Michigan Smoking Ban – Summary of House Bill No. 4377

The Michigan Legislature has passed a bill which bans smoking in almost all indoor public venues. This ban has been in the works for a long time; many other States have already enacted similar laws. Governor Granholm is expected to sign the bill into law, and it will go into effect on May 1, 2010.

“Smoking” is defined as “the burning of a lighted cigar, cigarette, piper or any matter or substance that contains a tobacco product.” There is a ban on smoking in “public places.” A “public place” includes areas owned and operated by the government; areas not owned or operated by the government, but used by the general public for certain specified purposes; and (unless otherwise exempt) a place of employment. The third one covers almost all of the businesses in the State. A “place of employment” is an enclosed indoor area that contains a work area for one or more people.

Business owners are expected to take steps to reasonably prevent customers, employees, or other people from smoking on their premises. Business owners are expected to do ALL of the following:

1. Clearly and conspicuously post no smoking signs (or the international no smoking symbol) at the entryway and in all buildings where smoking is prohibited.
2. Remove all ashtrays or other smoking paraphernalia from any place smoking is prohibited under the Act.
3. Inform individuals smoking in violation of the Act that they are in violation of state law and are subject to penalties.
4. Refuse to serve an individual smoking in violation of the Act.
5. Ask an individual smoking in violation of the Act to refrain from smoking, and ask them to leave if they refuse to stop.

If owners do all of the preceding things, they have an affirmative defense against any prosecution against them for a violation of the Act. This means that the business owner can be exempt from penalties under the Act, but only if all of the preceding conditions are met.

The Act includes a few exceptions. Casinos in existence before the Act can allow smoking in gaming areas only. Casinos built later cannot allow smoking. (The term casino in the bill does not include a casino operated under the Indian Gaming Regulatory Act. Thus, the smoking ban does not apply to these casinos.) An existing separate specialty tobacco shop may allow smoking. Cigar bars may also allow smoking (but only the smoking of cigars, not other tobacco products).  The ban also does not apply to motor vehicles.

Overall, business owners should be proactive in preventing smoking in their place of business by following the five requirements described above.

Download a copy of the Bill in PDF format by clicking here.

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

Business Purchasers: Beware of Seller’s Michigan Unemployment Tax Experience Account

If you are purchasing a Michigan business, then you need to be aware of Section 22 of the Michigan Employment Securing Act.  If you are not aware of how Section 22 can affect you transaction, please read the article “SUCCESSION TO MICHIGAN UNEMPLOYMENT TAX EXPERIENCE ACCOUNT OF PURCHASED MICHIGAN BUSINESS” by Steve Dunn.

Click here to download a PDF.

This article was written by Stephen J. Dunn, Of Counsel to Demorest Law Firm.

Broadening the State Real Estate Transfer Tax

When real property is transferred in the state of Michigan, both state and county transfer taxes are assessed based on the purchase price of the property.  Transfer taxes are imposed when a deed transferred the ownership of land from one entity to another.  However, until recently, the transfer tax did not apply if the buyer simply bought the entity that owned the land.  This was perceived as a loophole for single-purpose real estate entities to avoid paying the transfer tax.

On January 9, 2009, the State Real Estate Transfer Tax Act (MCL 207.521, et seq.) was amended to impose the state real estate transfer tax (“SRETT”) on transfers of a “controlling interest” in an entity, if the entity has 90% or more of its value in real estate. “Controlling interest” is defined to include ownership of 80% of the stock of a corporation, or 80% of the membership interests of a limited liability company.

The amended Act includes the same exemptions as the original SRETT statute, but adds new exemptions for (i) transfers made to effectuate a dissolution of the corporation, limited liability company, partnership or trust, and (ii) transfers from an entity to another where the ownership remains the same.

The amendments do not apply to the county property transfer tax. Therefore, an entity purchase still does not trigger an obligation to pay the county transfer tax.

