This article was originally written for the Business Law Section blog of the State Bar of Wisconsin and appears here with the permission of the State Bar and the article’s authors.


MaiVue K. Xiong, U.W. 2010, is a partner with Weld Riley, S.C. in Eau Claire, where she practices in business, real estate, copyright/trademark, and banking law.


Obtaining a credit card or consumer loan as a married individual in Wisconsin actually requires compliance with multiple and complex areas of law. MaiVue Xiong discusses the framework lenders need to comply with obtaining and reporting credit, and the potential ramifications married consumers should know in Wisconsin.


Absent a prenuptial or martial property agreement, “what’s yours is mine and what’s mine is yours” holds true for all marital assets and marital debt in Wisconsin. This is the case even when a spouse has not signed to obtain the debt, so long as the lender extending the credit obligations provides certain notifications to the non-applicant spouse.

The notification requirements are even more vigorous when the Wisconsin Consumer Act governs the credit obligations, which includes “consumer credit transactions” or consumer loans, credit cards, and credit sales under $25,000 that are subject to a finance charge and payable in installments.

This article focuses on the rules lenders must follow to successfully grant consumer loans to ensure compliance with state and federal laws, and also addresses legal ramifications married individuals, especially non-applicant spouses, should be aware of when living in a community property state.

The Marriage Benefit

Wisconsin law presumes that an obligation incurred by a spouse during a marriage is incurred for the benefit of the marriage, even if the obligation is not signed off by the other spouse (the non-applicant spouse).1

A statement simply reflecting this “marriage benefit” language in a loan application is conclusive evidence that the loan incurred solely by the applicant spouse is for the interest of the marriage or family.2

A lender can then legally hold a non-applicant spouse liable for the applicant spouse’s credit obligation, as long as the lender

1) includes in its credit application that no marital property agreement, prenuptial agreement, unilateral statement, or court order exists to affect the interest of the lender, and the lender does not receive such agreement prior to granting the credit obligations;3 and

2) has properly provided the non-applicant spouse written notice of the credit obligation before any payment is due, also known as the “tattletale” notice.4

A non-applicant spouse may terminate an open-end credit plan initiated by the other spouse,5 but if such termination notice has not been received by a lender, the debt incurred by the applicant spouse is expected to be paid using both the applicant spouse’s individual property and the couple’s marital property, which means the non-applicant spouse is automatically liable for the applicant’s spouse marital debt.6

Credit Reports

Since a non-applicant spouse is liable for his/her spouse’s marital loans, a lender may also pull the non-applicant’s consumer report information (credit report) in assessing the spouse’s creditworthiness.

The Equal Credit Opportunity Act (ECOA) was enacted in 1974 to ensure lenders do not discriminate granting credit and loans on the basis of protective classes, including a consumer’s marital status. However, section 1002.5(c)(2) of the ECOA, Regulation B, specifically allows a lender to request “for any information concerning an applicant’s spouse … that may be requested about the applicant” if the spouse will be contractually liable on the account or if the applicant resides in a community property state.

This means that, in Wisconsin, a non-applicant’s spouse’s credit report may be pulled and used as a risk evaluation tool in assessing the spouse’s creditworthiness without violating the ECOA, even though the non-applicant spouse may have no knowledge yet that his/her spouse had originated a loan.

Furnishing Information

The lender then may report credit information and its experience, whether good or bad, on both the applicant and non-applicant spouses to the credit bureaus.7 There is no requirement that a lender furnish credit information, but if it does, it must make sure that the information is accurate, complete, and in compliance with the lender’s written policies and procedures.8

If a lender chooses to furnish information on an account, and the account is a consumer loan for a married individual living in a community property state, the information must include the names of both spouses – though the lender doesn’t have to distinguish between the applicant and non-applicant spouse.9

If a lender is asked by a credit reporting agency about a particular borrower, and the lender chooses to respond to the request, the lender can only provide information in the name of the spouse about whom the information was requested, and not in the name of the non-applicant spouse.10 This is to ensure that the credit report of both spouses are complete with all relevant information while at the same time limiting access to information relating to the non-applicant spouse.

Equally Liable

This last subsection of section 1002.10 of the ECOA attempts to build in some protection for the non-applicant spouse, but by and large, non-applicant spouses in Wisconsin and other community property states are equally liable on debt incurred by their spouses.

As long as lenders have fulfilled their obligations and given proper notices, married individuals in Wisconsin without pre-nuptial or marital agreements should always keep in the back of their minds that “what’s yours is mine and what’s mine is yours” to avoid any surprises the next time they pull a credit report.

Endnotes

1 Wis. Stat § 766.55(1)

2 Wis. Stat § 766.55(1)

3 Wis. Stat § 766.56(2)(b). This requirement does not apply to open-end plans such as credit cards where the consumer may pay down and obtain new credit without further application.

4 Wis. Stat § 766.56(3)(b)

5 Wis. Stat § 422.4155

6 Wis. Stat § 766.55(2)(b)

7 § 1002.10(a) of the ECOA

8 § 660 of the Federal Credit Report Act (FCRA)

9 § 1002.10(b) of the ECOA

10 § 1002.10(c) of the ECOA


This article was originally written for the Business Law Section blog of the State Bar of Wisconsin and appears here with the permission of the State Bar and the article’s authors.


