The Business Newsletter

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2008

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NOVEMBER 2008

STATE REGULATORS MAKE INSURERS KEEP THEIR RATES DOWN.

State regulators required auto insurers to reduce or withdraw their proposed 8% rate hike requests that would have cost consumers several hundred million dollars in increased premiums.  State officials stated that auto insurance rates for New Yorkers will rise by an average of less than 1% for 2009.

State insurance regulators demanded that the companies justify their proposed increases in light of evidence that Americans were driving less, and therefore, posing less risk.  "Because of higher gas prices, New Yorkers are driving less and having fewer accidents as a result," said New York Governor David Paterson in a press release.  "It's simply counterintuitive to increase rates by 8% when people are driving less."

In June and July alone, New Yorkers drove 907 million fewer miles than in the same two months in 2007.

SOCIAL SECURITY BENEFITS TO RISE IN 2009.

Social Security benefits for 50,000,000 people will be going up 5.8% next year, the largest increase in more than a quarter of a century.  This increase will begin in January and it will mean an additional $63 per month for the average retiree.  The typical retiree's monthly check will go from $1,090 to $1,153.

The 5% rise in the cost of living adjustment is a sharp departure from recent years.  The COLA increases have been below 3% for all but three of the past 15 years.

SIX SIGMA GAINS WIDER APPEAL.

Motorola Inc. may have pioneered Six Sigma, the business discipline that aims to solve problems and improve performance, but it is not just for manufacturers any more.  Six Sigma is a system that allows employers to tackle issues they determine are costing too much money or hurting customer service or results.  Data is the driving force, helping Six Sigma practitioners pinpoint the source of their problem as well as measure how well a solution is working.  The goal is to formulate a cure that will generate consistent results and wipe out "defects."

John Lupienski, a Six Sigma consultant, said the system can work for a variety of employers, regardless of whether they make printed circuit boards, treat patients or serve customers in retail stores.

Leadership backing for Six Sigma is vital, but so is insuring employees understand what the goals are so that they will support it, Lupienski said.  "You've got to make people realize that you won't have to worry about losing your job.  The bottom line of Six Sigma is dollars and cents and customer satisfaction," he said.

2009 INFLATION ADJUSTMENTS WIDEN TAX BRACKETS.

For 2009, personal exemptions and standard deductions will rise and tax brackets will widen because of inflation adjustments announced by the IRS.

By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation.  Key changes affecting 2009 returns, filed by most taxpayers in early 2010, include the following:

• The value of each personal and dependency exemption, available to most taxpayers, is up $150 to $3,650.

• The new standard deduction is $11,400 for married couples filing a joint return, which is up $500, and $5,700 for singles and married individuals filing separately, which is up $250.  In addition, the standard deduction for heads of households is up $350 to $8,350.

• The annual gift exclusion rises to $13,000 up from $12,000 in 2008.

QUALIFYING FOR THE ALTERNATIVE MOTOR VEHICLE TAX CREDIT.

In the past, only Hybrid vehicles, fuel cell vehicles and alternative fuel vehicles had been certified as having qualified for the alternative motor vehicle tax credit.  Now certain low fuel consumption vehicles that generally run on diesel fuel have been certified.

The qualifying vehicles and their credit amounts are:

• 2009 Volkswagen Jetta 2.OL TDI Sedan manual or automatic - $1,300

• 2009 Volkswagen Jetta 2.OL TDI Sport Wagon manual or automatic - $1,300

• Mercedes GL 320 BLU TEC - $1,800

• Mercedes R 320 BLU TEC - $1,550

• Mercedes ML 320 BLU TEC - $900

Prepared by Katy M. Hedges

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AUGUST 2008

NEW YORK STATE INSURANCE DEPARTMENT DELAYS SETTING MEDICAL MALPRACTICE INSURANCE RATES.

The New York State Insurance Department has postponed setting its new medical malpractice insurance rates in order to pursue reform of the medical malpractice system.  This reform is sought in an effort to reduce the burden on physicians.  Malpractice insurance rates were originally scheduled to be adjusted on July 1^st and it was widely believed that the Department would impose a significant rate hike.  Last year, the rates were increased 14%, which is in keeping with the double-digit increases experienced over the past five years.

This postponement follows on the heels of statements by Dr. Michael Rosenberg, President of the Medical Society of the State of New York, who believed a rate hike, in addition to scheduled Medicare fee cuts, would be extremely detrimental to health care providers.  Dr. Rosenberg requested that, in order to put "pressure on the wound so it does not hemorrhage," any increase in medical premiums be delayed until the legislature has a chance to reform the medical malpractice system.

HEALTH INSURANCE COSTS RATED NUMBER ONE ISSUE FACED BY SMALL BUSINESS OWNERS.

Two recent surveys, performed by the National Federation of Independent Business and Wells Fargo, found that the cost of health insurance is the number one issue facing small business owners, continuing a trend that has lasted for 20 years.  Health insurance costs again topped even the cost of gasoline and fuel oil as the greatest concern for small business owners. 

Other cost issues in the top ten include fuels and electricity, supplies, inventories and Workers' Compensation insurance.  Appearing on the list for the first time is "tax complexity" which ranks fifth on the survey and was cited as a "critical" problem for 23% of business owners.

IRS INCREASES STANDARD MILEAGE RATES TO 58.5¢ PER MILE THROUGH DECEMBER 31, 2008.

On June 23, 2008, the Internal Revenue Service announced that it would increase the optional standard mileage rates from $0.505 per mile to $0.585 per mile for all business miles driven from July 1, 2008 to December 31, 2008.  The IRS made this special adjustment in recognition of recent drastic increases in the price of gasoline.  The IRS sets the optional mileage rate for the next calendar year in the preceding fall and normally does not change its mileage rates during the year.  The optional business standard mileage rate is used to determine the deductible costs of operating an automobile for business use and is also used by many businesses as the rate for which they reimburse their employees for mileage.

NEW YORK STATE ATTEMPTS OVERHAUL OF ITS

PENSION SYSTEM.

In a bill recently passed by the Senate, New York State will attempt to overhaul its pension law.  Among the proposed changes are the elevation of pension fraud from a misdemeanor to a felony and a provision which adds a new criminal penalty for attorneys who improperly receive state pension benefits.  The bill would also allow the Attorney General the power to seek penalties equivalent to three times a guilty party's salary.

A portion of the bill is in response to recent investigations by the Attorney General into attorneys who were erroneously listed as employees of school districts and local governments in order to allow them to receive state pension credit.  The new bill would not allow attorneys to be listed simultaneously as both independent contractors and employees of school districts or local governments.

