Getting Through Chapter 11 – Part One: After Filing

Part 5.1 of a 5-part series: Options for Small Business Owners in Financial Distress

Your attorney has just filed your company’s Chapter 11 reorganization case and you have no clue what to do next. Seriously, the first thing you should do is nothing. Take a breath and keep running your business.

That’s not to say there’s nothing for you to do during the entire Chapter 11 process – there’s actually quite a lot for which you will be responsible. Any competent bankruptcy attorney already has discussed your statutory and practical responsibilities in a Chapter 11 case with you prior to filing.

Now is the time to implement those decisions made before the case was filed. If you forget a decision you made (or come across an issue you hadn’t discussed), call your attorney. The two of you should be in frequent contact during the case to be sure that you don’t take any actions which don’t make sense in the Chapter 11 context, or which might violate the Bankruptcy Code, Bankruptcy Rules, or Local Rules.

Your primary concern after the case is filed is, of course, money to operate with. That topic should be discussed thoroughly with your attorney prior to filing. Be sure your attorney discusses post-petition financing and use of ‘cash collateral’ with you. Be sure that you have post-petition financing lined up before you file, either from internal operations or from a lender. If your post-petition financing falls through, or you’re not as profitable as you expected to be after filing, you may not be able to afford to operate during the Chapter 11. If so, there is  no way for you to reorganize and your Chapter 11 case may be dismissed outright. Continue reading »

Asset Protection and Estate Planning Perspective on the Importance of Holding Investment Properties in an LLC

Most small business owners today are aware of the importance of forming a legal entity before beginning their business operations. However, more individuals and families are turning to rental properties as an investment strategy, and they do not necessarily think of themselves as small business owners. But that is exactly what they are. It is critical to ensure that if you or your family own rental or other investment properties, you protect your personal assets from liability by setting up a legal entity to be the owner of the properties.

The best option for most of these types of small businesses is to form a Limited Liability Company (LLC). Limited Liability Companies require less formality than corporations and are generally less costly to form. They also offer the benefit of pass-through taxation. Though liability insurance offers protection, the one-time cost of setting up an LLC is typically less than the cost of an umbrella insurance policy over time. However, there are still coverage limits with an umbrella insurance policy: If the rental property is owned in your individual name and your liability exceeds the coverage limits, your personal assets could be at stake. LLCs shield their members from personal liability when formed and operated properly.

If you are going to own multiple properties, it may be wise to form a different LLC for each property to shield each property from the liabilities of the other properties. You will want to consult with an experienced attorney to make certain that you are following the correct procedures in establishing your LLC, such as registering the LLC with the Secretary of State, creating an operating agreement, and obtaining a tax ID number for the business.

As you can see, LLCs are extremely useful as a means of asset protection. They are also a great tool for estate planning purposes. Continue reading »

Religious Exemptions to COVID-19 Vaccination Mandates under Title VII and the EEOC’s Additional Guidance

With continued and widespread COVID-19 infection and the FDA’s full approval of the Pfizer-BioNTech COVID-19 vaccine, many employers have instituted COVID-19 vaccination mandates. Title VII requires employers to provide reasonable accommodations for employees with sincerely-held religious beliefs that conflict with getting vaccinated. Given that religious beliefs are difficult to disprove, many employees have taken this as an opportunity to request religious exemptions to avoid COVID-19 vaccination mandates.

The Law – Title VII

Title VII of the Civil Rights Act of 1964 prohibits employment discrimination on the basis of religion and requires employers to provide reasonable accommodations to employees claiming their sincerely-held religious beliefs conflict with getting vaccinated. Title VII protects not only people who belong to traditional, organized religions, such as Buddhism, Christianity, Hinduism, Islam, and Judaism, but also others who have “sincerely-held religious, ethical or moral beliefs.”

Given this sweeping definition of religion, the U.S. Equal Employment Opportunity Commission (“EEOC”) has cautioned that an employer should generally assume that an employee’s request for a religious accommodation is based on a sincerely-held religious belief. Nevertheless, an employer is permitted to question the sincerity of an employee’s purported religious belief where there is an objective basis for doing so. Further, an employer is not required to accommodate an employee’s religious beliefs and practices if doing so would impose an “undue hardship” on the employer’s legitimate business interests. For the EEOC’s list of factors to be considered when determining whether an accommodation imposes an undue hardship on an employer, visit: EEOC Undue Hardship.

The EEOC’s Guidance on Religious Exemption Requests

On October 25, 2021, the EEOC updated its technical assistance related to the COVID-19 pandemic, which included additional guidance on how employers should handle religious exemption requests (Section L). Read the full EEOC update here.