THOMAS J. NICHOLS & JAMES DECLEENE

Thomas J. Nichols, Marquette 1979, is a shareholder with Meissner Tierney Fisher & Nichols S.C., Milwaukee, where he focuses his practice on business law and tax law.

James W. DeCleene,Marquette 2015, is an attorney with Meissner Tierney Fisher & Nichols S.C., Milwaukee, where he practices in business law, estate planning, health care law, and intellectual property law.

 

 


Investing in a qualified Wisconsin business may provide certain tax benefits to individuals. Thomas Nichols and James DeCleene discuss these benefits and some potential pitfalls.

 

Wisconsin law currently provides tax-favored status to certain investments made in qualified Wisconsin businesses.

First, where an individual realizes long-term capital gain from the sale of an investment in a qualified Wisconsin business made after 2010 and held for 5 or more years, that individual may be entitled to exclude all or a part of that gain in determining his or her Wisconsin taxable income.1

Second, where an individual realizes long-term capital gain from the sale of any capital asset, that individual may be entitled to defer that gain so long as he or she invests all of the gain in a qualified Wisconsin business within 180 days of the sale.2

Qualified Wisconsin Businesses

A business is treated as a qualified Wisconsin business for a given year only if it is registered with the Wisconsin Department of Revenue.3

Importantly, the registration filing must be made before the end of the calendar year when it takes effect.4 The sole exception to this deadline is that, for the first year in which an entity begins doing business in Wisconsin, that business must register in the following calendar year.5

Since each filing only covers one calendar year, businesses desiring continuous qualified status should file every year.6 These filing requirements create hard and fast deadlines. There are no procedures for retroactive filings.

Only certain businesses can register with the department as a qualified Wisconsin business. In particular, a business must, with respect to its taxable year ending immediately prior to its registration, meet the following requirements:

  1. The business must have had 2 or more full-time employees.
  2. 50 percent or more of the business’s payroll must have been paid in Wisconsin.
  3. 50 percent or more of the value of the business’s real and tangible personal property (owned or rented) must be located in Wisconsin.7

With respect to the year in which a business first starts doing business in Wisconsin, these requirements are deemed satisfied if the business registered for the following year.

For purposes of the two 50-percent requirements listed above, persons employed by a professional employer organization or group are considered as employed by the organization’s or group’s client, and property owned by the business is valued at its cost, while property rented by the business is valued by taking the annual rental paid by the business for such property, subtracting out the annual sub-rental received by the business for such property and multiplying by 8.8

Lists of the businesses that have requested to be classified as qualified Wisconsin businesses for calendar years 2011-18 can be found on the Department of Revenue website.

Businesses are automatically added to these lists as part of the registration process for a given year.9

Since a business’s registration for its first year is determined by reference to the following year, a business must request to be added to the list for the first year in which it does business in Wisconsin. This request is made by sending an email to DORISETechnicalServices@wisconsin.gov and providing the business’s legal name as well as the confirmation number for its registration for the following calendar year.

Be aware that these lists do not signal the department’s acknowledgement that a business is in fact a qualified Wisconsin business for a given year. Rather, it merely identifies those businesses that have self-identified as meeting the above requirements.

Accordingly, obtain representations, covenants, or other assurances as to a business’s qualified status when helping clients identify a qualified Wisconsin business in which to make an investment.

Exclusion on Sale of Investment

As noted above, one of the benefits of investing in a qualified Wisconsin business is that the long-term capital gain on the eventual sale of that investment may be wholly excluded.10

To qualify for this exclusion, the business must be a qualified Wisconsin business “for the year of investment” and “at least two of the four subsequent” calendar years, provided that the investment was made after 2010 and held for at least five uninterrupted years.11 To claim this exclusion, an individual must file a Schedule QI with his or her Wisconsin tax return.

There are a number of issues to be aware of in applying this provision. To start, this exclusion only applies after the sale of an “investment” in a qualified Wisconsin business.12 For these purposes, an investment is defined as an “amount[] paid to acquire stock or other ownership interest in a partnership, corporation, tax-option corporation, or limited liability company treated as a partnership or corporation.”13

While the statute requires an “amount[] [to be] paid” for such stock or ownership interest, we confirmed in a phone call with the Wisconsin Department of Revenue that this definition is broad enough to cover transactions involving noncash consideration. We also confirmed that the statute should also apply to cross-purchases where the ownership interest is being acquired from an owner of the entity, rather than from the entity itself. In order for an investment in a single member LLC to qualify, the LLC must have elected to be treated as an S or C corporation for Wisconsin purposes. 2017 Form I-177.

Be aware that late-year investments in entities that have not yet started doing business in Wisconsin may not be eligible for gain exclusion. For example, take the situation where an individual invested in an LLC in November 2017, but the LLC did not actually start doing business in Wisconsin until March 2018. Under those facts, the LLC would be prohibited from registering with the department as a qualified Wisconsin business for calendar year 2017 since it would not have started doing business in Wisconsin until 2018.14

Because of this, the business could not be qualified during the year of the investment, and no exclusion would apply on the eventual sale of the investment, even if the business registered as a qualified Wisconsin business for each calendar year in which it did business in Wisconsin.15 Thus, it’s good to advise clients whether to wait to invest in a business until the calendar year in which the entity starts doing business in Wisconsin.

