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Legal Alert:
Current legal trends affecting you and your business

May/June 2003

In this issue . . .

• Title Search and Insurance Reduce Risk
• Discharge Employees With Care
• Has Your Identity Been Stolen?
• In Brief …

Title Search and Insurance Reduce Risk

If you finance a real estate purchase with debt, your lender generally will require you to buy title insurance. But title insurance is a good idea even if you don’t borrow, even if you know the seller well and even though title searches don’t necessarily reveal all defects.

Qualifying for Coverage

The title company that provides insurance coverage will research a title’s history before it sells you a policy. It will investigate the:

• Title’s marketability,
• Chronological ownership chain,
• Existence of liens, mortgages, overdue special assessments or other claims,
• Property-related court decisions,
• Possible defects in previous ownership transfers,
• Existence of missing heirs, or
• Restrictions or encumbrances that lessen title value.

The title examiner prepares a report called an abstract. Review this before closing the deal. If it reveals defects or conflicts, resolve them before the title company approves your application.

Protecting Yourself

After the title company is satisfied that the title is clear, it will issue an insurance policy covering you against losses caused if:

• The title turns out to be fraudulent, defective or invalid,
• Ownership disputes arise, or
• The title company’s search was negligent.

In most cases, the coverage extends to your heirs and continues (to some extent) even if the title company goes out of business. If you eventually find a title defect and go ahead with a real estate buy, you’ll be taking a big risk. In some cases, a title company may insure the risk if you provide appropriate affidavits and place money in escrow to cover the risk.

Getting Help

Whether you buy title insurance or not, your attorney can help you minimize the risks of investing in commercial property.

Discharge Employees With Care

In a mythical time and place, you could hire and fire employees as you pleased, without interference from regulators, lawyers or others. Whether that time and place ever really existed, it definitely isn’t here and now. In this time and place, you have to minimize the legal risks of discharging employees.

A poorly planned and poorly executed discharge – even when you have good reasons for letting one or more employees go – can result in lawsuits or regulatory penalties or both. Here are some general guidelines for discharging a poorly performing or misbehaving worker and for discharging two or more workers to downsize your work force.

Be Prepared

Before you actually discharge an employee for inadequate job performance, consider whether you can support your decision in court, in case the worker sues you for discrimination or retaliatory discharge. Here’s what to do long before the worker’s final day at your company.

For starters, consistently follow your written policy in every case, if you have one, either as part of an employee handbook, employment contract or simply an internal human-resources document. Consistency is key to prevent the appearance of discrimination.

Also, whenever possible, issue written warnings to under-performing employees, provide counseling or remedial training, and give them a chance to improve before you make a final decision to discharge. At best, you may rehabilitate the employee; at worst, you create a record of fairness and opportunity – powerful evidence to disprove claims of wrongful discharge.

Last, before deciding to discharge an employee, be sure his or her personnel file supports your decision rather than contradicts it. A file full of commendations will contradict a decision to discharge for poor performance.

Inform, Explain and Pay Up

Now that you’ve decided to let a worker go, what can you do to minimize the risk of a wrongful-discharge suit?

First, when you meet with the employee to inform him or her of your decision, make sure you have one or two reliable witnesses present who can corroborate your description of the meeting – preferably a supervisor or a human-resources official. To spare the discharged employee humiliation, don’t include co-workers or underlings. But employees may ask to have a witness of their choice present during disciplinary proceedings.

Next, explain briefly the discharge reasons. If the employee presents an argument, make clear that your position is not negotiable. Describe and explain the final wages and benefits that you will provide the employee (and pay promptly). If the employee has questions, make your human-resources office available for a more comprehensive explanation.

Take notes during the meeting or summarize the conversation immediately afterwards in writing. Especially, record 1) the way in which you stated the discharge reasons, and 2) any admissions by the employee of poor performance. Ask the witnesses to sign your summary.

Take Special Steps for Layoffs

When you decide to lay off two or more employees to cut expenses, follow a different set of guidelines. Before you make the final decision to downsize, take these four steps:

1. Document all legitimate business reasons for reducing your work force. Those reasons may include lowering expenses, consolidating departments or facilities, streamlining operations, eliminating a division or product line, closing a plant or branch office, or installing new labor-saving technology. Then ensure that your decisions – and actions – are consistent with those reasons.
   
   
2. Establish concrete criteria for selecting employees to lay off.The safest criterion is seniority (last hired, first fired) to minimize accusations of unfairness or discrimination. When seniority is not a feasible strategy, try to base employee retention on objective performance criteria – top performers stay. Other criteria may include rank, position and status. For example, temporary and part-time employees may be the first to go. Unfortunately, you can’t always establish objective criteria, so consult your attorney when making subjective decisions.
   
   
3. Analyze how your selection criteria will affect protected classes of employees – to prevent discrimination lawsuits. Determine who exactly will be laid off, and make sure that group doesn’t include a disproportionate number of protected-class members such as racial or religious minorities, workers older than 40 or disabled workers. If it does, you’ll probably have to revise your criteria.
   
