check?

Some employers are turning to the Internet to find out more information about their applicants. It is important to note, however, that an employer must handle information discovered through social media appropriately and with caution, as findings related to an applicant’s race, age, gender identity or preference, religion or disability could lead to allegations that the consideration of such personal information in the hiring process amounts to discrimination. Social media can be used as a tool during a background check, but it needs to be used carefully.

Can you call an applicant’s previous employer for a reference?

Yes. And in some states, like Pennsylvania, a former employer is protected by law when it provides an honest assessment of their former employee. Many employers, however, choose to give just the most basic of information, such as dates of employment, confirmation of title and salary information, to avoid a potential defamation claim.

What advice would you give about asking for employee references?

Laws regarding employee references vary from state to state. Employers should only obtain the background information they reasonably believe they need to assess an applicant without overreaching, and obtain authorizations from applicants before conducting background checks.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

How employers can boost success rates when hiring foreign workers

American companies, small and large, need foreign workers to fulfill critical needs in the technical, medical and business sector. Additionally, many CEOs would like to have a more diverse workforce, including at the board level.

However, they are often hesitant to recruit foreign talent “because they view the immigration process as an impediment,” says Isabelle Bibet-Kalinyak, an Immigration and Health Care Corporate Attorney at Brouse McDowell.

“This is especially true in the manufacturing sector. The technical and medical sectors just have no choice because they need that talent to remain competitive in their respective fields.”

Also, U.S. manufacturers can easily and cost-effectively take advantage of social media to achieve their goal of a more diverse workforce.

Smart Business spoke with Bibet-Kalinyak about opportunities for U.S. companies to recruit and retain foreign professionals and how the immigration system protects American workers.

What challenges does the U.S. immigration system create for U.S. employers?

The most challenging limitation resides in the numbers. There are nearly 900,000 foreign students in the U.S. today. Collectively, this group contributes to research and innovations critical to American competitiveness. Yet, there is a strict annual quota of 85,000 non-immigrant (H-1B) visas to hire professionals. From this number, 20,000 visas are reserved for people with a master’s degree or higher level of education and the other 65,000 are earmarked for people with at least a bachelor’s degree or equivalent.

Even if not all foreign students want to stay and work in the U.S., it is easy to see the discrepancy. U.S. companies and universities are missing out on talented professionals who can help their mission.

The filing process for H-1B visas runs from Oct. 1 to Sept. 30. Employers can begin filing six months in advance, hence the big rush leading to April 1. This year, once again, visas are expected to run out in one week. About half the petitioners will obtain an H-1B visa, while the other half has to go through the entire process again next year with the same odds.

Importantly, there are some exemptions. For example, a foreigner is only subject to the H-1B cap one time, even if he or she changes employers. Additionally, entities like universities or nonprofit hospitals affiliated with a university or college are also exempt.

How should companies approach hiring foreign nationals?

The most common type of visa for professionals is the H-1B visa. H-1B beneficiaries can only work in the U.S. for a limited time, typically six years, and can only work for the U.S. company that sponsored them. Yet, most of them dream of long-term employment in the U.S. and permanent immigration, i.e. obtaining a green card. U.S. employers spend considerable time and resources to recruit foreign talent, but many fail to retain these employees in the long run.

Our most successful clients address immigration expectations upfront. They set a clear path for advancement and lay out contractual obligations, including financial and administrative support for the green card, as applicable.

Although there is a cost to petition for a green card, after you have invested in recruiting and training an employee, the opportunity cost of losing that employee is disproportionate.

Doesn’t this take jobs away from U.S. citizens?

The system is designed to protect the jobs of U.S. workers. The government has created a process to ensure that employers cannot displace American workers to take advantage of foreign labor.

Employers must comply and attest to strict requirements before proceeding with sponsoring a foreign worker for employment in the U.S., whether temporarily or on a permanent basis.

These safeguards include notification to labor union representatives, mandatory internal postings of the job opening (including salary information) and, in the case of permanent resident petitions, print and online advertisement for the position.

Insights Legal Affairs is brought to you by Brouse McDowell

New relations with Cuba could mean opportunity for American businesses

The recent White House announcement of a new course in Cuba relations sparked much discussion and it would be wise for American business owners to pay attention to what happens next, says Luis M. Alcalde, Of Counsel at Kegler, Brown, Hill + Ritter.

