Customer Contracts For Small Businesses

July 30, 2015

By Mark R. Fischer Jr., Esq.

Handling commercial litigation in Pennsylvania and New Jersey, I see a lot of “contracts” between small businesses and their customers.  They come in various forms, ranging from traditional written agreements signed by the customer and the business, to handwritten quotes accepted by the customer verbally.  Unfortunately many of these contract forms have flaws that fail to adequately protect the business in the event of a dispute with a problem customer.

Your business’ contract forms likely identify the basic terms of the customer’s purchase, e.g., the products or materials, the work to be performed, the time for payment.  However, do they also include terms that help the business enforce the contract against non-paying or unreasonable customer?

Contract Disputes: Protect your Business from Nonpaying Customers
Contract Disputes: Protect your Business from Nonpaying Customers

For example, a party in litigation cannot recover attorney’s fees from the other party unless provided in the contract or permitted by a statute applicable to the dispute. Therefore it is important to have a properly written provision allowing the business to recover attorney’s fees in any litigation to enforce the contract, so that the litigation costs do not swallow up the eventual amount recovered from the non-paying customer.  Similarly, having enforceable interest and late fee provisions in the contract can also significantly increase the potential recovery and, in turn, improve the business’ position when negotiating with the customer to obtain payment.

In certain industries, the law requires specific provisions in the contract with the customer.  For example, the Pennsylvania Home Improvement Consumer Protection Act establishes numerous requirements for home improvement contracts, which include an extensive list of residential home improvements in excess of $500. The Act provides that a home improvement contract is not valid and enforceable against the homeowner unless the contract is in writing, is signed by both parties, and contains nine other categories of information listed in the Act.  Failure to comply with the Act potentially exposes the home improvement contractor to liability under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, which allows the customer to recover triple damages and attorney’s fees for certain violations. These potential consequences compel home improvement contractors of all kinds to bring their contracts into compliance with the Act. And this is just a snapshot of the requirements in one industry in one State. The requirements across all industries and jurisdictions are obviously too lengthy to discuss in this brief post.

Understandably, it is enticing for startups and small businesses to prepare their own contract forms to save the cost of having an attorney prepare them. However, spending the money to have an attorney prepare a rock solid, legally compliant contract can often result in significant savings down the road, when the business is inevitably faced with a difficult customer trying to avoid payment or cancel a valid contract.

For more information feel free to contact Mark Fischer at (610) 275-0700 or by email at Visit his attorney profile here.

Visit the firm’s Contract and Business Litigation page here.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.


When to Worry About Money

July 30, 2015By Mary Cushing Doherty, Esquire

One probably should think on a regular basis about money; the income available, current needs, and saving for the future. Ideally, one should not become consumed with worry about money. And the corollary is if one has money problems the advice is, “Don’t panic. Its time to budget.”

As a parent, it’s a wonderful gift to teach your child (or children) about managing money. Sadly, when couples separate and there is inadequate cash flow to support separate households, the issue of money is complicated by the emotional hurt of pending divorce. If one’s children are old enough, they will likely be aware that money is more scarce after parents separate.

As with other lessons learned from the stress of divorce, money stresses occur during other family crises. What if the primary wage earner loses a job and no replacement work can be found? What if the income provider has a long-term disability without insurance? Or worse yet, what if a parent is permanently disabled? How does one share this with the children?

In a separation and divorce situation, one doesn’t want to embroil their child in the emotional upheaval. And in other family crises mentioned above, one doesn’t want to unduly frighten any child. On the other hand, in each situation, this may be a valuable teaching opportunity. Those who have had “Depression era” parents (or grandparents) know the children in the family knew money was tight, and many children learned about budgets, sacrifice and adjusting expectations.

Some criticize families who overspent on homes before the real estate bust several years ago. Some criticize parents who provide the children with every benefit so their children could become the most talented athlete, academically impressive, and physically attractive, etc. The families that get the gold star are the ones who also teach their children that the extras are earned through hard work and careful planning. When the bubble bursts – be it due to separation, unemployment, illness or worse, where does this leave the family? The shift in priorities will not be a shock if parents taught their children that the luxuries were not entitlements. Children benefit when they know that through planning, the family managed income, covered necessities first and then reserved funds for reasonable extras. And due to the tight budget, the extras may be time together, not an expensive trip.

