New Requirement for Illinois Landlords

Landlords in Illinois will be required next year to change or “rekey” the locks before a new tenant moves in. Here is link to the new lock changing law. http://www.ilga.gov/legislation/publicacts/97/PDF/097-0470.pdf
 
There are only limited exceptions to this law including rooming houses and buildings with four or fewer units where the owner lives in one of the units.  

If the landlord does not comply with this new law and there is a theft that is attributable to failing to change the locks, then the landlord will be responsible for the tenant's losses.  

I foresee a potential for possible fraud and abuse caused by the law’s requirement that the “theft that is attributable to failing to change the locks.”  Some examples are that the new tenant forgets to lock the apartment door and a burglar walks in the unlocked door.  Alternatively, the new tenant files a fraudulent police report about an alleged burglary and then claims that the door was locked.  If the tenant then sues the landlord for damages and claims that the tenant locked the door before the burglary how will the landlord effectively be able to disapprove that story.

So Illinois landlords to protect themselves from claims by tenants for stolen merchandise will need to change the locks each time they get a new tenant.  

For landlords the current rental market should make it easier to pass this new expense along to tenants.

Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Interns - A Benefit or a Liability - Update

Last week, on April 28th a Federal appellate court issued a decision on whether students working in a school affiliated nursing home should be considered employees.  The court’s ruling disregarded the Department of Labor’s six factor test about whether an student serving an internship should be classified as an employee.  Last June, I wrote an article about the six factor test titled Summer Interns A Benefit or a Liability.   

The court in Solis v. Laurelbrook Sanitarium said a different analysis should be used.  The court said “We find the WHD's test to be a poor method for determining employee status in a training or educational setting. For starters, it is overly rigid and inconsistent with a totality-of-the-circumstances approach, where no one factor (or the absence of one factor) controls."

The court focused on who receives the primary benefit - the intern or the business.  To make that determination who receives the primary benefit,  “Factors such as whether the relationship displaces paid employees and whether there is educational value derived from the relationship are relevant considerations that can guide the inquiry. Additional factors that bear on the inquiry should also be considered insofar as they shed light on which party primarily benefits from the relationship.”

For people using interns, the good news is that you don’t have to meet all six factors in Department of Labor test.  However, in looking at all the circumstances the experience needs to be a greater benefit to the student rather than to the business.

Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Government Targets Business Owners for Employee Work Eligibility

Business owners, particularly in the food service industry may want to review their employee work eligibility status.  

A recent article in the Wall Street Journal titled Immigration Crackdown Widens With Criminal Probe and Arrests at Restaurant Chains highlights recent government investigations and in one case criminal prosecution relating to hiring illegal immigrants.

As the article notes the government’s focus previously had been on just arresting and deporting illegal immigrants, but now the government is focusing on prosecuting the business owners.

A recent story in QSR Magazine titled Who’s Working in Your Kitchen? reported “Recent government crackdowns on Chipotle and Pei Wei that forced both concepts to at least temporarily close locations have reminded restaurant operators that the government is taking illegal immigration very seriously.”

Illinois business owners can use the E-Verify system.  One advantage of using the system is that it creates a “rebuttable presumption” that the employer has complied with immigration laws. However, Illinois state government is not a fan of the E-Verify system.  In fact,Illinois attempted to block private employers from using the E-Verify system, but lost a lawsuit brought by the Department of Homeland Security.

Even though the Illinois state government failed in its attempt to prevent private business owners from using E-Verify, Illinois has placed significant restrictions on its use.  Therefore, an Illinois employer should review those restrictions carefully before using the E-Verify system.  Illinois employers are required to complete I-9 forms for each of their employees.

It is these I-9 records that the government is auditing and which are being used as the basis for prosecutions.

To avoid being the federal government’s next target business owners may want to review their personnel files to make sure that they are in compliance.

Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Will Your Trust Work

Will your Trust work the way you intend it.  Many people have created Revocable Trusts, which are also known as Living Trusts. They have done so for a number of reasons (avoiding probate, avoiding court guardianship, tax planning).  But if your Trust is not funded it may not work the way you want.

A recent post on an trust and estate planning e-mail list illustrates what happens if a trust is not properly funded.