Note that gain passed through to an individual from a partnership, limited liability company, limited liability partnership, tax-option corporation, trust or estate can qualify for the exclusion.16 As an example, an individual investing in a limited partnership that made an investment in an LLC would be able to exclude the gain passed through from the limited partnership’s sale of its interest in the LLC, provided that the limited partnership held the interest for five years and all other requirements are satisfied.

Deferral upon Rollover

Taxpayers may also be able to defer long-term capital gain so long as all of the gain is invested in a qualified Wisconsin business within 180 days of the sale of the capital asset.17 In addition to rolling the gain over into a qualified Wisconsin business, the individual must also file a Schedule CG with his or her tax return in order to claim this deferral.18 Note that this gain deferral provision is applicable to a large number of transactions, given that it could be used to defer any long-term capital gain.19

As with the gain exclusion provision above, there are a number of issues to be aware of when applying this deferral provision. For example, this deferral provision uses the same definition of “investment” noted above, so be aware that the investment in the qualified Wisconsin business for these purposes could also be made with noncash consideration or in a cross-purchase transaction.20

Additionally, the same problem with respect to late year investments in an entity that has not yet started doing business in Wisconsin is also applicable to this deferral provision. Further, gain passed through to an individual from a partnership, limited liability company, limited liability partnership, or tax-option corporation qualifies for deferral as well.21

For purposes of the deferral provision, however, it is unclear whether gain passed through from a trust or estate could be deferred since the instructions to Schedule CG are silent on this point. That being said, Form I-177, the instruction form for Schedule QI, allows for the exclusion of gain passed through from trusts and estates, and both the exclusion provision and the deferral provision have an identical definition of “claimant,” so it seems likely that an individual could defer gain passed through from such entities as well.22

On top of these overlapping issues, when advising a client with respect to the deferral provision, be careful to ensure that your client “invests all of the gain [from the sale] in a qualified Wisconsin business.”23 No partial deferral is allowed.

Also, given that this investment must be made within 180 days of the sale, apprise clients before the sale closing of this potential deferral opportunity and the relatively short deadline associated with it, in order to give clients time to make arrangements to acquire an interest in a qualified Wisconsin business.

Last, note that gain deferred under this provision will eventually be recognized. The statute accomplishes this by reducing the individual’s basis in the investment in the qualified Wisconsin business by the amount of gain deferred.24 Then, to prevent any slippage between the exclusion and deferral provisions, the statute prevents the deferred gain from being treated as qualifying gain for purposes of the gain exclusion provision.25

Note, however, that if the investment in the qualified Wisconsin business is held in a manner sufficient to qualify for the exclusion above, the gain on the eventual sale of the investment could qualify for exclusion to the extent it exceeds the gain previously deferred.

Conclusion

Investing in a qualified Wisconsin business provides clear benefits to individual taxpayers. If the investment is held long enough and all other requirements are met, the gain could be wholly excluded in determining the individual’s Wisconsin taxable income.

Additionally, if the investment closely follows the sale of a capital asset, the gain from that sale could be wholly deferred.

In either event, it’s good to bear these considerations in mind when navigating these provisions.

This article was originally published on the State Bar of Wisconsin’s Business Law Blog. Visit the State Bar sections or the Business Law Section web pages to learn more about the benefits of section membership.

Endnotes

1 Wis. Stat. § 71.05(25)(b).

2 Wis. Stat. § 71.05(26)(bm)(1).

3 Wis. Stat. §§ 71.05(25)(a)(1s), 73.03(69)(a).

4 Tax § 2.986(4)(a).

5 Tax § 2.986(4)(b).

6 Tax § 2.986(4)(a).

7 Wis. Stat. § 73.03(69)(b)(1)-(2).

8 Wis. Stat. § 73.03(69)(b)(1); Tax § 2.986(3).

9 Wis. Stat. § 73.03(69)(d).

10 Wis. Stat. § 71.05(25)(b).

11 Wis. Stat. § 71.05(25)(a)(2).

12 Wis. Stat. § 71.05(25)(a)(2).

13 Wis. Stat. § 71.05(25)(a)(1m).

14 Tax § 2.986(2), (4)(b); see Wis. Stat. § 71.22(1r) (defining “[d]oing business in this state” for this purpose).

15 Wis. Stat. § 71.05(25)(a)(2).

16 Wis. Stat. § 71.05(25)(a)(1); see 2017 Form I-177 (listing trusts and estates as well).

17 Wis. Stat. § 71.05(26)(bm)(1).

18 Wis. Stat. § 71.05(26)(bm)(2).

19 Wis. Stat. § 71.05(26)(bm).

20 Compare Wis. Stat. § 71.05(26)(a)(2m), with Wis. Stat. § 71.05(25)(a)(1m).

21 Wis. Stat. § 71.05(26)(a)(1).

22 Compare Wis. Stat. § 71.05(26)(a)(1), with Wis. Stat. § 71.05(25)(a)(1); see 2017 Form I-177.

23 Wis. Stat. § 71.05(26)(bm)(1) (emphasis added).

24 Wis. Stat. § 71.05(26)(c).

25 Wis. Stat. § 71.05(26)(f).​

The EU’s new data privacy law, the General Data Protection Regulation, represents far-reaching changes that make it one of the strictest in the world. Randal Brotherhood discusses this new law and why U.S. businesses need to pay attention to it.


