Fall 2009 Edition

SOCIAL NETWORKING AND THE WORKPLACE

By F. Stephen Glass

The dynamics of workplace gossip are undergoing rapid transformations as a result of online social networking sites like MySpace and Facebook. Serious and fundamental issues such as protection of privacy and freedom of expression must be balanced against protection of trade secrets and confidential business information.

Social networking issues have even sprung up in courtrooms where jurors who have "tweeted" during trial have caused mistrials.

Employers who have been the subject of ridicule by employees who also demean their workplace have new questions about how to respond to employee social networking issues. Oh, for the days of water cooler gossip!

Many employees believe that their off-duty conduct is beyond an employer's ability to take action. This is a serious misconception. Courts generally recognize and respect an employer's ability to make a personnel decision on off-duty conduct when it does or reasonably could affect the workplace, A recent survey of 2,667 HR professionals revealed that 35% of employers reported finding content on social networking sites, such as provocative photos and information, poor communication skills, discriminatory comments, shared content about the use of alcohol and/or drugs, derogatory comments about former employers and falsehoods regarding their qualifications, that caused them not to hire the candidate,

On the other hand, 18% reported finding content on social networking sites that caused them to hire the candidate, such as information suggesting a "good fit" with the prospective employer, a profile that supported the candidate's professional qualifications, creativity, solid communication skills and good references that were posted by others,

Using social networking sites for background checks and recruiting is a new tool for employers - but not without potential legal problems. These sites can reveal information that would not normally be permissible if solicited in an interview, such as age, national origin, religion, marital status and medical conditions.

Social networking is exposing a mine field of legal issues for employers, Wages and hours, use of workplace computers and smart phones during working hours or telecommuting are just a few of the issues that an employer should address through clear policy statements in their employee manuals, Just as "texting" has quickly evolved into "tweeting". employee handbook policies should evolve to keep up-to-date with changing workplace issues and the law,

IS YOUR EMPLOYEE HANDBOOK UP-TO-DATE?

Times change, Laws change. Your employee handbook should keep up with these changes in order to protect your business. JHVGG can assist you in evaluating or developing your employee handbook to be compliant with constantly changing employment law.

Franchise Disclosure Document - Item by Item Analysis
(Part two of a series)

By M. Blen Gee, Jr.

Far and away the most important legal protection for franchisees in this country is the broad pre-contract disclosure requirements of the Federal Trade Commission (FTC) in a document called a Franchise Disclosure Document (FDD). However, the Federal Trade Commission does not examine the FDD: you must do your own due diligence investigation. A careful review of the FDD is essential.

Following up on our previous article on the subject, this article lists more things to look for in the FDD:

ITEM 3 - Litigation. If the franchisor reports any litigation in this section, you must look at this very carefully.

Large franchisors will have lots of litigation. This is normal and Is not necessarily a sign of problems, However, it is critical that you learn more about the nature of these litigations. If you can find out what these litigations were about, it may give you clues to the problems franchisees are having with the franchisor. Some franchisors use litigation to punish franchisees that get out of line. Even when the franchisee wins, the franchisee will have spent tens of thousands of dollars in attorneys fees and will think twice before challenging franchisor policy decisions again. litigation may reveal a pattern of franchisee problems with the franchisor or fundamental flaws in the franchise system.

For smaller and newer franchisors, a lot of litigation is a red flag that caution is required. A new or small, well run franchise system should have very little litigation. Find out as much as you can. You may need an attorney to help you interpret what you find .

Also, remember that the franchisor only updates this information once a year. You should ask whether there are any recently filed litigations that are not listed in the FDD. If you are told there are no recent litigations, document the answer with a follow up letter or email.

Not all franchise related lawsuits have to be reported. If the lawsuit is over and the franchisor was not "held liable," it does not have to be reported. Past lawsuits that the franchisor won are important to know about as well. Ask questions: find out what the unreported suits were about and why the franchisor was not "held liable." Franchisees who are no longer in the system may be a good source of information.

