Client Alert: The Arizona Medical Marijuana Act Presents Issues for Employers

Janet B. Hutchison
3.4.11

On November 2, 2010, Arizona voters approved, by a very narrow margin, Proposition 203, the Arizona Medical Marijuana Act, legalizing marijuana for medicinal purposes. Arizona is the 15th state to pass medical marijuana legislation.

The Arizona Medical Marijuana Act (the "Act") permits a "qualifying patient" with a "debilitating medical condition" to obtain marijuana from a registered non-profit medical marijuana dispensary and to use the marijuana to treat or alleviate the medical condition. A "qualifying patient" is a person who has been diagnosed by, and received written certification from, a physician as having a debilitating medical condition and would likely benefit from the medical use of marijuana to treat or alleviate the medical condition. This client alert highlights some of the major implications for employers.

The Act prohibits employers from discriminating against a prospective or current employee who is a registered "cardholder" because of (1) the person's status as a cardholder or (2) as a result of the registered qualifying patient's testing positive for marijuana through a drug screening. While only a qualifying patient may use medical marijuana, other individuals may also be "cardholders" subject to some of the protection from discrimination. Under the Act, a registered "cardholder" may be (1) a qualifying patient, (2) a designated caregiver, or (3) a nonprofit medical marijuana dispensary agent who has been issued and possesses a valid registry identification card by the Arizona Department of Health Services or its successor agency.

The Act does create two limited exceptions to this anti-discrimination provision. First, there is an exception for employers who would "lose a monetary or licensing related benefit under federal law or regulations." Second, an employer is not required to hire or continue to employ a registered qualifying patient who tests positive for marijuana components or metabolites, if the patient used, possessed or was impaired by marijuana on the premises of the place of employment or during the hours of employment.

The Act does not allow employees to use marijuana at the workplace. The Act specifically provides that it does not authorize any person to undertake any task under the influence of marijuana that would constitute negligence or professional malpractice. Further, the Act does not authorize any person to operate, navigate or be in actual physical control of any motor vehicle, aircraft or motorboat while under the influence of marijuana, although, under the Act, a registered qualifying patient shall not be considered to be under the influence solely because of the presence of metabolites or components of marijuana that appear in insufficient concentration to cause impairment. Thus, employers may still take action against employees who use marijuana in the workplace or who work while impaired by marijuana.

By April 2011, the Arizona Department of Health Services is required to begin accepting applications for marijuana registry identification cards. Thus, Arizona employers should review the Act and then review and revise their policies to address the provisions of the Act. Employers should also consider conducting updated training of managers, supervisors, and safety and HR personnel.

If you have any questions about the Act's impact on employers, or would like assistance with evaluating and revising policies, our labor and employment attorneys are available to assist you.

Each case an employer may face is unique and may require legal advice. If you need further information regarding the Arizona Medical Marijuana Act, please contact the author, Jan Hutchison, or one of the other attorneys in our Labor and Employment Department.

Janet Hutchison is a commercial transactional attorney and litigator whose practice focuses on the areas of labor and employment, real estate and general business matters. Ms. Hutchison has extensive experience in employment matters, including discrimination, wrongful discharge and wage and hour matters. She frequently advises clients on employment policies and procedures and represents employers in federal and state court litigation, as well as before the various administrative agencies. Read more... Contact Ms. Hutchison at jhutchison@jsslaw.com or 602.262.5945.

Article: The ABCs of RECs

New article on the ABCs of RECs, authored by Alan I. Robbins, and published in District Energy Magazine is available on our website.

Client Alert: The New Estate and Gift Tax Law

Washington has, at last, acted to interject some certainty, albeit temporary, to the area of estate and gift tax planning. Under the recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” the federal estate tax, which disappeared for 2010, springs back to life in 2011 and is imposed at the top rate of 35% of the estate’s value after the first $5 million. Following is a brief overview of the new law.