This post was originally posted on the “State Bar of Wisconsin Business Law Section Blog” and was written by Attorney Randal J. Brotherhood ,Washington University 1981, who is a shareholder in the Milwaukee law firm of Meissner Tierney Fisher & Nichols S.C., where he practices primarily in the areas of corporate law, representing both for-profit and tax-exempt entities, intellectual property, and securities law.


Virtually all U.S. businesses, nonprofit organizations, and other enterprises collect data from their customers or other individuals with whom they interact. All such enterprises should be aware of the European Union’s new General Data Protection Regulation, 2016/679, commonly known as the GDPR,1 which became effective on May 25, 2018.

The GDPR is a regulation under EU law pertaining to privacy and data protection for individuals within the EU and the European Economic Area. It is a sweeping legislative enactment generally considered to be the most far-reaching change in EU data protection law in many years, and possibly the strictest privacy law in the world.

The GDPR also governs the export of personal data outside the EU, and applies to parties – regardless of location – that collect personal data of individuals within the EU.

Because of this, businesses and other enterprises worldwide, and particularly in the U.S., have devoted considerable attention and resources to complying with the GDPR by the May 25 deadline, and still others are continuing to grapple with its requirements.

Applies Outside EU

The primary objective of the GDPR is to enhance the control individuals within the EU have over their personal data, and to simplify the regulatory environment for data collectors as to data privacy by establishing a single set of data privacy rules that apply throughout Europe.

It is noteworthy, however, that the GDPR has important implications for businesses and other enterprises well beyond the EU/EEA. This includes businesses in the United States, in that its provisions apply to enterprises located in the EU that process data of individuals residing in the EU, as well as any enterprise, regardless of location, that holds or processes personal data of an EU resident.2

Accordingly, any U.S. business that has individual EU customers or otherwise holds or processes transactions or data for individuals within the EU are subject to the GDPR’s requirements and its rigorous enforcement provisions.

Express Consent Required

For many businesses, the GDPR will change how data collectors approach the notion of data security, as evidenced by its requirement that an EU individual’s data, first, be stored only on systems designed and developed with a specific view toward data protection and, second, that such systems employ privacy settings set by default at the highest possible level of protection (these concepts being referred to in the GDPR as data protection “by design” and “by default,” respectively).3

The underlying notion is that an individual’s data are not to be publicly available (and cannot be used to identify the subject absent additional, separately stored information) without the express, opt-in consent of the individual data subject.4

Unless the individual has provided such express consent (rather than just a tacit failure to object) to the processing of his or her data for one or more specifically-stated purposes, the individual’s data may not be processed unless there is a specified legal basis for such processing and the purpose(s) of such data processing is disclosed to the individual.5 The data collector must be able to prove that it obtained such express consent from the data subject, who may revoke such consent at any time.6

Key GDPR Concepts

Although an exhaustive explanation of the GDPR is beyond the scope of this post, the following is a summary of some of its key concepts.

The GDPR Applies to Personal Data
The GDPR applies to the processing of “personal data” or any information relating to an “identifiable natural person”7 – that is, an individual who can be identified, directly or indirectly, by reference not just to common identifiers such as name, home address, telephone number, a photograph, or an email address, but also by less obvious identifiers such as bank or medical information, social networking posts, IP addresses, or any other data pertaining to location or to the physical, physiological, genetic, mental, economic, cultural, or social identity of such individual.8

These identifiers are considered to be personal data even if on their face they do not identify an individual, as long as they can be (or are capable of being) traced back to the subject individual without undue effort. It does not matter whether the individual’s personal data pertains to his or her personal or work-related capacities; if the data falls within the scope of “personal data,” regardless of whether it is personal, work-related or otherwise – it is subject to GDPR regulation.

It should be noted, however, that the GDPR does not apply to processing data “for a purely personal or household activity and thus with no connection to a professional or commercial activity.”9

Controllers and Processors
The GDPR directs most of its requirements toward “data controllers” (businesses or organizations the collect the data) and “data processors” (organizations that process data on behalf of a data controller, such as a third-party software or other service that a business may use to process data on its behalf).10

Data controllers are required under the GDPR to utilize only those data processors that provide sufficient assurances that they will implement appropriate technical and organizational measures to meet the GDPR’s requirements and protect the rights of individual data subjects.11

Privacy Management
Both data controllers and data processors are required to implement programs to assure compliance and be able to demonstrate such compliance to data subjects and regulatory authorities.12

Overall, the GDPR calls for a risk-based approach, that is, the utilization of controls which correspond to the degree of risk associated with the data processing activities. To this end, businesses that are data controllers must, for instance, put in place procedures to prevent data from being processed unless necessary for a specified purpose.13

Further, such businesses must incorporate technological and organizational measures appropriate to the nature of the business to ensure the protection of individuals’ personal data,14 including:

  • pseudonymization and/or encryption of data so that it cannot be attributed to individual without use of additional information;
  • restoring the availability of data in a timely manner in the event of a loss of data; and
  • regularly testing and evaluating the effectiveness of security measures.

