As discussed in the recent New York Times article, federal and state officials, many facing record budget deficits, are starting to aggressively pursue companies that try to pass off regular employees as independent contractors.

President Obama's 2010 budget assumes that the federal crackdown will yield at least $7 billion over 10 years.  More than two dozen states also have stepped up enforcement, often by enacting stricter penalties for misclassifying workers.  This effort is intended to reign in what regulators believe is a trend among companies to cut costs by classifying regular employees as independent contractors, though they often are given desks, phone lines and assignments just like regular employees. Moreover, the experts say, workers have become more reluctant to challenge such practices, given the tough job market.

To determine if you or your company is complying with the rules and regulations as applicable to independent contractors, please call your attorney.  

On January 27, 2010, the SEC voted 3-2 to issue an interpretive guidance “on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.” Chair Mary Shapiro emphasized that the interpretive release is not intended to create new legal requirements, but is to clarify the requirements already applicable for reporting material risks on public disclosure statements. She was careful to avoid arguments on the science, stating: “We are not opining on whether the world's climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics."

• Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.

• Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.

• Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.

• Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.
   

See SEC Press Release here. 
 

On January 22, 2010, President Obama signed a law which allows taxpayers to claim a charitable deduction in the 2009 tax year for cash donations made through March 1, 2010 for the relief of victims in areas affected by the January 12, 2010 earthquake in Haiti. The IRS notice on this new law indicates that cash contributions eligible for the deduction against last years taxes include contributions made by text message, check, credit card or debit card. The law gives the taxpayer the option of deducting the cash contribution on his or her 2009 return or his or her 2010 return, but not both. The law does not change any of the other rules applicable to charitable donations such as the percentage limitations, the requirement that the charity be a qualified charity or the fact that the taxpayer must itemize in order to benefit from the deduction.

Each taxpayer should look at his or her own individual situation to determine whether or not the deduction should be claimed against 2009 income or 2010 income. Generally, the sooner the deduction the better but the taxpayer should consider his or her income in each year, tax rate in each year, and applicability of the itemized deduction phase out which is eliminated in 2010.

Further information regarding the deduction for Haiti earthquake relief donations and the identification of possible qualified charities can be found on the IRS website.
 

Social networks like Facebook, YouTube and Twitter are transforming the way companies communicate with consumers.  Facebook, YouTube and Twitter can be powerful business tools, but you must be mindful of certain legal limitations and guidelines.

The words “Facebook,” “YouTube,” and “Twitter” are proprietary to the companies that own them.   “Facebook,” “YouTube,” and “Twitter” are all registered with the U.S. Patent & Trademark Office.  A trademark is distinctive word, logo or phrase that is used by an individual or business to identify a unique source of products or services.
 

Both Facebook and Google authorize the use of the Facebook and YouTube trademarks in specified ways. These guidelines are set forth in full on each of their websites. Twitter does not yet have specific guidelines, although I anticipate similar guidelines will be listed on the Twitter website very soon. Until then, Twitter users should be wary of using the Twitter trademark to promote their businesses in advertising without receiving specific permission.

Google only allows use of the YouTube trademark in a specific way to give attribution to a You Tube video that may appear on a website or blog. If a YouTube link or video is incorporated into a business’s website or blog, then the business owner must use what YouTube refers to as its "Powered by YouTube Badge." This badge is available for free download & use.

Additionally, it is important to note that the YouTube license appears to only extend to use of the YouTube Badge to give attribution to a YouTube video on a website, blog, or other such means of electronic communication.  The license does not specifically address print advertisements, such as billboards.  When the YouTube badge is used on a website, it must be “clickable” so that it links back to http://www.youtube.com.  YouTube strictly prohibits changing the YouTube mark in any way, such as "YouTubers," "Tubing," You-Tube," or "YouTubed," etc.

Facebook actually recommends promoting one’s Facebook page outside of Facebook.  Facebook likewise provides guidelines for appropriate use of its trademark.  For example, Facebook allows its users to use its trademark to alerts consumers to: "Find us on Facebook to discover more about..." or "Check Out ABC Company on Facebook."  Facebook, however, prohibits use of its trademark as follows: "Check out the ABC Company Facebook Page" or "ABC Company partners with Facebook in social advertising campaign."  More examples of acceptable and unacceptable uses of the Facebook trademark are provided here.   Facebook also gives users permission to use its Facebook Page Badge, which can also be accessed from the website.  There are additional guidelines for use of the Facebook badge.

Facebook may be used in print advertisements, only if a registered trademark symbol ® is included each time the Facebook Brand is mentioned.  Where possible, Facebook recommends including its legal copy on all print promotional materials: “Facebook is a registered trademark of Facebook, Inc.”

