Nonprofit News: Spring 2024

Nonprofit News

Chase Booth

Summer Associate

Grace Chan

Partner | San Francisco

Abigail Clark

Associate | San Francisco

Hannah Dodge

Associate | San Francisco

Jackie Hubbell

Summer Associate

Alison Kalinski

Senior Counsel | Los Angeles

Stephanie Lowe

Senior Counsel | San Diego

Casey Williams

Partner | San Francisco

reporting & requirements

California Nonprofit Reporting Requirements: Never Miss A Deadline!

Anyone who runs a nonprofit knows that keeping track of the reporting requirements and submission deadlines to the various government agencies that oversee nonprofits in California can seem like a full-time job. Agencies such as the IRS, the California Franchise Tax Board, the California Secretary of State, and the California Attorney General, each have their own unique set of reporting requirements, which most California nonprofits must comply with all or some of to remain in good standing. To help you keep track of everything, below, we highlight four of the most common reporting requirements applicable to California nonprofits, along with some helpful tips for each. However, please keep in mind that there may be other reporting requirements that apply to your organization depending on the nature of your operations, and we recommend working with an accountant and/or a lawyer to fully understand the full scope of your organization’s reporting requirements.

Form 990 Series – Federal Informational Tax Return

Most nonprofit organizations with a federal income tax exemption, including an exemption under Internal Revenue Code section 501(c)(3), must file an annual informational tax return with the IRS using a form in the 990 series, such as 990, 990-EZ, or 990-N. Some organizations are exempt from this requirement, such as churches, and you should consult with an accountant if you believe your organization may be exempt. If not, the type of 990 form your organization will file will depend on your organization’s gross receipts and total assets. The 990 series forms are due every year by the 15th day of the 5th month after the close of an organization’s tax year. For example, if an organization’s tax year ends on December 31st, its Form 990 would be due by May 15th of the following year. Organizations that fail to file their 990 informational returns may be assessed penalties and will

automatically lose their federal tax-exempt status if they fail to file their federal informational returns three years in a row.

Form 199 Series – State Informational Tax Return

Organizations that are similarly exempt from state income tax under California law, which includes section 501(c)(3) organizations that have also obtained a state income tax exemption, must file an annual informational state tax return using the Form 199 or Form 199N, sometimes called the 199N e-Postcard. Like their federal counterparts, Forms 199 and 199Ns are also due every year by the 15th day of the 5th month after the close of the organization’s tax year. Additionally, organizations will face penalties for failing to file Form 199 or 199Ns and will automatically lose their state tax-exempt status if they fail to file their 199 or 199Ns three years in a row.

Form CT-1 and Form RRF-1 - Registry of Charitable Trusts

Every charitable corporation, unincorporated association, charitable trustee, and other legal entity holding property for charitable purposes, must file with the California Attorney General an initial registration with the Attorney General’s Registry of Charitable Trusts. Like with the Form 990 Series, some organizations are exempt from this registration requirement, such as educational institutions and religious corporations, and you should consult with an attorney if you believe your organization may be exempt from registering. If not, the initial registration form is the Form CT-1, which is due within 30 days of an organization receiving charitable assets. After registering, an annual renewal form, Form RRF-1, must be submitted to the Attorney General each year. Form RRF-1 is due within 4 months and 15 days of the end of the organization’s fiscal year, unless the IRS grants an extension to the organization on its deadline to file its Form 990 series returns. Failure to submit this Form RRF-1 can result in multiple negative consequences such as monetary penalties, and a delinquent status with the Attorney General, which

can impair a charitable organization’s ability to operate and solicit charitable donations until the delinquency is addressed.

Form SI-100 – Statement of Information

Finally, all California nonprofit corporations must file a Statement of Information every other year with the California Secretary of State. An initial statement of information must be filed within 90 days of a nonprofit filing articles of incorporation with the Secretary of State, and then every two years, during the calendar month the articles were filed, but can be filed up to five months in advance. Failure to file the Statement of Information can lead to a loss of good standing within the state, which will impair a nonprofit’s ability to do business.

While keeping up with these reporting obligations can seem like a daunting task, they are essential requirements for operating in good standing and in compliance with the law. For further guidance, organizations should speak with their counsel and their accountants.

Special Board Meetings – What Are They For And How Are They Noticed?

There are different types of nonprofit board meetings, such as annual, regular, and special meetings. The vast majority of board meetings are regular board meetings, including the annual meeting, where a board of directors meets at a pre-determined time and place. The frequency of regular meetings varies depending on the nature of a nonprofit organization’s operations, with some boards meeting monthly, quarterly, or somewhere in between. In contrast, a special board meeting is a meeting that is not scheduled well in advance and is called by someone – authorized either under the law or the organization’s bylaws – for a special purpose.

