Displaying 5 category results for February 2010.x

U.S. Supreme Court defines corporations' place of residence for diversity jurisdiction

By Lori Irish Bauman
February 25, 2010

In January, the U.S. Supreme Court gots lots of attention for ruling, in Citizens United v. FEC, on the free speech rights of corporations.  On Tuesday, the Court addressed a less-controversial aspect of a corporation's role as "citizen" -- namely, how to determine its state of residence.

In federal court, diversity jurisdiction may exist if the parties are citizens of different states.  A corporation is deemed to be a citizen of the state or states where it is incorporated and where it has its principal place of business.  28 USC sec. 1332(c)(1).  The Supreme Court held in Hertz Corp. v. Friend that "principal place of business" means the place where a corporation's high level officers direct, control, and coordinate the corporation's activities -- i.e., its "nerve center." This reversed the Ninth Circuit, which held that a corporation's principal place of business can be the state where it conducts the most business activity.

See our earlier coverage of the case here.

Employee may be forced to arbitrate employment claims under FAA

By Stacey Mark
February 17, 2010

In 2007, the Oregon Legislature amended Oregon's arbitration statute to impose an additional requirement on employers that sought to require employees to arbitrate employment-related disputes: the employer must either provide notice of the requirement at least two weeks prior to the time employee starts work, or have the employee sign the agreement in connection with a bona fide advancement. See ORS 32.620(5).  The amendment was of questionable validity because it imposed additional requirements on arbitration agreements that did not apply to contracts generally, something arguably prohibited by the Federal Arbitration Act (FAA), 9 USC ยง 2.  Judge Brown recently put this issue to rest in Bettencourt v. Brookdale Senior Living Communities, Inc.

Deanna Bettencourt challenged the enforceability of an arbitration agreement based on the fact that she signed it after she started work and not in connection with any advancement.  She argued that under ORS 32.620(5), the agreement was void. The defense argued that the FAA preempts Oregon law and, therefore, prohibits Oregon from imposing any additional requirements on arbitration agreements that do not apply to contracts generally.  Judge Brown agreed, finding that the FAA places arbitration agreements on the same footing as any other contract. Consequently, ORS 32.620(5), which "only renders unenforceable arbitration agreements that would otherwise be enforceable under the FAA" is invalid.  While Judge Brown's ruling eliminated one obstacle to arbitration, she ordered the parties to go to trial on whether the parties agreed to arbitrate.

Judge Brown's ruling is good news for Oregon employers who favor arbitration over going to court.  However, employers should keep in mind that there are many issues to consider before committing to arbitration - one being that the agreement to arbitrate will likely be litigated as a preliminary matter, before the parties ever get to the underlying claims.  Therefore, before running headlong into arbitration, it is a good idea to go over the pros and cons with counsel.

IRS begins employment tax audit initiative

By John Walch
February 9, 2010

The "tax gap" is the difference between what the IRS collects and what it thinks it is owed.  In 2005, the IRS estimated the gap was $345 billion, including approximately $60 billion in employment taxes.  To help close the gap, the IRS announced it would conduct a National Research Project (NRP), randomly auditing over 6,000 employers over the next three years.  NRP audits are used to generate baseline data that the IRS uses internally in determining what are typical numbers on a return.  As a result, the audits are very comprehensive.  The IRS is now about to begin the audits.

The NRP audits will focus on four areas: employee classification, fringe benefits, expense reimbursements and compensation paid to owners.  The classification issue (whether a worker is an independent contractor or an employee) has long been fruitful ground for the IRS due to the lack of clear standards.  Likewise, whether a distribution to an owner is a return on investment (exempt from employment taxes) or compensation for services (subject to employment taxes) is also an issue without absolute answers.  The other two audit areas are documentation issues -- whether a benefit plan conforms to the tax code, and whether it is operated correctly.  Of course, in auditing these issues the IRS will be looking at correctness and timeliness of tax reporting and deposits.  Although they are not the focus areas, it is common for the IRS to discover errors and inconsistencies.

The initiative is a reminder that the IRS is interested in how a business pays its employees and owners.  Since the classification and compensation issues involve grey areas, it may be worth while to discuss them with counsel now instead of the IRS later.

Oregon Court of Appeals tackles defamation claim against a clergy member

By Shemia Fagan
February 5, 2010

Last week, the Oregon Court of Appeals addressed a First Amendment issue that had been untouched by both the United States Supreme Court and the Oregon courts. In Tubra v. The International Church of the Foursquare Gospel, the Oregon Court of Appeals determined that the First Amendment did not divest a lower court of jurisdiction to consider a defamation claim against a church pastor.

Plaintiff was the interim pastor of Vernonia Foursquare Church.  He was appointed by Pastors Cooke and Swor, the district superintendent and supervisor.  After a permanent pastor was hired for Vernonia and plaintiff was released, Cooke and Swor drafted a letter that Swor read aloud to the Vernonia congregation regarding the circumstances surrounding plaintiff's departure. The letter accused plaintiff of misappropriation of church funds and dishonesty during his tenure as interim pastor.  Plaintiff sued Cooke, Swor and the International Church of the Foursquare Gospel for, among other things, defamation based on the letter.

After a trial on the merits, during which the jury found for plaintiff, the defendants moved for a judgment notwithstanding the verdict, arguing that the First Amendment operated to deprive the court of jurisdiction over the defamation claim.  After a hearing, the trial court agreed and overturned the jury's verdict.

The Court of Appeals reversed, concluding that church pastors are not per se exempt from defamation claims.  The court announced that the same test guiding courts in fraud cases against religious institutions should guide courts dealing with defamation claims against church pastors. Jurisdiction hinges on whether the representation at the heart of the fraud or defamation case is "purely religious as a matter of law."  If so, the First Amendment deprives the court of jurisdiction; if not, the court may hear the case. 

Determining whether a representation is purely religious involves three inquires.  First, is the defendant organization of a religious nature?  Second, does the representation itself relate to the religious beliefs and practices of the organization?  If the answers to these first two inquires are "yes," the First Amendment deprives the court of jurisdiction unless the statements were made for a "wholly secular" purpose.  Some ideas, such as "the nature of a supreme being" and "the value of prayer and worship" must always and in every context be purely religious as a matter of law.  Other ideas, however, can be religious only because the one espousing them is doing so for a religious purpose.

Here, the Court of Appeals determined that the alleged defamatory statements --that plaintiff had misappropriated money and demonstrated a willingness to lie -- did not relate to the religious beliefs and practices of the International Church of the Foursquare Gospel, and as such, were not purely religious as a matter of law. 

It's time to update your leave policies...again

By Stacey Mark
February 2, 2010

In 2009, there were a myriad of changes to both federal and Oregon laws applicable to leaves of absence.  Employers that haven't done so already should be updating their leave policies to incorporate changes that are now in effect, including:

  • Changes to FMLA that provide protected leave for a qualifying exigency or serious ilness or injury incurred or aggravated in the line of duty
  • Changes in FMLA forms
  • Changes to Oregon's Domestic Violence Leave that require employers to provide "safety accommodations"
  • Oregon's enactment of a Military Family Leave law

In addition, BOLI's proposed regulations pertaining to OFLA, Military Family Leave and Domestic Violence Leave are expected to become final in the near future.

We have prepared updated policies and forms that comply with all of the new laws.  Please contact one of our employment lawyers for more information.