Articles by Our Attorneys

Parents are often surprised to learn that once their child turns the age of majority, 18 in Pennsylvania, they no longer have legal right to make medical and financial decisions for their child. Sending your child off to college without both a General Durable Power of Attorney and a Healthcare Power of Attorney can have costly consequences. When meeting with children to discuss their Powers of Attorney, I typically recommend that they name their mom and dad to jointly serve as their Agents.

A General Durable Power of Attorney appoints an Agent who will manage all non-healthcare decisions on your behalf when you are unable, such as signing documents and bill payment. Imagine a situation where you call your child’s college to obtain a copy of his or her transcript. Although the college is happy to accept your tuition payments, they will be unwilling to discuss your child’s academic report or any other matter unless you are named as Agent under your child’s General Durable Power of Attorney.

The Healthcare Power of Attorney appoints an Agent to make medical decisions on your behalf if you are unable to communicate with your medical providers. Imagine another situation where your child is seriously ill or injured at school, or even while on a family vacation. Medical providers generally will be unwilling and unable under HIPAA regulations to communicate with you regarding your child’s medical condition unless you are named as Agent under your child’s Healthcare Power of Attorney.

In a situation where your child is unable to handle his or her financial and medical affairs long-term due to incapacity, a guardianship proceeding will be necessary if your child had not previously executed valid Powers of Attorney. A guardianship proceeding causes undue delay and expense that can be easily avoided by executing Powers of Attorney.

As a mother, I cannot stress enough the importance of discussing and implementing Powers of Attorney with your children. Please be sure to add Powers of Attorney to your child’s college packing checklist – it’s the surest way to empower you as your child’s #1 advocate.

Kristen R. Matthews is an experienced elder law attorney, assisting clients with a variety of estate and trust planning and administration matters in addition to advance and crisis Medicaid planning, guardianships, special needs trusts, and Veterans Pension benefits. [email protected] | 610-840-0272

If your business finds itself frequently entering into commercial contracts, chances are you have unknowingly agreed to a “liquidated damages” provision. While these provisions work in certain scenarios and may sometimes be in your best interest, the reverse is often true as well. Businesses should be mindful of a few considerations when reviewing a commercial contract that contains a liquidated damages provision.

What Are Liquidated Damages?

Liquidated damages provisions try to predict the future if things go wrong under an agreement. These clauses provide an estimate, made by the parties at the time they enter into their agreement, of the extent of the injury that would be sustained as a result of breach of the agreement. They are typically included in contracts where it would be difficult or impossible to calculate the amount of actual damage if the contract were breached. They need not be reciprocal and are ultimately dependent on how the parties allocate risk to one another. A typical liquidated damages provision looks like this:

If Seller fails to deliver the Products by the Delivery Date (the “Seller Breach”), Seller shall pay to Customer an amount equal to x% of the Purchase Price of the Products for each day a Seller Breach continues (the “Liquidated Damages”). The parties intend that the Liquidated Damages constitute compensation, and not a penalty. The parties acknowledge and agree that Customer’s harm caused by a Seller Breach would be impossible or very difficult to accurately estimate at the time of contract, and that the Liquidated Damages are a reasonable estimate of the anticipated or actual harm that might arise from a Seller Breach. Seller’s payment of the Liquidated Damages is Seller’s sole liability and entire obligation and Customer’s exclusive remedy for any Seller Breach.

A liquidated damages provision often serves as the exclusive compensation for the breaching party’s failure to perform a specific task or comply with a particular obligation, such as a breach of representation or a breach of covenant. The provision requires the breaching party to pay the non-breaching party either (i) a predetermined fixed amount (or cap on amounts) or (ii) an amount based on a predetermined formula.

Generally speaking, liquidated damages provisions are enforceable if the following three conditions are met:

1. Actual damages are hard to measure because of uncertainty;
2. There is a reasonably proportional approximation to actual damages; and
3. The liquidated damages provision cannot be unconscionable or against public policy

Considerations:

If you encounter a liquidated damages provision, there are a few important things to be mindful of:

1. Jurisdiction Matters

Liquidated damages provisions receive different treatment depending on the jurisdiction. In this regard, it is critical to understand the governing law of the jurisdiction at issue before drafting the liquid damages provision. Some commercial agreements include optional liquidated damages provisions. These are not always enforceable depending upon state law.