The New Law

The new law brings back the estate tax, and for 2011 and 2012, the top rate will be 35%. For 2011, the exemption amount (the Unified Estate Tax Credit equivalent) will be $5 million per individual (indexed for inflation after 2011). At those levels, the vast majority of estates (all but an estimated 3,500 nationwide in 2011) will not be subject to any federal estate tax.

The new law also gives estates of decedents who died in 2010 certain choices as to which tax rules to apply. Certain elections and filings must be timely made to claim the benefits of such provisions. If you experienced a death in your family in 2010, you should consult with us as to your course of action.

Under the new law, the estate and gift tax exemptions will be reunified starting in 2011, which means that the $5 million estate tax exemption will also be available for lifetime gifts at the same level. The law in effect prior to 2010 provided a $3.5 million lifetime exemption for estates, but the lifetime exemption for gifts was only $1 million for years prior to 2011. The gift tax rate, starting in 2011, is 35%. The exemption from the generation-skipping tax (GST) – the additional tax on gifts and bequests to grandchildren or lower generations when their parents are still alive – will also rise to $5 million from the $1 million it would have been without the new law. The GST rate for transfers made in 2011 and 2012 will be 35%.

From a planning standpoint, a convenient feature of the new law effectuates the transfer of the unused portion of the $5 million exemption to a surviving spouse, so married couples can shield $10 million of their assets from estate taxes. In the language of tax professionals, the estate tax exemption will be “portable.”

We are revisiting a number of the estate planning techniques with our wealthier clients, including, to name but a few, transfers to grantor retained interest trusts, installment sales of assets to irrevocable grantor trusts, gifting or other transfers to multi-generational trusts, the creation and funding of family limited partnerships and family limited liability companies, and outright gifts of substantial values of assets to younger generations. Washington will likely act again in the next 24 months, which is the duration of these temporary estate and gift tax laws under the new Act. There can be no assurance that the efficacy of these planning techniques will survive any further changes in these laws.

If Washington fails to act before 2013, then the unified credit amount for gift and estate taxes will revert back to $1 million per individual, the GST exemption will return to $1.3 million per individual, and the maximum marginal rate of 55% will apply to such transfers.

Estate Plan Tune-Up

Many clients have been delaying the periodic review and tune-up of their estate planning documents pending the new legislation. Regardless of whether you are impacted by provisions of the new Act, now may be the appropriate time to contact us to initiate a comprehensive review of your related documents, such as wills, trusts, medical powers of attorney, living wills, and general or limited powers of attorney.

If you would like more details about the estate or gift tax or any other aspect of the new law, please do not hesitate to call any of Jennings, Strouss & Salmon’s estate and gift tax professionals identified below.

John R. Christian 602.262.5805
William A. Clarke 602.262.5886
Stephen E. Lee 602.262.5824
Nancy C. Pohl 602.262.5927
Jack N. Rudel 602.262.5951 (Author)
Richard C. Smith 602.262.5972
Wayne A. Smith 602.262.5953

Labor & Employment Client Alert: Arizona's Minimum Wage Increases

On January 1, 2011, Arizona's minimum wage increased to $7.35 per hour. This increase made Arizona's minimum wage higher than the federal minimum wage, which is currently $7.25 per hour.

Arizona voters enacted a voter initiative, known originally as the "Raise the Minimum Wage for Working Arizonans Act," in 2006 (the "Arizona Minimum Wage Act"). The Arizona Minimum Wage Act, which became effective January 1, 2007, established an Arizona minimum wage and also provided that the minimum wage was subject to annual increase based on the increase in the cost of living. The cost of living is measured by the federal Consumer Price Index for All Urban Consumers, U.S. City Average, for all items during the 12 months ending each August 31. Pursuant to the authority granted by this law, the Industrial Commission reviewed the cost of living information and determined that Arizona's minimum wage would be increased for calendar year 2011.