Special meetings can play a crucial role in addressing matters that demand immediate discussion and approval from the entire board. For instance, an organization involved in time-sensitive real estate transactions may need to convene a special meeting when the board's approval of a related resolution cannot wait until the next meeting. In such situations, special meetings are not just useful, but essential, as they provide a platform for the board to collectively discuss and address urgent issues that may otherwise be delayed. However, it's important to note that special meetings should not be misused to take action on sensitive matters when all board members may not be expecting a meeting or able to attend a meeting.

Accordingly, the California Corporations Code sets guardrails around the use of special meetings by requiring a minimum amount of notice for special meetings and provides for other useful default rules around calling special meetings. Specifically, California Corporations Code section 5211 provides that unless otherwise stated in a nonprofit corporation’s articles or bylaws:

• Special board meetings may be called by the chair of the board, the president, any vice president, the secretary, or any two directors.

• Notice of a special board meeting needs to be provided at least four days in advance if notice is provided by first class mail, or at least 48 hours in advance if notice is delivered personally, by telephone (including a voicemail), or by electronic transmission.

• The notice of a special meeting does not have to specify the purpose of the meeting.

An organization’s articles or bylaws may not dispense with notice of a special meeting; however, a director may waive notice either in writing or by not timely objecting to the lack of notice. Additionally, an organization may, for example, provide for more extended notice periods in its bylaws. The notice must provide directors with the date, time, and location of the meeting. Although technically, the purpose of the meeting does not have to be provided, it is generally a good idea to include an agenda or similar information so directors know what to expect and why it is important to attend.

Similarly, although notice just through a phone call is sufficient, it is also a good idea to provide written notice so there is a record that notice was provided. Either way, the purpose of providing notice is two-fold. First, the notice provides directors with enough time to make alternative arrangements to attend the special meeting so that a quorum can be achieved. Second, notice helps temper misuse of the special meeting process by those who might try to conduct business without the participation of certain directors. Assuming that these notice requirements are met, special meetings can then be a valuable tool for any nonprofit board to address matters that genuinely cannot wait for the next regular board meeting and that merit immediate deliberation and discussion.

discrimination

Supreme Court Clarifies Low Burden

For Employees To Establish Harm Supporting Discriminatory Job Transfer Claims Under Title VII.

On April 17, 2024, the Supreme Court of the United States clarified the standard of harm an employee must demonstrate to support a discriminatory job transfer claim under Title VII of the Civil Rights Act.

In a unanimous decision, the Court held in Muldrow v. City of St. Louis that an employee challenging a job transfer under Title VII need not show that the allegedly discriminatory transfer produced a significant employment disadvantage. Rather, an employee need only show that the transfer brought some harm with respect to an identifiable term or condition of employment.

The Court’s decision overturned precedent in the Eighth Circuit, and other Circuits, mandating that employees challenging a transfer under Title VII must meet a heightened threshold of harm requirement, described as “significant,” “serious,” “materially adverse,” or by similar terms establishing a heightened bar. As the Court explained, to demand “significance” where the law does not require it inappropriately adds words to what Congress enacted. The language of the law only requires that employees show an allegedly discriminatory transfer brought about some “disadvantageous” change in employment terms or conditions.

The practical effect of Muldrow is that employees challenging a job transfer under Title VII will have an easier time establishing that the transfer produced some harm sufficient to support their claim. In his concurring opinion, Justice Alito speculated the ruling would not effectively alter how the statute is interpreted, explaining that lower courts may reach similar conclusions as before, just with careful wording of their decisions to comply with the terminology of the new Muldrow opinion.

Still, the ruling should allow a larger percentage discriminatory transfer claims to survive to trial or settlement, and will likely result in more such claims being filed. Nonprofit organizations should certainly take care to ensure that job transfers and other employment decisions are made without discriminatory motive or impact.

Notably, the transfer in question in Muldrow involved a fairly significant change in assignment for a long-time, respected police sergeant.

Sergeant Jatonya Clayborn Muldrow worked as a plainclothes officer in the St. Louis Police Department’s specialized Intelligence Division for nearly ten years. In that role, she investigated public corruption and human trafficking cases, and oversaw the Gang Unit and Gun Crimes Unit. By virtue of her position, Sgt. Muldrow was also deputized as a Task Force Officer with the FBI, granting her FBI credentials, an unmarked take-home vehicle, and the authority to pursue investigations outside of St. Louis.

Sgt. Muldrow’s job performance was exceptional. In 2017, the outgoing commander of the Intelligence Division referred to her as a “workhorse” and considered her his most reliable sergeant. But the Intelligence Division commander told the Department that he wanted to replace Sgt. Muldrow with a male officer. The new commander – who often referred to Sgt. Muldrow as “Mrs.” rather than “Sergeant” – testified that a male officer seemed like a better fit for the Division’s dangerous work.

The Department approved the transfer and Sgt. Muldrow was transferred to a uniformed position. While her rank and pay remained the same, her responsibilities, perks, and schedule changed. Sgt. Muldrow no longer worked with high-ranking officials on priority matters in the Intelligence Division. Rather, her new duties involved supervising day-to-day activities of neighborhood patrol officers and handling various administrative matters. Sgt. Muldrow lost her FBI status and vehicle, and her workweek went from a traditional Monday-through-Friday week to a rotating schedule that included weekend shifts.

