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.

Caution: Intern or Employee?

Written by Michael Klimpl Wednesday, January 17 2018 21:38

Under the federal Fair Labor Standards Act (FLSA), employers in “for-profit” enterprises are required to pay compensation to their employees, including a designated minimum wage and overtime pay.
An issue often faced by employers is whether an intern or student is actually an employee entitled to compensation, or whether the intern or student may work without receiving pay.

On January 5, 2018, the United States Department of Labor (“DOL”), which enforces the FLSA, announced in Field Assistance Bulletin No. 2018-2, that it was now going to follow the decision of several appellate courts in promulgating a new test for determining if an intern is actually an employee entitled to compensation.

Specifically, the DOL, announced that it would use the “primary beneficiary test” to determine the status of the would-be intern.  The test is intended to be flexible and allows courts or the DOL to review the “economic reality” of the relationship to determine which party, would-be intern or employer, is the primary beneficiary of the relationship.  

As part of the “primary beneficiary test”, the DOL adopted seven factors used by the courts:
1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The DOL  stated that no one factor is determinative of the issue and  that the ultimate classification of intern or employee “under the FLSA necessarily depends on the unique circumstances of each case”.
With respect to volunteers for governmental services and non-profits, the Wage and Hour Division of the Department of Labor set forth the following in Fact Sheet No. 71:

“The FLSA exempts certain people who volunteer to perform services for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks.  WHD also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations.  Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.”

Employers who use interns should carefully review whether they are complying with the law.  AMM’s Employment Law attorneys can assist you with this and all compliance issues.  To learn more about Michael Klimpl, visit ammlaw.com. 

New Year's Resolutions for Employers

Written by Patricia Collins Friday, January 05 2018 20:33

The Employment Law Department here at Antheil Maslow & MacMinn wishes a Happy New Year to all of our clients.  In the interest of making this year the best it can be, we offer the following New Year’s resolutions for employers:

1. Resolve to document:

Document everything: employee successes, employee’s failures to meet expectations, attendance, complaints, suggestions, and anything that may be of significance to the employee or the workplace.  This is good risk management for employers.  For employees, it is a fundamental aspect of workplace fairness, and prevents the situation where an employee may be caught off guard by a particular decision of the employer. 

A corollary to this resolution is to make documentation easy.  For example, managers can use email, which will include a date and time stamp, be maintained on company servers, and creates an electronic paper trail. Managers are more likely to comply with a simple system.

2. Resolve to retain key employees:

We spend much of our day talking about restrictive covenants – agreements not to compete or solicit customers and employees after the termination of employment.  We draft them, read them, counsel employees and employers about them.  While these agreements are important to protect the employer, they will not help employers keep their stars.  Instead, employers should ensure a positive workplace, where key employees know that they are appreciated.  Some ways to accomplish this:  fair compensation and benefit programs; attainable equity or bonus programs; realistic work-life balance policies; and recognition of employee successes.  It is also worthwhile to recognize that “stars” exist at every level in an organization:  the top salesperson and the reliable receptionist both contribute to the success of the business. 

3. Resolve to cultivate the culture:

This resolution will help with resolution 2, but is important in its own right.  How are managers communicating with employees?  Are they fair, professional and clear?  Are you looking the other way on unprofessional or inappropriate conduct?  Do you ever say “That’s just (insert name here)” about a particular manager? 

What we learned in 2017 is that it is folly to look the other way on a toxic workplace culture:  it wastes time, pulls focus from work, results in bad press and litigation, and chases away good employees. 
 
A focus on these three resolutions will help lower risk and ensure a compliance workplace.  Feel free to contact us to help accomplish these resolutions.

Although parents may be paying tuition, covering children under their health insurance, and even claiming them as dependents on their tax return, without a Power of Attorney that parent may be helpless to aid their adult aged child (over 18 years of age) with medical or financial matters.  Their doctors, hospitals, and even the college they attend, are limited in the information they are able to share with parents or other adults.  A Power of Attorney for medical and financial matters allows a college student, or any adult, to appoint someone to handle these matters for them if they are unable or unavailable to handle it themselves.

While they are home between semesters, you might want to consider speaking to an estate planning attorney who can help plan and put the proper documents in place to allow your young adult to appoint the person or persons they trust to handle financial and medical matters for them. If they have a serious illness or accident, having these documents in place can save the family time and significant costs by avoiding the immediate need to seek a court appointed guardian. If they are traveling abroad and need assistance with matters at home, the Power of Attorney will allow their agent to handle banking transactions, sign tax returns and many other types of matters for them.

Taking the time to be sure these documents are in place before they become necessary can save the family, and the young adult, time if an emergency arises and it becomes necessary to use them. 

For more information about Powers of Attorney, estate planning or Stephanie M. Shortall, Please visit us at ammlaw.com.