The bill was recently approved by the Senate and awaits action in the State Assembly.  The bill has been endorsed by Governor David Paterson.

IRS MAY BE ALLOWED ACCESS TO

CREDIT CARD INFORMATION.

Proposed legislation may grant the IRS access to information from credit card companies which details the amount of revenue received by merchants.  This legislation is designed to help close the tax gap by encouraging small businesses to report their income more accurately.

Proponents of the bill estimate that the legislature could raise nearly $10 billion in the next ten years and would not result in any new taxes; it would instead operate to deter small business owners from paying the Federal government less than what is owed.  Opponents of the bill criticized the plan because they believe it would be costly to implement and may lead to unnecessary and unfair audits of small businesses who already abide by the tax laws.

Prepared by Patrick D. Slade

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MAY 2008

This installment of the Business Newsletter focuses on using bankruptcy courts as a positive tool to improve business and rectify uncertainties.  The central theme of this bulletin explores when a business should consider some sort of bankruptcy protection if it is nearing a distressed situation. The sale of a company through bankruptcy offers many benefits which are explored herein. 

For more information on how a businesses can use bankruptcy courts to protect themselves and rectify uncertainties, please do not hesitate to contact the undersigned.

 BENEFITS OF BANKRUPTCY FOR BUSINESSES IN DISTRESSED SITUATIONS

Many people view bankruptcies as situations where people are down on their luck, have lost everything, and are looking for a way to be forgiven their debts.  Similarly, many people are misinformed about corporate bankruptcies and believe that such companies are going out of business and leaving no assets for their creditors.  While this may be true in some situations, businesses can also use bankruptcy as a positive tool.

The Bankruptcy Code is located in Chapter 11 of the United States Code.  The Bankruptcy Code is separated by chapters.  The most popular chapters include Chapter 7, providing liquidation for businesses and individuals, Chapter 11, governing business reorganizations, and Chapter 13, providing for reorganization of individual debts.  When a business enters a distressed situation, it should consider bankruptcy protection as a way to preserve assets for the benefit of the company’s shareholders and creditors.  Chapter 11 bankruptcy allows a business to continue in a different form.  The sale of a business through the bankruptcy process can offer many benefits.  A Chapter 11 bankruptcy may be required by a successor purchaser because there are benefits associated with successor liability under this type of bankruptcy.  Under Chapter 11, a buyer can take assets free and clear of all liens and encumbrances, with all such claims funneling back and attaching to the proceeds of the sale by the debtor/seller.  Other benefits of Chapter 11 include: rejection of underperforming contracts, time and leverage to deal with creditors, actions to bring back money for distribution to creditors, and orderly liquidation and distribution mechanisms.

Bankruptcy courts can help failing businesses close their doors, but they can also help businesses liquidate or reorganize in an efficient manner.  Therefore, if your business is falling on hard times, Chapter 11 bankruptcy may be a worthwhile consideration which will help achieve benefits for all parties involved.

 INTERNAL REVENUE SERVICE AND ECONOMIC STIMULUS PAYMENTS

Starting in May of 2008, the Treasury will begin sending economic stimulus payments to households.  To receive a payment, taxpayers must have a valid social security number, have at least $3,000 of income, and file a 2007 federal tax return.  Eligible individuals will receive up to $600.  Married couples will receive up to $1,200 and parents will receive an additional $300 for each eligible child younger than 17 years old.  To receive the economic stimulus payment, you must file your 2007 federal tax returns.  The actual amount of the payment received will depend on the income claimed on your tax return.

 INTERNAL REVENUE SERVICE AND POLITICAL ACTIVITY COMPLIANCE

 Federal law requires that organizations exempt from tax under the Internal Revenue Code Section 501(c)(3) (such as charities and churches) shall not intervene in or participate in any political campaign on behalf of or in opposition to any candidate for political office.  The Political Activity Compliance Initiative educates such tax exempt organizations about the federal law concerning political campaigning and donations and enforces the law in this area.  The Political Activity Compliance Initiative is in effect for the 2008 election season.

 THE LIBEL TERRORISM PROTECTION ACT

 The Libel Terrorism Protection Act was recently passed by the Senate in Albany, New York.  The bill was introduced after the New York Court of Appeals ruled in December that New York’s laws did not protect an American author from a possible bid by a Saudi Arabian businesswoman to enforce a summary judgment issued by the High Court in London, England.  The bill passed by the Senate is intended to amend New York’s long arm jurisdiction in order to give the state’s courts jurisdiction over foreign libel claimants who win judgments against authors with substantial ties to the state.  Many legislators argue that this act will give New York’s journalists and authors the protection they need to expose truths in our society and to maintain free speech.

Prepared Kristen B. Degnan

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FEBRUARY 2008

national labor relations board allows employers to restrict employees' use of e-mail.

In December, 2007, the National Labor Relations Board (NLRB) addressed an issue relating to employee use of an employer supported e-mail system.  The NLRB decided that employees have no statutory right to use an employer's e-mail system for activity protected under §7 of the National Labor Relations Act, legislation which protects an employee's right to support a union or to refrain from doing so.    Register-Guard 351 NLRB 70.  

The NLRB ruled that an employer's policy of prohibiting use of its e-mail system for non-job-related solicitations did not violate the National Labor Relations Act. 

Private employers should take note of this decision, even if not involved with union matters, because the decision supports an employer's right to restrict use of its e-mail system.  The decision allows employers to permit personal and charitable communications and solicitations in the workplace while still specifically barring union-related activities. 

NEW YORK INSURANCE DEPARTMENT TO INTRODUCE RULES REQUIRING INSURANCE BROKERS TO DISCLOSE COMMISSION.

The New York State Insurance Department will be introducing rules in the upcoming year requiring insurance brokers and agents disclose to their clients the commissions earned on policies they place.  The timeframe for such actions have not yet been determined.  Rules governing this matter would be a complete departure from the current practice whereby insurance brokers and agents are not required to disclose commissions to their clients. 

HOW ETHICAL IS YOUR BUSINESS?

A recent survey by the Ethics Resource Center regarding ethical misconduct and American businesses found that 56% of employees witnessed ethical misconduct in their workplaces in 2006.  This percentage was up from 52% in 2005 and 46% in 2003.  The most common types of ethical misconduct were conflicts of interest, lying to employees, and abusive behavior.

More than 40% of employees who witnessed ethical misconduct did not report it to their supervisors or top management, mainly out of fear of retaliation or a feeling that no action would be taken by the corporation with regard to the misconduct.

