Many of us in the Midwest are bracing for what is expected to be the worst snow storm of the season tonight and tomorrow. Many workplaces (including our office in Farmington Hills) will be closed tomorrow to avoid the safety risks of traveling through the ice and snow. If you close early, or for a full day, how do you handle payroll?

Generally speaking, “non-exempt” employees (those people who are eligible for overtime) may be sent home early, or told not to report the following day, without pay. A few states have rules that if an employee travels to work, he or she is entitled to a certain base amount of compensation, but Michigan and Ohio are not among them. Therefore, if you close early today or tomorrow, you do not need to pay non-exempt employees for the time off.

On the other hand, you do need to pay your “exempt” employees, which will include many salaried employees. The only reliable exception to the rule is if you are closed an entire week at a time, you need not pay for that week. While the forecast is bad, it should not have us shut down for a week, so this rule will not likely apply. You do have one other option with “exempt” employees. You can require that they use available paid time off to cover the closing. But if they don’t have sufficient time off available, you still must pay them the difference.

Stay warm, stay safe, and make sure you stay clear of any wage and hour violations.

Dan A. Penning

While the changes are mainly technical in nature, some are substantive and worth noting. Changes to the Michigan Limited Liability Company Act (“LLCA”) took effect on December 16, 2010.

The LLCA now:

• Enables corporations to easily convert into limited liability companies (“LLCs”) and vice versa. This represents one of the most important changes to the LLCA. Prior to the amendment, it was necessary to go through a formal merger of a corporation and an LLC to make the conversion. There are several reasons, such as tax implications and corporate governance, that may make it desirable to change the form of an existing business entity, and this process will make such a change much simpler.
• Clarifies how a person is admitted to an LLC as a member. Previously, the LLCA indicated that a person could only become a member of an LLC at the time of formation if the person signed the initial operating agreement, but LLCs are not required to have operating agreements. Now, a person will be admitted as a member if he or she signs an operating agreement, or if the person’s status as a member is reflected in the LLC’s records. Additionally, a person can be admitted by the other members in any other writing.
• Provides processes and guidelines for the approval of transactions with interested managers or agents (i.e., the transaction was fair, material facts of transaction were disclosed, and disinterested managers/members approved the transaction);
• Explicitly authorizes LLCs to provide broad indemnification of members, managers, and others, subject to some exceptions. The former LLCA seemed to some to only permit indemnification of managers, not members and agents.
• Explicitly authorizes LLCs to purchase errors and omissions (D&O) insurance for members, managers, and others. Like indemnification matters discussed above, the former LLCA was interpreted to prohibit LLCs from purchasing errors and omissions insurance on behalf of any person other than a manager.
• Limits the rights of an LLC member’s creditor. As a result of the amendments, a creditor cannot take the member’s membership interest in the LLC and either sell it or become a member itself; creditors receive only a charging order and the right to distributions that would be payable to the member. Under the prior version of the LLCA, creditors were attempting to go beyond attaching the economic rights of their debtors and attempting to participate in management of the LLC or sell the membership interest.
• Clarifies that members and managers of LLCs may be entities rather than natural persons.

For additional information regarding changes to the LLCA and how they affect your business, please contact me.

Dan A. Penning

When Members of Our Military are Transferred or Deployed Overseas

While cell phones and smart phones are a tremendous convenience, and, in some cases, a necessity, they come with an ever widening array of devices, capabilities, charges and service contracts. Ever try canceling a service contract early in order to take advantage of the latest-greatest plan offered by a competitor? While possible, the early termination fees are substantial. What happens, then, when members of our military are transferred or deployed overseas, to areas where their cell phones and smart phones are worthless? While most of us have probably never even thought of this, those who serve in our military have. Until now, their only choice was to continue to pay for service they couldn’t use for the unexpired term of the service contract, or pay the high, early termination fees charged by the service provider. At a minimum, service members facing transfer or deployment often found themselves having to deal with this trivial detail at a time when far more important matters needed to be attended to, and often from remote and obscure locations.

