Background Check on Potential and Current Employees

July 24, 2015

By 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 jshrimp@highswartz.com. 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.

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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.

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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.

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 – reprints@alm.com or visit www.almreprints.com.

Reading between the lines: What is in a Franchise Agreement?

July 2, 2015By Joel D. Rosen, EsquireDeciding what kind of business opportunity you want to embark on can be challenging. There are countless industry segments and businesses that make your initial decisions daunting. If you are torn between a franchise or an independent business, read this article for some advice To Be a Franchisee or Not to Be; That is the Question.
What is in a Franchise Agreement?
What is in a Franchise Agreement?
If after considering your options you determine that franchising is the way to go, then there are some things you want to know about the key document in the franchise relationship, the franchise agreement. The importance of the franchise agreement should not be undervalued. There is a lot that can be gleaned from its terms.  You can tell a great deal about the mindset of the franchisor by the way in which the franchise agreement is structured.  Is it straightforward and reasonable or is it long, tedious, and onerous to the franchisee?Though franchise agreements will vary depending on the type of business being offered, there are some basic items that should be included. The license fee is the amount you will need to pay initially in order to use the franchisor’s brand. There will also be terms related to royalty payments that dictate what percentage of your profits you will have to pay to the franchisor and how often. The agreement may also establish your territory to ensure that you don’t compete with other franchisees from the same system (of course, some systems do bot utilize assigned territories).Advertising terms explain how much you, as the franchisee, will need to contribute to local and/or national advertising and explain how the franchisor will manage advertising, generally. There will also be terms that outline franchisee and franchisor performance obligations, non-compete provisions, choice of law and jurisdiction, as well as defaults and penalties for breach of the agreement. Because many of these terms will have a direct impact on the daily operations of your franchise, it is vital that you read them carefully and understand what they truly mean.Some franchisors use the franchise agreement more as a weapon than as a tool. The franchise agreement can be fair to both parties and a vehicle to allow franchisee growth. As you read through the franchise agreement consider if you want to partner with a franchisor that starts with an agreement that indicates its distrust of its partners through the terms of its agreement?At the end of the day it is vital to remember that the franchise agreement is the beginning in what will hopefully be a long and profitable partnership.  As such, this document is the first opportunity for you to get an idea of what this relationship is going to look like. If the franchisor doesn’t see you as a partner or as a valued customer from the initial agreement, then why sign up? There are plenty of options out there for an enterpreneur, and finding the one that fits is absolutely the crucial first step. 

For more information, visit our Franchise Law page or contact Joel D. Rosen at 610-275-0700 or by email at jrosen@highswartz.com.