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I Need an Estate Plan – Part Four

Posted: May 23rd, 2016

The first three parts of this series have been about the various advanced directives, i.e. Power of Attorney, Health Care Proxy, and Living Will. These are all very important documents but they also become null and void upon your death.

That’s where your Last Will and Testament (the “Will”) comes in. If you don’t write and execute a Will, New York has a default Will set up for you. For those technical people, it’s mainly in the Estate Powers and Trusts Laws (“EPTL”) 4-1.1. If you don’t like what the law says, you need to change it by properly drafting and executing a Will.

When you die with a Will, the person you named in the Will as your Executor needs to bring the Will to Surrogate’s Court to prove that it is in fact your valid Will and then gets designated by the Court as the appointed Executor. This is called a probate proceeding. He or she can then carry out your instructions in your Will with the Court’s backing and approval. If there is no Will, then your spouse or any of your children can petition the Court through an administration proceeding to handle the gathering and distribution of your estate. You have no say in who can or should petition the court. The EPTL has a list of acceptable candidates including creditors and other interested parties. So an Executor versus an Administrator is problem number one.

Problem number two is who actually gets your assets. In a Will, you get to decide. Typically most of my clients say first to their spouse and then to their kids. If any of their kids predeceases them, then that child’s share goes to that child’s kids. You can ensure that your kids or grandkids don’t get the assets too early by putting their share (or potential share) into a trust until a later age. I tend to pick at least 25 years old. My kids are in that age bracket and are just starting to show signs of fiscal maturity.

The EPTL has a different view of all this. The statute says that if you have just a spouse, it all goes to him or her. If you have children but no spouse, everything goes to them in equal shares, and they get it outright when they turn 18. But, if you have a spouse and kids, then your spouse only gets the first $50,000 plus one-half of your estate. The kids get the other half. New York does not want to disinherit the children as a default provision. You need to write a Will to do that!

Further, if the child is under 18, anyone can apply for legal guardianship of that child for that child’s property. The surviving spouse is the legal guardian of that child’s person (i.e. health and welfare) but not of his or her property. It takes another court proceeding to determine who will take on that role. By putting in a Will that the property goes into a continuing trust until the child is 25, and you appoint a trustee of that trust, the problem is solved. So we’ll call the how and when your children get your assets problem number three.

Problem number three gets even more problematic if one of your children has special needs and may need government assistance, or has creditor problems, or just has no idea how to hold on to his money. The statutes do not take these things into account. If your child is over 18 and has not had the need to have a guardian already appointed to her, she gets the asset outright and can do whatever she wants with it. That means to pay off debts, pay back the government, or to just spend it all away.

The last problem (at least for this article) is what happens if you don’t want to give to your children equally. Or, what if you don’t have children, but have nieces and nephews, some of whom you know and like, and some you don’t? Well here’s another surprise. The statute doesn’t care if you don’t like all of your children. There’s no way to know because you didn’t tell anyone (in your Will!), so everybody gets an equal share.

And if you don’t have a spouse or children, the law says you now look up a generation. That means your parents now inherit your estate. If they’re not alive, then it will go down to your brothers and sisters, and then your nieces and nephews. But all your siblings would get an equal share. If any of them have predeceased you, then their children would get their parent’s share. Again, probably not what you had in mind.

The bottom line is that if you don’t write a Will and put your wishes down on paper, New York State has a default Will ready and waiting for you. But if you don’t like what it says, you need to change it.

U.S. Department of Labor Announces Updates to Overtime Exemption Rule

Posted: May 23rd, 2016

On May 18, 2016, the United States Department of Labor released final updates to the Fair Labor Standards Act (FLSA), extending overtime eligibility to over 4.2 million workers. The key change is to double the salary threshold – from $23,660 to $47,476 per year ($455 to $913 per week) – under which most salaried employees are now guaranteed overtime pay. Employers should immediately begin preparing to comply with the updates by the effective date of December 1, 2016.

Previously, the FLSA’s salary threshold had been updated only once since the 1970s. The change automatically entitles 35 percent of full-time salaried workers to overtime pay, based solely on salary.

