Chattanooga Business and Litigation Blog

Collection of a Judgment: The Real Battle

Katherine Higgason Lentz

Obtaining a judgment against a defendant is not the same thing as collecting that judgment and often collecting a final judgment is the real battle in a case. You will often hear attorneys tell their clients that winning a lawsuit can be the easy part and collecting the judgment can be what takes time and considerable effort. When a judgment is obtained at the conclusion of a lawsuit, very rarely will a defendant write a check for the amount owed. Collection of the judgment may also be delayed if a defendant chooses to appeal to a higher court. If the defendant does not voluntarily pay a judgment, there are, however, ways to attempt to collect a judgment after it becomes final.

Many methods used to collect a judgment require substantial information about a defendant. Consequently, after the conclusion of litigation and obtaining a judgment, it may be necessary to engage in post-judgment discovery to learn what assets a defendant owns, where a defendant is employed, or where a defendant banks. Post-judgment discovery is similar to the regular discovery process in that the some process and procedure may be followed, including the use of depositions and written discovery requests. Tenn. R. Civ. P. 69.03. But once an individual has the necessary information, there are various ways to attempt to collect a judgment after it is final, including:

• Garnishing a paycheck if aware of where a defendant works
• Garnishing a bank account if aware of where a defendant banks
• Placing a lien on real property
• Executing on personal property

Is Your Corporation's Charter Doing Everything it Can for You?

Richard G. Pearce

When forming a corporation, too many people simply visit the Secretary of State's website, or a form provider's website, download an inexpensive or free sample charter, and file it with the Secretary of State. Using such forms without careful consideration of the many variables that go into forming and operating a corporate entity, however, does a great disservice to you and your corporation.

A charter is the document that you file with the Secretary of State that creates your corporation. It, along with the corporation's bylaws and shareholders' agreement, are the documents that govern how your corporation must be run, with the provisions of the charter having priority over contrary provisions of the bylaws and shareholders' agreement.

In this article, which is part of a series of articles regarding entity formation, we are going to apply Tennessee law; however, many of these same benefits are provided in other states. Let's start with the general rule that your corporation's charter cannot be inconsistent with applicable law. T.C.A. §48-12-102. In other words, if Tennessee law requires the shareholders to vote to take a particular action, the charter cannot choose to have the directors vote to take that action. Building upon the general rule, Tennessee law accords certain powers or rights to a corporation that can only be taken advantage of by exercising those powers in the charter.

A charter can limit a corporation's purpose, which is by default "any lawful business". When would a corporation want to limit the business it can engage in? Perhaps when it is required by law to have a limited purpose. For example, there are prohibitions, or at least certain complications, in financial advisor businesses engaging in actions other than providing financial advice. If a director or officer attempts to take such actions on behalf of the corporation that would cause hardship for the shareholders, those shareholders could have the corporation, or the director/officer, stopped from taking such an action and have the action "set aside" under T.C.A. § 48-13-104.

A charter can further limit the power of the board of directors and even, if it has 50 or fewer shareholders, bestow upon another position some or all of the duties of a board of directors. T.C.A. § 48-18-101. This can greatly simplify the operations of small corporations.

In the second article of this series, I will complete the discussion of how a charter can be used to your benefit and therefore requires careful consideration in drafting.

It should be clear that it is not in your best interest to just print a form charter and file it. Instead, please consult with counsel before forming your next company. Further, if you used a form or simple charter when you formed your company, please consider contacting an attorney to have it revised to take advantage of all of the opportunities provided by law so that the charter can be carefully tailored to your unique circumstances.

This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.

REQUIRING APPLICANTS TO HAVE A HIGH SCHOOL DIPLOMA

MAY VIOLATE FEDERAL LAW SAYS EEOC

Charles D. Lawson

In a recent letter to another federal agency, the Equal Employment Opportunity Commission (EEOC) declared that employers who require applicants to have a high school diploma when seeking particular positions may violate the Americans With Disabilities Act (ADA).¹ The letter, posted on the EEOC's website on December 2, 2011, is not an "official" opinion of the agency, but should serve as a signal to employers that the EEOC will be scrutinizing all criteria used by employers to screen applicants for employment.