This issue is brought to your attention because a new federal regulation took effect on December 24, 2007, requiring federal contractors to have a written code for business ethics and conduct.  Additional information is available at www.ethics.org. 

MEDICARE BENEFITS TO BE ACCOUNTED FOR BY EMPLOYERS TO REDUCE THEIR HEALTH INSURANCE EXPENSES.

The Equal Employment Opportunity Commission affirmed a rule published December 26, 2007, formally authorizing employers to take Medicare into account when structuring health benefit packages provided to retired workers.  Employers can reduce their health insurance expenses once the retired workers turn 65 and qualify for Medicare.  This affirmation shifts a costly burden from private employers to Medicare in picking up the ever increasing health insurance costs.  In effect, the Equal Employment Opportunity Commission is seeking to preserve and protect employer provided retiree health benefits, which may be more generous than Medicare, while shifting a financial burden away from the employer. 

THE EFFECT OF PROPOSED FEDERAL TAX REBATES ON SMALL BUSINESSES

As recent headlines in the news have indicated, the federal government has proposed a one-time tax rebate of $150 billion to America’s families and small businesses.  Businesses are expected to receive $50 billion in incentives to invest in plants and equipment.  The stimulus measure would give businesses immediate tax write-offs for 50% of the purchase price of plants and other capital equipment and also permit small businesses to write-off additional purchases of equipment.

Prepared by Christopher R. Poole

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2007

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NOVEMBER 2007

Governor Spitzer Calls For “Partnership for Coverage” Health Policy.
What Does That Mean for Employers and the
Health Insurance Industry?

Governor Spitzer has the daunting task of formulating a health care policy that meets the demands of the public and the interests of the private sector.  The lofty goal set by Governor Spitzer is universal coverage for all.  How to achieve this end will be left up to one of the two different means: a tax-supported single-payer system or restructuring the private health insurance market.  Governor Spitzer’s three part “Partnership for Coverage” calls for enrolling 1.3 million uninsured residents who are eligible but unregistered for the state insurance programs, expanding the state’s Child Health Plus Program to 70,000 middle income children and providing coverage for 1.3 million uninsured residents who are not currently eligible for the public programs.  The universal health care for New York would be funded through taxes or by employers and individuals picking up part of the cost.  Either way, the taxpaying citizens of New York will have to pick up the tab for this program.

Governor Spitzer Calls for Licenses to be Issued to Illegal Immigrants in New York: Does That Leave New York Vulnerable?

Governor Spitzer issued a new policy (effective in December) permitting illegal immigrants to obtain drivers’ licenses.  Governor Spitzer accomplished this by reversing an executive order issued by former Governor George Pataki in 2002 that required all applicants for a New York drivers’ license to have a valid Social Security number.  Many critics feel that the drastic move by Governor Spitzer was absurd given  9/11 and that his policy will render New York essentially a gateway and hiding place for terrorists.  What was the motivation behind this shift in policy?  Governor Spitzer cites road safety and an increased number of insured drivers which will result in a drop in insurance premiums.  Officials are concerned with border safety, conflict with federal policies and the lack of research on the impact of Governor Spitzer’s decision.  Legislators and officials around the state are opposing the Governor's new policy.

 Western New York Area Home Construction Holding Steady Means Good News For Home Insurers 

Nationwide, the number of single family home building permits has declined by 28% during this past year.   In New York State, the number of permits issued has declined by 14%.  In Buffalo Niagara, the decline was only 3% and, bucking the trend, Erie County registered an increase in the issuance of permits.  As such, the market in Western New York remains relatively stable and that means good news for home insurers and mortgage lenders.

State Wants Property Insurers to Build Rainy Day Funds 

State regulators unveiled proposed rules that would require insurance companies operating in New York to create catastrophe reserve funds to cover losses related to hurricanes, wind, hail, earthquakes, snow, ice, freezing rain or tsunamis.  The logic behind creating such funds is to ensure that the companies have enough money set aside to cover heavy losses, without being forced to raise premiums to offset the hit to their earnings.  Currently, tax laws discourage insurers from establishing such a fund.  The new regulations would require insurance companies to dedicate the amount they currently charge customers for catastrophe protection, less taxes paid, as such a reserve.  The amount of each company's reserve would be publicly disclosed.

Home Office Tax Deductions Hinge On Good Record Keeping

The number of U.S. taxpayers claiming home office deductions has grown from more than 1.5 million in 1991 to nearly 3.2 million in 2005.  The dollar amount claimed by Americans for home office deductions approaches 9 billion.  The IRS has a three pronged test for determining if a taxpayer is eligible for home office deductions.  Firstly, the home office must be used regularly.  Secondly, the home office must be used only for work.  Thirdly, a commuter can only claim a home office if the space is used for the convenience of the employer, not the employee. 

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AUGUST 2007

NEW IRS FILING REQUIREMENT FOR SMALL TAX-EXEMPT ORGANIZATIONS

On July 12, 2007, the Internal Revenue Service announced that it began mailing educational letters to more than 650,000 small tax-exempt organizations that will be required to submit a new annual notice.  This annual notice has been mandated by the Pension Protection Act of 2006 (PPA).  Pursuant to this act, the small tax-exempt organizations will be required to submit the new Form 990-N "Electronic Notice for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ."  Pursuant to the PPA, the majority of small tax-exempt organizations are now required to submit this new filing.  Prior to the enactment of this act, tax-exempt organizations with gross receipts of $25,000 or less were not required to submit information returns.  Beginning in calendar year 2008, these organizations will be required to file this new electronic notice. 

U.S. SUPREME COURT LIMITS SCOPE FOR PAY DISCRIMINATION CLAIMS

On May 29, 2007, the United States Supreme Court held that an employee seeking to recover for pay discrimination under Title VII of the Civil Rights Act of 1964 must be able to prove a discriminatory act within the 180-day limitations period.  Ledbetter v. Goodyear Tire & Rubber Co., Inc., 127 S. Ct. 2162.  The decision in Ledbetter rejects prior holdings that had allowed recovery for allegedly discriminatory pay decisions that occurred outside the statute of limitations.  In these prior holdings, the discriminatory pay decisions were allowed based on the premise that the past pay decisions affected pay during the limitations period.

