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Accounting and Tax Planning

Complicating Matters

By Kristina Drzal Houghton, CPA, MST

Year-end tax planning in 2019 remains as complicated as ever. Notably, we are still coping with the massive changes included in the biggest tax law in decades — the Tax Cuts and Jobs Act (TCJA) of 2017 — and pinpointing the optimal strategies. This monumental tax legislation includes myriad provisions affecting a wide range of individual and business taxpayers.

Among other key changes for individuals, the TCJA reduced tax rates, suspended personal exemptions, increased the standard deduction, and revamped the rules for itemized deductions. Generally, the provisions affecting individuals went into effect in 2018, but are scheduled to “sunset” after 2025. This provides a limited window of opportunity in some cases.

Kristina Drzal Houghton

Kristina Drzal Houghton

The impact on businesses was just as significant. For starters, the TCJA imposed a flat 21% tax rate on corporations, doubled the maximum Section 179 ‘expensing’ allowance, limited business interest deductions, and repealed write-offs for entertainment expenses. Unlike the changes for individuals, most of these provisions are permanent, but could be revised if Congress acts again.

For your convenience, this article is divided into two sections: individual tax planning and business tax planning. Be aware that the concepts discussed in this article are intended to provide only a general overview of year-end tax planning. It is recommended that you review your personal situation with a tax professional.

INDIVIDUAL TAX PLANNING

Age-old Planning

Postpone income until 2020 and accelerate deductions into 2019 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2019 that are phased out over varying levels of adjusted gross income (AGI). These include deductible IRA contributions, child tax credits, higher-education tax credits, and deductions for student-loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. In some cases, however, it may pay to actually accelerate income into 2019. For example, that may be the case where a person will have a more favorable filing status this year than next (e.g., head of household versus individual filing status), or expects to be in a higher tax bracket next year.

“Generally, the provisions affecting individuals went into effect in 2018, but are scheduled to ‘sunset’ after 2025. This provides a limited window of opportunity in some cases.”

If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA in 2019 if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2019, and possibly reduce tax breaks geared to AGI (or modified AGI).

It may be advantageous to try to arrange with your employer to defer, until early 2020, a bonus that may be coming your way. This could cut as well as defer your tax.

Capital-gain Planning

Long-term capital gain from sales of assets held for more than one year is taxed at 0%, 15%, or 20%, depending on the taxpayer’s taxable income. The 0% rate generally applies to the excess of long-term capital gain over any short-term capital loss to the extent that it, when added to regular taxable income, is not more than the maximum zero-rate amount (e.g., $78,750 for a married couple).

YEAR-END ACTION: If the 0% rate applies to long-term capital gains you took earlier this year. For example, if you are a joint filer who made a profit of $5,000 on the sale of stock bought in 2009, and other taxable income for 2019 is $70,000, then before year-end, try not to sell assets yielding a capital loss because the first $5,000 of such losses won’t yield a benefit this year. And if you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains sheltered by the 0% rate.

Itemized Deductions

Among the most prominent tax changes for individuals, the TCJA essentially doubled the standard deduction while modifying the itemized-deduction rules for 2018 through 2025. For 2019, the inflation-indexed standard deduction is $12,200 for single filers and $24,400 for joint filers.

YEAR-END ACTION: With the assistance of your professional tax advisor, figure out if you will be claiming the standard deduction or itemizing deductions in 2019. The results of this analysis will likely dictate your tax planning approach at the end of the year.

Some or all of these TCJA provisions on itemized deductions may affect the outcome:

• The deduction for state and local taxes (SALT) is limited to $10,000 annually. This includes any combination of SALT payments for (1) property taxes and (2) income or sales taxes.

• The deduction for mortgage interest expenses is modified, but you can still write off interest on ‘acquisition debt’ within generous limits.

• The deduction for casualty and theft losses is eliminated (except for disaster-area losses).

• The deduction for miscellaneous expenses is eliminated, but certain reimbursements made by employers may be tax-free to employees.

• The threshold for deducting medical and dental expenses, which was temporarily lowered to 7.5% of adjusted gross income (AGI), reverts to 10% of AGI, beginning in 2019.

TIP: Depending on your situation, you may want to accelerate deductible expenses into the current year to offset your 2019 tax liability. However, if you do not expect to itemize deductions in 2019, you might as well postpone these expenses to 2020 or beyond.

Charitable Donations

Generally, itemizers can deduct amounts donated to qualified charitable organizations, as long as substantiation requirements are met. The TCJA increased the annual deduction limit for monetary contributions from 50% of AGI to 60% for 2018 through 2025. Any excess is carried over for up to five years.

If you are age 70½ or older by the end of 2019, have traditional IRAs, and particularly if you can’t itemize your deductions, consider making 2019 charitable donations via qualified charitable distributions from your IRAs. Such distributions are made directly to charities from your IRAs, and the amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040. But the amount of the qualified charitable distribution reduces the amount of your required minimum distribution, which can result in tax savings.

YEAR-END ACTION: Absent extenuating circumstances, try to ‘bunch’ charitable donations in the year they will do you the most tax good. For instance, if you will be itemizing in 2019, boost your gift giving at the end of the year. Conversely, if you are claiming the standard deduction this year, you may decide to postpone contributions to 2020.

For donations of appreciated capital-gain property that you have owned longer than one year, such as stock, you can generally deduct an amount equal to the property’s fair market value (FMV). Otherwise, the deduction is typically limited to your initial cost. Also, other special rules may apply to gifts of property. Notably, the annual deduction for property donations generally cannot exceed 30% of AGI.

If you intend to donate securities to a charity, you might choose securities you have held longer than one year that have appreciated substantially in value. Conversely, it usually is preferable to keep securities you have owned less than a year.

TIP: If you donate to a charity by credit card late in the year — for example, if you are making an online contribution — you can write off the donation on your 2019 return, even if you do not actually pay the credit-card charge until 2020.

Alternative Minimum Tax

Briefly stated, the alternative minimum tax (AMT) is a complex calculation made parallel to your regular tax calculation. It features several technical adjustments, inclusion of ‘tax preference items,’ and subtraction of an exemption amount (subject to a phase-out based on your income). After comparing AMT liability to regular tax liability, you effectively pay the higher of the two.

YEAR-END ACTION: Have your AMT status assessed. Depending on the results, you may then shift certain income items to 2020 to reduce AMT liability for 2019. For instance, you might postpone the exercise of incentive stock options (ISOs) that count as tax preference items.

Thanks to the TCJA, the AMT is now affecting fewer taxpayers. Notably, the TCJA substantially increased the AMT exemption amounts (and the thresholds for the phase-out), unlike the minor annual ‘patches’ authorized by Congress in the recent past.

TIP: The two AMT rates for single and joint filers for 2019 are 26% on AMT income up to $194,800 ($97,400 if married and filing separately) and 28% on AMT income above this threshold. Note that the top AMT rate is still lower than the top ordinary income-tax rate of 37%.

Education Tax Breaks

The tax law provides tax benefits to parents of children in college, within certain limits. These tax breaks, including a choice involving two higher-education credits, have been preserved by the TCJA.

YEAR-END ACTION: If you pay qualified expenses for next semester by the end of the year, the costs will be eligible for a credit in 2019, even though the semester does not begin until 2020.

Typically, you must choose between the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The maximum AOTC of $2,500 is available for qualified expenses of each student, while the maximum $2,000 LLC is claimed on a per-family basis. Thus, the AOTC is usually preferable. Both credits are phased out based on modified adjusted gross income.

The TCJA also allows you to use Section 529 plan funds to pay for up to $10,000 of K-12 tuition expenses tax-free. Previously, qualified expenses only covered post-secondary schools.

