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Michigan House and Senate Pass Bills Imposing 45-Day Data Breach Notification Requirement

The Michigan House of Representatives recently voted to approve legislation that will impose a 45-day data breach notice requirement on Michigan businesses. House Bills 4186 and 4187, which were passed on December 16, 2020, will become law if signed by Governor Whitmer. Identical bills were passed by the Michigan Senate on December 10.

Data security is a major concern for many businesses across industries. A report issued by the FBI, Department of Health and Human Services, and Cybersecurity and Infrastructure Security Agency in October warns of “an increased and imminent cybercrime threat” to businesses, particularly those in the health care sector. Recent revelations of a sophisticated cyberattack on the U.S. government shows how vulnerable even the most secure systems are to a breach. This new legislation, if enacted, will impose new obligations on Michigan businesses when a data breach occurs.

Key Provisions of New Legislation

The legislation requires a “covered entity” to provide notice within 45 days to state residents whose “sensitive personally identifying information” (PII) was exposed in a data breach.

A “covered entity” includes an individual or a sole proprietorship, partnership, government entity, corporation, limited liability company, nonprofit, trust, estate, cooperative association, or other business entity, that has more than 50 employees and owns or licenses sensitive personally identifying information, or a franchisee of any of the foregoing.

The scope of PII that gives rise to an obligation to notify state residents in the event of a data breach includes a state resident’s first name or first initial, and last name, in combination with one or more of the following data elements that relate to that state resident:

A nontruncated Social Security number.
A nontruncated driver license number, enhanced driver license number, state personal identification card number, enhanced state personal identification card number, passport number, military identification number, or other unique identification number issued on a government document that is used to verify the identity of a specific individual.
A financial account number.
A state resident’s medical or mental history, treatment, or diagnosis issued by a health care professional.
A state resident’s health insurance policy number or subscriber identification number and any unique identifier used by a health insurer to identify the state resident.
A username or electronic mail address, in combination with a password, security question and answer, or similar information, that would permit access to an online account affiliated with the covered entity that is reasonably likely to contain or is used to obtain sensitive personally identifying information.

All covered entities and third-party agents are required to implement and maintain reasonable security measures designed to protect PII against a breach of security. The legislation lays out a long series of factors covered entities must consider in developing reasonable security measures, including the size of the covered entity and the amount of PII it maintains and processes.

If a covered entity determines that a breach of security has or may have occurred, the covered entity must conduct a good-faith and prompt investigation into the scope and extent of the breach.

If a covered entity determines that a breach has occurred, it must notify state residents whose PII was acquired in the breach, as expeditiously as possible and without unreasonable delay. Notification must occur within 45 days of a determination that a breach has occurred unless law enforcement determines that such notification could interfere with a criminal investigation or national security. Written notice must at least include the following:

The date, estimated date, or estimated date range of the breach.
A description of the PII acquired by an unauthorized person as part of the breach.
A description of the actions taken to restore the security and confidentiality of the PII involved in the breach.
A description of steps a state resident can take to protect against identity theft, if the breach creates a risk of identity theft.
Contact information that the state resident can use to ask about the breach.

A covered entity may provide substitute notice in lieu of direct notice, if direct notice is not feasible because of excessive cost or lack of contact information. Under the legislation, the cost of direct notification to state residents is considered excessive if it exceeds $250,000 or if notice must be provided to more than 500,000 state residents. Substitute notice must include a conspicuous notice on the covered entity’s website (if it has one) for at least 30 days, and notice in print and broadcast media.

Penalties for Noncompliance with Notification Requirements

A covered entity that fails to comply with the notice requirements set forth in the legislation faces potentially steep fines. Penalties may include a civil fine of not more than $2,000 for each violation, or not more than $5,000 per day for each consecutive day that the covered entity fails to take reasonable action to comply with applicable notice requirements. Aggregate liability for civil fines for multiple violations related to the same security breach shall not exceed $750,000.

This legislation is not yet law, but soon may be. This article touches upon many of the important provisions of the legislation, but there are additional details to be aware of. Businesses and other entities covered by this legislation should take steps to assess their preparedness to comply with the new obligations imposed by these bills. If you have any questions, or require assistance in planning for the implications of this legislation, please contact Fraser Trebilcock shareholder Thad Morgan.

Thaddeus E. Morgan is a shareholder with Fraser Trebilcock and formerly served as President of the firm. Thad is the firm’s Litigation Department Chair and serves as the firm’s State Capital Group voting representative. He can be reached at tmorgan@fraserlawfirm.com or (517) 377-0877.