“Only Congress can end the embargo, but the new regulations published on Jan. 15 by the Office of Foreign Assets Control greatly ease travel to Cuba and create new business opportunities for the U.S.” Alcalde says. “Businesses should take a look at these new opportunities to see how Cuba might fit into their short- or long-term objectives.”

Cuba has a population of 11.2 million people about 100 miles from the Florida coast.

“Even with the embargo in place, Cuba gets about 2 million tourists a year,” says Alcalde. “Tourism could easily double if the embargo is lifted and development takes place there.”

Smart Business spoke with Alcalde about the impact the new policy could have for American businesses.

What type of U.S. commerce exists in Cuba today?

Today there is very little U.S. commerce with Cuba, with the exception of agricultural sales, which have been permitted for a number of years. U.S. agricultural sales to Cuba peaked in 2008 at around $700 million but recently dropped to about $350 million.

The new regulations ease payment issues with Cuba somewhat and there is hope it will lead Cuba to buy more U.S. food products. An end to the embargo would lead to more trade between both countries, improving the Cuban economy and growing Cuba’s purchasing power for all types of U.S. goods and services. The new regulations significantly raise the permissible remittances that can be sent to Cubans in Cuba and allow other financing for private entrepreneurs. All of these steps should lead to increased commerce.

How will the new regulations affect America’s relationship with Cuba?

Americans will now find it much easier to travel to Cuba to market, negotiate, deliver and sell agricultural products, telecommunications services and equipment, as well as other services and goods to small entrepreneurs.

They will be able to do professional research, attend professional meetings, put on performances and athletic events, and participate in educational and humanitarian projects in Cuba. Americans will also be able to spend more money while in Cuba. When other business and regulatory matters are worked out, Americans will be able to use credit and debit cards in Cuba, and fly to Cuba on regular airlines as opposed to charters.

For the first time since the 1960s, certain products produced by independent Cuban entrepreneurs will be exportable for sale in the U.S.

Travelers returning to the U.S. will be allowed to bring back up to $400 worth of Cuban goods including $100 worth of rum and cigars.

How might the new policy affect telecommunications and financial companies?

The new policy allows American companies to sell telecommunications equipment, software and services to Cuba. Cuba greatly needs better mobile and Internet communications. From the perspective of American business, it could be a good market. Cuba needs to vastly improve its communications and the market can only go up from practically nothing to getting 11 million people on the Internet and wireless devices.

The U.S. announcement may not seem so benign in Cuba. Politics are involved in terms of empowering the Cuban people. Concerns about spying and subversion may slow a process that is clearly needed to improve commerce and trade.

On the new financial openings, U.S. banks and credit card companies are going to study the new regulations very carefully. Moreover, they are going to want assurances from the U.S. government that they are not going to get into a compliance morass by allowing American credit and debit card usage in Cuba. If the compliance side is too burdensome, they will avoid Cuba completely even if some transactions are authorized. Regardless, another new market has just opened for U.S. banks in the Caribbean.

Insights Legal Affairs is brought to you by Kegler Brown Hill + Ritter

How the right to marry raises issues regarding real estate ownership

On May 20, 2014, a federal judge declared in Whitewood v. Wolf that Pennsylvania’s statutory prohibition of same-sex marriages was unconstitutional. Reactions to Whitewood were rapid, fervid, and diverse. But the real-estate implications of the decision have been largely overlooked.

“From a real-estate perspective, the right to marry presents both pluses and minuses for same-sex couples,” says William Maffucci, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Maffucci about the positive and negative impacts that Whitewood has on same-sex spouses with regard to real estate.

What’s the good news for same-sex spouses with regard to real estate?

The principal benefit of marriage with regard to the real property in Pennsylvania and most other states is that married couples can own property through a distinct estate known as a ‘tenancy by the entirety.’ This has a few advantages. Chief among them is that the property so held is immune from creditors who have claims against only one of the spouses. A judgment by such a creditor against only one spouse does not create a lien on the entireties property, so the married couple can sell it without having to pay off the judgment.