TIP: If your student may be graduating in 2020, you may want to hold off and pay the spring 2020 tuition in early January 2020. The student can usually use this credit to offset their own 2020 tax liability even if the parent’s income exceeds the thresholds.

Estimated Tax Payments

The IRS requires you to pay federal income tax through any combination of quarterly installments and tax withholding. Otherwise, it may impose an ‘estimated tax’ penalty.

YEAR-END ACTION: No estimated tax penalty is assessed if you meet one of these three ‘safe-harbor’ exceptions under the tax law. These exceptions consider the timing of quarterly estimates as well as your withholdings. You should review your payments with a tax professional prior to year-end.

BUSINESS TAX PLANNING

Depreciation-related Deductions

Under the TCJA, a business may benefit from a combination of three depreciation-based tax breaks: (1) the Section 179 deduction, (2) ‘bonus’ depreciation, and (3) regular depreciation.

YEAR-END ACTION: Acquire property and make sure it is placed in service before the end of the year. Typically, a small business can then write off most, if not all, of the cost in 2019.

1. Section 179 deductions: This tax-code section allows you to ‘expense’ (i.e., currently deduct) the cost of qualified property placed in service during the year. The maximum annual deduction is phased out on a dollar-for-dollar basis above a specified threshold.

The maximum Section 179 allowance has been raised gradually over the last decade, but the TCJA gave it a massive boost. In 2017, the deduction limit was $510,000, and the phase-out threshold was $2.03 million. Those figures rose to $1 million and $2.5 million in 2018, and $1.02 million and $2.55 million in 2019.

However, note that the Section 179 deduction cannot exceed the taxable income from all your business activities this year. This could limit your deduction for 2019.

2. Bonus depreciation: The TCJA doubled the previous 50% first-year bonus depreciation deduction to 100% for property placed in service after Sept. 27, 2017. It also expanded the definition of qualified property to include used, not just new, property.

Note that the TCJA gradually phases out bonus depreciation after 2022. This tax break is scheduled to disappear completely after 2026.

3. Regular depreciation: Finally, if there is any remaining acquisition cost, the balance may be deducted over time under the Modified Accelerated Cost Recovery System (MACRS).

TIP: A MACRS depreciation deduction may be reduced if the cost of business assets placed in service during the last quarter of 2019 (Oct. 1 through Dec. 31) exceeds 40% of the cost of all assets placed in service during the year (not counting real estate). Additionally, many states, including Massachusetts and Connecticut, do not recognize bonus depreciation. This should be included in your planning considerations.

Travel Expenses

Although the TCJA repealed the deduction for entertainment expenses beginning in 2018, you can still deduct expenses for travel and meal expenses while you are away from home on business and in other limited situations. The primary purpose of the expense must meet strict business-related rules.

If you travel by car, you may be able to deduct your actual expenses, including a depreciation allowance, or opt for the standard mileage deduction. The standard mileage rate for 2019 is 58 cents per business mile (plus tolls and parking fees). Annual depreciation deductions for ‘luxury cars’ are limited, but the TCJA generally enhanced those deductions for vehicles placed in service in 2018 and thereafter.

TIP: The IRS recently issued a ruling that explains when food and beverage costs are deductible when those costs are stated separately from entertainment on invoices or receipts.

QBI Deductions

The TCJA authorized a deduction of up to 20% of the ‘qualified business income’ (QBI) earned by a qualified taxpayer. This deduction may be claimed by owners of pass-through entities — partnerships, S corporations, and limited liability companies (LLCs) — as well as sole proprietors.

YEAR-END ACTION: The QBI deduction is reduced for some taxpayers based on the amount of their income. Depending on your situation, you may accelerate or defer income at the end of the year, according to the figures.

First, however, it must be determined if you are in a ‘specified service trade or business’ (SSTB). This includes most personal-service providers. Then three key rules apply:

1. If you are a single filer with income in 2019 below $160,725 or a joint filer below $321,400, you are entitled to the full 20% deduction.

2. If you are a single filer with income in 2019 above $210,700 or a joint filer above $421,400, your deduction is completely eliminated if you are in an SSTB. For non-SSTB taxpayers, the deduction is reduced, possibly down to zero.

3. If your income falls between the thresholds stated above, your QBI deduction is reduced, regardless of whether you are in an SSTB or not.

TIP: Other rules and limits may apply, including new guidelines for real-estate activities. Consult with your tax advisor for more details about your situation.

Business Repairs

While expenses for business repairs are currently deductible, the cost of improvements to business property must be written off over time. The IRS recently issued regulations that clarify the distinctions between repairs and improvements.

YEAR-END ACTION: When appropriate, complete minor repairs before the end of the year. The deductions can offset taxable business income in 2019.

Estimated Tax Payments

A corporation (other than a large corporation) that anticipates a small net operating loss for 2019 (and substantial net income in 2020) may find it worthwhile to accelerate just enough of its 2020 income (or to defer just enough of its 2019 deductions) to create a small amount of net income for 2019.

YEAR-END ACTION: This will permit the corporation to base its 2020 estimated tax installments on the relatively small amount of income shown on its 2019 return, rather than having to pay estimated taxes based on 100% of its much larger 2020 taxable income.

Bottom Line

These are just some of the year-end steps that can be taken to save taxes. As previously mentioned, be aware that the concepts discussed in this article are intended to provide only a general overview of year-end tax planning. It is recommended that you review your personal situation with a tax professional.

Kristina Drzal-Houghton, CPA, MST is the partner in charge of Taxation at Holyoke-based Meyers Brothers Kalicka, P.C.; (413) 536-8510.

Law

Breaking Up Is Hard to Do

By Amelia J. Holstrom

On Nov. 3, 2019, news broke that the McDonald’s board of directors voted to terminate CEO Steve Easterbrook for having a consensual relationship with an employee.

Early reports indicate that, after a three-week internal investigation, McDonald’s board found the relationship to be inappropriate and in violation of its policies, including its standards of business conduct, which prohibits employees with “a direct or indirect reporting relationship” from “dating or having a sexual relationship.” McDonald’s makes clear in its policy that “it is not appropriate to show favoritism or make business decisions based on emotions or friendships rather than on the best interests of the company.”

Amelia J. Holstrom, Esq.

Amelia J. Holstrom, Esq.

McDonald’s is not the first large corporation to find itself in this type of predicament. Companies like Boeing, in 2005, and Best Buy, in 2012, have parted ways with chief executives based on alleged relationships with employees. The decision to remove an employee at any level involves consideration, but to remove an employee at the top of the ladder should be no different.

You may be asking, can companies do that? Can they fire someone for a consensual relationship? Yes, they can — and so can you.

Love Hurts

It isn’t any secret that people spend most of their waking hours at work. Not surprisingly, office romances sometimes bloom. What better place to meet your soulmate, right?

From the employer’s point of view, dating in the workplace can spell trouble. Office romances create many problems. Because employers cannot prevent their employees from developing emotions, it is important to address workplace romances well in advance of any potential problems.

Workplace dating is a recipe for disaster in more ways than one. In addition to decreasing morale and productivity, when true love goes sour, employees often cannot work with each other anymore, or worse, workplace romances can ultimately lead to sexual harassment and/or discrimination and retaliation claims.

“The decision to remove an employee at any level involves consideration, but to remove an employee at the top of the ladder should be no different.”

Assume, for example, that a superior and subordinate have been dating for some time. Their romance fizzles, and things end. What if the subordinate now claims to have felt pressured into the relationship? A supervisor’s relationship with a subordinate is most damaging to the company because of the legal consequences.

In Massachusetts, when a supervisor engages in harassment of a subordinate, even if there is no direct reporting relationship, a business is automatically liable for that harassment.