Before delving into the world of social networking advertising, take the time to read the permissions and guidelines of whatever social networking site you may be using.  These guidelines are typically located on the social network’s website.  If there are no guidelines, the default rule is that specific permission should be sought to use the social network’s trademark to promote your business by incorporating a social network’s trademark in commercial advertisements.
 

Effective July 24, 2009, the federal minimum wage increased from $6.55 per hour to $7.25 per hour for all non-exempt employees.  The 2009 increase in the federal minimum wage was the third and final increase to the federal minimum wage pursuant to Fair Minimum Wage Act of 2007.  Under the 2007 Act, the minimum wage established by the Fair Labor Standards Act increased in three steps from $5.85 per hour effective July 24, 2007, to $6.55 per hour effective July 24, 2008, and to $7.25 per hour effective July 24.

In addition to the establishment of the minimum wage, the Fair Labor Standards Act establishes overtime pay requirements, record keeping and posting requirements, and youth employment standards.  Under the Fair Labor Standards Act, non-exempt employees must be paid at least the minimum wage per hour, and one and one half times the employee’s “regular rate of pay” (not necessarily their hourly rate) for all hours worked over forty hours per work week. 

Section (13)(a)(1) of the Fair Labor Standards Act provides an exemption to both the minimum wage and overtime obligations. Under Section (13)(a)1, employees employed as bona fide executive administrative, professional employees, and outside sales people are considered “exempt” if: (1) certain tests regarding their job duties are met; and (2) the employee is paid on a “salary basis.”  The employee’s specific job duties, not title, dictate whether the employee is exempt or non-exempt. Although state law provides for breaks for minors, the Fair Labor Standards Act does not require breaks or meal periods.  Nor does the Fair Labor Standards Act define “full-time” employment.  This designation “full-time” (versus part-time) employment is determined by the employer.  Likewise, the Fair Labor Standards Act does not require severance pay, sick leave, vacation, or holidays.

Recent court decisions show that patent infringement opinions are still important for any person or entity that becomes aware of a United States patent that is similar to their products, methods or processes.

Under federal patent law, anyone who either makes, uses, offers to sell, or sells any patented invention in the United States or actively induces another to do so is liable for patent infringement.  In addition to regular damages, courts may award up to three times the damages for willful infringement.  Under the 1983 Underwater Devices Inc. v. Morrison-Knudsen Co. opinion, if a party had actual notice of another person’s patent rights, then that party had an affirmative duty to exercise due care to determine whether that party was infringing those patent rights.  This affirmative duty included the duty to obtain patent infringement opinions prior to engaging in any potentially infringing activities.
 

However, in 2008, the Federal Circuit found that patent infringement opinions can be used as evidence of intent, or the lack thereof, for claims of inducing patent infringement.  To be liable for inducing patent infringement, the patent holder must show that the alleged infringer knew or should have known that their actions would induce direct patent infringement.  The fact that the alleged infringer fails to produce or obtain a patent infringement opinion may be used as evidence that the alleged infringer knew or should have known that their actions would induce direct patent infringement.

To reduce the risk of an adverse judgment awarding a patent owner triple damages, any party that is aware of a patent that is similar to a product, method, or process which they utilize should consider obtaining a patent infringement opinion.

On July 7, 2009, Louisiana Governor Bobby Jindal signed Act 442 (SB 9) into law, preserving Louisiana’s long-standing law excluding purchases, rentals and repairs of component parts of immovable property from state and local sales/use tax. Under a law enacted in 2008, purchases of several items previously considered non-taxable component parts of buildings and other immovables (e.g., installed commercial refrigerators and other commercial and industrial fixtures) could have been subjected to state and local sales/use tax. Many taxpayer representatives questioned the constitutionality of the 2008 Act and legislators agreed that it was not their intention to increase sales/use taxes during the 2008 Legislative Session. Act 442 became effective when it was signed by the governor and applies retroactively to all transactions occurring after the July 1, 2008 effective date of the 2008 Act.

In 2008, the Legislature rewrote the law for all purposes, including real estate transactions and lien law. The 2008 Act created a great deal of uncertainty as to whether purchases of many items generally viewed as component parts of an immovable were taxable as tangible personal property. The new law explicitly states that purchases of the type discussed here are not. 

Act 442, described in the legislation as “remedial, curative…procedural…and [to] be applied retroactively,” specifically states that the 2005 and 2006 laws (Acts 301 and 594) are controlling for sales/use tax purposes for determining which items qualify as component parts. The Act 442 changes discussed above originated as House Bill 882 by Representative Hunter Greene (HB 882), and was added by amendment to SB 9. Act 442 expressly provides that, “for purposes of sales and use taxes…the term ‘tangible personal property’ shall not include any property that would have been considered immovable property prior to” the 2008 law. 