Under federal law, a state may require a minimum wage that exceeds the federal wage. If there is a difference between the laws, the employer must follow the requirement that is the most beneficial to the employee. Thus, an Arizona employer that is subject to both the federal and state laws must pay the Arizona minimum wage rate. Further, Arizona employers must make sure they are in compliance with both the federal and the state laws. Our labor and employment attorneys can answer questions regarding the laws and regulations, and advise you on compliance issues. As you review your individual compliance, some further information regarding the Act and regulations may be helpful.

Exceptions

The Arizona Minimum Wage Act provides only a few exceptions from its coverage. One exception is for small businesses that generate less than $500,000 in gross annual revenue, if that small business is not covered by the federal Fair Labor Standards Act (FLSA). From a practical standpoint, most employers are subject to the FLSA. Another exception applies to the state of Arizona and the U.S. government. Additionally, the Arizona Minimum Wage Act does not apply to any person who is employed by a parent or a sibling, or who is employed performing babysitting services in the employer's home on a casual basis.

Tipped Employees

"Tipped Employees" have special rules under the Arizona Minimum Wage Act and the regulations relating to the Act. With regard to an employee who customarily and regularly receives tips or gratuities from patrons or others, an employer may pay a wage up to $3.00 per hour less than the minimum wage if the employer can establish by its records that for each week, when adding tips received to wages paid, the employee received not less than the minimum wage for all hours worked. If an employee's tips combined with the employer's direct wages do not equal the Arizona minimum hourly wage, then the employer must make up the difference.

For purposes of the Arizona Minimum Wage Act, it is the employer's responsibility to maintain a record of the tips considered for purposes of asserting a tip credit. Further, if an employer elects to use the tip credit provisions, then the amount per hour that the employer takes as a tip credit must be reported to the employee in writing each workweek. Employees who customarily and regularly receive tips may pool, share or split tips between them, and the amount each employee actually retains is considered the tip of the employee who retains it. Employees may also pool, share or split tips with employees who do not customarily and regularly receive tips in the occupation in which the employee is engaged, including management or food preparers, however, such tips may not be credited toward that employee's minimum wage. Further, a tip credit is available only for the hours spent in the tipped occupation. If a tipped employee is routinely assigned to duties associated with a non-tipped occupation, no tip credit may be taken for the time spent in such duties.

Employers should carefully review the laws and regulations for determining who is a "tipped" employee, the application of tip credit rules and regulations and record-keeping requirements, and consult counsel with any questions.

Each case an employer may face is unique and may require legal advice. If you need further information regarding the Arizona Minimum Wage Act, please contact the author, Jan Hutchison, or one of the other attorneys in our Labor & Employment Department.

About the Author:
Janet Hutchison is a commercial transactional attorney and litigator whose practice focuses on the areas of labor and employment, real estate and general business matters. Ms. Hutchison has extensive experience in employment matters, including discrimination, wrongful discharge and wage and hour matters. She frequently advises clients on employment policies and procedures and represents employers in federal and state court litigation, as well as before the various administrative agencies. Read more... Contact Ms. Hutchison at jhutchison@jsslaw.com or 602.262.5945.

Hiring Incentives for Employers

Businesses that hire formerly unemployed workers between February 3, 2010 and December 31, 2010 could be eligible for a tax break under the Hiring Incentives to Restore Employment (HIRE) Act passed earlier this year.

If the new hire was unemployed for at least 60 days prior to being hired, including recent college graduate and rehires, a business can be exempt from its share of the Old Age, Survivors and Disability Insurance tax (OASDI), currently 6.2% of wages up to $106,800. The employee cannot have been hired to replace another employee, unless that other employee left voluntarily or for cause.

An additional tax credit is also available for retaining these employees for one year.

Each case an employer may face is unique and may require legal advice. If you need further information ensuring that your business maximizes its benefits under the HIRE Act, or any other legislation, please contact the author, Valerie Walker, our L&E Department Chair, John Egbert, or one of the other attorneys in our Labor & Employment, Tax or Estate Planning and Probate Departments.