The key takeaways are:

1. Employees who have a religious objection to receiving a COVID-19 vaccination must inform their employer and request a reasonable accommodation to be afforded protection under Title VII. Reasonable accommodations may include telework or reassignment.
2. If an employer has an objective basis for questioning either the religious nature or the sincerity of a particular belief, the employer can make a limited factual inquiry seeking additional supporting information.
3. An employer who objectively demonstrates that it would be an “undue hardship” to accommodate an employee’s request for religious exemption to the employer’s vaccination mandate is not required to provide the accommodation.
4. An employer is not required to grant all employees’ requests for religious exemptions on the basis that it has granted some employees requests for religious exemptions. The determination is fact-intensive and specific to every request.
5. While an employer should consider the employee’s preference, if there is more than one reasonable accommodation that would resolve the conflict between the vaccination requirement and the religious belief without undue hardship, the employer may choose which accommodation to offer.
6. An employer has the right to discontinue a previously granted religious accommodation. If the employer learns that the belief is not religious in nature or sincerely-held, or if the accommodation becomes an undue hardship, the employer can discontinue the accommodation.

Continue reading »

Medical Marijuana Use by Employees in Missouri: Where Are We Now?

Due to the pandemic and labor shortage, Missouri courts have not had an opportunity to consider Amendment 2 and employment issues related to medical marijuana in the workplace. Amendment 2 allows state licensed physicians to recommend medical marijuana to patient employees diagnosed with chronic debilitating conditions. It also protects employees with a medical marijuana card issued by the Department of Health and Senior Services (DHSS) from being terminated unless the employer proves that the employee is “under the influence of marijuana.”

There are no reliable tests available yet to scientifically confirm if someone is “under the influence” of marijuana. A person will test positive for marijuana for up to 25 days after use. However, there are impairment tests on the market that can help determine whether workers in safety-sensitive positions are at risk by testing current fitness for duty.  Those tests include computer-based alertness tests similar to a video game and apps that test for cognitive and motor impairment. Some tests take 20 seconds and are advertised as testing for fatigue, dehydration, emotional distress, alcohol, cannabis, etc.

Without more guidance, employers will have to create Observed Behavior tests that are signed by company personnel to bolster an argument of “under the influence.” Further, because Amendment 2 is a constitutional amendment, it would necessarily trump existing Missouri law found in laws such as workers’ compensation and unemployment statutes.

Another possible employee defense is an Americans with Disabilities Act (ADA) defense where the employee is taking physician-prescribed medical marijuana for a chronic debilitating condition that is protected by the disability laws. Missouri has no case law at this time. U.S. case law trends are that when courts are asked to apply federal law (the ADA) versus state law (i.e., Missouri Human Rights Act), federal courts are not finding a protected disability due to the employee using an illegal drug. Continue reading »

Changes Coming to Illinois Non-Compete and Non-Solicit Law

Authored by Katherine M. Flett with assistance from Haley E. Gassel, contributor

On August 13, 2021, Governor JB Pritzker signed SB 672 into law, amending the Illinois Freedom to Work Act, the state’s restrictive covenant statute. Going into effect on January 1, 2022, the new bill will only apply to restrictive covenants entered into on or after January 1, 2022.

Compensation Thresholds

In SB 672, the Illinois legislature reserved non-compete and non-solicit agreements for higher paid employees. The law prohibits employers from imposing non-compete agreements on employees earning less than $75,000 annually or non-solicitation agreements on employees earning less than $45,000 annually. Earnings are defined broadly to include compensation, salary, bonus, commission, or any other form of taxable compensation on the employee’s W-2 plus any elective deferrals. These salary thresholds will increase over time, beginning in 2027.

Other Prohibitions

SB 672 includes a special provision for employees furloughed or laid off “as the result of business circumstances or governmental orders related to the COVID-19 pandemic” or under similar circumstances. A non-competition or non-solicitation agreement may not be entered into under these circumstances unless enforcement of the agreement provides for “compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement minus compensation earned through subsequent employment during the period of enforcement.”

Non-competition and non-solicitation agreements are illegal for non-managerial or non-administrative employees in construction or employees covered by collective bargaining agreements under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act.

Employees’ Rights

If an employee is not advised by the employer in writing to consult with an attorney before entering into a non-competition and non-solicitation agreement, the agreement is invalid. Likewise, if an employee does not receive a copy of a non-competition and non-solicitation agreement before starting employment or with at least 14 days to review the covenant, the agreement is invalid. The employee may sign the agreement before the 14-day period has ended.

An employee that successfully defends against an employer’s enforcement of a non-competition or non-solicitation agreement not to solicit shall recover from the employer all costs and reasonable attorney’s fees, along with any other appropriate relief.

Requirements for a Restrictive Covenant to be Valid

Continue reading »

Essential Points to Follow When Entering Into or Renewing Your Lease

In spite of the uncertainties caused by the pandemic, your lease remains critical to your business. Commercial leases are complex transactions and should be undertaken with great care.

Following these basic points will make the lease renewal or new lease go smoothly. Continue reading »

Revisions to Punitive Damages in Missouri

Changes have been made to punitive damages claims in civil actions filed in Missouri on or after August 28, 2020.

