Spring 2007 Edition

IMMIGRATION LAW - I-9 COMPLIANCE

By M. Blen Gee, Jr.

lmmigration issues have increasingly become a daily concern for businesses in North Carolina and nationwide. One of the most common problems is proper completion and retention of immigration form I-9. Here is an outline of some key points:

Most Common I-9 Form Mistakes:

• Incomplete
• Not Dated
• Three-Day Violation (I-9 form must be completed within three days after hire)
• Failure to Sign
• Failure to Re-verify (before employment authorization expires)

I-9 Compliance:

• An I-9 must be completed for every new employee hired.
• The I-9 form must be completed, signed and dated no later than three business days after the date of hire. This is a frequent ground for assessment of fines.
• Look for obvious problems with documentation, e.g. , misspelled words, inappropriate age.
• You must be able to retrieve an employee's I-9 form within three days.
• Every item on the I-9 form must be filled in - use "N/A" if appropriate.
• Over documenting can lead to a discrimination charge. If additional documents are requested, make a notation for the reason in the file.
• If the decision is made to destroy old documents, have a notation in the file as to when they were destroyed and why.
• "No Match" or "Mismatch" letters from the Social Security Administration - do not fire the subject employee. Contact the appropriate government authority to be certain of the procedures.
• Where the employee states in Section I of the I-9 form that his employment authorization will expire on a specified date or where the employee provides documents with an expiration date, the employer must reverify the I-9. The reverification must take place before the employee's employment authorization expires. The Employer can use Section 3 to update and reverify employment authorization. A new I-9 form will also constitute reverification. IT IS CRITICAL THAT THE EMPLOYER CALENDAR THE DATE FOR REVERIFICATION.
• Lost forms - if an I-9 form is lost, prepare a new one with the current date; do not backdate. Make a notation that this new form replaces a lost form and give a reason for the loss of the form (for example employee relocated within the company).
• Correction of errors - make the corrections in a different color of ink; initial the corrections; date the corrections; make a notation of the reason for the corrections. If you do a new I-9 form, date it the current date (do not backdate) and attach it to the old form. Note the reason for doing the new I-9 form.
• Keep I-9 forms for all current employees in a location where they can be retrieved within three days. For terminated employees, you have to keep I-9 forms for the greater of one year after termination or three years after start date (play it safe - keep them for THREE YEARS AFTER TERMINATION).

Subcontractors - Ripe Area for Investigation:

• Require that subcontractors comply with all laws, including immigration laws and I-9 requirements.
• Have contract provision (and insist on compliance) requiring that the subcontractor must inform your company in writing of all past and future audits, past and future violations, and past and future investigations.
• Subcontractor should provide a list of its employees that will be working for the company and written verification that the subcontractor has a completed I-9 for each employee.

FAKE MEAL BREAKS LEAD TO REAL OVERTIME HEADACHES

By F. Stephen Glass

The Fair Labor Standards Act (FSLA) requires employers to pay non-exempt employees overtime for time worked that exceeds 40 hours a week. Meal breaks don't count as hours worked.

The Department of Labor (DOL) says that a bona fide meal period is a period of time set aside for a regular meal that is long enough to allow an employee to use it for that purpose. It must occur at a time of day which, in light of the employee's working hours, is suitable for a normal meal period and must be an uninterrupted period during which the employee has no duties to perform. If meal periods do not meet these tests, they must be considered hours worked and compensated accordingly, perhaps triggering overtime for the employee. [Wages and Hours Opinion Ltr. 1578 (1985)]

For example, a Utah-based security firm was recently forced to pay thousands of dollars of back wages when it shortened the meal periods by long briefings that cut into the guards' meal time, causing the guards work week to extend beyond 40 hours.

In determining whether a meal period is really a break from work, courts generally apply the "benefits" test. The critical issue is whether an employee can use the meal period effectively for his or her own purposes. There are a number of factors that go into this determination. Each case turns on its own facts.

For example, suppose an employee voluntarily works through his or her meal period to catch up on work. If the employer knows or has reason to know that this employee is working through his or her meal period, then the meal period counts as hours worked. In a Kentucky case, the court ruled that an employee's lunch hour was compensable where for three days a week, the employee was alone in the store during the noon hour. To take a proper lunch period, he would have had to close the store. Instead, he stayed on the job through the noon hour and ate his lunch while either waiting on customers or waiting on them to come in. His employer was aware of these facts and that he was not turning in his time for this extra work. The employer complimented the employee for the good job he was doing. The Kentucky Court went further by requiring that the employee be compensated for this extra work during what should have been a meal period.