Although parents may be paying tuition, covering children under their health insurance, and even claiming them as dependents on their tax return, without a Power of Attorney that parent may be helpless to aid their adult aged child (over 18 years of age) with medical or financial matters.  Their doctors, hospitals, and even the college they attend, are limited in the information they are able to share with parents or other adults.  A Power of Attorney for medical and financial matters allows a college student, or any adult, to appoint someone to handle these matters for them if they are unable or unavailable to handle it themselves.

While they are home between semesters, you might want to consider speaking to an estate planning attorney who can help plan and put the proper documents in place to allow your young adult to appoint the person or persons they trust to handle financial and medical matters for them. If they have a serious illness or accident, having these documents in place can save the family time and significant costs by avoiding the immediate need to seek a court appointed guardian. If they are traveling abroad and need assistance with matters at home, the Power of Attorney will allow their agent to handle banking transactions, sign tax returns and many other types of matters for them.

Taking the time to be sure these documents are in place before they become necessary can save the family, and the young adult, time if an emergency arises and it becomes necessary to use them. 

For more information about Powers of Attorney, our Estate Planning services, or Stephanie Shortall, Please visit us at ammlaw.com.

On December 22nd, President Trump signed into law the Tax Cuts and Jobs Act, which will take effect on January 1st.  This legislation will have far reaching implications for both individual and corporate taxpayers.  The attached analysis and charts provide an overview of some of the key changes made by the new Act, along with some planning considerations between now and year-end.

Tax Cuts and Jobs Act

 

According to the National Center for Charitable Statistics (NCCS), more than 1.5 million nonprofit organizations are registered in the U.S.   We are proud to represent many such nonprofit organizations operating in the greater Delaware Valley.
These organizations serve the communities in which we live with steadfast passion and dedication.  The focus on community improvement, volunteerism and charity is remarkable.  We are pleased to play our small part in furtherance of their lofty goals.

Unfortunately, not everyone involved in the nonprofit industry shares the same altruistic philosophy.  Invariably, we read newspaper stories about the nonprofit treasurer who diverted funds destined for an ambulance squad or the director that diverted hundreds of thousands from youth athletics programs.  The question becomes, what is a nonprofit to do when defalcation is discovered? 

Generally, the law imposes no duty upon an individual or organization that discovers a financial defalcation to report the facts discovered to the authorities.  Only with respect to certain crimes, mostly involving abuse or child pornography, does a duty to report criminal activity arise.  Under current statutory law, no such duty exists upon the discovery of a theft or diversion of nonprofit funds.    

Many nonprofits are reluctant to report the defalcation.  The negative publicity which follows a public disclosure can be devastating to the credibility of an organization that is already competing for donor dollars.  Based on such pressures, for-profit organizations often choose to forego even the private exercise of confronting the accused in an effort to seek recovery preferring instead to simply take steps to ensure the same kind of breach of trust could not be repeated.  In the nonprofit world, such private decision making is in sharp contrast to fiduciary duties owed to the organization and the moral, if not legal, duties which are founded in the donor/donee relationship.   Moreover, the public nature of nonprofit tax filings may render disclosure inevitable,  such that the desired privacy cannot be maintained. 

Large nonprofits must file an Internal Revenue Service Form 990 each year.  The form summarizes the financial performance of the nonprofit.  In turn, every Form 990 that is filed is publicly available with just a few key strokes.  The Form 990 requires that the organization report to the IRS whether the organization “became aware of a significant diversion of the organization’s assets” in the current year.  Thus, the IRS requires the organization disclose defalcations which amount to a “significant diversion”. 

Despite potential negative publicity associated with disclosure of malfeasance in nonprofit administration, the inevitability of disclosure weighs in favor of a more transparent approach.  Best practices suggest that the entity’s Form 990 be reviewed by the board of directors prior to submission to the IRS, in fact,  the redesigned form asks whether the tax return was furnished  to the board for review prior to filing.  An astute donor – particularly a business savvy donor - is likely to read the 990 with a critical eye.  The worst scenario is that a director or donor becomes aware of the defalcation and subsequently questions the adequacy of management response, potentially a death knell to contributions, and the tenure of the secretive executive director. 

In addition, the nonprofit’s auditor, while not required to disclose every fraud in a footnote to the financials, would need to consider whether the theft had a financial impact on the statements.  If the dollar amount warranted it, it might have to be reported directly on the statements – either as a line item-loss from fraud or a receivable for repayment of stolen funds. 

Further, the question of the directors’ fiduciary duties to the organization in such circumstances has not yet been addressed.  Certainly, the directors of a nonprofit, having been placed in a position of trust by the organization, and bear some responsibility for effective management and control.   To date, no court has imposed liability upon the directors of a nonprofit for failing to investigate potential recovery, failing to report defalcation, or failing to seek recovery of proceeds unlawfully diverted.   While that is certainly not what the volunteer directors sign up for, we can see that case coming. 

Navigating the potential exposure requires a complete understanding of financial controls and information, reporting requirements and the composition of the board of directors.  Generally, the best advice is to conduct a complete investigation, proactively adopt whatever policies are necessary to prevent a re-occurrence, and report the bad actor to the relevant authorities.  Such actions would certainly satisfy any duty to the organization. 

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