The Court found that Sgt. Muldrow’s allegations, if proven true, “left her worse off several times over,” and noted that it did not matter that her rank and pay remained the same or that she could still advance to other jobs. Title VII prohibits making a transfer based on sex with the consequences Sgt. Muldrow described.

Note:

Nonprofit organizations need to be mindful of employee transfers that may cause harm to an employee’s terms or conditions of employment.

Muldrow v. City of St. Louis (2024) ___U.S.___ [___L. Ed.2d___].

pregnant fairness

The EEOC Issues Final Regulations And Interpretive Guidance Regarding The Pregnant Workers Fairness Act.

On April 15, 2024, the Equal Employment Opportunity Commission (EEOC) issued final regulations regarding the federal Pregnant Workers Fairness Act (PWFA). The EEOC’s new regulations and accompanying Appendix A (Interpretive Guidance) provide guidance on how the EEOC interprets and will enforce the PWFA.

The PWFA took effect June 27, 2023 (42 U.S.C. sections 2000gg ‒ 2000gg-6) and applies to both public and private employers with 15 or more employees. The PWFA requires covered employers to provide “reasonable accommodations” to employees with “known limitations” that are “related to pregnancy, childbirth, or related medical conditions,” unless provision of the accommodation would cause the employer an “undue hardship.”

The final regulations issued by the EEOC provide in-depth guidance to employers, over 400 pages, on critical aspects of the PWFA, including the following:

• Individuals who are covered by the PWFA, including applicants and former employees.

• What the terms “pregnancy” and “childbirth” mean as used in the PWFA as well as the medical conditions that are or may be covered by the PWFA as relating to pregnancy or childbirth.

• Guidance concerning the fact-specific analysis required by employers in order to determine whether an employee’s medical condition is covered by the PWFA.

• What it means for an employee’s limitation to be “known” to an employer and what is required in order for an employee to request an accommodation.

• When and under what circumstances employers may seek additional information related to an employee’s request for accommodation.

• What types of modifications or adjustments to an employee’s working conditions are considered reasonable accommodations, including a detailed, but non-exhaustive, list of examples and illustrations of reasonable accommodations in specific cases.

• When a particular accommodation will be considered an undue hardship for an employer and the host of factors that are relevant to this fact-specific determination.

new to the Firm!

Lia Maria Fulgaro, an Associate in our Los Angeles office, specializes in labor and employment law matters. With a wealth of experience in the legal field, Lia’s expertise encompasses a wide range of areas, including complex wage and hour class action defense and representation of clients in singleplaintiff employment claims.

workers act

• The purpose and requirements of the informal, interactive process that is required between the employer and the employee seeking accommodation under the PWFA.

• Additional guidance on other employment practices other than discrimination that are unlawful under the PWFA.

• Clarification on defenses available to employers, including those based on religion, and when an employer may assert such defenses in the EEOC’s charging process.

• The relationship between the PWFA and other federal laws that provide protection for individuals affected by pregnancy, childbirth, or related medical conditions, including, but not limited to, the Americans with Disabilities Act (ADA), Title VII of the Civil Rights Act of 1964 (Title VII), the Family and Medical Leave Act (FMLA), and the Fair Labor Standards Act (FLSA), among others.

The final regulations were published in the Federal Register on April 19, 2024, and will go into effect 60 days after publication, or June 8, 2024.

California state law provides protections for employees affected by pregnancy, childbirth, or related medical conditions, including under the Pregnancy Disability Leave (PDL) law and the Fair Employment and Housing Act (FEHA), that, in certain circumstance, may be greater than the protections under the PWFA. As such, it is important for employers to provide covered employees the most generous benefits and most stringent protections for which they qualify, whether under federal or state law.

Note:

Liebert Cassidy Whitmore has attorneys who are familiar with the new PWFA regulations and can assist nonprofit organizations to modify existing policies or practices to ensure that they comply with the new legal regulatory obligations.

Caroline Cohen is an Associate in our San Francisco office, where her extensive experience in employment law and litigation makes her a valuable asset to our clients.

Ashley Riser is an Associate in our Sacramento office, where she specializes in providing expert advice and counsel in labor and employment law matters.

NLRA

Home Depot Violated NLRA By Requiring Employee To Remove BLM Messaging On Apron.

Antonio Morales, who identifies as Hispanic, Mexican, and a person of color, using they/them pronouns, was employed at a Minnesota Home Depot as a sales specialist in the flooring department. From the outset of Morales’ employment, coworker Allison Gumm subjected customers and employees of color, including Morales, to racially discriminatory behavior. For example, Gumm erroneously attributed Morales’ difficulty in registering a customer’s credit card in the computer system to Morales’ entry of the relevant data in Spanish. A day later, Gumm advised Morales to watch a Black customer closely because, according to Gumm, people of Somali descent were more inclined than others to steal.