In the case before it, the EEOC declared that employers may not use a high school diploma requirement to screen out applicants who were unable to obtain a diploma because of a condition qualifying as a learning "disability" under the ADA, unless the employer demonstrates that the requirement is "job related for the position in question and consistent with business necessity." The diploma requirement would not meet this standard if the job in question were easily performed by a person without a diploma. Moreover, even if the requirement met the EEOC's standard in general, an employer must still assess whether a particular "disabled" applicant could perform the essential functions of the position sought, with or without accommodation. If so, the diploma requirement could not be used to screen out that applicant.

Though not an "official" pronouncement of the EEOC, and despite the EEOC's caveat that an employer need not "prefer" a disabled candidate over better qualified candidates without a disability, employers must still be alert to the message the agency charged with enforcing many of the nation's major anti-discrimination laws is sending: any criteria, however neutral on its face and however reasonable in appearance, may not be used to screen out applicants for employment without a showing that the criteria is actually related to the performance of the job in question.

If you would like further information please feel free to contact the author or any member of our Labor and Employment group.

¹ http://1.usa.gov/vwXcls

About the author: Mr. Lawson received his B.S. from the University of Tennessee at Chattanooga, magna cum laude, in 1994, and his J.D. from Vanderbilt University in 1997 where he was elected to the Order of the Coif. He is a member of GKH's Labor and Employment group and specializes in all phases of the employer-employee relationship, including wage and hour, FMLA, ADA, unemployment compensation, and discrimination/harassment law. He provides regular employer counseling on issues ranging from workplace policy development and labor law compliance to non-competition and confidentiality issues. He also defends employment claims filed with administrative bodies such as the EEOC and the Tennessee Human Rights Commission, as well as claims filed in state and federal court. Mr. Lawson's work with employers is designed to educate them about particular areas of the law governing the employment relationship, with a focus on minimizing exposure to employment-related claims and providing cost-effective litigation strategies should litigation arise. 

This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter. 

IC-DISC's--An Exporter's Primary Tax Benefit 

David M. Elliott & Richard G. Pearce

IC-DISCs are one of the few tax benefits provided by the tax code specifically for exporters. IC-DISC's can be used by any company that 1) directly exports the goods that it manufacturers; 2) provides services that are conducted outside of the U.S.; or 3) manufactures goods that are part of a final product that is exported.

To qualify as an IC-DISC, a domestic corporation must pass the following two tests:

1. 95% of the gross receipts of the IC-DISC must constitute qualified export receipts.
2. 95% of the assets of the IC-DISC must be qualified export assets.

There are other tests, but these provide a good idea of whether further consideration is warranted.

An IC-DISC is a domestic corporation that makes the election to be a IC-DISC with the IRS. For state purposes, it is simply a domestic corporation. It is neither a s-corp or a c-corp. Note that s-corporations are ineligible to be IC-DISCs.  

The basic process for using an IC-DISC is as follows:

1. An exporting company (Export Co.) creates an IC-DISC. Use IRS form 4876-A to do this.
2. Export Co. pays the IC-DISC a commission based on Export Co.'s export sales, at the rate of the greater of 50% of net export income or 4% of export gross receipts. The IC-DISC needs to be in place prior to the export sales at issue.
3. The commission is deductible by Export Co.
4. The IC-DISC distributes its commission revenue as dividends at 15% tax rate, but has no corporate level tax.

Here is an example of how the use of an IC-DISC could impact the bottom line.

The following example show the benefit of paying tax at a 15% rate instead of a 35% rate:

As you can see, the bottom line tax benefit is $320,000 in this example.

The IC-DISC rules are set to expire on December 31, 2012, and there is no assurance that these tax benefits will continue at all, much less to the same extent. In addition, there are a significant number of rules and regulations pertaining to IC-DISC's, so please consult a business or tax attorney if you want to learn more.

This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter. 

