Michigan Business Lawyer Blog

Under the Americans with Disabilities Act (ADA), employers may have employees undergo medical examinations only in certain limited circumstances. The ADA was passed to prevent employer from using medical information to discriminate against a disabled employee.

Under the ADA, an employer's ability to make disability-related inquiries or require medical examinations is analyzed in three stages: pre-offer, post-offer, and employment. At the first stage (prior to an offer of employment), the ADA prohibits all disability-related inquiries and medical examinations, even if they are related to the job. At the second stage (after an applicant is given a conditional job offer, but before s/he starts work), an employer may make disability-related inquiries and conduct medical examinations, regardless of whether they are related to the job, as long as it does so for all entering employees in the same job category. At the third stage (after employment begins), an employer may make disability-related inquiries and require medical examinations only if they are job-related and consistent with business necessity.

The ADA requires employers to treat any medical information obtained from a disability-related inquiry or medical examination (including medical information from voluntary health or wellness programs, as well as any medical information voluntarily disclosed by an employee, as a confidential medical record. Employers may share such information only in limited circumstances with supervisors, managers, first aid and safety personnel, and government officials investigating compliance with the ADA.

It is imperative that a business have the assistance and advice of competent legal counsel when determining whether to ask an employee to submit to a medical examination. These types of requests are fraught with peril and should only be made when a company is sure that it is in full compliance with the law.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Employment Law

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Michigan’s jobless rate rose again in September. This increase marks Michigan's highest monthly unemployment rate in 14 years for the second straight month.

The September unemployment rate is seasonally adjusted and rose from 7.4 percent in August. As bad as this news is, however, the current rate is still lower than in the early 1990's when Michigan had an annual jobless rate of 9.3 percent in 1991.

According to the Michigan Department of Labor & Economic Growth, last year's September unemployment rate was 7.1 percent. Michigan's unemployment rate remains above the national jobless rate, which also increased by one-tenth of a percentage point to 4.7 percent in September.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Michigan Business News

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The Michigan Department of Treasury has created a new Web site that is focused on recent state tax changes, including information on Michigan's new 6 percent tax on services.

The new website provides pages for specific tax changes, including the service tax, the Michigan Business Tax and the new income-tax rate. Information on the new service tax includes descriptions of services either subject to or exempt from tax, as well as filing dates, forms, and frequently asked questions.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Tax Issues

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I am often asked by clients (and prospective clients) how much protection a confidentiality agreement really provides. The answer: a lot. Confidentiality agreements are important tools that can be used to protect a company's trade secrets and proprietary information. Michigan state and federal courts routinely enforce properly drafted confidentiality agreements.

A recent example of this was provided by the U.S. District Court in Detroit. The case involved a breach-of-confidentiality lawsuit that Multimatic Inc. - a Canadian auto parts supplier -- brought against Faurecia Interior Systems U.S.A. Inc - a French auto parts supplier. The federal court awarded Multimatic nearly $10 million in damages against Faurecia.

The two firms entered into a confidentiality agreement in February 2004 under which Faurecia agreed to protect Multimatic’s design and technology for a proprietary crossbeam. Faurecia wished to use the crossbeam to install instrument panels in Chrysler’s JS program. The JS program is the code name for the replacement for the Chrysler Sebring and Dodge Stratus vehicles.

Faurecia breached the confidentiality agreement in April, 2005 when it solicited bids to manufacture Multimatic’s crossbeam design from Multimatic competitors. Multimatic sued Faurecia in June of 2005. The case went to trial in September of 2007.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Trade Secrets Law

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There are a number of steps a company can take to make sure it doesn't inadvertently convert its employees from "At-Will" employees to "just cause" employees. For example, some companies add "employment at will" wording to their job applications and employee handbooks to avoid claims of unfair firings. (Actually, all companies should add this language to their applications and handbooks.) Employees agree at the beginning of their employment that they are employed "at will" and may be terminated with or without cause.

The thing to remember is that while such wording may help protect against claims of unfair firings, but it is no defense to a discriminatory firing claim or for terminating an employee for legally protected conduct. A company can distribute handbooks with "employment at will" wording to all employees and ask them to sign an acknowledgment that they have received and understood the handbook.

Employment contracts and letters offering employment must be carefully worded to preserve your company's right to fire. For example, your employment contracts and letters, like your applications and handbooks, can state that employment is "At-Will" and that either the employee or the company may terminate the employment at any time, for any reason. A trusted lawyer should be engaged to help draft a form contract or offer letter for hiring new employees.