The salary threshold will be automatically updated every three years beginning January 1, 2020, to counteract the prior rule’s effect of covering fewer workers each year as wages increased over time.

The new rule also increases the total annual compensation level above which highly compensated employees (“HCE”) are ineligible for overtime pay, from $100,000 to $134,004 a year. Further, under the new rule, up to 10 percent of the salary threshold for non-HCE employees can be met by non-discretionary bonuses, incentive pay, or commissions, provided payments are made at least quarterly.

The “duties test,” which is used to determine whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay, remains unchanged. However, fewer employers will need to apply this test due to the higher salary threshold; salary alone will provide a bright line answer as to more employees’ overtime eligibility.

Employers are advised to review their compensation and payroll policies without delay to ensure compliance by December 1, 2016. Please contact us to discuss how the final rule will affect your organization and for compliance assistance.

President Signs Bill Providing for a Federal Trade Secret Cause of Action

Posted: May 23rd, 2016

Tags: intellectual property

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”), long-proposed legislation that establishes a federal trade secrets law. Now companies seeking civil remedies for misappropriation of their trade secrets can bring their claim in federal court and obtain other remedies such as seizure orders and injunctive relief.

Prior to the DTSA, plaintiffs had to resort to state courts to bring their trade secret claims, which often led to inconsistent results as states have their own interpretations of key issues including damages, what constitutes “reasonable measures” to secure secrecy, and even the statute of limitations. The DTSA attempts to harmonize state laws by creating a single framework for trade secret misappropriation lawsuits. Its passage puts trade secrets on the same level as patents, copyrights, and trademarks and will likely lead to more uniformity and predictability in applicable standards.

In addition to creating a clear path to enforce trade secret rights in federal court, the legislation details the procedures for obtaining civil seizure orders, injunctive relief, and damages for trade secret misappropriation and unjust enrichment where the trade secret “is related to a product or service used in, or intended for use in, interstate or foreign commerce.”

As most companies maintaining trade secrets know, owners must remain diligent in ensuring that their trade secret is not improperly disseminated. Under the new legislation, seizure orders will be available under extraordinary circumstances to prevent the dissemination of the trade secret. In particular, a seizure order would require a showing of irreparable injury and likely success in proving (1) that the information is a trade secret, and (2) that the person named misappropriated the information or conspired to do so “by improper means.” The statute defines “improper means” to include theft and misrepresentation, but the definition expressly excludes reverse engineering, independent derivation, or other lawful means of acquisition. The new statute also permits injunctive relief for actual or threatened misappropriation, which will allow companies to be proactive in safeguarding their trade secrets if there is a threat.

The statute also provides for the remedy of actual and unjust enrichment damages. However, in lieu of other damages, a company can elect to obtain a reasonable royalty for the unauthorized disclosure or use of the trade secret. In the case of willful violations, it permits exemplary damages in an amount up to two times the amount of damages otherwise awarded.

On the flip side, for any company or anyone wrongfully accused of misappropriation, the statute permits attorneys’ fees for bad faith claims of misappropriation, and includes a provision that allows a company or person damaged by a wrongful or excessive seizure to have a cause of action against the applicant.

Finally, the statute includes a new whistleblower provision of which companies must advise their employees. The statute grants immunity to whistleblowers who disclose a trade secret to a government official or an attorney solely for the purpose of reporting or investigating a suspected violation of the law. Companies now need to provide the notice of immunity to any employee or independent contractor in a contract or agreement that governs the use of trade secret or other confidential information. Its failure to do so will constitute a waiver of some of the statute’s benefits, including exemplary damages and attorneys’ fees otherwise available to the company.

The recent passage of the DTSA provides owners of trade secrets with further remedies against misappropriation. In addition to being able to bring their claim in federal court, there are other remedies such as seizure orders, injunctive relief, and attorneys’ fees for bad faith claims. However, employers should ensure compliance with the notice requirements in the whistle blower provisions of the DTSA so they do not forfeit some of the statute’s benefits.

