New Jersey's "Ban the Box" law goes into effect next week on March 1, 2015. Employers in New Jersey may no longer have an employment application that contains either a box that must be marked or a question asked that relate to an applicant's criminal record or lack thereof. Employers also cannot ask about an applicant's criminal history or even run a criminal background check at the early stages of the employment process. A more thorough analysis of this new law can be found by clicking here to see a previous blog post.
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On Thursday City Council in Philadelphia passed a paid sick day bill which Mayor Nutter immediately signed into law. In essence, an employee will accrue 1 hour of paid sick leave for every 40 hours worked which works out to be about 5 days of paid sick leave per year. Employers with less than 10 employees are exempt and need not provide paid sick time. Philadelphia is the 17th city in the country to require paid sick leave. Mayor Nutter previously vetoed this bill twice but stated that since the economy is doing much better it was the appropriate time to sign this bill into law. The law will take effect in 90 days.
Foreign corporations may not transact business in Pennsylvania without first obtaining a Certificate of Authority from the Secretary of the Commonwealth. All that is required is a simple application, docketing statement and a small fee. The specific requirements are clearly set forth on the Pennsylvania Department of State's website. What happens if you decide to ignore this requirement and are "not authorized" to transact business in Pennsylvania?
Aside from fines and penalties that can be assessed by the Commonwealth, you would not have the capacity to bring a lawsuit if the need were to arise. This means that even if you are owed a substantial sum of money for equipment that you delivered and the defendant is using without any complaints; you would not be able to collect. If your business is not authorized to do business within the Commonwealth of Pennsylvania you simply do not have the capacity to bring your lawsuit. Think of this as a foreign corporation's ticket to gain entrance to the Pennsylvania Court System.
All is not lost however if you find yourself in litigation and you do not have a Certificate of Authority. In fact, the Pennsylvania Appellate Court just this past January spoke on this issue. All that is required is that the Certificate of Authority be entered into evidence prior to a court entering its verdict. If this is accomplished, the lawsuit will be valid and the judgment entered will be enforceable. If however this is not accomplished prior to verdict, the lawsuit will be dismissed, you've potentially lost money regarding the subject of the suit, and left your company vulnerable to fines and penalties from the Commonwealth.
On January 14, 2015, in a unanimous decision, the New Jersey Supreme determined that the ABC test is the proper test an employer must use to determine if its workers are independent contractors or employees. Of all the various tests used by New Jersey and other states, the ABC test sets the bar the highest for an employer to successfully uphold it independent contractor status designation for its employees.
The New Jersey Supreme Court began its analysis by recognizing that the New Jersey wage and hour laws are remedial statutes and are meant to be interpreted broadly to benefit workers. Thus, the Court held that the ABC test presumes that an individual is an employee unless the company can show that the individual meets the following three elements:
(A) such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
(B) such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
(C) such individual is customarily engaged in an independently established trade, occupation, profession or business.
If the company does not meet one element of the three part test, the individual will be deemed to be an employee and therefore entitled to all of the rights and benefits afforded to employees. It is important to recognize that this is not a new test but rather the same test that New Jersey already uses in connection with its unemployment compensation cases. In addition, the ABC test is the controlling test used by many other states in connection with their independent contractor/employee analyses in the wage and hour context.
To all of our clients with offices in New Jersey, please remember that effective January 1, 2015 the New Jersey state hourly minimum wage will increase from $8.25 to $8.38.
On November 13, 2014 the New Jersey Supreme Court added New Jersey to the growing number of states that have established complex business litigation programs. Effective January 1, 2015, designated judges in each county will provide individualized case management to complex commercial and construction cases that meet the required criteria. The Supreme Court of New Jersey will designate the specific judge who will participate in the program and these judges will receive extensive specialized training in areas that are specific to business litigation.
Attorneys will self-designate their case for this program on the civil case information statement or they may move for inclusion or removal from this program depending on what opposing counsel may or may have not selected. Case will have a minimum $200,000 threshold but in certain circumstances a case may be included in the program due to the complex nature of issues even if the amount in controversy is less than $200,000.
The result of the program will be a win for all parties involved. Consistency will be developed as fewer judges will be ruling on complex commercial disputes. This will help the attorneys provide better cost benefit advice to their client based upon what they can expect at trial.
