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Wisconsin Business Law Blog

Providing in-depth discussions, thought, creative, and innovative insights on Business Law innovative insights

Change in Federal Overtime Law on the Horizon

Posted in Labor & Employment, News and Recent Decisions, Operating a Business

Employers, you may soon be required to dish out more overtime pay to your employees. On June 30, 2015, the Department of Labor released their plan to “modernize” the Fair Labor Standards Act’s overtime pay rules for salaried employees. Currently, employers are only required to pay time-and-one-half to “white-collar” salaried employees that make $23,660 or less per year (or $455 or less per week). The change in the law would more than double this salary threshold to require that all salaried “white-collar” employees making less than $50,440 per year must receive time-and-one-half  for overtime hours worked. The Department also proposed that this salary threshold would increase annually to match the consumer price index.

Not all employees making this amount are required to be paid extra for overtime hours, however. Only employees who are in executive, administrative, or professional positions and who are under the salary threshold must receive the additional overtime pay.  Under the current regulations, about 11% of salaried employees are eligible for overtime pay, but this change would increase this to about 40% of the salaried American workforce.  It’s estimated that over 5 million salaried workers currently earn more than the current threshold of $23,660 per year but also earn less than $50,440, entitling those individuals to overtime bonus pay for their overtime hours worked.

Of course, this will come at a cost to employers, forcing businesses who wish to avoid paying their employees time-and-a-half to choose between hiring additional staff to reduce overtime hours for full-time staff, or to pay qualifying employees a salary above the new threshold. It’s projected that the rule change will put an additional $1.2 to 1.3 billion in the pockets of these employees newly eligible for overtime pay. The Department of Labor has provided a site where public commentary can be made on this proposed change, where you can provide your input to the Department of Labor. You can comment online by going to the website, www.regulations.gov and posting on Regulatory Information Number (RIN) 1235-AA11.

Schober Schober & Mitchell, S.C. encourages you to contact us for advice in planning how your business will comply with this proposed rule.

This post was written by our law clerk, Jeremy Klang.

What the Obamacare Ruling Means for Wisconsin

Posted in News and Recent Decisions, Operating a Business

Amid this summer’s flurry of U.S. Supreme Court rulings, the nation’s highest Court has essentially decided the fate of Obamacare. In King v. Burwell, the Court saved the health care reform law by rejecting a challenge that would have essentially dismantled the Affordable Care Act as we know it. After this ruling, the fate of the law is no longer uncertain, meaning compliance may have significant implications for you and/or your business.

King v. Burwell hinged entirely on an interpretation of four seemingly unimportant words in the otherwise lengthy health care reform law; the words “established by the State.” Since the enactment of the Affordable Care Act in 2010, 34 of the 50 U.S states have legally elected to not establish a state funded health care exchange site to provide individuals a place to purchase a now mandated health insurance policy. Wisconsin’s Governor Scott Walker has been outspoken in his decision not to establish a state-run health insurance exchange, and in response to his and other 33 states’ decisions, the Obama administration, through the Department of Health and Human Services, has filled the void by creating federally funded exchange sites in those 34 states. Additionally, to make the cost of health care purchased through an exchange more affordable, the Affordable Care Act allows individuals to receive a tax subsidy if they purchase health insurance through a health care exchange “established by the State,” and if they have a certain income level that qualifies. However, it was unclear whether the ACA’s language allowed a tax subsidy to only those qualified individuals who purchased insurance from one of the 16 exchanges that were established by a “state”, or whether those qualified individuals who purchase insurance from the federally funded exchange can receive this subsidy as well.

The IRS attempted to answer this question through a regulation which ruled that a purchase from either type of exchange—one of the 16 state exchanges, or the federally funded exchange—makes an individual eligible for the tax subsidy. However, this put some individuals between a rock and a hard place. Some individuals have incomes low enough to exempt from Obamacare’s individual mandate to purchase health insurance, but at the same time their income level qualifies them for the tax subsidy. Since they qualify for the tax subsidy, even though they might otherwise be exempted from buying insurance under the individual mandate, the cost reduction for buying insurance from the subsidy, makes them ineligible for the exemption to the individual mandate. They are then required to either buy health insurance or face the tax penalty for not having insurance.