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

The Impact of Reicher v SET on The Michigan Sales Representatives Commission Act

The Michigan Sales Representatives Commission Act (“SRCA”), MCLA 600.2961, (Click here to view) provides protection for sales representatives from the company he is selling for (“principal”).  The statute provides that representatives are to be paid what they are owed in a timely manner, and that intentional non-payment of commission by the principal will result in “an amount equal to 2 times the amount of commissions due” up to $100,000.00.  According to the statute, a sales representative cannot waive his or her rights under the SCRA by signing a contract.

A recent Michigan Court of Appeals ruling in the case Reicher v SET Enters, Inc (click here to view) decided that a settlement agreement between the representative and principal after the representative was terminated and had filed a lawsuit against the principal can negate the non-waiver rule.  In other words, when Reicher decided to settle his claims against the principal he signed away his rights to protection under the SCRA.  When the principal breached the settlement agreement, the statutory penalties under the SCRA did not apply.  Reicher was limited to the damages for breach of contract.

The non-waiver provision will still apply to a contract or agreement establishing or modifying the business relationship between the principal and the sales representative, but does not apply to post-termination agreements.

Jackson v Estate of Green: The Effect of a Partition Action on a Joint Tenancy

Joint tenants hold equal and undivided interests in a parcel, with a right of survivorship. When a joint tenant dies, the deceased’s interest does not descend to heirs. Instead, the entire ownership remains in the surviving joint tenant or tenants.  This transfer occurs automatically upon the death of the joint tenant.

Michigan recognizes two types of joint tenancies:  (a) the standard form, which can be unilaterally severed; and (b) a joint tenancy with express words of survivorship in the granting instrument which cannot be unilaterally severed.

The recent Michigan Supreme Court of Jackson v Estate of Green, involved a dispute between two joint tenants, one of whom sought to partition the properties held by both joint tenants.  While the matter was pending before the Court, the joint tenant seeking a partition suddenly died.

The Michigan Supreme Court ruled that the joint tenancy at issue was a “standard joint tenancy” because the deed granting them a joint tenancy did not include express language identifying the parties as having a “joint tenancy with full rights of survivorship”.  As a result, the Court held that the joint tenancy could be severed by one of the parties without the consent of the others.  However, the Court also ruled that the severance occurred only upon a Court’s Order.  Merely filing a Complaint in Court did not sever the joint tenancy.  Therefore, the decedent’s estate had no interest in the subject property upon the decedent’s death.  Instead, the Court ruled that the title to the subject property vested in the surviving joint tenant immediately upon the other joint tenant’s death.

This case not only explains at what point in time a partition action severs a joint tenancy, but highlights the importance of using express words of survivorship in the granting instrument if the parties intend to secure their rights of survivorship.

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

McNeil v Charlevoix County: An Exception to Michigan’s Employment At-Will Doctrine

On July 21, 2009, the Michigan Supreme Court ruled in McNeil v Charlevoix County, 2009 Mich. LEXIS 1572, that a local health agency had the authority to require employers to adhere to a more strict regulation regarding workplace smoking than was required under state law. In addition, the Court ruled that (a) the local regulation gave employees a private right of action to seek the regulation’s enforcement and prohibit employers from retaliating against the employee, and (b) the local regulation prohibited an employer from discharging, refusing to hire, or otherwise retaliating against an employee for exercising his or her rights under the regulation.

Among other arguments, the Plaintiffs contended that the regulation violated the common-law right of an employer to discharge an employee at will and, therefore, was void.  However, the Michigan Supreme Court rejected the argument, citing the well established case, Suchodolski v Michigan Consolidated Gas Co., and holding that an employer is not free to discharge an employee at will when the reason for the discharge contravenes public policy. 412 Mich 692, 695 (1982).

Michigan is an “employment-at-will” state.  This means that private sector employers can hire and fire employees for any reason, unless that reason is illegal.  Likewise, employees can quit for any reason.  Exceptions to this rule include when an employment contract exists or when the reason for discharge is against public policy, as was the case in McNeil v Charlevoix County.

Michigan is not one of the thirty states that has adopted smoker’s rights laws.  Therefore, while most Michigan private sector employers may be permitted to hire or fire an employee based on their smoking habits, a regulation like the one highlighted in this recent Michigan Supreme Court decision provide employees who smoke certain rights even in the at-will employment setting under the public policy exception to the Michigan at-will employment doctrine.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm. Click here to view her professional resume.