June 27 Deadline for Carbon Monoxide Compliance

Posted: May 23rd, 2016

Commercial property owners, landlords, and tenants should be aware that compliance with New York State’s new carbon monoxide detector law must be satisfied by June 27, 2016. The law requires that all commercial buildings with a carbon monoxide source be equipped with carbon monoxide detection.[1] Carbon monoxide sources include furnaces, boilers, heaters, stoves, and fireplaces that may emit carbon monoxide. The requirements also apply to commercial buildings attached to a garage or other motor-vehicle related occupancy.

Generally, each story of the building must have a centrally located carbon monoxide detector. In those buildings with more than 10,000 square feet per floor, detection is required in a central location as well as additional areas so that no point is more than 100 feet from detection. The location of the detector may also depend on the location of the carbon monoxide source.

Carbon monoxide detection for buildings constructed before December 31, 2015 may either be hardwired to the building’s power supply or powered by a 10-year battery; in those buildings constructed after December 31, 2015, the detectors must be hardwired. Landlords and building owners also have the option to install a carbon monoxide detection system that has an off-premises signal transmission. Detectors that plug into a power outlet or combination carbon monoxide/smoke alarms will not satisfy the requirements of the law. Noncompliance can carry civil, criminal, or administrative penalties imposed by local governments and agencies.

Commercial tenants are advised to review their lease agreements, as landlords may be able to flow down the cost of installation to tenants as “operating costs” if supported by the lease. If you have any questions regarding compliance with the law or determining responsibility for compliance under a lease agreement, please contact us.

Please also see our Labor & Employment blog post about employer obligations regarding the new law.

[1] The law provides a narrow exception for buildings used entirely for storage.

Hiring Tips from the Trenches

Posted: May 23rd, 2016

By: Joe Campolo, Esq. email

Published In: IMA Newsletter

Tags: management

As business owners, executives, and HR managers, we’ve all been there: a new employee who seemed so promising just doesn’t work out. The person may have the relevant work experience but doesn’t seem to understand how to prioritize her responsibilities. Or perhaps the person is an all-star at the job, but isn’t getting along with other employees. Maybe you can’t even tell if the person would be good at the job because he spends the whole day texting in his office.

I’ve done a lot of hiring over the years – what started as a firm of two lawyers less than 10 years ago has grown to 30 lawyers and over a dozen staff members. During that time, I’ve tried many approaches to the hiring process. Here, I share hiring tips and the best practices I follow when we add someone to our team, no matter what the position.

Define the job before filling it. If your idea of a good time is wading through resumes from anyone with an Internet connection, I recommend posting an ad saying “experienced paralegal wanted.” If you’d prefer to efficiently find the right person for the job, it’s crucial to spend some time beforehand writing out the specifics of the position. Will the paralegal be filing motions electronically? Conducting legal research? Reviewing client documents? Say so in the ad. Not only will the candidate have the information needed to evaluate the position, but you’ll be introducing the candidate to your company and your needs from the outset. This doesn’t mean that a position can’t evolve over time, but the more information a candidate has when applying, the better.

Introduce strong candidates to key staff members. Hiring decisions shouldn’t be made in a vacuum. Giving candidates time with employees other than the owner or hiring manager gives them the opportunity to more freely ask questions about the job and assess the company culture for themselves. For me, it’s also helpful to have my staff’s perspective, especially if they will be working closely with the successful candidate.

Establish and share a timeline for the hiring process. Since applying for my first job at McDonald’s, I’ve submitted countless resumes and have gone on more interviews than I can count. While rejection always stung, I harbored no negative feelings about those companies that treated me with respect. Telling candidates when to expect a decision (and notifying them if they did not get the job) is courteous and will help build your company’s good reputation.

Look for the candidate who wants this job, not any job. It’s usually obvious when a candidate is excited about the position you’re hiring for (and see #1 above – give candidates specifics to get enthusiastic about). More often than not, that enthusiasm translates into a happy, engaged, and productive employee.

Always be on the lookout. Don’t automatically dismiss someone who wows you just because you aren’t currently hiring. Some of our best people have come to us at a time when we had no open positions. Perhaps there’s a creative way to bring the person on board in a part-time or per-project basis. If not, stay in contact and keep them in mind as you look to add to your team in the future.