The challengers in King v. Burwell were in this exact position, and argued that they should not be eligible for the subsidy because they lived in Virginia, a state that elected not to establish a state exchange. Their argument was that, since there was not an exchange established by the “State” of Virginia, that they were not eligible for the tax subsidy, making them qualified for the exemption from the individual mandate.

The US Supreme Court in Burwell however, upheld the IRS’s regulation, interpreting the statute to mean that an individual’s purchase of health care insurance from “an Exchange established by the State” includes both purchases from one of the 34 federally funded exchange sites and the 16 states that elected to establish local exchanges. For the challengers, this means that because a purchase from a federally funded exchange in Virginia qualified them for a tax subsidy, they are required to purchase insurance under the individual mandate.

What this means for individuals in Wisconsin: If your income qualifies you for the tax subsidy–that is your yearly household income is within 1 to 4 times the federal poverty level—and if the cost to you to buy insurance after the subsidy is less than 8% of your individual yearly income, you are required to buy health insurance or face the tax penalty for not buying insurance (otherwise known as the individual mandate).

What this means for Wisconsin Businesses: There are three categories of businesses that are affected by the ACA: small, mid-sized, and large businesses.

First, small businesses—which are those businesses that employ 49 employees or less—are not subject to the “employer mandate,” and are not subject to any penalty for failing to provide coverage to employees. However, those businesses with 25 or less employees with average annual wages of $50,000 are eligible to receive a tax credit if the business provides insurance to their employees. This ruling only affects small businesses to the extent that the individuals involved in the business must comply with the individual mandate.

For mid-size businesses—businesses that employ 50 to 99 employees—starting January 1, 2016, the ACA’s “employer mandate,” requires the business to do one of two things or face a penalty. 1) ensure that a certain percentage of your employees have minimum health care coverage, or 2) pay a certain percentage of your employees enough so they are ineligible to receive the tax credit. While this delay on the “employer mandate” for mid-sized businesses is old news, the Burwell ruling makes the looming employer mandate more certain for Wisconsin businesses. If the ruling had gone the way of the challengers, no employees in Wisconsin who could buy their insurance through the federal exchange site would be eligible for subsidies. Therefore, no Wisconsin employers would be subject to a penalty under the “employer mandate” for failing to provide minimum coverage or the threshold income to their employees.

As for “large” businesses—those who employ 100 or more employees—the employer mandate has been in effect since 2012, so this ruling shouldn’t change what those types of businesses are doing in regard to health care benefits. However, this ruling similarly removes any doubt that all Wisconsin employers must furnish either minimum health insurance coverage or at least provide incomes to their employees to make them ineligible for a tax credit.

Despite the Supreme Court’s clarification of the particular issue in this case, the Affordable Care Act is still an extremely complex law. If you are unsure of where you fit into this complex scheme, contact Schober Schober & Mitchell, S.C. to ensure you can comply with with the Affordable Care Act in the way that best suits the needs of you and/or your business.

This post was written by our law clerk, Jeremy Klang.

SCOTUS Ruling Could Make WI Tax Law Unconstitutional

Posted in Business Litigation, News and Recent Decisions, Tax

It’s too bad the United States Supreme Court didn’t issue its ruling in Comptroller v. Wynne in time for the 2014 tax season. In early May 2015, the nation’s highest Court ruled in favor of a couple in Maryland who argued that part of Maryland’s state tax regime was unconstitutional because it failed to give them a tax credit for taxes paid on income in another state’s county, municipality, or other local taxing authority. The couple, the Wynne’s, are Maryland residents that held stock in an S-Corporation which had gained income in other U.S. states in the taxable year, and they had paid state level and sub-state level taxes on that out-of-state income in states other than Maryland. Maryland’s tax code requires the Wynne’s to pay income tax on that out-of-state income to the state of Maryland in addition to the tax paid on that income in other states, resulting in a double tax on that income. While Maryland allows individuals a tax credit for taxes paid to the state-level taxing authority in other states, it does not allow individuals a tax credit for payment of taxes to out-of-state municipal, county, or other local taxing authority lower than the state level. In Wynne, the United States Supreme Court held that Maryland’s disallowance of a credit for an individual’s payment of tax to an out-of-state county, municipality, or other sub-state level taxing authority violates the dormant Commerce Clause because the disallowance provides those individuals who only engage in commerce within a particular state with an advantage, while it burdens those residents who engage in interstate commerce with a double tax.

