WHEN MILITARY DUTY CALLS EMPLOYEES

In light of the recent call to active duty received by thousands of United States military reservists, employers and employees alike need to know their obligations to each other when employees serve in the uniformed services. The reemployment rights of military members were revised by Congress in 1994. The main thrust of the legislation is to guarantee the rights of military service members to take a leave of absence from their civilian jobs for active military service and to return to their jobs with accrued seniority and other protections.

The federal law applies to all Armed Forces members, including the Reserves, National Guards, the commissioned corps of the Public Health Service, and any others designated by the President during a war or an emergency. Employees of both private and public employers are protected when they have embarked on and have been honorably discharged from military service consisting of active duty, inactive duty training, full-time National Guard duty, or absences for fitness examinations. Unlike some other federal employment statutes, the law on reemployment rights of individuals in the Armed Services has no minimum number of employees for there to be coverage.

An employer is prohibited from using a person's military service or application for such service as a motivating factor in any adverse employment action against that person. Nor can an employer retaliate against an employee who participates in the reporting, investigation, or filing of claims asserting that the employer violated the federal statute.

To receive the benefit of the statutory rights and protections, an employee generally must give the employer advance oral or written notice of military service. Exceptions to this requirement are recognized when giving such notice would be impossible, unreasonable, or contrary to military necessity.

Employees leaving their jobs for military service lasting less than 31 days are entitled to continued health insurance coverage at the same cost, if any, that active employees would pay. For service lasting more than 31 days, employees may elect to pay for continuation of their health coverage for up to 18 months, or until their reemployment rights expire, whichever comes first. Upon returning to work after military service, an employee is entitled to immediate health insurance coverage, even if returning employees usually face a waiting period.

For purposes of calculating retirement benefits, a period of military service is the equivalent of time on the job. The returning armed services member has a right to any pension benefits that accrued before the military service began, as well as any additional benefits that were reasonably certain to accrue during the employee's absence. Employees serving their country in uniform must be treated as active participants in benefit plans, rather than as having had a break in service while they were away from work.

When a period of military service has ended, the returning employee has a right to reemployment, subject to some conditions and restrictions. Generally, the cumulative length of military service must not have exceeded five years. In addition, an employee must apply for reemployment within time periods that increase in duration with the length of uniformed service. Similarly, depending on the length of military service, the employee must be given the position he or she is qualified for and would have held but for the military service, or a position of like seniority, status, and pay.

The reemployment obligation will not apply if there has been such a change in circumstances during an employee's absence that rehiring would be impossible or unreasonable. Employers bear the burden of showing such exceptional circumstances, however. Courts can be expected to construe this and other parts of the reemployment law in favor of returning service members, so as to better achieve the statute's purpose of encouraging noncareer military service.

CASE BY CASE

An elderly doctor and his daughter opened a joint bank account, the money in which would go to the surviving account holder if the other one died. Nine years later, when the doctor was in declining health, his wife asked to be added to the account so that she could pay bills. Based on the signatures of the doctor and his wife, but not the daughter, the bank added the wife to the account. Over a one-month period, the wife then wrote many checks on the account, totaling over $100,000. The biggest check, for $75,000, was written, cashed, and deposited to the wife's own account on the very day her husband died.

The daughter sued the bank, claiming it was liable to her for recognizing a new party to the joint account without the consent of all parties to the account. A state supreme court sided with the bank. First, the documents that comprised the contract between the bank and the account holders included a statement that each owner was the agent of any other owners for purposes of endorsements, deposits, withdrawals, and conducting business for the account. This language was broad enough to give the doctor power to add his wife as a new party to the account without his daughter's knowledge or consent. Second, a statute on joint accounts similarly made each party to an account the agent for other account holders, although the statute was silent on the method for adding a new party to an account. The bank had not breached its contract when it recognized the doctor's wife as a new party to the account based solely on the doctor's signature.

This decision highlights the pitfalls that can accompany joint bank accounts. Allowing each party to a joint account to exercise full authority over the account is flexible and convenient, but the cost of these advantages is loss of control. The exposure to this risk is widespread, as joint account contracts typically have language like that used in this case.

Alternative methods for managing money make it more difficult for any individual to raid accounts to the detriment of co-owners. These include powers of attorney, revocable living trusts, and "agency" or "convenience" accounts that resemble general powers of attorney but are confined to specific bank accounts. Seek the advice of legal counsel before deciding which of these options is most appropriate in a specific situation.