I Would Do Anything for Love, but I Won’t Let Supervisors Date Subordinates

How should you combat workplace romances? Employers can adopt policies on personal relationships in the workplace that specifically prohibit supervisors and managers from engaging in any romantic relationships with employees at the company, including direct and indirect subordinates.

If you choose to adopt such a policy, it should state that such relationships raise ethical and fairness issues and problems with favoritism and morale, and that they will not be tolerated. Employers should also spell out what will happen if such a relationship is discovered.

Some employers confront the couple, indicate that, if they wish to continue the relationship, one must resign, and let the employees decide who will resign. Other employers confront the employees and terminate the employment of one or both of them effective immediately. It depends on the stance your business wants to take.

Love Rules

What if you don’t want to prohibit such relationships at your workplace? Another approach used by some employers is to have employees in a relationship enter into a ‘love contract.’

Such a document essentially memorializes, in writing, the consensual nature of the employees’ relationship. Be careful here, though. Love contracts are not prospective, as they will not limit the company’s liability for future sexual harassment and/or discrimination and retaliation claims. They may only be helpful to demonstrate that there was a consensual relationship between the employees before and at the time the employees signed the contract.

You Oughta Know

All employers can learn a valuable lesson from the situation involving McDonald’s. Each employer should consider how it wants to handle workplace romances before one becomes an issue for its business. Having a plan or policy in place could save you a lot of heartaches … I mean, headaches.

(The author wishes to thank Neil Sedaka, Nazareth, Meat Loaf, Don Henley, and Alanis Morissette for their wise lyrics about love.)

Amelia J. Holstrom is a partner with Skoler, Abbott & Presser, P.C., one of the largest law firms in New England exclusively practicing labor and employment law. Holstrom specializes in employment litigation, including defending employers against claims of discrimination, retaliation, harassment, and wrongful termination, as well as wage-and-hour lawsuits. She also frequently provides counsel to management on taking proactive steps to reduce the risk of legal liability; (413) 737-4753; [email protected]

Law

Cannabis, Marijuana, and Hemp

By Chris St. Martin and Sarah Morgan

Late last month, the U.S. Department of Agriculture published regulations on domestic hemp production. However, there remains significant confusion surrounding the legality of cannabis, marijuana, and hemp.

Chris St. Martin

Sarah Morgan

This confusion comes from state and federal governments’ shifting approaches to regulating these industries. It is even more difficult to understand the legal framework surrounding retail sales, which include hemp and CBD products, as well as marijuana products sold by state-licensed dispensaries. In this article, we hope to provide some clarity regarding what the laws say about cannabis and how they are being enforced.

What Is Cannabis?

Cannabis is a plant genus, or family, composed of three species: Cannabis sativa, Cannabis indica, and Cannabis ruderalis. The species have physical variations between them that allow them to grow in different environments, flower at different periods during the growth cycle, and contain different chemical properties (see discussion on cannabinoids below) that produce different sensations when ingested.

Strains (think, ‘flavors’) produced from the Cannabis sativa species tend to incite feelings of euphoria, boost energy and creativity, and lead to a more head-focused high. Cannabis indica, alternatively, primarily affects the body, and is often helpful in reducing muscle aches and pains and inducing sleep. For these reasons, strains cultivated from indica plants tend to be more useful for medicinal purposes.

“THC, or tetrahydrocannabinol, is the cannabinoid responsible primarily for producing the psychoactive effect, or the ‘high,’ commonly associated with ingesting cannabis.”

Cannabis ruderalis is somewhat between sativa and indica, and has lower yields, but can often be cross-bred with other species to create medicinal strains. The stems of this species can also be used to make clothing and textiles.

The flowering buds of the cannabis plant produce a resin that contains cannabinoids, which are unique chemical compounds found only in cannabis and interact with different receptors in the user’s central nervous system to produce the effects described above.

The ratio of the cannabinoids in a particular strain depends on the genetics of the plant from which it is derived — in other words, how the plant has been bred by selectively combining sativa and indica plants to emphasize particular cannabinoids over others and create a unique strain with individualized characteristics.

More than 100 cannabinoids have been identified, most notably THC and CBD.

THC, or tetrahydrocannabinol, is the cannabinoid responsible primarily for producing the psychoactive effect, or the ‘high,’ commonly associated with ingesting cannabis. Although THC is most notable for its psychoactive properties, it has also been purported to have medical benefits on the user and can be used to treat a variety of conditions, including seizures, inflammation, pain, nausea, depression, and anxiety.

CBD, or cannabidiol, has anti-anxiety effects on the user and is utilized primarily for its purported medicinal benefits. It does not produce psychoactive effects (in fact, it may lessen the psychoactive effects of THC), and, for this reason, although CBD and THC have similar medicinal benefits, some people may choose to ingest only CBD to avoid feeling the ‘high’ brought about by THC.

CBD can be extracted from the resin of the cannabis plant and can be processed into essential oils, tinctures, and other non-smokable forms. CBD can even be added to body-care products and applied topically.

Marijuana or Hemp?

The term ‘marijuana’ is generally used to identify cannabis that is cultivated for its intoxicating effect on a user. Marijuana was made effectively illegal under federal law with the passage of the Marijuana Tax Act of 1937.

The Legislature later classified, and criminalized, marijuana as a Schedule 1 narcotic under the Controlled Substance Act of 1970, during the nascent ‘war on drugs’ declared by President Nixon. Classification as Schedule 1 — alongside heroin, LSD, and ecstasy — means that marijuana is deemed to have no currently accepted medical use and a high potential of abuse.

Public sentiment has recently begun to reject this classification of marijuana and the total federal prohibition. Although, at this writing, marijuana remains illegal at the federal level, 11 states, including Massachusetts, and the District of Columbia, have passed laws legalizing marijuana for recreational use, and 23 others have legalized the use of medical marijuana. Since 2016 in Massachusetts, individuals age 21 or older may possess up to an ounce or more on their person and up to 10 ounces in their homes without violating Massachusetts law.

The Cannabis Control Commission (CCC), the agency tasked with regulating the state’s marijuana industry, provides further information regarding the Massachusetts law on its website.

Cannabis that is selectively bred for non-intoxicating properties is considered ‘hemp.’ Industrial hemp is one of the oldest cultivated crops in the world and is useful in formulating textiles, rope, paper, plastics, insulation, oil, and body-care products. Because of this selective breeding, hemp plants contain only trace amounts of THC, but their CBD levels are unchanged.

“State and federal legal developments have created a confusing CBD marketplace. Stores everywhere are selling CBD products intended for human consumption and making health claims about such products. However, both types of sales are illegal, according to state and federal agencies.”

Hemp is cultivated to enhance its distinctively versatile qualities, such as longer, more fibrous stalks and shorter leaves, rather than for the leaves and flower buds for which marijuana plants are cultivated. Because of this, hemp cannot be consumed as an intoxicant. Nevertheless, the Controlled Substances Act did not distinguish between marijuana and hemp (since both are technically cannabis) in classifying marijuana as a Schedule I substance; therefore, hemp was swept up in the heyday of the war on drugs and made illegal.

Changing Legal Framework

Under the Farm Bill of 2018, the U.S. Congress, for the first time, legalized the production and sale of hemp at the federal level, eliminating its status as a Schedule I narcotic. The Farm Bill and regulations define hemp as cannabis containing not more than 0.3% THC. Cannabis plants containing any quantity of THC above that amount are classified as marijuana, and remain illegal under federal law. In late October, the USDA published interim regulations on hemp production, which means they are subject to change after a public comment period but were effective immediately.

These regulations also set forth licensing requirements, procedures for testing THC levels and disposal of non-compliant plants, and rules governing other aspects of the industry.

