The National Law Forum

Supreme Court Employment Cases to Watch: Class Action Waivers

In 2012, the National Labor Relation Board held that employers cannot enforce class action waivers in arbitration agreements with employees covered by the National Labor Relations Act. The Seventh Circuit in Lewis v. Epic Systems, agreed, holding that the Federal Arbitration Act does not override Sections 7 and 8 of the National Labor Relations Act, which together make contracts that restrain the employee’s right to engage in “concerted activities” for the purpose of collective bargaining unenforceable. Rather, the FAA and the NLRA must be read together and to the extent an employer attempts to enforce an individual arbitration clause, it must be deemed “illegal” and unenforceable under the FAA.

The Ninth Circuit in Ernst & Young LLP v. Morris followed the Seventh Circuit rationale. Other circuits, however, have disagreed. For example, the Fifth Circuit in NLRB v. Murphy Oil, said that the NLRB provisions do not override the FAA because the use of class action procedures is a procedural, rather than a substantive right. Although the employer had to allow employees to seek relief for unfair labor practices before the NLRB, the employer could enforce an arbitration clause that waived the employee’s right to collective action.

Given this split, the Supreme Court agreed to resolve the issue by accepting certiorari (appeal) of and consolidating the three cases. Oral argument was held in October. In an interesting twist, the Solicitor General’s Office, which had originally filed a brief with the NLRB, switched sides after the change in administration and argued in support of the employers.

This article was written by Jessica Gray Kelly of Sherin and Lodgen LLP

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Happy 25th Birthday, FMLA! 25 Years Later – Where Are We Now?

The Family and Medical Leave Act (FMLA) is celebrating its 25^thanniversary this month. On February 5, 1993, President Bill Clinton signed the FMLA into law guaranteeing certain employees up to 12 unpaid weeks off of work a year to care for children or ill family members, or to recover from one’s own serious health condition. During the time off, an employee’s medical benefits would remain intact.

When initially passed, the statute’s purpose was to address the rising number of American households with working parents who were concerned about losing their jobs when taking time off to care for a child or a sick family member. It was also meant to allow people who had serious health conditions to remain employed when taking time off work for temporary periods.

Since that time, the FMLA has become a source of contention for employers and employees alike. Employers often feel overburdened by the paperwork’s technical requirements, the ever-increasing threat of litigation, and the costs of complying with the statute. Employees and workers’ rights groups are concerned about the FMLA’s lack of coverage for part-time and small-business workers and the narrow definition of family. Either way you slice it, the FMLA is due for a revamp, but are the Trump administration’s budget proposal and tax cuts pushing the FMLA in the right direction?

FY2018 Budget Proposal

Although in its nascent form, President Donald Trump followed up on a campaign promise and included a proposal for paid parental leave in his FY2018 Budget Proposal. The Budget Proposal would give new mothers and fathers up to six weeks of paid parental leave. The funding for the proposal would come from the Unemployment Insurance system and be funded and run, at least in part, by the states. A reduction in improper payments, assistance finding new jobs, and the ability to keep reserves in the Unemployment Trust Fund accounts are listed as possible vehicles to fund the program.

As we previously reported, some state and local governments have already enacted their own Paid Family Leave measures. It is unclear at this point how the new proposal would affect these state and local laws. Although making coverage mandatory and taking the burden off of employers to pay for leave are attractive goals for many, there are practical concerns about how this proposal would be funded and which employees would be covered.

Tax Act

In December, a bill formally known as the Tax Cut and Jobs Act was signed into law. Beginning in 2018, employers who voluntarily provide paid family and medical leave are eligible to receive a tax credit of between 12.5 percent and 25 percent of the cost of each hour of paid leave based on the amount of compensation provided during the leave. The employer must provide at least two weeks of leave and compensate the worker for at least 50 percent of the worker’s earnings to be eligible. The tax credit will only be applied toward paid leave for employees who make less than $72,000. The employer must also make the paid leave available to both full-time and part-time employees who are employed at the organization for at least a year to receive the credit.

The tax act also broadens the scope of paid leave to cover part-time employees and may incentivize employers to voluntarily provide paid leave, but the act ends in 2019 and may not provide enough credit for all employers to buy into the program.