About the Author:
Valerie J. Walker is an Associate attorney focusing her practice on litigation, and labor and employment law. Ms. Walker represents clients before state courts and state and federal agencies in discrimination, wrongful discharge and wage litigation cases as well as breach of contract cases. She has previously worked as a law clerk for the National Labor Relations Board in New York City. Read more... Contact Ms. Walker at vwalker@jsslaw.com or 602.262.5844.

Tax Update: Status of the Federal Estate Tax

As you have probably heard, Congress failed to enact estate tax legislation in 2009. This failure to act has caused legislation passed in 2001 to culminate into a repeal of the estate and generation-skipping transfer taxes in 2010. The repeal is followed by a reinstatement of the estate and generation-skipping transfer taxes in 2011, with a reversion to the transfer tax rules in effect in 2001. We had hoped that Congress would act quickly this year to reform the estate tax so that we would be able to provide a clearer picture of the status of the estate tax at this time.

As of now, and until Congress passes estate tax legislation, the estate, generation-skipping transfer and gift tax rates and exemptions for 2010 and 2011 are as follows:

• There is no estate tax or generation-skipping transfer tax imposed on decedents dying in 2010. These taxes will return on January 1, 2011 with a rate of 55% (up from 45% in 2009), and an exemption of $1 million (indexed for inflation in the case of generation-skipping transfer taxes; this exemption amount is decreased from $3.5 million in 2009).
• For decedents dying in 2010, the income tax basis of assets will not be "stepped-up" to their fair market value at date of death. Rather, the decedent’s income tax basis will "carry over" to the persons who inherit the assets, subject to a $1.3 million step-up for heirs generally and a $3 million step-up for property left to a surviving spouse. On January 1, 2011, the stepped-up basis rules will return.
• The gift tax continues to exist in 2010, but the tax rate is 35% (down from 45% in 2009). The gift tax rate will increase to 55% in 2011. The lifetime exemption for gift tax is $1 million for 2010 and 2011, and the gift tax annual exclusion amount continues to be $13,000 per donee in 2010.
  

If Congress enacts estate tax legislation this year, this legislation could be made retroactive to January 1, 2010.

The inaction by Congress leaves taxpayers and their counsel with a great deal of uncertainty. Additionally, it could cause unintended results for the estate plan of someone who dies in 2010 if Congress does not enact estate tax legislation that is retroactive to January 1, 2010. Most revocable trusts use terminology from transfer tax rules, such as "unified credit amount" and "maximum marital deduction." If there is no estate tax, the provisions of the trust may read differently than what was originally intended. Additionally, special language may need to be added to utilize the special basis adjustments described above for the estate of someone dying in 2010.

If you would like to discuss how these changes impact your estate plan, please contact one of the attorneys in our Tax or Estate Planning & Probate departments.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice within this client alert is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in a client alert.

Extension and Expansion of Rules for NOL Carrybacks

As we reported in our September 8th blog post, under the American Recovery and Reinvestment Act (ARRA) enacted in February, many small businesses that had expenses exceeding their income for 2008 could choose to carry the resulting loss back for up to five years, instead of the usual two. Under the ARRA, this option was available for an eligible small business (ESB) that had no more than an average of $15 million in gross receipts over a three-year period ending with the tax year of the net operating loss (NOL). Pursuant to the Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA) enacted last month, this carryback option is no longer limited to ESBs. Additionally, the WHBAA extended the carryback option to include NOLs that arise in tax years beginning in 2009. Thus, businesses averaging gross receipts in excess of $15 million can now take advantage of these carryback rules and will have an option of carrying back losses for any one tax year beginning before January 1, 2010 and ending after December 31, 2007.

As under the ARRA, the election to carryback NOLs can generally only be made for one tax year. Thus, for a calendar year taxpayer, the business can elect to carryback 2008 or 2009 losses, but not both. However, an ESB that made or makes an election under the rules of the ARRA may make the election for two tax years instead of one. An ESB that has losses in both 2008 and 2009 could potentially carryback the 2008 losses under the ARRA rules and the 2009 losses under the WHBAA rules.