Filing of Property Transfer Affidavits

Michigan law requires that a Property Transfer Tax Affidavit (“PTA”) be filed with the local assessor (city or township) upon the transfer of ownership of real property. As used in the statute “transfer of ownership” means the conveyance of title to or a present interest in real property or some personal property. The PTA must be filed within 45 days of the date of transfer.

The penalties for failure to file can be severe. Generally, (i) if the sale price of the property transferred is $100,000,000.00 or less, the penalty is $20.00 per day for each separate failure beginning after the 45 days have elapsed, up to a maximum of $1,000.00 or (ii) if the sale price of the property transferred is more than $100,000,000.00, the penalty is $20,000.00 after the 45 days have elapsed. Note, the statute is complex and each situation needs to be carefully reviewed with your real estate attorney.

Additionally, if the assessor discovers the transfer in a later tax year, the assessor can go back and reassess the property for the three prior years and bill for the difference in the taxes actually paid plus interest and penalties.

In order to protect yourself, you must make sure that you have timely filed the PTA. When filing you should also have a copy time-stamped by the local assessor, so you can prove the PTA was properly and timely filed. The safest way to accomplish this is to hand-file the PTA and ask at that time for the copy to be time-stamped. However, in these days of COVID-19 shutdowns, many assessors’ offices are closed. If this is the case in the applicable jurisdiction, I suggest you utilize either (i) an overnight delivery service or (ii) certified mail, return receipt requested. You should send the original along with a copy to be time-stamped together with a self-addressed, postage-paid envelope and request in your cover letter that time-stamped copy be returned to you. Utilizing either an overnight delivery service or certified mail, return receipt requested will provide evidence that you did timely file the PTA.

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Norbert T. Madison, Jr. is a highly regarded corporate and real estate attorney with more than three decades of experience. Primarily focused on real estate matters, Norb represents clients in all facets of the practice, including the purchase, sale, leasing, and financing of various types of real estate, as well as the development of industrial, office, retail, condominium and residential real estate. Contact Norb at 313.965.9026 or nmadison@fraserlawfirm.com.

Michigan Court of Appeals Clarifies Athlete Concussion Liability Standards

On November 19, 2020, the Michigan Court of Appeals issued a decision in Randall v. Michigan High Sch. Athletic Association which clarifies the legal risks and obligations coaches and other covered adults face when they suspect a youth athlete has suffered a concussion.

The old playboook: standards were unclear

In 2013, Michigan enacted its concussion protection statute, codified at MCL 333.9156. It established requirements for coaches and other adult participants in organized youth sports events, providing in relevant part:

A coach or other adult employed by, volunteering for, or otherwise acting on behalf of an organizing entity during an athletic event sponsored by or operated under the auspices of the organizing entity shall immediately remove from physical participation in an athletic activity a youth athlete who is suspected of sustaining a concussion during the athletic activity. A youth athlete who has been removed from physical participation in an athletic activity under this subsection shall not return to physical activity until he or she has been evaluated by an appropriate health professional and receives written clearance from that health professional authorizing the youth athlete’s return to physical participation in the athletic activity.

MCL 333.9156

While the law established requirements to follow, it did not explicitly set out any penalties. Since the law’s enactment, most authorities agreed that an injured person could sue non-medical professionals under a common-law negligence theory. Common-law negligence occurs when a person has a legal duty to exercise reasonable care, the person breaches that duty, and the breach “proximately” causes an injury giving rise to damages. Laws such as the concussion awareness law can and do impose legal duties of care on covered adults. Stated plainly, reasonable care is the level of care a reasonably prudent person would take. It is an objective standard, so the decision is up to a judge or jury.

Even with existing common-law negligence theories, the lack of clarity from the statute and the lack of case law to clarify it created uncertainty among many coaches, referees, school administrators, and other adults involved in organized youth sports. For example, it was uncertain whether violating the terms of the statute would automatically put someone on the hook for damages.

How the Randall decision changes the game

In the Randall case, the plaintiff sued the MHSAA and numerous other entities connected to his youth hockey team after he endured two collisions in a game—the second of which came after he allegedly showed signs of a concussion and his coach had put him back in. The plaintiff’s theories of liability were that:

The concussion protection statute created a private cause of action against non-medical professionals, meaning that the plaintiff would not need to prove the covered adult was negligent—and,
In the alternative, a violation of the statute constituted negligence per se—meaning that a covered adult’s violation of the statute would automatically be negligent—and finally,
Failing those two arguments, defendants were liable under a theory of ordinary negligence.