Many companies require that supervisors warn employees for substandard performance or improper conduct and to keep documentation of the warnings on file. Before firing, the company can try other forms of discipline such as suspensions or demotions. However, you should keep in mind that these kinds of warning and discipline procedures can undermine your company's ability to quickly and cleanly terminate employees. In extreme situations, these types of procedures effectively convert a private non-union company into a workplace that is governed by union-like warning and discipline procedures.

A qualified lawyer should be engaged to help prepare policies and procedures that will keep your company out of court.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Employee Handbooks , Employment Law

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In Michigan, a limited liability company (LLC) is created by filing a simple form of articles of organization with the Michigan Department of Labor and Economic Growth (formally known as the Michigan Department of Consumer and Industry Services).

The articles must include such information as the name of the company and its organizers, the address of the company's office, and whether the LLC's existence is perpetual, and if not, the date on which the company is to be dissolved. The articles may also contain provisions appointing individuals to manage the company, creating obligations for owners to contribute capital to the company, limiting the authority of owners to bind the company, and other information desired by the owners. However, most of that information is usually contained in the LLC's operating agreement (which is a private document), and not in the articles (which are public information).

An operating agreement is an agreement the members of an LLC generally enter into in order to specify how the LLC's internal affairs will be governed. An LLC's operating agreement is similar to the bylaws and shareholders' agreement of a corporation or to a partnership agreement. The operating agreement is private and confidential since it is not filed with a public authority. Operating agreements usually cover topics like capital contributions, allocation of profits and losses, distribution of earnings, management, transfer of investment, and dissolution of the company.

Some states require that limited liability companies be owned by at least two persons. However, in Michigan, the law allows for an LLC to be owned by a single person. There can be some creativity when it comes to owning an LLC. Generally, the owners of the company can be individuals, partnerships, trusts or corporations.

A lawyer experienced in Michigan LLC's can help you plan how to meet the various organizational and ownership requirements, prepare articles of organization and an operating agreement, and provide general advice for making your LLC venture a safe and productive venture.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Limited Liability Companies

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Excise taxes are the bane of private foundations everywhere. These tax rules and restrictions are much more onerous for private foundations than what public charities face. As such, unless there is some personal or business reason why someone would want to conduct their charitable activities through a private foundation, from a pure tax adminstration angle, obtaining public charity status is usually preferable to being classified as a private foundation.

There are a number of excise tax provisions that are imposed on private foundations and its managers to make sure the foundation is operated properly:

Continue reading " The Basics of a Michigan Private Foundation (Part 5) -- Excise Tax Issues " »

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Nonprofit Organizations

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The Republican candidates' debate took place in Dearborn, Michigan on October 9, 2007. As you might imagine, Michigan's most important industry was one of the main topics of discussion. The candidates were pretty much agreed that America needs to ween itself off of foreign sources of energy (i.e., oil). Pretty much all nine of the candidates said that the solution to America's energy needs must include alternative sources such as nuclear power, increased refinery capacity, ethanol production, and production of higher tech hybrids automobiles.

The debate was an especially important event for the Big 3. As we all know, Michigan's auto industry has been closing factories and hemoraging tens of thousands of jobs. The domestic new car marketshare of Ford, GM, and Chrysler is currently at an all time low -- just 50% according the current estimates.

The candidates each had their own unique takes on the economic situation. Senator McCain mirrored President Bush's position that the Big 3 need to take responsibility for creating compelling product that the American public will want to buy. Mitt Romney said he supports more investment in technology and research. California congressman Duncan Hunter called into question America's ability to protect its national security in the face of its massive loss of manufacturing capacity. Perhaps the most amusing debater of the evening was Fred Thompson, if only for the way he seemed to be totally out of touch with Michigan's economic situation. First, he painted a very rosey picture of the economy, calling it "dynamic" with the relevant economic indicators looking good. He finished off his upbeat assessment by stating that he would not agree to bail out the auto industry, because its problems do not arise to the level of "affecting the economy and national security."

Given the Democrats punishment of Michigan for breaking party primary rules, you would have thought the GOP debaters would have been able to take advantage of a golden opportunity to speak directly to Michigan voters on the issues that matter most. Mostly, they just looked out of touch.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Michigan Business News

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Most people understand the importance of a will, but many are not familiar with trusts. Both a will and a trust can be used to transfer your property when you die, but the similarity ends there. A will has no effect until you die, while a living trust becomes operative during your lifetime to manage your assets. While a will is part of the public record a trust is not, thus providing greater privacy. Trusts are usually easier to amend than wills and less likely to be contested by you heirs.