Whether a lawyer meets someone who is recently separated or sadly widowed without a comfortable inheritance, it could be time to focus on realistic financial planning. As scarce resources are budgeted, older children should be taught they too can learn to budget and rebuild toward economic security. Think of how those “Depression era” loved ones bragged about how they managed after 1929. If financial hardship comes one’s way, perhaps parent and child will likewise be proud to have overcome that challenge.

Republished with permission of the Local Living Magazine© 2015 Blue Water Media LLC. All rights reserved. Further duplication without permission is prohibited.


Can a Nonunion Teacher Keep a Job After Calling the School’s Head a Liar, “Not Moral” and “Not Intelligent”? An Administrative Law Judge Says “Yes”!

July 27, 2015By Thomas D. Rees, Esq.

Upon hearing a legal point in Charles Dickens’ Oliver Twist, Mr. Bumble says “If the law supposes that, the law is an ass… an idiot”.   You may reach the same conclusion about the preliminary National Labor Relations Board (“NLRB”) NLRB administrative law judge (“ALJ”) reinstated a private school teacher who insulted his school’s head. ruling in Dalton School and David Brune. In Dalton School, an NLRB administrative law judge (“ALJ”) reinstated a private school teacher who insulted his school’s head. Coming on the heels of the NLRB decision in Pier Sixty, LLC, discussed in my May blog, the Dalton School decision poses this question: When (if ever) may an employer discipline an employee who launches a verbal attack on management under the guise of concerted employee activity?

The Dalton School is an independent, nonunion day school on Manhattan’s Upper East Side. The NLRB controversy arose after Dalton’s middle school planned to stage the musical “Thoroughly Modern Millie.” Some members of the School community questioned the play’s negative portrayal of Asians. Shortly before the show, students re-wrote the play to remove any stereotyping, with the playwright’s consent. The show was a success, but the School community’s effort to re-do the show on short notice was stressful.

After the show, a theatre teacher at the School emailed others in the theatre department in an alleged effort to “redress grievances”. The teacher said that the Head of School and school administration “lied” and should apologize for “not being honest, forthright, upstanding, moral, considerate, much less intelligent or wise.” At the time, the School had renewed the teacher’s contract for the upcoming school year. The Head of School learned of the teacher’s email, asked the teacher about any negative communications, the teacher denied any communications, and the School then rescinded the teacher’s contract.

The teacher brought an unfair labor practice charge with the NLRB. The ALJ held that the School had violated the National Labor Relations Act (“NLRA”) by interfering with the teacher’s right to engage in concerted activities. The ALJ also ordered the School to reinstate the teacher with back pay and to post a notice of its own violation of the NLRA. The School filed exceptions to the ALJ decision, and so the full NLRB will decide the case.

The ALJ’s Dalton School decision may present an even greater threat to management’s ability to discipline an employee for insubordinate attacks than Pier Sixty, LLC. In Pier Sixty, an employee made an obscene comment about his boss and his boss’s mother. The employee’s outburst responded to the manager’s humiliating public order to the employee, and occurred during a union campaign in a workplace where profanity was common. The teacher’s email in the Dalton case was a long, thought-out document, not a spur-of-the-moment outburst. The email contained not only personal attacks but a challenge to management’s supervisory authority (“And then leave us alone to do our job, which we have been doing very well, thank you, for years without your intervention.”)

What this means for employers 

Whatever the final result in Dalton, employers will want to proceed with caution in disciplining employees for any communications that involve activity in concert with other employees. Employers will also want to review policies and procedures on insubordination and profanity to be sure not to run afoul of the NLRB’s increased scrutiny. The NLRB has said that policies that prohibit rudeness, profanity, and even misuse of confidences may violate the NLRA by chilling concerted activities. However theoretical and illogical the NLRB may be, it makes sense to prohibit what is still prohibited and to try to avoid the risk of a federal labor law violation. Employers may still prohibit communications that are disloyal or attack the quality of the employer’s product or services or contain defamatory statements. Bullying, harassing, or discriminatory messages may also be prohibited. Employer policies will more likely survive scrutiny if accompanied by specific examples of misconduct.

But in the meantime, if the NLRB affirms the ALJ’s decision, it may be accurate to characterize the NLRB’s view of permissible workplace communication with the name of another popular school play- Cole Porter’s Anything Goes.