In its November 19 opinion, the Michigan Court of Appeals established that a violation of the statute neither gives rise to a statutory cause of action nor constitutes negligence per se.

“Our Legislature enacted the concussion-protection statute to protect youth athletes from the harmful effects of concussions. In doing so, the Legislature did not create, explicitly or by implication, a private statutory cause of action for violation of the statute. Rather, the statute creates negligence-based duties on the part of coaches and other covered adults, and a violation of the statute can be evidence of actionable negligence.” Randall v. Michigan High Sch. Athletic Ass’n, No. 346135, 2020 WL 6811661, at *12 (Mich. Ct. App. Nov. 19, 2020)

This does not mean that coaches, referees, and other covered adults are free from liability concerns. If the plaintiff can prove that a covered adult violated the statute by failing to pull an athlete suspected of sustaining a concussion, the covered adult will face a rebuttable presumption of negligence. In other words, covered adults who violate the statute are presumed “guilty” of negligence unless they can prove themselves “innocent.” (Note: negligence under this statute is not a crime, but negligence can become criminal if the negligence and resulting injury are serious enough).

Covered adults who face this presumption can avoid liability by proving (by a preponderance of the evidence) that their negligence did not cause an injury giving rise to damages.

It is also important to note that an athlete’s willingness to get back in the game does NOT protect covered adults from liability. The rule is that if covered adults suspect a concussion, they need to pull the athlete from participation until a qualified medical professional determines that they can safely get back in the game.

Play it safe

The best course of action is to follow the statutory requirements and exercise your judgment as a covered adult—whether you are a coach, referee, adult volunteer, or even a school administrator—conservatively. If you suspect a youth athlete might have suffered a head injury, it is likely in everyone’s best interests to play it safe. Remember that common-law negligence uses an objective standard—ultimately, if you run into a negligence suit, a judge or jury who lacks your background and experience in youth sports would decide whether your actions were reasonable. Furthermore—as we all know—in litigation and in life, hindsight is always 20/20.

Still, playing it safe is not always enough. Things can go wrong. If that is the case and you find yourself facing a lawsuit, the attorneys at Fraser Trebilcock are here to help.

Matthew J. Meyerhuber is an associate at Fraser Trebilcock focusing on general litigation, environmental law, and real estate. Matthew can be reached at mmeyerhuber@fraserlawfirm.com or 517.377.0885.

Governor Signs Four Bills Reinstating Remote Notarization, Witnessing, and Visitation During COVID-19 Pandemic

Update:

The remote visitation by guardians and the remote signing, witnessing, and notarization of estate planning, and other, documents has been extended through June 30, 2021. On December 29, 2020, Governor Whitmer extended these remote practices by signing Enrolled Senate Bills 1186, 1187, 1188, and 1189. The Bills were designated as Public Acts 335, 336, 337, and 338 of 2020.

On November 5, 2020, Governor Whitmer signed into law four bills that passed the Michigan House and Senate overwhelmingly that continue the practices of remote notarization, remote witnessing and remote visitation that were first permitted under Executive Orders issued since April 8, 2020. To reduce exposure to COVID-19, the Executive Orders encouraged the use of remote, 2-way real-time, audiovisual technology for signing, notarizing and witnessing of legal documents and for remote visitation by guardians and guardians ad litem.

These remote practices were halted and the validity of all legal documents executed under the Executives Orders after April 30^th were called into question by an Order of the Michigan Supreme Court on October 2, 2020. The Order concluded that the Governor lacked authority to declare a state of emergency or a state of disaster under Michigan’s Emergency Management Act (EMA) after April 30, 2020 and ruled that the Emergency Powers of the Governor Act (EPGA) violated the Michigan Constitution. The Supreme Court effectively terminated the continued validity of Governor Whitmer’s Executive Orders issued under the EMA and the EPGA since the Legislature refused to continue her Executive Orders after April 30, 2020.

