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A Briefing on Emerging Issues Impacting Transactional Practice - Summer 2016

June 03, 2016 (11 min read)


GOVERNOR ANDREW M. CUOMO AND 16 OTHER GOVERNORS signed the Governors’ Accord for a New Energy Future. The accord describes six shared goals, diversification of energy generation and expansion of clean energy sources, modernization of energy infrastructure, encouragement of clean transportation options, planning for the energy transition, working together to make transformational policy changes, and helping secure a stronger national energy future.

Environmental Law in New York, Volume 27, No. 5


THE FEDERAL DEPOSIT INSURANCE CORPORATION approved a final rule to increase the Deposit Insurance Fund (DIF) to the statutorily required minimum level of 1.35%.

Congress in the Dodd-Frank Act increased the minimum for the DIF reserve ratio, the ratio of the amount in the fund to insured deposits, from 1.15% to 1.35% and required that the ratio reach that level by September 30, 2020. Dodd-Frank also made banks with $10 billion or more in total assets responsible for the increase from 1.15% to 1.35%.

The final rule will impose on banks with at least $10 billion in assets a surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments. The FDIC expects the reserve ratio will likely reach 1.35% after approximately two years of payments of the surcharges.

The final rule will become effective on July 1. If the reserve ratio reaches 1.15% before that date, surcharges will begin July 1. If the reserve ratio has not reached 1.15% by that date, surcharges will begin the first quarter after the reserve ratio reaches 1.15%.

“The FDIC is taking a balanced approach that maintains stable and predictable deposit insurance assessments,” FDIC chairman Martin J. Gruenberg said. “At the same time assessment rates will decline for all banks, larger institutions will pay a surcharge over a period of time. With these surcharges, the Deposit Insurance Fund is expected to reach the statutory minimum level ahead of the statutory deadline of 2020, reducing the risk that the FDIC will have to raise rates unexpectedly in the event of stress in the financial sector.”

Pratt’s Bank Law & Regulatory Report, Volume 50, No. 4


EMPLOYERS SHOULD PREPARE TO COMPLY WITH THE NEW regulations governing the overtime exemptions for white collar administrative, executive, and professional employees under the Fair Labor Standards Act (FLSA), which are expected to dramatically increase the minimum salary for exempt employees. Signs point to a likely rollout of the new rules in the summer of 2016, with an effective date this summer or fall.

The FLSA regulation governing white collar exemptions currently provides for a minimum salary of $455 per week ($23,660 per year).1 The Obama administration’s proposal is expected to more than double the minimum salary to an estimated $970 per week ($50,440 per year) in 2016, with annual cost-of-living increases to follow.2

California’s minimum salary for white collar exempt employees is set at twice the state minimum wage for a 40-hour work week.3 Under the current $10 state minimum wage, California’s minimum salary is $800 per week ($41,600 per year).4 California’s minimum salary for exempt employees has long been higher than the federal minimum, with the result that employees who satisfied the state minimum automatically exceeded the federal minimum. But that is expected to change when the new FLSA regulations take effect. Although the proposed regulations do not include changes to the duties test, Solicitor of Labor M. Patricia Smith reportedly said a change to the duties test should not be ruled out.5

Employers likely have little time to prepare for the new regulations, including the new minimum salary. At a minimum, employers should do the following:

  • Identify any employees/positions currently classified as exempt with salaries lower than the expected new minimum salary of $970 per week ($50,440 per year).
  • For each of these employees/positions, decide whether to comply with the new rule by increasing the salary to or above the new minimum or reclassify the employees/positions to nonexempt status.
  • If employees are to be reclassified as nonexempt, ensure employees and managers are trained to comply with all requirements applicable to nonexempt employees, including shift scheduling, timekeeping, meal/rest periods, and avoiding off-the- clock work.
  • Consider how overtime may affect the overall compensation provided to reclassified employees and whether and how much overtime should be prohibited or regulated to keep payroll expenses under control.
  • Consider how reclassifying employees to nonexempt status could affect their right to benefits that may currently be limited to exempt employees.
  • Develop a communication plan to notify employees and managers who may be affected by a reclassification, and prepare to address morale issues that could arise from any perceived demotion caused by the reclassification.

Excerpt from article by Aaron Buckley, Bender’s California Labor & Employment Bulletin 137 (April 2016).

