Detroit Business Law

Court of Appeals Erodes Worker’s Compensation Exclusive Remedy Provision

The Michigan Worker’s Disability Compensation Act  (WDCA) was created in order to ensure that employees injured on the job would receive compensation for their injuries, while at the same time protecting employers from tort liability. An injured worker must generally pursue compensation through the worker’s compensation system, rather than in tort. Essentially, both employer and employee trade the uncertainty of recovery in a tort action for the certainty of a worker’s compensation claim. Moreover, the employee may still sue other, non-employer parties such as the manufacturer of a machine that caused the injury. This is a very high standard. Negligence—even gross negligence—is insufficient to hold the employer liable.

The only exception to this rule allows an employee to recover damages from the employer if the employee can prove that the employer committed an intentional tort. In order to prevail, the employee must prove the employer acted deliberately, and with intent to cause an injury. Intent to injure will be imputed to the employer if the employer (1) had actual knowledge that an injury was certain to occur and  (2) disregards that knowledge.

In a recent Michigan Court of Appeals decision (Click Here to See a Copy of the Court’s Decision), the court ruled that liability for an intentional tort may exist where “the employer subjects an employee to a continuously operative dangerous condition that the employer knows will cause an injury, that it knows employees are taking insufficient precautions to protect themselves, and that the employer takes no action to remedy the situation.” This case presented a unique situation where multiple injuries occurred, management knew of the injuries, solutions to preventing injuries were discussed, and no changes were made. This created a “certainty of harm” because the employees had no effective means of protecting themselves from injury.

The Court of Appeals, in noting that the employers could have prevented the injuries by adopting some remedial safety equipment, seemed to adopt a negligence standard. Had the employer taken certain safety precautions it would not be open to liability. Only time will tell whether this case  is the first step toward judicial erosion of the prior strict interpretation of the exclusive remedy provision.

This article was written by Michael K. Hayes, Legal Clerk at Demorest Law Firm.

125 Posts!

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Small Business Administration Scams

In the June 2010 issue of the Journal of Accountancy the “News Digest” reports that yet another scam is being perpetrated against unsuspecting small business owners, this time under the guise of securing funds from the U. S. Small Business Administration (SBA).

Clearly the criminal mind, whether operating on Wall Street, inside the worlds largest commercial banks, or at a local level all have the same purpose in mind;  separate you from your money. Case in point, a headline on yesterday morning’s Detroit News read “Mortgage fraud ring hit $100m, FBI says.” This of course reminds me of a very old quote (the original version of which is supposedly linked to a Mr. T. Tusser in the year 1573) “A fool and his money are soon parted.”

The News Digest does a very nice job of summarizing the “abusive marketing practices” being used to prey on unsuspecting small business owners. Beware!

To read the entire article please click the following link Small Business

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.

Forbes.com Article From Stephen J. Dunn

Click here to access a new article from our Tax Attorney Stephen Dunn. The article discusses IRS Audits.

When Cash Is Tight

I recently found an interesting article on Open Forum form Laura Rich titled “Paying Your Small Business Bills”

Her article provided a wide range of ideas between renegotiating trade terms, contacting your vendors, to squeezing your customers for payment.

In practice I have found that it is always better to communicate with your vendors when your business is having cash flow problems before they contact you. They are more willing to work with you if you contact them first. After all they want your business for the long-term.

Contacting them first not only shows that you are interested in a long-term relationship with your vendor, but it also lets them know that you take seriously your responsibility to pay your bills.

To read the rest of her article click the following link Paying Your (Small Business) Bills.

This article was written by Jay Kossen, CPA at Numerico, PC. Click here to view Numerico’s website.

Auditory Response

The risk of an IRS audit is increasing, particularly for small to medium-sized businesses. To a large extent this is driven by an administration that has so leveraged this country financially that they have had to add thousands upon thousands of revenue agents to aggressively pursue taxes as a revenue source. The result will be more audits of both business and individuals.

Many accounting firms are reporting a doubling or tripling of the frequency of audits within their client bases. To prepare for the likelihood of an audit, it’s helpful to review the audit process.