Early Christmas present from the Michigan legislature
This past December 9, 2010, the brave men and women of Michigan who serve in our nation’s armed forces received an early Christmas present from the Michigan legislature in the form of the “Military Personnel Wireless Contract Act.” The Act allows service members who are transferred or deployed overseas to terminate their wireless telecommunications service contracts without incurring early termination fees and penalties.

Key provisions of the Act are as follows:

1. The Act applies to active duty members of the US armed forces, the reserve, or the Michigan National Guard.
2. The Act applies in situations where the service member is transferred or deployed overseas, on active duty, for a period of 179 days or more, to an area where the service member’s existing wireless service provider does not offer facilities-based wireless service.
3. The Act allows the service member, or his or her spouse, to terminate the service contract, if: (i.) the service member is a party to the contract; (ii.) the contract was entered into on or after December 9, 2010; (iii.) the contract was entered into before the service member was transferred or deployed overseas; and (iv.) the contract does not involve service to a wireless telecommunications device installed in a motor vehicle.
4. Termination of the contract is effective upon the service member, or his or her spouse, providing the service provider with: (i.) written notice, sent by certified mail, stating the service member’s intention to terminate the contract; (ii.) a copy of the service member’s orders transferring or deploying him or her overseas; and (iii.) the service member returning to the service provider any equipment acquired from the service provider and not owned by the service member, within thirty (30) days of the notice.
5. The service member remains responsible for all fees up to the date of termination and the Act does not apply to prepaid wireless telecommunications services.
6. Upon the service member’s compliance with the Act, the service provider may not impose an early termination charge.
7. Service providers who disregard the Act face civil action by the state attorney general and fines up to $2,000 per violation. Money recovered by way of fines will go to the Michigan, Military Family Relief Fund.

The full text of the Act can be found in Michigan Compiled Laws, Sections 484.1901 to 1907

Dan A. Penning

There is good news in Michigan for those who are less-than-exemplary drivers! A new law gives drivers who are cited for moving violations a chance to keep the corresponding points off their driving records. If a driver who has committed a moving violation successfully completes a basic driver improvement course within 60 days after receiving a notice of eligibility from the secretary of state, no points will be posted to that individual’s driving record. Further, the state will not disclose any information relating to the violation to the driver’s insurance company.

The opportunity to attend a driver improvement course will not be made available, however, to just any hapless driver who gets a ticket.

Drivers will be ineligible for the course if any number of factors apply, including the following:

1. The driver is licensed as a commercial driver or was driving a commercial vehicle.
2. The violation is a criminal offense.
3. The driver is issued more than one ticket arising from the same incident.
4. The driver’s license is suspended as a result of the incident.
5. The driver previously completed a basic driver improvement course.
6. The driver is unlicensed or has a license that is is restricted or suspended.
7. The driver has three or more points on his or her driving record.

Changing driver behavior
The thinking behind the new law is that fines and increased insurance rates aren’t enough to change driver behavior. The hope is that, over time, the addition of the driver improvement course will change driver behavior, which in turn will result in measurably fewer collisions and moving violations.

May all your excursions be safe ones in this new year!

Dan A. Penning

New Year – New (Extended) Tax Laws

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. (The “Act”)

After great speculation and debate, Congress has now passed and President Obama has signed a tax package which gives individuals and businesses some predictability for the next two years through December 31, 2012. The Act extends the Bush-era tax cuts, provides estate tax relief, an “AMT” patch, a reduction in employee paid payroll taxes and provides businesses with new incentives to make capital investments by extending depreciation and tax credits.

Individual Provisions

The following is a summary of certain individual provisions addressed in the new Act. This summary is not all inclusive and everyone should consult his/her tax advisor to review the full extent of the Act and its impact on your specific circumstance.

