Legal Advisory Newsletter - 2006 First Quarter

Broida and Associates, Ltd.
Attorneys At Law

Naperville Corporate Center
Suite 108
1250 East Diehl Road
Naperville, IL 60563

First Quarter 2006

To Our Clients and Friends:

We are delighted to enclose our first quarter edition of the Legal Advisory newsletter. This is now our sixteenth year of presenting periodic installments of articles about timely legal issues.

We start off the new year with the disturbing observation that there has been a dramatic increase in the fees being charged by the Recorder of Deeds, the Secretary of State and the Clerks of the Circuit Courts. On the other hand, the Illinois Supreme Court has raised the dollar limit on small claims cases from $5,000.00 to $10,000.00. Small claims cases do not require a written answer to the complaint and there is generally no pretrial discovery (exchange of documents, written interrogatories (questions) and depositions (a sworn statement in a lawyer’s office). The overriding principle of small claims cases is to handle then quickly and expeditiously.

And, closer to home, we continue to try to find ways to economize for our clients. For example, over the years we have eliminated, where possible, the use of mail and have substituted faxes and now, to a lesser extent, e-mails. For a number of reasons, faxes are our preferred choice of written communication but we always try to accommodate our clients’ requirements. We have just installed a major upgrade in our computer equipment to expedite legal research and related tasks. The saving of time will have an immediate impact on man client invoices.

We receive may compliments about our newsletter and we hope that you find the articles interesting and informative. It should be remembered, however, that this pamphlet is prepared for a broad audience and does not always accurately reflect Illinois Law.

Finally, our comings and goings include our participation again this year as seminar presenters at the annual conference of the Northern Illinois Alliance of Fire Protection Districts.

Very truly yours,

Broida and Associates, Ltd.

How To Protect Your Firm’s Reputation

Politics can be a dirty business. In the usual course of events, charges and countercharges fly back and forth on a regular basis. Sometimes the mudslinging can permanently tarnish a candidate’s image – even when the accusations are not true.

There are some strong similarities in the business world. For instance, if you make a product and your competitor starts a rumor that your product is defective, your sales could suffer even though the rumor is false.

Key difference: Depending on the circumstances, you may be able to strike back with a lawsuit for business defamation.

Although a business generally is allowed to assert that its product or service is superior to another, it is not permissible to knowingly make false statements of fact about a competitor’s offerings.

These defamation problems have been compounded by the wide-spread use of the Internet. Competitors and other parties can communicate via web sites, e-mail, blogs, chatrooms, bulletin boards and the like. In fact, it’s difficult to even monitor all the chit-chat about your firm and its products or services. Besides checking references through search engines on a regular basis, you might subscribe to an online service that will provide you with monthly updates.

If you find out that a competitor is spreading false information about your products, you may have a legal course of action. First, you must demonstrate that the information is actually false. It’s not enough to show that a competitor is merely using "puffery" by comparing their product to yours. Second, you must document a drop in business attributable to this false information.

In some cases, false information may not be related to your product, but rather to your business finances. For example, it’s not uncommon these days for rumors regarding bankruptcy to circulate. These rumors could be based on something as minor as a bounced check. It’s important to act quickly to dispel such a notion.

Chat can you do? You may want to get in touch with all your major suppliers and clients. You also might consider bringing in public relations experts. The point is you may b able to nip the problem in the bud if you act quickly enough.

At the same time you are setting the story straight with suppliers and clients, you can request a retraction from the guilty party through your attorney. It may be possible for both sides to negotiate an amicable settlement. Otherwise, be prepared to document your losses. As part of the process, you should keep track of client inquiries regarding the false information. This information may be critical to proving your case in court.

Conversely, be careful with the claims you make regarding your competitor’s products or business. While you are free to promote your products above your rivals, no one is free to spread lies that do harm. After all, this is business – not politics.

Launching The New Sales Tax Initiative

For years, the individual states and merchants have locked horns over the issue of online sales tax collections. There is no uniform national law to rely on for guidance. At the heart of the matter: Should and can the states be allowed to impose state sales tax on retailers for online purchasers? Naturally, the states say "yes" while the merchants say "no".

The most significant development in this area to date is the implementation of the Streamlined Sales Tax Project (SSTP). This controversial plan went into efe3ct on October 1, 2005.

What’s Your Policy For Bad Weather?

Under the Fair Labor Standards Act (FLSA), employees who are "exempt" under the overtime laws may be entitled to their regular salary if they are able to work. If you dock the pay without justification, you could be liable for back pay and overtime – for all the exempt employees on staff.

Frequently, some employees cannot get to work due to inclement weather, particularly in the wintertime. It’s important that your policy does not violate the FLSA.

New case: A group of exempt employees sued their employer for overtime pay. The workers argued that they should have been exempt from a "snow day policy" that effectively resulted in reduced pay. To prove their point, the group pointed to an e-mail message from the employer requiring workers to either use a vacation day in the bad weather or take a day off without pay.

However, the Seventh Circuit Court sided with the employer. Reason: Since the workers could use vacation time for snow days, they were not forfeiting their exempt status under the FLSA. Instead, the snow day policy could result in a deduction for time off. On the other hand, docking employees in these circumstances would have violated their exempt status.