On numerous occasions, Morales discussed Gumm’s offensive conduct with coworkers in the flooring department. All agreed that Gumm exhibited racial bias toward customers and fellow employees and that management should deal with her misconduct. In fact, the other flooring department employees even made a conscious effort to “intercept” customers of color so they would not be subject to Gumm’s bias.

Morales and coworkers complained to supervisors and managers about Gumm’s misconduct on at least a monthly basis. Unbeknownst to Morales and his coworkers, Home Depot held a documented verbal performance discussion with Gumm, and Gumm received disciplinary coaching and counseling in response to these complaints. The employees were not aware of those interventions, seeing only that Gumm persisted in her misconduct with no evident consequences.

A few months later, employees prepared materials for the observance of Black History Month at Home Depot’s request. Shortly thereafter, unidentified persons ripped up the displays on two separate occasions. Management emailed certain store employees and supervisors, advising them of the incident. Morales replied to the email and suggested a wider discussion of the serious underlying issues at Home Depot.

Later that day, Morales was called to meet with an assistant store manager and store manager about their email. The store manager admonished Morales that Home Depot was taking care of the vandalism incidents and they should leave the problem to management. Then, the store manager began discussing the BLM initials on Morales’ apron. This was the first time a manager or supervisor had said anything about the BLM marking, even though Morales had worn it continuously for the prior five (5) months, including during face-to-face meetings with supervisors.

The store manager said the BLM initials were contrary to the dress code and apron policy’s ban on displaying causes or political messages unrelated to workplace matters. The store manager said Morales could not return to work until he removed the BLM initials. The store manager explained that if he allowed Morales to wear the BLM initials, he would have to let other employees wear swastikas. Morales objected to that comparison. The store manager said that “All Lives Matter” was preferable as a slogan to “Black Lives Matter.”

Morales resigned from Home Depot due to the racial harassment and discrimination their coworkers had suffered, and noted that injustices, micro-aggressions, and blatant racism they experienced would not go unnoticed. Seven days after Morales resigned, Home Depot fired Gumm. Home Depot also, for the first time, posted copies of the dress code and apron policy throughout the store and advised all employees that displaying BLM insignia was contrary to the policy.

Section 7 of the National Labor Relations Act (NLRA) protects employees when they engage in concerted activities for the purpose of collective bargaining or other mutual aid and protection. To be protected under Section 7, the conduct must relate to collective bargaining, working conditions and hours, or other matters of mutual aid or protection of employees. For an action to be concerted, it must be engaged in with or on the authority of other employees, and not solely by an employee acting on behalf of himself.

The National Labor Relations Board (NLRB) determined that Morales’ refusal to remove the BLM marking from their work apron was protected concerted activity under the National Labor Relations Act. Morales, along with two coworkers, wore the BLM markings on their aprons around the same time that the flooring department employees were having conversations about Gumm’s behavior. The NLRB found that although there was no evidence that Morales discussed the BLM insignia with other employees before adding it to their apron, or that other employees expressed approval or support for it, it was clear that there was a group complaint about the working conditions. Morales was voicing group concerns about Home Depot’s response to discriminatory working conditions when they sent the email and met with the managers, and wearing the BLM marking was a logical outgrowth of their prior concerted activities.

The NLRB also found that Morales’ insistence on continuing to wear the BLM marking was for mutual aid or protection. Morales stated that displaying the BLM marking was a way to show support for people of color or Black associates, and Morales said in the meeting that their refusal to remove the BLM was in order to lead by example. In other words, these actions were done to improve the terms and conditions of their employment.

The NLRB determined that Morales’ refusal to remove the BLM marking was protected concerted activity and that Home Depot interfered with Morales’ rights under the NLRA. The NLRA determined that Home Depot did not demonstrate any special circumstances to justify the prohibition of the BLM markings, such as concerns about employee safety, damage to machinery or products, interference with an established employer public image, or part of the employer’s business plan. The NLRB determined that Home Depot constructively discharged Morales by conditioning their return to work on removing the BLM from their work apron. The NLRB ordered Home Depot to offer full reinstatement to Morales; provide Morales with any loss of earnings, including back pay; and compensate Morales for any direct and foreseeable monetary harm, such as search-for-work and interim employment expenses. The NLRB also ordered Home Depot to cease and desist from applying its dress code and apron policy to Section 7 activity.

Note:

This topic has been coming up more frequently and applies to employees working at nonprofit organizations. In December, an administrative judge for the NLRB found that Whole Foods dress code forbidding BLM messaging was permissible because there was a lack of nexus between BLM messaging and employees’ rights to unionize. Here, the NLRB came to the opposite conclusion because the BLM messaging was in protest to the employees’ working conditions.

Home Depot USA, Inc., 373 NLRB No. 25 (N.L.R.B. February 21, 2024).