Business Tax Law

By F. Stephen Glass

Employment Taxes-Reliance on Third Party: The 3rd Circuit U.S. Court of Appeals held that an employer remained liable for payroll taxes and interest, even though it relied on a payroll firm that embezzled the tax funds. In so holding, the 3rd Circuit cited the "well-established principle that a taxpayer's reliance on a third party to fulfill its tax obligations does not relieve the taxpayer of responsibility for those obligations." While the IRS can abate interest on a tax deficiency if it is attributable to unreasonable error or delay by an IRS employee in performing a ministerial or managerial act, this rule does not apply to an error or delay that is attributable to the taxpayer. 99 AFTR 2d 2007-XXX (3rd Cir.).

Employee vs. Independent Contractor: The IRS is looking very closely as the classification of an individual to whom a business pays compensation for services: is that person really an independent contractor or should that person actually be classified as an employee? Incorrectly classifying a person as an independent contractor who should be classified as an employee could be very costly - to both the business and to the business owner under the "responsible person" doctrine. Getting and following professional advice in this area is critical.

NEW, BROADER WORKPLACE PROTECTION AGAINST RETALIATION

By F. Stephen Glass

The U.S. Supreme Court has held that employers must exercise heightened vigilance to make certain that an employee who has lodged a discrimination complaint, either internally or with the EEOC, or who has supported or participated in the investigation of such a complaint, does not suffer adverse consequences at the hands of managers or supervisors because of the complaint or the employee's activity related to the complaint. Even if the adverse consequences do not include a direct loss of payor benefits, they could form a basis for a charge that the employer unlawfully retaliated against the employee for reporting discrimination on the job or participating in the investigation of a discrimination claim.

Employers should carefully review with legal counsel proposed adverse actions involving employees who have made formal or informal discrimination complaints or participated in investigations of such complaints.

THE NEW FTC FRANCHISE RULE - HELPFUL TO FRANCHISEES

By M. Blen Gee, Jr.

The Federal Trade Commission has recently changed the rules of the franchise game - a little. Compliance with the new rules begins on a voluntary basis on July 1, 2007 and becomes mandatory nationwide on July 1, 2008. Many of the changes are just clarifications and many of the changes are more favorable to franchisors. However, a few of the changes will benefit prospective franchisees. Here are some of the most significant new franchisee protections:

• The new rule prohibits franchisors from placing a standard disclaimer or waiver in the franchise agreement that nullifies disclosures in the Uniform Franchise Offering Circular (UFOC). This is probably the most important new protection for franchisees. A note of caution - you can lose this protection by "voluntarily waiving specific contract terms and conditions" during the course of sales negotiations.
• The franchisor will be required to notify the franchisee of the existence of a franchisee association in certain circumstances.
• Electronic disclosures will be allowed.
• Disclosures concerning corporate parents and affiliates are somewhat expanded.
• Disclosures concerning "franchisor-initiated" lawsuits will be required.
• If the franchisee will not have an "exclusive territory," this must be disclosed.
• There will be greater disclosures concerning renewal of the franchise.

HIRING TEENS THIS SUMMER?

By F. Stephen Glass

The FLSA allows employers to pay a "youth minimum wage" of only $4.25 an hour (compared to the regular $6.15 N.C. minimum wage) to employees who are under 20 years of age. This reduced minimum wage rate can be paid during the first 90 consecutive calendar days after initial employment.

The eligibility period runs for 90 consecutive calendar days beginning with the first day of work for your company. It does not matter when the job offer was made or accepted (or when the teenager was considered "hired"). The 90-day period starts with and includes the first day of actual work for the employer. The 90-day period is counted as consecutive calendar days, not days of work. It does not matter how many days during this period the teenager actually performs work.

N.C. requires youth employment certificates for all youth under age 18, with some exceptions permitted.

 

About our authors:

M. Blen Gee, Jr. is an honors graduate of the University of North Carolina School of Law. His areas of concentration include business and corporate law, including sales of businesses; business litigation, including arbitration and mediation; franchise law; automobile dealer law; and insurance company insolvency. Mr. Gee has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell.

 

F. Stephen Glass is the author of numerous publications on business and business entities as well as estate planning. He is a frequent presenter for the National Business Institute. His practice is concentrated in the areas of business and corporate law, business succession planning and estate planning. He serves on the Cary board of Capital Bank. Mr. Glass has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell. He serves on the American Bar Association Business Law Committee on Corporate Governance.

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