Employers' Checklist

| FROM THE PRINT EDITION |
 
 

Employers face new hurdles each day. Here are “Top Ten” thoughts on current issues facing employers, and how to deal with them.

1. Get a social media policy. Do not even think about hacking into a worker’s Facebook account. And, if someone comes to you complaining about inappropriate content on a worker’s website, ask for a copy and respond accordingly.

2. Install a firewall when searching the Internet for employee candidates. Employers review social networking sites for information on potential hires and use that information in making hiring decisions. When you browse a social website, there is a strong risk you will be exposed to too much information. Imagine your search came up with the candidate’s Facebook page, which reveals the candidate’s religion, sexual orientation or a disability. The Equal Employment Opportunity Commission has taken the position that an employer who knows some fact about an individual that implicates a protected status may be presumed to have considered that fact in the employment decision. This could result in a discrimination lawsuit. So, have a plan on who conducts your Internet searches and how the online information is used. Have someone other than the person making the hiring decision perform the Internet search and screen results so that only relevant information is considered.

3. Prevent wage/hour lawsuits. The Department of Labor handled 32,000 wage and hour complaints last year, up 33 percent from 2009. There is also an increased focus on independent contractor misclassifications. Review your independent contractor relationships before the government does.

4. Get the new Family Medical Leave Act poster. The government has form WH380/381. Put these up and remove the old ones.

5. The NLRB and non-union businesses. Even if you are a non-union shop, the National Labor Relations Board (NLRB) will sue you over company policies banning employees from talking about pay or benefits—a “protected concerted activity.”

6. Performance reviews: Grade inflation hurts. Accurate performance reviews will “save your bacon” in a lawsuit, but unduly rosy reviews of average workers can hurt. Have Human Resources review performance reviews.

7. Record-keeping and “litigation holds.” If you think litigation is coming, make sure all standard document destruction policies are suspended. Lost or “unsaved” documents can lead to a presumption against you. Work with your IT department to construct a process to make sure documents are preserved.

8. What to do with Charlie Sheen. We all have seen the implosion of Charlie Sheen. What if you had an employee who engaged in poor or illegal behavior that could embarrass your organization? How should you deal with it? First, work on damage control. Do not spend lots of effort protecting the bad employee, because this links you to the employee’s bad acts. Second, eliminate the employee’s visibility and access to the company’s top people. Consider a paid leave with clear rules about acceptable behavior, setting out clear consequences for violation of the rules. Third, assess the chances for rehabilitating the employee’s reputation and weigh the value of the employee with the effort required to rehabilitate him or her. In the end, if you are working harder at the employee’s success than the success of the company, it might be time to cut and run.

9. Watch out for retaliation. Retaliation cases are the most common type of lawsuit now, and the most expensive. “Getting even” will cost you. Consider independent internal reviews of employment decisions affecting complaining employees.

10. Install a conflict resolution plan. Companies are avoiding lawsuits by having an established conflict resolution plan that gives the employee an opportunity to vent. Consider establishing one in your workplace.

D. Michael Reilly, a shareholder at Lane Powell and director of the firm’s Labor and Employment and Employee Benefits Practice Group, represents small and large employers in all facets of employment-related issues and litigation. He can be reached at reillym@lanepowell.com or 206.223.7051.

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Legal Briefs: Private Foundations

Legal Briefs: Private Foundations

Taking them beyond checkbook philanthropy.
| FROM THE PRINT EDITION |
 
 
 
Today, we are seeing more sophisticated inquiries by founders of private foundations in line with the discussions surrounding social impact investing. For many years, high-net-worth individuals have used the same formula to set up private foundations. An individual or married couple — the donors — establish an entity whose assets are to be used for general charitable purposes, qualifying it as a tax-exempt foundation. The donors transfer assets — often appreciated stock — to the foundation. This stock is then sold, allowing the donors to avoid income tax on the gain. The donors retain distribution oversight by serving on the foundation’s board. The foundation essentially becomes their philanthropic checkbook.
 
Tax-exempt organizations must be organized and operated for an exempt purpose. A private foundation is an organization that qualifies for tax-exempt status under Internal Revenue Code (“Code”) §501(c)(3) but does not qualify as a public charity under §509(a). The rules and regulations applying to private foundations are much stricter than those that apply to public charities.
 
As private foundations, the “checkbook foundations” are subject to various excise tax rules, including Code §4942, which requires private nonoperating foundations to make certain minimum annual distributions for charitable purposes. The amount required to be distributed is measured by a percentage of the private foundation’s investment assets. Generally, the annual minimum distributable amount is equal to 5 percent of the aggregate fair market value of all of the foundation’s assets, reduced by certain adjustments. Private foundations that fail to meet this requirement are subject to an excise tax on the undistributed income.
 
Today’s donors question why they would want to drain their foundation’s funds, which seems to be the policy goal of the 5 percent distribution requirement. What about lending funds to a charitable organization recipient or investing directly in the underlying charitable cause?
 
 
 
Program-related investments (PRIs) have been used for many years. Generally, a private foundation that makes investments jeopardizing its ability to carry out its exempt functions is subject to an excise tax under Code §4944. However, PRIs are an exception to that rule. Under the regulations, an investment qualifies as a PRI if: (a) its primary purpose is to accomplish the foundation’s exempt purpose(s); (b) the production of income or appreciation of property is not a significant purpose of the investment; and (c) none of the purposes described in Code §170(c)(2)(D) (i.e., carrying on propaganda or otherwise attempting to influence legislation) are a purpose of the investment. 
 
Examples in the final regulations issued earlier this year illustrate a variety of PRI investment terms and structures, including equity investments, loans, loans with equity components and guarantee arrangements. Smaller foundations take comfort that the big name foundations were using PRIs long before the regulations were final. Since 2009, the Bill & Melinda Gates Foundation has complemented its grants budget with a substantial allocation for PRIs.
 
Foundations are also pushing the boundaries of permissible investments in the area of mission related investments (MRIs). MRIs are financial investments that further the foundation’s exempt purpose. Unlike PRIs, MRIs are included in the foundation’s investment assets and are not qualifying distributions for purposes of the 5 percent distribution requirement under Code §4942. In addition, MRIs must satisfy applicable prudent investment standards, although the IRS confirmed in Notice 2015-62 that foundation managers may consider the relationship of a proposed investment to the foundation’s charitable purpose when determining whether an investment is prudent.
 
Careful consideration of the foundation’s charitable purpose, investment policy, and proper use of PRIs and MRIs allow today’s foundations to take their philanthropy far beyond the checkbook-only days.