1. 29 C.F.R. § 541.600(a)(1). 2. Robert A. Boonin, The Proposed New Overtime Pay Exemption Rules: What’s the Latest Scoop?, Wage & Hour Defense Inst. (Feb. 18, 2016), 3. See, e.g., Cal Code Regs., tit. 8, § 11040, sections 1(A)(1)(f), 1(A)(2)(g), 1(A)(3)(d). 4. Cal. lab. CoDe § 1182.12. 5. Boonin, supra note 2.


A NEW LAW ALLOWS THE INTERNAL Revenue Service (IRS) to revoke or deny passports for certain taxpayers who owe unpaid federal taxes. This change to the tax law was included in the Fixing America’s Surface Transportation Act, (H.R. 22) enacted in December 2015.1 H. R. 22 added new Internal Revenue Code (IRC) section 7345, requiring the Secretary of State, on certification by the Treasury, to deny, revoke, or limit the passport of any person who the IRS certifies as owing in excess of $50,000.2

IRC section 7345 provides that except in humanitarian or emergency situations, or for individuals serving in a combat zone, on receiving a certification from Treasury, the Secretary of State shall not issue a passport to any individual who has a seriously delinquent tax debt.3 Moreover, on receipt of such certification the Secretary of State can revoke a passport previously issued to any individual.4 The tax deficiency must be an unpaid, previously assessed legally enforceable Federal tax liability of an individual.5

These rules will not apply to a taxpayer (1) who is making timely payments under an agreement, such as an installment agreement, or is pursuing an offer in compromise, with the IRS,6 (2) for which IRS collection is suspended because a Collection Due Process request has been filed,7 or (3) for whom innocent spouse relief has been requested or is pending.8

The IRS is required to notify the taxpayer when it sends a certification of serious delinquency to Treasury. This means if you are on the list you will receive a heads up. Passport revocation will be allowed only after the IRS has followed its examination and collection procedures, and the taxpayer’s administrative and judicial rights have been exhausted or have lapsed.

Excerpt from article by Aaron Buckley, Bender’s California Labor & Employment Bulletin 137 (April 2016).

1. PL 114-94, Title XXXII Offsets, Subtitle A Tax Provisions, Section 32101(a). 2. IRC § 7345(a). 3. IRC § 7345(e)(1)(A). 4. IRC § 7345(e)(2)(A). 5. IRC § 7345(b)(1). 6. IRC § 7345 (b)(2)(A). 7. IRC § 7345(b)(2) (B)(i). 8. IRC § 7345 (b)(2)(B)(ii).


FOR DECADES, RIGHT TO WORK STATES have been concentrated in the south and mountain west. More recently, however, states with a long history of powerful labor unions have enacted right to work legislation in an effort to attract business. In the past four years, Indiana, Michigan, and Wisconsin—three states with a rich history of manufacturing and workers represented by labor organizations—have passed right to work legislation.

West Virginia became the 26th right to work state when the state legislature overrode the governor’s veto of a bill precluding agreements pursuant to which employees are required to provide financial support to a labor organization as a condition of employment. The veto was overturned by a simple majority vote in both chambers (18- 16 in the Senate and 54-43 in the House).

Significantly, Republicans control both chambers in West Virginia for the first time in 80 years.

The new law will take effect on July 1, 2016. While it remains to be seen whether the law succeeds in attracting business to the state, the fact that right to work laws can be passed in such traditional hotbeds of labor has to be of concern to labor unions and their supporters.

Bender’s Labor & Employment Bulletin VOLUME 16 • ISSUE NO. 4


THE OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC) announced plans to issue a bulletin in the coming months to provide guidance for banks that want to set up mortgage programs so that potential homeowners may be able to secure purchase or purchase/ rehabilitation loans in excess of the supervisory loan-to-value limits.

The OCC drafted the bulletin, “Risk Management Guidance for Higher Loan-to-Value Lending in Communities Targeted for Revitalization,” in response to concerns voiced by public officials, community groups, and bankers about revitalizing communities still suffering from the financial crisis. The OCC expects these programs will be focused on communities that have been officially targeted for revitalization.

