GM Scandal Update: Number of Death Claims Rise

In a previous post on this blog, I discussed the growing ignition switch scandal and recall at General Motors.  The whole situation brought to light grave issues surrounding employee training and widespread panic within the automotive industry.  Now, since we’ve had some time to digest the information that has surfaced since the scandal broke, I would like to provide you with an overview to date and an update.

Scandal in Review

In an August 21, 2014 article for Fortune, Ben Geier, gives us a recap of the scandal that has surrounded GM since the beginning of 2014.  Geier writes:

For the better part of this year, General Motors has been embroiled in scandal. It began in February, when the automaker recalled thousands of small cars for faulty ignition switches. Those defective switches, it turns out, had been in cars for more than a decade, and they have been linked to numerous road accidents and 13 deaths.

Earlier this summer, as part of its effort to manage the crisis, GM launched a compensation protocol to pay back people who were seriously injured, or had lost loved ones, in crashes involving the ignition switch problem. GM tapped lawyer and compensation guru Kenneth Feinberg to manage the General Motors Compensation Protocol.

The list of eligible vehicles, though, is shorter than you might expect. Not all cars with faulty ignition switches, or key rotation problems, qualify for the Feinberg protocol.

Among the vehicles recalled since March, there have been three fatalities in two crashes involving Chevrolet Impalas, [Spokesperson Alan] Adler said.

A major sticking point for people is the fact that GM knew of the issue, yet still sold the faulty vehicles to unsuspecting customers.  Writing for Ring of Fire Radio, Joshua Schwitzerlett says this in an August 20th article (emphasis added):

At issue for many people are the faulty vehicle ignition switches that GM was aware of when it continued to sell them to people. The switches would allow the vehicle to randomly shut off at the slightest disturbance. The effect was potentially lethal. If an accident occurred during one of the incidents when the vehicle had randomly shut off, the airbags would not deploy.

Even after the threat was known and the danger was reported within GM, the company didn’t immediately recall the potentially deadly vehicles. Instead, GM engaged in a series of cover ups and minimizations to try and limit letting the public know how much damage had been done.

Update: More Death Claims

107.  That’s the number of death claims the GM Compensation Fund has received – not 13 as we originally thought.  Fortune’s Ben Geier has more in this August 27th article (emphasis added):

The GM Ignition Compensation protocol has received 107 death claims since it started accepting claims on Aug. 1, a spokesperson for the protocol said Wednesday. Some of those are claims for multi-fatality accidents. The spokesperson did not release how many fatal accident claims were multi-fatality versus a single fatality.

The number of death claims is higher than the 13 deaths that GM has officially attributed to the faulty switch.

The fund started accepting claims on Aug. 1 and will remain open until Dec. 31.

Claims for compensation will be evaluated by the fund’s administrators. They will look at whether the ignition switch was responsible for a severe physical injury, or a death, and Feinberg and his team will decide how much money to award.

GM has estimated the protocol will pay out between $400 and $600 million.

Worse than the lack of employee training we previously reported is the fact that the company withheld this information from the public.  I understand that companies need to make money, but doing so at the risk of harm (or even death in this case) to your customers is unconscionable.  One can only hope that this is a lesson to other companies and that GM satisfies every legitimate claim so the victims’ families receive some semblance of justice.

If you have a legal matter related to an injury or your employment, please call our Yardley office at 215-493-8287 or send us an email HERE. We will be glad to help.

In Light of GM Recall Scandal, ‘Fear of Liability’ Grows for Automakers & Suppliers

The fear of liability is growing … A lot of suppliers think they are covered if they notify the [manufacturer], but [the National Highway Traffic Safety Administration] may be taking a closer look at the participants in the reporting system.

– Tom Manganello, partner and co-leader of the automotive industry group at Warner Norcross and Judd LLP in suburban Detroit.

As the deadly General Motors (GM) ignition-switch scandal and recall grows, automakers and suppliers are worried about greater regulation.  Further, earlier this month, GM fired 15 employees associated with the scandal and the National Highway Traffic Safety Administration (NHTSA) is focused on getting to the bottom of the situation as it pertains to every company involved in the process.

In a June 23, 2014 article on the Automotive News website, Dustin Walsh gives us the latest:

Automotive manufacturers must — because they can’t afford not to — protect themselves from liability in every aspect of production. Attorneys have been in overdrive since the GM recall scandal broke in February, either assisting the automaker or working with suppliers as recalls spike across the industry. Companies are feverishly working to correct potentially harmful language in documents, identify legal liabilities and prepare for the possibility of increased regulation.