Maryland is one of the few remaining states that have such a tax regime, but among these few remaining states is Wisconsin, which has an identical stance that allows tax credits for individuals who pay taxes to state level tax authorities but disallows credits for payment on out-of-state income to any sub-state level taxing authority. See Tax Publication 125, (January 2015), page 2, ¶ D. While most municipalities, counties, or other taxing authorities, such as school districts, at least in Wisconsin, derive much of their tax revenue from sales taxes and property taxes, many sub-state level taxing authorities outside Wisconsin impose income taxes in addition to the state level income tax. For example, about 80% of Iowa school districts impose a surtax that requires individuals to pay additional tax to a local school district on income earned in Iowa for a taxable year. These school districts are allowed to tax as much as 20% of the Iowa state income tax required to be paid to the state in the taxable year. Many other nearby states such as Michigan, Indiana, Ohio, and several other U.S. states also have some type of sub-state level income tax. For all those Wisconsin residents doing business or working with the jurisdiction of out-of-state taxing authority, under current Wisconsin law, you must pay an income tax both to Wisconsin and to the out-of-state sub-level taxing authority, but cannot receive any credit in Wisconsin for the payment to the out-of-state sub-state level taxing authority.

In light of this Wynne ruling, it remains to be seen whether the Wisconsin Department of Revenue will change their stance to allow tax credits for out-of-state payments. With the Wisconsin law and the Maryland law being virtually identical, there isn’t much wiggle room for Wisconsin to continue to disallow these credits. Though the Wisconsin law has not be expressly ruled unconstitutional by the Supreme Court like the Maryland law was in this case, it’d be surprising if the Wisconsin Department of Revenue didn’t to join the vast majority of states that allow a credit across the board for out-of-state income tax payments to sub-state level taxing authorities. However, if the Department of Revenue continues to disallow these credits for the 2015 tax year, it would be doing so in spite of controlling precedent from the nation’s highest Court.

Schober Schober & Mitchell will stay tuned to any changes on the Wisconsin Department of Revenue’s stance on this issue.

This article is the combined effort of Thomas Schober and our law clerk, Jeremy Klang.

Wisconsin Senate Proposes Change to Non-Compete Law

Posted in Business Litigation, Noncompete Agreements, Operating a Business

The Wisconsin Senate recently passed a bill that would yet again fundamentally change the current state of Labor & Employment law in Wisconsin. The bill still requires Assembly approval and the Governor’s signature.

Senate Bill 69 repeals current Wisconsin Statute section 103.465, which governs the enforceability of non-compete agreements in employment contracts. The bill would replace the current statute with a less restrictive and more comprehensive mandatory statutory scheme that Wisconsin courts would be required to follow when determining whether a non-compete is enforceable contractual provision. Currently, under § 103.465, non-compete agreements are more likely than not to be ruled unenforceable because the statute only allows enforcement “if the restrictions imposed are reasonably necessary for the protection of the employer or principal.” This statutory reasonableness standard has allowed for significant judicial law making, making enforcement of non-compete agreements less likely. If the bill becomes law, it would make it much more difficult for courts to strike down non-compete clauses in employment contracts, and make enforceability much more likely.

Notable provisions in the bill include:

  • allowing an employer’s offer continued employment to an at-will employee that is conditioned upon the employee’s acceptance of a contractual non-compete provision to constitute valid consideration for an enforceable contract (which statutorily enacts the recent Wisconsin Supreme Court holding in Runzheimer International, Ltd. v. Friedlen, 2015 WI 45.);
  • requiring “blue-penciling,” a practice recently rejected by the Wisconsin Supreme Court in Star Direct, Inc. v. Dal Pra, 2009 WI 76, in which a court is limited to “crossing-out” only the unreasonable portion of the non-compete agreement, whereas the current law under Star Direct allows courts to eliminate all non-compete provisions (even reasonable ones) where only one individual non-compete is found to be unreasonable;
  • creating a rebuttable evidentiary presumption that a provision that only restrains competition for 6 months or less is presumed to be reasonable; while providing that a provision restraining competition for more than 2 years is presumably unreasonable, but still allowing the employer to prove that the provision is reasonable through clear and convincing evidence;
  • expanding the scope of legitimate business interests protected by the statute to include an employer’s prospective clients, rather than just existing ones;
  • requiring a court to jump through some hoops in order to strike down the provision on public policy grounds by requiring that the court explicitly set out the public policy ground it rests its decision on as well as requiring the court to state why the public policy for non-enforcement substantially outweighs the recognized legitimate business interest of the employer;
  • prohibiting a court from using a terminated employee’s individual economic hardship (from being prohibited from competing against their former employer) as a basis for non-enforcement, unless that person can show there are exceptional circumstances for non-enforcement;
  • requiring that if a terminated employee is found to have violated an enforceable non-compete agreement, that any contractually determined attorney fee shifting must be enforced, or in the absence of that, allowing the court to give the cost and attorney fee to the winning party;
  • disallowing the narrow construction of contract interpretation against the employer, and requiring interpretation of the contract in the favor of providing reasonable protection of the legitimate business interest of the employer; and
  • providing that for employers who have secured an injunction against their former employee, they would not be required to post a bond in order to gain injunctive relief, however, the court could require the employer to provide the former employee security for any damages they might incur due to the injunction.

A link to the bill can be found here.

This is a significant and comprehensive change in the current state of employment law in Wisconsin. The bill ties the hands of the judiciary in striking down non-competes, and gives employers much more power over their employees after termination.

It remains to be seen whether the Governor will sign this bill, but those businesses currently with non-compete agreements should know that these changes will only affect those contracts signed after the bill becomes law while current agreements would still be subject to the judicial discretion allowed by the current § 103.465. Schober Schober & Mitchell S.C. will be keeping a careful eye out for if and when this bill becomes law. Please contact us with any questions regarding the potential change in non-compete law; our business law attorneys will be happy to help.

This post is the combined efforts of Jeremy Klang and Thomas Schober.

 

Feds Resort to 1789 Law to Stop Apple

Posted in Operating a Business, Other Legal Issues, Technology Related Topics

I read an article noted on the ABA Journal Weekly Newsletter entitled, “Feds say 1789 law requires Apple to help government get encrypted smartphone data.” I’ve always been a proponent of individual liberty (and privacy), and I wanted to see what the government was arguing to support its case that they are entitled to snoop on everything we say or do on our smartphones.

The above article cites two further articles, one from Ars Technica’s Law & Disorder, and the other from Wall Street journal’s Digits.

In essence, the government is saying that a court can order anyone to cooperate with the government to get at data the government needs to enforce laws. The 1789 law, as amended, now reads:

28 U.S. Code § 1651 – Writs

(a) The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.

(b) An alternative writ or rule nisi may be issued by a justice or judge of a court which has jurisdiction.

The article points out that the real purpose may be to stop technology companies from making smartphones or other devices that the government cannot get into.

The comments following the blog are outstanding. As is usually the case, many say that if the government wins this case, the “bad guys” will be the only ones left with good encryption, and the rest of us well face constant government surveillance, harassment, arrest and prosecution for things that shouldn’t be anyone else’s business. While I agree, I’ll let you decide.

Dropbox Passwords Hacked

Posted in Business Formation, Business Litigation, Buying, Owning and Selling a Business, News and Recent Decisions, Operating a Business, Other Legal Issues, Technology Related Topics

We learned this morning about another data breach, this time relating to the widely used Cloud Service called Dropbox.

Steve Kovach, of BusinessInsider.com reported yesterday that over 7 million Dropbox passwords have been compromised.

After the Target, Home Depot and other recent breaches, this isn’t a big surprise. However, since many lawyers use dropbox to share confidential information with their clients, it may certainly startle many.

If you haven’t considered encrypting the messages you send, now may be the time.

We thank our friends at Abacus Data Systems, Inc. for getting us word of the above news!

Can I Crowdfund in Wisconsin Yet?

Posted in Business Formation, Operating a Business, Technology Related Topics

Wisconsin’s equity crowdfunding law, which was unanimously passed by the legislature and signed by Gov. Walker last November, officially took effect on June 1, 2014.  Wisconsin is one of 11 states that has “taken matters into its own hands” by passing its own crowdfunding laws while the federal rules are still pending.

President Obama signed the JOBS Act back in April of 2012, which was intended to make it easier for small businesses to raise capital.  One provision required the SEC to implement rules for a new crowdfunding exemption from the SEC requirements by the end of 2012.  Despite this requirement, no federal rules have been issued yet.