NON-COMPETE AGREEMENTS IN GEORGIA GOVERNED BY NEW LAW

Charles D. Lawson

On May 11, 2011, Georgia Governor Nathan Deal signed HB 30 into law, clearing the air regarding the constitutionality of a new Georgia law governing restrictive covenants. The law was originally passed in the 2009 legislative session and a constitutional amendment approving its statutory language was ratified by voters in November, 2010. However, because of issues regarding the effective date of the new law, questions arose regarding the constitutionality of the restrictive covenant law itself. To remove all such questions, the Georgia General Assembly passed HB 30--substantially reenacting the substantive provisions of the original law--and sent it to the Governor for signature.

The full text of HB 30 may be reviewed here, http://1.usa.gov/lD3KSZ, with highlights set forth below.

FIRING OF DWARF LANDS STARBUCKS IN HOT WATER

Charles D. Lawson

The Equal Employment Opportunity Commission has filed suit against Starbucks for violating the Americans With Disabilities Act (ADA) when it terminated an employee with dwarfism.¹

Although the barista job description for which Elsa Sallard applied stated that no experience was necessary, she was only provided three days' training before she was fired. The termination followed soon after Sallard had asked for a stool or stepladder to assist her in serving customers at the counter. Starbucks said it made the decision to end her employment because the company believed she posed a danger to customers and to other employees.

Joel Clark, the EEOC trial attorney handling the matter, stated that "Starbucks flatly refused to discuss Ms. Sallard's reasonable request [for accommodation]. Instead, they assumed the worst and fired her. The ADA was enacted to prevent that kind of misguided, fear-driven reaction."

Requirements of the ADA.

Employees with disabilities, as defined under the ADA, are entitled to "reasonable accommodations" that permit them to perform the essential functions of their positions. Under the newly amended ADA, with its broadened definition of "disability," individuals suffering from conditions affecting "one or more body systems" are entitled to the Act's protections. Because most dwarfism-related conditions are the result of genetic disorders, an individual suffering from such a condition must be offered reasonable accommodation.

In this case, it appears that Starbucks will be relying upon the "direct threat" defense to a claim under the ADA. Such a defense is available when an employee poses "a significant risk of substantial harm to the health or safety of the individual or others that cannot be eliminated or reduced by reasonable accommodation." 29 CFR § 1630.2(r).

The regulations implementing the ADA set forth the process an employer must follow in assessing whether a particular employee poses a "direct threat" to herself or others:

The determination that an individual poses a "direct threat" shall be based on an individualized assessment of the individual's present ability to safely perform the essential functions of the job. This assessment shall be based on a reasonable medical judgment that relies on the most current medical knowledge and/or on the best available objective evidence. In determining whether an individual would pose a direct threat, the factors to be considered include:

(1) The duration of the risk;

(2) The nature and severity of the potential harm;

(3) The likelihood that the potential harm will occur; and

(4) The imminence of the potential harm.²

In this case, the EEOC appears to believe that Starbucks failed to engage in the required "individualized assessment" regarding Sallard, but instead simply acted upon stereotypical beliefs regarding her ability to safely perform her job. Factually unsupported assumptions of this kind are forbidden by the ADA.

Lessons for Employers.

Under the broadened definition of "disability" in the amended ADA, employers must carefully analyze whether an employee falls within the protection of the Act. In borderline cases, it may be safer to assume that the employee is entitled to the Act's protections, since the EEOC has taken the position that the amended Act was intended to remove the focus from whether a person has a disability, to whether reasonable accommodations are available and/or have been provided by the employer.

In every case, decisions regarding an employee with a disability must not be based upon assumptions or stereotypes, but upon cold, hard, objective facts and evidence. Similarly, any assessment regarding whether a person poses a "direct threat" to the safety of herself or others must be based upon "the most current medical knowledge and/or on the best available objective evidence."

Consult the Author or a member of our Labor and Employment Group in advance of any significant action regarding such an employee, for help in formulating appropriate accommodations, or for assistance in assessing the availability of the "direct threat" defense to any particular employment action.