For more information feel free to contact Thomas D. Rees at (610) 275-0700 or by email at Visit his attorney profile here.

Visit the firm’s Employment Litigation page here.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.


Background Check on Potential and Current Employees

July 24, 2015By James B. Shrimp, Esq.

Today, most employers run some sort of background check on potential employees and current employees, including credit, financial and criminal background checks. In some industries, these background checks go right to the heart of the job. For instance, passing a background check is a requirement of school teachers and security guards because they are responsible for others, and for bank tellersand telemarketers that deal with credit card and social security information. In other industries, employers request background checks when criminal or poor financial conduct might not be as pertinent to the job responsibilities. In either case, the employer has certain responsibilities with respect to this information, as a recent lawsuit brought by the Equal Employment Opportunity Commission (“EEOC”) illustrates.

Employee Background Check
Employee Background Check

Federal law does not prohibit employers from seeking criminal background information regardless of how much it pertains to the job; however, Title VII does prohibit employers from discriminating when they use criminal history information. Specifically, Title VII prohibits employers from using policies or practices that screen individuals based on criminal background information if:

*          The criminal background checks significantly disadvantages Title VII protected individuals such as African-Americans or Hispanics; and

*          The criminal background information does not help the employer accurately decide if the person is likely to be a responsible, reliable or safe employee.

Moreover, the EEOC views an arrest record different than a conviction. For instance, if a potential employee has been arrested for theft, the arrest record alone should not be used by the employer to take an adverse employment action (e.g., not hiring, firing or suspension). On the other hand, a conviction record alone can usually be used by the employer to justify an adverse employment action.

The recent EEOC lawsuit relates to the records of criminal background checks that need to be kept by the employer. Federal regulations require that if an employer uses a “test” or other selection procedures to make employment decisions (e.g., hiring, promotion, and mass layoff) the employer must keep records regarding the test or the selection procedure, so that the EEOC can inspect to determine if the test of selection procedures have an adverse impact on any protected class. A criminal background check is such a “test.”

In 2010, the EEOC commenced an investigation into a Philadelphia area janitorial service company. The janitorial service company routinely ran criminal background checks on potential employees; however, when the EEOC subpoenaed the company for documents related to the criminal background checks and the decisions resulting from them, the janitorial service company said there were no records. Earlier this month, the EEOC brought an action asking the Court to order the janitorial service company to keep records related to criminal background checks and to pay the EEOC’s costs related to bringing the action.

In short, if you are an employer that uses criminal background checks or other tests to cull potential or current employees, make sure you maintain the background checks and tests for two reasons. First, the employer should periodically self-audit to ensure that its use of background checks and tests are not, for example, unfairly/unlawfully excluding a specific protected class from hiring. Second, the employer needs to keep the information in case the EEOC requests the information.

There are some state-by-state laws and regulations regarding the acquisition and use of criminal background checks and these laws and regulations also need to be consulted by employers.

For more information feel free to contact James B. Shrimp at (610) 275-0700 or by email at Visit his attorney profile here.

Visit the firm’s Employment Law page here.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.


Norristown’s New Real Estate Tax Abatement Zone Could Provide A Significant Financial Incentive To Your Business

July 24, 2015By William F. Kerr, Jr., Esq.

This week, the Municipality of Norristown moved an important step closer to revitalizing the municipality’s economy when its Municipal Council approved a tax abatement program. The LERTA program now moves on for approval by Montgomery County and the Norristown Area School District, which approvals many expect will be a formality. For businesses looking to expand within the designated LERTA zone, or businesses thinking of moving to Norristown, the LERTA program offers the potential to help reduce costs, and thereby fuel their growth.

Local Economic Revitalization Tax Assistance (LERTA)
Local Economic Revitalization Tax Assistance (LERTA)

Here’s how LERTA works: Businesses which physically expand/add to their existing facilities, or which construct new buildings within the LERTA designated zone, will  receive a 10-year real estate tax abatement on the value of new construction.  This means that during that ten year period, taxes on the improvements are gradually phased in, with full taxes not being owed until 10 years  after completion. The abatements will range from 100% of the added value in the first year, down to 10% in year ten.