The WHBAA does limit the amount of the NOL that can be carried back to the 5th tax year before the loss year to 50% of the business’s taxable income for that year. This limitation is not applicable to a 2008 NOL of an ESB that makes an election under the ARRA. Additionally, the WHBAA includes a separate, similar set of NOL carryback rules for life insurance companies.

Businesses that have large losses in 2008 and/or 2009 should consult with their tax advisors regarding these carryback rules as they may be able to offset income earned in up to five prior tax years and be eligible for a refund.

Each case a business or individual may face is unique and may require legal advice. If these changes apply to you, or you have other tax related questions, please contact either Nancy C. Pohl or Richard C. Smith.

Nancy C. Pohl is an Associate attorney practicing in the Estate Planning and Probate, Tax and Corporate Securities and Finance Departments. Her practice focuses on corporate and partnership tax planning, estate planning, tax-exempt organizations, general business planning and federal and state tax litigation. She also regularly advises clients on estate planning and probate matters. Contact Ms. Pohl at npohl@jsslaw.com or 602.262.5927.

Richard C. Smith is a Member of the Tax, Estate Planning & Probate Departments and represents clients in all aspects of tax, corporate and business planning. His practice has a particular emphasis in the employee benefits area including the design, implementation and other aspects of pension, profit sharing and other qualified plans. He also advises clients in estate planning matters, including estate plans, wills, trust and family partnership agreements. Contact Mr. Smith at rsmith@jsslaw.com or 602.262.5972.

Upcoming Changes Regarding Roth IRA Rollovers/Conversions

After 2009, you will be able to roll over amounts from qualified employer sponsored retirement plans, such as 401(k)s and profit sharing plans, and regular IRAs, into Roth IRAs, regardless of your adjusted gross income (AGI). Currently, individuals with more than $100,000 of adjusted gross income as specially modified are barred from making such rollovers.

What's so attractive about a Roth IRA? In summary:

• Earnings within the account are tax-sheltered (as they are with a regular qualified employer plan or IRA).
• Unlike a regular qualified employer plan or IRA, withdrawals from a Roth IRA are not taxed if some relatively liberal conditions are satisfied.
• A Roth IRA owner does not have to commence lifetime required minimum distributions (RMDs) after he or she reaches age 70 1/2 as is generally the case with regular qualified employer plans or IRAs. (For 2009, there's a moratorium on RMDs.)
• Beneficiaries of Roth IRAs also enjoy tax-sheltered earnings (as with a regular qualified employer plan or IRA) and tax-free withdrawals (unlike with a regular qualified employer plan or IRA). They do, however, have to commence regular withdrawals from a Roth IRA after the account owner dies.

The cost is that the rollover will be fully taxed, assuming the rollover is being made with pre-tax dollars (money that was deductible when contributed to an IRA, or money that was not taxed to an employee when contributed to the qualified employer sponsored retirement plan) and the earnings on those pre-tax dollars. For example, if you are in the 28% federal tax bracket and roll over $100,000 from a regular IRA funded entirely with deductible dollars to a Roth IRA, you'll owe $28,000 of federal tax. So you'll be paying tax now for the future privilege of tax-free withdrawals, and freedom from the RMD rules.

Should you consider making the rollover to a Roth IRA? The answer may be “yes” if:

• You can pay the tax hit on the rollover with non-retirement-plan funds. Keep in mind that if you use retirement plan funds to pay the tax on the rollover, you'll have less money building up tax-free within the account.
• You anticipate paying taxes at a higher tax rate in the future than you are paying now. Many observers believe that tax rates for upper middle income and high income individuals will trend higher in future years.
• You have a number of years to go before you might have to tap into the Roth IRA. This will give you a chance to recoup (via tax-deferred earnings and tax-deferred payouts) the tax hit you absorb on the rollover.
• You intend to convert an existing IRA account in which you have assets with substantially reduced values that you expect to substantially increase in the future.
• You are willing to pay a tax price now for the opportunity to pass on a source of tax-free income to your beneficiaries.