About the author: Mr. Lawson received his B.S. from the University of Tennessee at Chattanooga, magna cum laude, in 1994, and his J.D. from Vanderbilt University in 1997 where he was elected to the Order of the Coif. He is a member of GKH's Labor and Employment group and specializes in all phases of the employer-employee relationship, including wage and hour, FMLA, ADA, unemployment compensation, and discrimination/harassment law. He provides regular employer counseling on issues ranging from workplace policy development and labor law compliance to non-competition and confidentiality issues. He also defends employment claims filed with administrative bodies such as the EEOC and the Tennessee Human Rights Commission, as well as claims filed in state and federal court. Mr. Lawson's work with employers is designed to educate them about particular areas of the law governing the employment relationship, with a focus on minimizing exposure to employment-related claims and providing cost-effective litigation strategies should litigation arise.

¹ Case No. 3:11-CV00195-FM; U.S. District Court for the Western District of Texas.

² 29 CFR § 1630.2(r)(1)-(4).

Employer Quick Tips-Minimizing Exposure to Unemployment Compensation Claims in Tennessee

Charles D. Lawson

Unemployment in the U.S. has reached historically high levels and the Tennessee unemployment rate continues to be higher than the national average.¹ That's bad news not only for those looking for work, but also for Tennessee employers who bear increasing costs related to frequent unemployment claims.

In this environment, Tennessee employers who fail to take the proper steps in their hiring, disciplinary and firing processes face an increased risk of paying unemployment claims to former employees who would not otherwise be entitled to benefits. Following a few simple steps can help employers avoid paying unnecessary amounts in unemployment benefits.

1. Recognize the two most common things that disqualify an employee from benefits under Tennessee law.

A. Employees who voluntarily resign without good cause connected to their work are disqualified.

B. Employees who are terminated for intentional work-related misconduct are disqualified.

2. Implement workplace policies that are clear and easy to understand, distribute them to all employees, and keep careful records showing employee awareness of all workplace policies.

When challenging a claim for unemployment by an employee terminated for workplace misconduct, an employer must be able to prove three main things*:

(1) The employer adopted a workplace rule prohibiting the conduct in question;

(2) The terminated employee was aware of the rule; and

(3) The employee violated the workplace rule.

Step 1 requires employers to think carefully about their workplace and the proper rules that should be implemented to create and maintain a safe, efficient, and productive working environment. Rules regarding attendance, conduct, and safety, just to name a few, must be crafted in a clear and easy to understand manner.

Step 2 requires an employer to keep records showing that employees were made aware of all workplace rules. Such records can include a signed form acknowledging receipt of an Employee Handbook containing workplace policies, signed "acknowledgment forms" showing receipt of policies that are particularly important or tend to come into play more frequently than others (attendance policies, for example), or "training attendance sheets" signed by employees who attend training sessions held by the employer in which particular policies are discussed in detail. The more exposure to workplace rules the employer can prove its employees have had the better.

Step 3 requires an employer to demonstrate a violation of the rule in question. An admission by an employee that he or she violated a rule, or the identification of witnesses to the violation, and other evidence may be used to prove the violation.

[*It has been the author's experience that, in addition to the above three things, it is important for the employer to advise the employee at the time of termination exactly what violation(s) led to the discharge decision. (As one example only, the State-required "Separation Notice" should clearly state the precise rule violated leading to discharge.) This prevents the employee from arguing before the unemployment office that he or she "had no idea" why the termination decision was made, something Department of Labor officials may rely on as evidence that the employer did not terminate for the suggested offense.]

3. Document all disciplinary decisions, including warnings, suspensions, and terminations.

When defending a claim for unemployment benefits, employers need to have kept careful documentation of all disciplinary decisions. This will make it far easier to convince the Department of Labor that an employee was terminated for the reason claimed by the employer. When appropriate, all disciplinary documents should specifically cite the workplace rule that was violated by the employee receiving the discipline. A record of prior discipline for the same rule violation that led to discharge can be particularly helpful when defending a claim.

BOTTOM LINE

Unemployment claims appear likely to remain high for the foreseeable future. Employers should therefore adopt a thoughtful strategy for defending claims by those employees who are arguably ineligible for benefits. Following the steps outlined herein will help.