Due to the size and duration of the abatement, this program has the potential to reduce real estate property taxes by as much as 50 percent over the 10 years. As such, the program can clearly provide significant benefits to owners of commercial, multi-family residential, office, industrial or other business properties. For those  businesses, Norristown’s  LERTA zone can offer an opportunity to create a significant cash flow advantage. Revenues  that would otherwise be designated for real estate tax payments for ten years, can be used instead to support and grow the business in other areas, including hiring additional employees (which is what Norristown is looking for). Additionally, any successful use of this economic development initiative  could help  attract other businesses, which can make for a more vibrant commercial district that helps all businesses within the area.

The LERTA zone covers a significant chunk of the municipality, including significant portions of the Schuylkill riverfront, the former Logan Square Shopping Center, and a portion of Johnson Highway;  each of which have  history as significant commercial and business districts in the Norristown’s past, and which Norristown leaders hope may soon rise again.

Because the LERTA program, while streamlined, will require coordination and approvals by Norristown, Montgomery County, and the Norristown School District, business owners would be wise to have legal advisors with experience with the LERTA process to they correctly pursue and maximize this opportunity. Anyone interested in this new program should contact High Swartz partner William Kerr, who  has extensive experience with the LERTA program in many areas of the state of Pennsylvania, is well versed in the development process, and is familiar with elected officials and the Municipality staff in Norristown.


Ashley Madison: A Family Lawyer’s View of the Cheating Site’s Hack

July 23, 2015

Ashley Madison is an online “dating” service for those who are married or in a committed relationship. Yes, you heard that right; it is a dating service which functions just like any other, except it helps people cheat. Founded in 2001, the website’s slogan is “Life is short. Have an affair.

Lately, Ashley Madison has been making headlines for reasons other than its unique and controversial marketing angle.  The site was the victim of a recent data hack. A group of hackers who call themselves “The Impact Team” accessed Ashley Madison’s entire customer base.  They already published a small percentage of customer information online, and are threatening to release the additional photos, real names and payment information for a possible 37 million worldwide customers if the adultery site is not shut down.

Ashley Madison has been hacked. Marriages destroyed by cheating.
Ashley Madison has been hacked. Marriages destroyed by cheating.

In addition to the customer list of men and women which likely includes a mix of “regular Joes” and well-known names, all of which were discreetly cheating on their significant others, the hackers also have Ashley Madison employee documents and emails.

For a family law attorney, this begs the question: Is there really ever such a thing as a discreet affair? This may prove that there is not. The hack is also an important reminder that fault divorces are alive and well in the Commonwealth. A “discreet affair” can have a financial impact in your divorce, both in the equitable distribution phase of your case and alimony analysis, which both have marital misconduct as a factor in determining the appropriate division of marital assets. While the courts do generally care more about the economic circumstances of the parties (income, assets and liabilities, health, education, etc.), fault can factor into the award.

As I consider the outcome for those whose marriages are impacted by the hack, I suspect that some users of the site may claim they had an open marriage in order to defend their actions. If the other spouse contests the claim, it likely won’t hold up in court.

The hack also serves as a reminder to all that online activities are truly never secure.  As technology advances, we’ve seen it play a larger role in divorce cases. Marriage dissolutions have been impacted by uncovered online activity in the form of social media, emails, and now dating websites.

As for the hackers, even though they may have had a Robin Hood mentality-take from the cheaters to give to the faithful-they too can be held accountable for this and likely will face legal ramifications if identified.

For Ashley Madison and their clients, this is an uncomfortable time, and one in which they should likely be thinking about legal representation.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Relocation Tips for Single Parents

July 21, 2015

By Melissa M. Boyd, Esquire

I developed this post as one in a series to help parents and their attorneys plan for the slew of legal co-parenting complications the summer brings. Without the structure of school, even the tightest co-parenting plans are challenged.

Whether an uncoupling was friendly or not, it takes a concentrated effort to find what works for each couple to co-parent successfully. Though every situation is different, and there is no recipe to guarantee positive family outcomes, this is practical advice for how to handle the legal aspects of commonly faced issues…

Relocation: Summer Tips for Single Parents
Relocation: Summer Tips for Single Parents

A move or relocation is a common occurrence that happens all the time and for many different purposes. Whether it’s for professional or personal reasons, the process is well defined and, though likely a hassle at times, fairly easy to navigate. However, like many things in life, relocating can become more complicated when you have children. It can become even more complicated when you are divorced or separated and have children.