House Bills 6294, 6295, 6296, and 6297 (PA 246’20, PA 247’20, PA 248’20, and PA 249’20) were given immediate effect and amend the following Michigan laws: the probate code (Estates and Protected Individuals Code), the Uniform Electronic Transactions Act, the Uniform Real Property Electronic Recording Act, and Michigan Law on Notarial Acts. The bills are effective retroactively from April 30, 2020 through December 31, 2020. The bills:

reinstate use of 2-way real-time, audiovisual technology for remotely executing, notarizing and witnessing legal documents, including wills, durable powers of attorney, patient advocate designations, funeral representative designations, appointments by parents of guardians for minors, and deeds, provided strict procedures are followed as outlined in the bills;
define 2-way real-time audiovisual technology;
permit a guardian or guardian ad litem to fulfill her duty to visit with an individual in person by using remote visitation instead of in-person visits;
permit each State department to send and accept electronic records and electronic signatures to and from other persons;
encourage governmental agencies and officials of the state to use or permit the use of electronic records and electronic signatures to transact business, process applications, and recognize the validity of legal instruments, and when a notarized signature is required by a law of this state, to use a notary public who performs notarial acts electronically under the new law;
apply the law’s use of remote signatures to the Uniform Commercial Code during this time frame (with some exceptions);
direct registers of deeds to accept for recording electronic documents, or if a county’s register of deeds does not have equipment to accept an electronic document, to accept for recording a tangible copy of an electronic document properly notarized under Michigan’s notary law, as amended to allow remote notarization;
direct financial institutions to accept documents or electronic documents recorded by a register of deeds under the amended laws permitting remotely signed and notarized documents; and
extend the validity of notary public commissions that expire between March 1, 2020 and December 31, 2020 until December 31, 2020.

What is 2-way real-time, audiovisual technology?

Remote execution, notarization, witnessing, and visitation must be performed using 2-way real-time, audiovisual technology which is defined as procedures that allow for direct, contemporaneous interaction and communication by sight and sound between the signatory and the witnesses, or the notary and an individual seeking a notary’s services and any witnesses to the notarial act.

Requirements for executing and witnessing documents with this technology must be met, including:

the interaction must be recorded and preserved for at least 3 years;
the signatory must affirmatively represent their presence in Michigan or, if physically outside the state, that certain factors apply showing relevance of the document to the state of Michigan;
the signatory must affirmatively state what document is being signed;
each title page and signature page must be shown to the witnesses;
specific page numbering must be followed (page x of y);
the act of signing the document must be captured sufficiently up close so the witnesses can observe the signing;
the signatory or her designee must transmit the document within 72 hours after it’s signed and the witnesses must sign and return the signed copy, within 72 hours after receipt, back to the signatory by fax, mail or electronic means; and
the document must be in writing and readable as text.

Notarization of documents include additional requirements for 2-way real-time, audiovisual technology, including:

the interaction must be recorded and preserved for at least 10 years;
if the person seeking notarial services, or any required witness, is not known by the notary, satisfactory evidence of their identity must be presented during the video conference;
signatures must be capable of being affixed in a manner rendering any change or modification of the remote online notarial act to be tamper evident;
the signed document must be transmitted to the notary on the same day it was signed; and
once received with all necessary signatures, the notary must notarize the record and transmit it back to the individual seeking the notarial services.

Effective date of notarial act; use of counterparts is convenient.

The effective date of the notarial act is the date which the notary witnessed the signing of the document through the 2-way real-time, audiovisual technology. Documents may be signed in counterparts, using separate pages for each signature, unless the document prohibits the use of counterparts. Using counterparts is useful in that it allows remote signatures and notarization while also allowing original signature pages to be gathered and combined at a later date, resulting in a final document that includes all original signatures.

The validity of documents signed and notarized under the Executive Orders are preserved.

The new witnessing law includes a savings clause that protects the rights and interests of persons who relied in good faith and without actual notice that a document, signed on or after April 30, 2020 and before January 1, 2021, was not executed in accordance with the signing and witnessing requirements of the new law.

The new notary law includes a savings clause providing that notarizations performed, on or after April 30, 2020 and before January 1, 2021, using the outlined procedures in the law, as amended, are valid. The right and interests of a person who relied in good faith and without actual notice that the record was executed on or after April 30, 2020 and before January 1, 2021 but was not executed or notarized in accordance with this section are not impaired, challenged, or terminated on that basis alone.

If a recent document was executed, witnessed, or notarized pursuant to Executive Orders
2020-41, 2020-74, 2020-131, 2020-158, 2020-173, 2020-187, the savings clauses in the new bills protect the validity of such documents since the new witnessing and notarization law incorporates the same procedures required by the Executive Orders.

Compliance is presumed but a document’s validity can be challenged.

Compliance with the new law is presumed. A document can be challenged and the presumption of compliance with the new law may be overcome by the presentation of clear and convincing evidence that the signatory or a witness, or a notary or the individual seeking the notary public’s service, intentionally failed to comply with the requirements of the new law.

All good things come to an end: Will that be so here or will the Legislature extend?