As the policy landscape shifts at the federal and state level towards paid leave, employers should consider which approach is best for their current situation. If relying on the tax incentive for purely financial reasons, an employer should analyze the numbers to make sure that the tax incentive is worth offering the paid leave, taking into consideration that the tax incentive may extinguish at the end of 2019 unless extended by Congress. Employers would also be wise to review state and local laws to make sure that their policies align with local paid leave mandates. Employers could proceed ahead of any mandatory change and voluntarily implement paid leave based on intangibles such as recruitment, retention, and worker productivity or wait and see if the family and medical leave winds change direction yet again.

This post was written by Taylor E. Whitten of Foley & Lardner LLP.

Tweet This: Twitter Becoming More Prevalent In Union Organizing Efforts

Unions are turning to social media more and more in an effort to expand their ranks. Twitter, in particular, is a platform big labor is utilizing in hopes of spurring interest among younger workers, according to a new report from Bloomberg BNA. Unions increasingly are using the platform to launch or help further unionization campaigns.

According to the report, “And unions need more young workers to fill their ranks if they’re going to survive. Unions did see a bump in membership for younger workers in 2017, but membership rates are still highest among workers aged 55 and older, according to Bloomberg Law data. That potentially leaves organized labor with shrinking ranks as members retire.” Recently released data from the Bureau of Labor Statistics supports that notion.

Aside from unionization efforts, unions are using social media to mount public pressure on employers to pay higher wages and benefits. In essence, the platforms are being utilized, in some circumstances, like a virtual picket line.

Of course, employers have the ability to communicate with both their employees and customers via social media as well – and many do. We’ll see if social media or other new strategies can reverse organized labor’s decline over the past several decades.

This article was written by David J. Pryzbylski of Barnes & Thornburg LLP

Were Analytics the Real MVP of the Super Bowl?

As the Eagles readied to celebrate the franchise’s first Vince Lombardi trophy, an unlikely candidate basked in the glow of being declared the game’s Most Valuable Player. Surely it was Nick Foles who, on his way to upsetting one of the NFL’s elite franchises threw and caught a touchdown in the same big game, was the true MVP. But was he?

In the days leading up to the Super Bowl, the New York Times published an article about how the Eagles leveraged analytics to secure a Super Bowl berth. The team relied, in part, on probabilistic models that leveraged years of play data to calculate likely outcomes, given a specific set of circumstances. They found that while enumerating outcomes and optimizing for success, the models would, in many cases, recommend plays that bucked the common wisdom. Indeed, we saw the Eagles run plays and make decisions throughout the season that, to the outside observer, may have seemed mind-boggling, overly-aggressive, or risky. Of course, the outside observer did not have access to the play-by-play analytics. Yet, in many instances, these data-driven decisions produced favorable results. So it seems that analytics were the real MVP, right? Well, not entirely.

As we have written in the past, the most effective analytics platforms provide guidance and should never be solely relied upon by employers when making decisions. This analytics concept rings as true in football as it does in business. The New York Times article talks about how mathematical models can serve to defend a playmaking decision that defies traditional football logic. For example, why would any team go for it on fourth and one, deep in their own zone, during their first possession in overtime? What if the analytics suggested going for it was more likely to result in success? If it fails, well, the football pundits will have a lot to talk about.

Coaches and players weigh the analytics, examine the play conditions, and gauge on-field personnel’s ability to perform. In order words, the team uses analytics as a guide and, taking into account other “soft” variables and experience, makes a decision that is right for the team at that time. This same strategy leads to success in the business world. Modern companies hold a wealth of data that can be used to inform decisions with cutting edge analytics, but data-driven insights must be balanced with current business conditions in order to contribute to success. If this balancing act works on the grand stage of professional football, it can work for your organization.

Indeed, we may soon see a day when football stars raise the Super Bowl MVP trophy locked arm-in-arm with their data science team. Until then, congratulations, Mr. Foles.

This post was written by Eric J. Felsberg of Jackson Lewis P.C.

GDPR May 25th Deadline Approaching – Businesses Globally Will Feel Impact

In less than four months, the General Data Protection Regulation (the “GDPR” or the “Regulation”) will take effect in the European Union/European Economic Area, giving individuals in the EU/EEA greater control over their personal data and imposing a sweeping set of privacy and data protection rules on data controllers and data processors alike. Failure to comply with the Regulation’s requirements could result in substantial fines of up to the greater of €20 million or 4% of a company’s annual worldwide gross revenues. Although many American companies that do not have a physical presence in the EU/EEA may have been ignoring GDPR compliance based on the mistaken belief that the Regulation’s burdens and obligations do not apply outside of the EU/EEA, they are doing so at their own peril.