Even with the enactment of Act 442, there will continue to be disputes over what property qualifies as component parts. In the coming months, Kean Miller will be working with the Secretary of the Department of Revenue and others to better define “component parts” for sales and use tax purposes. 

A copy of Act 442 may be found here.  

If you have any questions regarding the effect that Act 442 may have on your business, please to do not hesitate to contact us.
 

Facebook is taking certain steps to prevent infringement of intellectual property through “name-squatting.” In connection with this, Facebook is allowing Federally registered trademark holders to prevent the registration of usernames that would infringe their intellectual property rights.

There is a link to the form on Facebook’s Web site if you want to complete the form yourself. You will need the trademark registration number and the exact wording of the trademark as registered.

For more information, or to protect your trademark, please contact Pamela Baxter at pamela.baxter@keanmiller.com (225.389.3761) or Russel Primeaux at russel.primeaux@keanmiller.com (225.382.3454).

June marks the beginning of Hurricane Season and should serve as a reminder to review your personal and business property insurance coverage. The effect of recent Hurricanes on the Gulf Coast generally and Louisiana specifically have been significant with respect to both damages and the insurance covering those damages.

The losses caused by the 2008 Hurricanes in South Louisiana will make property insurance renewals more difficult and expensive. Coverage provided by many property carriers is expected to be narrowed and subjected to higher named storm deductibles.

Beginning the renewal process on property coverage at least 120 days in advance of the renewal date is advised to ensure a fair opportunity to negotiate acceptable terms and to avoid unpleasant surprises such as excessive rate increases and non-renewals.

When purchasing property insurance an insured should also remember that Business Interruption Insurance is usually included in property insurance coverage. Business Interruption Insurance comes in many forms and must be specifically purchased in most cases as an additional coverage under a property policy. Understanding the different type of business interruption coverage is important and may be the difference between a company surviving or not surviving a catastrophic loss.

A comprehensive legal review of your insurance programs including your property insurance is recommended on a regular basis.   

The judge overseeing Chrysler LLC’s bankruptcy entered an order on June 1, 2009 approving Chrysler’s motion seeking permission to sell substantially all of its assets to a new company.  The procedure by which this sale was accomplished, and by which a similar sale in the GM bankruptcy will likely be accomplished, is known in the bankruptcy and finance worlds as a “363 Sale,” after the relevant provision of the U.S. Bankruptcy Code.

(For those well-versed in 363 Sales, see Stephen Sather’s thoughtful post about practical and ethical concerns with the Chrysler sale here. )

Companies outside of bankruptcy that have strong cash reserves or access to capital should look for opportunities to acquire new product lines, expand their footprint, or strengthen their intellectual property portfolio when reading headlines about troubled firms.  363 Sales are not just for multi-billion dollar bankruptcies; businesses of any size in any type of industry can sell all or part of themselves through a 363 Sale.  There are no restrictions on the type of assets that can be sold through a 363 Sale.  Inventory, equipment, patents, trademarks, customer lists, trade secrets, accounts receivable, and other rights to payment are all possibilities for a 363 Sale.  There are limitations, however, on the sale of a Debtor’s assets in which a third party has an interest.  If a third party has an interest in a particular asset, whether a security interest, lien, etc., then that particular asset may only be sold in a 363 Sale if the third party’s claim is satisfied from the proceeds, or if other criteria are met.  

Generally, the purchaser at a 363 Sale acquires only the Debtor’s rights in the asset.  For example, if the Debtor was a co-owner of an asset, then the purchaser would only obtain the Debtor’s co-ownership interest.  In some instances, however, a 363 Sale can deliver outright ownership of an asset to the purchaser even when the Debtor has only a partial ownership interest in the particular asset.  This is often an appealing solution to resolve a dispute where a joint venture sours and the partners cannot agree on price or terms to move on.  The purchaser can acquire the entire asset—including an entire operating business or just a part of one—outright instead of merely owning the Debtor’s partial ownership interest in the asset.
 

As we continue our shift to a more knowledge-based economy, frequently the greatest assets of a company reside in the creativity of its employees. This is especially true for service companies in which the services can be repeated for multiple customers (example: software). Whether or not a company owns something that has been created by one of its employees will depend to a great extent on the category of intellectual property into which the creation is classified. Generally, the creations or discoveries of employees will fall into the intellectual property categories of copyright, patent, or trade secret.

The legal standard used in determining whether a company owns a patentable invention is narrower than the “scope of employment” standard used in copyright law. For patentable inventions, the courts look to whether the employee had a “duty to invent.” We return to the above example of Mr. Jones, the dispatcher. Suppose the creation by the dispatcher was capable of patent protection. Because Mr. Jones was a dispatcher, who did not have a specific duty to invent, it is likely the company would not own any patent that might be issued to cover the invention.