What You Should Know About Pesticides on Your Lawn

Posted: May 23rd, 2016

Published In: The Suffolk Lawyer

Tags: environmental law

Spring is here and with it, our thoughts turn to battling weeds. To wage our battles, we often hire landscapers and, after signing the contract, put our trust in these people to ensure that our lawns stay lush green and dandelion-free. However, what many homeowners do not realize is that the use and application of pesticides by commercial providers is highly regulated by the New York State Department of Environmental Conservation (“DEC”). Knowing some of the basic rules can help property owners understand their rights and make sure that the applications are made in a safe and compliant manner.

The first thing you may want to confirm is that your pesticide applicator is properly licensed. The law defines any person providing commercial application of pesticides for hire as a “pesticide business,” which requires a New York State registration, renewable every three years. In addition, the person must be certified as a “pesticide applicator,” after fulfilling certain education and field experience requirements and passing a DEC administered test. There are also other classifications of “certified commercial technician” and “pesticide apprentice”. These individuals may only apply pesticides under the direct supervision of the certified applicator.

The business registration and individual certification requirements does not apply to a residential property owner or tenant applying pesticides on his or her own property or to a non-commercial application of a general use pesticide. Thus, if you are treating your own lawn or helping another at no charge, you are exempt.

Any commercial lawn application requires a written contract which identifies the applicator’s certification number. The contract must specify the approximate date(s) of application, the number of applications, and the total cost for the services to be provided. It must be accompanied by a list of substances to be applied, including brand names and generic names of active ingredients, and copies of any warnings that appear on the product labels, all in a least 12 point type. Few homeowners ask to see the product labels and many applicators fail to comply with this rule, facing stiff penalties as a result.

In general, only pesticides which are registered and approved by the DEC may be used in New York State. Federal approval by the US Environmental Protection Agency is not enough. The Cornell University Cooperative Extension maintains a current database of all registered pesticides and their active ingredients. Certain organic products, such as garlic oil and lime, are deemed “Minimum Risk Pesticides” and are exempt from the registration requirement. However, if applied commercially, they still require application by a certified applicator.

The yellow flags we often see on lawns are the result of another DEC regulation, which requires markers to be placed on site on the day of the application, warning people not to enter the property and not to remove the markers for a period of at least 24 hours. For certain types of spray applications, applicators are required to provide 48 hours advance written notice to neighbors within 150 feet of the application site and to owners or owners’ agents of multiple family dwellings who, in turn, must notify the occupants. This requirement, called the Neighbor Notification Law, was adopted in 2000 and applies in all counties which have “opted in”, including Nassau, Suffolk and all New York City boroughs.

Why all these restrictions? One reason is that pesticide use, while providing many benefits, can also have adverse environmental impacts. Especially on Long Island, where our groundwater is used for drinking, there is a growing concern about contamination from stormwater runoff and leaching. According to a 2014 DEC report, 117 pesticide-related chemicals have been detected in the aquifer at various locations since 1997. Approximately half are legacy compounds, no longer or never registered in New York. Still, with over 13,600 pesticides registered in the State, the problem is not going away.

Recent efforts to reduce pesticide use or transition to less toxic products have resulted in legislation. For example, Suffolk County’s Phase-Out Law, which became effective in January, 2000, prohibits the use of EPA Category I and II pesticides, carcinogens, and most restricted use pesticides on County property. More broadly, a 2010 amendment to the State’s Education Law and the Social Services Law prohibits all schools and day care centers from applying pesticides on any playgrounds, turf or athletic or playing fields. The DEC has issued a guidance document recommending alternatives to pesticide use in grounds management. Emergency applications may be authorized in some circumstances.

While, as we have seen, commercial applications of pesticides are subject to strict rules, private application on residential properties and farms are generally unregulated. State and local agencies are trying to address the problem of excessive pesticide use through public education efforts and various farm initiatives. For example, in Suffolk County, the Agricultural Stewardship Program works with local growers to adopt better pesticide management practices that protect groundwater quality while maintaining crop yields. Homeowners are encouraged to adopt organic pesticide alternatives through the Be Green Organic Yards NY program.