LCW In The News

To view these articles and the most recent attorney-authored articles, please visit: www.lcwlegal.com/ news

• LCW Senior Counsel Stephanie Lowe recently authored an article regarding the incoming Affordable Care Act deadlines, published in the Expert Analysis section of Law360. In her analysis, Lowe urges readers to understand the nuances of these deadlines, ensure compliance and file in a timely manner to avoid IRS penalties.

• LCW Partner Casey Williams and Senior Counsel Brett Overby were recently published in Today’s General Counsel, Today’s Association Executive, and Law360. Williams and Overby discuss the implementation of AB 590, SB 446 and AB 1185, and how each of these bills support in addressing long standing issues which impact nonprofit organizations, noting “practitioners should take care to understand the new laws and to discuss their various benefits, limitations and considerations with clients.”

fundraising

Get Ready For Fundraising By Updating Your Gift Acceptance Policy.

A Gift Acceptance Policy sets forth, among other things, the types of gifts an organization will accept freely, what types of gifts require additional consideration before accepting, and the types of gifts an organization will not accept, all subject to various procedures outlined in the Policy. Having a detailed and up-to-date Gift Acceptance Policy is considered a best-practice that can aid an organization in accepting gifts that are mission aligned, avoid accepting gifts with costly administrative burdens, and spot common pitfalls associated with certain types of gifts. When updating or adopting a Gift Acceptance Policy, here are some items to consider:

1. Who is permitted to solicit gifts? A Gift Acceptance Policy should identify who may solicit funds on behalf of the organization and under what circumstances. For example, the policy may provide that certain employees or administrators should oversee and work with all fundraising efforts or any contracts with commercial fundraisers. Indeed, any fundraising efforts or campaigns should be overseen by or coordinated with the organization and a Gift Acceptance Policy is a great place to outline obligations with respect to fundraising.

2. Conflict of Interest. A Gift Acceptance Policy should identify the organization’s policies with respect to conflicts of interest, such as any conflict of interest policies in the Employee Handbook or adopted by the Board, and explain how those policies apply to fundraising.

3. Types of Gifts. Gifts do not always come in the form of unrestricted monetary donations. Gifts can come in many unique or creative forms, such as real property, supplies, services, or securities. Each different type of gift comes with its own unique set of challenges, and a well-written Gift Acceptance Policy will serve as a guide for identifying whether and

under what conditions the organization will accept various types of gifts. For example, it is common to have a provision in a Gift Acceptance Policy that states only publicly traded securities will be accepted, to avoid the burden, complexities, and risks of accepting a gift of an ownership share in a company that cannot be easily converted to cash. As another example, real property can be very valuable, but very burdensome and come with substantial liabilities. Accordingly, a Gift Acceptance Policy should state that gifts of real property will not be automatically accepted and that the organization must first conduct diligence (with the aid of counsel and other appropriate consultants) into things like the environmental hazards, title, usefulness, marketability, and carrying costs. Similarly, a Gift Acceptance Policy should state that restricted gifts will not automatically be accepted, without careful consideration by the organization into issues, such as whether the restriction is consistent with the organization’s values, overly burdensome (e.g., require specific programs be created without adequate funding), or could create undue legal risks.

4. List of Circumstances When the Organization Will Not Accept a Gift. As noted above, there may be times when the organization wishes to say no to a gift, and often a Gift Acceptance Policy will list specific circumstances when the organization will not accept a gift (e.g., the gifts could negatively impact the organization’s tax-exempt status).

Having that kind of list in a well-written Gift Acceptance Policy can help the organization preserve its relationship with a donor when the organization must say no to a proposed gift and can help facilitate conversations with a donor about alternative ways to give.

5. Naming and Recognition. One of the most important parts of a Gift Acceptance Policy, are the provisions setting forth the types of recognition the organization may implement for different types of donors, including when the organization will provide naming rights in exchange for a gift. These sort of provisions can help the organization explain in

advance, why the organization will require in a gift agreement or pledge agreement certain rights to modify, remove, or provide alternative naming options, which helps preserve the organization’s ability to remove a name in the event that continued association between the name and the organization is no longer in the organization’s best interests.

The above list is not exhaustive, but should provide you with a jumping off point in reviewing or preparing your organization’s Gift Acceptance Policy. LCW is also available to help with advice on Gift Acceptance Policies, including helping tailor your policy to the unique needs and experiences of your organization, as you prepare for fundraising.

Construction Corner

LCWrepresentsandadvisesnonprofitorganizationsinvariousbusiness,construction,andfacilitiesmatters, includingallaspectsofconstructionprojectsfromcontractdraftingandnegotiationstocourseofconstruction issues. ThroughthisConstructionCorner,LCWwillbegivingnonprofitorganizationsmonthlyhelpfultipsona varietyoftopicsapplicabletoworkplaceconstructionprojects. LCWattorneysareavailableshouldyouhaveany questionsorneedassistancewithanyconstructionprojectsnomatterwhatphaseyoumaybeincurrently.