The FDA has taken a more cautious approach, citing concerns about whether CBD is safe to consume in food and supplements. In an April 2019 statement, the agency sought to clarify its position on hemp products. The statement indicated that enforcement resources are directed toward illegal sales of CBD products that claim to prevent, diagnose, treat, or cure serious diseases, such as cancer.

However, it also stated that it is unlawful to introduce CBD-containing food into interstate commerce or to market CBD products as dietary supplements.

This means that effectively all CBD food products, including those derived from legally grown hemp, are unlawful, according to the FDA. The only hemp products that can be legally added to foods are hulled hemp seed, hemp-seed protein powder, and hemp-seed oil, because the seed of the hemp plant contains neither CBD nor THC.

The FDA has undertaken to develop CBD regulations, but despite repeated urging from the USDA and members of Congress, the former FDA commissioner indicated that that the rule-making process around CBD food products would be more complex than conventional products and could take years.

Massachusetts legalized hemp production as a component of the same 2016 law that legalized recreational cannabis. However, after the change of law at the federal level, both the state Department of Agricultural Resources and Department of Public Health issued policy statements on the same day imposing strict rules on hemp products. These two statements echo the FDA’s prohibitions on adding CBD to food products and making health claims about CBD.

What Can We Buy and Sell?

These state and federal legal developments have created a confusing CBD marketplace. Stores everywhere are selling CBD products intended for human consumption and making health claims about such products. However, both types of sales are illegal, according to state and federal agencies. Consumers, retailers, growers, and other stakeholders are looking for information about what is legal, what is not, and why there is so much ambiguity.

CBD derived from marijuana remains illegal under federal law. However, the U.S. attorney in Massachusetts has indicated he will not direct his office’s resources to federally prosecute cannabis companies that are permitted under state law, a move that has allowed the cannabis industry in Massachusetts to flourish. Under this state’s regulatory regime, marijuana products containing CBD, as well as THC, can be bought and sold at cannabis dispensaries that are licensed by the CCC.

Retailers in Massachusetts sell cannabis flower, edibles, concentrates, and other forms of marijuana containing both THC and CBD. CCC regulations do not classify edible marijuana products as food, allowing dispensaries to sell CBD-infused edibles without contravening the state Department of Public Health’s policy.

In contrast, despite the federal and state legality of producing hemp, some of the most popular hemp-derived CBD products — food and supplements — cannot be sold under either state or federal law. Nevertheless, the CBD industry may avoid total extinction, since CBD can be added to topical lotions and other cosmetics without defying the laws.

Non-food CBD products, however, represent a small percentage of the potential uses of CBD, and the loss of a valuable opportunity for introducing additional, more profitable products containing CBD into the marketplace adds further demand for the FDA to promulgate its promised CBD rules. Furthermore, hemp can be legally sold for rope, clothing, building material, and other non-ingestible uses, but hemp farmers have stated that Massachusetts currently lacks the manufacturing infrastructure necessary to process the plant for these purposes.

Chris St. Martin and Sarah Morgan are both litigation associates at Bulkley Richardson; (413) 781-2820.

Law

A New Type of Relief

By Rebecca Mercieri Rivaux, Esq.

Rebecca Mercieri Rivaux

Small-business owners will soon have a more affordable option to reorganize their companies. In February 2020, the Small Business Reorganization Act (SBRA) will go into effect, providing a new type of relief to small-business debtors.

The SBRA creates a new subchapter within Chapter 11 of the U.S. Bankruptcy Code. While Chapter 11 bankruptcy generally provides for business reorganization (usually involving a corporation or partnership), it can be an unappealing option for many small-business debtors, due to complex procedural requirements and high legal and administrative costs. The SBRA will expedite reorganization for small-business debtors by streamlining the burdensome requirements of Chapter 11 bankruptcy.

The SBRA is, in fact, very comparable to a Chapter 13 bankruptcy, the kind used by individuals. Just as with Chapter 13 filings for individuals, an SBRA debtor can expect to have a trustee appointed by the bankruptcy court. The court-appointed trustee will aid the small business in developing a reorganization plan, but is not likely to be involved in any operational aspects of the business. This essentially allows the debtor to remain in possession and control of their own business during the bankruptcy process. The trustee is responsible for disbursing payments to creditors under the reorganization plan.

In order to take advantage of the new SBRA, a debtor must first qualify as a small business. To qualify, the debtor must be a person or entity engaged in a commercial or business activity. If such a business has secured and unsecured debt totaling less than $2,725,625, the business may propose a reorganization plan under the SBRA — so long as they use net income to repay creditors.

This is in keeping with the general practices of Chapter 11, where a debtor usually proposes a plan of reorganization to keep its business in existence and pay creditors over time.

SBRA debtors must produce a copy of the business’ most recent balance sheet, a statement of operations, a cash-flow statement, and a federal income — or file a sworn statement that such documents do not exist.

The SBRA allows the small-business debtor to repay its creditors within a payment plan of three to five years, as the bankruptcy court determines. The SBRA also allows small-business debtors a greater opportunity to retain their ownership interests in their business, even when claims have not been repaid in full (in contrast with a typical Chapter 11 bankruptcy, where a shareholder cannot retain equity in the business unless creditors are paid in full).

To qualify, the debtor must be a person or entity engaged in a commercial or business activity. If such a business has secured and unsecured debt totaling less than $2,725,625, the business may propose a reorganization plan under the SBRA — so long as they use net income to repay creditors.

Another significant benefit to the SBRA is a specialized restructuring strategy offered to individual debtors. An individual who qualifies as a small-business debtor can modify the mortgage on his or her principal residence, provided that the mortgage loan was not used to acquire the real property, but was used primarily in connection with the debtor’s business — such as an individual who is borrowing against the equity in their home for the purpose of supporting their business. This individual small-business debtor would then be able to reduce the loan to the value of the secured claim, propose a lower interest rate, or extend the maturity date of the loan. Once the small-business debtor has completed all payments to creditors, a discharge is granted.  

Under the SBRA, the only excluded activity for the small business debtor is operating “single-asset real estate,” a term that describes a debtor who receives substantially all of its gross income from the operation of a single real property.

Despite this restriction, for many small business debtors, the SBRA will offer relief and a realistic means to reorganize and restructure their businesses under the Bankruptcy Code.

Rebecca Mercieri Rivaux is an associate with Bacon Wilson, P.C., and a member of the firm’s bankruptcy and business/corporate practice groups; [email protected]

Features

Another Step Forward?

By Jodi K. Miller, Esq.

Jodi K. Miller, Esq

Massachusetts has been a leader in healthcare system reform.

In 2006, Massachusetts passed a first-in-the-nation, comprehensive healthcare-reform law that sought to achieve near-universal coverage for all individuals in the Commonwealth. The 2006 reforms became a model for the federal Patient Protection and Affordable Care Act passed in 2010. In 2012, after making significant gains in healthcare coverage, Massachusetts enacted additional reforms, with a key aim of controlling healthcare costs.

Among other things, the 2012 reforms set statewide benchmarks to limit the growth of healthcare costs and created a new agency, the Health Policy Commission, which is responsible for monitoring increases in healthcare spending and market activity.

Last month, seeking to further overhaul the healthcare-delivery system in Massachusetts and build upon past reforms, Gov. Charlie Baker introduced new healthcare-reform legislation, titled “An Act to Improve Health Care by Investing in Value.” The legislation seeks to tackle challenges in the current healthcare system by improving access and care delivery, further containing costs, and protecting consumers from high out-of-pocket costs.

As a former healthcare executive and former Massachusetts secretary of Health and Human Services, Gov. Baker has a particular interest in healthcare. According to the governor, his “legislation supports holistic approaches to care, provides consumers and employers with affordable care options, promotes behavioral-health parity, and ensures everyone has access to the services they need.”