Movers with children are more likely to relocate during the summer months to avoid disrupting their child’s school year. Whenever parents decide to relocate, its important they be aware of the specific procedures to follow, and that their attorneys understand the practical considerations that go into building a strong relocation case.

As a relocating parent…

Because, in most cases, children are the parents’ top concern, creating custodial agreements is a complicated equation. Subtract a marriage and add a geographical difference between each parent’s home and tensions can rise. As a result, parents facing relocation should prepare for the likelihood of a court appearance, and put thoughtful time into building a case to support their move.

In family court, the well-being of the child trumps most other circumstances of the case at hand. Parents should gather as much information as possible about how the move is in the best interest of the child. Information on school districts and corresponding opportunities and resources such as gifted programs and AP courses, extra-curricular activities, and proficiency of standardized testing is a good place to start.

It’s also important to gather details about the new community. Are there local doctors’ offices, recreational areas and community organizations similar to what your family is involved with in your current location? For example, if your family is active in a particular religion, will your child be able to remain active in your new area? It’s also smart to document colleges local to your new home and to prepare a list of child care support you will have.

Parents should also gather general statistical information about their new community including climate details and crime rate. This ensures safety and physical well-being of the child. If the new home is extremely different from your current location, you can be prepared with how you will help your child to acclimate.

Remember also to include information about why you are moving. If the relocation includes a new job opportunity that will improve quality of life for your family, that information will greatly help your case. Lastly, parents must consider alternative custody arrangements. What schedule will be in place to ensure that the relationship between the children and the non-relocating parent will be maintained and fostered? The relocating parent may have the best of reasons for wanting to relocate. However, the impact of the move on the non-relocating parent is of equal concern.

As an attorney…

It’s important for family law attorneys to use their understanding of state laws to guide the parent toward forming their individual case. As attorneys, we also have the opportunity to ensure our clients truly recognize all aspects of relocation to help the parent make the right decisions.

Attorneys have the opportunity to help the relocating parent understand what happens if the other parent contests the move. This can be emotionally difficult as it essentially involves arguing that the child’s life will be largely the same if not positively impacted by being separated from the other parent. You can help clients be prepared for the court, and possibly loved ones, to be critical of their decision to move. It helps to work with the relocating parent to create a fair legal plan for how the child will keep in touch and regularly see the other parent.

Attorneys fight to preserve the family as much as possible through a separation. This includes helping clients understand how their children are impacted by their every decision.  Getting the court’s approval to move away can be complicated and life after the move can be even more so. Attorneys and clients working together with a children-first mentality can be the right combination to equal positive outcomes for the entire family.

How Arbitrators Can Help Resolve Date of Separation

July 17, 2015

By Melissa M. Boyd, Esq.

Over the years, we’ve seen drastic changes to what constitutes a marriage. The same can be said about divorce. Different ways of approaching divorce and maintaining family dynamics before and after the fact are being established and growing in commonality. This has led to instances I’ve termed the “weird normal.”

date of separation

A familiar example of the “weird normal” is couples who divorce and then continue spending ample time together as a family. Take Jennifer Garner and Ben Affleck, whose recent split has created headlines not only because their divorce was shocking, but because afterward the entire family headed to the Bahamas – wedding rings still on. It is also rumored that Ben and Jen will continue living together. Sure, celebrity couples may continue “living together” on a sprawling estate, but the reality is we are seeing this more and more often across all types of families.

An example of the “weird normal” that can lead to some legal troubles are the couples whose marriage ends emotionally before either spouse takes action to legally end the union. This usually happens when parents choose to stay married and continue cohabitating out of fear of hurting the children. These couples may make a mutual decision that their marriage is over, but then continue living together as a legally married couple for decades. What happens then when they do pursue divorce? What is their date of separation: the first time they discussed the possibility or decades later when they call an attorney? More importantly, why does it matter?

In Pennsylvania, the Divorce Code and case law regarding the date of separation creates a presumption that the latest date of separation is the date on which the divorce complaint was served. The definition of “separate and apart” however, is the date couples cease cohabitation – whether they go on living in the same residence or not- 23 Pa.C.S.A. §3103, as amended. Therefore, a separation date earlier than service of the divorce complaint can be proved by evidence which shows clearly a manifested, communicated and independent intent to dissolve the marriage, even if couples continue living together. McCoy v. McCoy, 888 A.2d 906 (Pa. Super. 2005); Sinha v. Sinha, 526 A.2d 765 (Pa. 1987).