Data controllers must maintain records of their processing activities, although there is an exclusion for small businesses (less than 250 employees) where data processing is not a significant risk.15

Additionally, controller/processor relationships must be documented and managed with contracts that specifically set forth the parties’ privacy and data protection obligations.

Data Protection Officers
Businesses that are data controllers or data processers are required under the GDPR to appoint a “data protection officer” if their essential activities involve, on a large-scale, regular monitoring of personal data or processing of sensitive data.16

A data protection officer must have IT processing, data security, and business continuity competence in personal data processing.

Lawful Basis for Processing of Personal Data
Unless a subject individual has provided express, affirmative consent to the processing of his or her personal data for one or more stated purposes, such data may not be processed unless there is at least one specified legal basis to do so.17

If the individual’s consent has not been obtained, the subject’s personal data may be processed only:

  • to comply with a legal obligation;
  • to perform a contract with the data subject;
  • to protect vital interests of the data subject when he or she is unable to give consent;
  • for the performance of a task carried out in the public interest or the exercise of official authority; or
  • for the purposes of legitimate interests of the data controller or a third party (but subject to certain fundamental rights and freedoms).18

Consent
If the data subject’s consent is the basis for the processing of his or her data, such consent must consist of:

 

“any freely given, specific, informed and unambiguous indication of his or her wishes by which the data subject, either by a statement or by a clear affirmative action, signifies agreement to personal data relating to him or her.”19

That is, such consent must be explicit for the data collected and for each purpose that the data are used, so that the controller can clearly show when and how the consent was obtained.

Accordingly, the purpose(s) for the individual’s data will be collected and used must be clearly and expressly disclosed to the data subject so that it is obvious what the data are going to be used for.

Consent must be demonstrable and freely given. A controller cannot require the disclosure of data as a prerequisite or condition of, for instance, the provision of services or the performance of a contract.20

Additionally, the data subject must be allowed to revoke consent in a manner no more burdensome than the manner in which consent was given.21

Information Provided at Data Collection
Individual data subjects have enhanced rights under the GDPR to access and obtain copies their data, as well as rights to require rectification or erasure of their personal data, to restrict further processing, and to lodge a complaint with a supervisory authority.22

Individuals must be informed of these rights and, in addition they must be given information about how their data will be processed.23

Breach and Notification
In the event a breach of security of an individual’s data in the hands of a data controller which gives rise to the destruction, loss, or unauthorized disclosure of such individual’s data, the data controller must notify the appropriate supervisory authority “without undue delay,” and “where feasible,” within 72 hours after having become aware of such breach.24 If such notification is not made within 72 hours, the data controller must provide a “reasoned justification” for the delay.25

Such notice is not required if the data breach is “unlikely to result in a risk for the rights and freedoms” of subject individuals,26 although how this exception is to be interpreted will likely require future clarification.

If the data controller determines that a personal data breach “is likely to result in a high risk to the rights and freedoms” of subject individuals, it must – subject to certain exceptions – also notify the individuals affected by the data breach “without undue delay.”27

In the event of a data breach by a data processor, it must notify the data controller,28 but the GDPR does not otherwise impose any other notification or reporting obligation on the data processer.

Fines and Enforcement
Businesses should note that, for GDPR violations, the GDPR provides for liability, including fines, for both data controllers and data processors as well as remedies for data subjects.

Regulators may impose penalties equal to the greater of €10 million or 2 percent of the violator’s worldwide revenue, for violations of record-keeping, security, and breach notification requirements.29

Violations of obligations related to legal basis for processing, consent requirements, data subject rights, and cross-border data transfers are subject to penalties up to the greater of €20 million or 4 percent of the violator’s worldwide revenue.30 EU member states may impose additional penalties, which may include criminal penalties.31

Data subjects have the right to make complaints with “data protection authorities” maintained by EU member states, as well as to initiate judicial proceedings.32

Additionally, data controllers and processors can be held responsible to compensate affected data subjects for damages resulting from a GDPR violation.33

Considerations and Recommendations

Although many U.S. businesses may be tempted to disregard the GDPR as a non-U.S. regulation relevant only to large multinational corporations, this approach could do great harm to such enterprise if it has European customers or otherwise collects data from European individuals.

No matter the size or nature of the business, if it collects any kind of personal data on EU residents, it is very likely subject to the GDPR and its requirements.

Given the substantial monetary and other penalties for noncompliance, businesses of all sizes should clearly understand whether and how the GDPR applies to them, and establish a game plan for GDPR compliance as necessary.

Establishing a Game Plan for GDPR Compliance

Businesses and their legal advisers should start by assessing the extent to which they have EU customers and/or collect data from EU residents, and acknowledging that they may have to alter current data handling procedures in light of the GDPR.

This assessment should include a review of the types of personal data the business collects and holds, what the data are used for, and whether the business is collecting more information than is reasonably necessary for its legitimate business purposes.