A common misconception is that the Regulation only applies to EU/EEA-based corporations or multinational corporations with operations within the EU/EEA. However, the GDPR’s broad reach applies to any company that is offering goods or services to individuals located within the EU/EEA or monitoring the behavior of individuals in the EU/EEA, even if the company is located outside of the European territory. All companies within the GDPR’s ambit also must ensure that their data processors (i.e., vendors and other partners) process all personal data on the companies’ behalf in accordance with the Regulation, and are fully liable for any damage caused by their vendors’ non-compliant processing. Unsurprisingly, companies are using indemnity and insurance clauses in data processing agreements with their vendors to contractually shift any damages caused by non-compliant processing activities back onto the non-compliant processors, even if those vendors are not located in the EU/EEA. As a result, many American organizations that do not have direct operations in the EU/EEA nevertheless will need to comply with the GDPR because they are receiving, storing, using, or otherwise processing personal data on behalf of customers or business partners that are subject to the Regulation and its penalties. Indeed, all companies with a direct or indirect connection to the EU/EEA – including business relationships with entities that are covered by the Regulation – should be assessing the potential implications of the GDPR for their businesses.

Compliance with the Regulation is a substantial undertaking that, for most organizations, necessitates a wide range of changes, including:

Implementing “Privacy by Default” and “Privacy by Design”;
Maintaining appropriate data security;
Notifying European data protection agencies and consumers of data breaches on an expedited basis;
Taking responsibility for the security and processing of third-party vendors;
Conducting “Data Protection Impact Assessments” on new processing activities;
Instituting safeguards for cross-border transfers; and
Recordkeeping sufficient to demonstrate compliance on demand.

Failure to comply with the Regulation’s requirements carries significant risk. Most prominently, the GDPR empowers regulators to impose fines for non-compliance of up to the greater of €20 million or 4% of worldwide annual gross revenue. In addition to fines, regulators also may block non-compliant companies from accessing the EU/EEA marketplace through a variety of legal and technological methods. Even setting these potential penalties aside, simply being investigated for a potential GDPR violation will be costly, burdensome and disruptive, since during a pending investigation regulators have the authority to demand records demonstrating a company’s compliance, impose temporary data processing bans, and suspend cross-border data flows.

The impending May 25, 2018 deadline means that there are only a few months left for companies to get their compliance programs in place before regulators begin enforcement. In light of the substantial regulatory penalties and serious contractual implications of non-compliance, any company that could be required to meet the Regulation’s obligations should be assessing their current operations and implementing the necessary controls to ensure that they are processing personal data in a GDPR-compliant manner.

This post was written by Gregory J. Leighton and Sarah E. Smith of Neal, Gerber & Eisenberg LLP.

More on the GDPR at the NLR European Union Jurisdiction Page.

Trump Administration and Bank Regulators Plan Changes to the Community Reinvestment Act

The Wall Street Journal reported on January 11, 2018, that the Trump administration is planning to overhaul the Community Reinvestment Act (CRA), though the article does not provide any specific details regarding precise changes to the law. This evolving viewpoint was first outlined in the Treasury Department’s report, A Financial System That Creates Economic Opportunities: Banks and Credit Unions, which points to modernization in both CRA structure and its enforcement. The report recommended reviewing aspects of CRA framework, including the following: changing how regulators measure banks’ CRA investments to improve their benefit to communities; streamlining CRA supervision and enforcement given its current oversight by multiple regulators; modernizing CRA geographic assessment areas due to the changing nature of technology and other factors; and improving regulatory review and ratings assessment process, including the frequency of examinations, ability of institutions to remediate ratings, and transparency in CRA assessment rating methodology and process.

check writing

The Treasury’s proposed CRA overhaul is encouraging despite a lack of specifics and the difficulty in directly quantifying CRA compliance costs. Certain change is already underway in the form of a new regulatory posture. In October 2017, then Acting Comptroller of the Currency Keith Noreika changed the OCC’s policies to make it more difficult for banks’ CRA ratings to be downgraded as a result of legal settlements involving other laws. Now it is harder for banks to have their CRA ratings downgraded for reasons not directly related to alleged CRA violations themselves. The overall result for banks is positive and signals an improved regulatory attitude and landscape.