IRS MANDATES USE OF NEW AGENT APPOINTMENT FORM

On June 20, 2007, the Internal Revenue Service declared that employers, payors and their agents must utilize a new and improved version of Form 2678, "Employer/Payor Appointment of Agent."  This form authorizes an agent to file tax returns and deposit and pay employment or other withholding taxes on an employer's behalf.  The IRS receives about 15,000 of these forms annually, encompassing approximately 3,000 agents and 20,000 employers.  The IRS has mandated the use of a new Form 2678 which makes it clearer and more user friendly for the employer.  However, the employer must remember it retains responsibility for filing Form 940, "Employer's Annual Federal Unemployment [FUTA] Tax Return," and depositing and paying FUTA tax.

POTENTIAL CHANGES IN THE AMERICANS WITH DISABILITIES ACT

Senator Tom Harkin (D – Iowa) is expected to introduce to the Senate the "Americans With Disabilities Act Restoration Act."  This act would effectively shift the focus of Americans With Disabilities Act litigation from whether the individual is disabled, to whether the individual was subject to discrimination "on the basis of a disability."  Under current Supreme Court case law, the determination as to whether an individual is disabled under the ADA is a complex inquiry that a court must undergo prior to reaching the question of whether there was any discrimination.  The contemplated legislation seeks to reverse several Supreme Court decisions that have restricted the circumstances under which employees can establish ADA claims.  This act seeks to include language that presumes the individual bringing suit is a member of the protected class of persons with disabilities.  Should this act pass, ADA litigation would focus more on the alleged discriminatory treatment and less on determining whether an individual is "disabled".

Prepared by Michael M. Chelus

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MAY 2007

 New York State Passes Worker's Compensation Reform

As part of the first budget under new Governor Spitzer, New York State accomplished what has been heralded as significant worker's compensation reform. The result has been characterized as a "win-win" result with benefits increasing for workers for the first time in a decade, while costs will decrease. Key components of the agreement include increases to the maximum amount of money received by workers, strong anti-fraud measures and setting a maximum number of years certain workers can receive benefits resulting in savings estimated to be in the hundreds of millions.

 New York Government Continues to Employ More Workers than Any Other State

According to an analysis done by the Public Policy Institute, New York State and local governments pay public employees 21 percent more than the national average and the number of public employees compared to the general population is the highest in the country. The average yearly salary over $54,000 was fourth highest in the country and 21% higher then any other state. Lastly, New York and local government employed 62 workers per every 1,000 residents, 14% above the national average.

 Governor Spitzer's Budget Creates Tax Cuts for Manufacturers and Other Businesses

Under the recently passed budget the Article 9-A corporate tax rate levied on more then 50,000 businesses dropped from 7.5% to 7.1%.  The primary tax rate levied on banks and insurance companies was decreased by the same percentage. Further, the general tax rate affecting approximately 3,400 manufacturing companies drops from 7.5% to 6.5%.

 A Dissolved Corporation Can Still Bring a Lawsuit for Indemnification

In Tedesco v. A.P. Green Industries, 8 N.Y. 3d 243 (2007), Insulation Distributor was a distributor of asbestos products resulting in their involvement in a number of lawsuits. They were eventually sued by a former employee of Dupont. Insulation Distributors went out of business and was dissolved in 1999. Subsequent to being sued IDI brought a third party action against Dupont. The Court of Appeals held that a third party action from a dissolved corporation could proceed since the activity was part of "winding up its affairs."

An Employee Does Not Need to Give Notice of an Injury Where the Employer Is Aware of the Injury

In Coffey v. Shop-Rite Supermarkets North, -- N.Y.S.2d --, 2007 WL 1075084 (3rd Dept. 2007 ), the claimant was injured on December 20, 2004 but did not file a written report until April 9, 2005. The employer appealed the decision of a Worker's Compensation Judge establishing the injury arguing lack of timely notice. The Appellate Court held that the record established that the employer was aware of the witnessed accident and therefore the employee was excused from the timely notice requirement.

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FEBRUARY 2007

SPECIFIC PROCEDURES MANDATED FOR
DISPOSING OF PERSONAL EMPLOYEE INFORMATION

 As of December, 2006, New York State requires employers to properly dispose of records containing personal employee information through one of the following means: shredding, destruction, modification, or other reasonable action to insure that no unauthorized person will gain access to the personal information.

Affirmative obligations are now imposed on private sector employers to protect individuals from identity theft.  Employment applications, disciplinary notices, and payroll records containing personal information are subject to the new disposal requirement.  With regard to electronic documents, advice from information technology professionals is necessary to insure that such records are destroyed completely.

The law imposes a civil penalty of up to $10,000.00 for non-compliance and provides the New York State Attorney General with broad enforcement powers.  Due diligence may serve as an affirmative defense to any such complaint.

 EXTENDED DEPLOYMENTS MAY HURT BOTH
EMPLOYERS AND THEIR EMPLOYEES

On January 11, 2007, the Chairman of the Joint Chiefs of Staff announced that limits were being extended on the length of time that military reservists and members of the National Guard can spend on active duty.

The new policy could require citizen soldiers to serve on active duty in Iraq or Afghanistan for as long as 48 months, with an initial tour lasting up to 24 months followed by a return to civilian life and a potential second deployment of an additional 24 months.

U.S. SUPREME COURT EXPANDS PROTECTION
TO EMPLOYEES WHO ALLEGE EMPLOYER RETALIATION

Employees who bring retaliation claims under Title VII of the Civil Rights Act of 1964 are no longer required to prove that they suffered an "ultimate employment decision" or "materially adverse change in the terms and conditions of employment".  The older standard required that the employee prove retaliation in such forms as a discharge, demotion, loss of pay, etc.  In Burlington North and Santa Fe Railway Company vs. White, No. 05-259 (2006), the Court expanded its definition of acceptable forms of retaliation to include more subtle treatment such as a change in schedule or even the failure to invite an employee to lunch.

As articulated by the U.S. Supreme Court, the new standard is whether "a reasonable employee would have found the challenged action materially adverse, and whether such action might have dissuaded a reasonable worker from making or supporting a charge of discrimination."

To guard against retaliation claims, employers should instruct their supervisors with respect to the newly established, broader standards.  Employers should also review their stated policies to insure that they prohibit not only discrimination and harassment, but also retaliatory action.

EMPLOYMENT SCREENING DEVICES AND
THE AMERICANS WITH DISABILITIES ACT

Pursuant to the ADA, employers may not discriminate against potential employees on the basis of a disability, if reasonable accommodations could be made such that an employee could perform the essential functions of his or her job.  Employers may not ask specific disability related questions or request a medical examination prior to conditionally offering an applicant a job.  Because certain psychological or personality tests could be considered medical examinations that detect underlying psychological disorders, the ADA is sometimes implicated by the mere administration of a test.