In general, the IRS only has three years to audit a tax return. However, the IRS can ask that the company voluntarily extend the audit period. Therefore, the first step in the audit process is deciding whether or not to give the IRS more time when statutes are about to expire.

If the company refuses to extend the audit period when statutes are about to expire, the IRS may get very picky in auditing the return, disallowing all questionable items on the return. A better strategy would be to offer the IRS a limited extension period, say of 6 months. If a limited extension can be secured, and it usually can, it will force the IRS to get things done more rapidly and minimizes the time they have to scrutinize the return in great detail. In addition, to limiting the time frame of the extension, it is advisable to limit the extension to specific items on the return, rather than extending the audit to cover the entire return

After the extension step, if any, the audit process continues with a meeting between the IRS examiner and your tax adviser. Many times the IRS will require the taxpayer, or its representative, to be present at the initial meeting. The meeting can be used to lay the ground rules for the audit and give the tax adviser a clear idea of what items the examiner is interested in. During this meeting, a good tax adviser will ask for a target date of completion, designated one person in the firm to act as liaison with the IRS, and create a rapport with the examiner.

The IRS examiners will agree to just about anything that will make their work easier and speed the process, without sacrificing the integrity of the audit. For example, Numerico offers to send information to the examiner before the actual meeting to expedite resolving the items the IRS will be looking at and to reduce the amount of time the examiner needs to spend on-site. The pro-active stance helps to reduce auditors’ mistakes and misunderstandings, as well as the tax assessments the company being audited would face as a result of those mistakes. Also, it is more difficult to correct an auditor’s mistake once it has been written up.

Now that the meeting has been set, let’s look at basic audit defense strategy. For the most part, the groundwork has already been laid and the key issues are clear. It’s important to settle these key issues right away, to avoid wasting time. When settling the issues, approach them directly. This is the part where your tax advisor is most effective. IRS examiners are not in the habit of making trades, i.e., overlook item A and we’ll concede items B and C. Therefore, all “gray areas” that the IRS will be focusing on must have proper documentation and it must be presented properly to the examiner to get them to pass on it. A tax adviser with a good reputation and experience in the auditing process can save a company thousands of tax dollars by handling your case pro-actively.

Tax problems are discussed with the adviser before being written up in the audit report. Once the details have been ironed out and the audit is over, the examiner must deliver a written report. From this point, the company has 30 days to bring the case to the IRS Appeals Office, if necessary. The difference between the audit and the appeals is the element of negotiation. You can make deals with the IRS during the appeal process.

Once a case is taken to Appeals, all tax disputes must be resolved. The Appeals Officers judge each case on its technical merits and the risks vs. cost of litigation. This is why Appeals officers are able to negotiate; to avoid costly litigation and the setting of legal precedents. About 85% of all appeals cases end in voluntary settlements.

The appeals process is fairly simple, but requires thorough preparation. A detailed, persuasive presentation of your case should be written up; you won’t meet the person who reviews your case beforehand. Be sure that the Appeals officer understands your position on all issues before attempting to negotiate. Also, as this is a negotiation process, you should only present reasonable arguments to the Appeals Office. Disputing every detail of your case, especially if your argument is weak, is a poor way to begin a negotiation.

To survive the audit process, present a strong case, a good set of books, and retain quality representation. IRS agents are like commissioned-salespeople in that careers are made (and broken) on the amount of revenue (tax assessments) the individual agents produce. If you understand this and pro-actively move through the audit, process, the agent will realize that you’re no “easy sale” and that they should look elsewhere.

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.

Can An Employer Fire An Employee By Accepting a Resignation?

The Michigan Court of Appeals recently issued an opinion that will make employers think twice about resignation procedures for employees. In Robbins v. Sault Ste. Marie Tribe of Chippewa Indians (Click here for a PDF of the case), an employee had a written clause in her contract that she would receive two years’ salary if she were fired. The employee gave the employer two weeks notice of her resignation. After giving her employer notice, but before she could serve those two weeks, she was fired. The employer did not believe she should be entitled to the two years’ salary since she had already given her resignation notice. The Court disagreed with the employer and ruled in favor of the employee, and awarded her $204,576 in severance pay. In its decision the Court stated, “Where an employer terminates employment prior to the effective date of resignation, in the absence of a contractual provision allowing the employer to do so, he employment was terminated by the employer, not by the employee’s resignation.”