The current bills validate remote, use of 2-way real-time, audiovisual technology, for the execution, witnessing, and notarization of legal documents signed on or after April 30, 2020 and before January 1, 2021. This means that unless the law changes, December 31, 2020 is the last day that these new procedures can be used.

The Executive Orders and new law related to remote signatures, witnessing and notarization are based upon the need for the continued signing of important legal documents during the COVID-19 pandemic in a way that reduces exposure to the virus. Given the reality and uncertainty of this health crisis, many people are trying to execute and update important legal documents, particularly estate planning documents. As the year comes to an end, the legislature may determine that the pandemic is continuing and that the public has a continued need for the protection that remote execution, witnessing and notarization of legal documents provide. In that case, the new law will most likely be extended. As with many laws, additional changes may be made as we learn new ways to streamline and improve the process.

Marlaine C. Teahan is a subcommittee member of a joint initiative of the Elder Law and Disability Rights and the Probate and Estate Planning Sections of the State Bar of Michigan that worked on a legislative solution to replace the Executive Orders on remote execution, witnessing and notarization of documents. The subcommittee (led by Howard Collens and Nathan Piwowarski), the represented Sections and their lobbyists, and other stakeholders were instrumental in the passage of the new bills. Representative Lightner, the bills’ sponsor, and the leadership in the Legislature recognized the importance of these issues and worked quickly with all stakeholders to respond to the developing crisis and pass these laws out of the Legislature for signature by the Governor. Marlaine can be reached at mteahan@fraserlawfirm.com or 517.377.0869.

Fall in Michigan: Safely Handling Deer/Automobile Accidents

You did the right thing… you did not swerve but have hit a deer… now what?

During the next couple of months there will be thousands of deer/car accidents in both rural and suburban Michigan. In fact, statistics suggest that there will be over 50,000 deer/car accidents during the 2020 calendar year. The Michigan State Police report that 80% of these accidents will occur between dawn and dusk, but they are not limited to rural areas. Indeed, for example in the Lansing area alone, Meridian Township had 129 car/deer accidents, and Delta Township had 128 deer/car accidents in 2018. Simply stated, if you drive enough, there is an excellent chance that at some point in time you will be involved in a car/deer accident.

When that happens what should you do?

First, and foremost, if it is still drivable, get your vehicle as far off the traveled portion of the highway as possible. Activate your hazard warning flashers but stay in your vehicle! Getting out of your vehicle places you in a zone of danger that you need to avoid at all costs. The adrenaline will be flowing right after the accident but control it and think safety. Use your cell phone and call 911 which, hopefully, will dispatch a police car to the scene. Regardless, you should receive a police report number even if a police car is not dispatched to the accident. This is important so that you can provide your insurance company with evidence that the accident was a car/deer accident as opposed to a collision claim. Car/deer accidents (or other car/animal accidents) are covered under what is referred to as the comprehensive insurance coverage of your auto policy. Typically, your comprehensive coverage will have a substantially lower deductible than your collision coverage. You will need to check with your insurance agent to determine your “out-of-pocket” costs of repair.

Finally, remember that if you wish to keep the deer you may do so. You will need to advise the responding police officer that you would like a highway deer kill permit. The police officer will then give you a tag to transport the deer. If you take the deer that you have hit without a permit you could be in trouble with law enforcement or the Department of Natural Resources. Keep in mind too that even if you are not a fan of venison there are organizations that would be happy to accept the donation of your deer.

Most importantly, stay safe after your unavoidable car/deer accident.

Fraser Trebilcock Shareholder Gary C. Rogers has firsthand experience with car/deer accidents, having been involved in four himself; Gary is recognized as one of the top civil defense attorneys in the area of automobile related cases, and he has co-written Michigan No-Fault Law-The Insurers’ Perspective, a handbook for handling claims under Michigan’s No-Fault Automobile legislation. Gary can be reached at grogers@fraserlawfirm.com or (517) 377-0828.

Unemployment Compensation Benefits Extended to 26 Weeks

On October 20, 2020, Michigan Senate Bill 886 was signed into law by Governor Gretchen Whitmer. The bill extends the expansion of unemployment benefits for Michigan workers from 20 weeks to 26 weeks. Extended Benefits are now available for claims established on or before December 31, 2020, on which date the extended benefits provision expires.

