Just as we were getting comfortable with summer, it seems that fall has clearly arrived.

Our Fall 2011 Newsletter contains several useful articles and information regarding:

• The importance of “Due Diligence”, and how it can affect mergers and acquisitions.
• Advice on dealing with “No-Match Letters” from the Social Security Administration.
• Our upcoming breakfast seminar in November on how to build and protect your brand.

We hope that all of this information is helpful and will provide you with the competitive edge, which is so important today.

-Stephen L. Golan
 Managing Partner

Merger and acquisition activity has started to rebound from the credit crisis, which inhibited the merger and acquisition market a few years ago. As the volume of deals continues to increase, buyers and sellers, now more than ever, need to carefully allocate risk and the assumption and retention of liabilities when structuring a transaction.

When negotiating and structuring a purchase agreement, each party should understand the risks the transaction poses, how such risks are being allocated between the parties and what each party is doing to protect against the risks. One of the best ways a buyer can get a comprehensive understanding of the risk they face, and the target company’s (the “Target”) operations, is to thoroughly review and investigate the Target through the process of due diligence.

A properly conducted due diligence process can reveal the Target’s current or potential risks and liabilities. Once identified, the buyer and seller can then attempt to allocate and protect themselves against these risks (and other unknown risks) through the use of representations and warranties and indemnification in the purchase agreement.

Additionally, the structure of the transaction can influence the buyer’s due diligence review. For example, if the transaction is a stock purchase, the buyer will automatically assume all of the Target’s liabilities, while if it is an asset purchase, the buyer can negotiate with the seller only to assume certain risks and liabilities.

When negotiating a purchase agreement, it is very important to make the purchase agreement contingent on the completion of due diligence that is satisfactory in the opinion of the buyer. Assuming there is an effective due diligence contingency in place, if the due diligence process reveals risks and liabilities the buyer is unwilling to assume, it may exercise its due diligence contingency and walk away from the transaction. Alternatively, if the buyer wishes to continue to work towards the consummation of the transaction, the knowledge and information the buyer obtained during the due diligence process will hopefully be valuable information in negotiating the transaction.

To conduct an effective due diligence review, the following items should be analyzed and identified:

• The Target’s organizational documents
• Corporate proceedings (e.g. minutes of meetings of the board of directors, board committees and shareholders)
• The Target’s capital structure and agreements relating thereto
• Material agreements with third parties
• Business information (e.g. business plans, operating budgets, sales and marketing studies, and customer and supplier lists)
• Indebtedness
• Financial Statements
• Employment matters (e.g. employment agreements, consulting agreements, change-of control agreements, and employee benefit plans)
• Real property
• Intellectual property information
• Regulatory matters (e.g. required permits and approvals from governmental authorities)
• Pending or threatened litigation
• Environmental matters

If you have questions, please contact Anthony R. Taglia and Richard M. Wallace.

The Social Security Administration (SSA) recently started mailing “no-match letters” which inform employers that the social security number and name of one or more of their employees do not match the SSA’s records. While the letters do not look threatening, no-match letters have formed the basis for multiple criminal investigations by U.S. Immigration and Customs Enforcement (ICE) and prosecutions on charges of harboring or knowingly hiring unauthorized workers. The SSA stopped sending these letters in 2008 (for tax year 2007) in response to litigation surrounding a proposed Department of Homeland Security (DHS) regulation, “Safe Harbor Procedures for Employers Who Receive a No-Match Letter.” DHS later rescinded the proposed regulation.

The SSA will not send the letters they held for tax years 2007 through 2009, but they are sending no-match letters for tax year 2010.

All employers are required to report wages annually for each employee on Form W-2. In the SSA’s system, a reported wage may fail validation if there is no social security number (SSN) or name, or the SSN or name submitted does not match information in SSA records. There are a number of explanations, including typographical errors, unreported name changes, inaccurate or incomplete employer records, or misuse of an SSN. When the wage can’t be validated, SSA cannot post the earnings to a worker’s record.

SSA attempts to resolve this problem by sending letters to employees, employers, and self-employed workers to inform them that a reported name or SSN does not match SSA’s records. The SSA refers to these as no-match letters and their purpose is to obtain corrected information to help SSA identify the worker to whom the earnings belong so that it can post the earnings to the correct worker.

How an employer responds to the letter can subject the company, its owners, and its human resources executives to severe civil and criminal liability. Upon receipt of a no-match letter, an employer should check their records to determine if its information matches the records submitted; ask the employee to check his or her records to ensure that the name and social security number were accurately reported to the employer; and instruct the employee to contact a local SSA office, if appropriate. It may take days, weeks or even a couple of months to get a new social security card that reflects accurate information, so employers shouldn’t take adverse action against the employee without obtaining the guidance of a knowledgeable lawyer.

Many employers wonder whether enrolling in the federal government’s E-Verify program eliminates this problem. The E-Verify system has been through a lot of controversy over the past several years. Currently, about 11% of all private employers across the country use E-Verify. Some states, including Arizona, Mississippi and South Carolina actually require employers to use it. All employers with significant federal government contracts, no matter what state they are in, are also required to use it.