You also should know that Roth rollovers made in 2010 represent a novel tax deferral opportunity and a novel choice. If you make a rollover to a Roth IRA in 2010, the tax that you will owe as a result of the rollover will be payable half in 2011 and half in 2012, unless you elect to pay the entire tax bill in 2010.

Why would you choose to pay a tax bill in 2010 instead of deferring it to 2011 and 2012. Absent Congressional action, after 2010 the tax brackets above the 15% bracket will revert to the higher pre-2001 levels. That means the top four brackets will be 39.6%, 36%, 31%, and 28%, instead of the current top four brackets of 35%, 33%, 28%, and 25%. The Administration has proposed to increase taxes only for those making $250,000, but it is difficult to predict who will be hit by higher rates. In addition, there are health reform proposals before Congress right now that would help finance healthcare reform with a surtax on higher-income individuals. So if you believe there's a strong chance your tax rates will go up after 2010, you may want to consider paying the tax on the Roth rollover in 2010.

Here are some ways individuals can prepare now for next year's rollover opportunity.

• Non-high-income individuals who are able to make deductible IRA contributions this year should do so. They'll reduce their 2009 tax bill and, if they make the conversion to Roth IRA next year, they won't have to pay back the tax savings until 2011 and 2012.
• Individuals who have never opened a traditional IRA because they weren't able to make deductible contributions (and who never rolled over pre-tax dollars to a regular IRA) should consider opening such an IRA this year and making the biggest allowable nondeductible contribution they can afford. If they convert the traditional IRA to a Roth IRA next year they will have to include in gross income only that part of the amount converted that is attributable to income earned after the IRA was opened, presumably a small amount. In 2010 and later years, they could continue to make nondeductible contributions to a traditional IRA and then roll the contributed amount over into a Roth IRA. However, note that if an individual previously made deductible IRA contributions, or rolled over qualified plan funds to an IRA, complex rules determine the taxable amount.
• Some high-income individuals may plan to make large conversions in 2010 but to opt out of the deferral of tax until 2011 and 2012 because they fear they will be in a higher tax bracket in those years than in 2010. These individuals should avoid the standard year-end-planning wisdom of accelerating deductions and deferring income but should do the reverse in an effort to avoid being pushed into the highest brackets by a large IRA-to-Roth-IRA conversion in 2010. These individuals should be considering ways to defer deductions to 2010, and accelerate income from next year into 2009.

Each case a business or individual may face is unique and may require legal advice. If these changes apply to you, or you have other tax related questions, please contact Richard C. Smith.

Richard C. Smith is a Member of the Tax, Estate Planning & Probate Departments and represents clients in all aspects of tax, corporate and business planning. His practice has a particular emphasis in the employee benefits area including the design, implementation and other aspects of pension, profit sharing and other qualified plans. He also advises clients in estate planning matters, including estate plans, wills, trust and family partnership agreements. Contact Mr. Smith at rsmith@jsslaw.com or 602.262.5972.

Employment Alert: Changes to "GINA" are now in Effect

Summary: This Client Alert will provide an overview of the Genetic Information Nondiscrimination Act of 2008 (GINA), including examples of what is considered genetic information, and what changes were recently put into effect. Employers will learn how these changes affect their business and what actions they should to take to ensure that they are complying with the recent changes. Employees will learn how their genetic information is protected by GINA.

The most notable new anti-discrimination law in twenty years, the Genetic Information Nondiscrimination Act of 2008 (GINA), went into effect for health insurers in May of this year, and for employers on November 21, 2009. GINA protects Americans from being treated unfairly by health insurers and employers because of differences in their DNA that may affect their health.