Even though the law seems to have caught up to this new “weird normal,” couples, as you can imagine, often disagree on the date they intended to end the marriage. They may say it was the very first time they discussed separating, or when they mentioned it to a friend or other loved one. They could say it was when they stopped sharing the marital bed, or when they separated finances, or when the wedding band was removed. And, thanks to technology, available evidence to back up their argument is growing. Spouses now cite posted images of the family on social media as evidence that their union was still intact after their ex’s claimed date of separation.

An effective way to determine date of separation is by an impartial arbitrator who listens to testimonies from both sides and reviews evidence submitted to decide at what point in time one of the parties “clearly manifested and communicated to the other spouse intent to dissolve the marital union.”

The date of separation does deserve all this fuss. It’s an important demarcation in divorce. As a general rule, all income and assets acquired from the start of the marriage through to the date of separation are considered joint assets, while what is acquired after the date of separation belongs solely to the acquirer. This can quickly become a sticking point, especially if one spouse comes into financial fortune via commission, bonus, etc. around the time he or she claims separation occurred.

There are a number of advantages to choosing arbitration over litigation.

  • Arbitration is usually cheaper, and can be completed faster than litigation.
  • Flexibility: arbitration hearings can be scheduled only around those involved rather than worked into an overflowing court calendar.
  • Arbitration hearings are also held in private and the terms can typically be kept private as well.
  • As an arbitrator, I also feel that arbitration hearings help avoid hostility between parties. Spouses are fully involved in building their argument and in working toward a resolution, which usually helps them lean toward working together rather than escalating their anger.

There are now many different types of families and marital unions and there are many different types of divorce. There is no right answer for when, why and how couples should split. Couples should work with their attorney to flesh out their case, and their feelings, consider the other party involved, and make the best decision concerning how to approach their split.

For more information feel free to contact Melissa M. Boyd at 610-275-0700 or by email at

Visit the firm’s Family Law page here.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Melissa M. Boyd has been certified as a Family Law Arbitrator by the American Academy of Matrimonial Lawyers.

Handling 529 Plan College Money in a Divorce

July 14, 2015

Mary Cushing Doherty and Stephanie A. Henrick, The Legal Intelligencer

A divorced father of an 18-year-old comes to you seeking legal advice. He is livid with his ex-wife and his divorce lawyer. The divorce was finalized years ago, and he wants your opinion as to whether he can sue his ex-wife, or if his attorney committed malpractice because the funds that were in the 529 plan account were spent by his ex-wife. The issue is intriguing, because the obligation to contribute to their child’s college expenses requires interpretation of their property settlement agreement; there is no statutory obligation in Pennsylvania to contribute to a child’s college costs. The property settlement agreement lists the parties’ assets and liabilities. The asset list includes an entry for $200,000 in the 529 plan account held by the ex-wife, with the child as beneficiary. The agreement states the parties will each contribute to the child’s education after “initially using all the child’s college savings.” The problem is his ex-wife owned the 529 plan account; the child was simply the beneficiary and not the owner of the funds in the 529 plan account. Nothing in the agreement provided restrictions on the ex-wife’s use of the 529 plan account assets.

In those cases where lawyers fail to address the 529 plan funds owned by one of the parents, there is a real risk of malpractice. The father tells you that his ex-wife withdrew all the 529 plan funds to purchase her new Porsche and take wonderful trips to Europe. He wants to know if he can sue under the agreement or under the Uniform Transfers to Minors Act, or UTMA. The family lawyer must be savvy about the difference between the UTMA accounts and trust accounts, as opposed to 529 plan accounts. In this hypothetical, the lawyer handling the father’s divorce failed to properly protect the interest of the father, who assumed the child’s 529 plan college funds were secure.

In 1996, the United States enacted Section 529 of the Internal Revenue Code, establishing a qualified tuition program whereby states or colleges offer college savings plans. The purpose of the 529 plan account is to provide a vehicle to save for college in a tax-advantaged way. Anyone (the account owner, the beneficiary, relatives, friends, etc.) can contribute after-tax dollars to the account, where earnings grow tax-deferred while the funds remain in the account. Pennsylvania taxpayers will receive a state income tax deduction for any contributions to a 529 plan account, up to the annual gift tax exclusion.