On top of that, many are in a state of fear or panic.  One lawyer by the name of Dan Sharkey, who is a partner at Brooks Wilkins Sharkey and Turco PLLC of suburban Detroit, explained how he received more client calls regarding recalls in 2014 than in the previous 10 years combined.  The cause of this fear centers on the legal ramifications.  Walsh continues:

It’s the legal ramifications for GM that has the industry scrambling. The automaker has already been slapped with a $35 million fine by the U.S. Department of Transportation, is under a criminal investigation that could lead to fines and several civil lawsuits related to the faulty ignition switches linked to at least 13 deaths.

The civil suits have already dragged in suppliers Delphi Automotive, maker of the ignition switch, and Continental AG, which supplied airbags to the defective cars. The lawsuits allege Continental and Delphi knew of the issue and didn’t fulfill a duty of reporting them to the National Highway Traffic Safety Administration.

In the short term, all of this is leading to many companies being proactive in terms of employee training.  Walsh explains:

Daniel Rustmann, partner and co-chair of the global automotive practice at Detroit-based Butzel Long PC, said the “era of recalls” is causing an increase in training on liability, from top to bottom in organizations.

“The best advice I give to clients is to get their people well-educated about the laws, how to handle reporting and requests from outside the company,” he said. “This is a communication issue at its root and needs to be handled effectively.”

So, while this has been a tragedy and complete disaster on many levels, we can take solace in the fact that something is being done.  At the very least, if employees are more educated, we hope these types of issues never happen again.

If you have a legal matter related to an injury or your employment, please call our Yardley office at 215-493-8287 or send us an email HERE. We will be glad to help.

Top 5 Things You Should Know About the Family Medical Leave Act (FMLA)

When it comes to employment law, it is vitally important that both companies and their employees know what each party’s rights are. Today’s post will focus on the Family Medical Leave Act, or FMLA. If you have any questions about your rights with regard to medical leave, please do not hesitate to contact me.

#1: What is the FMLA?

The FMLA is a federal law which entitles eligible employees of covered employers to take up to 12 weeks of unpaid, job-protected leave for specified family and medical reasons.  Some states, like New Jersey, also have their own Family Leave Act.  Pennsylvania does not.

#2: What is a Covered Employer?

The Department of Labor (DOL) defines a covered employer as one of the following:

• Private-sector employer, with 50 or more employees in 20 or more workweeks in the current or preceding calendar year, including a joint employer or successor in interest to a covered employer;

• Public agency, including a local, state, or Federal government agency, regardless of the number of employees it employs; or

• Public or private elementary or secondary school, regardless of the number of employees it employs.

#3: What makes an Employee Eligible for FMLA?

The DOL identifies eligible employees as those meeting the following four criteria:

• Works for a covered employer;

• Has worked for the employer for at least 12 months;

• Has at least 1,250 hours of service for the employer during the 12 month period immediately preceding the leave*; and

• Works at a location where the employer has at least 50 employees within 75 miles.

#4:  What Conditions are Covered?

  • A person’s own serious medical condition
  • To provide care for a child, spouse or parent with a serious medical condition
  • The birth of a child
  • Placement of a child through adoption or foster care

(For birth or placement of a child, leave is only afforded during the first twelve months after the birth or placement)

 #5: How is the FMLA enforced?

A person who believes they are entitled to leave and their leave was unlawfully denied or interfered with, or who has been retaliated against for taking or requesting leave, may seek relief through the Department of Labor or a private civil lawsuit.

The DOL has plenty of resources for those looking for more information about FMLA.  You can visit the DOL’s Wage and Hour Division website at http://www.wagehour.dol.gov or call their helpline at 1-866-4-USWAGE.

Got a question that we didn’t cover? Need legal advice? Call our Yardley office at 215-493-8287 or send us an email HERE

Court Enforces Noncompete Against Independent Contractor

While non-competition clauses are typically enforced in the context of employment agreements, a recent Pennsylvania Superior Court decision extended enforcement of a non-compete in the context of an independent contractor relationship.  In Metro Public Adjusters v. Houck, the defendant signed Metro’s standard independent contractor agreement for new adjusters which contained a non-competition clause.  The clause prohibited Houck from competing with Metro in the states in which Metro does business for two years after Houck’s relationship with Metro ended.  Even before Houck left Metro, however, he began setting up a competing company with two other Metro adjusters.  They created a limited liability company and set up a website.  Upon leaving Metro, Houck and his fellow adjusters sought the same business in states in which Metro was licensed until Metro obtained an injunction.  Judge Rubinstein of the Bucks County Court of Common Pleas held:

The covenant not to compete within the independent contractor agreement is de­signed to prevent an independent contractor from hijacking the training and experience garnered while affiliated with Metro [Public Adjustment Inc.] and utilizing it to create their own business to directly compete with Metro.  Indeed, this pre­cise situation occurred in this case.