Judges will benefit as well as they will gain more experience in handling complex business disputes and gain experience and insight into what works and does not work from the point of view from the bench. For example, the judges will see what impact their discovery ruling has at the trial stage and whether they would have liked more information on a particular topic. Now the judges will see what impact their discovery ruling has at trial. In the past, a discovery judge might limit an area of inquiry, but at trial you are faced with a different judge looking down at you with a perplexed look wondering why you did not develop this through further discovery.
Last month I had a business client come into my office concerned about a data breach. A disgruntled former employee hacked into the company server. While it appears this employee did not enter into any sensitive areas on the server, my client wanted to know what his responsibilities were with regarding to notifying customers of this unauthorized intrusion. After quickly moving for an injunction to prohibit further intrusions, we sat down with our client to review his data breach policy. Not surprisingly, he did not have one.
Every data breach policy has to be created with an eye towards the sector your business operates. For example, HIPPA notification requirements with regard to "protected health information" are different from the requirements for a web based business.
In Pennsylvania we have the Breach of Personal Information Notification Act. This law has been on the books since June 2006 and is currently in the process of being amended as it relates to municipalities and school districts. This applies to any business organization (for-profit or non-profit) that maintains or stores computerized data that includes personal information. The impact of this Act is far reaching because it applies to businesses of other states whose customers are Pennsylvania residents.
Notification requirements are triggered when there is a breach of a computer data system where any "resident of Pennsylvania's unencrypted and unredacted personal information was or is reasonably believed to have been accessed and acquired by an unauthorized person." I won't bore you with the details of the intricacies of how all these seemingly simple to understand words have definitions that go on for pages. Suffice to say even the definition "reasonably believed" is complicated. The key take away however is that the notification requirements are NOT triggered if the information is encrypted or redacted. Failure to comply will prove costly as the Act provides that a violation is deemed to be a violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law.
Circling back to my client who contacted me last month, his records were encrypted and thus Pennsylvania's Breach of Personal Information Notification Act did not apply. However, we reviewed and updated his data breach policy to bring it into compliance with the existing laws that affected his business. At Danziger Shapiro & Leavitt we understand the global environment that affects your business and are here to assist you navigate the complicated web of laws and regulations that need to be complied with in this new electronic world. Please feel free to contact any of our attorneys for a free consultation to discuss any concern that is affecting your business.
On September 23, 2014, the New Jersey Supreme Court in a unanimous decision held that an arbitration clause in a consumer contract was unenforceable because it did not clearly and unambiguously signal to the consumer that she was surrendering her right to pursue her claims in court. The Court was troubled that the arbitration clause did not clearly explain what arbitration is and how it is different from proceeding in a court of law.
The Court stated that no prescribed set of words is required. Notwithstanding the foregoing, the arbitration clause must contain a clear and unambiguous statement that explains that the consumer is giving up his or her right to bring their claims in court or have a jury resolve the dispute. This for obvious reasons will have dramatic impact upon consumer class actions and how they proceed.
NEW JERSEY EMPLOYERS MAY NOT INQUIRE INTO CRIMINAL HISTORY OF JOB APPLICANTS UNDER NEW "BAN THE BOX" LAW
On August 11, 2014, New Jersey Governor Chris Christie signed the "Opportunity to Compete Act" (Bill 1999) into existence. The Act will become law in New Jersey on March 15, 2015. The Act limits the ability of "covered" New Jersey employers from looking into an applicant's criminal record at any time during the "initial application process". Employers will no longer be able to have on their written or online applications a box to mark or a question concerning whether the applicant has a criminal record. In addition, employers cannot ask (verbally) applicants if they have a criminal record. However if an applicant brings this up of their own accord, then the employer is free to explore the nature of the applicant's criminal history.
Obviously there are exceptions to the Act. For example, law enforcement, homeland security, corrections, judiciary and jobs of a similar nature allow employers to inquire if an applicant has a criminal background. Interestingly though, after the "initial application process" an employer may inquire into an applicant's background to see if they have a criminal record and then make a determination on whether to hire the employee. For purposes of the Act, a covered New Jersey employer is defined in the Act as an employer who employs 15 or more employees over 20 calendar weeks.