Should you need assistance in assessing a particular workers' eligibility for benefits (the two disqualifying situations discussed herein are not the only things that can affect eligibility), help defending a claim before the Department of Labor, or if you simply wish to discuss the best approach to defending a claim, please contact the Author or any member of our Labor and Employment Group.

About the author: Mr. Lawson received his B.S. from the University of Tennessee at Chattanooga, magna cum laude, in 1994, and his J.D. from Vanderbilt University in 1997 where he was elected to the Order of the Coif. He is a member of GKH's Labor and Employment group and specializes in all phases of the employer-employee relationship, including wage and hour, FMLA, ADA, unemployment compensation, and discrimination/harassment law. He provides regular employer counseling on issues ranging from workplace policy development and labor law compliance to non-competition and confidentiality issues. He also defends employment claims filed with administrative bodies such as the EEOC and the Tennessee Human Rights Commission, as well as claims filed in state and federal court. Mr. Lawson's work with employers is designed to educate them about particular areas of the law governing the employment relationship, with a focus on minimizing exposure to employment-related claims and providing cost-effective litigation strategies should litigation arise.

¹ http://buswk.co/sWoKcv

BIAS OF NON-DECISIONMAKER CAN STILL POISON AN EMPLOYMENT DECISION - "CAT'S PAW" THEORY CLARIFIED

Charles D. Lawson

Summary: This year, in Staub v. Proctor Hospital,¹ the United States Supreme Court made clear that an employer may be liable for discrimination even if the ultimate decisionmaker with respect to a particular employment decision did not possess discriminatory motivation, so long as the decisionmaker relied, in part, on the recommendation of another management official who was motivated by discrimination. This is the so-called "cat's paw" theory of liability in which an employee seeks to hold an employer liable, not for the discrimination of the individual ultimately responsible for the challenged job action, but for the discrimination of an earlier agent of the employer that influenced the decision of the ultimate decisionmaker.² In reaching its decision, the Court rejected the Seventh Circuit's "singular influence" rule that only permits liability in "cat's paw" cases upon a showing that the discriminating supervisor exercised such singular influence on the decisionmaker that the ultimate decision was essentially made in "blind reliance" on the discriminating supervisor's recommendation. Instead, the Court held that the discriminatory animus of a biased supervisor will suffice to hold the employer liable, even in the absence of bias on the part of the decisionmaker, unless the employer investigates the misconduct alleged by the discriminating supervisor and concludes that adverse action is justified "for reasons unrelated to the supervisor's original biased action."³

Discussion: The Staub plaintiff was a member of the United States Army Reserve, which required him to attend drill one weekend per month and to train full time for two to three weeks a year. Staub offered evidence that his direct supervisor, and her direct supervisor, were hostile to his military obligations and falsely claimed that he violated company policy, prompting his employer's VP of Human Resources to terminate him. Staub claimed his termination violated the Uniformed Services Employment and Reemployment Rights Act ("USERRA"), an act prohibiting employers from taking adverse action against "[a] person who is a member of . . . or has an obligation to perform service in a uniformed service . . ." if such "membership is a "motivating factor in the employer's action." 38 U. S. C. §4311(a), (c).

The Court analogized USERRA's prohibition on discrimination⁴ to that contained in Title VII,⁵ but noted that

"[t]he central difficulty in this case is construing the phrase 'motivating factor in the employer's action.' When the company official who makes the decision to take an adverse employment action is personally acting out of hostility to the employee's membership in or obligation to a uniformed service, a motivating factor obviously exists. The problem we confront arises when that official has no discriminatory animus but is influenced by previous company action that is the product of a like animus in someone else."⁶

The employer in Staub claimed it could not be liable because the person making the ultimate decision to terminate, the VP of H.R., possessed no discriminatory animus against Staub, and there had been no showing of "singular influence" over the decisionmaker by Staub's biased supervisors, as required by the Seventh Circuit. Moreover, the employer pointed to the fact that, before terminating Staub, the VP of H.R. had conducted what it called an "independent investigation" of Staub and decided termination was appropriate.