Judge Rubinstein was particularly influenced by the evidence that Houck and his accomplices had no experience in public adjusting prior to their association with Metro and actively began plans to compete while still working for Metro.

On appeal, Judge Anne E. Lazarus of the Superior Court affirmed Judge Rubinstein’s decision and largely adopted his reasoning.  The court held that such non-competition agreements protect legitimate business interests and are enforceable.  Quoting from Rubinstein’s opinion, “

Metro provided the tools to be successful in the industry, including basic and advanced training, as well as their proprietary information regarding the best way to maximize profits on a claim.  All three defendants were very successful no doubt due to the opportunity, training and experience provided by Metro.

A close analysis of the Houck opinion, however, shows the courts did not have to reach that far to extend enforcement of the non-competition clause in this case.  Though Metro had the adjusters sign “independent contractor agreements,” the facts showed that Metro’s relationship with its adjusters was closer to employer-employee than true independent contractors.  None of the defendants had previous public adjusting experience.  They worked exclusively for Metro and followed Metro’s methods and instructions.  One wonders if the tables were turned and the adjusters were suing Metro for employee benefits or seeking unemployment compensation whether the courts would find Metro’s “independent contractor agreement” was really a contract of employment?

There is a cautionary tale in this story for both employers and employees.  Employers who use “standard independent contractor agreements” in situations that are more akin to traditional employer-employee relationships might find their agreement is a double-edged sword.  And employees who seek to get one up on their employer by    relying on legal loopholes to avoid agreements they sign might find the courts unwilling to open the loopholes for them.

If you have questions regarding independent contractor versus employee relationships or other legal matters, please call our Yardley office at 215-493-8287 or send us an email HERE. We will be glad to help.

Advantages and Disadvantages of Forming a Limited Liability Company (LLC)

When it comes to starting a business, there are a wide array of issues to consider. How will you scale your idea? How will you go about acquiring customers? How will you let potential customers know about you? Oftentimes, one of the last issues an entrepreneur considers is the legal structure. But if you want your business to survive long-term, it is something you need to think about sooner than later. Today, I will discuss one option for a business formation called the Limited Liability Company or “LLC.”

Advantages

The biggest advantage of the LLC lies in the liability protection its member(s) are afforded.  Members in an LLC enjoy the same protection from potential lawsuits as shareholders in a corporation without having to observe all the corporate formalities.  As a member of an LLC, property you own individually is protected.  No matter what happens in the company, nobody can come after your house, your car, or your individual bank account for the company’s negligence or its debts.

The Small Business Association has some great points regarding limited liability on their website at SBA.gov, including the following explanation:

[I]f the LLC incurs debt or is sued, members’ personal assets are usually exempt. This is similar to the liability protections afforded to shareholders of a corporation. Keep in mind that limited liability means “limited” liability – members are not necessarily shielded from wrongful acts, including those of their employees.

Another great benefit of the LLC form is the ease of formation and the lack of record keeping requirements and formalities like shareholder meetings corporations are required to observe.  You can obtain and download the forms to start an LLC or even complete them online at www.pabizonline.com. However, keep in mind that forming an LLC is merely the first step.  I recommend having an attorney draft the operating agreement.  Sure, you can probably download an operating agreement online also, but I don’t recommend using a form operating agreement to chart your company’s future any more than I’d recommend using an owner’s manual for a GMC to figure out how to operate a Toyota.

Disadvantages

For small businesses, there aren’t many.  The LLC is the entity of choice in most situations.  However, in Pennsylvania, it is not the entity of choice to hold and develop real estate that may appreciate significantly in value.  It is also limited in the number of members it may have so you cannot “take it public.”

Tax Considerations

As far as the IRS is concerned, the LLC is a “disregarded entity.”  This means that the IRS will treat a one-member LLC as a sole proprietorship and a multi-member LLC as a partnership.  Members will pay “self-employment tax” on their income.  However, members can elect to be taxed as an S-Corporation at the time of or within sixty days of formation.  Members can realize significant tax savings through this election, but it comes at a cost.  Members must put themselves on payroll as employees of the LLC and may only take profits from the LLC quarterly.  I recommend S-Corp taxation for LLCs that can count on a reliable revenue stream.

To decide whether an LLC is the right business form for your company, call our Yardley office at 215-493-8287 or send us an email HERE –We will be happy to get you started or discuss your options.