• Income Tax Rates
  Current rates will continue for the next two years (2011 & 2012). The top rate will remain 35%. Most individuals in the 15, 25, and 28% rate brackets would have seen their rates increase by 5% or more without passage of the new Act.
• Payroll Tax
  Individuals and employees or those who are self-employed will receive a reduction in their tax equal to 2% reducing employees tax contributions from 6.2% to 4.2% and self-employed individuals from 12.4% to 10.4%.
• Capital Gains/Dividends.
  The rate on capital gains was scheduled to increase to 20% but under the new Act the rate will remain at 15%. (Zero percent for taxpayers in the lowest brackets of 10% and 15%). The tax on certain qualified dividends would have increased and reverted to the tax on ordinary income at the increased rates referenced above. The Act also extended special rules for the excludable gains on the sale of small business stock, collapsible corporations and accumulated earnings tax.
• Tax Extenders/Itemized Deductions
  Tax incentives including state and local sales tax deductions, higher education tuition deduction, teacher’s classroom expense deduction, charitable contributions of IRS proceeds and charitable contributions of appreciated property for conversation purposes. The prior repeal of certain limitations on the use of itemized deductions by higher income individuals has also been extended.
• Alternative Minimum Tax (AMT)
  The two–year AMT patch will prevent in excess of an estimated 20 million middle income individuals from paying increased tax. The exemption from AMT for 2010 is $47,450 for individuals and $72,450 for married taxpayers filing jointly. For 2011, the exemptions increase to $48,450 for individuals and $74,450 for married taxpayers filing jointly.
• Tax Credits
  Several child and educational credits were also extended including child tax credits, earned income credit, adoption credit, dependent care credit, employer-provided child care credit and deductions, credits and exclusions under the Educational Assistance Exclusion, Student Loan Interest Deduction and Coverdell Education Savings Accounts and Scholarships.
• Federal Estate Tax
  After a one-year period with no estate tax, the tax will resume beginning in 2011 with a maximum rate of 35%. There is an exclusion (credit) in the amount of $5 million for individuals and $10 million for married couples who implement certain planning techniques to utilize the first spouse to die’s credit. The act also reinstates the “stepped up basis rules” for property acquired from a decedent’s estate providing for the ability to avoid a tax on property that appreciated in value over a decedents’ lifetime. The Act also provides additional benefit and flexibility by allowing a surviving spouse to take advantage of the unused portion of the estate tax exclusion of his/her deceased spouse. The Act also provides for a Gift tax exclusion of $5 million for individuals but this amount, as was the rule before, reduces the estate tax exemption dollar-for-dollar for qualified gifts made by individuals during their lifetime.
• Homeowner Credits/Deductions
  The Act extends the deduction for certain premiums paid for qualified mortgage insurance for acquisition indebtedness on a residence for a period of one year subject to certain other limitations. The Act also provides for continued tax credits for energy efficiency home improvements.

Business Provisions

Businesses also received extended and other benefits under the Act. These benefits included the ability by businesses to write off 100% of their equipment and machinery purchases and additional 50% first year depreciation. The Act also provides for work opportunity tax credits, research tax credits and business tax extenders including a 15 year recovery period for qualified leasehold improvements, restaurant building, retail improvement credits and tax incentives for empowerment zones.

Penning to Attend National Estate Planning Conference
45th Annual Heckerling Institute on Estate Planning

Your planning needs remain our top priority. In furtherance of our commitment to maintain our expertise on estate, tax, business and succession planning, Dan Penning will attend the University of Miami’s 45th Annual Heckerling Institute on Estate Planning the week of January 10, 2011 to hear presentations by nationally-regarded experts on the planning implications of the new tax act for 2011 and beyond. In addition, the conference will host presentations with updated information and strategies focusing on planning for lifetime transfers of individual wealth/assets and business interests.