2. Not All Damages are Created Equal

The parties need to have a clear understanding as to the definition of the types of damages that could be at issue in their agreement:

• Compensatory damages;
• Actual damages;
• General damages;
• Special damages;
• Consequential damages;
• Damages recoverable under the UCC;
• Lost profits; and
• Punitive damages.

3. No Penalties Allowed

It is important not to overreach with respect to drafting a liquidated damages provision and risk a determination that the provision is unconscionable or against public policy. If the amount of liquidated damages is so severe that it is perceived by a court to be a penalty, it will not be enforceable. Parties to an agreement should consider adding language to the effect of “the parties intend that the liquidated damages constitute compensation, and not a penalty.”

4. Show Your Math

To be enforceable, liquidated damages must be a reasonably proportional approximation of actual damages. In litigation, a breaching party will often contend that this condition was not satisfied. Courts will typically consider what was reasonable at the time the contract was entered into as opposed to when the breach occurred. Thus, parties should consider including the rationale and/or formula of how liquidated damages were calculated in the actual liquidated damages provision itself. While this will not guarantee the provision is ultimately held enforceable, it will weaken the breached party’s argument that the provision was not reasonable at the time of contracting.

5. Read the Entire Agreement

A liquidated damages provision must be evaluated in light of the entire agreement, as it may conflict with other contractual provisions contained therein. For example, businesses should ensure that the liquidated damages provision is consistent with any cumulative remedies provision, as parties typically agree to liquidate damages as an exclusive remedy in lieu of the right to pursue cumulative remedies, including actual damage.

Matthew C. Cooper is an attorney in MacElree Harvey’s Business Department specializing in business and corporate law. He counsels businesses of various sizes and industries through all stages of the business life cycle, including representing management and boards of directors by helping them stay compliant with the ever-changing landscape of corporate law. Matthew frequently represents businesses in private financings, and is a trusted adviser to lenders and borrowers in commercial lending transactions. If you have any corporate or business law needs, please contact Matthew C. Cooper at (610) 840-0279 or [email protected].

A few interesting employment law developments occurred across the U.S. and locally in June 2021.  Here is a quick update:

1. Federal judge dismisses hospital workers’ lawsuit challenging mandatory COVID-19 vaccinations. A Texas federal judge dismissed a lawsuit filed by 117 unvaccinated employees who were given the choice to get vaccinated or lose their jobs.  Notably, the employees argued the hospital’s vaccine requirement violated public policy, as the COVID-19 vaccines were distributed under the Food and Drug Administration’s (FDA) emergency use authorization rather than the FDA’s usual processes.  The court roundly summarily the plaintiff’s argument, observing that the lead plaintiff was “refusing to accept inoculation that, in the hospital’s judgment, will make it safer for their workers and the patients in [the hospital’s] care.”
2. Amazon among the first large national employers to stop screening most employees for marijuana use. Amazon announced this month that it would stop screening non-transportation employees for marijuana use.  The online giant simultaneously announced that it would support legislation for federal decriminalization of marijuana as well.  Amazon’s new policy may represent a sea-change among large national employers’ drug screening policies in light of changing attitudes and relaxation of state laws on marijuana use.
3. Pennsylvania insurance company seeks to claw back “advance” bonuses to former Vice Presidents. In a notable local employment agreement dispute, USI Insurance Services has initiated breach of contract actions against former executives who have allegedly failed to repay performance bonuses paid out at the time they were hired in January, 2020.  Their bonuses were not to be fully earned until the company had made $500,000 in net commissions and fees off of new business the executives brought in.  However, the executives allegedly quit in May, 2021, before they hit that target.  The cases are USI Insurance Services v. DeRiggi, case number GD-21-007087, and USI Insurance Services v. Troiano, case number GD-21-007088, in the Court of Common Pleas for Allegheny County, Pennsylvania.  Given the timeline, it will be interesting to see whether the executives attempt to mount a defense relating to the economic downturn associated with the pandemic.

Jeff Burke is an attorney at MacElree Harvey, Ltd., working in the firm’s Employment and Litigation practice groups. Jeff counsels businesses and individuals on employment practices and policies, employee hiring and separation issues, non-competition and other restrictive covenants, wage and hour disputes, and other employment-related matters. Jeff also represents businesses and individuals in employment litigation such as employment contract disputes, workforce classification audits, and discrimination claims based upon age, sex, race, religion, disability, sexual harassment, and hostile work environment.