For trade secrets, the law is less clear than the law for copyright and patent. Generally, trade secret law states that a trade secret will exist if the underlying information has value by not being generally known and is the subject of reasonable measures to keep it secret. Trade secrets are normally the property of the company, and not the individual employees. However, as a practical matter trade secrets are harder to control than patents or copyrights. If an employee maintains a list of customer contacts on her personal cell phone, and the employer does not have a specific policy stating that customer contacts are the property of the employer; it will be difficult for the employer to assert that the contact information is a company trade secret when that employee leaves the company.

Companies should use their information technology management practices to bolster the company’s trade secret practices. For example, if the sales person above had been provided a company Blackberry, and if the system ensured that all contact information was stored on company servers; the company would have a stronger basis for arguing that the customer contact information is a trade secret. The company would be in an even stronger position if it had a written policy regarding the company’s trade secret practices. Additionally, trade secret obligations should be included in employment agreements as well.

Employment agreements can also be used to clarify the company’s ownership of copyrights and patents. The company can make clear that the “scope of employment” for copyrights is considered very broad. Also, the company could impose a duty to invent on all employees. Additionally, the employee agreement can clearly state, under a simple contractual basis, that all inventions or works of authorship created by employees are owned by the company.

A company can properly protect and claim ownership over the creations of its employees. Doing so requires a knowledge of the different areas of the law that apply and appropriate company practices. Those practices should take advantage of the applicable law and should fill in the gaps where the law does not adequately address the situation.
 

A recent court case illustrates the need for having advance tax planning when selling a business. In the case of Muskat v. U.S., No. 08-1513, 103 AFTR 2d _____, the taxpayer was majority shareholder in a corporation. He and the other shareholders sold all of the stock in the corporation to a third party interested in buying the business. The buyer also agreed to pay the taxpayer $1,000,000.00 for a non-compete agreement. The transaction was documented in this manner.

After the fact, the taxpayer realized that the non-compete proceeds would be taxable as ordinary income to him. He attempted to re-characterize the $1,000,000.00 payment as the sale of his personal goodwill and claim capital gains treatment.

The IRS denied his claim for a refund and the court agreed with the IRS. The court found that the taxpayer had a significant burden of proof to overcome the manner in which the transaction was documented. The taxpayer could not overcome his burden of proving that the payment was not for his non-compete agreement given the fact that all of the documentation reflected that was the purpose for the payment.

Perhaps the result would have been different if the taxpayer had considered this issue prior to the sale and agreed with the buyer that the payment was for his personal goodwill. There have been some cases where courts have allowed shareholders to sell their “personal goodwill” as opposed to corporate goodwill when selling a business. Therefore, proper tax planning in negotiating a sale or other transaction is very important.
 

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the “ARRA”), the comprehensive economic stimulus package. Among its other provisions, the ARRA includes an extension of the right to elect COBRA coverage, a reduction in COBRA premiums for eligible participants, and new notice obligations for employers.

Reduction of COBRA Premium: In addition to the opportunity to elect COBRA coverage, the ARRA offers a reduction in COBRA premiums for assistance eligible individuals. Assistance eligible individuals can receive a 65% premium reduction subsidy for the cost of COBRA coverage after February 17, 2009 (the day the ARRA was signed). But the premium reduction ends upon the sooner of: the eligibility for other group coverage or Medicare; after 9 months of receiving the reduction; or when the maximum period of COBRA coverage ends, whichever occurs first. Individuals paying reduced COBRA premiums must also inform their plans if they become eligible for coverage under another group health plan or Medicare.

Assistance eligible individuals are those former employees (and members of their families) who were eligible for COBRA at anytime between September 1, 2008 and December 31, 2009, lost their job due to an involuntary termination, and who elect COBRA coverage. Assistance eligible individuals are required to pay only 35% percent of the COBRA premium. Under the ARRA, once the beneficiary pays his or her 35% of the COBRA premium, the COBRA premium is considered paid. The employer, insurer, or health plan then picks up the remaining 65% of the premium, but is allowed a tax credit against certain employment taxes. The credit can only be taken after the 35% premium has been paid. According to the IRS, if the credit claimed is greater than the tax due, the Secretary of the Treasury will directly reimburse the employer, insurer or plan for the excess. The premium reduction only applies to periods of coverage beginning on or after February 17, 2009.

Additional Notice Obligations: Finally, the ARRA requires employers or plan administrators to provide eligible employees and covered family members with notice regarding the special COBRA-election period on or before April 17, 2009. Notice must also be provided regarding the premium reduction for those who had a COBRA-qualifying event between September 1, 2008 and December 31, 2009. This notice must be sent regardless of whether COBRA coverage was elected.