ITEM 4 - Bankruptcy. A previous bankruptcy of a franchisor or one of Its key managers Is a warning sign. The financial decline of a franchisor is one of the major sources of problems for franchisees,

Item 5 - Initial Franchise Fee. This is typically nonrefundable. "Nonrefundable" means nonrefundable. Since you are unlikely to get this money back, you should be sure to get your money's worth by taking advantage of all training, site location and other assistance offered to new franchisees.

Item 6 - Other Fees. This is a spot to look for hidden fees. What is the interest rate on late royalty payments and other obligations owed to the franchisor? If the interest rate is very high, in the event of litigation over the royalty or other amounts, as time drags on a high interest rate may put pressure on you to accept an unfavorable settlement.

Look for one-sided attorney's fees provisions; the franchisor gets attorneys fees if it wins but you do not.

Run the numbers. Be realistic in your assessment; assume that you will have to pay the highest fee in each situation where the franchisor has discretion. Also be wary of the salesman who says "Oh, they never charged that fee." The salesman will be long gone when you find you are assessed a fee that the franchisor "never charges."

Be skeptical of any items that you are required to purchase at "current published prices." Mandatory purchases at inflated prices is a common franchisor abuse.

Item 7 - Estimated Initial Investment. This section may be helpful, but we recommend that you look at actual local costs (such as lease and up-fit costs, furniture and fixtures and equipment) rather than relying on estimates contained in the FDD. Be especially wary of thing you must purchase from the franchisor, its affiliates, or "approved suppliers." This is a frequent area of abuse.

>> Read part three of our Franchise Disclosure Document series

In the News

Pretty In Pink Foundation is a North Carolina non-profit SOI(c)(3) corporation that provides financial assistance to North Carolinians diagnosed with breast cancer who are either uninsured or underinsured and have limited financial means for treatment and/or surgery. Founded in 2004 by Dr. Lisa Tolnitch, a breast cancer surgeon, Pretty In Pink Foundation's vision is to have a point of presence in every state by 2020. Recently, Dr. Tolnitch was featured on MSNBC and named the WTVD "Person of the Week", spreading the Pretty In Pink vision.

More than ninety percent of donations go directly to providing the funding required for immediate treatment, life saving surgery, emotional support and quality of life resources to help North Carolinian breast cancer patients become breast cancer survivors. Pretty In Pink Foundation is able to minimize operational costs by maintaining a committed group of volunteers and supporters to further its efforts. For more information on contributing to Pretty In Pink Foundation, visit the website, become a fan on their Facebook® page, or contact the Foundation directly at 919.532.0532.

Employment Law Notes

By F. Stephen Glass

Withholding Required For Contractors With ITINs . Effective January I, 2010, any payer that pays an Individual Taxpayer Identification Number (ITIN) holder more than $1 ,SOO a year must withhold 4% of that pay. ITINs are issued by the IRS to people who are not eligible to receive a social security number. This new law applies to compensation "other than wages," which means pay from which state and federal income taxes are not withheld . ITIN holders who are paid as employees as opposed to contractors and who already have state and federal taxes withheld from their pay are not subject to additional withholding.

Monitoring Personal Text Messages Sent on Pager Violated Privacy Rights. The text messages on a two-way pager stored on a service provider's network were subject to a reasonable expectation of privacy for alleged personal use, the 9th Circuit Court of Appeals he ld, finding a city police department violated the privacy rights of a police officer and the officers he texted when, as a part of an overage audit, it read transcripts of personal text messages he sent to those officers on his work-issued pager. Even though the department maintained a policy warning officers that it may monitor electronic communications, the officers were informally told there would be no such audit of their message usage as long as they paid for their own individual messages. As such, the court said that it was reasonable for the officers to expect that the department would not monitor their text messages. [ Moral: Employers who have policies should uphold, following their policies.]

Hearing-aid Ban During Hearing Test Was Lawful. A ban on the use of hearing aids during hearing test in preemployment medical tests for security guards at federal courthouses is job-related and consistent with business necessity. The court noted that the burden of establishing a lawful business necessity "is generally quite high, II but the burden of proof is "significantly lowered" where the "economic and human risks involved in hiring an unqualified applicant are great." 7th Circuit Court of Appeals 2009.