The Michigan legislature passed the bipartisan legislation, which is now Public Act No. 229, following the Michigan Supreme Court’s ruling on October 2, 2020, that the governor lacked the authority, after April 30, 2020, to issue or renew COVID-19-related executive orders under the Emergency Powers of Governor Act of 1945. The new law, with certain exceptions noted below, largely reflects the now invalidated Executive Order 2020-76, which provided for temporary expansions in unemployment eligibility.

Public Act No. 229 provides that:

The maximum unemployment benefit period is extended from 20 weeks to 26 weeks;
Certain eligibility requirements for an individual to receive benefits would not apply if COVID-19 prevents the individual from meeting the requirements;
Benefits are to be charged to the employer’s “non-chargeable” account when a worker is laid off due to COVID-19, meaning that the employer’s experience rating is not affected by the cost of extended benefits;
Workers may receive benefits during time off work due to a COVID-19-related cause.

Public Act No. 229, in contrast to Executive Order 2020-76, does not waive the requirement that an unemployed worker must be “seeking work” to be eligible for benefits. Thus, except in certain circumstances, claimants will need to prove they are actively searching for a job to receive benefits. The requirement that a claimant seek work to receive benefits can be waived if either (i) the employer notifies the Unemployment Insurance Agency (“UIA”) that the layoff is temporary and that work is expected to be available in a declared number of days, not to exceed 45 days, following the last day the laid-off individual worked, or (ii) the UIA finds that suitable work is unavailable both in the locality where the individual resides and in those localities in which the individual has earned wages during or after the base period.

Another way in which Public Act No. 229 deviates from Executive Order 2020-76 is that it requires the UIA to review the claimant’s job history for the 18-month period preceding the claim filing date. Any disqualification identified during that period would prevent the extension of benefits. Executive Order 2020-76 had waived that requirement, requiring the UIA only to only consider a claimant’s most recent job. In a statement issued in conjunction with signing the bill into law, the governor’s office called the 18-month look-back period “a waste of resources because employers are not being directly charged for benefits paid at this time.”

If you have any questions about how this new law affects your business, please contact your Fraser Trebilcock attorney.

This alert serves as a general summary, and does not constitute legal guidance. All statements made in this article should be verified by counsel retained specifically for that purpose. Please contact us with any specific questions.

Fraser Trebilcock Shareholder Dave Houston has over 40 years of experience representing employers in planning, counseling, and litigating virtually all employment claims and disputes including labor relations (NLRB and MERC), wage and overtime, and employment discrimination, and negotiation of union contracts. He has authored numerous publications regarding employment issues. You can reach him at 517.377.0855 or dhouston@fraserlawfirm.com.

Client Alert: Health FSA Maximum Remains the Same for 2021

The IRS has just released its 2021 annual inflation adjustments, in which it announced that the Code section 125 dollar limitation on voluntary employee salary reductions to health flexible spending arrangements (health FSAs) is staying at $2,750.

The IRS annual inflation adjustments for more than 60 tax provisions, including health FSAs, can be found in Rev. Proc. 2020-45. This guidance reiterates that cafeteria plans can be written to allow carryovers of unused health FSA amounts up to a maximum of $550.

Although open enrollment season is about to be in full swing for most, employers should ensure that their salary reduction agreements, plan documents, and related enrollment materials are updated to reflect any changes in benefits for the upcoming plan year.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Michigan Supreme Court Officially Incorporates Centers for Disease Control’s Order Halting Evictions

On September 4, 2020, we reported on the Centers for Disease Control and Prevention’s order halting evictions nationwide through December 31, 2020 for tenants who cannot pay rent based on COVID-19 related circumstances. An article interpreting that order and discussing how it might apply to common eviction, landlord, mortgage and land contract situations appears here. It remains accurate and timely, but does not address yesterday’s Michigan Supreme Court Order 2020-17.

Yesterday, October 22, 2020, the Michigan Supreme Court adopted the CDC order and effectively made it the law of the State of Michigan. It did so over the objection of Chief Justice Pro Tem David Viviano, who expressed a preference for ruling on the validity of the CDC order in a case brought by litigants, as opposed to adopting it administratively as the Supreme Court did. Justice Viviano also argued in dissent that the CDC order “has been challenged on a host of grounds and, I believe, rests on a shaky legal foundation.” Order 2020-17 can be found here.

A court form for landlord/plaintiffs and tenant/defendants to file (attesting that the case is not subject to the CDC order or attesting that it is) can be found here.

Please refer back to this article in the coming days for comprehensive updates and analysis. If you are a landlord confronting these issues, please contact your Fraser Trebilcock attorney.