Preventive Measure

The governor’s proposal prioritizes investment in primary care and behavioral-health services with the goal of keeping patients healthier and avoiding more expensive services, like emergency-department visits. Specifically, the legislation requires that providers and insurers increase spending on primary care and behavioral-health services by 30%, while at the same time staying within spending-growth limits required by the 2012 healthcare-reform law. The new legislation introduces new penalties for failure to stay within those limits.

As a means to increase access to primary care, the legislation reforms the requirements for mid-level practitioners, such as nurse practitioners. States like California that have expanded the scope of practice for nurse practitioners have seen an increase in the use of, and access to, primary-care services. The new legislation would allow nurse practitioners and psychiatric nurse mental-health specialists to prescribe medications without a supervising physician.

“The governor’s proposal prioritizes investment in primary care and behavioral-health services with the goal of keeping patients healthier and avoiding more expensive services, like emergency-department visits.”

Similarly, the bill creates a mid-level dental-provider position to provide basic dental services, and expands the scope of practice for optometrists and podiatrists. To address the shortage of nurses in Massachusetts, the legislation makes it easier for nurses to move to the Commonwealth by allowing nurses licensed in another state to practice in Massachusetts without having to obtain a new license.

The bill also seeks to expand access to, and coverage of, mental and behavioral-health services through various measures, including provisions to encourage behavioral-health providers to accept insurance and to develop and grow the number of providers. The legislation establishes a Board of Registration of Recovery Coaches — a recommendation of the Recovery Coach Commission formed as part of the opioid legislation enacted in Massachusetts last year — which will credential recovery coaches who provide addiction-recovery services.

The legislation includes new consumer protections to manage healthcare spending and reduce consumers’ out-of-pocket costs. For example, it seeks to curb the practice of ‘surprise billing’ that consumers receive for emergency and unplanned services from out-of-network providers by establishing a default, out-of-network rate for such services. The bill also imposes limits on when a hospital can charge a fee for services delivered at an outpatient or satellite site and prohibits such fees for certain types of evaluative and diagnostic services.

The legislation also seeks to contain healthcare costs by addressing the high costs of prescription drugs. In addition to requiring pharmacists to inform consumers about the lowest cost options for the drugs they purchase, the legislation creates a review process for certain high-cost drugs and imposes financial penalties on manufacturers for increases in drug prices that exceed certain set percentages. Drug manufacturers also would be required to participate in annual cost-trend hearings before the Health Policy Commission.

Relatedly, the legislation imposes new oversight authority over pharmacy benefit managers, companies that negotiate contracts with drug manufacturers and manage pharmacy benefits and payments for health plans. Pharmacy benefit managers would be required to be certified with the Mass. Division of Insurance and report financial data to the Massachusetts Center for Health Information and Analysis.

In addition to cost controls, the legislation includes provisions aimed at improving access to appropriate, coordinated healthcare, including access to urgent-care centers and telemedicine services. According to a 2018 analysis by the Massachusetts Health Policy Commission, there has been a sharp increase in the use of urgent-care centers, where services are less expensive than those provided at hospital emergency departments.

The governor’s proposal seeks to improve access to, and to eliminate confusion regarding, urgent-care centers. For example, the names of clinics operating as urgent-care centers would have to include the term ‘urgent care’ or otherwise suggest that urgent-care services are provided. The bill also requires urgent-care centers to be licensed by the state Department of Public Health, and, as requirements of licensure, such centers must accept MassHealth (the Massachusetts Medicaid program), provide behavioral-health services, and meet standards for coordinating with patients’ primary-care providers.

The legislation also seeks to expand access to care by improving and increasing the use of telemedicine (healthcare services provided via telecommunication services such as videoconferencing). Telemedicine can be a cost-effective form of care, and it eliminates the requirement of travel, which can be significant for individuals living in rural areas. In an attempt to increase the use of telemedicine in the Commonwealth, the legislation creates a regulatory framework for such services and requires insurance-coverage parity for such services (i.e., if there is coverage for the services if provided in person, there must be coverage if the services are provided via telemedicine).

The legislation seeks to support community health centers and hospitals by investing in the Health Safety Net Trust Fund, which pays hospitals and community health centers for services provided to low-income residents who are uninsured or underinsured. The governor’s proposed investment – $15 million – constitutes less than 5% of the total amount paid out by that trust fund to hospitals and community health centers in 2018. The legislation also provides for additional funding to the Community Hospital and Health Center Investment Trust Fund through the penalties that the legislation imposes on drug manufacturers and providers for failing to meet cost-containment requirements.

Along with efforts to control healthcare spending, the legislation also seeks to control the price of insurance premiums, particularly those paid by small and mid-size employers and their employees. An October 2019 report from the Massachusetts Center for Health Information and Analysis found that premiums and cost-sharing obligations for private-sector employees in Massachusetts are continuing to increase at a faster rate than wages and inflation. Among other things, the legislation includes provisions which are designed to give small employers (50 employees or fewer) greater access to health-plan options.

Finally, on Oct. 18, the same day he filed his healthcare-reform bill, Gov. Baker issued an executive order to create a commission to study the combined individual and small-employer group health-insurance market. This unique market — known in Massachusetts as the ‘merged market’ — was established in 2007 with “the intention of increasing and stabilizing its risk pool to provide greater access to affordable health-insurance coverage,” according to the governor’s executive order.

The commission is tasked with analyzing the merged market in light of the legislative reforms and changes to the healthcare market that have occurred over the past 12 years and reporting recommendations to the governor by April 30, 2020, with the objective of “ensuring that all residents have access to affordable health-insurance coverage.”

Bottom Line

Gov. Baker’s proposed reforms are just that — proposals. Lawmakers at the State House are working on their own healthcare-reform legislation, including bills supporting a Medicare-for-all, single-payer system. What will follow are negotiations among legislators and the Baker administration, with the goal of passing comprehensive healthcare-reform legislation in Massachusetts before the Legislature’s formal session ends on July 31, 2020.

Jodi K. Miller, Esq. is a partner at Bulkley, Richardson and Gelinas, LLP, in Springfield, where she represents clients in commercial and other civil-litigation and regulatory matters, with a focus on health law.

Banking and Financial Services

The Business of Selling a Business

By Brendan Mitchell

For business owners looking to sell soon, there is still plenty to be optimistic about.

Capital for purchasing businesses continues to flow thanks to low interest rates from banks and investment portfolios lingering near high-water marks.

Meanwhile, the Massachusetts economy has pushed to new highs from Boston to Springfield. Most recent reports show unemployment rates at historic lows, with both sides of the state making improvements. MGM Springfield and Encore Boston Harbor have attracted out-of-state plates. Private equity and public companies, both flush with cash, continue to show confidence in the state through investments in their workforce and current business as well as construction and new business acquisitions. We’ve seen national tax reform increase cash flows to businesses across the country.

These factors have helped to keep buyers engaged as retiring Baby Boomers head for the exits. The timing has been great for some business owners cashing out recently, but buyers have become more selective in some industries. While some businesses are snagged as soon as they go to market, many are aging on the shelf with buyers and sellers unwilling to bridge pricing gaps.

When figuring the value of their business, owners can fall into the trap of including sentimental value in their estimation. Some are relying on what a similar business sold for in a different market or, worse, have a target number they drew up without any real anchor to reality.

For business owners who have dedicated their lives to a business, it can be hard to take a step back and objectively consider what their business is worth. Business owners who are willing to take an objective look at the value of their business can be proactive now instead of reactive when they are ready to retire and list their business for the first time.

The value of a business is dynamic. While there is no way to get a buyer to price sentimental value into a purchase price, there is a potential to make changes to the business that will increase the value over time.

There are three approaches to valuing a business — asset, income, and market approaches. For most privately held companies, valuators rely on either the income approach, market approach, or a combination of the two. The basic formulas for these calculations are widely available online, but what owners can do with this information may be less obvious.

