AMM Blog

Welcome to the AMM Law Blog, a tool to help you keep up to date on current legal developments over the broad spectrum of our practice areas.  We welcome your comments and suggestions to create a dynamic forum that will be of interest to readers and participants.

 

For the past couple years, we warned you in our business law blog that this time would come. It’s here; the federal Corporate Transparency Act (the “Act”), requiring many businesses to report beneficial ownership information about their owners and anyone with substantial control of the company, went into effect on January 1, 2024. This means that any “reporting company” in existence prior to January 1, 2024 has until January 1, 2025 to report; any reporting company that was formed on or after January 1, 2024 but before January 1, 2025 has 90 days after formation to report; and any reporting company formed on or after January 1, 2025 has 30 days after formation to report.

It should be noted that on March 1, 2024, the United States District Court for the Northern District of Alabama held that the Act was unconstitutional because Congress exceeded its authority. National Small Business United d/b/a the National Small Business Association, et al. v. Yellen, Case No. 5:22-cv-1448-LCB. The Financial Crimes Enforcement Network (FinCEN), the agency overseeing the administration of the Act, has announced that it will abide by the court’s order for as long as it remains in effect. This means that it will not seek enforcement against the plaintiffs in the case (Isaac Winkles, reporting companies of which Mr. Winkles is a beneficial owner or applicant, and members of the National Small Business Association as of March 1, 2024). It seems likely that this decision will be appealed. In the meantime, we encourage all entities formed after January 1, 2024 (other than those who were members of the National Small Business Association as of March 1, 2024) to comply with the Act given the 90-day compliance period. Entities already in existence on January 1, 2024 may want to await further developments given that their compliance deadline is months away.

How do you know your business is a “reporting company” required to file reports?

Any U.S. and foreign business entity that does not qualify for an exemption is required to file a Beneficial Ownership Information Report (BOIR). The Act exempts 23 specific types of entities, including banks, insurance companies, and other financial businesses, which are generally already subject to some other form of Federal government oversight - a full list and guide to these exemptions can be found here.

What information must be reported?

Company Information

Once it is determined that your business is a required reporting company, you must report certain basic information about the company, such as its legal name, any trade names, its principal business address, jurisdiction of formation, and EIN.

Beneficial Owner Information

You must also identify the beneficial owners. A beneficial owner is any individual who has substantial control over the business or owns or controls at least 25 percent of the business’ ownership interests. According to FinCEN, ownership interests include equity, stock, convertible instruments, profit interests, or any other type of instrument, contract, or mechanism used to establish ownership. There are five exceptions that may apply to individuals who might otherwise qualify as beneficial owners, including minor children, custodians, employees, inheritors, and creditors.

Company Applicant

Reporting companies formed after January 1, 2024 are also required to report the individuals doing the physical filing but also those directing the individual that is physically filing the BOIR. A reporting company will have at least one company applicant, and at most two.

How can you prepare?

Before you file, have the following handy:

Reporting Company:

  • Full legal name
  • All “doing business as” (DBA) names
  • Current U.S. address for its principal place of business

Jurisdiction of formation

  • IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN))

Beneficial Owner and Company Applicant:

  • Full legal name
  • Date of Birth
  • Complete current address (Beneficial Owner – residential address; Company Applicant with no ownership – the business address)
  • Unique identifying number and issuing jurisdiction from, and image of, U.S. passport, State driver’s license, or state identification.

How to file?

Reporting companies may look to companies providing filing assistance; however, FinCEN does provide instructional resources which can be found here.

Penalties for non-compliance

Penalties are severe and can be imposed on senior officers and beneficial owners themselves. The penalties including fines for willful non-compliance of up to $500/day and/or criminal confinement for up to two years.

On January 9, 2023, the United States Department of Labor issued a new final rule regarding the proper classification of workers as independent contractors under the Fair Labor Standards Act. While the rule is technically new, it is, in substance, a recitation of the applicable law regarding the proper classification of workers set forth by the Supreme Court.

Prior to recent rule making, caselaw guided the determination of whether a worker was an employee or independent contractor under the Fair Labor Standards Act (“FLSA”). In United States v. Silk, the United States Supreme Court outlined the factors relevant to the determination: degree of control, opportunities for profit or loss, investment in facilities, permanency of relations and skill required in the claimed independent operation. The Silk court noted that “no one factor is controlling.” Just about every court, federal or state, applies the same or similar standard to determine the issue under the FLSA or state statutes regarding minimum wage and overtime pay.

The new rule and the case law arose under the FLSA, but workers have challenged the classification in other contexts as well. In addition to the fact that independent contractors are not protected by the FLSA and state statutes that impose overtime and minimum wage protections, they lack other protections as well. They are not entitled to employee benefits such as health care, or to unemployment compensation under most state laws. They are generally not covered by workers compensation policies. Employers do not have to pay the employer portion of federal and state taxes for independent contractors. Many employers sought to lower the cost to employ workers by improperly classifying them as independent contractors. In these contexts, courts, regulators and state and federal agencies generally apply a test similar to that set forth in United States v. Silk. The Internal Revenue Services has its own twenty-three factor test, but the factors are similar to the Silk factors.

Employers face expensive consequences for classifying an employee improperly. A finding by a court that an employer improperly classified an employee as an independent contractor can result in liability under the FLSA and state minimum wage and overtime laws; the Employee Retirement Income Security Act; federal and state tax laws; and, unemployment compensation laws. Each of these statutes includes penalties and attorney’s fees provisions in favor of the employee. Tax, unemployment and workers compensation authorities may require an audit of all workers to ensure compliance. In the event an employer has failed to pay employee taxes or contribute to unemployment or workers compensation funds, the employer will be subject to penalties for those violations. If the employer has misclassified an entire class of worker, this could multiply the consequences.

