FROM OUR MANAGING PARTNER
Fall 2016 Newsletter

STEPHEN L. GOLAN

Managing Partner

Did you notice that a new name and logo appears on this issue of the newsletter? We are pleased to announce that on October 1, 2016 we changed our name to GOLAN CHRISTIE TAGLIA LLP.

This change reflects the long-term contributions of Anthony R. Taglia. Tony joined the firm in 1999, became a Partner in 2002, an Equity Partner in 2009, and has been a member of the Executive Committee since 2009. Because of his professionalism and dedication on behalf of our clients, along with his day to-day involvement with our firm and sharing of its values, Tony has helped shape GOLAN CHRISTIE TAGLIA to become one of the preeminent law firms in Chicago.

In addition to the name change, we have made numerous improvements to our work environment. The expansion and remodeling of our office is complete – we now occupy the entire 15th floor. Our suite has a new lobby, new conference rooms, upgraded bathrooms, and we’ve even added a new Firm Café. Next time you’re downtown, please stop by and we’ll give you a tour.

Please rest assured that though our name and logo may appear different, one thing will never change: our commitment to your success remains our focus.

Stephen L. Golan

EMPLOYEE BENEFITS
Updates to Group Benefit Plans

ANDREW S. WILLIAMS

Partner

PEOs and other employee leasing organizations that act as co-employers with their clients can now apply for IRS recognition as CPEOs

Determination applications for individually designed retirement plans are eliminated effective January 1, 2017

Significant new rules and regulations have been recently proposed for retirement plans, deferred compensation plans and group health plans. Here is a snapshot of the good news and the bad news:

PEOs Get Respect

Professional employer organizations (PEOs) and other employee leasing organizations that act as co-employers with their clients can now apply for IRS recognition as “certified professional employer organizations,” or CPEOs. The IRS certification will recognize the legitimacy of the PEOs undertaking payroll tax reporting and withholding obligations in its own name on behalf of "leased employees" performing services for PEO clients.

New regulations govern the voluntary certification program which began accepting applications on July 1 with respect to wages paid on or after January 1, 2016. To qualify for certification, PEOs must assume liability for payroll taxes payable with respect to its leased employees and meet tax status, background, experience, business location, financial reporting standards, IRS bonding and other requirements.

Tax-Exempt Organizations & New Deferred Compensation Rules

IRS proposed regulations, which can be relied on at this time, clarify the nature of plans subject to Section 457 of the Internal Revenue Code and provide useful exceptions. Section 457 generally imposes special tax rules for deferred compensation plans of tax-exempt entities such as governmental bodies and not-for-profit organizations. Code Section 457(b) postpones tax on qualifying benefits until they are actually “paid or made available” to the recipient (these are “eligible” plans with a limit on annual deferrals, currently $18,000). Code Section 457(f) requires taxation on benefits of “ineligible” deferred compensation plans (covered plans that do not qualify as eligible plans) when they are no longer subject to a substantial risk of forfeiture and, as a result, are “vested.”

HIPAA Privacy and Ransomware

The Department of Health and Human Services Office for Civil Rights (OCR) recently announced guidance on “ransomware” attacks and the HIPAA privacy provisions that protect personal health information (PHI). Ransomware is a type of malicious software (malware) that denies access to a user’s data by encrypting that data with a key known only to the hacker until a ransom payment is made.

If a covered entity (medical service provider or self-funded group health plan) or a business associate with access to PHI is subject to a ransomware attack, and the OCR reports there are 4,000 such attacks daily since early 2016, the presence of such ransomware (or any malware) on the computer system of a covered entity or business associate is a security incident under the HIPAA security rule and likely also will be a breach of PHI confidentiality triggering the HIPAA breach notification provisions.

Non-Discrimination Group Health Coverage and Gender Transition

The OCR has also published final regulations under the ACA prohibition of discrimination on the basis of race, color, national origin, sex or disability. The regulations prohibit the denial of health benefits on the basis of “gender identity” and “sex stereotyping.” The regulations also prohibit categorized exclusions of services related to “gender transition.” The new rules apply to covered entities such as health care providers that accept Medicare, insurance companies and plans offered through the ACA marketplace. For employers with fully insured group health plans, the insurer will be responsible for compliance.