Further, businesses should assess the documents (whether in written or electronic format) they require customers to sign when purchasing or obtaining products or services. It is likely that such documents may need revision in light of GDPR requirements, to ensure that customers know how the business is processing their data and why. This may include development and implementation of new processes for obtaining and verifying express (rather than tacit) customer consent to data collection, and for the transfer and deletion of such data when requested.

Given the GDPR’s reach well beyond the boundaries of the European Union, and the substantial fines and other sanctions that can arise for GDPR violations, businesses and other enterprises collecting data from EU residents are well advised to have a clear understanding of the GDPR and its applicability to their operations.

For more information on the GDPR, see Keith Byron Daniels’s article, New European Privacy Law: Its Effect on Wisconsin Lawyers, in the July/August 2018 issue of Wisconsin Lawyer magazine.

Endnotes

1The GDPR is formally known as “Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation).”

2 GDPR, Article 3(3).

3 GDPR, Article 25 (Data protection by design and default).

4 GDPR, Article 6(1)(a).

5 GDPR, Article 6(1)(b)-(f).

6 GDPR, Article 7(3).

7 GDPR, Article (4)(1).

8 GDPR, Article 4(1).

9 GDPR, Article 2(2)(c).

10 GDPR, Article 24 (Responsibility of the controller) and Article 28 (Processor).

11 GDPR, Article 24(1).

12 GDPR, Articles 24, 28.

13 GDPR, Article 24(1).

14 GDPR, Article 24 (Responsibility of the Controller; Article 40 (Codes of Conduct).

15 GDPR, Article 30(1), (5).

16 GDPR, Article 37 (Designation of the data protection officer).

17 GDPR, Article 6 (Lawfulness of processing).

18 See Footnote 5, above.

19 GDPR, Article 4(11).

20 GDPR, Article 7 (Conditions for consent).

21 GDPR, Article 7(3).

22 GDPR, Article 15 (Right of access by the data subject).

23 GDPR, Article 7(2).

24 GDPR, 33(1); GDBR, Recital 85 (Notification obligation of breaches to the supervisory authority).

25 GDPR, Article 33(2).

26 GDPR, Article 33(1).

27 GDPR, Article 34(1) and (3); GDPR, Recital 86.

28 GDPR, Article 33(2).

29 GDPR, Article 83(4).

30 GDPR, Article 83(5).

31 GDPR Article 84 (Penalties); GDPR, Recital 149 (Penalties for infringements of national rules).

32 GDPR, Article 77(1).

33 GDPR, Article 82 (Right to compensation and liability).

​​

 

This post was originally posted on the “State Bar of Wisconsin Business Law Section Blog” and was written by Attorney Walter J. Skipper.

 

One of the most common and repeated requests I receive from clients is to draft a consulting agreement or a professional services contract.

When doing so, it’s important to consider the key terms to be addressed and defined within the document. Here are 15 important lessons to follow when drafting the agreement:

1) Specify the actual services or work that will be done. Clearly describe services to be provided and/or tangible work product to be delivered, and what is needed from others to be able to complete the project. Try to avoid broad descriptions.

For example, if you are helping with strategic matters, specify “gather a list of key findings, issues, and recommendations.” Draft in objective words.

2) Describe the fixed fee or specify the hourly costs. Make sure to detail what out-of-pocket costs are allowable and when pre-approval is needed. List when it’s paid and consequences if not timely paid.

3) Address the use of subcontractors. Generally, it’s helpful to state whether parties are permitted to use subcontractors and, if so, whether there are any limits on such use, such as requiring folks to honor their confidentiality requirements.

4) One of the most important contract terms is to address agreed upon service levels; the normal generic terms used are “timely, professional and workmanlike manner in accordance with industry standards.”

5) Define the client’s responsibilities. After setting the fee, the next most important step is to spell out what the consultant will need (and when) from the client, in order to be able to timely and effectively deliver on what has been promised.

The consultant often must rely on receiving decisions, approvals and information from the client, which means it is very important for the agreement to also specify that the provider is responsible for the content and the consultant can rely on the information without verification.

6) Discuss the ownership rights to intellectual property. After addressing the work, it is important to designate who owns the intellectual property that is created and who is free to license it.

The traditional approach is to stipulate that, upon full payment, the client shall have all right and title in interest in the deliverables. But sometimes it is appropriate to further limit the client’s use through third parties or, if they are free to do so, to further specify. And, if the case, state that the consultant retains ownership of all materials prepared prior to the engagement.

7) List out the time period to accept the deliverables. List out the time period when the deliverables are deemed accepted, or by whom any objectives must be raised – otherwise the consultant is left open for future claims. It is best to give a reasonable amount of time, such as 30 days, allowing people to correct, collect, and identify non-conforms.

8) Address warranty terms and steps for any breaches. One of the most contentious areas in this type of contract are the warranty terms. The best practice is to state the warranty to deliver in accordance with the specifications, provide for an effort to address any breaches and then address the important exclusions for implied warranties of merchantability, non-infringement, or fitness for a particular purpose, or otherwise.

