Spotlight on Key Business Legal Issues for 2012

It's a new year and with it comes change. With the upcoming presidential election and evolving technological advancements, there will be plenty of challenges ahead.

Here are eight issues that might result in legal issues for businesses during 2012:

1. Online piracy of intellectual property. Debate is heating up about the protection of intellectual property on the Internet.  After much protest, Congress has delayed hearings about two proposed laws, the Stop Online Piracy Act (SOPA) in the House and the Protect IP Act (PIPA) in the Senate.

SOPA and PIPA would criminalize certain Internet behavior such as streaming copyrighted content and enabling the sale of counterfeit goods.

The laws have vehement supporters (including entertainment companies, media businesses and the U.S. Chamber of Commerce) who argue that more policing the Internet is necessary to protect intellectual property, jobs, consumers and more. There are also plenty of fervent opponents (Google, Facebook, YouTube and other tech companies) who argue that passage of such laws will thwart entrepreneurs and stop the growth of the Internet. That, in turn, will hurt the economy and result in fewer jobs.

The Obama Administration announced that it opposes key elements of SOPA and PIPA, although it believes that "online piracy is a real problem." The announcement called for "sound legislation this year that provides prosecutors and rights holders new legal tools to combat online piracy originating beyond U.S. borders..." while maintaining the innovation and creativity of the Internet.

White House opposition of SOPA and PIPA makes passage in their current form improbable. Whether there will be new or revised laws introduced remains to be seen, but during 2012, you can count on more discussion of online piracy and Internet free speech as well as what constitutes fair use and parody.

2. Taxes will be an overriding theme in the upcoming  election. The uncertain federal tax law will be in the news and on the minds of business owners and executives. Many favorable tax provisions expired last year and Congress will have to vote to reinstate them. (The two percent payroll tax cut was only extended through February so lawmakers will soon decide whether to allow it for the rest of the year.)

Taxes will be heavily debated by presidential candidates and the outcome of the election will set the stage for 2013 when major tax hikes will kick in -- unless Congress acts. Among the changes:   Capital gains and dividend taxes are scheduled to go up. The estate tax exemption is scheduled to go down with the maximum estate tax rate going up. In addition, individual tax rates are set to go from 10, 15, 25, 33 and 35 percent to 15, 28, 31, 36 and 39.6 percent.

3. Privacy concerns will grow.   As we've learned in recent years, more technology leads to less privacy. Companies will continue to be challenged by complying with privacy laws and minimizing security risks. Data breaches of financial, heath and intellectual property information can be devastating for businesses, as well as their customers, clients, members, patients, etc.

4. Social media will continue to evolve.  The popularity of social networking sites is soaring with people posting a vast amount of personal information, images, videos and opinions.  Businesses routinely use Facebook, Twitter and YouTube sites to market their products and services. Not-for-profit organizations use them to help spread their missions.

The vast social media world has connected people like never before but it has also resulted in negative implications. Trade secrets and private memos are leaked.  Employees badmouth their bosses. Embarrassing photos are posted.

In many lawsuits, opposing attorneys increasingly seek discovery of Facebook, Twitter and other social media accounts (although some courts have ruled there must be a reason to believe the information is relevant before it is divulged). Businesses must continue to navigate the opportunities and the liabilities that social media creates.

5. More businesses will migrate more critical information to cloud computing platforms. Unfortunately, while this can reduce a company's IT costs, it can also inject considerable operational risk that may not be fully understood by business owners and executives.

For example, how will your organization respond if a third party or employee steals data or another type of data breach occurs? Do you have a backup in place in the event the cloud data center fails?

This year, we are likely to see companies attempting to gain more control over information stored in the cloud.

Keep in mind that moving to a cloud platform complicates the e-discovery process. Electronically stored information is routinely requested in civil and criminal proceedings. Before migrating data, there must be a clear understanding of the processes that the cloud computing company has in place to respond to e-discovery requests. In the event your company is required to produce information, the cloud company should provide data in a timely manner that creates no doubt that it is complete and accurate.

6. Mobile devices -- and the risks they create for businesses -- will be everywhere. Today's smart phones and tablet computers store massive quantities of data and can access corporate servers with ease. In fact, many of today's phones and tablets are able to store more information than earlier generation laptops. This increased capability brings increased risks. Information from phones and tablets, or the actual devices, can be stolen. While many companies collect, store, and transmit information on smart phones and tablets, they don't always take adequate steps to secure the devices or institute precautions when employees use their own devices for job-related functions.