Tests designed to measure an applicant's honesty or habits are permissible, but EEOC regulations forbid most other forms of psychological testing.

TITLE VII DISCRIMINATION CLAIMS

Title VII of the Civil Rights Act of 1964 forbids discrimination in the hiring process on the basis of race, sex, religion, color or national origin.  Although Title VII specifically allows employers to administer "ability" tests to applicants, personality tests or psychological tests that are not carefully designed may cause an employer to run afoul of Title VII.

The protection afforded by Title VII may be violated if certain questions in a personality test have an adverse, or disparate, impact on a protected class of persons.  For example, if certain questions tend to screen out more women than men, the adversely affected female applicant may have a legitimate claim of Title VII discrimination, so long as the question is not necessary to screen for a bona fide occupational qualification.

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2006

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November 2006

FAILURE TO PROVIDE A BLIND-ACCESSIBLE WEBSITE MAY CONSTITUTE DISCRIMINATION UNDER THE AMERICANS WITH DISABILITIES ACT

In the case of National Federation of the Blind, et al. v. Target Corporation, 2006 U.S. Dist. Lexis 63591 (N.D. Cal. 2006), a class action lawsuit has been brought against Target arguing that the retailing giant’s website, Target.com, is not accessible to the blind and, hence, is in violation of Title 3 of the Americans with Disabilities Act.

The district court has denied Target’s motion to dismiss on the grounds that the complaint alleges a sufficient nexus between Target.com and Target’s “brick and mortar” stores.  The district court’s decision means that Target will have to go through a full round of discovery and, potentially, motions and trial as to whether its website is indeed accessible to the blind.

Regardless of how the district court case ends, we can expect that this decision will go up on appeal, especially with regard to “public accommodation” translation supplied by the district court. Any business that utilizes a website, in whole or in part, to sell its goods and services should continue to observe the progress of this case, as it could have far-reaching consequences.

NEW YORK LAW NOW REQUIRES PROOF OF AGE FOR ALL EMPLOYEES BETWEEN THE AGES OF 18 AND 25

Under New York Labor Law, all employees under the age of 18 have traditionally been required to produce a set of so-called “working papers”, which the employer is required to keep on file and produce to the New York Department of Labor on demand.

As of December 15, 2005, New York Labor Law requires that all employers keep on file proof of age of all employees claiming to be between the ages of 18 and 25. Proof of age must be in the form of either  a) a driver’s license or other documentation issued by any state or federal government, or  b) a certificate of age issued by an employment certificating official. This proof, kept on file, constitutes evidence that the employee has reached the stated age. Failure to do so could result in a Child Labor Law violation.

NEW YORK COURT OF APPEALS REJECTS “PRODUCT LINE” EXCEPTION TO SUCCESSOR LIABILITY LAW

In an unanimous opinion, the Court of Appeals has rejected the “product line” exception to successor liability law. Resolving a spilt between the First and Third Departments of the Appellate Division, the Court of Appeals has ruled that a corporation purchasing another corporation’s assets is not liable for the seller’s torts simply because the purchaser has continued the output of the seller’s line of products.

With this decision, New York joins the majority of states that have rejected the “product line” exception. (One major exception to the general rule exists in California, which has followed the “product line” exception since 1977.) Here, the Court of Appeals has taken a business-friendly viewpoint in deciding that any such change in the law should come from the legislature.

IRS INCREASES PENSION PLAN LIMITATIONS FOR 2007

The Internal Revenue Service has recently announced cost of living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2007.

For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,000 to $15,500.  This limitation affects elective deferrals to Section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans. The limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $175,000 to $180,000. The limitation for defined contribution plans under Section 415(c)(1)(A) is increased from $44,000 to $45,000.

Several other limitations have also been raised.  Each are detailed on the Internal Revenue Service's website : www. irs.gov.

"DISPOSAL OF PERSONAL RECORDS LAW" SET TO TAKE EFFECT

On December 4^th, 2006, the "Disposal of Personal Records Law" will take effect in New York. In an effort to curb the growth of identity theft, this law requires all employers to take extra steps when disposing of documents and records containing personal identifying information of their employees, such as Social Security numbers and driver's license numbers.

Under the new law, such records, when marked for disposal, will have to be destroyed or altered pursuant to the standards.   The best way to conform to these standards will be to shred all documents and records that may contain sensitive information

NEW YORK LAW RESTRICTING VIDEO SURVEILLANCE OF
EMPLOYEES GOES INTO EFFECT

Earlier this year, New York passed a law restricting the ability of employers to videotape employees in restrooms, locker rooms, or any other area where they may be changing their clothes.

Any such surveillance in the future will require a court order.  Violation of the new law provides an employee with the right to sue for damages and attorney's fees.  Employers should also understand that, in that such surveillance is now illegal, the footage gained will no longer be admissible in cases involving the employee, such with discrimination or wrongful termination matters.

Michael J. Chmiel

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August 2006

U.S. SUPREME COURT

June marked the end of the Supreme Court's 2005-2006 term, and unfortunately, rulings in the area of labor and employment law may result in future increases in litigation costs for employers.

E-mail Etiquette: Employers may want to think twice before picking up the phone to call an employee or shooting an e-mail his way.  In IBP, Inc. v. Alvarez, the Supreme Court ruled that time spent by workers either putting on or taking off protective gear and walking to and from a job site was compensable under the Fair Labor Standards Act.  In other words, in instances when an employee engages in a principal work activity, or an act that is indispensable to a principal work activity, an employer must compensate an employee for his actions.  Therefore, if an employee is answering phone calls by a manager or reading company e-mail messages prior to or after completing a normal work day, the employer may be on the hook for paying his employee extra wages.

Discrimination Downfall:  According to Title VII, the American Disability Act and the Age Discrimination Employment Act, only those employers that employ at least 15 employees for a 20 or more week period in the present or preceding calendar year may be subject to a federal cause of action under Title VII for discrimination.  Such a computation becomes difficult when independent contractors, part-time employees, and seasonal workers are among the employees.  Unfortunately for the small business owner, the Supreme Court ruled unanimously that the 15-employee threshold for determining whether an employer is covered by Title VII is an element of a plaintiff's claim to be decided by a jury; not a judge.  Ultimately, this means that juries will get to decide on a case-by-case basis who qualifies as an employee, providing less certainty and higher litigation costs in discrimination cases.

