Detroit Business Law

Are Employee Text Messages Private?

Last week the U.S. Supreme Court unanimously ruled, in City of Ontario v. Quon, that the search of a police officer’s government issued pager, without a warrant, did not violate the Fourth Amendment. This case arose after a police department audited the text messages a police officer was sending and receiving on his pager. The department wanted to determine whether the per month character limit was sufficient to handle work-related messages. The officer was reprimanded after the audit showed that he was sending and receiving racy text messages on his department issued pager, while on duty.

In fearing that a broad ruling “might have implications for future cases that cannot be predicted,” the Court did not issue a “broad holding concerning employees’ privacy expectations vis-à-vis employer-provided technological equipment.” Rather, the Court’s ruling was narrow as it refused to decide whether the officer had an expectation of privacy. Rather, they assumed that there was an expectation of privacy in order to determine that the search was reasonable.

Despite the fact that Quon involved a government search on a government employee (with the resulting Constitutional issues), and the Supreme Court did not address the question of whether an employee has a reasonable expectation of privacy, employers can still take guidance from the case. Private employers should be aware that the Court noted that the search of the officer’s phone would have been “reasonable and normal in the private-employer context” because there was a legitimate reason for the search and “the search was not excessively intrusive.”

Given the rapid advances in technology and the proliferation of social media, employers should consider what extent they have the right to check on their employees’ communications. Companies should develop specific policies on employees’ use of computers, smart phones, and other devices owned by the employer, or in connection with work.

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

What To Do If You Receive An IRS Notice

The most important thing is that you do not panic or ignore the notice. Most of these notices are for simple things like mathematical errors or even for items that you missed on your return that now may result in a favorable outcome to you.

The IRS has an excellent list of things you should know about when receiving a notice in IRS Summer Tax Tip 2009-22.

Item 8 from the list is extremely important. In practice there have been numerous times that clients have had to send in the requested items two or even three times due to paperwork being misplaced at the IRS, a different agent being assigned or that the case has been transferred to a different office.

You should also send any response to a notice via certified mail to prove that you have submitted your response by the specified timeline in the notice.

To access the list please click the following link from the IRS’ website. IRS Tax Tip 2009-22

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

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!

We have now reached 125 posts on DetroitBusinessLaw.com. We would like to thank you for reading our articles. We look forward to keeping you up-to-date on developments we feel will be of interest to you. Keep reading!

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.