Mechanics’ Liens: Fixing the Problem

Things were going well for Rick and Dawn Jensen. The young couple had moved into a roomy split-level on a cul-de-sac and both of their careers were flourishing. They decided to upgrade their kitchen and bathrooms with the extra cash in their paychecks. Plus, they wanted to add a deck onto the back of their house. So they hired a local contractor who came highly recommended by one of their neighbors.

Unfortunately, the contractor was experiencing some financial difficulties. The Jensens later found out that he owed every building supply company in the area. When he suddenly vanished without a trace, the suppliers and other subcontractors sympathized with the young couple, but they weren’t left with much recourse. Despite their innocence, the Jensens were subjected to mechanics’ liens on their house – their most valuable asset.

Background: The term "mechanics’ lien" can be misleading because such liens aren’t limited to auto or equipment repairs. Essentially, such a lien is a claim against property improved or constructed that can be filed by an unpaid third party who has provided materials or performed work. The homeowner effectively is being asked to pay for the work twice. In an extreme case that cannot be resolved – the Jensens’ worst nightmare – the lien could result in the property being sold at auction. Although state and local laws vary somewhat in this area, here is a brief outline of the basic procedures.

• Any supplier of goods or services who did not contract directly with the homeowner must provide "fair notice" describing the work. Typically, the notice must be delivered no later than 30 days after the contribution.
  
  
• Once work has started or materials have been provided, the supplier can record a mechanics’ lien if a payment problem occurs. This recording – which takes place at the county office where the property is located – generally allows the supplier up to six months to work out a payment plan with the owner. (The specified time will vary.)
  
  
• If a settlement isn’t reached, the supplier can file an action to enforce the lien. Note: If the enforcement action isn’t filed within the mandatory period, the lien becomes invalid.

Frequently, mechanics’ liens are simply allowed to lapse, but you still may face legal obstacles down the road. For instance, if you try to sell your home, the title insurance company may refuse to clear title unless the lien is formally removed from the books.

In order to avoid potential legal problems you might make it your business to ensure that suppliers are paid on time. One possibility is to issue checks jointly to the general contractor and each subcontractor or the subcontractor and materials provider. Another idea: Have the general contractor obtain waivers from third-party suppliers.

Warning: With so much at stake, you cannot ignore the potential dangers. Seek professional advice concerning mechanics’ liens under state and local laws.

Five Reasons To Update Your Will

If you don’t have a valid will in place when you read this, it is strongly recommended that you take care of this matter as soon as possible. Creating a will is usually the first – and most critical – step in the estate planning process.

Suppose you had a will drawn up years ago, but your circumstances have changed in the intervening time. In that case, you may be able to add onto or modify your existing will with a codicil. Since the cost is generally less than the fee for creating an entire new will, this may save you both time and money. And a "quick fix" may be all that you need.

However, in order to be binding, a codicil must be handled with the same legal formalities as a will, so it should be prepared by a qualified attorney. Here are five examples of when you may need one.

1. Birth or death in the family: Maybe you had no children or grandchildren when your will was first drafted. Now you do and you want to give then a share of your estate. Or perhaps you have decided to include other family members who were not previously named in your will.

2. Change in executor: You may need to choose a new executor (or guardian trustee) if the one you named in your will has died or become disabled (and there are no contingency provisions). Or maybe you would simply rather assign the job to someone else.

3. Different or new beneficiaries: Besides redistributing a bequest to a beneficiary who is now deceased, you may want to change a bequest to a living beneficiary. For instance, you can revoke a bequest to a daughter-in-law or son-in-law who has divorced your child. Or you may have suddenly come into some money that you may want to earmark for charity.

4. Revalidation: Say the witnesses who can verify the signature on your will are no longer alive or cannot be located. When it is required, a codicil attested to by new witnesses can revalidate the will.

5. Tax law changes: The law may have changed since your will was first drafted. It may be in your best interest to restructure things now to take maximum advantage of the latest tax rules.

Of course, if there’s been a major change in your situation, you may need to create a new will in its entirety. Otherwise, a codicil may suffice. Your attorney can help you coordinate this with other aspects of your estate plan.

Briefs

The Name Game – Mamdouh El-Hakem, who was of Middle Eastern heritage, was hired by an engineering firm. The firm’s CEO insisted on calling him "Manny" in business settings. Although El-Hakem objected to the nickname, the CEO persisted and then later substituted the name "Hank". Result: When El-Hakem sued the firm, the Ninth Circuit Court ruled that these actions created a racially hostile environment.

Going Up? – The IRS recently announced the annual increase in the Social Security wage base. For 2006, the first $94,200 of wages will be subject to the 6.2%. Old Age, Survivors, Disability Insurance portion of the tax (up from $90,000 for 2005). Wages above that amount are still subject to the 1.45% Medicare Hospital Insurance portion of the tax. Note: The Social Security tax is paid by both employers and employees.

When Duty Calls – If an employee asks to take time off for jury duty, you generally must comply with the request, even though it might put your business at a disadvantage. Furthermore, you cannot retaliate against employees who are absent for this reason. Best approach: Develop a company-wide policy to minimize any work flow problems, including the use of outsourcing and cross-training.

Invalid Waivers – If a fired worker waives the right to discrimination claims, the language must be crystal clear. In a new case, IBM asked an employee over age 40 to sign several waivers as part of a severance package. Before he signed, the employee asked for clarification as to whether he could still sue for age discrimination. No clarification was forthcoming. Result: The case was allowed to go to trial over the validity of the waivers.