9) Provide a risk allocation provision. Generally, since the consultant will only be earning a set fee and not sharing in the client’s profits, it’s extremely important to limit potential damages to specified amount, such as fees paid, or to provide some other mutually acceptable arrangement.

10) Address that each consultant is an independent contractor and that the consultant is responsible for FICA, FUTA, income tax withholding, any pension plan or health benefit plan. It is normal to require a consultant to indemnify the client for any employment taxes. It’s helpful, for tax purposes, to state that the contractor will determine the method and means of performing the services that assist with being treated as an independent contractor.

11) Address termination rights. Normally, there is a longer notice period if the termination is for convenience (i.e., without cause), while termination for cause is often effective immediately. Accordingly, defining what constitutes “cause” is also significant.

12) It’s fair to state that all parties will comply with all applicable federal, state and local laws, statutes, ordinances, regulations, and judicial and administrative orders and degrees, including, but not limited to, all laws related to safety, health and the environment.

13) Other folks address insurance, and require comprehensive or CGL, business automobile liability, workers’ compensation, employers’ liability, excess or umbrella liability, errors & omissions, and the coverage amounts.

14) Address indemnities. Who is responsible for any claims or damages? And is there a different level of liability for damages that arose from gross negligence, willful misconduct, or fraud?

15) Other traditional contract terms. Finally, the agreement needs to list out the limitation of liability and the traditional legal terms, such as: governing law, jurisdiction and venue, waiver, notice, counterparts, and force majeure.

More Tips

Keep in mind that the primary goal is to help set expectations, so that folks can understand their deal and avoid disputes. Also, it’s good to discuss everything up front, as the parties often have not thought through these terms.

 

 

This article was originally published on the State Bar of Wisconsin’s Business Law Blog. Visit the State Bar sections or the Business Law Section web pages to learn more about the benefits of section membership

How does a business stop a former employee from poaching the business’ employees after the employee has left employment of the business? Generally, to achieve this goal, employers have entered into a contract with the employee that includes a restriction called a “non-solicitation provision”. In a recent case, The Manitowoc Company, Inc., v. Lanning, the Wisconsin Supreme Court made a landmark decision which imposes significant limitations on employers with respect to non-solicitation provisions in employment contracts pursuant to Wisconsin Statute section 103.465.

Case Background

            I wrote about this case when the Wisconsin Court of Appeals issued its opinion in 2016, but to refresh my regular readers’ memories, here’s a brief summary of the facts of the case:

Lanning was an experienced, well-connected engineer for The Manitowoc Company, Inc. (“Manitowoc”) a company that manufacturers construction cranes and food service equipment. After working for Manitowoc in its construction crane division for over 25 years, Lanning left to work for a competitor. During his time with Manitowoc, he and Manitowoc had executed an agreement by which Lanning agreed that he would not “solicit, induce or encourage any employee(s) to terminate their employment with Manitowoc or to accept employment with any competitor, supplier or customer of Manitowoc.” (emphasis added) for a period of two years after the termination of his employment with Manitowoc.

Within the restricted two-year period after Lanning’s departure, Manitowoc alleged that Lanning breached this covenant by engaging in competitive activities such as actively recruiting (or poaching) some of Manitowoc employees to work for his new company. Manitowoc then sued Lanning for violation of the above quoted provision in the agreement. Lanning argued that the provision was unreasonable and violated Wisconsin Statute section 103.465, (the statute governing restrictive covenants in employment agreements) which would thereby make the whole provision unenforceable.

The Circuit Court ruled that the provision did not violate the statute, but Lanning appealed, and, as explained in my previous post, the Court of Appeals reversed, stating that the non-solicitation provision was unreasonably overbroad and violated section 103.465.

 

The Wisconsin Supreme Court’s Decision

            The Wisconsin Supreme Court agreed with the Court of Appeals, holding that because the clause in the Agreement restricted Lanning from soliciting, inducing, or encouraging any employee of Manitowoc to leave their employment, it was overbroad, and an unreasonable restriction on Lanning that violated Wis. Stat. section 103.465. The Court supported this holding by asserting that common law states that no business has a legally protectable interest in preventing the poaching of ALL of its employees from a stranger, and therefore, the provision attempting to do that is illegal under the statute. The Court went on to state that an employer only has a legally protectable interest in preventing the poaching of some of its employees, and those employees are limited to certain classes. The Court set forth some examples of these classes of employees that might warrant protection, such as top-level employees, employees with special skills or special knowledge important to the employer’s business, or employees with skills that might be difficult to replace. The Court did not elaborate any further beyond those general examples or apply them to Manitowoc, specifically.

Key Takeaways

What does this mean for Wisconsin employers?