Earnings will be tax-exempt (from both federal income tax and Pennsylvania state income tax) if used for qualified higher education expenses of the designated beneficiary at an eligible educational institution or used for a qualified transfer/rollover beneficiary’s education. If the earnings are used for nonqualified purposes, then they are taxed at withdrawal as ordinary income to the account owner or beneficiary and subject to a 10 percent federal tax penalty (with limited exceptions). The divorce lawyer must advocate for the non-owner parent, since the account and its earnings are subject to withdrawal by the owner.

The key is the owner of the account retains control of the funds. Under the qualified tuition program, only one person is the owner. Although a beneficiary is named, the beneficiary has no right to invoke the protective language of the UTMA or trust provisions that would protect a beneficiary.

To add salt to the wound, one parent will often open a 529 plan account as owner, and others will contribute gifts to the beneficiary by depositing in the 529 plan account. Those gifts may come from anyone. Therefore, the divorce lawyer must negotiate to best protect the 529 funds. This may be relevant in all families, but it is surely critical in the event of divorce.

Too often a divorcing couple will simply assume the 529 plan funds are nonmarital assets. This is another mistake. A well-informed lawyer, divorce master or judge will recognize that the 529 plan account is a marital asset. A parent who deposits funds in a 529 plan account is not removing assets from the marital estate. If a husband and wife want to treat a 529 plan account as nonmarital for the benefit of their children, they must address this by retitling the account or specifying restrictions in the parents’ property settlement agreement. Some suggestions follow:

Split the Plan Between Parents

It is not possible to have joint ownership of a 529 plan account. In some cases, mother and father will roll over half of the funds into a separate account, with each parent having ownership control over half of the assets in the predecessor 529 plan account. Each will designate the child as the beneficiary. If there is more than one child, each child’s 529 plan account can be split between the parents. Or the parents may agree to leave the accounts as titled but opt for other protective measures.

Provide Restrictions 
in an Agreement

The parties’ agreement and the court order confirming those terms can restrict how the 529 plan funds are to be spent. The agreement may provide the age at which the beneficiary becomes the owner (at age 18 or older).

Monitor the Account

The 529 plan account may be structured to authorize agents to have access to account information and statements. Pennsylvania 529 plans allow for interested parties to receive quarterly statements and for both parents to be informed of withdrawals. Parents often agree to share online access and passwords so each can check on the invested funds.

Give Authority to Another Individual

A limited power of attorney can be executed by the owner authorizing a third-party non-owner to act on the account. The power of attorney could provide that the person with the power has responsibility to report on transactions, in advance, to both parents.

Transfer Ownership, Specify Successors

The owner of a Pennsylvania 529 plan can change the owner of the account to the other parent, to the beneficiary (once over 18), or a third party such as a trust. Under the qualified tuition program, the funds can be rolled over to a successor beneficiary. What if the designated primary beneficiary completes school and excess funds remain? The favorable tax treatment will be preserved if distributed funds are rolled over for the benefit of a member of the beneficiary’s family, which would include a sibling, a spouse, a parent, the child of the beneficiary, grandchild, nieces and nephews, first cousins and more. If the parents want to distribute the excess marital funds, they can be withdrawn, taxes and penalty paid, and the excess funds equitably divided as provided in their agreement.

The provisions of the parties’ divorce agreement are valid restrictions on a qualified tuition program for 529 plan accounts. Saying nothing about the 529 plan account in the parties’ agreement or final decree, and assuming the funds belong to the child, is the mistake no family lawyer should make.

The father in your office, who tells you that the money is gone, may have no recourse under the Divorce Code because the 529 plan account balance was disclosed and there was no fraud committed by the other party. The language of the divorce settlement should have protected the money for the intended outcome: the college education of the parents’ child. If the client, his relatives and other loved ones contributed to a 529 plan account that has been legally emptied by his ex-wife, the lawyer who failed to protect the interests of the father may have disturbed a hornets’ nest and will need to answer to the father and all angry donors.