Harass and Get Hit:  The Supreme Court's recent decision in Burlington Northern and Santa Fe Railway Co. v. White, just made the ticket price for defending a sexual harassment claim an expensive trip to court.  Instead of adopting a clear standard for what constitutes a retaliatory action, such as hiring, granting leave, discharging, and promoting, each potentially actionable act will need to be litigated in court to determine whether it passes or fails the "materially adverse to a reasonable person" standard.  The implications of this individual basis evaluation will become extremely burdensome to small employers, as the costs associated with potential litigation will begin to skyrocket.

TALLYING TAXES

What's Taxable and How Much?  The New York State Department of Taxation & Finance has recently published two reference guides to help businesses meet their New York sales and use tax obligations.  The first guide, Publication 850, simplifies a business' ability to determine if a particular good or service is taxable and under what conditions, as well as how to avoid common errors when filing a sales tax return.  The second guide is a Sales and Use Tax Jurisdiction and Rate Work-Up Service, which will help businesses determine which local sales tax jurisdictions should receive revenue from certain sales tax transactions and the correct sales tax rate to apply to those transactions.  This guide is meant to resolve the problems encountered when a customer's mailing address is not indicative of the local taxing jurisdiction where the individual resides, thus simplifying the process for charging and reporting the proper amount of local sales tax.

USE IT OR LOSE IT

If an employer is serious about wanting to enforce an arbitration clause found within an employment contract, the employer had better speak up.  In a recent decision, 11 months had elapsed between the time the employer was served with an employment discrimination action and its filing the motion to compel arbitration.  During that time frame, the plaintiff/employee retained counsel who took on the expense and effort of being admitted in New York and beginning fact discovery.  The court concluded that the employer waived his right to enforce arbitration due to the time and effort advanced by the plaintiff in the interim.

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May 2006

            The fact that an employee stays on the job just long enough to earn a bonus does not permit the employer to withhold payment. Simpson v. Lakeside Engineering, -- N.Y.S.2d --, 2006 WL 260048 (4^th Dept. 2006).  In Simpson, the employer offered a $10,000 bonus if the employee completed a year's service.  The employee quit just after she completed the year and the employer refused to pay the bonus.  The court said that an employer cannot argue that a bonus is discretionary after an employee has completed all the requirements.  The employer’s arguments of fraud and lack of good faith on the part of the employee were not enough to change the Court’s decision.  

             The devil is in the details.  In a recent case, a purchaser was bound by language disclaiming a warranty despite the fact that the language was on the reverse side of a form.  Roger’s Fence v. Abele Tractor and Equipment Co., --N.Y.S.2d--, 2006 WL 259600 (4^th Dept. 2006).  Unfortunately for the purchaser, its vice-president signed an agreement that stated warranty terms were on the reverse side and also signed a delivery report indicating that he reviewed and understood the warranty coverage.  As a result of those signatures, the purchaser was bound by the disclaimer.

             The question of what is a day's pay is more complex than it may seem.  In New York, a contractor working on public projects must pay workers the local prevailing rate for a day’s work in the same trade.  The Commissioner of Labor has the authority to classify workers by type (i.e. ironworker or glazier) and determine wage rates.  In a recent decision, the Court of Appeals said that when the Commissioner is classifying the work performed by an employee to a particular trade he does not need to consider the actual contractor practices within the locality.  Lantry v. State of New York, -- N.E.2d. --, 6 N.Y.3d 49 (2006)  Rather, the Commissioner can disregard local practice and rely upon job classifications as defined in collective bargaining agreements.

             If a self-insured employer, or an insurance carrier, wants to reserve their rights in a worker’s compensation case they need to say so loud and clear.  In New York, a self-insured employer or a carrier has the right to offset an injured worker’s future benefits with the proceeds of any recovery resulting from a lawsuit against a third-party.  However, there is a clear burden on the employer and the carrier to overtly state the intent to seek an offset.  See Brisson v. County of Onondaga, -- N.E.2d --, 2006 WL 345880 (2006).  Simply disagreeing with a worker’s belief that the employer or carrier has no right to seek an offset is not enough.  The employer must expressly and unambiguously reserve its rights or they will be considered waived.  

            It appears that New York is beginning to enter the debate on mandated health insurance.  On January 17, 2006 New York Assemblyman Daniel O’Donnell introduced the “Fair Share” bill. (A.9534)  This bill is similar to the Maryland bill targeting Wal-Mart and seeking to force an increase in health benefits for Wal-Mart employees.  O’Donnell’s bill would force companies with 10,000 or more employees to pay a tax of 8% of their total payroll.  This bill has passed the Assembly Labor Committee but must pass the Assembly Codes, and Ways and Means Committees before being presented to the Assembly.  Notably, Assemblyman Nick Spano is advocating a bill that would levy a $3 per hour/per employee tax on businesses with 100 or more employees.

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FEBRUARY 2006

APPROPRIATE USE OF VIDEO

SURVEILLANCE IN THE WORKPLACE

As an employer, you may suspect that an employee has stolen money or inventory from your company, or is otherwise slacking off on the job.  You may have entertained the notion of installing video surveillance in order to better protect your interests, but aren't sure about the legal ramifications.  A few simple precautionary steps may insulate an employer from an employee's right to privacy action.  It is advisable to install hidden cameras only after informing employees that they may be subject to such monitoring; installing cameras in plain view in open public spaces does not invade an employee's reasonable expectation of privacy.  Indeed, posting a sign that reads:  "THIS AREA IS SUBJECT TO VIDEO MONITORING.  YOU DO NOT HAVE A REASONABLE EXPECTATION OF PRIVACY," in the areas that are subject to video surveillance will minimize or even eliminate any risk of liability for invasion of privacy.

SEXUAL STEREOTYPING MAY BE

EVIDENCE OF DISCRIMINATION

In a recent federal case, the plaintiff claimed she was denied tenure because of a perceived lack of commitment to her job.  In support of her claim, the plaintiff alleged that the employer repeatedly questioned whether she could perform her job duties and maintain her required work hours with "little ones" at home and also questioned whether her commitment to her job would change once she received tenure.  The Second Circuit of the U.S. Court of Appeals ruled that comments made about a woman's apparent inability to combine work and motherhood constituted direct evidence of a gender-based discrimination.  This case should remind employers that sex-based stereotyping is not limited to assumptions based upon a woman's physical appearance.