For sponsors of self-funded group health plans, a third party administrator (TPA) that is an insurance company will be responsible for observing the new rules. Self-funded group health plans that use a TPA which is not an insurance company may have no mandated compliance assistance but will be subject to claims by aggrieved participants and beneficiaries for damages for non-compliance. Although the new rules are effective now, responsive changes to plan documents are not required until the first day of the first plan year beginning on or after January 1, 2017 (that’s a 2016 year-end project for calendar year plans).

The final regulations also require written notice of the law’s non-discrimination provisions. Required non-discrimination notices must be posted no later than October 17, 2016. (Sample language is online at http://www.hhs.gov/sites/default/files/sample-ce-notice-english.pdf ).

Determination Applications for Individually Designed Retirement Plans

Determination applications for individually designed retirement plans are eliminated effective January 1, 2017! The IRS has abolished this program in Revenue Procedure 2016-37 in an effort to streamline its regulatory operations and control costs. There will generally be no more favorable determination letters issued for individually designed retirement plans except on initial adoption and plan termination. It will be up to the sponsors of such plans, their document providers and legal counsel to assure compliance with an annual Requirement Amendments List to be issued by the IRS.

At the same time, preapproved plans (prototype and volume submitter documents) continue to be updated and reviewed for compliance by the IRS on a six-year cycle. Sponsors of individually designed plans are expected to migrate to preapproved plans although certain plans (such as cash balance plans) cannot do so at this time. Defined contribution plans that move to a preapproved plan document by April 30, 2017 will be able to rely on the plan’s national office determination letter for the following amendment and review cycle.

So, for retirement plans that can move to a preapproved plan document it’s time to think about making that change. For individually designed “Cycle A” plans (generally plans sponsored by employers with Employer Identification Numbers ending in “1” or “6”), determination applications can still be filed through December 31, 2016.

CORPORATE ALERT
Extensive Changes to Illinois LLC Act

JOY A. MKRDICHIAN

Associate

Illinois House Bill HB 4361, which has been six (6) years in the making, significantly revises the Illinois LLC Act.

Owners of LLCs are advised to ensure their businesses are operating in accordance with the Bill prior to the effective date.

Illinois House Bill HB 4361 Background

Limited liability companies (“LLC”) have been a popular type of business entity due to the tax benefits that limited liability offered to owners and ease of governance. The Illinois LLC Act (805 ILCS 180) governs the organization and operations of LLCs in Illinois. Recently, Illinois House Bill HB 4361 (the “Bill”), which has been six (6) years in the making by the Institute of Illinois Business Law, was signed into law and significantly revises the Illinois LLC Act.

The Bill was designed to make the Illinois LLC Act more in line with the Revised Uniform Liability Company Act, a model act promulgated by the National Conference of Commissioners on Uniform State Laws. Currently, fifteen (15) other states and the District of Columbia have enacted versions of the Revised Uniform Liability Company Act.

The Bill was first introduced by Representative Elaine Nekritz in December 2015. The Bill passed the House and Senate in spring 2016 and was signed into law by Governor Rauner on July 28, 2016. The Bill will become effective as of July 1, 2017.

Impact on LLC Owners

So, what does this mean for LLC owners? Below are a few of the more significant changes to be aware of:

  • Expands the definition of Operating Agreement to include oral agreements. The Bill specifically provides for an exemption from the Illinois Statute of Frauds by stating an Operating Agreement is enforceable “whether or not there is a writing signed or record authenticated by a party against whom enforcement is sought, even if the agreement is not capable of performance within one year of its making”;
  • Removing statutory obligations of an LLC to purchase certain dissociated members’ distributional interests;
  • Setting the default management structure of an LLC as “member-managed” unless explicitly stated in the Operating Agreement;
  • Allowing for the restriction or elimination of fiduciary duty to the extent it is clear and unambiguous in the Operating Agreement and altering the duty of care, except to authorize intentional misconduct or knowing violation of law;
  • Binds the LLC to the Operating Agreement regardless of whether the LLC is a named party to the agreement;
  • Grants rights to a transferee who is not currently a Member, but holds distributional interest, to access and inspect books and records, but only for a proper purpose;
  • Denies authorizing a member as an agent of a LLC solely by reason of being a member and further allows the LLC to place limitations on authority of any member (or manager) by filing a Statement of Authority to authorize the execution instruments transferring real estate property held in the name of the LLC and entry into other transactions on the LLCs behalf;
  • Allowing the member or manager to file a Statement of Denial to deny any authority granted by the LLC;
  • Providing for alternative remedies to a court ordered dissolution, including, but not limited to, a buyout of the applicants’ membership interest;
  • Granting specific rights of a judgment creditor against the LLC;
  • Expanding on the ability and procedure to convert entities to or from an LLC; and
  • Providing rules and procedures for the domestication of foreign entities.