Illinois enacted a law in 2007 that would have prohibited private employers from using E-Verify due to its inaccuracy or “false negatives”. The federal government challenged the Illinois law in court and eventually won. Thus, the provisions of the Illinois law prohibiting employers from using E-Verify was struck down, but the rest of the statute survived. An amended version of the law went into effect on January 1, 2010. Once an employer registers for E-Verify, they must sign a Memorandum of Understanding legally obligating them to use the system for all new employees, and to use it in a manner that is nondiscriminatory and protective of employee privacy. The Illinois law imposes additional obligations in the areas of employee nondiscrimination and privacy, including ensuring that all employees with access to the company’s E-Verify account have completed mandatory online E-Verify tutorials and posting notice regarding its enrollment in E-Verify and certain non-discrimination procedures.

There are pros and cons to signing up for E-Verify. On the pro side, the accuracy of the system has improved, and the most recent statistics show that roughly 0.3% of those receiving a negative result were later confirmed as authorized to work in the U.S. Another pro is that by following the specific steps in the Memorandum of Understanding when an employee receives a negative result, the company is protected from liability. It is also rumored that the federal government plans to eventually require all private employers to use E-Verify, so some employers are signing up now before there are any penalties for failing to use it.

On the con side, you still need to fill out the I-9 forms, so it doesn’t save any work at the time of hire, and in fact it creates an additional step. Another negative is that the process for resolving a negative result is very similar to what you have to do after receiving a no-match letter. Also, an employer may only use E-Verify for new hires, so it would not help resolve any issues with current employees.

Golan & Christie is pleased to welcome a new addition to the firm:

Nancy Franks-Straus has been of counsel to Golan & Christie since February 2011 and joined the Firm full-time in October 2011.

Ms. Franks-Straus is a Certified Public Accountant, a Certified Financial Planner and has been in private practice since 1995. Previously, she was an associate at Sonnenschein, Nath and Rosenthal (now SNR Denton), a tax manager at PricewaterhouseCoopers, and a tax supervisor at Arthur Andersen.

Ms. Franks-Straus’s practice at Golan & Christie focuses on estate planning and taxation.

The Department of Labor and Internal Revenue Service recently announced a joint effort to crack down on businesses that misclassify employees as independent contractors. Historically, these agencies have not shared information or coordinated their enforcement efforts, so this represents a significant change and an increased threat to employers.

The determination of whether a worker is properly classified as an independent contractor involves the consideration of many factors, including the type of work the worker is performing, the amount of control an employer exercises, and the nature of the employer’s business. Even after consideration of the factors, a clear answer may not be apparent. Misclassification of workers as independent contractors can expose an employer to costly litigation, fines, and penalties for violating the Fair Labor Standards Act, state wage and hour laws, workers’ compensation statues, and state and federal tax codes.

For businesses that know they have improperly classified their workers as independent contractors, the IRS has revealed a new program to encourage these businesses to re-classify their workers as employees. These businesses can make a small payment to cover past payroll taxes and in return, reclassify workers without paying interest or penalties. This program is an attempt to cut businesses a break before the IRS becomes more vigilant about penalizing misclassifications. However, it is unclear whether the program provides any protection from liability to the workers themselves.

If you have questions about the proper classification of your workers, or are interested in learning more about the IRS program mentioned above, contact Margaret A. Gisch or Laura A. Balson.

Under the Fair Labor Standards Act (FLSA), employers are allowed to pay their tipped employees less than the minimum wage as long as they follow certain rules. A tipped employee is a worker in a position where he or she customarily and normally receives more than $30 a month worth of tips. The difference between the hourly-salary rate paid by the employer and the standard federal minimum wage is what we call a tip credit. In Illinois, for example, where the minimum wage is $8.25, tipped employees can be paid as little as $4.95 per hour if the tip credit rules are followed.

On May 5, 2011, an amended Department of Labor regulation took effect, changing some of the tip credit requirements for restaurant employers. The DOL‘s Final Rule amended the tip regulations on three basic matters: the ownership of employee tips, arrangements for tip-pooling, and required notification to employees. In June 2011, the National Restaurant Association, the Council of State Restaurant Associations, and National Federation of Independent Business filed a lawsuit against the DOL, asking the court to stop the DOL’s enforcement of the new rules. The lawsuit is still pending, but employers with tipped employees should speak to an employment attorney to determine whether their pay practices are in compliance with state and federal laws.

Why Trademarks Are An Essential Part of Your Business

In this extremely competitive, and often unrelenting economy, a well-established trademark can help your business thrive in the marketplace. By simply taking the time to build your brand, you will increase customer loyalty and attract new business.

Trademarks constantly need to be nurtured, protected, refined, and considered on a regular basis. Many companies do absolutely nothing to protect and build their trademarks. Ultimately, competitors swoop in and easily take advantage of these neglected businesses. This can lead to a loss of revenue, a diminished market share, and a significant headache.

Golan & Christie’s Intellectual Property Partner, Beverly A. Berneman, will give you an introductory seminar on trademark protection to help you and your brand flourish in the marketplace. There is no charge for the program, and a complimentary breakfast will be provided

Golan & Christie Breakfast Seminar
Nov. 3, 2011
8:00 a.m. - 9:30 a.m.
Renaissance Chicago North Shore Hotel
933 Skokie Blvd.
Northbrook, IL 60062

RSVP
Due to space limitations please RSVP to Gina Daya by calling 312.696.1692 or email: gdaya@golanchristie.com no later than October 27, 2011, to reserve your spot.