Unmarried couples can own property only as ‘tenants in common’ or as ‘joint tenants.’ In both cases a judgment against one of the owners does effect a lien upon that owner’s interest, and the couple can’t sell the property free and clear of that lien without paying off the judgment or reaching some other accommodation with the creditor. Worse, the holder of a judgment against one of the owners has the right to levy upon and order a sheriff’s sale of that owner’s interest in the property.

The Whitewood decision presented the question of whether same-sex spouses can hold property as tenants by the entirety. But the decision did not focus on ownership issues  — whether of real or personal property — at all. The judge examined only whether Pennsylvania’s prohibition on same-sex marriage was constitutional. The question of whether same-sex spouses would have the right to own property as tenants by the entirety was left for other courts, or the legislature, to decide. That has not happened yet in Pennsylvania.

Is there any doubt as to what the answer will be, once the question is formally decided?

I have posed that question to hundreds of real-estate attorneys in Pennsylvania and elsewhere, and most predicted that, yes, eventually the courts or legislature will recognize that same-sex spouses can hold real property as tenants by the entirety. Yet some have hedged their bets. When drafting deeds to real property to be held by same-sex spouses, they have included a contingency clause. It specifies that the parties intend that the property be conveyed to the same-sex spouses holding as tenants by the entirety but also that, in the event a court refuses to recognize that same-sex spouses have the right to create an entireties estate, the parties would hold title as joint tenants with a right of survivorship — a form of ownership that, for nonmarried couples who are confident that they will live together for life, is generally preferable to a tenancy in common.

What’s the bad news that Whitewood presents, from a real-estate perspective, to same-sex couples?

The principal disadvantage of the Whitewood decision for same-sex couples who choose to marry does not regard real estate directly: By marrying, same-sex couples might thereby subject themselves to the ‘marriage penalty’ that has long applied to married couples under the Internal Revenue Code. Pooling their income and filing jointly often bump the spouses into a higher tax rate than the rate that would have been applicable if both had filed as single persons.

But marrying has other negative tax implications that do have particular relevance to real estate. They regard the annual deductibility limits for passive rental-real-estate losses; the annual maximum deductibility limits for capital gains, including gain on the sale of real estate; maximum mortgage-interest-deduction-debt limitations; and the annual net-investment-income exemption for net investment income tax. These are complicated provisions that same-sex couples who own real estate and who want to get married should discuss with their tax advisers.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

Construction projects must include strong planning to achieve your goals

Construction contractors understand that a project is a fluid operation requiring a great deal of planning and leadership to arrive at a finished product that meets expectations. It’s a detail that companies that aren’t in the construction industry can easily forget.

“Larger companies do a lot of building and expanding, so they have internal expertise on how to do it right,” says James T. Dixon, a partner at Brouse McDowell.

“But middle market and smaller companies have their core competency and are focused on that. They don’t have somebody in-house who knows how to build anything.”

Those who don’t seek help in the early stages of a project often find themselves reaching out to their legal counsel when problems arise.

“An ounce of prevention is worth many, many pounds of cure,” Dixon says. “Legal should be involved at the very beginning.”

Smart Business spoke with Dixon about the right way to manage a construction project.

What are some keys to effectively launching a construction project?

There are a number of questions you need to ask before you move forward with a construction project. What is your goal and how are you going to get there? Be as clear as possible regarding what you want and what your constraints are in terms of budget and timing.

What is your company’s internal capacity to manage this project? Take a hard look at your level of experience and sophistication when it comes to construction and then build a team around that. Put together a team that can manage the project and ensure it is moving along effectively. This team also needs to be able to respond when problems come up so that those issues can be addressed and the project can continue.

This region has many well-qualified companies that serve as owner’s representatives and construction managers. For companies that lack sophisticated internal capacity, these professionals can steer you in the right direction.

What are the key components of your project management team?

In addition to design and construction experience, your team is going to require legal, financial and even transactional real estate expertise.

Think hard about not just assembling the team, but once the team is in place, deciding how the project is going to be delivered. There are a wide range of options for project delivery systems. You could go with the traditional plan where you work with an architect and then a builder or use one company that handles both phases. It’s another reason to get legal expertise, and more importantly project management expertise at the outset. Calling an architect or builder first, depending on their experience, can lead to a project delivery system that may not be the best fit.

How can the contract document process create trouble?

The forms commonly used in the construction industry do not protect the owner’s interest without significant modification.