Note that the above is not a comprehensive list of changes. Owners of LLCs are advised to review all of the changes to ensure their businesses are operating in accordance with the Bill prior to the effective date. Amendments to Operating Agreements may be necessary. If you have any questions as to how the Bill may affect the operation of your LLC, or need additional information, please contact a corporate attorney at Golan Christie Taglia.

New Laws Prohibit Employers From Asking Applicants About Salary History

LAURA A. BALSON

Partner

MARGARET A. GISCH

Partner

To address gender pay inequality (on average, women are paid 79 cents for every dollar a man earns), Massachusetts has recently passed one of the stricter laws in the country in an attempt to correct this. Under this recently enacted law, which goes into effect in July 2018, employers will be prohibited from asking job candidates about their salary history until after extending a formal offer of employment.

Moreover, the law requires equal pay not just for workers with similar jobs, but whose work is of comparable character. The purpose of this law is to stop the perpetuation of pay inequality between men, women, and minorities by ensuring that a person’s salary is based upon their value to their current employer.

Such laws are gaining popularity in other states and on a national-level. While federal law prohibits pay discrimination, violations are difficult to prove and persist. However, the clear trend is to promote pay equality. We advise employers to maintain policies that will prevent discrimination of any kind and to ensure that managers, supervisors, and other employees follow these policies carefully.

Jury Awards Employee $550,000 In Pregnancy Discrimination Lawsuit

In August, a federal jury in Washington, D.C. awarded a former Chipotle Mexican Grill employee $550,000 after finding that she was fired from her job because she was pregnant. The verdict is remarkable for a low-wage earning employee and is intended to send a message to other employers.

Under the federal Pregnancy Discrimination Act, it is unlawful for an employer to discriminate against employees based on pregnancy or other related conditions. Employers are required to treat pregnant workers the same as other workers.

After learning of her pregnancy, the former employee’s supervisor imposed requirements on her that were not imposed on nonpregnant workers. After taking time off for a prenatal appointment, the pregnant worker was publicly fired in front of her co-workers and customers.

In addition to awarding $50,000 in back pay, the jury awarded the pregnant worker an additional $500,000 in punitive damages to punish Chipotle for the supervisor’s willful or reckless conduct and to deter Chipotle (and other companies) from engaging in such discrimination in the future.

By ordering Chipotle to pay $500,000 in punitive damages, the message is clear: employers will pay a heavy price for permitting pregnancy discrimination. To avoid such punishing results, all employers must maintain strict policies to prevent discrimination, and properly train managers and supervisors to ensure that those policies are implemented.

When It’s Too Good To Be True: The Underground Market For Intellectual Property

BEVERLY A. BERNEMAN

Partner

Introduction

Intellectual Property (“IP”) protection serves two sets of interested parties. First, the owners of the IP protect their investment in the creative parts of their businesses. Second, the users of the products and services can be confident that the protected IP fulfills their expectations. However, an underground market exists for IP goods and services. The underground market operates in both the business to business (“B2B”) and business to consumer (“B2C”) world. The following discussion identifies these markets and the potential liability for sellers and buyers in the underground market.

Counterfeit Goods

Counterfeit goods are fake replicas of an authentic product. The producer of counterfeit goods competes directly with the owner of the superior IP, the real product, by taking advantage of the owner’s creation of the market. Counterfeit goods include food, drinks, clothes, accessories, electronics, auto parts, toys and so on.