In 2012, businesses will increase their awareness of mobile risks. More businesses may install security software on smart phones and tablets and require company-issued devices to be monitored in the same way they monitor desktop computers in the office.

7. Lawmakers will focus on the regulation of "crowd funding." One way for start-ups to raise seed money online is to go to certain Web sites to seek investors. They describe their ventures and solicit money. The problem: Technically, businesses engaging in crowd funding have to comply with SEC regulations or qualify for an exemption. This year, Congress is expected to resume discussion of laws that could allow entrepreneurs to use crowd funding to raise a small amount of money without violating securities laws. You will hear more debate in 2012 over the question: Should entrepreneurs be allowed to informally seek financing without taking the legal steps required to protect investors from potential fraudulent behavior?

8. Lawsuits and government actions against employers are likely to keep going up. For the last several years, the number of employees initiating illegal EEOC discrimination and harassment actions against their employers has been increasing. This trend is likely to continue in 2012. Today's employees are more aware of their rights and willing to file charges. In addition, the definition of disability was expanded in 2009 and the aging workforce means there are more employees able to file age discrimination claims. On top of these claims, employers may face Labor Department claims and lawsuits charging they are not in compliance with overtime and other wage laws.

These eight items are only some of the legal issues you will hear about in 2012. Businesses must comply with a myriad of complex, ever-changing laws and navigate an evolving technological landscape. Legal claims from customers, employees, vendors, competitors and the government can result in costly losses and harm your company's reputation. Becoming aware of potential legal dangers can help you effectively manage them.

As always, we encourage your comments.

Did you know?

Did you know Winthrop & Gray Company, sells Auto, Home and Commercial insurance to individuals and businesses? In fact we sell all forms of property and casualty insurance.

Our purpose is to provide the very best protection that covers all of your needs.

Business and commercial insurance includes contractor liability, workers comp, commercial auto, business interruption, garage liability, general liability, disability, rental, restaurants and convenience stores.

We provide personal insurance that includes homeowners, automobiles, boats, flood and wind storm, life and disability.

For your vehicles we have auto, SUV, pick-ups, vans, boats, jet skis, RV's and motorcycles.

This includes liability, PIP/PD full coverage, collision, comprehensive and discounts for safe drivers.

We strive to develop a professional and personal relationship that best meets the needs of yourself, your family, and/or your business.

Winthrop & Gray Company can provide you with the insurance that you need for peace of mind if the unexpected happens, 800-258-1598.

Call us today for more information.  Our friendly staff will be waiting to assist you.  Always a free quote.  Call today at 800-258-1598.  We will handle all of your insurance needs.

Payroll Deduction IRAs Are a No-Cost Benefit

If you've considered setting up a retirement plan for your employees and decided it was too costly, or too much trouble, there is an alternative. No matter how big or small your business is, your employees can participate in a Payroll Deduction IRA, at virtually no cost to you.

Here's how a Payroll Deduction IRA works:

 Each employee who wants to participate establishes a traditional or a Roth IRA with his or her own bank, and authorizes you, the employer, to make payroll deductions. Your only responsibility is to forward the money withheld to the financial institution.

Sound easy? It is. In fact, it is the simplest retirement plan available for businesses to institute. There are no plan documents to adopt and no reports to file.

There is little difference between the Payroll Deduction IRA and an IRA that an employee might establish and contribute to on his own. The real benefit is for staff members who need to save for retirement but find it hard to set aside the money for regular contributions on their own.

Employees are responsible for establishing their own IRAs with their own financial institutions.

Only the employee contributes to the account through payroll deduction.

Employers make no contributions and have no filing requirements.

The employer receives no tax deductions.

Participant loans are not permitted.

Assets may not be used as collateral.

Withdrawals are subject to income tax and a 10 percent   penalty if the participant is under age 59 1/2.

Eventually, your business may decide to establish a retirement plan that includes employer contributions and discontinue the Payroll Deduction IRA. If that day comes, Winthrop & Gray Company can help you make that switch.

The IRS Announces Tax Relief for Misclassified Workers

On September 21, 2011, The IRS announced a new voluntary compliance program that will allow employers to reclassify workers on a prospective basis with reduced penalties and back payroll taxes. This program, the Voluntary Classification Settlement Program (VCSP), was designed to limit fines for employers who had previously classified workers as independent contractors, rather than employees.






The Problem

• There are many reasons that employees are misclassified as independent contractors. These include:
• The worker is being hired on an infrequent or trial   basis
• The worker is being hired for a one time   occurrence
• The worker is being paid a flat fee
• The worker chooses to be treated as an independent   contractor
• The employer believes it is too   expensive to treat the worker as an employee

Unfortunately, the above excuses do not justify misclassifying workers. Correcting the misclassification is very costly, and can cause employers to continue on an incorrect path, rather than reclassifying workers.