On July 15, 2014 House Law 1429 went into effect and drastically changed what is required under financial powers of attorney (POAs). The new law was in response to rising incidents of elder abuse where agents placed their own self-interests before the principal. As such, the new law, among many other changes, places limitations and requirements on an agents ability to make gifts, terminate trusts and change beneficiary designations. Seems simple, right?
The new law also places an affirmative duty on the agent to act in accordance with and preserve the principal's estate plan and when making decisions to account for the principal's foreseeable obligations for maintenance. Have you ever been involved in a situation where children don't like their dad's second wife? With this new law, seems like the agent has just taken on a lot of responsibility that is open to second guessing and attack.
Because this law was enacted in response to individuals taking advantage of the elderly or otherwise incapacitated individuals, this new does not apply in most commercial settings.
For those of us that actually read the bottom of their lawyer's email you probably noticed the arcane "IRS Circular 230 Disclosure" that stated the advice contained in this email is not intended and cannot be used for tax avoidance purposes etc... You then probably thought to yourself, but I was just confirming lunch, what the heck does this have to do with tax advice anyway? Perhaps a little perspective is in order.
Circular 230 was the IRS's compilation of regulations regarding tax services provided by lawyers and other tax professionals with respect to the tax shelter abuses of the 1990s. Circular 230 set the minimum standard with respect to written tax advice and therefore wound up being placed on everything.
Thankfully the IRS issued new rules on June 12 (click here for PDF of rule) which included the following statement; "Treasury and the IRS expect these amendments will eliminate the use of a Circular 230 disclaimer in email and other writing." Good riddance and where are we meeting for lunch again?
The Supreme Court continued its trend of significant decisions today, issuing rulings in favor of copyright holders over technological innovation (ABC v Aereo) and in favor of upholding privacy rights in the face of police searches (Riley v California). While the decisions were broad in scope, they also both created substantial unanswered questions that the Court is essentially pleading with Congress to resolve. From a political standpoint, that appears unlikely, and I predict both of these issues will be back before the Court in the not too distant future.
Looking first at the Riley case, the Court held cell phones contained private information which the police are not entitled to review merely incident to an arrest. Unlike the contents of your pockets or items in plain view, the government now cannot access your cell phone without a warrant during an arrest. This rule applies to both smartphones and so called dumb phones alike (the police viewed the incoming caller ID in one of the defendant's older style flip phones to determine where he lived), and actually signals real concern for future business cases.
While this may seem like a boon to privacy advocates, there are holes in this ban big enough to steer Google's self driving car through. First, there are exceptions for when the police believe they need to access your device in exigent circumstances. No warrant is required when the police are trying to prevent a disaster, or save someone else. Second, the Border Search exemption does not come up in this case. This exemption, still on the books but possibly overruled by today's decision, allows for a warrantless customs search anywhere within 100 miles of an international border. That includes our offices in Philadelphia, and most of the population of the US who live within 100 miles of an international coastline. Is every police search now going to have a customs element to get around the Riley decision?
The bigger concern with this decision, from a business perspective, is the growing use by the Roberts Court of anecdotal evidence not truly before the Court. The Riley decision in some ways is based upon a faulty understanding of technology and how we interact with it on a daily basis. Justice Roberts cites to the iPhone User Guide as definitive proof that "Law enforcement officers are very unlikely to come upon such a phone in an unlocked state because most phones lock at the touch of a button or, as a default, after some very short period of inactivity." While many phones have this feature, it's frequently not used. Various surveys have shown between 40% to 70% of cell phone users don't lock their phones. The Court similarly dismisses out of hand the potential for automatic wiping via geofencing as simply not a real concern. I'll grant Justice Roberts that most criminals are not IT specialists, but it's not difficult to set up a directive for your phone to be wiped if it enters the local police station. In fact, the controls to set that up are right in the apps at the heart of the Riley decision. Finally, the Court suggests merely turning the phone off or removing the battery as a way police can prevent a remote wiping signal, failing to understand that (i) many, if not most, new smartphone have integrated non-removable batteries; and (ii) a phone is not rendered completely inaccessible simply because it's turned off.