This article was written by Peter J. Rivas of Jones Walker LLP

Transparency is the Best Policy: Teetering on the Edge of Misleading

In Chatham Asset Management, LLC v. Papanier, C.A. No. 2017-008-AGB (Del. Ch. Dec. 22, 2017), the Delaware Court of Chancery found that the plaintiffs, Chatham Asset Management, LLC, Chatham Fund, LP, and Chatham Asset High Yield Master Fund, Ltd. (collectively, “Chatham”), pleaded sufficient facts to avoid dismissal of a claim that the director defendants of Twin River Worldwide Holdings, Inc. (“Twin River”) breached their fiduciary duties by making materially false and misleading statements in tender offer materials.

This action arose from Twin River’s 2016 offer to purchase up to 250,000 shares of its issued and outstanding common stock for $80 per share (the “Tender Offer”), a $10 premium to the then-trading price of Twin River’s stock. Twin River’s stock did not trade on a national stock exchange, but rather on institutional trading desks. The offer to purchase stated: “[t]he purpose of the offer is to return cash to [Twin River’s] shareholders” and that Twin River’s officers and directors did not “currently intend” to participate in the Tender Offer but that they may sell their shares “from time to time.” The Tender Offer launched on November 15, 2016, and expired one month later. Chatham tendered into the Tender Offer because it allegedly had “no choice” given a 15% regulatory cap on its holdings in Twin River which might be surpassed if the number of all issued and outstanding shares of Twin River’s stock decreased while the number of shares of Twin River’s common stock owned by Chatham remained constant. Within weeks of the Tender Offer closing, the defendant directors and officers of Twin River allegedly shopped, but did not sell, approximately 125,000 of their Twin River’s shares. In the months after the Tender Offer closed, Twin River’s stock traded between $80 and $82 per share.

In this action, Chatham alleged, among other things, that Twin River’s directors breached their fiduciary duties by making false and misleading statements in the offer to purchase. Chatham alleged that the directors’ true intentions behind the Tender Offer was to cause an increase in the price of Chatham’s stock price and to sell at or near the increased price shortly after the Tender Offer closed.

The Court found that it was reasonably conceivable that the Twin River directors breached their fiduciary duties by misstating the reasons for the Tender Offer and their intention of selling stock. Quoting a federal court, the Court writes, “stating an outcome as a possibility, that in fact is not a possibility, is misleading.” Here, the Court found it plausible that the tender offer disclosure gave the impression that the directors were not committed to selling any shares even though substantial steps were allegedly taken shortly after the tender offer to sell a considerable amount of stock. However, the Court noted that Chatham would likely be unable to establish reliance and causation to recover compensatory damages for its disclosure claim. According to the Court, any damages suffered by Chatham were not likely related to the alleged disclosure violations but rather from the regulatory cap on its holdings in Twin River.

The case serves as a reminder of the importance for officers and directors to ensure that every disclosure to stockholders contains all material facts that may impact an investor’s decision as the slightest deviation from complete transparency could result in the claims brought against them not being dismissed.

This article was written by Lisa R. Stark and Rashida Stevens of K&L Gates

New Head of MSHA to Hold First Quarterly Stakeholder Conference Call

On February 12, 2018, new Assistant Secretary David G. Zatezalo will hold his first quarterly stakeholder/training call since being confirmed as head of the agency. This stakeholder call is one of the first formal opportunities for the mining community to interact directly with Mr. Zatezalo since his confirmation, providing a glimpse into what can be expected from the agency in terms of inspection practices and rulemaking. During his confirmation process, Mr. Zatezalo mentioned compliance assistance, education, and increased usage of technology as areas he plans to emphasize as Assistant Secretary. Mr. Zatezalo may mention new initiatives in these areas during the call, or respond to questions regarding future initiatives.

The upcoming call will discuss recent fatalities and close-calls, including the topics of seat belt usage and general power haulage safety, as those areas were related to four fatalities in 2017. According to an MSHA press release, speakers will further discuss the latest on the proposed workplace examination rule, currently slated to take effect on March 2, 2018. However, with several postponements of the effective date occurring already, the mining community would not be surprised to see an additional delay in the March 2, 2018 effective date. This topic is particularly interesting to the stakeholders, as the general consensus is that rulemaking under the new MSHA may be significantly slower that under Joe Main’s agency. The call will also touch on the approaching deadline for proximity detection installation on continuous mining machines.