The production and sale of counterfeit goods is a global problem. It affects the economy and consumer confidence. In some cases, it can expose consumers to potential health problems or even death. Customs can block the international trafficking of counterfeited goods but it is not a failsafe protection.

Here are some signs of counterfeited goods:

  1. The source of the goods is suspect such as street vendors.
  2. The packaging is shoddy using faded colors or low-grade printing.
  3. The look or feel of the product is suspect such as electronics that weigh less than the original or clothing that has frayed stitching.
  4. The goods are missing items such as instruction manuals or power cords.
  5. The goods include giveaways that normally are not included such as a carrying case with counterfeit electronics.

The mere offer to sell counterfeit goods can expose the seller to liability. Sellers of counterfeit goods face criminal as well as civil liability. Criminal penalties include fines up to $5 million and imprisonment for up to 10 years or both. Owners can also file civil IP infringement actions that could result in substantial judgments for actual damages, punitive damages and attorneys’ fees. Buyers of counterfeit goods generally do not incur criminal or civil liability.

Gray Market Goods

Gray market or parallel goods are genuine products that are distributed in markets not intended by the IP owner. The gray market generally involves goods that have price differential depending on the market. For instance, a manufacturer may have one model it sells in Asia at a lower price than a variation of the model being sold in the U.S. at a higher price. Some gray market goods involving copyrights can be legitimately sold in the U.S. In 2013, the U.S. Supreme Court decided that textbooks purchased overseas with the permission of the copyright owner could be resold in the U.S.

The sale of gray market goods exposes the seller to various types of IP infringement laws that could result in substantial judgments for actual damages, punitive damages and attorneys’ fees. While a buyer generally escapes liability, the buyer purchases goods that may not be of the same quality as non-gray market goods.

Tampered Goods

Whether in the B2B or B2C realm, the purchasers of certain types of products expect an appropriate level of performance or safety. In order to assure the purchasers of the quality of the goods, manufactures will include certification labels or bar codes. The manufacturer may develop different levels of goods for different markets and may cost less as a result. Like gray market goods, the seller acquires the low cost goods intended for one market and then sells it at a higher market price in the unintended market. However, the seller tampers with the goods by obliterating the certification marking. By obliterating the certification marking, the seller hopes that the goods cannot be traced to its unauthorized dealer. Here are some signs of tampered goods:

  1. A holographic marking or bar code is destroyed or obliterated.
  2. The packaging has been opened and then resealed.
  3. The packaging is different from packaging used by the original manufacturer.
  4. The “ship from” address on an invoice is suspect.

The sale of tampered goods exposes the seller to various types of trademark infringement laws that could result in substantial judgments for actual damages, punitive damages and attorneys’ fees. While a buyer generally escapes liability, the buyer may purchase goods that do not perform as expected and the manufacturer may not honor any warranties.

Non-Licensed Goods

The rise of the Internet gives easy access to imagery (photos, drawings, designs, etc.). But not all imagery is free to use. Most of the imagery is owned by someone and requires a license to use. Generally, stock imagery companies, like Getty Images, Shutterstock and Thinkstock, license and manage the use of the imagery.

Both the seller and purchaser of unlicensed imagery can be subjected to infringement suits. Even the purchaser who believed the seller has the right to license the images can be held liable for infringement. Due to the availability of statutory damages and attorney’s fees in some copyrights case, the damages can far exceed the cost of an authorized license.

Conclusion

Sellers and purchasers of branded products, images and other goods should be wary of putting them into the stream of commerce without verifying their origin. A business model based upon the underground market carries considerable risk of criminal and civil liability. Buyers should also be cognizant of the warning signs where the seller’s right to sell the goods is suspect

ESTATE PLANNING & TAXATION
UPDATE: UFADAA Becomes Law

In our Summer 2016 newsletter, Jonathan D. Morton’s article (“What Happens To My Digital Assets When I Die?”) stated that the Uniform Fiduciary Access to Digital Assets Act (UFADAA) had not yet been adopted by Illinois. On August, 13, 2016, the act was finally signed into law and is now effective with regard to all existing estate planning documents.