The most often used family of contract documents is developed by the American Institute of Architects. For example, the standard terms and conditions include a waiver of consequential damages that is written as a mutual waiver. But that waiver often means much more to the owner.

Let’s say your project has a completion date of Dec. 31 and the builder misses that by four months. You’re a manufacturing company, and during that time, you are not able to produce materials. You will have lost profit for an additional third of the year’s production. If you signed a consequential damages waiver, you likely will not be able to recover that lost profit from the builder. This is just one example of how the documents must be modified to protect your interests.

What can be done to avoid this fate?

Do as much internal analysis as you can beforehand to guide you in selecting the right team. Turn to your corporate attorney, who may have a partner experienced in real estate acquisition or construction. Or, you may know an architect or a builder who can get you some feedback. To avoid problems, create a careful plan and build the right team.

Insights Legal Affairs is brought to you by Brouse McDowell

The state’s new minimum wage law may cause employers to fret a bit

On July 1, 2014, California’s minimum wage increased to $9 per hour — but there are some related issues that could have a larger impact on businesses than the increase in wages.

The minimum wage increase not only raises regular and overtime wages, it also affects the classification standards of “overtime exempt” employees. In most cases, exempt employees must be paid a monthly salary that exceeds at least twice the minimum wage.

“The concern is that employers will not take that into account. Because exempt employees are not hourly, employers may not go back and see whether that salary translates to at least the minimum wage per hour,” says Wendy E. Lane, a partner at Greenberg Glusker.

Smart Business spoke with Lane about how the new wage law is affecting California employers.

What possible hazards should employers be aware of with the new wage law?

The law carries a huge potential for class action liability. The minimum base salary for employees to be exempt of overtime, meal and rest period obligations under three of the major exemptions — administrative, executive and professional — has now been raised because the minimum salary for those exemptions is based on a factor of two times the minimum wage.

As of July 1, in order to qualify for these exemptions, an employee must earn $3,120 per month, which is $37,440 annually. Employees must also meet certain ‘duties’ criteria in addition to being paid a salary of at least double the minimum wage.

The liability is that bigger companies with a large number of exempt employees all in the same boat likely could have a potentially sizeable class action suit.

How should employers examine their exempt employee situation?

While there are many factors that go into determining if an employee is exempt, including their level of expertise, training, and discretion, if they don’t meet the minimum salary requirement everything else is irrelevant.

A high-ranking employee could be in charge of other employees and make key company decisions. But if  he or she is not meeting the minimum salary test, the employee cannot be classified as exempt.

Then, if the employee you had treated as exempt worked more than eight hours in a day or more than 40 hours in the week, they were working overtime, but you hadn’t been paying them overtime. They probably worked through at least some of their meal breaks.

There are considerable penalties for having not properly paid overtime or provided the meal breaks because, in effect, you have been treating a nonexempt employee as exempt.

These cases are even harder to defend because most employers may say, ‘If they are exempt, we don’t need to track their time.’ Well, how do you prove there was or was not overtime if you don’t have timesheets? It suddenly becomes much more difficult, and the presumption is against the employer under California law.

What impact could the new law have on a company’s bottom line?

Obviously, the additional cost is a concern to employers, but it needs to be weighed against the cost of retraining a person. Let’s say that some employees were let go in order to pay for this raise at the lower level. Retraining somebody also carries costs.

There are also arguments that as people make more, they may no longer have to choose between food, rent or medicine — and may have more cash to contribute toward prevention and health care — which may improve the employee’s status with respect to attendance issues and sick time.

Employers must find ways to use the minimum wage increase to their benefit as this may be just the first of several minimum wage increases that will be going into effect.

Employers should consult with counsel as they make difficult decisions, such as lowering salaries of employees or terminating employees to be able to afford this change in the minimum wage.

Companies need to ensure they don’t make personnel decisions that will inadvertently expose them to greater liability (such as for claims of discrimination or retaliation) because they are not looking at the big picture as to whom they are selecting.

Insights Legal Affairs is brought to you by Greenberg Glusker

How to comply with the law when creating a sweepstakes or contest

Marketing promotions such as sweepstakes and contests can be a great way for businesses to create buzz and increase brand awareness. Businesses must be careful when putting these promotions together, however, as giveaways are subject to many overlapping federal and state laws, the latter of which are unique in each state.