This article was written by Justin M. Winter of Jackson Lewis P.C.

New Tax Law Affects the Purchase and Operation of New or Used Aircraft

The 2017 Tax Cuts and Jobs Act (the Act) significantly affects business aviation. The full impact of changes to bonus depreciation, Federal Excise Tax exemptions, entertainment deductions, and the repeal of 1031 exchanges for personal property are unknown. However, based upon the language of the Act and current law, the impact on tax planning is immediate. We anticipate either a Technical Correction Act and/or additional guidance to be issued by the IRS containing certain issues as noted below.

1. Temporary 100% Expensing For Certain Business Assets

The Act allows for 100% deduction for business expenses (such as the purchase of an aircraft) placed into service after September 27, 2017, on the condition that the taxpayer has not entered into a written binding contract for the acquisition of an aircraft prior to September 27, 2017. See the Act, §13201(h). Note: The taxpayer may elect out of 100% expensing and depreciate an aircraft in accordance with other available depreciation methods.

The former law allowed for a 50% first year bonus depreciation (although the Act technically uses the term “increased expensing,” for the purposes of this alert we will use the common phrase of bonus depreciation) for the purchase of new aircraft, on the condition that an aircraft is used for a qualified business use. The Act allows for temporary 100% bonus depreciation for aircraft acquired and placed into service after September 27, 2017, and before January 1, 2023. (§13201(a)(2)), so long as the taxpayer had not either entered into a binding contract for the acquisition of an aircraft such or used an aircraft at any time prior to September 28, 2017. Further, the Act extends bonus depreciation to the purchase of used aircraft. The Act includes a transition rule that allows the taxpayer to elect a 50% allowance instead of a 100% allowance. (§13201).

In order to qualify for the bonus depreciation under the Act, a taxpayer must still comply with the requirements of §168(k) of the Internal Revenue Code. Specifically, you must be able to show that an aircraft meets the primary business use test during the year you intend to take the 100% bonus depreciation. To summarize broadly, for purposes of meeting the primary business use test, you must show that at least 25% of the time flown was for ordinary and necessary business use. If there is any personal non-entertainment or personal entertainment use of an aircraft, you must impute income to an employee. As long as you impute that income (and 25% of the flight time qualifies as ordinary and business), under the tax code you will qualify as having 100% business use for the purpose of bonus depreciation.

The Act provides that property are not treated as acquired after September 27, 2017, if a written binding contract for its acquisition was entered into before September 28, 2017. (§13201(h)(1)).

In short, a contract is binding

The contract is enforceable under state law against the taxpayer or a predecessor; and
The contract does not limit damages to a specified amount (for example, by use of a liquidated damages provision).

(Reg. 1.168(k)-1(b)(4)(ii)(A))

A contract that limits damages to an amount equal to or less than 5% of the total contract price is not treated as limiting damages to a specified amount. In determining whether a contract limits damages, the fact that there may be little or no damages because the contract price does not significantly differ from fair market value isn’t taken into account. A contract that provides for a full refund of the purchase price in lieu of any damages allowable by law in the event of breach or cancellation is not considered binding. There is still an open question on whether a contract can be “binding” for one party and not for the other.

In order for property to constitute “qualified property” eligible for bonus depreciation the property must qualify for the general depreciation rules of the Modified Accelerated Cost Recovery System (MACRS) under Section 168 of the Tax Code. Property that is subject to the “alternative depreciation system” (ADS) described in Section 168(g) is not “qualified property” eligible for depreciation under MACRS.

Section 280F(b) of the code provides that certain “listed property” will be treated as ADS property under Section 168(g) if certain requirements are not met. Aircraft are listed property. Under Section 280F(b)(2), if an aircraft is not predominantly used for qualified business use (i.e., used more than 50% in the trade or business of the taxpayer) for any taxable year (the “Predominant Use Test”), then MACRS is not available, and instead an aircraft must be depreciated under the slower straight line method of the alternative depreciation system, and any first-year “bonus” depreciation in excess of depreciation under ADS must be “recaptured” as ordinary income in the tax year that the Predominant Use Test is not met.