Jared Roberts is a shareholder at Fraser Trebilcock who works in real estate litigation and transactions, among other areas of the law. Jared also “walks the walk” as a landlord and owner of residential rental properties and apartments in Downtown Lansing. He may be reached at jroberts@fraserlawfirm.com and (517) 482-0887.

SBA Clarifies Rules Regarding PPP Loans and Changes of Ownership

In a recently issued procedural notice, the Small Business Association (“SBA”) addressed a lingering question of borrowers and lenders related to the Paycheck Protection Program (“PPP”) process: What procedures are required for changes of ownership of an entity that has received PPP funds?

The notice, issued on October 2, describes when change of ownership is considered to have occurred and what impact such change has on a PPP borrower’s responsibilities under the program.

Definition of a Change of Ownership

For the purposes of the PPP, a “change of ownership” takes place when one of the following occurs:

At least 20% of the common stock or other ownership interest of a PPP borrower (including a publicly traded entity) is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity;
The PPP borrower sells or otherwise transfers at least 50% of its assets (measured by fair market value), whether in one or more transactions; or
A PPP borrower is merged with or into another entity.

A PPP borrower must aggregate all sales and other transfers occurring since the date of approval of the PPP loan in determining whether the relevant threshold has been met.

Is a Borrower Required to Obtain SBA Consent?

If a PPP borrower fails to satisfy one of the criteria below, SBA consent is required for a change in ownership to ensure the repayment of any unforgiven PPP loan amounts.

The PPP loan has been paid in full or forgiven by the SBA.
In the case of a stock sale or merger:
(a) The sale or transfer involves less than 50% of the borrower’s stock/ownership interest; or
(b) The PPP borrower completes a forgiveness application reflecting its use of all of the PPP loan proceeds and submits it, together with any required supporting documentation, to the PPP Lender, and an interest-bearing escrow account controlled by the PPP Lender is established with funds equal to the outstanding balance of the PPP loan. After the forgiveness process (including any appeal of SBA’s decision) is completed, the escrow funds must be disbursed first to repay any remaining PPP loan balance plus interest.
In the case of an asset sale of 50% or more of the borrower’s assets, if the PPP borrower completes a forgiveness application reflecting its use of all of the PPP loan proceeds and submits it, together with any required supporting documentation, to the PPP Lender, and an interest-bearing escrow account controlled by the PPP Lender is established with funds equal to the outstanding balance of the PPP loan.

If SBA consent is required, the PPP lender is required to submit certain documents to the SBA, including documents relating to the transaction and information about the buyer and its ownership. The SBA will review and provide a decision within 60 days of receipt of a complete request.

Borrower’s Responsibilities in the Event of a Change in Ownership

The PPP borrower remains responsible for all obligations under its PPP loan in the event of change of ownership, including performance obligations under the PPP loan, certifications it made in connection with its loan application, retention of records and providing records in connection with a request from the PPP lender or the SBA, as well as other applicable PPP requirements.

In addition, before undergoing a change of ownership, a PPP borrower must notify its PPP lender in writing and provide the lender with copies of relevant documentation related to the transaction prior to closing.

Regardless of whether SBA approval is required and/or obtained, if change in ownership involves a sale of equity interest or a merger, the new owner is responsible for all obligations under the PPP loan. If the new owners use PPP funds for unauthorized purposes, the SBA will have recourse against them. If the new owner also had a PPP loan, the PPP loan funds must be segregated and properly allocated among the two borrowers.

Unanswered Questions

While the notice clarifies a great deal about change in ownership issues related to PPP loans, there remain unanswered questions. Among those questions are:

What are the consequences of failing to obtain SBA consent for a change in ownership transaction?
What rules apply for changes in ownership that occurred prior to the issuance of the notice?
What should PPP borrowers do if their PPP lenders have not yet opened application portals for seeking loan forgiveness?

We will continue to monitor and keep you abreast of new developments related to PPP forgiveness. In the meantime, if you have questions or require assistance, please contact your Fraser Trebilcock attorney.

Edward J. Castellani is an attorney and CPA who represents clients involved with alcohol beverages as a manufacturer, wholesaler, or retailer. He may be contacted at ecast@fraserlawfirm.com or 517-377-0845.

[Client Alert]: 2021 Adjustments for ACA’s OOP Limits, Penalty Amounts, and Affordability

HHS Announces OOP Limitations for 2021

With the passage of the Affordable Care Act (ACA), group health plans became required to apply an out-of-pocket limitation to certain in-network benefits… meaning that once an individual or family out-of-pocket (OOP) limit was met, the plan could not charge additional OOP costs for essential health benefits. These OOP limits include both the plan’s deductible as well as cost-sharing amounts for essential health benefits (EHB) in-network as set forth under the ACA.