An experienced lawyer can prepare a living trust agreement that appoints a trustee to manage your property for your beneficiaries. To maintain control, you can be your own trustee. Commonly, the person creating the living trust is the first beneficiary while other provisions transfer the property to their heirs upon death. The trust agreement will provide details on your rights to change the trust, the duties of the trustee, how to distribute your property, how to provide for your family, and when and how to select a successor trustee.

You can cancel or change any of the provisions of your trust document, including the beneficiaries, the property they are to receive, and the trustee. You should review your trust every year to assure that it still meets your needs. A competent awyer can advise you about the legal and tax effects of your proposed changes and prepare a document that will accomplish those changes.

Living Trusts are not for everyone, but in the right circumstances they can be an important and useful estate planning tool for Michigan residents.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Estate Planning

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Courts have awarded damages for "unfair" firings. For example, it is illegal under federal pension laws to terminate employment to prevent an employee from getting vested pension rights. Contract rights can prohibit firing someone to avoid paying a large sales bonus.

Under the "employment at will" cases, courts have found firings to be unfair and illegal when an employee was led to believe that the employer provided lifetime employment and was discharged after a long history of promotions and raises with no mention of negative job performance in the personnel file.

Your company can adopt termination procedures to avoid illegal firing claims. For example, it may be advisable for two company representatives to be present when an employee is discharged. Also, a termination benefit with severance pay based on longevity may lessen the hostility of terminated employees.

The assistance of a good lawyer can help you prepare procedures and forms to make discharges less painful and more legally defensible.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Employment Law

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A private foundation is a separate legal entity that is recognized as a charitable organization by the Internal Revenue Service. Generally, most private foundations are set up as nonprofit corporations, although it is possible to set up a private foundation as a trust. A corporation is formed by filing the required paperwork with the designated state agency. In Michigan, that paperwork is called the "Articles of Incorporation" and the state agency to which the Articles must be submitted is called the Michigan Department of Labor and Economic Growth. Certain "magic" language must be included in the Articles regarding the foundation's charitable purpose in order for it to be able to qualify as a recognized private foundation under IRS rules.

After a trust or non-profit corporation is created, the foundation's purpose clause is further developed in the Bylaws. The Bylaws contain the internal rules for governing the foundation and adminstering it so that it accomplishes its charitable purposes. The Bylaws cover many topics, such as selection and operation of the Board of Directors and appointing officers to oversee the foundations day-to-day activities. As with any enterprise, it is important to carefully designate a Board of Directors and develop a succession plan.

Once these items have been taken care of, Michigan private foundations must file the Charitable Solicitation Questionnaire with the State of Michigan to inform the Attorney General whether the foundation intends to solicit funds from the public. An Application for Recognition of Exemption/Form 1023 is then submitted to the IRS. It takes approximately 3 months for the IRS to grant written approval of the foundation as a tax-exempt organization. Annually, Form 990PF must be submitted to the IRS to report financial information, including contributions received, income and expenses.

My next (and last) post on this subject will go over some of the excise tax issues that private foundations must deal with.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Nonprofit Organizations

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Statutes requiring franchise registration and the delivery of disclosure documents
to prospective franchisees prior to an offer to sell or a sale of a franchise have been enacted in California, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin. In addition to these states, Hawaii and Oregon impose disclosure, but not registration requirements on franchisors. Hawaii also requires that the disclosure document be filed with state authorities and thereby made available to the public. The business opportunity laws in Nebraska, Texas, and Kentucky require franchisors to provide disclosure to prospective franchisees, file a one-time notice of exemption, and pay the required fee to avoid the substantive requirements of the statute.

Twenty-two states (including some who have franchise disclosure statutes) have enacted “business opportunity” legislation requiring registration and/or disclosure of information concerning business opportunity ventures. Two other states have enacted laws that regulate only the substantive aspects of selling business opportunities. In some situations, these statutes are applicable to selling franchises. However, in many situations, if a state has a separate statute dealing with registration and/or disclosure relative to selling franchises, franchisors will be exempted from complying with that state’s “business opportunity” laws.

Most state franchise statutes require the advertising and promotional material that offers franchises for sale be submitted to state franchise authorities for review several days prior to the first publication or dissemination in the state. Each state also has various laws which govern a franchisor’s interaction with the franchisee as well as business opportunity laws that may apply to the offer to sell a franchise or the administration of a franchise agreement.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Franchise Law

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Let's face it. Firing employees is no fun. But, sometimes it must be done to move the company forward. That said, there are times when a business must be exercise even more caution than usual when considering whether to terminate an employee.

First of all, it's important to be aware of the laws that protect employees in certain special circumstances. Such laws prohibit discharge of employees because their wages have been garnished, because they must take time off for military service or federal jury service, because they exercise their rights under workers' compensation laws, because they file for bankruptcy, or because they refuse to take a polygraph examination.