“Failure to comply with laws and regulations applicable to promotions can lead to civil and criminal penalties,” says Julia Richie Sammin, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Sammin about the legal aspects of business promotions and how an attorney can help with the process.

What legal concerns should businesses be aware of when sponsoring a promotion?

The law distinguishes between lotteries, sweepstakes and contests. Lotteries combine three elements: a prize, chance — i.e., the winner is selected randomly — and consideration from the entrant. They are illegal in all 50 states unless run by the government or, in some circumstances, by a charitable organization.

Sweepstakes and contests are legal, provided the sponsor complies with the legal requirements. Sweepstakes involve chance and a prize, with no consideration required.

Contests eliminate the element of chance and award a prize on the basis of skill, as in a photo contest or essay contest, and often require consideration from the entrant. ‘Consideration’ in this context does not just mean the payment of money; giving value or undertaking a significant effort, such as making a purchase or sitting through a lengthy sales presentation, can also constitute consideration.

There are different rules and regulations that apply to sweepstakes and contests, so businesses must clearly define their giveaways in order to follow the correct regulations.

How should a business go about creating the rules for a promotion?

Perhaps the most important element of implementing a promotion is drafting the official rules, which will contain all the relevant information about the promotion, such as how to enter, prize description, how a winner is chosen, etc. Federal and state laws dictate what must be included in the official rules and even mandate certain specific disclosures.

Businesses should therefore be very careful in drafting the rules so that they comply with applicable laws while clearly stating all of the terms and conditions of the promotion. For example, describing the prize as a ‘one-year supply’ of a product could be open to interpretation, potentially leading the winner to think that the prize is much larger than the sponsor intended.

What are some other considerations that should be taken into account?

Once a winner has been chosen, he or she should sign an affidavit of eligibility and a liability and publicity release. These are important for several reasons. The winner will certify that he or she meets all of the eligibility requirements. The liability release protects the sponsor from claims by the winner. If the prize is a ski trip, for example, a liability release would prohibit the winner from suing the sponsor if the winner is injured while skiing. A publicity release grants the business the right to use the winner’s name and likeness for promotional and advertising purposes.

What issues can online, mobile and social media promotions present?

Social media promotions, such as, ‘Like us on Facebook for a chance to enter,’ must comply with the social media platform’s guidelines for promotions. Businesses should also consider their privacy policies and how they will handle personal information collected from entrants. If the promotion is directed at children, then businesses must be particularly careful, as additional laws and regulations will apply.

How can an attorney help with the process?

An attorney can help businesses every step of the way. At the outset, an attorney can draft the official rules, privacy policies, and contracts with third parties such as prize suppliers, as well as prepare filings for states that require registration. An attorney also can prepare the affidavit of eligibility and the publicity and liability release.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

Employers need to get serious about compliance with the Affordable Care Act

Employers could afford to take a wait-and-see approach with the Affordable Care Act (ACA) when it was first signed into law in 2010. Skeptics speculated that the initiative could be modified or even be repealed.

The circumstances have evolved as we enter 2015, says Ralph Breitfeller, Of Counsel at Kegler, Brown, Hill + Ritter.

“The problem now is we’re deep into the time when you have to comply,” Breitfeller says. “If you’re an employer, I don’t think you can say at this point, ‘Well, I’m going to wait and see what happens.’ You have to assume it’s here to stay.”

Breitfeller says more change is always possible, but a wholesale repeal of the ACA seems unlikely. Those who choose to hold out for such an outcome risk incurring financial penalties.

Smart Business spoke with Breitfeller about the key compliance dates and requirements that lie ahead this year and what you can do to prepare.

What key dates do employers need to know this year regarding the ACA?

The biggest date to be aware of came to pass this month, Jan. 1, 2015. Employers that have more than 99 full-time employees now have to comply with the ACA. The other one is Jan. 1, 2016, when employers with between 50 and 99 employees have to comply with the law.

The larger employers, those with 100 or more full-time employees, have to offer coverage to 70 percent of their full-time employees in order to comply in 2015. That goes up to 95 percent in 2016 to be compliant.

If you are in that 50- to 99-employee range, you have to start preparing. The way it works is there is a measurement period that must be between three and 12 months. It’s during that time that you determine who is a full-time employee and entitled to coverage and who is not. You sort through the numbers, come up with a plan and then offer the plan so that you’ve got everything in place by the compliance date.