Allocating our resources to the investment of time and expense in attending these types of conferences ensures that our clients and the professionals we work with have access to the most current and extensive information available to assist in the preservation of personal and business assets.

Please stay tuned for future estate planning updates resulting from the conference.

Dan A. Penning

Internships and The Fair Labor Standards Act

Wright Penning & Beamer regularly receives inquiries from law school students (or their parents) asking whether our law firm offers unpaid internships that might provide exposure to the legal practice. As someone who routinely cautions employers about wage and hour issues under the Fair Labor Standards Act (FLSA), I am wary of the prospect of having someone working in our offices without receiving a paycheck. In a recently published Fact Sheet (Fact Sheet #73) the United States Department of Labor (DOL) reiterated the DOL’s six-prong test to determine whether an intern is truly exempt from compensation.

Six points must be satisfied
Under the DOL’s test, each of the following six points must be satisfied if the employer sponsors the internship but does not pay compensation to the intern:

1. The internship mirrors training that would be given in an educational environment;
2. The internship is for the primary benefit of the intern;
3. The intern works under close supervision and does not displace regular workers;
4. The employer gains no immediate advantage from the activities of the intern and, on the contrary, may actually have its operations slowed by the intern;
5. There is no guarantee of employment at the end of the internship; and
6. The employer and the intern both understand that there will be no compensation paid to the intern.

The most difficult point to satisfy
The most difficult point to satisfy is the fourth, to-wit, showing that the employer does not receive an immediate advantage. Using our office as an example, an intern who spent most of her day filing papers or updating the computer database would probably be entitled to compensation. On the other hand, if the intern spent most of her time performing legal research on general practice areas – as opposed to a specific, pending case – this prong would likely be satisfied.

Who receives the benefit
The best advice is to focus on who truly receives the benefit. If the employer is making accommodations in its workplace to allow a student to explore career objectives – and if the accommodations are as much of a hassle as a benefit to the employer – the employer is probably on the right track. Additionally, if an actual internship program is established and coordinated with a local school or university to complement student education, that internship program would be viewed much more favorably by the DOL.

You get what you pay for
At the end of the day, you really do get what you pay for. If you expect to get a day’s work without paying a day’s wage, you can also expect a critical eye from the DOL.

Dan A. Penning

“Christmas reminds us we are not alone. We are not unrelated atoms, bouncing and ricocheting amid aliens, but are a part of something, which holds and sustains us. As we struggle with shopping lists and invitations, compounded by December’s bad weather, it is good to be reminded that there are people in our lives who are worth this aggravation, and people to whom we are worth the same. Christmas shows us the ties that bind us together, threads of love and caring, woven in the simplest and strongest way within the family.” -Donald Westlake

As many of us prepare to spend the Christmas holidays with family, we may find that we have several names left on our lists for whom we have yet to find the perfect gift. Supporting local stores in our communities is like giving a Christmas gift to our neighborhoods and downtowns, in addition to the individual who is actually receiving the gift. Consider seeking out local merchants with whom to make connections and from whom to make purchases for our gift lists.

According to www.buylocalthinkglobal.com, local Michigan businesses:

• produce jobs for local communities
• are more likely to utilize local ads, banks and other services
• donate more money to nonprofits and are more accountable to their local communities
• preserve the economic diversity of our communities and the unique character of our neighborhoods.

Buying from small businesses is so important to our communities because it helps keep jobs in town. The local gift shop is unlikely to close its doors for the purposes of moving elsewhere. If a local store shuts its doors, it is usually for good. Money spent in our local towns means more money stays in our communities because it circulates within the local economy. In 2004, a study concluded that $100 spent in local businesses meant that $68 remained in the local community, compared to $43 for the big-box stores. That is a difference of $25 for every $100 that we spend. It helps keep our downtowns in business which are also apt to sponsor little league teams and support community and local events.