Michigan Leads the Way With a New Corporate Form – The L3C

As of January 2009, Michigan is one of the few states to offer a new form of business entity.  If your business is for profit, but its primary focus is to accomplish socially beneficial acts, you may want to organize as a low profit limited liability, or an L3C.

The L3C is structured like any other limited liability company, with all the flexibility and advantages of a normal limited liability company, including being treated as a “pass through” entity for federal tax purposes.  However, the L3C must satisfy certain criteria to prove that its main goal is not to make a profit.

L3C’s are designed to qualify as a recipient of Program-Related Investments, or PRIs.  PRIs are IRS-sanctioned investments made by private foundations to support a charitable project or activity.  As a result of their charitable purpose, PRIs receive special treatment under federal tax law.

Historically, foundations have been reluctant to invest in for-profit businesses through the use of PRIs because of complex and costly IRS requirements to do so.  The L3C removes many of these hurdles and costs.

Hopefully, the L3C will make it easier for foundations to invest in Michigan’s community and economic revitalization.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm. Click here to view her professional resume.

Michigan Laws on Gift Cards and Gift Certificates are Changing

A recent Michigan law and impending Federal legislation are reshaping the way businesses can handle the sale and use of gift cards and gift certificates. In November 2008, the State of Michigan passed new laws which mandate that gift cards and gift certificates issued by retailers may not have an expiration date less than 5 years from the date of purchase. Also, no non-use fees or service fees may be deducted from the value of the gift card.

These laws do not apply to a prepaid card issue by a financial institution that may be used at many different types of retailers (such as a prepaid Visa card).

Furthermore, companies cannot refuse partial payment of a good or service with a gift card. In other words, even if the total sale is more than the balance on the card, a business must accept the gift card as partial payment for the good or service. Companies also cannot refuse gift cards during sales or closeouts.
Lastly, the terms and conditions of a gift card cannot be altered after the gift card has been purchased. Terms must be disclosed on the gift card or certificate, on the envelope it comes in, or an 800 number must be provided to obtain the terms and conditions.

To add to all the State changes, President Obama recently signed into law the Credit Card Accountability Responsibility and Disclosure Act. Title IV of the Act—relating to gift certificates, gift cards, and prepaid cards—becomes effective August 22, 2010. These regulations will not have as great an impact in Michigan as they may in other places around the country because Michigan has already enacted rules governing the use of gift cards and gift certificates. The new Federal law provides:

•    Gift cards may not expire less than 5 years after the date of purchase (already in effect in Michigan).
•    Dormancy fees, inactivity fees, and service fees are prohibited unless (1) there has been no activity with respect to a certificate or card for the preceding 12 months, (2) disclosure requirements are met, (3) not more than one fee per month is charged, and (4) any additional requirements imposed by Federal Reserve Board regulations are met. (Companies in Michigan may still have to follow Michigan laws if stricter).

These State and Federal laws must be strictly followed to avoid becoming liable for damages and penalties.

Michigan Freedom of Information Act

Let’s say that your business is interested in purchasing a particular property, but you know that there have been some disputes in the past regarding this property.  These disputes have been between the city (and its various departments) and prior owners and neighbors.  How can you learn the details of these disputes?  One easy way is by requesting information from the city itself under the Michigan Freedom of Information Act, or “FOIA.”

FOIA could also be helpful if your business was negotiating with a city to enter into a contract.  You could use FOIA to obtain copies of prior contracts that the city has entered into with other businesses.

If your business was involved in a dispute with a business that is required to be licensed by the state (such as a medical practice or insurance company), you could submit a FOIA request to the state regarding their licensing history and any disciplinary proceedings.

The Michigan Freedom of Information Act, MCL 15.231 et seq., requires all “public bodies” in the State of Michigan to disclose certain public records upon request.  The entire Act is available at http://tinyurl.com/l22wnu.

“Public records” include, but are not limited to, the following:

• open meeting minutes;
• voting records;
• staff manuals;
• written statements interpreting laws, rules, and policies;
• reports

The records may be in any format – hand-written, typed, photocopies, photographs, sound recordings, maps, discs, or any other means of recording information.