It is also illegal to fire an employee because they refuse to break the law. Courts have awarded damages to employees who were discharged for refusing to engage in illegal activities. In one case, a salesman would not participate in an illegal price fixing scheme; in another an x-ray technician refused to perform an illegal catheterization; in yet another an accountant refused to improperly record bookkeeping transactions.

The courts have also awarded damages to employees who were fired for reporting violations to government agencies. Under so called "whistleblowing" laws, companies have been required to pay damages to ex employees who reported to the authorities the criminal activities of a co worker, reported a workplace safety violation, or filed a complaint concerning an overtime wage law violation. In a very recent Michigan case, former Detroit police offers won a highly publicized trial against the City of Detroit and Mayor Kwame Kilpatrick after being terminated for investigating suspected wrongful conduct by certain people in the Mayor's administration. After the verdict against them, the City of Detroit and Mayor settled the case for over $8 Million.

The bottom line is that you don't want your business being investigated or sued because you fired someone for a legally improper reason. Not only is it the wrong way to do business, it can wind up costing you big time. Just ask Mayor Kilpatrick.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Employment Law

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Generally speaking, contributions to public charities receive better tax treatment than contributions to private foundations. Federal tax law draws a distinction between the two because Congress considered private foundations in need of more regulatory oversight, and also considered donors to private foundations to be deserving of a somewhat less attractive deduction for their contributions.

The reason for this is that, in general, public charities receive funds from a broad group of donors and have boards that are responsive to such donors, while private foundations are often funded and controlled by one person or family. For example, the United Way and American Cancer Society are public charities because they receive substantial support from the general public. The Ford Foundation is a private foundation because it receives its funding from a single family.

However, it is possible to bridge the gap between these two type of charitable organizations and use a private foundation to reap almost all of the tax advantages that would normally be associated only with public charities. This is accomplished by using what is called a "pass-through private foundation."

Those who want to enjoy the benefits of a private foundation and also want to take advantage of the more favorable deduction limits of a public charity can annually elect pass-through status. A pass-through foundation must distribute its tax deductible contributions no later than the 15th day of the 3rd month after the close of the foundation's taxable year in which contributions are received by the foundation.

In my next post on this subject, I'll give a general overview of the mechanics of setting up a private foundation.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Nonprofit Organizations

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In Michigan, employees are by default employed on an "At-Will" basis. "At-Will" employees can be terminated for a good reason, bad reason, or no reason at all. In other words, you don't need a "just cause" to terminate an "At-Will" employee. However, it is surprisingly easy to have an employee's "At-Will" status changed into a "just cause" employment status.

Michigan courts have ruled that if an employer does something to create an expectation on an employee's part that they will be fired only if there is "just cause" for doing so, the employer's actions can convert that employee's status from "At-Will" to "just cause". This is true even if the employer did not intend to convert the employee's status. The conversion can happen inadvertently. For example, if a company's manager is pleased with an employee's performance and says something like "Keep up work like that and you'll always have a job here," that manager may very well have changed that employee's employment status to "just cause."

Managers and supervisors can be trained to protect the company's rights. They can be warned against making statements guaranteeing lifetime employment, promising promotions, or giving "inflated" employee evaluations. Careless statements made by managers and supervisors during hiring interviews and performance evaluations can be used against the company when a discharged employee claims that termination was unfair and illegal.

Guarding the "At-Will" employment status of a company's employees is one of the most important things management can do to protect a business against unwarranted, costly, and time-consuming employment litigation. But, "At-Will" employment status can be "easy come, easy go." Businesses must be vigilent that their practices and procedures are not undermining this important protection.

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Employee Handbooks , Employment Law

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Franchisors have a number of obligations to both prospective and actual franchisees. The main obligation is one of disclosure regarding the franchise system and the business opportunity available to the franchisee. This post discusses the Federal disclosure obligations imposed on Franchisors.

Under federal law, a franchisor is required to furnish to prospective franchisees a certain disclosure regarding the franchise at a specified time. Disclosure is only required to be made to prospective franchisees. A prospective franchisee is any person, including any representative, agent, or employee of that person, who approaches or is approached by a franchisor or franchise broker or any representative, agent, or employee thereof, for the purpose of discussing the establishment, or possible establishment, of a franchise relationship involving such person.

Continue reading " Could a Franchise Be a Viable Opportunity for a Michigan Entrepreneur? (Part 3) -- Franchisors' Federal Disclosure Obligations " »

Posted by Michael J. Hamblin | Permalink | Email This Post

Posted In: Franchise Law

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