The Employee Benefits Security Administration is working on guidance regarding the ARRA, and the IRS may be able to provide additional guidance. Also, model notices are expected to be issued.
 

The federal First Circuit Court of Appeals recently rejected a taxpayer’s claim for a refund based on recharacterization of a payment for a non-competition agreement. Muskat v. United States, 2009 WL 211067 (1st Cir. 2009).

In connection with the sale of a business structured as an asset sale, the Buyer and the CEO (who was also the largest shareholder of the Seller) agreed in definitive documents that $1.0 million of the retained CEO’s new compensation package would be allocated to his non-compete covenants. Although the CEO initially recorded that payout as ordinary income for his 1998 taxes, in 2002 he filed an amended return for 1998, recharacterizing the $1 million payment as consideration of his personal goodwill, which he argued entitled him to capital gain treatment (which would have entitled him to a refund of over $200,000). The IRS denied Muskat’s request so he brought an enforcement action against the IRS. The district court, too, denied his request, finding that Muskat lacked “strong proof” that the non-competition payment was intended as payment for personal “goodwill” rather than as a covenant not to compete.
 

This case, however, raises a point of consideration for drafters and parties to non competition agreements and asset purchase agreements where one of the primary assets is goodwill. Although Muskat had to overcome a significant burden (of strong proof) to reverse the IRS qualification, the First Circuit did note that the compensation under the agreement expressly was for Muskat’s promise not to compete against the Buyer and “to protect [the target’s] goodwill.” Query whether Muskat would have prevailed if the documents allocated a portion of the consideration paid to his personal goodwill. Companies and individuals dealing in non-competition agreements in connection with the sale of a business or goodwill should consult a tax professional for advice about these issues.
 

Offers and sales of “securities” must be registered unless there is an applicable exemption from the federal and state securities laws. The most commonly known exemption is the private placement exemption set forth in Regulation D promulgated by the Securities and Exchange Commission under the Securities Act of 1933 (and corresponding private placement exemptions under applicable state “blue sky” laws).

Regulation D was primarily designed to facilitate capital raising transactions, as opposed to employee stock option or stock purchase plans. Many people are unaware that when an employer (or controlling Shareholder) sells stock to an employee (even at a discount, or even if to an executive), such a sale is subject to the securities laws and applicable federal and state exemptions from registration must be found.
 

In 1988, the SEC adopted Rule 701 which exempts from registration securities issued pursuant to a written compensatory employee benefit plan or written contract by a nonreporting (i.e., privately held) company. An employee benefit plan includes any purchase, savings, option, bonus, stock appreciation, profit sharing, thrift, incentive, pension, or similar plan. The participants in the plan (or party to the contract) must be employees, directors, general partners, trustees (if a business trust), officers, consultants, or advisers.

The plan or the contract setting forth the arrangement must be in writing and a copy must be given to the employees. The exemption is available only to the securities offered or sold by the issuer, which means the employee must find another exemption for their resale.

Rule 701 contains a limitation on aggregate sales price or amount sold in any consecutive 12-month period based upon the greatest of $1 million, 15 percent of the company’s assets, and 15 percent of the outstanding securities of the class.

Rule 701 also contains a disclosure requirement. The disclosure requirements apply only if the aggregate sales price or amount of securities sold during any consecutive 12-month period exceed $5 million. Subject to that qualification, an issuer relying upon Rule 701 is required to provide to investors, a reasonable period of time prior to sale, (1) a copy of the plan or contract; (3) a copy of the summary plan description required by ERISA or, if the plan is not subject to ERISA, a summary of the material terms of the plans; (3) information concerning risks associated with the securities sold; and (4) financial statements required by Part F/S of Form 1-A as of a date no more than 180 days prior to sale. Providing financial statements would be difficult for some issuers since, even though the statements do not have to be audited unless the issuer otherwise has audited statements available, they must be prepared in accordance with GAAP. It should err on the side of caution and make the required disclosures if there is a possibility that sales will exceed the $5 million limitation.

State Law

Until recently, Louisiana did not exempt sales of stock by employers to employees unless the sale was effected pursuant to a special type of stock option plan or pursuant to a stock purchase plan qualified under the Internal Revenue Code of 1986 (as amended), as Louisiana did not automatically exempt all types of transactions exempt under Federal Rule 701. Thus, unless one of the narrow Louisiana exemptions applied, privately held companies which desired to sell stock to Louisiana employees were forced to try to find another exemption, absent which they were forced to either (a) register the transactions with the Louisiana Commissioner of Securities, or (b) as was more likely the case, simply not proceed with the proposed sale to employees. However, the Louisiana Office of Financial Institutions recently promulgated a rule which provides that any transaction exempt under Federal Rule 701 is now exempt under Louisiana law. Louisiana Administrative Code, Title 10, Part XIII, § 801. A copy of the Rule can be found at www.ofi.louisiana.gov. The promulgation of this new rule has the effect of broadening the exemptions available to privately held companies which desire to sell stock to Louisiana employees.