Business Tax Law - IRS Actively Pursues "Responsible Persons"

By F. Stephen Glass

Where an employer fails to properly pay its payroll taxes, the IRS can seek to collect a penalty equal to 100% of the unpaid taxes from a "responsible person", Le" a person who (1) is responsible for collecting, accounting for and paying the payroll taxes; and (2) wilfully fails to perform this responsibility. Recent federal court cases on this point include:

• Hospital CEO who delegated payroll responsibility to CFO was personally liable for $1.9 million Trust Fund Penalty.
• Employee leasing company (PEO) officer hit with Trust Fund penalty for failing to pay client's payroll tax.
• Sole shareholder/CEO, whose CFO embezzled funds and failed - for 19 consecutive quarters - to pay company's payroll taxes, was a responsible person and liable for the penalty. On learning of the embezzlement, he knew that he "likely owed the IRS" a substantial amount for back taxes, yet he proceeded to "recklessly" pay other creditors ignoring the tax issue. The court found no merit in the CEO's contention that the failure to pay was not willful since he did not know the specific amount of payroll taxes due. That the CEO should have known and could easily have learned whether the payroll [Trust Fund] taxes were being turned over to the IRS is enough to establish reckless disregard.

Personal Planning - Elder Law Issues
Supplemental Security Income (SSI)

By P. Devan Culbreth

Among the many benefits programs offered by the United States Government is Supplemental Security Income, or 55I, which is a cash assistance program funded and administered by the Federal Government. SSJ's basic purpose is to provide minimum levels of monthly income to qualifying aged, blind or disabled persons. Persons who are deemed eligible for 55I are automatically eligible (or Medicaid in North Carolina.

SSI Eligibility Requirements (Non-Exhaustive List):

1. Categorical Eligibility: To be eligible for SSI benefits, a claimant must be either Aged, Blind or Disabled.

• "Aged" persons are defined as those over the age of 65 years.
• "Blind" persons are those whose vision, with the use of a correcting lens, is 20/200 or less in their better eye or who has tunnel vision of 20 degrees or less.
• "Disabled" persons are those who meet the Social Security disability program definition of disabled. Included in that definition is a requirement that the person be unable to engage in substantial gainful activity (SGA) due to a medically determinable physical or mental impairment.

2. Application for Other Benefits: To be eligible for 551 benefits, a person must apply for any other public benefits programs for which the person is potentially eligible.

3. Financial Eligibility Requirements:

• Income Requirements: To be eligible for 55I, a person must not have a monthly "countable" income of more than the current Federal Benefit Rate (FBR) , which is increased each year by a cost-of-living adjustment. The current FBR is $674.00.
• Income is defined as anything that the claimant receives during a calendar month that is used to meet their needs for food and 1 or shelter. Income may be in cash or in-kind, (Le., food, shelter, or something that the person may use to get food or shelter).
• Resource Requirements: To be eligible for 55I, a person may not have countable resources in excess of a specified amount at the beginning of each month, The 2009 limit for countable resources is $3,000.00 for a couple.
• Resources are defined to include cash, liquid assets, and real or personal property that can be converted to cash to obtain support and maintenance. If a person has the right, authority or power to liquidate a given item, then it is considered a resource,

Like many public benefits programs, a myriad of other requirements are applicable to 55I eligibility. Persons questioning their own or a family member's eligibility for S5I should consult an attorney who is familiar with Elder Law is~ sues for additional information,

Year-End Tax Considerations for Employers

By F. Stephen Glass

As year-end approaches, taxpayers generally are faced with a number of choices that can save taxes this year, next year or both years. Employees have some special considerations to take into account that retirees and other nonworking individuals don't face. To help employees take advantage of these special tax saving opportunities, we have put together a list of items to consider.

Health flexible spending accounts. Many employees take advantage of the annual opportunity to save taxes by placing funds in their employer's health flexible spending account (health FSA). You save taxes because you use pre-tax dollars to pay for medical expenses that might not be deductible. They would not be deductible if you don't itemize. Even if you do itemize, some medical expenses would not be deductible because of the 7.5% adjusted gross income floor beneath medical expense deductions. Also, a health FSA can be used to get tax-free reimbursement for over-the-counter medications and other items even though they would not be deductible as medical expenses if you paid for them outside of a health FSA.