Under the revisions, Missouri Revised Statute Section 510.261 now prohibits parties from making a claim for punitive damages in their initial pleading in a civil action. Any claimant who wishes to add a punitive damages claim to a civil action must file a written motion to amend 120 days prior to the pretrial conference, or, if no conference is scheduled, 120 days prior to trial, seeking leave to bring a claim for punitive damages. The claimant seeking leave must provide exhibits, affidavits, and discovery materials establishing a reasonable basis for the recovery of punitive damages. Any party opposing leave may submit admissible evidence to demonstrate that the standards for a punitive damage award have not been met. The court may grant leave to add the punitive damages claim if it determines that a judge or jury could reasonably conclude, based on clear and convincing evidence, that the standards for a punitive damage award have been met. This statute has the effect of preventing meritless claims being made in litigation as well as saving both the time and money of the parties involved.

Substantive Changes and Clarifications

After clearing the hurdle of obtaining leave to bring a punitive damages claim, a claimant must satisfy the statute’s requirements to receive an award of punitive damages. To do so, RSMo  510.261(1) requires the claimant to prove by clear and convincing evidence that the defendant “intentionally harmed the plaintiff without just cause or acted with a deliberate and flagrant disregard for the safety of others.” The revised statute does three things:

1. Codifies the original common law regarding punitive damages. In Klingman v. Holmes, 54 Mo. 304, 308 (1873), the first Missouri Supreme Court case allowing an award of punitive damages, the Court held that exemplary damages are only appropriate where an evil intent has manifested itself in acts. The court reasoned that under common law there must have been intent, or positive proof of malice, to justify granting punitive damages.
2. Clarifies the requisite mental state of the defendant, to intentionally harm without cause or with a deliberate and flagrant disregard for the safety of others. This gives the judge or fact finder a clear standard for determining whether the claimant is entitled to punitive damages.
3. Codifies the “clear and convincing” burden of proof standard. The Missouri Supreme Court has previously adopted this standard, but it had yet to be codified.[1]^,[2] The clear and convincing burden of proof standard falls within the middle ground of the ordinary civil burden of proof standard, preponderance of the evidence, and the criminal law standard, beyond a reasonable doubt.

Nominal Damages Continue reading »

Missouri Joined the Rest of the Country in Enacting “Wayfair Tax”

Missouri joined the rest of the country in enacting a sales tax on online purchases, commonly known as a “Wayfair tax,” when Governor Parsons signed Senate Bill 153 into law. The governor identified the Wayfair tax as a priority in his 2021 State of the State Address. The Wayfair tax will begin in Missouri on January 1, 2023.

Previously, Missouri businesses who made online sales to Missouri customers were required to charge sales and use tax, while companies without a physical presence in Missouri who made online sales to Missouri customers were not.  The new law allows Missouri to impose a sales tax on online purchases made through vendors such as Etsy, eBay, and Wayfair, that are delivered to the state.

The Wayfair tax is intended to even out the playing field for local businesses to compete with online companies. It is also expected to raise up to $41 million for public schools, $5 million for the Missouri Department of Conservation, and $4.5 million for state parks and soil conservation. Continue reading »

Eviction/Foreclosure Moratorium Changes and the Consumer Financial Protection Bureau’s Final Rule on Foreclosure

On June 24, 2021, the Centers for Disease Control (CDC) extended its eviction moratorium order which was set to expire on June 30, 2021.  According to CDC Director Dr. Rochelle Walensky, the eviction moratorium will now expire July 31, 2021 and is intended to be the final extension.

Just a few days later, the U.S. Supreme Court denied a request by a group of landlords to allow a federal judge’s decision to block the eviction moratorium to go into effect nationwide while litigation disputes continued to vacate a stay order from Federal Judge Dabney Friedrich that declared the CDC moratorium unlawful (see “Federal Judge Dabney Friedrich Vacates CDC Nationwide Eviction Moratorium”). Washington-based U.S. District Court Judge Dabney Friedrich ruled in favor of the landlords in May 2021 but put her ruling on hold pending the government’s appeal in the case. The landlords appealed to the Supreme Court after a lower appellate court rejected their request to unfreeze Judge Friedrich’s ruling. The landlord groups, led by the Alabama Association of Realtors, sued to challenge the moratorium, arguing that the CDC exceeded its authority under a federal law called the Public Health Service Act. They wrote in court papers: “Congress never gave the CDC the staggering amount of power it now claims.”  The groups said an eviction ban is no longer needed for public health reasons in light of declining COVID-19 cases and deaths. They also cited the CDC’s May 13, 2021 announcement that vaccinated people no longer need to wear masks or practice social distancing indoors. Continue reading »

Mandatory COVID-19 Vaccines in the Workplace Update: Ruth Binger Interview

Ruth Binger spoke with KMOV Channel4 News about a possible increase in companies requiring the COVID-19 vaccination for their employees.

According to Ruth, the fact that the vaccination does not yet have FDA approval is keeping many companies from considering a mandatory vaccination policy at this time. To date, none of her clients have a mandatory policy in place. “I do think it’s changing a little bit because of the Delta variant, and now [companies are] thinking about whether or not they should have a mandatory policy.”

Ruth said that another concern employers about enforcing a mandatory COVID-19 policy is the national worker shortage. Continue reading »