Campolo’s M&A advice featured in Newsday article “Due Diligence Is Key Before Buying a Business, Experts Say”

Posted: May 22nd, 2016

By Cara Trager, Newsday

Last year, the acquisition of a Long Island company came to a grinding halt — following the surveillance of its CEO.

“We uncovered that he would go at night into the city and buy street drugs,” said Efrat Cohen, executive director of Boca Raton-based Global Intelligence Consultants, which had trailed the CEO for a client who had considered acquiring his firm.

While following a top executive may seem excessive, there’s no such thing as overdoing due diligence before buying a business, say consultants and those who have bought and sold Long Island companies. At the very least, hire a lawyer and an accountant to help you decide if a firm is genuinely viable and its price tag is justified, they say.

Horror stories abound about buyers discovering too late that the business is saddled with municipal fees, burdened by employees’ numerous accrued vacation days, or bereft of valid customers.

“Any seller is going to spin it as positively as they possibly can,” said Michael Wiley, president of Melville-based Healthcare Management & Consulting Services Inc.

And these days, with an ever-growing number of businesses on the market and changing hands, there are plenty of opportunities for buyers to fall prey to a seller’s lack of transparency.

According to BizBuySell.com, a business-for-sale marketplace, the New York metro area, including Long Island, New York City and northern New Jersey, experienced a 20 percent jump in companies for sale, from 4,715 in the first quarter of 2011 to 5,680 in the first quarter of 2016. The number of businesses sold grew 12 percent, from 120 in the first quarter of 2011 to 134 during the same period this year.

The Long Island Association’s chief economist, John Rizzo, ascribes the uptick in business listings and deals to the economic recovery, which has given more people the confidence to purchase a business while improving their access to financing. To a lesser extent, demographics are also at play, he said, with baby boomers increasingly looking to sell their businesses in order to retire.

To minimize post-acquisition bombshells, buyers need to review financial statements and corporate tax returns, as well as delve into areas that could hurt a firm’s future, such as online reviews and relationships with suppliers, experts say.

They also need to review invoices to get a handle on how many customers patronize the business regularly, versus for a one-time project.

“There’s no substitute for buyers speaking to customers directly,” said Chris Nemeth, director and co-team leader of mergers and acquisition services at Crowe Horwath LLP, an accounting and consulting firm in Chicago.

Experts also advise checking the status and terms of a seller’s commercial leases and whether landlords will reassign them to the new owner. Those who seek to purchase a retail store should know if existing leases prohibit the landlord from renting out nearby spaces to similar businesses.

And since a newly acquired business tends to get off to a strong start if key employees remain with the company, buyers need to ascertain these workers’ future plans and whether restrictive covenants are in place to prevent them from starting a competitive operation, Wiley said. He also suggests looking into whether suppliers will hold their prices for the new owner.

Tom Scarda, a franchise consultant with FranChoice in Wantagh, said the Federal Trade Commission requires franchisers to provide a document that discloses a myriad of facts about the operation, including any litigation against or initiated by the parent company and a list of shuttered franchises. But, he said, it still behooves prospective franchisees to talk to existing owners about the kind of training, startup and ongoing support they receive.

With that in mind, Steve Berlin, 53, and his wife, Stephanie, 51, hardly jumped feet first into buying a Sky Zone Trampoline Park franchise in 2012.

A CPA who had worked as a chief financial officer for a media company, Steve Berlin scrutinized the company’s sales materials and legal documents, including independently researched statistics it provided on trampoline injuries, and the firm’s approach to risk management.

The Dix Hills resident’s due-diligence efforts also entailed contacting existing franchise owners; visiting a half-dozen Sky Zone parks to speak with general managers and employees and gauge the customer experience; and traveling to competing parks.

As a result, Berlin today operates Sky Zones in Deer Park and Mount Sinai, employs more than 250 workers and seeks to expand into Nassau County.

Due diligence, on the other hand, led Dan Galvez, 42, to nix mergers with two different companies when he set out to add digital marketing to his Web development company’s services. One firm’s profit margins were too slim to justify an acquisition that would have retained its management team, and “the high compensation requirements” of the other company’s owner could not be supported after the merger, he said.