TERMINATIONS FOR TRASH

TALK DEEMED NOT RETALIATION

 When circumstances provide a problem employee with protection, for example, if an employee has made a request for leave under the Family and Medical Leave Act (FMLA), employers are sometimes reluctant to terminate that employee, even for legitimate reasons, for fear of being accused of retaliation.  However, there is recent case law suggesting that a protected employee may properly be terminated for outrageous behavior, such as pervasive "trash talk", without the employer being liable for retaliation.  When an employee has engaged in a protected activity, an employer must approach any termination or other disciplinary decision with great care.  The employee can easily claim that any adverse action taken by the employer was retaliation for the protected activity and that the stated legitimate reason was merely a pretext.  Employers must be careful to ensure that employees who engaged in similar conduct in the past were disciplined in the like manner.  While good judgment dictates that caution must always be exercised, recent case law does provide employers with encouragement that courts will recognize that the legitimate need to run a business includes allowing employers, without recrimination, to remove protected employees who engage in offense and outrageous behavior.

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    2005

An employer will not be afforded the protections of Workers’ Compensation Law §11 against third party liability without first securing Workers’ Compensation whether or not the employee sustained a “grave injury”.

The New York Court of Appeals has recently ruled that without obtaining workers’ compensation for its employees, an employer cannot benefit from the protections of Workers’ Compensation Law §11 whether or not the employee sustained a grave injury.  Boles v. Dormer Giant, Inc., 2005 WL 405355 (February 22, 2005).

In Boles v. Dormer, the plaintiff (Boles) alleged injuries resulting from an accident that occurred while in the course of employment with Personal Touch Home Improvements, Inc. (Personal Touch).  At the time of the accident, Personal Touch was subcontracted by the defendant, Dormer Giant, Inc. (Dormer), to assist with a remodeling project.

Boles subsequently commenced suit only against Dormer for the alleged injuries.  As such, Dormer commenced a third-party action against Personal Touch for common law indemnification and contribution.  It should be noted however, that Boles could have also sued his employer directly as Personal Touch did not secure workers’ compensation for its employees, but failed to do so.

Boles moved for summary judgment under Labor Law §240(1) on the issue of liability against Dormer.  Personal Touch in turn cross-moved for summary judgment against Dormer to dismiss the third-party complaint.  In support of its position, Personal Touch argued in relevant part that §11 bars liability because Boles did not sustain a grave injury.  Dormer argued in opposition that §11 does not apply because Personal Touch did not secure workers’ compensation. 

Workers’ Compensation Law §11 protects an employer from contribution and indemnification claims arising out of accidents that occur while in the course of employment.  An exception to the rule arises if the employee sustained a grave injury as defined by the section. 

The Supreme Court and the Appellate Division, Second Department ruled that Boles did not sustain a grave injury and the third-party complaint against Personal Touch was dismissed in accordance with §11. Dormer appealed to the New York Court of Appeals. 

The issue before the Court of Appeals was whether §11 shields an employer from tort liability where the employer failed to secure workers’ compensation.  The Court answered “no,” thereby reversing the lower Court’s ruling.  In doing so, the Court looked to the legislative intent and public policy behind §11.  The Court noted that Workers’ Compensation was constructed as a bargain between labor and management.  Labor obtains necessary medical care benefits and compensation for workplace injuries regardless of fault while employers obtain a degree of protection from tort liability with the exception of grave injuries.  The Court held that Personal Touch did not adhere to its part of the bargain and, as such, cannot be afforded the protection of §11.  In terms of public policy, the Court noted that if an employer was provided with the protections of §11 without securing workers’ compensation, it would be unfair to the law-abiding employers.  Furthermore, there would be no incentive to obtain workers’ compensation which would discourage employers from upholding their end of the bargain.

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FEBRUARY 2005

AVOIDING EMPLOYEE LAWSUITS BY COMPLYING WITH NEW OVERTIME AND MINIMUM WAGE LEGISLATION

Despite a veto from Governor Pataki, the Empire State Wage Act of 2004 was ratified by the New York State Senate on December 6, 2004.  Thankfully, the Act is rather simple and does not change New York=s wage payment rules aside from an increase in the minimum wage.

Pursuant to the legislation, on January 1, 2005, New York=s minimum wage, currently set at $5.15 per hour, will be increased to $6.00 per hour.  Additionally, on January 1, 2006, the minimum wage in New York will rise to $6.75 per hour, and will reach $7.15 per hour effective January 1, 2007. 

The Empire State Wage Act of 2004 also affects the minimum wage for food service workers who routinely collect tips.  The wage for these workers is currently $3.30 per hour.  As of January 1, 2005, the minimum wage will rise to $3.85 per hour.  The rate will rise again effective January 1, 2006 to $4.35 per hour and then to $4.60 per hour as of January 1, 2007.

The federal government also amended a relevant piece of legislation dealing with wages this year, the Fair Labor Standards Act.   Unless specifically exempted, employees covered by the Act must receive overtime pay not less than time and a half of their regular pay rate for hours worked in excess of forty in a given work week.  The employees work week need not coincide with the calendar week; it may begin on any day and at any hour of the day.  Further, different work weeks may be established for different employees or groups of employees in an effort to minimize overtime pay.  However, averaging hours of two or more weeks is not permitted.  Further, an employee=s work week must be fixed and regularly reoccurring.

There are two ways an employee can fall under the overtime requirement of the Fair Labor Standards Act.  The first is known as Enterprise Coverage.  Any business or organization which either: a) does $500,000.00 or more in business annually; or b) is involved in medical, educational or governmental work must pay its employees under the Fair Labor Standards Act. 

Even when there is no Enterprise Coverage, most employees will qualify under individual coverage for Fair Labor Standards Act protection.  This applies to employees engaged in AInterstate Commerce.@  Obviously, this would include a truck driver transporting goods across state lines.  However, AInterstate Commerce@ has been interpreted to include a wide range of employees such as a secretary typing letters that will be sent out of state, an employee keeping records of interstate transactions, an employee making phone calls out of state, even an employee doing janitorial work in a building where goods are produced for shipment outside the state.

The danger for employers who are not fully compliant with the Fair Labor Standards Act and/or New York State Labor Law requirements is a suit by an employee or employees for back overtime pay.  It is not uncommon for plaintiffs= attorneys to commence class action lawsuits seeking back overtime pay for many employees over many years. 

In order to avoid such problems, a wise employer will be certain that employees not receiving overtime pay are exempt under both the Fair Labor Standards Act and New York State Labor Law.  Further, adherence to the Fair Labor Standards Act and New York Labor Law in the area of record keeping is essential to demonstrate compliance in the unfortunate event of a lawsuit.

Scott R. Orndoff

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2004

IRS OFFERS SMALL BUSINESSES NEW TOOLS TO HELP MANAGE RETIREMENT PLANS.