The law of torts is about apportioning risks and allocating the burden of loss. One state's highest court wrestled with these issues in a case that arose when a high-rise building collapsed during a large construction project.

The plaintiffs were businesses, from hot dog vendors to large law firms, who suffered no physical injuries to persons or property as a result of the collapse, but who lost income when city officials closed heavily traveled streets in the vicinity of the accident. The defendants were the owner, tenant, and managing agent of the building that collapsed.

It is beyond dispute that a landowner who engages in activities that may cause injury to persons on adjoining property owes those persons a duty to take reasonable precautions to avoid injuring them. On the other hand, the court had never ruled that a landowner owes a duty to protect an entire urban neighborhood against purely economic losses, and it refused to do so in the case before it. Businesses in the area may well have suffered purely economic losses due to the collapse, but the court saw no satisfactory way "geographically" to distinguish among them.

The businesses also were unsuccessful in claims based on a public nuisance theory. A public nuisance is conduct that substantially interferes with the exercise of a common right of the public. That claim's downfall was attributable to the principle that a private person or business can recover damages for a public nuisance only by showing a special injury beyond that suffered by the community at large. While the degree of harm suffered by the plaintiffs may have been unusual, the harm was not different in kind from that experienced by the rest of the community.

For over 25 years the federal Government has been using tax incentives to help preserve historic buildings. Originally, federal law allowed accelerated depreciation on rehabilitated buildings, but subsequent changes have made preservation and revitalization efforts even more attractive to taxpayers. Today, there is a general business credit equal to 20% of qualified rehabilitation expenses for a certified historic structure, or a 10% tax credit for the qualified rehabilitation of nonhistoric, nonresidential buildings first placed into service before 1936. Eligibility for the tax incentives is determined by the National Park Service. Tax credits are often more beneficial to taxpayers than deductions, since every dollar of a tax credit reduces the amount of income tax owed by one dollar.

The 20% credit for the rehabilitation of a certified historic structure applies to commercial, industrial, agricultural, rental, or residential properties, but not properties used exclusively as the owner's private residence. A certified historic structure must be a building, as opposed to another type of structure. To have the required historic status, the building must be either listed individually in the National Register of Historic Places or located in a registered historic district and certified as being of historic significance to the district.

Eligibility for the 20% credit also depends on meeting some additional requirements. For example, the building must be depreciable, that is, used in a trade or business or held to produce income. The rehabilitation must be substantial, generally defined as entailing expenditures over a two-year period exceeding the greater of $5,000 or the adjusted basis of the building and its structural components. Qualified rehabilitation expenses include such items as architectural and engineering fees, site survey and development fees, legal expenses, and other construction-related costs, so long as they are added to the basis of the property, are reasonable, and are related to services performed.

The owner of the rehabilitated building must hold it for five years after completion of the rehabilitation, or pay back all or part of the 20% credit. A sale in the first year means that the entire credit is recaptured. The recapture amount is reduced by 20% per year for properties held between one and five years.

The 10% credit for nonhistoric buildings constructed before 1936 shares some of the requirements for the 20% credit, such as that the rehabilitation be substantial and the property be depreciable. However, only buildings rehabilitated for nonresidential uses qualify for the 10% credit. In addition, so that the identity of the original building is not lost in the process, projects undertaken for the 10% credit must meet specific tests based on retention of minimum percentages of the building's walls and internal structural framework.

A small partnership whose sole line of business appears to have been registration of hundreds of Internet domain names registered an Internet address name that was virtually identical to the name of a famous winery. When the winery got nowhere with demands that the domain name be released or transferred to it, it sued under the federal Anticybersquatting Consumer Protection Act (ACPA). Cyber squatting is the registration of a domain name of a well-known trademark by someone who does not hold the trademark but hopes to profit from selling the name back to the trademark owner.

Unfazed by the lawsuit, the partnership went on the offensive. On a website that used the name in dispute, the defendant published under the heading "Whiney Winery" a discussion of the lawsuit and an attack on the winery and corporations generally. This online response to being sued was the first and only time that the registrant of the disputed domain name actually used it.

A federal court awarded a judgment to the winery under the ACPA. There was no question that the winery had a valid trademark that was famous and distinctive, and that the domain name registered by the defendant was identical or confusingly similar to the mark. The defense rested instead on the contention that the partnership did not have the bad-faith intent to profit from another's mark, as is required for liability under the ACPA.