First, it’s important to know that the years leading up to the valuation or sale are the most important. A long history of profits can show stability for a small business; however, only the most recent three to five years are going to be considered in a calculation. Small-business owners with eyes on an exit have a tendency to disconnect from the business during this most important period when they should be pushing in the opposite direction.

Flat revenues or increases in expenses during this period have the potential to erase even decades of growth and profitability. Owners should resist the temptation to ‘pull the parachute’ as they get closer to the finish line. Continue to push for revenue growth and pay close attention to expense control. This is the time to let the numbers showcase the full potential of the business.

Nobody knows the ins and outs of a small business like the owner. Buyers and valuators weigh heavily on the impact the seller’s exit will have on the future of the business. Owners should focus on replacing themselves in the areas in which they are most intertwined in the business to lessen the impact. To identify these high-dependency areas, owners can interview managers and employees, noting issues that cannot be resolved without them.

Key areas of focus generally depend on the industry or business model but usually include sales generation, relationship management, product development, strategic decision making, or day-to-day business management. If continuity can be achieved through process improvement or process documentation, it should be a key focus. Some results can be found through training current employees and empowering them. Consider restructuring tasks and delegating the current owner’s duties to rising managers.

Revisit labor costs. Business owners with family members at above-market wages face a double expense. While they may overpay weekly on purpose, it will cost them a multiple of that annual salary when it’s time to cash out. For hourly workers, be ready to field questions about how the rising minimum wages will impact more labor-intensive businesses.

Finally, clean up the financial statements. For various reasons, including tax motivations, small-business owners have a tendency to let their personal and business lives collide on their company financial statements. Documentation is important for any personal expenses being charged to the business. Owners should be ready to prove which expenses were not necessary for the business so that buyers and valuators exclude the expenses to calculate the value — buyers will not report findings to the IRS.

Performing a financial analysis can also help owners understand how their business compares to the rest of the industry, making them ready to articulate strengths and defend or improve weaknesses.

Overall, the current market remains friendly to someone looking to sell their business. It’s also a great time to be proactive in managing an exit strategy, whether it lies around the corner or several years out. Getting realistic about the value of their business enables owners to take steps to improve it and make informed decisions.

Brandon Mitchell is a certified valuation analyst and supervisor in auditing and consulting for Blumshapiro, the largest regional accounting, tax, and business-advisory firm based in New England, and winner of the Massachusetts Lawyers Weekly Reader Rankings for Best Appraisal Service and Best Accounting Firm.

Law

The #MeToo Movement Has Vast Implications in This Sector

The #MeToo movement has brought about change and challenge — from a liability standpoint — in workplaces of all kinds. And this includes the broad spectrum of education. Indeed, recent cases indicate that courts may soon hold schools, colleges, and universities strictly liable for any sexual misconduct by their staff toward their students.

By Justice John Greaney, Jeffrey Poindexter, and Elizabeth Zuckerman

By now, we’ve all seen the #MeToo movement change how Massachusetts and the nation are talking about sexual harassment and other misconduct in the workplace, in schools, in social settings, on sports teams, in public places, and in our private lives.

Justice John Greaney

Jeffrey Poindexter

Elizabeth Zuckerman

The movement has ended careers, felled prominent figures, and made many newly aware of the great number of people — men and women — who face sexual harassment at some point in their lives. It has also reminded students, teachers, professors, administrators, and parents that schools and institutions of higher education are far from immune to this type of misconduct, and that students are sometimes victims of the very staff, faculty, and coaches expected to educate, guide, coach, and protect them.

Against this backdrop, administrators of Massachusetts schools, colleges, and universities have a special reason to take note of the rising tide of complaints about sexual harassment and other gender-based discrimination. The sea change in how sexual harassment is viewed, along with the development of Massachusetts law surrounding sexual harassment in schools, colleges, and universities, suggest that Massachusetts courts may soon hold these institutions strictly liable for any sexual misconduct by their staff toward their students.

That means, whether or not the school, college, or university knew about the conduct, whether or not the institution was negligent in any way, it could be on the hook for substantial damages if a staff member commits sexual harassment. In other words, even without doing anything wrong, or knowing anything wrong was happening, an educational institution could be liable for the entirety of the harm that befalls a student.

As a result, schools, colleges, and universities need to act now to implement policies which provide the best defense if a claim of sexual harassment is made.

In Massachusetts, Chapter 151C of the General Laws, the Massachusetts Fair Educational Practices Act (MFEPA), provides students who have been subjected to sexual harassment by a teacher, coach, guidance counselor, or other school personnel with a cause of action against the educational institution. MFEPA declares that “it shall be an unfair educational practice for an educational institution … to sexually harass students in any program or course of study in any educational institution.” In conjunction with General Laws c. 214, § 1C, the right for students to be free of harassment can be enforced through the Massachusetts Commission Against Discrimination (MCAD) or through the Superior Court.

“Administrators of Massachusetts schools, colleges, and universities have a special reason to take note of the rising tide of complaints about sexual harassment and other gender-based discrimination.”

The statutes also define sexual harassment broadly, including “any sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature when: (i) submission to or rejection of such advances, requests, or conduct is made either explicitly or implicitly a term or condition of the provision of the benefits, privileges, or placement services or as a basis for the evaluation of academic achievement; or (ii) such advances, requests, or conduct have the purpose or effect of unreasonably interfering with an individual’s education by creating an intimidating, hostile, humiliating, or sexually offensive educational environment.”

Chapter 151C has been interpreted several times in the courts in Massachusetts, including when:

• A male athletic director of a Massachusetts community college was reported to have provided alcohol to female students in exchange for sexual favors. Several years later, more complaints about his behavior led the college to implement a policy to prevent sexual harassment.

Reports of further inappropriate conduct led to an investigation and agreement that he would no longer coach female athletic teams. However, he continued to work at the school and, eventually, resumed coaching a women’s basketball team. Students who had been coached by the athletic director brought claims against both him and the school.

• During the investigation into a rape of a student by a teacher at a Massachusetts high school, it was disclosed that a male guidance counselor had been involved in sexual misconduct with students. The superintendent of the school district acknowledged that he was aware of continuing reports about the guidance counselor’s inappropriate relationships with students after a female student alleged that the counselor had brought her to his home on two occasions and attempted to coerce her into having sex.

• Parents reported the inappropriate conduct of a male middle-school science teacher to the vice principal and a guidance counselor. The teacher had made inappropriate comments and touched female students, and had been told by school officials to stop on three occasions. The teacher was fired after an internal investigation, but not before he allegedly molested an 11-year-old student.

Despite occasions to consider the applications of Chapter 151C, Massachusetts courts have not yet decided whether schools, colleges, and universities will be held strictly vicariously liable for sexual harassment. In the cases referenced above, it appears the schools or colleges knew about the misconduct and, at least passively, allowed it to continue.

That means that the schools or colleges could be considered negligent, because they knew, or should have known, an employee’s behavior was problematic, but they failed to act, or failed to take adequate measures to remedy the situation. However, if Massachusetts courts rule for strict liability under Chapter 151C, it will mean that it is no defense that the institution did not know what its employee was doing, or even that it took reasonable measures to screen that employee before hiring.

Instead, the mere occurrence of sexual harassment by an employee will be enough to make the institution liable to the victim.

There are indications this may be the direction in which the courts go, because a closely related statute, Chapter 151B, which governs sexual harassment in the workplace, does impose strict liability. It seems entirely possible that the courts will conclude that liability under Chapter 151C should be no different, given that the two statutes relate to the same subject matter and share a common purpose.