Section 168(k)(2)(C)(i)(II) provides that Section 280F(b) must be applied before determining whether an aircraft is eligible for bonus depreciation. Thus, the Predominant Use Test must be satisfied in the first year in order to take bonus depreciation.

Section 186(k)(2)(F)(ii) also makes clear that that the limitations of Section 280F(b)(2) apply to bonus depreciation: “The deduction allowable under paragraph (1) [i.e. the bonus depreciation deduction] shall be taken into account in computing any recapture amount under section 280F(b)(2).” Thus, the Predominant Use Test must be satisfied in each subsequent tax year during the ADS recovery period for an aircraft in order to avoid recapture of the bonus depreciation.

The listed property recapture rules under Section 280F(b) only apply if the Predominant Use Test is failed during the ADS recovery period that applies to the asset, and such rules apply only to recapture the excess of the depreciation taken under MACRS/bonus over what would have been taken under ADS. There is no excess depreciation expense to recapture under the listed property rules if the applicable ADS recovery period has expired.

The next question is what constitutes “qualified business use” necessary to satisfy the Predominant Use Test. The term “qualified business use” generally means any use in the trade or business of the taxpayer other than use for the production of income under Section 212.

There are important exceptions. Generally, the following uses of listed property by 5% owners and related persons are not qualified business use:

a) The use of listed property that is leased to a 5% owner or related person;

b) The use of listed property was provided as compensation for the performance of services by a 5% owner or related person; or

c) The use of listed property is provided as compensation for the performance of services by any person not described in (b), above, unless an amount is reported as income to such person and taxes are withheld

See Section 280F(d)(6)(C)(i); and Treas. Reg. § 1.280F-6(d)(2)(ii)(A).

But, if the property involved is an airplane, the above-mentioned business use by 5% owners and related persons is qualified business use if at least 25% of the total use during the tax year consists of other types of qualified business use. Section 280F(d)(6)(C)(ii); and Treas. Reg. § 1.280F6(d)(2)(ii)(B). The most conservative approach is to qualify for the 25% business use test by flight hours, based upon per-passenger flight hours.

Thus, if the 25% threshold is satisfied in a given year, trade or business use otherwise excluded is counted in determining whether more than 50% of total use of an aircraft for that year is qualified business use.

If the Predominant Use Test is not satisfied, an aircraft may still be depreciated to the extent of the qualified business use, but that portion of the basis of an aircraft that may be depreciated must be depreciated using the straight-line ADS system. Business use aircraft depreciable under ADS system must be depreciated on a straight-line basis over a six-year recovery period (12 years for commercial/charter aircraft).

The taxpayer must meet the Predominant Use Test during each taxable year of the applicable ADS recovery period. Maintenance flights must be allocated between flight hours or miles that are for qualified business use and flight hours or miles that are not for qualified business use, taking into account the preceding exclusions for 5% owners and related persons. For example, if 40% of the flight hours (or miles) of an aircraft (other than maintenance flights) are qualified business use, then only 40% of maintenance flight hours (or miles) may be taken into account as qualified business use. See Technical Advice Memorandum 200945037 (July 29, 2009).

As with any new legislation, several open questions must be addressed through either technical corrections or advisory opinions. For bonus depreciation, it is unclear what the term “such property was not used by the taxpayer at any time prior to such acquisition” means. Specifically, it is unclear whether charter or demonstration flights are considered as “used by taxpayer.” Further, the Act is silent on whether straight-line election for entertainment disallowance purposes is being revisited with enactment of 100% bonus depreciation.

2. Federal Excise Tax Exemption

The IRS had instituted a number of audits of aircraft management companies seeking to impose federal excise tax (FET) on amounts paid by a company to a management company for management services (including pilot services) relating to the operation of an aircraft. The new tax law seeks to address the audit concerns for managed aircraft in a positive way.

The Act creates an exemption to FET related to aircraft management services. Specifically, payments for the following are exempt from FET:

Support activities related to an aircraft (e.g. storage, maintenance, fueling);
Activities related to the operation of an aircraft (e.g. hiring and training of pilots, hiring and training of crew);
Administrative services related to an aircraft (e.g. scheduling, flight planning, weather forecasting, insurance, establishing and complying with safety standards); and
Other services necessary to support flights operated by an aircraft owner.