Supporting local shop-owners is a way to be mindful of where we are spending our money and where the money goes after we purchase a gift. Moreover, the person behind the counter is, on many occasions, the shop-owner who is eager to help us and answer our questions. It may, at times, feel more “comfortable” to walk into a big-box store, shop anonymously, pay for our goods with hardly a word exchanged aside from the rehearsed and repetitive phrases the clerks are required to say, and leave with a big shopping bag, having done most of our shopping in one stop. But Christmas is about connecting with people, and connecting with people by shopping in our local businesses helps spread the joy of the holiday season to our communities while keeping more money in our own downtowns and neighborhoods.

Dan A. Penning

In September of last year, we told you about the Genetic Information Nondiscrimination Act of 2008 (GINA), which went into effect November 21, 2009. GINA applies to employers with 15 or more employees. It prohibits discrimination in employment on the basis of genetic information, and it strictly limits the disclosure of that information.

How employers can ensure compliance
The Equal Employment Opportunity Commission (EEOC) is charged with issuing regulations to implement the employment-related provisions of GINA. On November 9, 2010, the EEOC issued its regulations, giving more insight and assistance into how employers can ensure compliance with GINA. Here are some highlights of GINA and the corresponding EEOC regulations:

• GINA is concerned primarily with protecting individuals who may be discriminated against because an employer thinks they are at increased risk of acquiring a condition in the future. (GINA would not protect against individuals discriminated against on the basis of certain forms of breast cancer that have a genetic basis, for example, but would protect an individual whose parent experienced early-onset Alzheimer’s disease.)
• GINA prohibits the use of genetic information in making decisions related to terms, conditions, or privileges of employment, including hiring, firing, and opportunities for advancement. This prohibition is absolute and there are no exceptions. Employers must make their employment decisions based on the individual’s current ability to perform the job.
• Genetic information includes: information about an individual’s genetic tests, or those of their family members; family medical history; requests for and receipt of genetic services by an individual or family member; genetic information carried by an individual or family member or of an embryo legally held by the individual or family member using assisted reproductive technology.
• GINA prohibits employers from requesting, requiring, or purchasing genetic information.
• There are some narrow exceptions where an employer may acquire genetic information. For example, genetic information was acquired inadvertently (e.g., manager overhears a discussion between co-workers; supervisor asks employee about his general well-being or that of his family member; manager is connected to employee on social networking site and employee provides family medical history on her page). An exception also exists where an employee is asking for leave under FMLA because family medical history is a necessary part of the certification process.
• To lawfully request health-related information from an employee (e.g., to support an employee’s request for reasonable accommodation under the ADA, or a request for sick leave), the employer should provide a warning to the employee similar to the following:
• The Genetic Information Nondiscrimination Act of 2008 (GINA) prohibits employers and other entities covered by GINA Title II from requesting or requiring genetic information of an individual or family member of the individual, except as specifically allowed by this law. To comply with this law, we are asking that you not provide any genetic information when responding to this request for medical information. “Genetic information,” as defined by GINA, includes an individual’s family medical history, the results of an individual’s or family member’s genetic tests, the fact that an individual or an individual’s family member sought or received genetic services, and genetic information of a fetus carried by an individual or an individual’s family member or an embryo lawfully held by an individual or family member receiving assistive reproductive services.
• Employers must tell their health care providers not to collect genetic information as part of an employment-related medical exam.

Again, employers should take great care when dealing with their employees’ genetic information. Feel free to consult with me or another employment law attorney at Wright Penning & Beamer regarding compliance with GINA in your organization.