Reprinted with permission from the July 14, 2015 edition of the The Legal Intelligencer© 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 – or visit

Violation of overtime regulations. Employers Beware: The Joint Employer Doctrine is Alive!

July 10, 2015

By James B. Shrimp, Esquire

Earlier this week the United States Department of Labor (“DOL”) fined two Philadelphia companies $1,450,000 for violations of the Fair Labor Standards Act’s overtime regulations.  Frankly, it was foolish for the companies to believe that the conduct they engaged in was appropriate and it has caught up with them.  What is most important from this fine, however, is how and why the DOL justified their action, namely the assertion of the joint employer doctrine.

Violation of overtime regulations
Violation of Overtime Regulations

The underlying case involved a direct mailing company that employed over 150 machine operators, printers, cutters and sorters in the last two years. These workers would clock out to ensure that the direct mailing company would not pay for more than 40 hours of work in a week, avoiding overtime. The issue arises from the fact that these workers, after they clocked out, would go back to their stations and continue to perform work, for less of an hourly wage and for no overtime.  During these “extra” hours, the employees were “employed” by a staffing agency hired by the direct mailing company and paid in cash.  It’s impossible to read the above description without thinking how did the companies think they would get away with this.

The DOL in levying fines against both companies concluded that the companies were “joint employers.”  The standard of asserting the joint employer doctrine is in flux at the DOL and within its agencies, including the National Labor Relations Board (“NLRB”) and the Occupation Health and Safety Administration. The long standing joint employer standard is whether the party has direct and immediate control over the employee. The direct mailing company described above very likely had that control, since the employees worked at the same location, with the same equipment and were likely supervised by the same individuals.

The NLRB has proposed a broader standard that extends the doctrine to parties that have the potential ability to wield indirect control over its employees.  This broader standard would cover businesses much closer to the proverbial “line” than the direct mailing company above.

In public comments regarding the fine, the DOL cited its concern of the “fissuring” of the American workforce and its concern about “vulnerable employees.”  The DOL’s new focus results from the leadership of the current Administrator of the Wage and Hour Division of the DOL, Dr. David Weil.  In May of 2010, Dr. Weil authored a report entitled Improving Workplace Conditions Through Strategic Enforcement which examined the “fissuring” of the American workforce, which in turn, according to Dr. Weil, has caused a significant increase in “vulnerable employees.”[1]

The fissuring of the workforce refers to the breakdown of the traditional large employer, by that large employer reducing the number of its direct employees via, inter alia, independent contractors, staffing agencies and franchising (“Smaller Employer”). Vulnerable employees are employees that work at or near the minimum wage, have no benefits and are employed by a Smaller Employer in a larger industry.

In order to protect the vulnerable employees, the DOL is utilizing the joint employer doctrine to ensure compliance with wage and hour laws, by, when appropriate, holding the traditional large employer liable for wage and hour violations of the Smaller Employer.  In proposing strategies for DOL enforcement, Dr. Weil suggested in his report that in a “fissured” industry, enforcement must focus on both “workplaces where labor standards violations occur [Smaller Employer] and also at the higher level of industry structure, where ‘lead firms’ play a key role in setting the competitive and employment conditions for employers at ‘lower levels’ of the industry structure.”

Within that new strategy, Dr. Weil proposed two tactics to reach the “lead firms”:

(1) “specific outreach … to major brands” that have a positive employment reputation, and reaching a cooperative agreement that the “major brand” be “committed to review employment practices with franchisees when other franchise standards are being reviewed,” creating a model for other franchise systems; or

(2) “target several major brands that had documented histories of systemic violations amount their franchisees … once identified, the WHD could undertake broad and coordinated investigations in multiple parts of the country and across multiple franchisees, in order to establish the level of system-wide violations, and pursue statutory penalties for those violations.”

Based on its actions to date, it appears the DOL is utilizing the more aggressive approach to enforcement. Although the direct mailing company described above engaged in a seemingly obvious violation of overtime regulations, the expansion and use of the joint employer doctrine should be watched and examined by any employer that utilizes staffing agencies and independent contractors or those involved in franchising.

[1] Dr. David Weil, Improving Workplace Conditions Through Strategic Enforcement, A Report to the Wage and Hour Division (Boston University May 2010)

For more information feel free to contact James B. Shrimp at 610-275-0700 or by email at

Visit the firm’s Employment Law page here.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.