  1. The Court for the first time expressly acknowledged what most in the legal community had already predicted—that non-solicitation clauses in employment contracts are subject to the notoriously restrictive Wisconsin statute section 103.465. If there was any question about it, the question is now answered.
  2. The most obvious takeaway is that employers can no longer prohibit a departed employee’s solicitation of “all” employees in non-solicitation clauses. As such, all current agreements with employees containing restrictive covenants should be reviewed. If the agreements contain language prohibiting solicitation of anything other than specific groups of employees, the agreement should be amended, and additional consideration for the amendment must be provided to the employee in exchange for the amendment. Any language prohibiting solicitation of “all” employees should be removed, and all future agreements should be drafted without this broad prohibition to avoid having the agreement ruled unenforceable.
  3. The other major takeaway is that non-solicitation clauses in employment related agreements must now identify specific employees or classes of employees that an employee is prohibited from soliciting after the employment relationship ends. These specific employees or classes of employees must be those in which the employer has a “protectable interest.” Determining what employees fall within these classes may be challenging given that the Court did not provide much guidance on the permissible scope of these classes of employees that warrant protection. This will be fact intensive for each business, and will warrant an in-depth discussion with clients regarding the nature of its employment base. This is likely to be a controversial area of law in the future, probably to be tested soon in the courts given the lack of guidance on this point by the Supreme Court in Lanning.

Final Thoughts

I think this decision creates potentially unintended consequences for small businesses in Wisconsin. A majority of businesses in Wisconsin, and most of our firm’s clients, are small to medium sized businesses. A large business with 13,000 employees like the Manitowoc Company may not actually suffer significant detriment from losing entry level employees, and a restriction preventing solicitation of ALL of those employees probably is broader than necessary to protect its competitive interests. However, the loss of any employee for a small business may be significant. As such, it is possible that a restriction to prevent solicitation of all of a small business’ workforce might be reasonable in certain circumstances, but the Court’s holding now deters them from attempting to assure themselves that reasonable protection in non-solicitation agreements with employees. I am hopeful that the Court has the opportunity soon to clarify this holding as applied to small businesses to avoid these consequences.

There are many open questions still outstanding in this area, and it is inevitable that we’ll get the answers to these questions as they work their way through the courts. In the meantime, businesses will want to ensure they are protecting themselves against potential poaching of their employees to the maximum extent legally permissible. The business attorneys at Schober Schober & Mitchell, S.C. are experienced in drafting employee restrictive covenant agreements and pay close attention to the often-changing landscape of employment restrictive covenant law.

If you or your business need a review of your current employee restrictive covenant agreements or are looking into establishing these agreements in your business, we would be happy to help. Contact me at jmk@schoberlaw.com or visit our website at www.schoberlaw.com if you have any questions.

A recent Wisconsin law change in Wisconsin has a big impact for those interested in investment property in Wisconsin. As part of the Wisconsin biannual budget signed into law in September 2017, the State of Wisconsin has discontinued its “rental weatherization” program. This program required either a Seller or Buyer of residential real estate to ensure that the property met certain energy efficiency standards such as the installation of storm windows and proper insulation on hot water pipes. Typically, the party responsible for bringing the property into compliance with the weatherization code in a real estate transaction is negotiated in the property sales contract.

To ensure that the weatherization standards were met, on each transfer of real estate, the party responsible for bringing the property up to code was required to have a document recorded with the deed transferring the real estate. If the Seller was responsible, they would have to obtain and record what is called a “Certificate of Compliance”. A Certificate of Compliance required the Seller to hire an inspector to determine whether the property was up to code, and if it was not, incur the cost of bringing the property up to code in order for the inspector to issue the Certificate.   If the Buyer was responsible, they were required to execute a “Stipulation Agreement” in order for the Register of Deeds to accept the deed transferring the property to the Buyer. A Stipulation Agreement required the Buyer to obtain a Certificate of Compliance within one year of purchasing the property. This program has now been eliminated so neither party is responsible for doing so.

Though in many situations taking steps to improve energy efficiency may still be more cost-effective for residential real estate investors, this change gives property owners more flexibility in determining what improvements are necessary and when they should be made. This change may encourage more investment in residential real estate in the state.

Though this eliminates one consideration for those interested in investment properties, there are many other legal considerations you may not be aware of when entering the process of purchasing investment properties. If you are looking to begin  investing in residential real estate  or looking to expand your current portfolio, contact the attorneys at Schober Schober & Mitchell, S.C. We will be happy to help.

Through use of a Congressional budget tool called a “continuing resolution,” leaders of the U.S. Congress reached a deal yesterday that would fund the United States Government for part of the upcoming 2013 Congressional fiscal year (the entire Congressional fiscal year 2013 is October, 2012 through September, 2013).  Funding under the continuing resolution would be from  October 1, 2012 through March 31, 2013 at spending levels very similar to what they have been for the current Congressional fiscal year which ends on September 30, 2012.  Continuing resolutions are special joint resolutions of the Senate and House that are used to fund governmental agencies when a formal appropriations bill has not been signed into law by the end of  a Congressional fiscal year.  By agreeing to this contininuing resolution, Congress has temporarily avoided a political showdown about  the so called “fiscal cliff” that is looming at the end of 2012 and has also delayed such showdown until after the upcoming presidential election in November, 2012.  The “fiscal cliff” refers to the fact that under current law, all of the Bush-era tax cuts and Obama stimulus measures such as the payroll-tax reprieve  are set to expire on December 31, 2012 at the same time when cuts in federal spending that were passed in 2011 will be kicking in.  Many on both sides of the political aisle believe that if action is not taken before then, i.e. that we fall off the “fiscal cliff,” our economy will be rocked back into recession.