Comptroller of the Currency Thomas Curry specifically mentioned barriers to financing homes and stabilizing neighborhoods in Detroit. “The limited number of home sales there can make it difficult to find comparable sales needed for valuation of a property,” Curry said. “Additionally, area home values may be so low that the cost to purchase a property and make needed repairs often exceeds the post-renovation market value. These and other market conditions have combined to bring mortgage financing to a near halt in Detroit. Other cities face similar problems.”

Curry pointed out that under current interagency guidelines establishing supervisory LTV expectations, banks generally “should not make single-family home mortgage loans that exceed 90 percent of the property’s value, unless the loan has appropriate credit support, such as mortgage insurance, readily marketable collateral, or other acceptable collateral.” He noted, however, that the interagency guidelines also establish that institutions may make exceptions to the supervisory LTV limit on a case-by-case basis. “As set out in the draft bulletin,” Curry added, “we believe that engaging in higher LTV lending on a programmatic basis also can be consistent with safe and sound lending while having a positive impact in stabilizing and revitalizing communities.” He encouraged bankers to reach out to local organizations to discuss issues of concern. “Periodic meetings with key local stakeholders can also help pinpoint new business opportunities, identify potential partnerships with local community organizations and public agencies, and help a bank formulate its business strategy for meeting its Community Reinvestment Act (CRA) obligations.”

Curry also discussed statutory protections that safeguard the public’s right to know when a bank decides to close a branch. “As more customers are served through online and mobile applications, we are seeing some banks closing branches,” Curry said. “In 2015, the OCC received almost 1,200 notices of branch closures, while we received only about one-third as many applications to open new branches.”

He stressed that while the OCC does not have statutory authority to prohibit a branch from closing, it does consider a bank’s record of opening and closing branches—and the impact of a branch closure on the community—when it evaluates a bank’s CRA performance.

Pratt’s Bank Law & Regulatory Report, Volume 50, No. 3


THE NORTH CAROLINA LEGISLATURE ENACTED H.B. 2, 82-16, which critics contend is among the most sweeping anti-LGBT laws in the country. It was immediately signed into law by Governor Pat McCrory. Under this law, local governments are prohibited from requiring private employers or contractors to meet wage or benefit requirements not mandated by the state. The law also bans municipalities from providing discrimination protections to classes of people not covered under state law. The law came about after the city of Charlotte passed an ordinance that added sexual orientation and gender identity to the list of existing protected groups. The part of the ordinance that caused alarm was one that permitted transgender individuals to use the restroom of their choice. The new state law overturned that ordinance.

The law’s supporters claim it was aimed at providing consistent requirements for businesses throughout the state. Critics argue that if that were really the case, the state should stop municipalities from enacting any ordinances and have everything decided by the state legislature—a “big government” idea usually rejected by conservatives. Indeed, the governor said in his statement announcing he had signed the bill, “[t]he basic expectation of privacy in the most personal of settings, a restroom or locker room, for each gender was violated by government overreach and intrusion by the mayor and city council of Charlotte.” He continued by saying “[w]hile local municipalities have important priorities working to oversee police, fire, water and sewer, zoning, roads, and transit, the mayor and city council took action far out of its core responsibilities.”

The legislation took effect upon signing and supersedes any existing local ordinance, resolution, regulation, or policy previously adopted. Several groups have stated an intention to file lawsuits over the legislation. Moreover, since McCrory signed the bill, PayPal has abandoned plans it had announced for a global operations center in the state, Deutsche Bank stated that it would “freeze plans to create 250 jobs” near Raleigh, and the National Basketball Association is considering moving the 2017 All-Star Game from Charlotte. McCrory subsequently started a retreat, stating that he would increase discrimination protections for state employees and urged the legislature to change a part of the bill it passed. But many observers view the proposed changes as merely cosmetic.

Bender’s Labor & Employment Bulletin, Volume 16, Issue 5

*Copyright © 2016. Matthew Bender & Company, Inc., a member of the LexisNexis Group. All rights reserved. Materials reproduced from Bender’s Labor & Employment Bulletin, Environmental Law in New York, Pratt’s Bank Law & Regulatory Report, Bender’s California Labor & Employment Bulletin and Lexis Federal Tax Journal Quarterly with permission of Matthew Bender & Company, Inc. No part of this document may be copied, photocopied, reproduced, translated or reduced to any electronic medium or machine readable form, in whole or in part, without prior written consent of Matthew Bender & Company, Inc.