Although self-insured plans and large-group insured plans are not required to cover all EHBs (while small-group insured plans are), to the extent they do, in-network OOP expenses for EHBs cannot exceed the maximum OOP limit. Additionally, group health plans may not impose annual or lifetime dollar limitations on EHBs whether offered in-network or out-of-network.

The Department of Health and Human Services (HHS) has released the 2021 plan year inflation-adjusted OOP limits applicable to non-grandfathered plans.

Self-only coverage: $8,550 (was $8,150 for 2020)
Family coverage: $17,100 (was $16,300 for 2020)

See PPACA; HHS Notice of Benefit and Payment Parameters for 2021.

Employers with non-grandfathered group health plans must update their maximum annual OOP limits.

These rules do not apply to ACA grandfathered plans. [Please note that these cost-sharing limits are different than the maximum out-of-pocket limits for purposes of being HSA-qualifying high deductible health plans.]

HHS Announces ACA Employer Mandate (Pay or Play) Penalty Amounts for 2021

Under the ACA, applicable large employers must offer certain group health plan coverage to their full-time employees; otherwise they will risk significant penalties.

Applicable large employers are those who employ 50 or more full-time or full-time equivalent employees in the preceding calendar year. Employees of related employers (within a controlled group or affiliated service group) are counted in this determination.

Part A requires employers to offer minimum essential coverage to 95% of their full-time employees. See Section 4980H(a).
Part B requires the offered coverage be affordable and meet the minimum value standards. See Section 4980H(b).

Specifically, the Part A Penalty is imposed on an employer who fails to offer minimum essential coverage (MEC) to at least 95% of the employer’s full-time employees (FTEs) and dependents as defined under the ACA, and if one of its FTEs receives subsidized coverage through the Marketplace or public health insurance exchange. The penalty amount is multiplied by the number of FTEs, minus 30. Special rules exist for applicable large employer members which are part of a controlled group.

The Part B Penalty amount is imposed on an employer who fails to offer coverage that meets the minimum value (MV) requirements or fails to be affordable, again as defined under the ACA, with respect to each one of its FTEs who receives subsidized coverage through the Marketplace or public health insurance exchange.

The Internal Revenue Service (IRS) has released the 2021 inflation-adjusted penalty amounts under the Affordable Care Act’s Employer Shared Responsibility Mandate (Pay or Play):

Part A Penalty: $2,700 (was $2,570 for 2020)
Part B Penalty: $4,060 (was $3,860 for 2020)

See Q&A 55 on Employer Shared Responsibility Provisions under the ACA.

Specifically, HHS finalized the premium adjustment percentage as 1.3542376277 for the 2021 benefit year, which is then multiplied by the original 2015 penalty amounts (Part A was $2,000 and Part B was $3,000) and rounded down to the nearest multiple of ten.

By way of example, an employer with 200 FTEs who fails to offer MEC to 95% of those employees (and if at least one of those FTEs receives subsidized coverage through the Marketplace or an exchange), the penalty assessed for the year will be $459,000 (200-30 = 170 x $2,700). The larger the employer, the larger the penalty. If the same employer offers coverage to 95% of its FTEs but that coverage is not affordable or doesn’t provide minimum value, the penalty assessed will be based on the number of employees who receive subsidized coverage through the Marketplace or an exchange. If 20 FTEs receive subsidized coverage for each month of the year, the 2021 penalty would be $81,200 ($4,060 x 20).

Affordability Rates for 2021

As discussed above with respect to ACA penalties, an applicable large employer who does not offer affordable employer-sponsored group health plan coverage could face steep penalties.

For 2021, the ACA affordability requirement applies to the lowest-cost self-only coverage option that offers minimum value and must not exceed 9.83 percent of an employee’s household income. Please see Rev. Proc. 2020-36. This is a increase from 2020 (which was 9.78%).

As it is difficult to determine an employee’s household income, three safe-harbors are available for employers to use to determine affordability:

Form W-2, based on an employee’s W-2 wages as reported in Box 1;
Rate of Pay, based on the employee’s hourly wage rate, multiplied by 130 hours per month; and
Federal Poverty Line, based on the individual federal poverty level as of six months prior to the beginning of the plan year, divided by 12…

Employers must be sure to carefully consider the safe harbors available and calculation of the lowest-cost employee coverage that should be charged.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.