Furthermore, because the operative statute is clearly intended to protect vulnerable students from abuses of power by those entrusted with their well-being, it seems likely that the courts may conclude that a strict standard of liability is consistent with the underlying purposes of the statute.

“The rising awareness of the problem of sexual harassment and assault appears to make it more likely that courts will conclude that the only way to stem the tide of abuse is to put the burden on those in the best position to protect vulnerable students — the schools they attend.”

This argument seems strengthened by the popular mood regarding sexual harassment. The rising awareness of the problem of sexual harassment and assault appears to make it more likely that courts will conclude that the only way to stem the tide of abuse is to put the burden on those in the best position to protect vulnerable students — the schools they attend.

Two recent decisions suggest this result may be coming. In a 2016 federal court case, Doe v. Brashaw, Judge Douglas Woodlock gave the first indication that the courts may come down on the side of strict liability under Chapter 151C. He noted there was no clear guidance in the text of the law on whether negligence was required to hold the school, college, or university liable.

Weighing the arguments on each side, he concluded it made sense, at least at the early stage in the case at which he was reviewing the matter, to apply a strict vicarious liability standard.

More recently, in 2017, another federal judge again noted that the standard was unsettled and deferred considering the argument, made by the Massachusetts Institute of Technology as defendant, that it was entitled to a more favorable standard than strict liability.

Given the significant risk that Massachusetts schools, colleges, and universities will be considered liable for their employees’ misconduct, regardless of what they knew, or didn’t know, about it, how can these institutions respond? The answer is that schools, colleges, and universities need to ensure their sexual-harassment, disciplinary, and hiring policies are up to date.

This will allow these institutions to avoid hiring or retaining employees who show any indication that they will engage in sexually harassing behavior, and also allow the institutions to respond rapidly and effectively if any employee does. In addition, schools, colleges, and universities need to appropriately train and supervise all employees.

For many institutions, this will mean implementing new requirements for training and new policies for ensuring sexual harassment cannot go on in a school, college, or university without rapid detection. In addition to in-house training, the institutions should consider learning sessions taught by outside consultants, particularly law firms, with experience in handling sexual misconduct in the educational environment.

Outside investigations by impartial law firms will, when appropriate, removed the inference of bias on the part of the educational institution when considering possible misconduct by a teacher, administrator, or staff member. In sum, educational institutions need to be prepared to act quickly and decisively when faced with a complaint of sexual harassment in order to remediate any misconduct.

Justice John Greaney is a former justice of the Supreme Judicial Court and senior counsel at Bulkley Richardson. Jeffrey Poindexter is a partner and co-chair of the Litigation Department at Bulkley Richardson. Elizabeth Zuckerman is an associate in the Litigation Department at Bulkley Richardson.

Law

What to Expect When…

By John Gannon, Esq.

My wife and I recently welcomed our first child into the world. We are over the moon in love with our daughter and excited to see where this amazing journey will take us.

John S. Gannon

John S. Gannon

As an employment attorney, this process got me thinking about the topic of parental leave. That’s the legal term for providing job-protected time off from work to employees so they can bond with a newborn or newly adopted child.

Massachusetts state law requires almost all businesses to provide some job-protected leave for the birth or adoption of their child, and the federal Family and Medical Leave Act (FMLA) obligates employers with 50 or more employees to provide additional time off and protections to new parents. Although at first glance these laws may seem easy to administer, there are plenty of traps for those who do not have a deep understanding of how parental leave needs to be administered. Here are a few things employers should be aware of when an employee requests and takes parental leave.

What Does Your Policy Say?

Hopefully, you have a policy that addresses parental leave. If not, it’s time to get one on the books. Even if you have a policy, it’s never a bad idea to be make sure the language is up to date and consistent with state and federal laws governing time off to bond with a child. For example, the Massachusetts Parental Leave Act (MPLA) requires employers with six or more employees to provide eight weeks of unpaid leave to full-time employees for the purpose of giving birth or for the placement of a child for adoption.

If you have more than six employees, you need to have a policy and practice that addresses parental leave. Notably, up until a few years ago, this law was commonly referred to as the Massachusetts Maternity Leave Law, because the language of the statute provided leave protections for female employees only. The law was amended a few years ago to expand parental-leave protections to employees in Massachusetts of all genders.

If your policy refers to maternity leave instead of parental leave, it’s time to update your handbook as several employment laws have probably been added or changed since your last review.

Intersection of the FMLA

Employers covered by the FMLA have additional obligations that go beyond the requirements of state-mandated parental leave. For starters, under the FMLA, eligible employees are entitled to take up to 12 work weeks of FMLA leave in a 12-month period for a number of different reasons, including the birth of a child and to bond with a newborn or newly adopted child.

Both mothers and fathers have the right to take FMLA leave to bond with a child. Importantly, when an employee takes time under the FMLA to bond with a child, the eight weeks of state-mandated MPLA runs concurrently. This means that an employee with 12 weeks of available FMLA is entitled to 12 total weeks of parental leave, as the MPLA is used at the same time as the FMLA is used. However, questions arise when employees use FMLA for a reason unrelated to the birth or adoption of their child.

For instance, suppose an employee used 12 weeks of FMLA earlier this year to care for a sick parent. This month, the employee approaches you requesting leave to care for a child who is expected next month. That employee would no longer be entitled to 12 weeks of FMLA to care for the newborn, but would still be entitled to the eight weeks of MPLA under state law.

Leave Employees on Leave Alone

They call it leave from work for a reason. Employers need to resist the urge to contact employees on leave with work-related questions, especially if the leave is unpaid.

A call or two about something basic, such as the location of a file or document on the system, is probably fine. However, requesting attendance at meetings or on phone conferences will cross the line, as will the assignment of projects or other tasks. Not only are you taking parents away from a special and important time in their lives, but you are also potentially creating a situation where you are unlawfully interfering with an employee’s right to take time off under the FMLA or MPLA.

Plus, if the employee is taking unpaid parental leave, which is typically the case, you will need to be sure that the employee is compensated for any work performed during parental leave, including answering calls or responding to e-mails. This can be tough to account for, so the best practice is to let employees on parental leave enjoy their time off without work-related distractions.

Final Thoughts

I learned firsthand that parental leave was a special time for me and my newborn. Employers need to openly encourage employees to take all available parental leave, and should consider offering benefits that go beyond those required by state and federal law.

The U.S. Department of Labor reported in a policy brief on parental leave that longer leaves promote better child bonding, improve outcomes for children, and even increase gender equity at home and at the workplace.

A generous parental-leave policy is also a fantastic recruiting and retention tool, as it sends a message that the business values its workforce and is committed to bettering employee work-life balance.

John Gannon is a partner with Skoler, Abbott & Presser, P.C., one of the largest law firms in New England exclusively practicing labor and employment law. He specializes in employment litigation and personnel policies and practices, wage-and-hour compliance, and non-compete and trade-secrets litigation; (413) 737-4753; [email protected]

Law

Mediation: Art of Compromise

By Julie A. Dialessi-Lafley, Esq.

Mediation. Most, if not all of us, have heard the word, but what does it really mean to engage in mediation?

Many people familiar with mediation may think of it in the context of divorce or family-law matters, and, indeed, the process often provides families in conflict with meaningful solutions. But families aren’t the only ones who can benefit from the skills of a trained mediator. In fact, almost any issue or dispute that might be addressed in court could also potentially be solved by mediation.

Mediation is a process in which two or more parties discuss their disputes with the assistance of an unrelated third party — a trained mediator. The mediator assists the disagreeing parties with communication and with the terms of any settlement of the disputed issues. Resolution by agreement is the goal.