In order to avoid situations similar to the one above, employers should do one of the following: (1) Allow the employee to work through the resignation date; (2) Continue to pay the employee through the resignation date, but tell them that they do not need to actively work during this period; or (3) Add provisions to employment contracts or the employee handbook stating that after receiving an employee’s notice of resignation with a future effective date, the employer may  accept that resignation effective immediately.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Before You Grant An Easement, Know What You Are Giving Away

Property owners are often asked to grant utility easements to utility companies for the construction and maintenance of overhead electric, telephone and cable television lines and underground electric, water, and sewer, telephone, and cable television lines.  However, unbeknownst to many property owners, the terms of their easement agreement may allow for the easement to be expanded to accommodate changing technologies.

In the 2008 case of Int’l Transmission v. Pine View Estates Subdivision Ass’n, the Michigan Court of Appeals (click for PDF of case) was asked to determine whether an easement agreement from the late 1940’s and early 1950’s giving Detroit Edison, and assignee International Transmission Company, the right to “construct, operate, and maintain” electrical power lines, “including the necessary H-frames, towers, fixtures, wires and equipment”, allowed for an upgrade replacement of wooden H-frame poles with single steel poles over fifty years later.

The landowners opposed the expansion of the easement.  They argued that the original easement agreement didn’t grant the utility company the right to erect steel poles based on the fact that the technology didn’t even exist in the 1940’s and 1950’s.

The Court of Appeals determined that the language in the original easement agreement comprehended the replacement of wooden H-frames with steel poles, even if the technology didn’t exist at the time the agreement was executed. The Court found that the steel monopoles and high voltage wires constitute “necessary … towers … wires and equipment.”

The bottom line is that property owners should be very specific as to what rights they are granting in an easement agreement.  Otherwise, they may end up giving away more than they bargained for.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.

So You’ve Filed Your Return with the IRS, Now What?

Have you ever wondered what your responsibilities are after you have filed a return? IRS tax tip 2010-74 provides a list of items ranging from how to check the status of your refund, to what you should do if you have made a mistake on your return.

To access this tax tip click the following link from the IRS website Here’s What Happens After You File IRS Tax Tip 2010-74.

This article was written by Jay Kossen, CPA at Numerico, PC. Click here to view Numerico’s website.

What Are the Duties of the Insurance Agent Regarding Coverage and Premiums?

The Michigan Court of Appeals has just issued a ruling that describes the duties and responsibilities of not only insurance agents, but also the insured. In General Agency Company v. Huron Oil Company (2010) (Click here to download a PDF), the Court of Appeals reinforced that an “insurance agent has no duty to advise an insured regarding the adequacy of insurance coverage.” The Court went on to state that the agent represents the insurance company, not the insured. The Court stated that “the agent’s job is merely to present the product of his principal and take orders from those who want to purchase coverage.”

There are several exceptions to this general rule. Specifically, an insurance agent can form a “special relationship” with the insured when the agent does one or more of the following:

(1) the agent misrepresents the nature or extent of the coverage offered or provided;

(2) an ambiguous request is made that requires a clarification;

(3) an inquiry is made that may require advice and the agent, though he need not, gives advice that is inaccurate; or

(4) the agent assumes an additional duty by either express agreement or promise to the insured.

In the above-mentioned case, the insured claimed that the insurance premiums they were charged were too high and that the insurance agent did not seek enough competitive bids. The insured claimed that the insurance agent had “represented that it would work diligently to obtain the best appropriate insurance coverage for the best premium reasonably available in the market.” The Court of Appeals ruled that this was insufficient to warrant a legal action against the agent by the insured. The Court of Appeals affirmed a ruling on this issue in favor of the insurance agent without a trial.

This case shows the importance of researching insurance rates and premiums on your own, or seeking competitive bids from more than one insurance agent. The agent’s first goal is to sell the insurance and it is not necessarily a top priority to find the best or least expensive insurance coverage for the insured. Furthermore, the insured will have no recourse if it later decides that it got a bad deal on the insurance coverage.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.