If you have set aside funds in your employer's health FSA, check your balance so that you have sufficient time to incur additional reimbursable expenditures to prevent loss of any unused amount under the use-it or-lose-it feature of these plans. Don't forget you can ge t tax-free reimbursements for aspirin, antacids and other over-the-counter items. Your plan should have a listing of qualifying items and any docume ntation from a medical provider that may be needed to get a reimbursement for any such items.

To avoid the use-it or-lose-it rule , you must incur qualifying expenditures by the last day of the plan year (Dec. 3 1, 2009 in the case of a calendar year plan) unless the plan allows an optional grace period.

Examining your year-to-date expenditures now will also help you to determine how much to set aside for next year. Don't forget to reflect any changed circumstances in making your calculation.

Dependent care FSAs. Some employers also allow employees to set aside funds in dependent care FSAs. They allow employees to use pre-tax dollars to pay for dependent care. In particular cases, participating in a dependent care FSA can yield greater tax savings than foregoing participation

and claiming a dependent care credit. Taxpayers who are eligible to participate in a dependent care FSA and are (a) in a high tax bracket and/or (b) have only one dependent and more than $3,000 of employment-related expenses, should use the FSA to pay for child care expenses. For these taxpayers, the FSA almost always provides greater federal tax savings than does the credit. Additionally, participating in a dependent care FSA can also save on FICA taxes.

However, like health FSAs, dependent care FSAs are subject to the use-it-or lose it rule. Thus, now is a good time to review expenditures to date and to project amounts to be set aside for next year.

Adjustments to state withholding. If you expect to owe state and local income taxes when you file your return next year, ask your employer to increase withholding of state (or pay estimated tax payments of state taxes) before year-end to pull the deduction of those taxes into 2009.

Adjustments to federal withholding. If you face a penalty for underpayment of federal estimated tax, you may be able to eliminate or reduce it by increasing your withholding. It should be stressed that the Making Work Pay Credit, which was enacted earlier this year, automatically lowered tax withholding rates for employees. However, you should especially review your withholding to ensure that enough tax is withheld if you hold multiple jobs, you and your spouse both work, or you can be claimed as dependent by another person.

401(k) contributions. Review and make appropriate adjustments to your contributions to your employer's 401 (k) retirement plan for the remainder of this year. Figure your contribution rate for next year as well.

High Income Earners - Some Considerations for Year-end Planning: Many observers expect top tax rated on ordinary income to increase in 2010, making long-term deferral of income less appealing. Long-term capital gains rates could go up as well, so it may pay for some to take large profits this year instead of in the out-years. The good news is that there no longer will be an income-based reduction of most itemized deductions, nor will there be a phaseout of personal exemptions.

About our authors:

M. Blen Gee, Jr. is an honors graduate of the University of North Carolina School of Law. His areas of concentration include business and corporate law, including sales of businesses; business litigation, including arbitration and mediation; franchise law; automobile dealer law; and insurance company insolvency. Mr. Gee has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell.

 

F. Stephen Glass the author of numerous publications on business and business entities as well as estate planning. He is a frequent presenter for the National Business Institute. His practice is concentrated in the areas of business and corporate law, business succession planning and estate planning. He serves on the Cary board of Capital Bank. Mr. Glass has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell. He serves on the American Bar Association Business Law Committee on Corporate Governance.

P. Devan Culbreth is an associate with JHVGG. She is a graduate of Wake Forest University, cum laude , and of its law school. She also has a Masters Degree (Psychology) from UNC Wilmington. Her practice concentrates on elder law, estate planning, business and corporate law, and automobile dealer legal transactions.

DISCLAIMER: Johnson, Hearn, Vinegar, Gee & Glass, PLLC, provides this newsletter for general information only. The materials contained herein may not reflect the most current legal developments. Such material does not constitute legal advice, and no person should act or refrain from acting on the basis of any information contained In this newsletter without seeking appropriate legal or other professional advice on their particular circumstances. Johnson, Hearn, Vinegar, Gee & Glass, PLLC and all contributing authors expressly disclaim all liability to any person with respect to the contents of this newsletter, and with respect to any act or failure to act made in reliance on any material contained herein. Distribution of this newsletter does not create or constitute an attorney-client relationship between the firm and any reader or user of such information.