Mediation can be used for all kinds of disputes. Many couples facing divorce choose to engage in mediation rather than a court process. Issues of neighbor-to-neighbor disputes are ideal for mediation, and many schools use mediation internally to resolve student-to-student conflicts. Mediation can also address disputes involving business transactions, accidents or injuries, construction, workers’ compensation, employment issues, or labor and community relations. Almost any matter that does not involve complex procedural or evidentiary issues could be addressed through mediation.

Another appealing aspect of mediation is the relatively low cost. Mediation is normally more cost-effective than litigation in court, and certainly it is far less formal than a court process.

Mediation can take place at nearly any stage of a dispute. Conflicting parties may be able to avoid litigation altogether by mediating disputes prior to filing a court action. However, even once litigation is filed, mediation is usually still an option. If the parties agree to engage in mediation while a case is pending, they can do so in a good-faith effort to find a solution outside the courtroom. The parties can also opt out of the mediation process at any time.

Here in Massachusetts, the courts generally cannot order parties to engage in mediation. However, if an existing agreement, contract, or other independent rule requires mediation prior to litigation, the court may be precluded from hearing a matter until the parties attempt to resolve their dispute in mediation.

In fact, the courts tend to favor the mediation process and encourage parties in civil disputes to work toward their own agreements. If litigation is pending, but the parties come to an agreement through mediation and present it to the court, that agreement is likely to become the official order or judgment of the court. If only this writer had a quarter for every time a judge said to litigants, “you are better off trying to come to an agreement you can live with than to let the court decide.”

Unlike a judge or arbitrator, mediators do not decide the outcome of the dispute. They assist the parties to air their differences, identify the strengths and weaknesses of their respective sides, and find a resolution that everyone can live with.

For some people, a common misconception is that by going to mediation they will be giving up rights or forced into an outcome with which they don’t agree. For other people, a desire for the proverbial ‘day in court’ may be enough to keep them from engaging in mediation. In fact, the mediation process allows for a considerable amount of flexibility, and the mediator will design the process around the needs of the participants.

But what is the actual process like? For a typical day-long mediation, the experience normally follows six stages, each with a specific purpose.

Mediator’s Opening Statement

With everyone in the same room, the mediator makes introductions; explains the goals, expectations, and rules of the mediation; and encourages respectful dialogue with the goal of resolution.

Parties’ Opening Statements

Each party has an opportunity to give their perspective of the dispute without interruption. This can include the facts, impact, and general ideas about resolution.

Joint Discussion

Parties may remain together to begin dialogue on the issues, respond to opening statements, and engage in more in-depth work with the mediator. Normally this is determined by the conduct and emotions of the people in the room, and the mediator’s perception of their ability to work together respectfully in the same room.

Private Caucuses

Parties are placed each in separate rooms, and each is given time to meet privately with the mediator. This may continue for the majority of the in-depth work. The mediator, through this private discussion, determines the appropriate way to proceed.

Joint Negotiation

After private caucuses, parties may come back together to communicate directly. However, this does not usually happen until a settlement is reached, or the time scheduled for the mediation ends.

Closure

If the parties reach an agreement, the mediator will likely put the main provisions in writing and ask each side to sign it. If the parties are unable to agree at the time, the mediator will help determine if they want to work toward a solution within mediation.

Conclusion

Mediators are normally patient, persistent, and have plenty of common sense. Effective mediators are good listeners and negotiators, and they’re understanding of human nature. A mediator has to be articulate in order to accurately restate and relate to the positions of the conflicting parties. They may be attorneys, laypeople with training or certifications, volunteers in court-sponsored programs, privately retained, or even retired judges. Attorneys who are also mediators cannot represent one side or another, nor can they give legal advice while in the role of mediator.

One of the most important roles of the mediator is to help the parties understand that accepting less than what they may feel they ‘deserve’ is essential to a fair settlement. As the old saying goes, ‘if everyone walks away feeling slightly unhappy with the agreement, it is probably a fair agreement.’

Despite everyone walking away slightly unhappy, mediation is typically successful and satisfactory. Statistically, parties are more likely to abide by an agreement they reach on their own than an order from a court. The nature and structure of the mediation process results in its high success rate.

Attorney Julie Dialessi-Lafley is a certified mediator and a shareholder with Bacon Wilson, P.C. She has extensive experience with all aspects of family law, including pre- and post-nuptial agreements, separation, divorce, child custody and parenting time, and grandparents’ rights. In addition to family law, she represents clients in matters related to accidents and injuries, civil litigation, and probate and estate planning; (413) 781-0560; [email protected]

Opinion

Opinion

By Christine Palmieri

September is National Recovery Month. ‘Recovery’ is a word that gets used a lot in the world of mental health and addiction services, sometimes so much so that I think we can easily lose sight of what it represents. In my role with the Mental Health Assoc. (MHA), I often have the opportunity to talk to newly hired staff about the idea of recovery. We discuss what it means and what it can look like in the context of working with people who have experienced trauma, homelessness, psychiatric diagnosis, and substance problems.

When I ask new staff the question, “what does it mean to recover?” I frequently hear things like “getting better” or “getting back to where you were” or “having a better quality of life.” Although I tell staff there are no wrong answers to this question, secretly I think there are. They’re common and easy, but insufficient.

As with many things, I think it’s easier to talk about what recovery is by defining what it isn’t. For me, recovery isn’t a cure. It isn’t a finish line or a place people get to. It isn’t a goal that can be neatly summarized in a treatment plan. I believe recovery is a process that is unique and intimately personal to the individual going through it. Ultimately, though, I think the answer to the question “what does it mean to recover?” should be “it isn’t for me to say.”

I believe recovery is a process that is unique and intimately personal to the individual going through it.

As providers of services, or as loved ones, community members, and policy makers, I don’t believe it’s up to us to define what recovery means or looks like for people going through it. Each person needs to examine and define what it means to them. For the rest of us, I think the more important question is “what makes recovery possible?” When the question is posed this way, we are able to engage this idea of recovery in a much different and more productive way. This question offers the opportunity to share the responsibility and partner with those we support.

The analogy of a seedling is often used when describing this process of recovery, and one I use when I talk to our new hires about their roles and responsibilities as providers of service. Seeds are remarkable little things. For me, they represent unlimited potential. A seed no bigger than a grain of rice contains within it everything it needs to grow into a giant sequoia. But no seed can grow without the right environmental conditions. No amount of force or assertion of control can make a seed grow. It needs the right soil, the right amount of water, and the right amount of light.

In the same way, within each person who has experienced trauma, homelessness, psychiatric diagnosis, or problems with substances, I believe there lies unlimited potential for growth, and each person needs the right environment for the process of recovery to take place. As providers, loved ones, community members, and policy makers, we very often control that environment. Metaphorically, we provide the soil, the water and the light.

Soil is the place where recovery begins. It offers a place for the seed to grow roots, to gather strength, security, and safety. Soil is what keeps trees rooted tightly to the ground through storms. It is our responsibility to offer environments where people in recovery feel safe and secure, to try out new ways of coping and new ways of managing the difficulties and challenges that life presents to all of us.

Water provides a seedling with essential nourishment. We need to find ways to support people in recovery to discover what truly nourishes them. The work of recovery is hard. It requires taking risks and feeling uncomfortable. We cannot do the work of recovery for anyone else, but we can and should work to help people in recovery find the supportive relationships, meaningful roles, and reasons to do that hard work.

Light provides the energy necessary for growth. In recovery, I believe light is offered through the hope and understanding that every person has within them the potential to live a full and active life in the community, whatever that means for them. As providers, loved ones, community members, and policy makers, it is our role to shine the light of hope for people who have experienced discrimination, loss of power and control, and in many cases a loss of their identity. We hold this hope and offer this light because we know, without question, that recovery, however it is defined, is not only possible, but is happening, right now, all around us.

Christine Palmieri is vice president of the Division of Recovery and Housing at MHA.