The Internal Revenue Service has recently introduced two new tools to help small businesses in their perpetual battle to keep retirement plans compliant with Federal tax law.  The new tools are designed to help employers better understand the retirement plans which they implement and to stay up to date with current developments in Federal tax law.  To aid small businesses in this pursuit, the Internal Revenue Service has introduced a suite of retirement plan Acheck-ups@ and an employer news letter.

The IRS encourages small business owners to review one of the three Acheck-ups@ to ensure that their IRA based retirement plans are compliant with Federal tax law.  There are three check-ups which the IRS encourages small business owners to utilize: one for Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA; one for Simplified Employee Pension (SEP) IRA plans; and one for Salary Reduction Simplified Employee Pension (SARSEP) IRA plans.  Each of the new check-ups created by the IRS is geared to one of the aforementioned retire plans, which are the most commonly operated plans by small businesses.

Each of the check-ups can be found on the retirement plans page on the IRS website (http://www.IRS.gov).  The check-ups are designed to target the most frequently encountered problems by IRS examiners.  Each check list has ten questions with plain language expressions of federal tax laws, advice on fixing problems, and links to further information

After a small business owner reviews the plan and completes the appropriate check list contained in the check-up, the small business owner may find an error in the operation of their plan.  Any error that is discovered can most likely be corrected by using the Employee Plans Compliant Resolutions System (AEPCRS@).  The EPCRS can also be found on the IRS=s website.  The EPCRS allows business owners to correct retirement plan errors, many times without having to contact the IRS directly.  This allows small business owners to continue providing employees with retirement benefits on a tax-favored basis.

In addition to the aforementioned tools, the IRS has also recently introduced three new components of EPCRS.  The first new component is Self Correction Program (SCP), in which employers or plan administrators identify and correct problems with their plans without the requirement of notifying the IRS.  The next component is the Voluntary Correction Program (VCP), in which corrections proposed by small business owners are submitted to the IRS for approval.  Once the small business owners receive this approval, the employers then have written and reliable assurance that the IRS has approved their corrections.  The final new component of EPCRS is the Audit Closing Agreement Program.  This allows retirement plans to be corrected with IRS approval while the plan is under audit.

The second new tool offered by the IRS to aid small business owners with their IRA based retirement plans is a periodic newsletter entitled ARetirement News for Employers.@  Each newsletter strives to address the special concerns of small businesses with respect to the retirement plans that they maintain for their employees.  The inaugural issue of the newsletter contains articles relating to re-employed military veterans and companies that they work for, new retirement plan products and upcoming events and expositions involving small businesses.  Subscribing to the retirement newsletter for employers is free and can be downloaded from the retirement plans page on the IRS website. 

In addition to the check-ups and newsletter now offered by the IRS, small business owners are encouraged to take advantage of all the other information and tools available on the IRS=s retirement plans web page.  On that web page, small business employers will find a plethora of useful tax information for retirement plans, including information on 401k plans for small businesses, frequently asked questions about retirement plans, and a list of employment plan abusive tax transactions.

Michael M. Chelus

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MAY 2004

GRID COMPUTING HAS ARRIVED IN THE BUSINESS COMMUNITY AND BUSINESSES MUST BE AWARE OF LEGAL ISSUES TO PROTECT AGAINST LIABILITY

Implementation of grid computing is growing increasingly popular within the business community based upon its ability to achieve the necessary means of advanced computer capabilities at the desired end of cost efficiency.  Grid computing is the term coined where one business (the provider) possesses excess computer capabilities and sells its surplus to a business (the customer) with fluctuating demand or insufficient monetary resources. The standard grid computing arrangement involves the customer transmitting raw data over a network to the provider and the provider in turn delivers processed data to the customer.  The transmitting of business data over the internet raises legal issues for both the firm selling its data processing capabilities and the firm outsourcing the data processing capabilities. 

The first legal implication of grid computing pertains to the personal information of third parties.  For example, a medical provider may transmit medical records via the network to a  provider for processing.  Privacy laws such as HIPAA and confidentiality agreements may potentially expose a customer to liability for merely transmitting data.  Customers should therefore secure permission from third parties before engaging in grid computing.  Additionally, customers should insist contractually that the provider only utilize the data for processing and not retain the information for a different endeavor.  The customer=s proprietary information is also an area of concern.  Forwarding data over the internet to a provider affords third parties the opportunity to intercept the transmission.  The security of a customer=s proprietary information should be safeguarded with contractual protections.

A customer should furthermore insist upon contractual protections such as asserting ownership of the unprocessed and processed data, prohibition from tampering with data or intermingling data with that of other customers. 

The provider should equally insist upon contractual protections to legally safeguard its personal and proprietary information.  A provider=s own information and that of a third party is likewise exposed to tampering by allowing customers access to its computer capabilities. The provider should  contractually prohibit any activity beyond the scope of authorization,   Moreover, the provider should insist upon privacy rules that impose restrictions on the collection of data as well as the use of data.  For example, without such protections, a customer could easily monitor the provider=s computer network or install unauthorized software which has the ability to copy the provider=s data. 

The provider should also be aware of the legal implications surrounding specific software that is provided by the customer to process the data.  The provider should ensure that the customer possesses a valid software license and that use of the software is not outside the scope of the license.  The provider risks intellectual property infringement for violating a software license or installing the software outside the scope of the licensing agreement. Likewise, the provider should ensure that processing customer data does not violate the existing software license agreements it currently possesses

Lastly, another potential legal liability involving grid computing is that certain data may fall within the domain of national security.  This is especially critical in today=s global society and the war on terrorism. If a broker purchases data processing capabilities and leases it to a customer, the provider may not know the content of the data which is processed. The provider should take necessary measures to ensure conformity with domestic and international law.

There is very little statutory or case law pertaining to grid computing; however, the law continues to evolve as legal issues emerge.  Without an expansive body of law, businesses must draft a conservative grid computing contract addressing the above addressed liability issues.

Michele L. Laski

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February 2004

THE FEDERAL ANTI-SPAM LEGISLATION HAS GONE INTO EFFECT AND WILL PLACE NEW REQUIREMENTS AND RESPONSIBILITIES UPON BUSINESSES THAT UTILIZE E-MAIL FOR COMMERCIAL PURPOSES

On December 16, 2003, President George W. Bush signed into law the CAN-SPAM Act (s. 877), which went into effect on January 1, 2004. This anti-spam act is the federal government=s first foray into regulating the ever-growing problem of “spam”, or the practice of sending unsolicited commercial e-mails. This law was primarily in response to the nearly forty states that have already enacted their own anti-spam legislation. For the most part, the new federal law preempts and supercedes existing state laws and