The Solution

The IRS's new program will allow an employer to properly classify a worker as an employee for future tax periods for a very small payment. The VCSP is offered to tax-exempt organizations, private employers, and government entities. To be qualified for the program, an applicant must:
Consistently have treated the workers in the past as   nonemployees;

Have filed all 1099s for all independent contractors for the   previous three years; and

Not currently be under audit by the IRS, the Department of   Labor, or a state agency concerning the classification of the workers under   consideration.
According to IRS Commissioner Doug Shulman, "This settlement program provides certainty and relief to employers in an important area. This is part of a wider effort to help taxpayers and businesses to help give them a fresh start with their tax obligations."

How to Apply

Employers apply by filing Form 8952, Application for Voluntary Classification Settlement Program. The new form must be completed at least 60 days before the employer want to begin treating the workers as employees. The two-page form asks for basic information about the employer and a description of the workers. In addition, a calculation on the form assesses the amount due on the reclassification. This number is derived from the wages received during the most recent tax year and is the equivalent of roughly 1.3% of the wages paid, a huge savings over the previous options before this program. After the form is completed, the IRS will first verify the taxpayer's eligibility. If eligible, the IRS will contact the taxpayer or its representative to complete the process. The IRS retains the right to reject any taxpayer from the VCSP, including taxpayers that otherwise meet the basic eligibility criteria.

A taxpayer participating in the VCSP agrees to treat the workers as employees for all future tax periods. In exchange, the taxpayer will pay approximately 1.3% of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

To read more about the Voluntary Classification Settlement Program click here.

Re-enforcement

The Department of Labor, the IRS, and several state governments have launched a joint enforcement effort to identify and crack down on employers misclassifying employees as independent contractors. By collaborating and sharing information of suspected misclassification, the joint enforcement effort increases the risk of substantial fines.
In the past, a state agency would penalize the employer for misclassifying employees. Under the joint enforcement effort, the state will share the findings with the IRS and Labor Department. These agencies can then go after the employer for fines and penalties for federal wage violations.
The following states have already signed onto the joint enforcement effort: Connecticut, Hawaii, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah, and Washington. New York and Illinois have also indicated they will join the effort.

Questions Answered on the Smoker Surcharge

Question:

My client wants to encourage its employees to quit smoking.  For 2012, he wants to charge smokers a greater premium for health coverage.  Is it possible to charge smokers a greater premium without violating the requirements of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA")?

Answer: 

Yes. HIPAA generally prohibits a plan from discriminating among similarly situated individuals based on their health status. This means, among other things, that plans usually cannot charge individuals different premiums or impose different costs (i.e., through deductibles or co-pays) based on the presence or absence of a health factor. However, HIPAA also affirmatively recognizes that the nondiscrimination provisions were not meant to prevent a group health plan or an insurer from establishing premium discounts, surcharges  or reduced co-payments or deductibles in return for "adherence to programs of health promotion and disease prevention," as provided under Code §9802(b)(2); ERISA §702(b)(2); PHSA §2705(b)(2). Thus, certain programs of health promotion or disease prevention (referred to as "wellness programs") are an exception to HIPAA's general nondiscrimination requirement.

In order to penalize smokers, any surcharge must be provided under a standard-based wellness program. Standard-based wellness programs that condition eligibility for a reward upon a participant's ability to meet a standard related to a health factor are permissible only if they meet the specific requirements set forth in 71 Fed. Reg. 75014 (Dec. 13, 2006).

Standard-based wellness programs must satisfy each of the following five requirements:

·       The reward or penalty must be no more than 20% of the cost of coverage (30% starting in 2014);

·       The program must be designed to promote health or prevent disease;

·       The program must give individuals an opportunity to qualify for the reward at least once a year;

·       The reward must be available to all similarly situated individuals; and

·       The plan must disclose that alternative standards (or waivers) are available.

For a full explanation of each of the requirements, please review Field Assistance Bulletin No. 2008-02.  A link to this bulletin is provided by clicking here

News in the Health Care Reform Law

The Obama administration and challengers of the Affordable Care Act (ACA) have accelerated their filings to the U.S. Supreme Court and are submitting preliminary arguments ahead of formal deadlines, making it even more likely the justices will take up the case this term. Twenty-six states and the National Federation of Independent Business are among those who have filed lawsuits claiming the health care reform law is unconstitutional, chiefly because of the individual mandate to buy insurance.