For example, the sale of stock pursuant to a stock purchase plan (regardless of whether qualified under the Internal Revenue Code) or other written compensatory agreement which meets the requirement of Federal Rule 701 will now be exempt under Louisiana law. In addition, although Louisiana law has long exempted the issuance of stock options (and the exercise of such options) if issued pursuant to a plan which limited participation to employees only, Louisiana law did not exempt stock plans if the plan allowed for the issuance of options to non-employees (e.g., non-employee directors). Federal Rule 701 contains no such limitation with respect to option plans which authorize the issuance of options to non-employees and thus the new Rule seems to provide more flexibility for stock option plans as well.

Privately held companies which desire to sell stock or other equity ownership to one or more Louisiana employees should consider the securities laws implications of doing so before effecting any offers or sales.

Historically, the IRS has said that a disregarded entity could (and maybe should) use the owner's taxpayer identification number for income and other tax purposes. For employment tax reporting, the IRS issued Notice 99-6, 1999-1 CB 321 , which said that employment taxes for employees of a disregarded entity could be reported by a disregarded entity in one of two ways:

(1) Calculation, reporting, and payment of all employment tax obligations with respect to employees of a disregarded entity by its owner (as though the employees of the disregarded entity are employed directly by the owner) and under the owner's name and taxpayer identification number; or

(2) Separate calculation, reporting, and payment of all employment tax obligations by each state law entity with respect to its employees under its own name and taxpayer identification number.

The regulations provide the following example:

(i) LLCA is an eligible entity owned by individual A and is generally disregarded as an entity separate from its owner for Federal tax purposes. However, LLCA is treated as an entity separate from its owner for purposes of subtitle C of the Internal Revenue Code. LLCA has employees and pays wages as defined in sections 3121(a), 3306(b), and 3401(a).

(ii) LLCA is subject to the provisions of subtitle C of the Internal Revenue Code and related provisions under 26 CFR subchapter C, Employment Taxes and Collection of Income Tax at Source, parts 31 through 39. Accordingly, LLCA is required to perform such acts as are required of an employer under those provisions of the Internal Revenue Code and regulations thereunder that apply. All provisions of law (including penalties) and the regulations prescribed in pursuance of law applicable to employers in respect of such acts are applicable to LLCA. Thus, for example, LLCA is liable for income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes. See sections 3402 and 3403 (relating to income tax withholding); 3102(b) and 3111 (relating to FICA taxes), and 3301 (relating to FUTA taxes). In addition, LLCA must file under its name and EIN the applicable Forms in the 94X series, for example, Form 941, “Employer's Quarterly Employment Tax Return,” Form 940, “Employer's Annual Federal Unemployment Tax Return;” file with the Social Security Administration and furnish to LLCA's employees statements on Forms W-2, “Wage and Tax Statement;” and make timely employment tax deposits. See §§31.6011(a)-1, 31.6011(a)-3, 31.6051-1, 31.6051-2, and 31.6302-1 of this chapter.

(iii) A is self-employed for purposes of subtitle A, chapter 2, Tax on Self-Employment Income, of the Internal Revenue Code. Thus, A is subject to tax under section 1401 on A's net earnings from self-employment with respect to LLCA's activities. A is not an employee of LLCA for purposes of subtitle C of the Internal Revenue Code. Because LLCA is treated as a sole proprietorship of A for income tax purposes, A is entitled to deduct trade or business expenses paid or incurred with respect to activities carried on through LLCA, including the employer's share of employment taxes imposed under sections 3111 and 3301, on A's Form 1040, Schedule C, “Profit or Loss for Business (Sole Proprietorship).”

These regulations do not change the fact that a disregarded entity will continue to be disregarded for other Federal tax purposes.
 

Louisiana's non-competition statute, La. R.S. 23:921, was amended effective August 15, 2008, to provide additional situations in which non-competition agreements may be enforced. The recent amendments allow for the enforcement of certain non-competition and non-solicitation agreements between a corporation and its individual shareholders; between a partnership and its individual partners; and between a limited liability company and its individual members.

As with other types of non-competition and non-solicitation agreements, we anticipate the courts will enforce only those agreements which meet the strict wording of statute. Thus, it is extremely important that special care be taken in the drafting of such agreements.

        On May 19, 2008, OSHA Directive Number 08-03 became effective. That directive provides the criteria by which OSHA will conduct the 2008 Site-Specific Targeting (“SST-08”) plan. OSHA’s SST program is the main programmed inspection plan for non-construction workplaces that have 40 or more employees.