The court weighed various factors that go into deciding if "bad-faith intent to profit" is shown, and the partnership did not fare well. When it registered the domain name, it had no intellectual property rights in the name, and it never had used the name in a legitimate offering of goods or services. Although it had not yet offered to sell the domain name to the winery, it had made such offers to sell names to other trademark owners, generally accepting no less than $10,000 per name. The partners admitted that they hoped the winery eventually would contact them so that they could "assist" the winery in some way. The icing on the cake in establishing bad faith was the hosting of a website and using the winery's trademarked name as a forum for attacking the winery's goodwill and tarnishing its trademark.

When an individual dies, there is the possibility that his or her estate will be subject to the federal estate tax. However, only estates exceeding a certain level in value are subject to this tax. That level is now set at $1 million for persons dying in the years 2002 and 2003. The current $1 million exclusion amount is based on what is called the "unified credit against estate tax." In the case of an unmarried person's death, the application of the unified credit is straightforward. In 2002 and 2003, an unmarried person can leave the $1 million exclusion amount tax-free to whomever he or she wishes. Similarly, each spouse of a married couple is entitled to leave the exclusion amount tax-free at his or her death.

In the case of a married couple, estate planning steps can be taken to insure the maximum use of the unified credit. The typical situation is where each spouse (assuming, for purposes of the example, the death of the first spouse in 2002 or 2003) has an estate worth something less than the $1 million exclusion amount. If the husband's estate is worth $750,000, for instance, and he dies first, his estate will escape the estate tax because its value is below the exclusion level, but the $1 million exclusion amount will not be fully used by his estate. The ideal would be to move assets from the wife's estate to the husband's estate so as to bring his estate to the $1 million level. This would allow the full use of the exclusion in the husband's estate and would reduce the value of the wife's estate so that, given the likely increase in the value of the wife's assets following the husband's death, the wife's estate may be kept below the $1 million exclusion amount at her death.

There is a new estate planning technique that accomplishes that goal without the need for an actual gift from the wife to the husband in order to bring the value of his estate to $1 million. The technique, which utilizes a "credit shelter trust," requires the couple to establish a joint revocable trust that becomes irrevocable upon the first spouse's death and gives that spouse the power to dispose of the trust's assets as he or she chooses by will.

It is crucial that the spouses grant each other "general powers of appointment" so that property in the trust from the surviving spouse is treated as coming from the deceased spouse. The deceased spouse's will would direct that an amount from the trust needed to bring the value of his or her estate to the $1 million exclusion level is to be placed in a credit shelter trust contained in his or her will for the express purpose of using the entire $1 million exclusion amount. Thus, where the husband dies first and had a gross estate of $750,000, the terms of the joint revocable trust established by both spouses and the husband's will would place $1 million in the husband's credit shelter trust ($750,000 from the husband and $250,000 from the surviving spouse).

It is important to note that this technique was approved by the IRS in a "private letter ruling" and, therefore, general acceptance by the IRS is not guaranteed. Because of the complexity of the technique, the steps outlined above should not be taken without consulting a qualified professional.

Shortly after he was fired from his job, Monty got married and left town for a three-week honeymoon. While he was away, his former employer sent him a notice about his right under a federal law, called COBRA for short, to elect to continue his health-care insurance coverage. COBRA requires that such a written notice be provided within 14 days of a termination from employment, but neither the statute nor regulations spell out what adequate notice entails.

In Monty's case, he never got the notice, which was sent by certified mail, return receipt requested. When Monty went to the post office to claim the letter, postal workers could not find it. Eventually, the COBRA notice was found, but then it was returned to the sender with an erroneous indication that Monty never claimed it. By that time, Monty had begun a new job and was receiving treatment for a new medical condition. His new employer's insurer denied coverage for this treatment as a preexisting condition. That left Monty without coverage for significant medical expenses.

Monty was unsuccessful when he sued his former employer under the Employment Retirement Income Security Act (ERISA) on the ground that it had not given him the required written notice about COBRA insurance coverage. Although it was through no fault of his own that Monty never received the notice, his former employer had made a good-faith attempt to get the written notice to him, and that was all that the law requires. The employer used certified mail, which is designed to enhance the prospects for an individual's receipt of delivery, and it was not responsible for the letter going undelivered.