With federal court decisions on the constitutionality of the law split, the Supreme Court is expected to decide the issue. It is possible, however, that the Supreme Court could "punt" or put off a decision for years if it determines that the Anti-Injunction Act, which says that Americans have to pay a tax before it can be challenged in court, applies to the health law.


The Court could decide in just a matter of weeks whether to add the case to the agenda for the current term, which ends in June 2012. In court papers filed last week, the administration is asking the Court to limit its review of the health care overhaul and not consider two of the issues raised by the states -- expansion of Medicaid and penalties for failing to offer adequate insurance. While the Justice Department wants the high court to uphold the constitutionality of the health care law, the states and NFIB want the court to strike down the entire law, not just the individual mandate.

New health care exchange called: MI Health Marketplace

MICHIGAN: Legislation has been introduced to set up a health care exchange called the MI Health Marketplace. It is estimated that as many as 520,000 individuals who are uninsured or who come from other plans would come onto the MI Health Marketplace in its initial year of operation, and another 500,000 would be Medicaid eligible. Participants could total more than 1 million participants in the first year. The exchange, which would be established as a nonprofit, will serve individuals and small businesses. The nonprofit would be governed by a board, to be appointed by the Governor, and have the ability to appoint an executive director. Federal funds will pay for the operation of the exchange through 2014, and the bill would require insurers to be assessed moving forward. No budget has been spelled out, leaving an open question as to how much the exchange will cost. The Snyder administration expects to pass an exchange bill by the end of November. Many in our industry are working with the sponsors of the bill on amendments.

It is our opinion that health insurance companies, will provide the required medical plans within the exchange, (Gold, Bronze and Platinum) yet for those who qualify provide another set of plans outside the exchange in a free market setting, allowing for lower premiums and more competitive product selection. Much of the same is already happening in Massachusetts and Utah where the federal “health care reform law” was passed and modeled after. Currently in Michigan, if you can not qualify for a medically underwritten medical plan, your only choice would be to purchase health care insurance at an increased rate, from a non-profit, such as Blue Cross and Blue Shield of Michigan or apply for Medicaid. For those of you reading this, what changed with the passage of the new federal health care reform law?

In other news Federal:

Week of October 10, 2011

Long-awaited recommendations concerning "essential health benefits" under the Affordable Care Act (ACA) were released last week (see below). The Institute of Medicine (IOM) recommendations will be used by the Department of Health and Human Services (HHS) to help guide the process of determining what should be included in an essential health benefits package starting in 2014. America's Health Insurance Plans (AHIP) released a statement on the recommendations and the need to strike a balance between cost of coverage and comprehensive coverage.

In other news, a special edition of Health Affairs was released last week with a number of articles that shed more light on the problem of racial and ethnic disparities in health care. Among the findings are that health plans have made considerable progress in the collection of data on race and ethnicity to enable efforts to reduce disparities. Aetna was an early adopter of data collection efforts and made the special Health Affairs edition possible with support through the Aetna Foundation.

IOM's highly anticipated report on the development of the “essential health benefits” package was released last week. The report comes in response to a request made last November by Health and Human Services (HHS). HHS requested that the IOM convene a study committee to advise the Secretary on the criteria and methodology for determining the essential health benefits package. Importantly, the 297-page report doesn’t actually say what the essential health benefits should be. It just recommends the methodology HHS should use to determine the package. The two big take-aways from the IOM recommendations: benefits should be based on the “typical” small employer plan, and states should have some flexibility to determine what is essential. The report further states that only medically necessary services for individuals should be included as essential. And, in defining the essential health benefits, HHS should first set a cost target before filling in benefits to meet that goal. The IOM has recommended that HHS should have the initial benefit package by May 1, 2012, and it should be as specific as possible.

The U.S. Supreme Court opened its new term last week with a case concerning whether individual providers and beneficiaries have the right to legally challenge the adequacy of Medicaid payments in California. The case, Douglas v. Independent Living Center of Southern California, involves providers and patients who claim California cut Medicaid reimbursement rates so low in 2008 and 2009 that they violated federal requirements that payments be sufficient to avoid disrupting patient access to care. Many of the questions from the justices focused on the HHS process for enforcing Medicaid requirements in the states. HHS issued a rule earlier this year that, for the first time, requires Medicaid reimbursements be “sufficient to enlist enough providers so that care and services are available.” That rule was issued, in part, to try to dissuade the Supreme Court from taking up the Douglas case.

Your comments and suggestions are welcome. Contact Winthrop & Gray Company at 800-258-1598 or email us at www.winthrop@winthropgray.com