In the last series, we discussed updating your beneficiaries, as well as your estates documents. As you have learned by now, life continues to happen. At some point you may begin a new relationship. After the long and hectic process of your divorce, you hopefully now appreciate the importance of protecting your interests in the event anything should happen. There are a few different agreements that could help you achieve this goal.

If you are unmarried, but living together with your partner, you should consider a co-habitation agreement. A co-habitation agreement essentially protects the interests of individuals who a living together, sharing the lives with a significant other, but are not married at the time. It can state who stays and goes in the residence, what your separate property is, and how things should be divided in the event you part ways or if someone dies during the period of cohabitation.

Should you and your partner end up getting married, you can change your co-habitation agreement to a prenuptial agreement. A prenuptial agreement similarly protects your interests and makes clears who obligations the parties may have to the other during the course of the marriage. In the event of a divorce, it would help streamline the process. Matters such as equitable distribution, spousal support, and alimony can be decided in advance. So this time around, you can avoid the drawn out and costly divorce process, and focus on moving forward with your life.

In the event you already got remarried without even giving any of this a thought, it is not too late, you can still look into a postnuptial agreement. It does everything a prenuptial agreement does, it is just entered into after the parties have already wedded.

Do not be afraid to take control of your life and protect your interests. Speak to an attorney and find out what is available to you and what your best options are.

If you need guidance with your estate planning needs, please do not hesitate to contact a member of our team.

The Spousal Lifetime Access Trust (“SLAT”) has become a popular estate planning strategy employed by married couples. Currently the Tax Cut and Jobs Act of 2017 (“TCJA”) increased the federal gift and estate tax exemption to a current $11,700,000 per spouse. Therefore, a married couple could exempt a total amount of $23,400,000. However, this exemption is scheduled to revert to pre-2018 exemption levels on January 1, 2026. Furthermore, President Biden has stated he would like to reduce the exemption to $3,500,000 per person prior the scheduled reversion. The Treasury Department has issued regulations stating that once the estate and gift tax exemption reverts to its pre-2018 levels, taxpayers who had taken advantage of the increased exemption during the time it is available by making gifts will not be adversely affected when the exemption returns to its pre-2018 levels. This is very important as it gives taxpayers the right to make gifts to exempt $23,400,000 from their estate as long as the TCJA is still in place.  Therefore, considering the prospect of a 2026 reversion to the lower exemption amount as well as the political uncertainty in the United States to lower the exemption amount, it makes sense to utilize the increased exemption by making gifts before it either decreases due to the sunset provision or due to a congressional act.

The issue for many tax payers is that they do not want to give up control of assets during their lifetime by making a gift outright or in Trust and lose the ability to utilize those funds. Yet taxpayers would still like to make a gift to reduce their estates. One of the estate planning vehicles that can be used where taxpayers would still have use of the money and yet the assets would be out of your estate is the creation of a Spousal Lifetime Access Trust. The Spousal Lifetime Access Trust is a gift from one spouse (“donor”) to an irrevocable trust for the benefit of the other beneficiary spouse. The beneficiary spouse can receive distributions from the SLAT during his or her lifetime, yet the SLAT will be excluded from the beneficiary spouse’s gross estate and will not be subject to estate tax when the beneficiary spouse dies. It is one of the only estate planning vehicles where you can gift an asset yet still have limited access to the funds albeit through your spouse.

The terms of a SLAT can be flexible. A SLAT does not need to provide for the beneficiary spouse to receive trust income for life. However, in many situations it is advisable especially if the donor spouse would still like access to the funds. The SLAT must be an irrevocable trust, therefore the donor spouse must irrevocably transfer assets to the trust. However, as long as the donor spouse and beneficiary spouse are still married, then the donor spouse would still have access to those funds through the beneficiary spouse. However, once the beneficiary spouse dies or in the event the taxpayers become divorced, the donor spouse would no longer have access to those funds.

However, the donor spouse can be protected by creating another irrevocable trust in which the beneficiary spouse also creates an irrevocable trust for the benefit of the donor spouse with similar provisions so each spouse would have access to funds. However, please note that the Trusts cannot be a reciprocal as the IRS has rules in regard to the creation of reciprocal trusts in which both trusts may end of being included as part of your estates. There are a myriad of ways this can be avoided.