Dan A. Penning

Changes to Michigan’s Landlord-Tenant Law Allow Some Residential Tenants to Be Released From Their Leases

The Michigan Landlord Tenant Relationships Act (the “LTRA”) regulates the relationship between landlords and tenants of residential property in any situation where the landlord requires the tenant to pay a security deposit. Pursuant to amendments to the LTRA that took effect on October 5, 2010, landlords must now release tenants from their leases if the tenant submits written notice and documentation of a reasonable apprehension of present danger to the tenant or to a child of the tenant due to domestic violence, sexual assault or stalking. Key provisions of the amendments include the following:

1. In order to qualify for the release, the tenant must submit to the landlord by certified mail a written notice of the tenant’s intent to seek a release from his or her lease obligation upon the basis that the tenant has a reasonable apprehension of present danger to the tenant or to a child of the tenant due to domestic violence, sexual assault or stalking.
2. The submittal to the landlord must include documentation consisting of 1 or more of the following:
   (i.) a copy of a valid personal protection order, or an order removing an abusive person from the leased premises;
   (ii.) a valid probation order, conditional release or parole order indicating that the released person is to have no contact with the tenant or with a child of the tenant;
   (iii.) a written police report pursuant to which charges have been filed; or
   (iv.) a written report of the tenant verified by a qualified third party attesting to the factual basis for the tenant’s reasonable apprehension of present danger.
3. The landlord may include a statutorily prescribed provision in the lease advising the tenant of this right, or post a notice of the right in the landlord’s property management office, or deliver notice of the right to the tenant at the time the lease is signed.
4. Where the lease obligates multiple tenants to pay rent, only the tenant who meets the requirements of the new provisions is released from the lease; all other tenants remain subject to the lease.
5. The release:
   (i.) does not apply to prepaid rent;
   (ii.) is only effective as to rent that becomes due the first day of the second month after the notice is given;
   (iii.) and is only effective upon the tenant vacating the leased premises. The amendments do not in and of themselves prevent the landlord from withholding the tenant’s security deposit.
6. The landlord may not provide forwarding address information of the tenant to the person who was the source of the tenant’s concerns.
7. The terms “child,” “domestic violence,” “qualified third party,” “sexual assault,” and “stalking” are all defined in the amendments.
8. The amendments apply only to residential leases that are entered into, renewed or renegotiated after October 5, 2010.

The full text of the amendments can be found in Act No. 199 of the Public Acts of 2010; Michigan Compiled Laws Section 554.601b. Click here to download a copy of the amendments.

Dan A. Penning

The Michigan Construction Lien Recovery Fund, in effect for nearly 30 years, was recently dissolved by the Michigan Legislature. The Fund was initially established to protect homeowners who pay a residential building contractor and are left holding the bag when that contractor fails to pay the subcontractors and suppliers who provide labor or material on a project. Before the Fund was established, if the contractor was uncollectible the subcontractors and suppliers had no recourse but to go after the homeowner for payment. The end result was that unlucky homeowners sometimes ended up paying twice for the same work.

Large number of claims
The Fund was intended to remedy that problem, providing a resource from which subcontractors’ and suppliers’ claims could be settled in those cases where they were unable to collect from the contractor. Sadly, the Fund has been exhausted due to the large number of claims made against it in recent years.

Homeowners at increased risk
The elimination of the Fund leaves subcontractors and suppliers at increased risk of not getting paid for their labor or materials, which in turn places homeowners at increased risk of being drawn into litigation with subcontractors and suppliers. Homeowners will be able to avoid paying twice if they can prove that they paid the contractor in full, but subcontractors and suppliers will no longer have an alternative source of payment available to them (particularly if the contractor has absconded or is otherwise uncollectible).

8 Protection recommendations
In light of the dissolution of the Fund, we recommend that homeowners, subcontractors and suppliers consider taking the following steps to protect themselves:

1. carefully assess the financial strength of the general contractor;
2. insist on a written contract, either prepared or reviewed by your attorney;
3. maintain receipts for all materials provided;
4. preserve proof of all payments made;
5. if you are a subcontractor, exchange a waiver of lien directly for a check;
6. if you are a homeowner, obtain waivers of lien from the general contractor and all subcontractors at the time of payment;
7. require that checks be joint; and
8. insist on a construction escrow fund to be held by a third party.

Dan A. Penning