What are some factors that complicate this effort?

Smaller employers will likely run into questions about certain employees. Somebody working less than 30 hours a week, looking at the average during the measurement period, does not have to be offered coverage while another person working 30 hours or more a week does have to be offered coverage.

But other questions may need to involve a lawyer. Let’s say you have a particular employee who starts off as part time and then becomes full time. Or the tougher situation where he starts off full time and then becomes part time.

The general rule is if they were full time during the measurement period, you have to treat them as full time during the stability period.

But there are exceptions where you can treat them through a change in status as a part-time employee.

What about employers who choose to pay the penalty rather than offer health insurance?

There has been a lot of talk amongst employers about not offering a health insurance program and just providing extra money to employees so they can buy health insurance on their own. They may be subject to a penalty, but believe it’s less expensive than buying a health plan.

However, there are some complex regulations that were in place long before the ACA that say that if you provide health insurance to your employees, it is treated as pre-tax dollars.

Some employers believe that if they go the route of giving employees money to buy their own health insurance, they need to use post-tax dollars and it will be fine.

However, about a month ago, the IRS and the Department of Labor made it clear that if you do that, even if you’re using post-tax dollars, you have what is treated as an employer health plan that could trigger all sorts of tax issues and potential penalties.

To avoid this, employers cannot condition the payment of the extra money on the employee using it to buy health insurance. So in the end, providing money to employees to buy their own insurance is probably not the solution it appears to be.

Insights Legal Affairs is brought to you by Kegler Brown Hill + Ritter

Misclassifying employees can lead to significant penalties, lawsuits

In an effort to save on labor costs and reduce employee headcounts, businesses have looked to outside independent contractors to perform some of the services once executed by employees.

Some of the cost savings realized by using outsourced workers include not having to pay taxes, not complying with minimum wage and overtime requirements, and not having to provide insurance or other benefits.

This practice has raised concerns at the IRS and Department of Labor (DOL).

The IRS is interested in maximizing tax revenue, while the DOL wants to ensure compliance with employment laws such as the Fair Labor Standards Act (FLSA), which sets forth the minimum wage, overtime requirements and other employee protections.

This use of outsourced workers also catches the attention of class action plaintiff lawyers when companies classify large blocks of people as independent contractors instead of employees.

All of this has led to an explosion of FLSA claims in the past 10 years, with some years seeing the number of FLSA lawsuits increase more than 20 percent over the prior year.

Smart Business spoke with Steve Ciszewski, partner at Novack and Macey LLP, about the misclassification of workers and the risks it creates.

What are the signs that a company might have misclassified employees as independent contractors?

The signs of misclassification depend on the context in which the question arises.

When the question is posed for tax purposes, the IRS has adopted an extensive analysis to determine the right classification. There is a specific tax form  — SS-8 — that is intended to measure behavioral control, financial control and the general relationship between the parties. The general concept is to determine whether the company or the worker controls the working environment.

For purposes of the FLSA, the DOL has developed what it calls an economic realities analysis, which consists of six factors that attempt to determine whether, as a matter of economic reality, the individual is more like an employee or more like an independent contractor.

Many courts interpreting the FLSA have adopted this economic realities analysis.

It’s important to note that each state may have its own interpretation of its state tax and employment laws.

What are the consequences if a business misclassifies an employee?

The company could face a large class action suit by the misclassified employees.

Depending on the number of people involved, there could be significant damage exposure consisting of the amounts that should have been paid as well as statutory damages equal to 100 percent of the amount that should have been paid and attorney fees.

In addition, the government will be looking to the employer for make-up payments and penalties on income taxes and contributions to Social Security, Medicare, the federal unemployment tax, etc.

How can businesses best protect themselves against the risks of misclassification?

Any decision to classify a worker as an independent contractor should be done carefully and only after a close analysis of the specific facts surrounding the relationship.

In some cases, this will be a very easy analysis that can be performed by in-house human resources staff. This type of review would be most appropriate when there are only a small number of people whose classifications are in question or when the relevant factors point heavily in one direction.

Other cases might require a detailed legal analysis from in-house or outside counsel.

This would be most appropriate when many people are in question or when it is a close call as to whether those involved are independent contractors or employees. ●

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