Wisconsin Business Law Blog : Waukesha, New Berlin, Oconomowoc Corporate & Real Estate Lawyer & Attorney

Legislation allowing employees bringing successful discrimination claims against businesses to obtain compensatory and punitive damages along with reimbursement for back pay, reinstatement, costs and attorneys fees, has been adopted by the Wisconsin Legislature and sent to the Governor for signature.  2009 Senate Bill 20, www.legis.state.wi.us/2009/data/SB20-SSA1.pdf, previously commented on in this blog, will apply to acts of employment discrimination which are first committed on the effective date of the act, which will be the day after its publication, or on the second day after publication of the 2009-11 biennial budget, whichever occurs later.

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A constructive dividend generally refers to a situation where the IRS re-characterizes certain corporate “expenses” as dividends thereby excluding certain corporate deductions and increasing the corporation’s tax (along with possible penalties and interest). Examples of disallowed expenses include: (a) unreasonably large salaries; (b) low interest or no interest shareholder loans; and (c) unreasonable rent payments to affiliates. Thus, it is wise for closely held business owners to document all transactions between the corporation and its officers/directors/shareholders. The documentation should preferably include reasoned analysis where appropriate to avoid issues like the situation recently explained in Yates v. Holt-Smith 2008AP000017 05-14-09. In Yates, the court found that the alleged bonus payment was in fact a constructive dividend and also forced the corporation to pay said dividend despite one equal shareholder's objection to said payment. A well documented minute book, along with a detailed buy sell agreement, may have avoided this result and (I assume) lots of litigation expenses

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When prices are constantly increasing, it is easy to say: "wouldn’t it be nice if prices would just fall as often as they go up?" I’ll tell you why the answer is "no," and discuss some business concepts directly dealing with this question.

In a perfect capitalist system (without government intervention), there are two inputs and two outputs:

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Local Governments in particular are generally eager to provide assistance to businesses, and to "do business" with private companies, especially in the current economic climate.  Reductions in shared revenues available from the state, layoffs of employees and the closure of businesses by local employers have placed renewed emphasis on economic development incentives.  In addition, calls to cut governmental expenses may lead government to look to the private sector to provide certain services that have traditionally been provided by government itself.

Laws such as the federal Freedom on Information Act, and of the states promoting open government such as Wisconsin's Open Meetings Law and Public Records Law, however, can create difficulties for private businesses seeking to take advantage of public funding and opportunities particularly where a private business is required to provide information it believes confidential or proprietary to governmental entities.

The Wisconsin Supreme Court recently expanded the definition of "governmental entity" for purposes of Wisconsin's open government laws in the case of State v. Beaver Dam Area Development Corporation, 2008 WI 90 to potentially include economic development corporations of the kind communities have been making agreements with in an effort to promote business development.  Economic development corporations typically assist communities in obtaining and negotiating with potential businesses to locate and operate withing the communities.  Various factors are to be considered in making the determination whether such corporations constitute governmental entities, such as the extent of funding provided by local government, and the extent to which public officials may participate in the operation of such corporations.  If they are found to constitute governmental entities, they would be required to comply with the Open Meetings Law and Public Records Law, which could make their meetings, operations and records open to public review and scrutiny.

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Proposed legislation would dramatically increase damages available in Wisconsin in employment discrimination cases.  Currently, Wisconsin law only allows a successful claimant the remedies of reinstatement (or front pay), back pay, attorneys fees and costs.  2009 Senate Bill 20, if enacted, would also permit a person discriminated against to bring a circuit court action to recover compensatory and punitive damages, and attorneys fees and costs related to the action.  The circuit court action could be brought after completion of administrative proceedings before the Department of Workforce Development Equal Rights Division and the Labor and Industry Review Commission.

The legislation would provide that no such action could be brought against the state, state agencies, local governmental units or employers employing fewer than 15 individuals.

The legislation would put caps on the amount of damages awarded based on the number of employees employed by the defendant, as follows: $50,000 if there are 100 or fewer employees; $100,000 if there are more than 100 but fewer than 201 employees; $200,000 if there are more than 200 but less than 501 employees; and $300,000 if the defendant employs more than 500 employees.

In addition, the circuit court would be required to order the defendant to pay the court a fee 10% of the amount of damages awarded.  Fifty percent of that fee would be transferred to the Department of Administration and credited to the Department of Workforce Development which administers the fair employment law, and fifty percent would be retained by the county treasurer to pay for circuit costs operating costs.

The fee provision may arguably be in the nature of a penalty or forfeiture for discriminatory conduct, which raises various issues regarding its legality.  However, current Wisconsin case law allow government considerable latitude in imposing fees, where they can be shown to be reasonably related to the costs of operation of a regulatory system.

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 Minority and Majority Shareholders Beware – Lessons from Notz v. Everett Smith Group, Ltd. 2009 WI 30 

In the recent Wisconsin Supreme Court case Notz v. Everett Smith Group, Ltd. 2009 WI 30, there are important lessons for both majority and minority shareholders.

Lessons for Minority Shareholders. If you are a minority shareholder in a corporation and you believe that the majority has breached its fiduciary duty to you and caused you harm by foregoing a corporate opportunity, make sure that you allege and can demonstrate with evidence that it harmed you specifically and be able to allege and show that you were not just harmed the same as all other shareholders. Failure to allege and show specific harm will result in failure or dismissal of your claim, according to the Wisconsin Supreme court. Specifically, the court held that “the loss of a corporate opportunity and the sale of a subsidiary with high growth potential - - caused harm primarily to the corporation . . .” Notz at para. 38, and therefore the court affirmed the dismissal of Notz’s (the minority shareholder) claim for breach of fiduciary duty against the board of directors and majority shareholder. 

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1. How do I deal with problems?

Business is a chain of decisions. A good business person has to be able to make decisions. You don't always have to be perfect: the teams that make the World Series can win two and lose two, but they then win the critial next game to be at 60% for the season. The same is true in business: mistakes will be made, but you have to be right more than wrong, and on critical issues, you have to be right most of the time. So if you don't have the ability to deal with problems and make decisions, either pick a partner who does, or work for someone else who has that ability.

2. Am I a good  judge of people?

A good business person starts by selecting the right people. As Jim Collins says in Good to Great, you pick the right people to put on the bus, and then they will tell you what direction the bus should go. If I'm not willing or unable to be very focused on getting others who will work well in my business, then maybe I should see who has a business that I could help if I were on their team.

This goes beyond selecting good employees. It goes to selecting good customers and good vendors. If you have something to sell and only need to sell it to someone once, then maybe customer relations isn't important. But, most businesses grow based on  long term relationships and referrals. Seek customers who need you as much as you need them.

Seek vendors who want long term relationships, as well, so that as you start out or if things get tough, they will extend accommodations to you to assure your business remains strong and healthy.

3. Am I passionate about what I want to do?

There are hot dog vendors and cupcake makers that are awesomely successful. They are passionate about their products and have developed a "core concept" to make their customers just as passionate. For example, "the best deal on two dogs and a drink in America, for just $4."

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