Construction Payments And Mechanics Liens: When To Be Concerned And What To Do?

By: Abigail Clark

A mechanics lien is a legal claim against a property by an unpaid contractor, subcontractor, laborer, or supplier for work or materials they provided for improvements to the property. A mechanics lien can result in significant financial loss for a property owner if the unpaid claimant forecloses on the property subject to the lien. It can also affect the owner’s ability to borrow against, refinance, or sell the property, implicate the owner’s creditworthiness and ability to engage in future property transactions, and result in substantial legal cost and disruption.

Given the serious consequences of mechanics liens, property owners must understand the process for creating mechanics liens, learn to recognize when to be concerned, and take strategic action to mitigate risk associated with them.

In California, before recording a claim of lien, a claimant must first serve the property owner a preliminary 20-day notice, to notify the owner that the claimant will be working on the project. (Cal. Civ. Code sections 8400, 8202, 8204.) Claimants who have a direct contract with the property owner and laborers on the project do not need to file a preliminary notice. (Cal. Civ. Code section 8200, subd. (e).) This preliminary notice is NOT cause for concern: it is merely a notification of the claimant’s right to file a lien.

Owners should be aware of issues that may arise on a construction project that could trigger a claimant’s filing of a mechanics lien. The most common reason is when a contractor, subcontractor, laborer, or supplier is not paid as agreed. Other reasons claimants may file mechanics liens to protect their rights include disagreements over contract terms, scope of work, change orders, project cessation or delays, allegations of faulty or incomplete work, or the financial distress or bankruptcy of a party involved in the project.

Once a claimant files and serves a claim of lien, property owners should immediately contact the contractor involved to facilitate payment, as well as an attorney to assist with defense against the lien. Among other things, an attorney

will assist the owner with evaluating whether the claim of lien meets certain statutory requirements. Notably, the claim must include a statement of the claimant’s demand, and a clear “NOTICE OF MECHANICS LIEN, ATTENTION!” statement in bold font, with several paragraphs of specific statutory language clearly describing the implications of the lien for the property. (Cal. Civ. Code section 8416.) The claimant must also record the claim of lien with the county recorder’s office of the county where the subject property is located. (Cal. Civ. Code section 8416.) Failure to comply with these requirements will render the lien invalid and unenforceable. Property owners can help proactively manage mechanics lien risk by taking the following steps:

• Carefully Choose General Contractors and Ensure Transparency Regarding Subcontractors and Suppliers: Owners should hire licensed contractors, check their licenses and references, and research any prior lawsuits against or filed by them. Owners should also request a list of all subcontractors, suppliers, and others working on or for the project to ensure they know the full universe of potential lien claimants from the outset of the project.

• Negotiate Contractual Payment Terms: Property owners should clearly detail payment terms at the outset of a project in the construction contract, and include a payment schedule that states when specific phases of work start and end, as well as costs for each phase. Owners should also consider the use of joint check arrangements whereby the owner can make checks out to both the contractor and supplier or subcontractor to make sure potential lien claimants have been paid. However, such arrangements present additional challenges that may increase the risk of mechanics liens and should be carefully evaluated in light of the nature of the project and contractors involved.

• Require Contractors to Secure a Payment Bond: Owners can also require that their construction contractor secure a payment bond to assure that the various contractors and suppliers working on the project will be paid. This will not prohibit a claimant from filing a mechanics lien, but will give the claimant the option to assert a claim with the payment bond surety instead of filing a lien on the property.

• Utilize Indemnification and Release Clauses: Owners can also negotiate lien indemnification clauses that require general contractors to indemnify the owner for any amounts the owner has to pay subcontractors and suppliers who file and record a lien or other damages suffered as a result of the lien. Construction contracts can also include release provisions requiring the contractor to promptly obtain the release of any mechanics lien filed against the property.

• Secure Lien Waivers and Releases: In California, four statutory forms may be used to waive and release mechanics liens. Owners can seek conditional releases from possible lien claimants before making a payment, and unconditional releases from possible lien claimants following payment.

• File Notices of Completion and Cessation: Owners can reduce the amount of time a contractor or supplier has to record a lien claim by filing a Notice of Completion after work is completed, or a Notice of Cessation if there has been a complete cessation of work for more than 30 continuous days.

• File, Post, and Record Notices of Non-responsibility: Where a property owner receives a claim of lien, and has not contracted for the work being performed, it can use a notice of non-responsibility to avoid attachment of a mechanics lien to the property.

With the foregoing precautions and tools, owners can more effectively ensure timely payment for work performed and supplies rendered on their projects, and can help minimize the legal, financial, and operational challenges associated with mechanics liens.

benefits

Employer Who Failed To Update Terminated Employee’s Address Did Not Ensure Receipt Of COBRA Notice.