   
4. Communicate clearly with laid-off workers and try to ease their transition.When you announce the layoffs as you would for individual discharges describe and explain final wages and benefits, severance package options, and release forms. (When you discharge two or more employees who are 40, or older, you must give them 45 days to review the release and seven days in which to revoke a signed release.) In addition, to avoid creating resentment over the layoffs, consider offering extra benefits such as outplacement services or resume-writing workshops or both.

Remember: Disputes Happen

Sometimes an employer must reduce its work force to survive. Unfortunately, when jobs are hard to find, discharged employees are more inclined to file complaints or lawsuits. You can reduce the risk of liability by acting in accordance with your stated policies, documenting discharge reasons and the discharge process, and abiding by the applicable laws. (See “Statutes, Rules and Restrictions” below.) If you would like us to review your policies for discharging employees, please call.

Sidebar: Statutes, Rules and Restrictions

Keep in mind these important federal rules that may apply to you, depending on the size of your firm:

• The Civil Rights Act bars employers from making employment decisions based primarily on race, religion, sex, pregnancy or national origin.
• The Americans With Disabilities Act bars employment discrimination in firms with 15 or more employees based on disability, for workers who can perform essential job functions with or without reasonable accommodation.
• The Workers’ Adjustment Retraining Notification Act requires some employers to give 60 days’ notice before closing a plant or otherwise laying off a large number of workers.
• Federal statutes make it illegal to retaliate against whistle-blowers (employees who report illegal conduct).

And be sure to check your state’s laws and rules for discharging employees.

Has Your Identity Been Stolen?

The FBI busted an identity-theft ring in October 2002 involving hundreds of criminals who had fleeced up to 30,000 people for three years, using their stolen Social Security numbers and credit histories.

Because credit histories include information about a person’s bank and credit-card accounts, the thieves were able to empty their victims’ savings accounts, take out fraudulent loans and run up credit-card charges. Initial estimates of the financial loss were $2.7 million and growing, though in some cases financial institutions limit an account holder’s liability (thanks to the Truth in Lending Act).

But just as bad as the financial losses to victims is the destruction of their good credit and reputations. Sometimes victims don’t realize that their identities are being fraudulently used until their accounts are drained and their credit is destroyed. Then victims may take years to repair the damage, while false credit reports cause their credit and job applications to be rejected. They may even discover that they have false criminal records resulting from identity fraud.

Last October’s bust just skims the surface. Indeed, identity theft is the fastest growing financial crime in America, striking hundreds of thousands of people each year, according to the Federal Trade Commission. Meanwhile, the Federal Deposit Insurance Corporation estimates that identity-theft victims spend an average of 175 to 200 hours – the equivalent of four to five work-weeks – trying to repair identity thieves’ damage. The psychological effects can include severe stress disorders and lost sleep.

Why You May Be an Unknowing Victim

If a burglar broke into your home and stole your wallet and bank statements, you’d soon discover the loss. But identity theft isn’t always that obvious.

ID thieves commonly obtain credit reports by posing as a landlord, employer or lending officer who has a legal right to the information. Some thieves “shoulder surf,” watching through binoculars as you enter your PIN into an automatic teller machine, type your password into a computer, or disclose your credit card number over a public phone. Others “dumpster dive,” retrieving credit card slips and “preapproved” credit applications from your trash. Then telephone scammers announce that you have won a prize and all you have to do to collect it is tell them your Social Security number.

The biggest thefts occur when a large crime ring – such as the one busted in October – illegally accesses a credit-reporting bureau’s huge database.

How To Reclaim Your Identity

If you discover that an ID thief has your identity, the first rule is: Act quickly. The longer you wait, the more damage can be done to your credit and reputation. Take these steps:

• Call the police. Identity theft is a crime, of course, and the sooner the police catch the thief, the better for everyone – especially you.
• To repair your credit, send a formal letter and a copy of the police report – certified, return receipt requested – to all three major credit-reporting agencies, disputing the false entries in your credit report.
• The Fair Credit Reporting Act requires the agencies to investigate the items (usually within 30 days) by relaying your relevant evidence to their information sources. The sources must review your evidence and report their findings to the agencies. The agencies must remove or correct inaccurate or unverified information from its files.
• Inform your creditors, banks and utilities about the problem, warn that others have used your accounts without your permission, and assure them that the theft is being investigated or will be resolved. Be prepared to give them a copy of the police report.
• If in doubt about how to proceed, contact the FTC’s Identity Theft Hotline: 877.438.4338 (www.consumer.gov/idtheft). The FTC will answer questions about how to dispute a credit report or credit account. It might also recommend that you contact other government agencies, depending on the circumstances, including the Social Security Administration, IRS, FBI, Postal Inspection Service or your state attorney general’s office.
• Keep photocopies of all correspondence and a record of all phone conversations relating to the theft and resulting legal problems – not just until the matter is resolved, but for the rest of your life! Old credit problems may come back decades later to haunt you.
• You may need to apply for a new Social Security number and possibly a driver’s license, credit cards and ATM cards.

When To Get Aggressive About Resolving the Problem

If the credit-reporting agencies fail to resolve the problem to your satisfaction within 45 days or refuse to investigate, or if you believe they were negligent in their investigation, you may have to take legal action to restore your good credit and reputation.