So Galvez, CEO of Hedgehog Development LLC, a 9-year-old Holbrook firm with five locations and more than 70 employees, approached Loewy Design. Over the years, Hedgehog had partnered on various projects with the Melville business.

“We had a good relationship with them, and knew each other’s culture, business values and teams,” Galvez said.

But before acquiring Loewy, a 29-year-old firm with 13 employees, Galvez tapped Protegrity Advisors, a mergers and acquisitions consultant in Ronkonkoma, for due diligence.

What’s more, the landlord that owned Loewy’s space did its own background checks — on Hedgehog.

“It wanted to make sure the new company has the same level of responsibility” in meeting its lease obligations, Galvez said.

GETTING READY TO SELL

There’s more to selling a business than putting it on the market and getting the word out.

Just as sellers prepare their homes for sale, the office space “should look presentable when people are doing a site visit,” said Joe Campolo, head of Campolo, Middleton & McCormick’s mergers and acquisitions practice and chairman of Protegrity Advisors, an M&A consultant, both in Ronkonkoma. And “as much as you can,” resolve any litigation beforehand, he said.

Sellers also need to do their due diligence on buyers, particularly when they plan to make a down payment and pay the balance from the company’s revenues over time. CPA Kenneth Cerini of Bohemia advises scrutinizing buyers’ financial statements to make sure “they’re not cash-strapped or losing money,” as well as establishing that they have the knowledge to run the business.

Michael Affatato, 50, had been a longtime family friend of Rosemary Dougherty-Batcheller when he purchased her Mattituck business, The Village Cheese Shop, last year.

They relied on financial experts and lawyers for their due diligence — even though they trusted each other’s commitment to transparency and Dougherty-Batcheller knew Affatato had business and food experience.

Affatato made a down payment of one-third of the purchase price, paying down the balance from the shop’s proceeds. This arrangement gave him “skin in the game,” said Dougherty-Batcheller, 56.

As part of the transition, she gave Affatato a crash course in cheese retailing and introduced him to customers and direct importers that offer sharper prices than distributors. Plus, she still helps out in the store, as the need arises.

“My first goal is for him to succeed so I can move on,” said Dougherty-Batcheller, now a small-business consultant.

Read it on Newsday.

CMM Wins Corporate Citizenship Award

Posted: May 13th, 2016

In recognition of its community engagement, Campolo, Middleton & McCormick, LLP, Suffolk County’s premier law firm, was selected to receive a 2016 Corporate Citizenship Award from the Long Island Business News in the category of Corporate Social Responsibility. The awards program recognizes companies and individuals who believe that practicing good corporate citizenship contributes to the economic and social well-being of employees, businesses, and the Long Island community. The awards were presented at a celebratory breakfast on June 14 at Crest Hollow Country Club in Woodbury.

Campolo Middleton was recognized for having community dedication “woven into its DNA,” with attorneys serving in leadership roles for numerous nonprofits and providing pro bono legal services and financial support to philanthropic organizations. The firm supports numerous leading nonprofits in the community including the American Red Cross on Long Island, Child Abuse Prevention Services (CAPS), Girl Scouts of Suffolk County, UCP Suffolk, the Ronald McDonald House, and Pet Peeves, among others.

In his keynote address at the awards ceremony, John D. Kemp, President and CEO of the Viscardi Center, applauded the winners for believing that when they see challenges in the community, “it’s not someone else’s problem – it’s our problem.” He explained that the days of “having” to perform community service for school credit or as punishment are gone; today’s employees have grown up with a culture that calls for service, and they look to employers to help provide those opportunities.

The firm congratulates all the winners!

Practice Areas to Focus on Business Growth and Entrepreneurship

Posted: May 13th, 2016

The firm has formalized its service offerings to emerging companies and businesses seeking to expand by establishing two additional practice groups, Startups and Economic Development. Led by Marc Alessi, a former New York State Assemblyman and an experienced navigator of the entrepreneurial ecosystem on Long Island, these practices are dedicated to the growth of Long Island business. Our team works with entrepreneurs to help startups evolve from idea to reality. To further our commitment to bringing jobs and investment to our area, we also assist both long-established companies and innovative startups obtain financing and economic incentives through various municipal agencies.