Damion Schinnerer was the Assistant Vice President of Biomedical Engineering at Wellstar, a Medicare/Medicaid certified hospital facility. Wellstar placed Schinnerer on administrative leave on May 18, 2021, and then terminated his employment on October 1, 2021. Wellstar asserts Schinnerer was terminated because he mistreated other employees by being disrespectful and abrasive towards them.

Wellstar used a third-party company called WageWorks to send Schinnerer a notice for continued health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA). WageWorks sent Schinnerer’s COBRA notice to a home address in Marietta, Georgia. However, Schinnerer moved sometime between the start of his administrative leave in May 2021 and termination on October 1, 2021. He sold his house in Marietta, Georgia and had all his mail forward to his parent’s address in Fort Worth, Texas. Since he was on administrative leave at the time of his move, Schinnerer was unable to change his listed address in Wellstar’s system. He did, however, call Wellstar’s Human Resources to provide his new address around the end of August 2021. Since WageWorks had sent the COBRA notice to Schinnerer’s former address, he did not receive it until months after his termination.

Schinnerer filed a lawsuit against Wellstar, which included claims of retaliation for engaging in protected activity and failure to timely notify him of his COBRA rights. COBRA requires plan administrators to use “measures reasonably calculated to ensure actual receipt” of the COBRA notice. (29 C.F.R. section 2520.104b-1(b)(1).)

Wellstar’s position was that it complied with the COBRA notice requirement because Wellstar timely mailed the COBRA notice through first-class mail. The district court

found that regardless of the way the COBRA notice was mailed, it was mailed to the wrong address. There was no dispute that Schinnerer had notified Human Resources of his new address by phone. The district court could not find that Wellstar used measures reasonably calculated to ensure actual receipt of the COBRA notice. The district court denied Wellstar’s motion for summary judgment on the COBRA notice claim, therefore allowing Schinnerer to proceed with that claim in his lawsuit.

Schinnerer v. Wellstar Health, Inc., 2024 WL 476960 (N.D. Ga. 2024).

Note:

Nonprofit organizations are advised to have procedures in place for obtaining the most current residential address information of employees, including employees on leave. If an employee notifies the nonprofit of a new residential address, the nonprofit should prioritize updating the information in its personnel system, particularly for employees who may be terminated or otherwise separate from employment.

Beware Of Companies Misrepresenting Nutrition And Wellness Costs As Pre-Tax Medical Expenses.

Every once in a while, the IRS issues a reminder for employers and individuals to be cautious of what expenses can be reimbursed pre-tax as a medical expense. On March 6, 2024, the IRS issued an alert warning people to beware of companies misrepresenting nutrition, wellness, and general health expenses as eligible for pre-tax reimbursements under a health flexible spending arrangement (health FSA), health savings account (HSA), health reimbursement arrangement (HRA), or medical savings account.

According to the IRS alert, some companies claim that a simple doctor’s note based merely on self-reported health information can substantiate a non-medical food, wellness, or exercise expense into a pre-tax medical

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expense. The IRS debunks these claims by explaining that such doctor’s note would not meet the requirement that the expense be related to a “targeted diagnosisspecific activity or treatment.” In previous IRS guidance, the IRS has explained that these types of expenses only qualify as medical expenses when prescribed or recommended by a physician or medical practitioner as treatment for a specific medical condition diagnosed by a physician. (See IRS Frequently Asked Questions About Medical Expenses Related to Nutrition, Wellness, and General Health.)

The IRS alert provides the following example of a food expenses that would not qualify as a medical expense:

For example: A diabetic, in his attempts to control his blood sugar, decides to eat foods that are lower in carbohydrates. He sees an advertisement from a company stating that he can use pre-tax dollars from his FSA to purchase healthy food if he contacts that company. He contacts the company, who tells him that for a fee, the company will provide him with a ‘doctor’s note’ that he can submit to his FSA to be reimbursed for the cost of food purchased in his attempt to eat healthier. However, when he submits the expense with the 'doctor's note', the claim is denied because food is not a medical expense and plan administrators are wary of claims that could invalidate their plans.

The IRS also cautions employers and individuals that if a health FSA, HSA, HRA, or medical savings account provides a pre-tax reimbursement for a non-medical expense, it is not a qualified plan. If a plan is not qualified, all payments made to taxpayers under the plan, including reimbursements that were for actual medical expenses, are taxable and includable in income.

For more information, see IRS News Release IR-2024-65 (March 6, 2024).

Internal Revenue Code Compliance Question:

Question: Can a health flexible spending account (health FSA), health savings account (HSA), or health reimbursement arrangement (HRA) provide reimbursements for medical care expenses that an employee resells or plans to resell to someone else?

Answer: No. Health FSAs, HSAs, and HRAs cannot provide reimbursements for medical care expenses that an employee resells or plans to resell to someone for two reasons. First, health FSAs, HSAs, and HRAs cannot reimburse expenses incurred by anyone other than the employee, their spouse, or their dependent. Second, IRC section 213(a) specifically limits tax deductions to expenses “not compensated for by insurance or otherwise.” If an employee were to resell an item that a health FSA, HSA, or HRA has reimbursed, then the item would be compensated for by “otherwise” since it is paid for by the resale buyer.