There are also several types of records that are exempt from FOIA disclosure.  These include, among other types:

• records disclosing personal information about an individual;
• investigation records compiled for law enforcement proceedings (with limitations);
• any records that would compromise security;
• student records;
• trade secrets;
• information subject to attorney-client or other privilege;
• test questions and answers;
• pending public bids

To obtain information under FOIA, simply send a letter detailing the requested information to the FOIA Coordinator at the applicable “public body,” which includes all state and local government agencies, divisions, and officials in the state, with the exception of the governor, lieutenant governor, and employees of the executive branch.  “Public body” also includes all bodies created or funded by state or local authority, including public schools, some hospitals, and public libraries.

Based on the above example, your letter should request all applicable information regarding the particular property and the appropriate time frame, and should be addressed to the FOIA Coordinator in the appropriate city.

You may request to inspect, copy, or receive a copy of the applicable public records.  The FOIA Coordinator must respond to your request within 5 business days, with a possible extension of 10 business days.  The “public body” may charge you for copying or inspecting records, as well as separating confidential information from the other requested records.  This fee must be limited to actual copying, mailing, and labor costs.

If the FOIA coordinator denies your request, they must provide a full explanation for the denial, and advise you of your right to appeal.   You may appeal then to the head of the applicable public body, or directly to circuit court.  If you choose to file in circuit court, the lawsuit must be filed no more than 180 days after the public body’s final denial.  If the court finds that the public body violated FOIA, it can award actual and/or compensatory damages, as well as punitive damages of $500.00.

This article was written by Melissa L. Demorest, Associate at Demorest Law Firm. Click here to view her professional resume.

Beware the “Choice of Law” Provision

Do you realize that many of the contracts, equipment leases and loan documents that you have signed would require a Michigan judge to use other States’ laws in deciding lawsuits rather than Michigan’s?

This is because many contracts contain a “choice of law” or “governing law” provision, by which the parties choose to apply the law of one particular state to govern their contract.  A choice of law provision may affect the outcome of a lawsuit if the law of the chosen state differs from Michigan law on a key issue.

When reviewing a proposed contract before signing it, it is essential to read and understand the entire contract.  This is not just the price or the interest rate.  It also includes the general provisions at the end or on the back of the page—otherwise known as the “fine print” or “boilerplate”.

Many companies do business in multiple states.  For them, it is important to have certainty about what their contracts mean.  As a result, their standard contracts will contain a choice of law provision.  In addition, they may choose the law of a state that is most favorable to them — such as the law of a state that allows lenders to charge higher interest rates without violating usury laws.

If the law of Michigan doesn’t differ from the law of the chosen state on any important issue for the contract, then the choice of law provision is moot.  If, however, there is an important difference, then the party being asked to accept the choice of law provision has three options:  (1) Negotiate to change the contract; (2) Refuse to sign the contract containing the choice of law provision; or (3) Sign the contract knowing that it contains that provision and its implications.  If you are dealing with a much bigger company, they may not be willing to alter their standard contract.  You need to go into the transaction with a full understanding of its terms, so you are not surprised when a dispute arises.

The Michigan courts will normally enforce a choice of law provision, with two major exceptions:

1. The chosen state must have some relationship to the transaction, such as one of the states being based there, or part of the transaction being performed there.  A choice of law provision may not be enforced if two Michigan companies, with a transaction to be performed in Michigan, try to choose the law of some other state for the purpose of avoiding the application of a Michigan law.
2. A Michigan court may also refuse to enforce a choice of law provision if that would violate Michigan public policy.  In other words, if the result would be contrary to an important Michigan law, and Michigan has a greater interest in the outcome than the state whose law was chosen by the parties, the Court may disregard the choice of law provision.  This does not occur very often, particularly where there is no irregularity in the making of the contract containing the choice of law provision.

Many contracts also contain a “choice of venue”  provision, by which the parties agree to litigate their disputes in the courts of a particular state.  Choice of venue provisions will be discussed in a future article.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm. Click here to view his professional resume.