       OSHA’s SST-08 plan has three listings of “establishments” that will be targeted. The focus of the agency’s unannounced comprehensive safety inspections under SST-08 are approximately 3,800 high-hazard workplaces contained on OSHA’s Primary List.  The workplaces on the Secondary List and Tertiary List will only be inspected pursuant to SST-08 if all of the workplaces on the Primary List are inspected. 

          The Primary List of workplaces for the STT plan for 2008 (“SST-08”) is based on OSHA’s 2007 Data Initiative. The 2007 Data Initiative is based on injury and illness data reported to OSHA for the 2006 year by 80,000 workplaces with 40 or more employees in historically high-rate industries. Appendix A to SST-08 lists the workplaces that were the focus of the 2007 Data Initiative Survey.

          The 3,800 workplaces on the SST-08 Primary List are:

(1)      those worksites that have a DART rate at or above 11.0 – any           worksite that reported 11 or more injuries or illnesses resulting in       days away from work, restricted work activities, or job transfer for      every 100 full-time employees; or

(2)      those worksites that have a DAFWII (the Days Away From Work Injury and Illness) case rate at or above 9.0- meaning 9 or more           cases that involve days away from work per 100 full-time           employees.

         OSHA will also include 175 worksites from high-rate industries that reported low injury and illness rates to OSHA on the Primary List. The purpose for inspecting those low rate workplaces is to allow OSHA to verify the reliability of claims by establishments that have achieved low DART rates. The 175 worksites are approximately 10 percent (10%) of the workplaces that meet the low rate criteria. Moreover, the low rate workplaces chosen for inspection will not be eligible for a “records only” inspection.   Also, the low rate workplaces can only be deleted from the Primary List if the Area Office determines that the establishment consists only of an office.

        Additionally, a random sample of worksites that did not provide rate information in accordance with the 2007 OSHA Data Initiative survey will also be placed on the Primary List for the SST-08 plan. The purpose of the inspections of the non-responding workplaces is to discourage employers from not responding to the data initiative surveys to avoid inspections. These establishments may not be deleted from the Primary List.

SECONDARY LIST-

          A Secondary List for worksites to be inspected under the SST-08 plan will also be created. The Secondary List will contain workplaces:

          (1)      with DART rates of 7.0 or greater, but less than 11.0, or

          (2)      with DAFWII case rates of 5.0 or greater, but less than 9.0.

          The Dart rate for the Secondary List under the SST-08 plan did not change, but the DAFWII case rate was increased to 5.0 (meaning 5 or more cases that involve days away from work per 100 full-time employees). The OSHA notice states the Area Office can obtain additional workplaces to inspect from the Secondary List “[i]f an Area Office completes its inspections of all establishments on its Primary List before the expiration of this SST program . . . .”

TERTIARY LIST-

          SST-08 also allows an Area Office that completes all of the inspection on its Primary List and Secondary List before the expiration of the SST program to obtain additional workplaces to inspect from the Office of Statistical Analysis (“OSA”). The OSA will randomly select and provide each Area Office with the number of workplaces the office requested. However, no workplace with a DART rate of 4.6 or lower and a DAFWII case rate of 2.6 or lower will be included in the Tertiary List.

SST-08 INSPECTIONS IN WORKPLACES WITH FEWER THAN 40 EMPLOYEES-

          If a workplace that is on an inspection list under the SST-08 plan has fewer than 40 employees at the time the inspector arrives on site to begin the inspection, the inspection will be conducted if:

(1)      the workplace has more than 10 employees and

(2)      its DART rate or its DAFWII case rate is at or above twice the           private sector 2006 national incidence rate- meaning that the DART          rate is 4.6 or the DAFWII case rate is 2.6. 

          Further, the inspection will also occur if there are no records available at the time of the inspection. 

OSHA’S EMPHASIS INSPECTION PROGRAM-

          In Directive 08-03, OSHA has indicated that in addition to the SST-08 program, that it will continue the use of national and local “emphasis” inspection programs to target high-risk hazards and industries. The eight National Emphasis Programs (NEPs) now focus on amputations, crystalline silica, shipbreaking, trenching/excavations, petroleum refinery process safety management, microwave popcorn processing plants, and combustible dust. Furthermore, OSHA has 140 Local Emphasis Programs (LEPs) in place at this time.   

          Additionally, OSHA runs the Enhanced Enforcement Program (EEP) that focuses on employers that repeatedly ignore safety and health obligations under the OSHA regulations. The EEP cases can result from a programmed OSHA inspection (a SST, NEP, or LEP inspection), or an un-programmed OSHA inspection resulting from imminent danger, a fatality or catastrophic incident, complaints, or referrals.