Dear Listmates:

Can a revocable trust be properly funded by simply attaching a schedule to the trust document that states that the settlor “hereby sells, transfers, and conveys” to himself the property listed therein? The listed property includes real estate and bank accounts.  The real estate is identified by address and tax ID. The bank accounts are identified simply by bank name and address. The schedule containing the listed property is signed by the settler and one witness but is not notarized. The main trust document, to which the schedule is attached, is notarized.

This was the answer posted to those questions.

The short answer is no.

The reply to that answer illustrates the terrible consequences that can occur from not properly funding the Trust.

The settlor [the person who set up the Trust] passed away. If this trust is not upheld, then the settlor's estate will pass to the very persons he intended to disinherit.

So how do you fund a Trust to avoid this terrible result.  A Trust is funded by transferring assets to the Trust.  The procedure for legally transferring assets to a Trust depends upon the type of asset.

For a bank account or a stock brokerage account, the name of person who owns the account needs to be changed to the name of the current trustee as trustee of the trust identified by its proper name.  For example, if John Smith has a Revocable/Living Trust and he is the current trustee then account needs to be changed from John Smith to John Smith as Trustee of the John Smith Trust (what ever the Trust designates as the proper name of the Trust).

For real estate, a Deed needs to be prepared transferring the real estate to the Trust.  For example, John Smith would need to Deed his property from John Smith to John Smith as trustee of the John Smith Trust. This Deed would need to be recorded in the County where the real estate was located with the County Recorder of Deeds.  Also, you may need to obtain an endorsement to your title insurance policy to cover the trust.  Whether this needs to be done will depend upon the specific language in your title insurance policy.

You can transfer personal property such as airplanes, automobiles and boats by transferring the title with the Secretary of State to the Trustee (John Smith as Trustee of the John Smith Trust).  Unless this property is of significant value most people deal with this property through their Pour Over Will.

A Pour Over Will is a Will that includes a provision stating that any property that I own, which I have not specifically provided for at my death is to be transferred to to my Trust.

A Pour Over Will will not be effective if the property is held in joint tenancy or if a payable on death beneficiary has been named. Property that it is held in joint tenancy automatically passes to the surviving joint tenant.  It is not part of a person’s estate.  Therefore, the Pour Over Will would not be effective to transfer the joint tenancy property.  Likewise an account that has a payable on death beneficiary designation like a bank account, life insurance policy, stock brokerage account, pension plan will also pass directly to the beneficiary.  It too will not be included in your probate estate.

So, it is a good idea to check the beneficiary designations on your accounts to make sure that they list the people that you intend to receive the money.  The same is true for any accounts that you hold in joint tenancy.

If you have gone through the effort and expense of creating a Recovable/Living Trust you should make sure that it is properly funded.


Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Buy/Sell Agreements - Planning Ahead

For small businesses with two or more owners, a buy/sell agreement can help prevent challenging situations from becoming unbearable.

When one of the business owners dies, becomes disabled, divorces or just says “I have had enough - I am out of here” that can be challenge for the remaining owner or owners just to keep the business operating.  That challenge can be unbearable if there is no arrangement in place to deal with those situations.

One of my fellow lawyer bloggers wrote an excellent article on buy/sell agreements.  The article raises a number of questions that business owners should think about.  Just thinking about these questions should provide a mental picture.  That picture may be as sobering as Ebenzer Scrooge’s glimpse of “Christmas yet to come.”  Fortunately, like Scrooge there is an opportunity to do something about it.

Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Employer Liability - Common Mistakes That Can Be Costly

With the economy improving, businesses are hiring again and bringing in independent contractors.  Because mistakes relating to compensation can be costly, now might be good time to review several common mistakes that can be expensive.

The most common mistakes involve:

1. Misclassifying an employee as exempt from overtime;

2. Misclassifying a person as an independent contractor when they should be an employee;

3. Assigning tasks to an unpaid intern that result in them being classified as an employee;

4. Failing to file employee payroll taxes on time.

This article discusses some of those common mistakes and how to avoid them.

1. Misclassifying  an employee as exempt from overtime pay

The federal Fair Labor Standards Act (“FLSA”) requires that employees receive overtime pay equal to 1.5 X their hourly rate if they work either more than 8 hours in one day or more than 40 hours in one week.  There are several job classifications that are exempt.  Employer problems often occur when they mistakenly believe that a particular employee qualifies for the exemption when they don’t.  