In most instances, a SLAT is treated as a grantor trust. A grantor trust means that the grantor of the SLAT is for income tax purposes treated as owning the assets of the SLAT. Therefore, any income from the SLAT would be included in the donor spouse’s gross income requiring the donor spouse to pay income tax thereon, thereby further reducing the taxpayers taxable estate.

One of the issues taxpayers wrestle with is who should be trustee of the SLAT. The donor spouse should not be the trustee of the SLAT.  In the event you would like to make the beneficiary spouse the trustee of the SLAT, then distribution should be mandatory or subject to an ascertainable standard. An ascertainable standard restricts distributions from the SLAT to provide for the beneficiary’s health, education, maintenance and support. You should consider appointing a trustee who does not have an interest in the trust to make discretionary distributions.

If you need any additional information in regard to a SLAT or other estate planning techniques, please contact Joseph A. Bellinghieri, Esquire at 610-840-0239 or via email at [email protected].

May 2021 brought a welcome change in the weather and two interesting Supreme Court rulings that could impact Pennsylvania businesses. 

1. U.S. Supreme Court ruling permits Philadelphia-based Uber drivers to take Uber to trial over allegations of improper worker classification.  The drivers, who work under Uber’s higher-end “UberBlack” service, allege that Uber misclassified them as independent contractors to deny them proper minimum wage and overtime wages.  Earlier in the case, the U.S. District Court granted summary judgment to Uber, holding that the drivers could not meet their burden to show that they were employees under the Fair Labor Standards Act (“FLSA”) or Pennsylvania wage-and-hour laws, effectively upholding Uber’s classification of the drivers as independent contractors.  The District Court cited in support of its decision that the drivers were entitle to make their own hours, worked as much or as little as they wanted, and largely invested in their own equipment.  The drivers appealed to the Third Circuit, which reversed the District Court, holding that other factors could alter the outcome of the case that needed to be resolved through a trial.  These factors included whether Uber exerted “control” over its drivers tasks and whether the drivers had opportunity for profit or loss depending on their own managerial skill.  The U.S. Supreme Court this month declined to hear Uber’s appeal from the Third Circuit ruling, setting the stage for a trial on the merits.  Accordingly, the decision of an eastern Pennsylvania jury could have nationwide effects on the ride-hailing industry.
2. Pennsylvania Supreme Court holds “No Poach” Agreement Unenforceable.  A “no-poach agreement” is an agreement between employers not to hire or solicit to hire each other’s employees.  By way of example, these agreements may be put in place where employees from multiple companies collaborate together in a joint venture, and the companies do not want the other businesses to use the venture as an opportunity to recruit their best employees. In a decision that could have far-reaching impacts for Pennsylvania businesses, the Court ruled in Pittsburgh Logistics Systems Inc. v. Beemac Trucking LLC, No. 31 WAP 2019, J-32-2020, 2021 WL 1676399, 2021 Pa. LEXIS 1853 (Apr. 29, 2021), that one-such arrangement was unenforceable.  Pittsburgh Logistics Systems (“PLS”) is a freight broker, and its agreement sought to forbid the carriers with which it entered into formal service contracts from hiring or soliciting PLS’ employees anywhere in the world for the length of the contract plus two years.  Notably, PLS introduced no evidence that the relevant employees had ever had direct contact with the relevant carrier.  The Court condemned the lack of consent of the affected employees and the failure to provide the employees with consideration.  The Court also applied a public policy test, noting harm to the general public through non-competition.  While the case does not suggest an outright ban on no-poach agreements in Pennsylvania, it underscores that such agreements are disfavored and that businesses will need to demonstrate a compelling reason for putting these agreements in place.

Jeff Burke is an attorney at MacElree Harvey, Ltd., working in the firm’s Employment and Litigation practice groups. Jeff counsels businesses and individuals on employment practices and policies, employee hiring and separation issues, non-competition and other restrictive covenants, wage and hour disputes, and other employment-related matters. Jeff also represents businesses and individuals in employment litigation such as employment contract disputes, workforce classification audits, and discrimination claims based upon age, sex, race, religion, disability, sexual harassment, and hostile work environment.