The Fair Credit Reporting Act allows you, with help from your attorney, to sue a negligent credit-reporting agency. You can also sue the purported creditor or collection agency (known as the “furnisher”) that furnished false derogatory statements to the agencies and then failed to correct the information.

If your lawsuit is successful, the court will order the credit-reporting agencies to remove incorrect information from your credit report and otherwise correct your credit history. The agency or the furnisher or both will have to pay your attorney fees and court costs, and actual damages for identifiable financial losses and mental anguish. You may also collect punitive damages.

Jury awards vary depending on the actual damage done and the willfulness of the crime, of course. But in recent cases involving huge financial losses and serious harm to victims’ reputations, juries have been willing to return verdicts in the millions of dollars for violations of the Fair Credit Reporting Act.

Why the Statute of Limitations Could Hurt You

Whatever you do, don’t delay. The two-year statute of limitations for suing credit-reporting agencies in cases of identity theft begins when the theft occurred, not when you discovered it. If you have any questions about how to protect your identity or how to resolve a dispute over your credit, we can help.

Sidebar: Guard Your Identity

You can’t guarantee that your identity will never be stolen. But you can take these precautions to minimize the risk:

• Do not carry extra credit cards, your birth certificate, passport or Social Security card unless you absolutely need them.
• Do not have your Social Security number printed on your checks. Don’t give that number – or your mother’s maiden name – to anyone or any company that you don’t know and trust.
• Shred all documents containing personal ID information, account numbers and preapproved credit offers before throwing them away.
• Cancel unused credit-card accounts. Always take your credit card receipts and shred them before discarding.
• Guard your mailbox from theft – promptly pick up your mail after it’s delivered.
• Create passwords and personal identification numbers (PINs) that are not easily “hacked.”
• Before disclosing personal information, ask why it is required and how it will be used. If a merchant refuses to complete a transaction without your Social Security number, take your business elsewhere.

Sidebar: Watch Out for the Warning Signs

Here’s how to read the warning signs that might indicate someone has fraudulently assumed your identity:

• Order a copy of your credit report from one of the three major credit reporting agencies: Equifax (800.685.1111, www.equifax.com), Transunion (800.916.8800, www.transunion.com) and Experian (888.397.3742, www.experian.com). A negative comment (known as a derogatory) that doesn’t belong in your report may indicate that someone made a simple mistake that can be quickly corrected, or it may mean some crook is abusing your identity. Report the false derogatory to the agency and ask a representative to investigate it.
• Review all bills carefully before paying them. If you see a charge for a purchase that you didn’t make, immediately call the billing party.
• Review bank statements as soon as they arrive for unauthorized withdrawals or suspicious activity. You can hold your bank liable for unauthorized activity if you report them timely.
• Keep track of monthly billing cycles for your regular creditors. If a bill doesn’t arrive on time, a thief may have pilfered it from your mailbox, or worse, taken over your account and changed your billing address. Contact the creditor to request a copy of your current bill.

In Brief …

The ADA and You

Would you like to offer more job opportunities to workers with disabilities? You can get ideas from the Department of Labor’s education kit, “Win With Ability.” Call the DOL at 202.693.7880.

And an easy way for both employers and disabled workers to find out what they need to know about the Americans With Disabilities Act is from the EEOC’s booklet, “The ADA: Your Employment Rights as an Individual With a Disability.” For a copy, call the EEOC at 202.663.4900.

Be Careful What You Throw Out

If you purge your files – both written and electronic – without having a written company policy on destruction and retention, you may live to regret it. A formal policy is indispensable in case you’re sued and have to prove you weren’t destroying evidence of wrongdoing. Your attorney can help you formulate a policy that will withstand legal scrutiny.

Background Checks Are a Good Idea

More companies are using inexpensive prehiring background checks to screen out applicants with criminal histories. They may also protect you from negligent-hiring lawsuits. Your attorney can advise you how best to use them.

Living Trusts Need Checkups

How current is your living trust? Does it need a checkup? It does if you executed or last amended it more than five years ago. Your attorney can review it to be sure it conforms to constantly changing tax laws.

Employers Must Send COBRA Notices

When workers leave your employ, you must notify them of their COBRA rights to keep medical coverage for 18 to 36 months. If you depend on your health insurer to notify ex-employees, and it fails to send notices, you risk being fined for failure to notify. To be safe, you can go one step further and contract with your insurer to pay any fines incurred.

Note to Downsizers: Proceed With Caution

So you’re going to cut your workforce and offer employees incentives to retire early. They ask whether you’ll sweeten the incentives later if not enough workers take you up on your offer now. What do you do? If you tell them this is the best offer they’ll get, that had better be the truth. A federal appellate court ruled recently in favor of retirees who claimed their company had misled them. The court held that a downsizing company must reply honestly if employees ask whether it will increase incentives later. Other constraints also apply, so obtain legal counsel early in the process.

Starting a New Business

Planning to start a new business? Want to be sure you get off on the right foot? Ask your attorney what permits or licenses you’ll need.

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting, or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use.