The overtime pay exemption categories include a) executives, b) administrative, c) professional, d) computer employee, e) outside sales and f) highly compensated employee.  The most common problems involve the administrative, computer and outside sales exemptions.  Job titles don’t count.  What counts is the type of work that a person performs.

Here is a link to a brief overview of requirements to qualify for those exemptions.

2. Misclassifying a Person as an Independent Contractor

One of the most common mistakes businesses make is to classify someone as an independent contractor when they are actually an employee.  The IRS and state governments aggressively pursue this type of  misclassification because it reduces the amount of taxes that IRS and state governments collect.

The IRS website provides some guidelines to help determine whether a person qualifies as an independent contractor.  You can also ask the IRS to evaluate your specific situation.  The IRS will issue a determination.  This can be done by filing IRS Form SS-8.

Briefly, factors that the IRS considers in determining whether a person is properly classified as an independent contractor include:

• Does the person have the ability to perform similar work for other businesses without your permission;
• Can the person set their own hours for when they will perform the work;
• Can the person hire other people to assist them in performing the work;
• Does the person supply their own tools or equipment to perform the work;
• Is the work done for a fixed fee where the person bears the risk of profit or loss depending upon how quickly they perform the work;

Because businesses do not pay payroll taxes for independent contractors a business can be liable for significant expenses if the IRS later determines that the person should have be classified as an employee.

As discussed below under the payroll tax liability section the business owners can be personally liable for failing to pay payroll taxes.

3. Unpaid Interns Who Should Be Treated as Employees Based Upon Their Work

An internship can be beneficial for both the student and the business.  The student gets experience that can help them find a job when they graduate and the business gets assistance for free.  However the intern’s activities must meet a six factor test for the business to justify not paying the intern.

Briefly those six factors are:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction;
2. The training is for the benefit of the trainees (rather than the employer);
3. The trainees do not displace regular employees, but work under their close observation;
4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded;
5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and
6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

A business must meet all six factors.  Failing to meet one of the six factors can expose the business to liability under the Fair Labor Standards Act and to liability for failing to pay payroll taxes.

4. Personal Liability for Failing to Make Payroll Tax Payments

A problem that commonly effects businesses that are having cash flow problems is failing to pay their payroll taxes on time.  The IRS and state governments take this issue very seriously.  Their position is that this is money that doesn’t belong to the employer, but is held in trust for the benefit of the employees and the government.  So, it goes beyond failing to pay taxes.  The government views it as taking money that doesn’t belong to you.  For that reason, the officers, directors and shareholders can be personally liable for failing to timely pay payroll taxes.

Further, this is a liability that a business owner cannot discharge by filing a personal bankruptcy.

In Illinois not only is there potential tax liability, but also there is potential liability from the Illinois Department of Labor and the employees themselves in lawsuits under the Illinois Wage Payment and Collection Act.  For more information on a business’ potential exposure under this Illinois statute see my blog post titled Potential Exposure for Employers Under New Illinois Law.

Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

When Separate Corporations Are Not Separate for City of Chicago Head Tax

Business owners who have operations at separate locations often set up separate corporations for each location.  There are many good reasons to do this including limiting liability at one location from effecting the other locations.  The separate corporations should have their own bank accounts, bookkeeping, business licenses, corporate records, employees, tax identification numbers.  

But apparently, this is not enough for the City of Chicago.  A recent Illinois Appellate court decision DTCT v. The City of Chicago upheld the City of Chicago’s position. In this case a husband and wife owned several separate corporations.  Each of those corporations owned a different McDonald’s restaurant location. The City of Chicago said that because each of the corporations had the same shareholders then all the corporations would be counted as one business entity for the purpose of calculating the employer’s expense tax (a.k.a. the “head tax”). This tax applies to employers who have 50 or more employees working in Chicago. The tax rate is $4 per employee per month.  The individual restaurants had less than 50 employees, but all of them together had more than 50 employees.

The separate corporations had followed all the corporate formalities.  They had separate bank accounts, separate books and records, each had their own City of Chicago business license, they had separate tax identification numbers and filed separate tax returns.  But this was not enough for the City of Chicago in determining the “head tax.”

Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.