The problem here is not holding itself, which may actually be a bit of a pendulum swing against the destruction of privacy standards we've seen since 9/11. Rather, the issue I see is that the Court continues to decide cases based upon a misunderstanding of how people interact with technology. This has led to, and will continue to create, decisions which raise significant business issues. We'll have more in the next few days on the Aereo decision, which even the Court acknowledged will hang over SAS and cloud computing services for some time to come. But in the meantime, it's clear that if we are going to continue to see technological growth, Congress needs to get on the ball and deal with some of these issues before they're dumped at the courthouse steps.
In June the Supreme Court held that an inherited individual retirement account (IRA) was not protected by federal bankruptcy law. Specifically, the Court considered whether an inherited IRA is a "retirement fund" within the meaning of the bankruptcy code and thus entitled to federal bankruptcy protection. The Court surprised everyone by ruling inherited IRAs are available for distribution to creditors just like any other debtor account. Click here to view the opinion.
To understand the significance of this decision, first a bit of background is in order. The Bankruptcy Code generally protects a debtor's "retirement funds" from a debtor's bankruptcy estate thereby keeping it out of reach from creditors. However, trustees and creditors began to attack inherited IRAs (as opposed to an IRA that you actually contributed) and ask if an inherited IRA where you did not contribute any of your money was fundamentally different from an IRA that you personally funded.
The Court relied primarily on three points to reach the conclusion that inherited IRAs were not retirement funds and thus not entitled to protection under the bankruptcy code. First, you cannot contribute money to an inherited IRA. Second, there are withdrawal requirements separate and apart from your retirement age and third, you can withdraw the balance at any time and for any purpose without a withdrawal penalty.
This ruling affects more than just the bankruptcy arena. For example, non-spousal beneficiaries under an IRA are at risk at having their IRA inheritance attacked by existing or future creditors. Perhaps the better plan now in light of this recent decision is to designate a spendthrift trust for the benefit of the beneficiary? The corpus of the trust would be protected if drafted properly and distributions to the beneficiary could be made over the life of the trust. While there are other options available, the point is that there are new considerations that must be taken into account in light of this recent decision by our Supreme Court that impacts not only estate planning going forward but also past estate planning decisions.
"VALUABLE CONSIDERATION" REQUIRED TO ENFORCE NON-COMPETE AGREEMENT DESPITE COMPLIANCE WITH PENNSYLVANIA UNIFORM WRITTEN OBLIGATIONS ACT
The Pennsylvania Superior Court recently examined what impact, if any, the Pennsylvania Uniform Written Obligations ACT (PUWOA) has on an employment agreement that contained a covenant not to compete entered into after the employee started working with the employer. The short answer is - no effect at all.
First a little background is in order. In order for a covenant not to compete to be enforceable against an employee, the employee must receive something valuable (consideration) from his or her employer. If this covenant is bargained for by the employer prior to the employee starting work, then the prospect of future employment with the employer satisfies the "valuable right" or "valuable consideration" needed for a court to enforce a covenant not to compete. However, if the employee is already employed by the employer, continued employment is not sufficient additional consideration; something more must be given by the employer.
The case before the appellate court involved the situation where an employer wanted to enforce a covenant not to compete that was entered into after the employee was already employed by the employer. The employer tried to avoid the requirement of providing additional consideration by relying upon the PUWOA. This act states that an agreement will not be enforceable for lack of consideration if the words "intending to be legally bound" are in the agreement. Unfortunately for the employer, the appellate court held that the language "intending to be legally bound" did not constitute sufficient additional consideration in the context of a covenant not to compete.
So what is the important take away here? Review your employment agreements and if you have a restrictive covenant, revisit what consideration was given to your employee and when it was given. Ask yourself if the employee is mission critical and whether you really want to enforce the covenant? It does just have to be money that will support a court finding sufficient additional consideration.
The United States Department of Labor recently revised the notice and distribution requirement notices to take into account that employees now have the ability to choose health insurance through the newly created Health Insurance Marketplace. The Department of Labor's website contains both revised notices and can be found by clicking this Link. DOL is also in the process of issuing new regulations to assist employer COBRA compliance. The proposed regulation may also be found on the DOL website.
The DOL only changed the content of the notices and not the distribution requirements. For example, employers are still required to provide new employees with Cobra notices within 90 days of an employee's enrollment in a group health plan.