After rejecting the Seventh Circuit's "singular influence" approach to cat's paw cases, the Court also declined to adopt a rule urged by the Staub employer that would insulate an employer when a non-biased decisionmaker undertook some investigation into the recommendations of an employee's biased supervisors and decided adverse action was appropriate.⁷ Instead, the Court offered the following guidance regarding employer liability in cat's paw cases: If an employer investigates the recommendations of a biased supervisor regarding an employee and concludes, for reasons unrelated to the supervisor's original biased action, that adverse action is proper, then the employer will not be liable; however, if an employer relies, in part, on a supervisor's biased report regarding an employee "without determining that the adverse action was, apart from the supervisor's recommendation, entirely justified,"⁸ employer liability may be found.⁹

Lessons for Employers: Because the High Court has made clear that employers may be found liable for discrimination--even if the ultimate decisionmaker regarding a particular employment decision is completely unbiased--employers must be establish mechanisms for evaluating the legitimacy of adverse employment decisions before they are implemented. Such evaluation must take into account all of the circumstances leading up to the decision, including recommendations by non-decisionmakers, with a careful eye toward the potential bias of all individuals involved in the decision-making process, not just the employee who makes the final call regarding the particular employment action. A good way to ensure legitimacy, and consistency, in employment-related actions, is to have one person (or, at most, a small number of people) review all adverse employment actions before they are taken. This person (or group of people) should be well-versed in company policies and prior disciplinary actions, and trained in evaluating all of the relevant facts, including the potential bias of everyone involved in the disciplinary process.

If you have any questions about the issues discussed herein or any other employment-related matter, please contact the author or any member of our Labor and Employment Group.

About the author: Mr. Lawson received his B.S. from the University of Tennessee at Chattanooga, magna cum laude, in 1994, and his J.D. from Vanderbilt University in 1997 where he was elected to the Order of the Coif. He is a member of GKH's Labor and Employment group and specializes in all phases of the employer-employee relationship, including wage and hour, FMLA, ADA, unemployment compensation, and discrimination/harassment law. He provides regular employer counseling on issues ranging from workplace policy development and labor law compliance to non-competition and confidentiality issues. He also defends employment claims filed with administrative bodies such as the EEOC and the Tennessee Human Rights Commission, as well as claims filed in state and federal court. Mr. Lawson's work with employers is designed to educate them about particular areas of the law governing the employment relationship, with a focus on minimizing exposure to employment-related claims and providing cost-effective litigation strategies should litigation arise.

¹ 562 U. S. __ (2011), 2011 WL 691244.

² As noted by the Supreme Court in Staub, the term "cat's paw" derives from an Aesop fable, put into verse by La Fontaine in 1679, and made a part of the fabric of employment discrimination law by Judge Posner in 1990. See Shager v. Upjohn Co., 913 F. 2d 398, 405 (7^th Cir). In Aesop's fable, a monkey induces a cat by flattery to extract roasting chestnuts from a fire. Once the cat has done so, burning its paws in the process, the monkey absconds with the chestnuts, leaving the cat with nothing. 2011 WL 691244, n.1.

³ Staub, 2011 WL 691244 at * 6.

⁴ Under USERRA, discrimination occurs "if the person's membership . . . is a motivating factor in the employer's action, unless the employer can prove that the action would have been taken in the absence of such membership." 38 U.S.C. §4311(c).

⁵ Title VII prohibits employment discrimination "because of . . . race, color, religion, sex, or national origin" when one of those factors "was a motivating factor for any employment practice, even though other factors also motivated the practice." 42 U. S. C. §§2000e-2(a), (m).

⁶ 2011 WL 691244 at * 4.

⁷ 2011 WL 691244 at * 6.

⁸ 2011 WL 691244 at * 6.

⁹ In the case before it, the Court noted the decisionmaker had merely reviewed Staub's personnel file, but did not independently evaluate the validity of the charges made against Staub by his biased supervisors, charges later proved to be false.