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Did You Know?

Whether you are looking to impress your colleagues or just want to learn more about the law, LCW has your back! Use and share these fun legal facts about various topics in labor and employment law.

• Senator Marco Rubio and Representative Greg Steube recently introduced the Safeguarding Charity Act, a federal bill that would clarify that 501(c)(3) tax-exempt status does not qualify as federal financial assistance. Over the last few years, two outlier cases in California and Maryland suggested that private school’s tax-exempt status amounted to federal financial assistance and subjected the schools to comply with certain federal laws. Last month, a ruling in Arizona stated that tax-exempt status is not a form of federal financial assistance. This bill, if enacted, would provide clarity for all tax-exempt nonprofits on this issue; LCW will continue to monitor this developing legislation.

• All California employers are required to distribute six pamphlets to employees. Two of them, Unemployment Insurance and Workers’ Compensation Rights and Benefits, have mandatory updates for 2024. Nonprofit organizations should make sure they are giving the most current pamphlet version to their employees. The Unemployment Insurance information is in the For Your Benefit Pamphlet, which can be found here. The Workers’ Compensation Rights and Benefits information is in the Time of Hire Pamphlet, which can be found here.

• The Center for Disease Control (CDC) has issued updated COVID-19 guidance. People who have tested positive can return to normal work activities when they are fever-free for at least 24 hours without taking medication, rather than undergoing a 5-day isolation period. The CDC has issued isolation “recommendations,” such as staying home and away from others for at least 5 days and wearing a high-quality mask when indoors and around others. More information about the updated guidance can be found here.

• The Federal Trade Commission (FTC) is finalizing a proposed rule, that if implemented, would prohibit the impersonation of any individual and prohibit companies from supplying technology they know or reasonably should have known would facilitate impersonation. This rule is to combat the rise of AI tools being used to impersonate individuals via voice cloning and other AI-driven scams. More information can be found here. The California Department of Education has also published tools for learning with AI and about AI, which can be found here.

• The Occupational Safety and Health Standards Board recently voted to adopt a proposed indoor heat illness standard. The final standard has not yet been adopted, but some of the general requirements including the following: establishing and maintaining a Heat Illness Prevention Plan (which may be incorporated into an employer’s existing Injury and Illness Prevention Program); training on heat illness topics; maintaining one or more “cool-down areas,” which must be kept below 82 degrees; allowing and encouraging preventive cool-down rests; providing free drinking water; observing employees during heat waves; and developing emergency response procedures. There are additional requirements when temperatures exceed 87 degrees, such as using air conditioners, ventilation, or other measures to reduce the air temperature. This standard will very likely apply to private nonprofit organizations and LCW will monitor this standard for developments.

Featured Consortium Calls

Question:

A nonprofit administrator reached out asking about hiring a part-time accountant who lives out of state. The candidate shared that they have family near the nonprofit, so can come in when needed. The administrator asked what legal considerations or potential liabilities they should be aware of before moving forward with the candidate.

A nonprofit human resources manager asked if eligible employees are entitled of 5 days of bereavement leave for a death of a family member for the year or each occurrence?

Members of Liebert Cassidy Whitmore’s consortiums are able to speak directly to an LCW attorney free of charge to answer direct questions not requiring indepth research, document review, written opinions or ongoing legal matters. Each Newsletter, we will feature a Consortium Call, describing an call and how the issue was resolved. All identifiable details will be changed or omitted.

Answer:

The LCW attorney advised that the organization should consider the following:

• Whether the candidate would need to come to work on short notice, since that could be difficult with the employee living out of state. This could potentially set a precedent for other staff if they perform job duties that could be performed remotely.

• If the organization does hire this candidate, there should be an agreement in place which sets forth the expectations around the remote work, for example what hours this employee needs to be available - especially given the time difference, and completing time records, and taking meal and rest breaks.

• The organization should reach out to their payroll company to see if they can assist the organization with registering for an employer tax ID in another state. The organization should also reach out to its workers’ compensation insurance carrier to ask about coverage for this employee out of state – a separate workers’ compensation policy may be needed for this employee.

• The organization will need to register for unemployment insurance in this state, and the organization can ask their payroll company if that is something they assist with.

• The organization should reach out to an employment attorney in that state in order to ensure that the organization is complying with that state’s labor and employment laws. LCW is only able to advise on California law.

The LCW attorney advised that the applicable statute, Government Code section 12945.7, does not provide a limit on the amount of bereavement leave an employee may take in a year. The law states: “It shall be an unlawful employment practice for an employer to refuse to grant a request by any employee to take up to five days of bereavement leave upon the death of a family member.” Based on this, an employee would be eligible for up to five days of bereavement leave for the death of each eligible family member. The leave must be completed within 3 months of the death of each family member.

Liebert Cassidy Whitmore