In 2021, the Department of Labor issued a Final Rule (the “2021 Rule”) to implement regulations interpreting the factors set forth in United States v. Silk. The 2021 Rule attempted to assign weight on certain of the six factors, despite the consistent language of the case law that no one factor is controlling. That rule stated that the worker’s “economic dependence” on the employer was the “ultimate inquiry”. Out of the six factors cited in United States v. Silk and its progeny, the 2021 Rule stated that the “nature and degree of control over the work” was the most important factor, reciting that the remaining factors “are less probative and, in some cases, may not be probative at all.” This resulted in a more employer-friendly interpretation of the regulation.

However, the truth is that these types of regulations are merely interpretations of the FLSA, and the court will be the last word on interpretation of the statute. The same is true of similar state statutes.

The new rule mirrors the language of the case law. It recites that the ultimate inquiry is the worker’s “economic dependence.” It then identifies that the six factors “should guide an assessment of the economic realities of the working relationship and the question of economic dependence.” The rule requires, as does the applicable case law, that this is a “totality of the circumstances” analysis, and the weight to give each factor will depend on the facts of each particular case.

The rule then recites the six factors, and provides guidance in how to apply those factors, including examples for each factor. In this way, this rule does put its thumb on the scale in favor of a finding that the worker is an employee. For example, the rule recites that the analysis of whether or not there is an “opportunity for profit or loss” depends on the worker’s “managerial skill”. The rule recites that the ability to work more hours or take more jobs when the worker is paid a fixed rate per hour does not indicate that the worker is properly classified as an independent contractor.

The new rule does not dramatically change the analysis any more than the 2021 Rule did. The courts will still be the last word on classification under the FLSA. The new rule is consistent with federal and state caselaw on the topic. In the end, it is the courts that will make those determinations, and the case law provides the best analysis of whether an employer has properly classified an employee. Further, the rule applies only to the FLSA. Some states, such as California, have stricter independent contractor rules. The IRS has its own rules. The regulation’s guidance is helpful, but there is no change as to how to analyze the issue of a classification of the worker: employers will need to analyze the particular worker under the applicable state and federal case law and regulatory guidance and make a decision that factors in the expensive consequences of getting it wrong.

Patricia Collins is a Partner and Employment Law Chair with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on employment, commercial litigation and health care law. Patricia Collins can be contacted at 215.230.7500 ext. 126.


Reprinted from the October 18th edition of The Legal Intelligencer. (c) 2023 ALM Media Properties. Further duplication without permission is prohibited.

On January 5, 2023, the Federal Trade Commission (“FTC”) issued a proposed final rule that would result in a ban of non-compete agreements, and would require employers to rescind existing non-compete agreements. The public comment period for the rule terminated on April 19, 2023, but the FTC has acted aggressively to ban non-competes in the meantime. The FTC has filed complaints against companies that use non-compete agreements, resulting in consent orders that accomplish the recission of hundreds of existing non-compete agreements. The United States Department of Labor, the National Labor Relations Board and even the courts have also taken steps to deter the use of non-compete agreements.

Last year, we warned you in our business law blog that a new law, the federal Corporate Transparency Act, would be going into effect that would require many businesses to provide information about their owners and anyone who controls the company to the federal government. We now know that this law will take effect on January 1, 2024. Reporting companies in existence prior to that date have until January 1, 2025 to comply; companies formed on or after that date must comply within 30 days after formation. Once the data has been entered, companies are obligated to update any information that becomes outdated or is incorrect. The information will be included in a database that will be used to combat money laundering, financing of terrorism, and other illegal activities.


With yet another celebrity divorce making headlines, this time with Joe Jonas and Sophie Turner, there is more buzz on Prenuptial Agreements, as it has been reported that Joe and Sophie have one in effect. Entering into a Prenuptial Agreement is common for celebrities, because they often have a great deal of wealth that they want to protect. Similarly, because of their high income, many will want to limit the alimony awarded to their spouse after a divorce. Last, but not least, celebrities are highly motivated to achieve a prompt resolution in order to avoid their case playing out in the court system – with all the negative publicity that may entail.

So we know that the rich and famous are well advised to utilize Prenuptial Agreements for all of these reasons, but how can you decide if a Prenup is necessary for you?

As is many times the case in legal questions, the best answer is, “it depends”. Prenuptial Agreements are powerful instruments which can protect your assets and help avoid conflicts in the event of a divorce. If you are bringing significant assets into the marriage, or expect to inherit significant assets someday, if you have children from a previous relationship, or if, for any number of reasons, you are concerned to ensure a specific resolution in case of a breakup, a Prenuptial Agreement can provide peace of mind.


Reprinted from the April 20th edition of The Legal Intelligencer. (c) 2023 ALM Media Properties. Further duplication without permission is prohibited.

In Sharp v. S&S Activewear, LLC, the United States Court of Appeals for the Ninth Circuit tackled the difficult issue of when a generally toxic workplace becomes a hostile environment under Title VII. 42 U.S.C. § 2000e-2(a)(1). The Ninth Circuit’s conclusion that employees’ allegations regarding playing offensive music in the workplace were sufficient to state a claim for a hostile work environment under Title VII relied on recent Supreme Court precedent, in Bostock v. Clayton County, 140 S. Ct. 1731 (2020); and Oncale v. Sundowner Offshore Servs, 523 U.S. 75 (1998).

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