These exemptions, however, are applicable only to the extent that they are directly attributable to flights on an aircraft owner’s own aircraft. For example, if an aircraft owner leases its aircraft to a charter company and is provided an aircraft (not the owner’s aircraft) as needed, such payments could still be subject to FET

For the purposes of determining whether a lessee is an aircraft owner for the purpose of the FET exemption, a lessee is not considered an aircraft owner if (i) the lease is for a term of 31 days or less and (ii) an aircraft is leased from a management company or a related party. Otherwise, the lessee is considered an aircraft owner for FET purposes.

3. Disallowance of Travel Expenses “Directly Related” to Business

Under the former law, entertainment, amusement, and recreation were deductible if and only if the entertainment, amusement, or recreation bore direct relation to the active conduct of the taxpayer’s business. This deduction applied to the use of aircraft to get to the entertainment as well. 26 US Code § 247(a)(1).

For tax years starting with 2018, all entertainment, amusement, or recreation expenditures, regardless of whether they are directly related to a business goal will not be allowed. This would likely include travel on the company aircraft with business customers, prospective clients before, during or after entertainment, even if the entertainment was clearly associated with a business goal.

4. Disallowance of Commuting Expenses

The Act disallows deduction of costs for reimbursing transportation to employees to commute between employee’s residence and place of employment, unless provided for the safety of the employee. The Act is unclear as to whether an amount included in employee’s income for commuting (i.e. Standard Industry Fare Level (SIFL)) is deductible to the company for commuting flights. Further, it is unclear whether partners, LLC members, and S corporation owner-employees are treated as employees for the purpose of the Act’s Entertainment and commuting rule changes. A planning option might be to document that the commuting on the company aircraft by an executive is for security reasons related to the safety of the employee. This could involve obtaining an independent security survey that could also reduce the amount of SIFL to be imputed to the employee/executive.

5. Repeal of 1031 Exchanges For Personal Property

1031 like-kind exchanges of aircraft are no longer permitted under the new federal tax laws. (§13303). Thus, the only like-kind exchanges remaining in the Tax code are exchanges of real property not held primarily for sale.

If a 1031 exchange (or a reverse like-kind exchange) was initiated before December 31, 2017, then the amendments contained in the Act do not apply, and the like-kind exchange can be completed. (§§13304(c)(2)(A) and (B)).

The benefits of a like-kind exchange, at least until the end of 100% expensing (2023 or 2024 for longer production period property and certain aircraft), are offset by the ability to expense 100% of the purchase price of the replacement aircraft, which should more than offset the gain on the sale of the relinquished aircraft. Planning concerns may exist where the sale of the relinquished aircraft occurs in a tax year different than the purchase of the replacement aircraft.

This article was written by Clifford G. Maine and Todd A. Dixon of Barnes & Thornburg LLP

Employer’s Ultimatum Supports Employee’s ADA Failure to Accommodate Claim

The United States District Court for the Southern District of Alabama in McClain v. Tenax Corp. recently denied in part an employer’s motion for summary judgment on a disabled employee’s failure to accommodate claim under the ADA. The Court held the ADA-required interactive process never took place where the employer’s issued an ultimatum to the disabled employee in response to his request for a reasonable accommodation. The facts show the importance of a well-documented interactive accommodation program. In this case, an employee suffering from hand and foot deformities worked full-time as a janitor until the employer faced a production slowdown. The slowdown led to the employee’s position becoming part-time. In an effort to restore him to full-time, the employer offered a part-time pallet-wrapping position to supplement his part-time janitorial position. After just two days of performing the part-time pallet-wrapper position, the employee advised his manager he could not perform the job because of his physical impairments. The employee requested an accommodation whereby he be permitted to return to work as a full-time janitor. Despite his complaints to multiple managers, they indicated he could either do both positions or quit. Given no other options, the employee resigned. He was not fired, but an ultimatum was presented.

The Court determined that under the ADA the employer had no obligation to create a new position (i.e., a full-time, rather than a part-time, janitorial position) for the employee as a reasonable accommodation. However, the Court ruled that the employer’s actions could be viewed by a jury as unlawful. By giving the employee the all-or-nothing ultimatum it failed to engage in the mandatory interactive process, which requires interactive discourse between the employer and employee.

This article was written by Henry S. Shapiro of Jackson Lewis P.C.

The National Law Forum

Supreme Court Employment Cases to Watch: Class Action Waivers

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