FULL CONTENT OF DIRECTIVE 08-03-

          The full text of Directive 08-03 which establishes SST-08 can be located at http://www.osha.gov/OshDoc/Directive_pdf/CPL_02_08-03.pdf. Importantly, the method for setting the inspection schedules, including deferrals, the specifications for deletions of workplaces from the inspection cycle, and the inspection procedures are located at Sections XII, XIII, and XIV, respectively in the full text. 

In New Investment Properties, L.L.C. v. ABC Company, et al, 2007 W.L. 4305464 (4^TH Cir. 2007), the Court of Appeals addressed the range of personal jurisdiction. Like that of a shepherd’s crook, the court exercised personal jurisdiction over a non-resident defendant. Plaintiffs, New Investment Properties, L.LC. and Creek Apartments Team, L.L.C. (“Creek Apartments) are both Louisiana corporations and the owners of two apartment complexes in New Orleans. Defendant, R. P. Beckendorf, is a California corporation with its principal place of business in Los Angeles. It is an independent insurance agency which obtained flood and wind policies for an apartment complex. The policies were delivered to the Champion Group, Inc., which is a California corporation with its principal place of business in Los Angeles.   The two managers of the plaintiffs are both residents of California, who are also managers of the Champion Group in California.

The Court of Appeals reversed this ruling. It concluded that R. P. Beckendorf could have reasonably anticipated being brought into court in Louisiana as a result of the insurance policy it secured for the property. R. P. Beckendorf dispensed advice with regard to insurance policies and the levels of insurance coverage and ultimately secured the various insurance policies for the real property in Louisiana. The court found that it would be unreasonable to conclude that the minimum contacts were lacking simply because R.P. Beckendorf did not solicit business, place phone calls, or mail documents to Louisiana in connection with insurance for the Louisiana property. The court stated, “Although territorial presence frequently will enhance a potential defendant’s affiliation with a State and reinforce the reasonable foreseeability of suit there, it is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted. So long as a commercial actor’s efforts are purposefully directed toward residents of another State, we have consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there.” The court concluded that R. P. Beckendorf was cognizant of the fact the policies were procured for property in Louisiana and thus it should have reasonably anticipated being hailed into court to defend a claim of failure to procure appropriate insurance coverage.

On January 22, 2008, in Allen v. Administrative Review Bd., ____ F.3d ____, 2008 WL 171588 (5th Cir. 2008), the United States Court of Appeals for the Fifth Circuit (the federal appellate court circuit that includes Louisiana, Mississippi, and Texas) issued its first ruling addressing the employee whistleblower protections provided by the Sarbanes-Oxley Act (“SOX”). In the Allen ruling, the Fifth Circuit interpreted the scope of “protected activity” under SOX narrowly. Hopefully, this trend will continue and this new whistleblower protection for employees of publicly-traded companies will not be unreasonably broadened by the courts.

In Allen, the plaintiffs alleged their terminations in a company-wide reduction-in-force were retaliation for engaging in protected activity under SOX. Specifically, the plaintiffs alleged the following protected activity: (1) expressing concern to supervisors that the employer was not complying with an SEC Staff Accounting Bulletin; and (2) complaining about the employer’s erroneous interest calculations for customers and untimely refunds and billing problems related to the same. In order to satisfy the “protected activity” requirement of the statute, the employee need only show that he or she had a “reasonable belief” the employer was engaged in an unlawful employment practice, not that an actual violation occurred.

An administrative law judge held a six-day hearing and determined that plaintiffs did not have a reasonable basis for believing that the subject-matter of any of their whistleblowing involved potential violations of the laws for which SOX provides whistleblower protection. An administrative appellate board reviewed these findings and affirmed. The Fifth Circuit then affirmed and held the plaintiffs lacked a reasonable belief that they were reporting violations of law.

In reaching its decision, the Fifth Circuit held the plaintiff who expressed concern about the SEC Staff Accounting Bulletin could not have reasonably believed that she was reporting a violation of a law covered by SOX because that plaintiff was an accountant who should have known that an SEC Staff Accounting Bulletin was not an SEC rule or regulation and did not carry with it the force of law. Regarding the employee complaints about interest calculations, untimely refunds, and billing problems, the plaintiffs argued SOX applied because the company intentionally refused to disclose the problem to their shareholders. The Fifth Circuit rejected the argument this rendered the plaintiffs’ complaints “protected” because it only alleged a violation of some unidentified law relating to fraud against shareholders and not one of the laws enumerated under SOX.

In conclusion, the Allen decision is promising for employers who are publicly-traded companies. It indicates that the Fifth Circuit will likely interpret the scope of “protected activity” under SOX narrowly and not extend broad protections to a large class of employees of publicly-traded companies. Hopefully, this approach will discourage employees who have adverse actions taken against them for legitimate business reasons from bringing frivolous whistleblower suits under SOX.