While securities law is normally a federal issue, the SEC has a longstanding “intrastate offering exemption” that allows companies to sell securities within their home state without registering the offering with the SEC.  States, like Wisconsin, have used this exemption to make their own crowdfunding laws ahead of the federal rules.  However, these state crowdfunding laws apply only to intrastate offerings.  This means that Wisconsin’s crowdfunding law can only permit companies formed in Wisconsin to solicit Wisconsin investors.  Interstate investments, such as an Illinois resident investing in a Wisconsin company, are still governed by federal law and thus are impermissible until the federal rules are released.

The SEC’s Compliance and Disclosure Interpretations from April 11, 2014 (“CDIs”) highlights some of the challenges of intrastate offerings.  For one, the intrastate exemption requires that securities are only offered and sold to in-state residents.  The CDIs note that it would likely be a violation of the intrastate exemption to use the company’s home website or social media sites, such as Facebook and Twitter, to advertise the offering, since these mediums will almost certainly reach residents of other states, and thus be an “offer” to an out-of-state resident.  Eliminating free modes of advertising such as Twitter and Facebook for intrastate offerings could lessen the appeal of crowdfunding until the federal rules are released (and thus interstate investments are permissible) since the primary purpose of crowdfunding is to eliminate the expense of raising capital.

So, at present, crowdfunding puts those who use it at high risk of violating laws until the SEC issues some additional rules.

This article was prepared with the help of Kelsey O’Gorman.

Easier Tax-Exempt Status: New IRS Form 1023-EZ

Posted in Business Formation, Operating a Business, Other Legal Issues, Tax

Good news for those of you starting new exempt organizations: the IRS just released a new form, called the 1023-EZ, which will make applying for tax-exempt status for some smaller organizations much easier.  The new form is only three pages long, compared to the lengthy 26 page standard 1023 form.  The simplified form will substantially reduce the legal expense of starting a 501(c)(3) and hopefully speed up the IRS approval process.

The IRS hopes that simplifying the approval process for smaller organizations will also reduce delays for larger organizations by freeing up more resources to review the lengthier applications.  Currently, the IRS has more than 60,000 501(c)(3) applications in its backlog, with many of them pending for nine months or longer.

The IRS estimates that as many as 70 percent of all applicants will qualify to use the new 1023-EZ.  Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible.

However, the new application processes is still not without complications.  For example, you will still have to decide whether your organization will be a public charity or private foundation.  Further, certain types of organizations, such as churches, are categorically excluded from using the new form, even if they are small in size.

Therefore, it is still important that you confer with an attorney who can help determine if you qualify to use the 1023-EZ and to help you make other important decisions related to your non-profit organization.  If you need assistance in this area, one of our business attorneys would be happy to assist you.

Thanks to our law clerk, Kelsey O’Gorman, who assisted in the post.

The Innocent Owner Defense: Wait! That’s My Car!

Posted in Buying, Owning and Selling a Business, Operating a Business, Other Legal Issues

One of my partners, Eric Raskopf, who practices criminal and traffic defense work, recently posted to his blog, On Legal Ground, an article about someone losing their car as a result of being stopped while involved in criminal activity. Before you say, “Wait, that’s never going to happen to me,” read about what your kids, or maybe your employees, friends or neighbors may unintentionally do to your property, when you are not adequately supervising. Enjoy the read!

Proposed Federal Legislation is Likely to Raise Legal Fees

Posted in Operating a Business, Tax

How is Washington going to raise legal fees? Quite simple: just raise the costs for lawyers to do business by raising taxes substantially on many law firms.

The Federal Government has two bills pending, each of which would require law firms with gross receipts in excess of $1 Million to report for tax purposes using the accrual method of accounting. Most such law firms currently report on a cash basis. Consequently, if passed, all such law firms would have to report as taxable income monies which were billed, but not yet received. That would have the effect of causing a large amount of taxes to be paid by all such firms, which essentially means that in order to continue to meet all their other expenses, including payroll, such firms would be left with one option: raise fees.

If you may be opposed to such action, please consider writing your Senators and Representatives, mentioning the Tax Reform Act of 2014 and Section 51 of a similar Senate draft bill.