GINA prohibits employers and health insurers, with some exceptions, from asking employees to provide their family medical histories. Also, insurers cannot require such testing or use genetic information to deny coverage or set premiums or deductibles. These recent changes also prohibit any employment decisions being made based on an employee’s genetics. Health plans will also be prohibited from rewarding their members for giving family medical histories when completing health risk questionnaires.


What is Genetic Information?
Genetic information does not include information about a person’s current health status. However, genetic information does include:

• A person’s genetic tests;
• Genetic tests of family members;
• The manifestation of a disease or disorder in a family member;
• Participation of a person or family member in research that includes genetic testing, counseling or education.

What Will GINA Do?
GINA was enacted to enable individuals to take advantage of genetic testing that may reduce the chance of contracting certain disorders, without suffering any adverse employment or insurance related consequences. Some of these developments include tests for breast or colon cancer mutations, classifications of genetic properties of existing tumors to help determine a course of treatment, tests for Huntington’s disease, as well as carrier screenings for fragile X syndrome, spinal muscular atrophy, and cystic fibrosis. GINA's purpose is to ensure that anyone who requests a genetic test for cancer will not be charged a higher rate for health insurance due to the presence of a positive genetic predictor for cancer, nor will their employment status be adversely affected by this type of health decision. The law also enables people to take part in research studies without fear that their DNA information might be used against them in health insurance or the workplace.

The bill may have only a small effect on what we do today, but its impact may grow with advances in biotechnology. It is comprehensive, requiring amendments to portions of the Title VII of the Civil Rights Act, the Employee Retirement Income Security Act (ERISA), the Health Insurance Portability and Accountability Act (HIPAA), the Internal Revenue Code, the Public Health Service Act and Title XVIII of the Social Security Act (Medicare). It is intended to be a federal baseline for discrimination, and does not preempt stricter state laws that may already be in effect.


What Won't GINA Do?
Although fairly broad in reach, GINA does not:

• Prohibit the use of genetic information to make payment determinations, such as reimbursement for additional testing covered for those participants at a higher risk of a disease or disorder;
• Prohibit health care providers from recommending genetic tests to their patients;
• Mandate coverage for particular tests or treatments;
• Affect underwriting based on current health status;
• Prohibit certain types of research by insurers or employers.

What Actions Should Employers Take?
Employers should immediately post the mandatory "EEO is the Law" poster supplement next to their current version of the "EEO Is the Law" poster. A copy of the poster supplement may be obtained at the EEOC website.

We also recommend employers update their policies, handbooks and training to reflect these new changes. We are available to assist you with these updates and can provide additional counsel on the effects these rules may have on your business practices.


About the Author
Valerie J. Walker is an Associate attorney focusing her practice on litigation, and labor and employment. She has previously worked as a law clerk for both the Cook County Public Defender and the National Labor Relations Board in New York City. For more detailed information regarding these changes, please contact Valerie Walker at vwalker@jsslaw.com or via telephone at 602.262.5844.

John J. Egbert is Chair of the firm’s Labor & Employment Department. Mr. Egbert’s practice focuses in the areas of discrimination, wrongful discharge, and wage and hour litigation. He represents both private and public clients in federal and state court litigation, as well as before the various administrative agencies. He frequently advises clients on employment policies and procedures and represents employers in labor arbitration. Mr. Egbert also practices extensively before the state and federal appellate courts. Contact John Egbert at jegbert@jsslaw.com or 602.262.5994.

Understanding Technology Consortia and Their Importance to Your Business

Consider the following scenario: late one afternoon you receive a frantic call from one of your company’s engineers. He or she wants to join a new technology consortium to allow your company to align its R&D efforts with what appears to be an emerging industry standard. The problem is that the engineer needs your approval “right away” to allow the company to become a member of the consortium, because it’s having a critical technology meeting tomorrow. The engineer emails you a copy of the consortium’s membership agreement, which looks fairly straightforward, so you authorize your company’s participation as a new member. Unknowingly, you may have just compromised some of your company’s most lucrative proprietary technology.

What are Technology Consortia?
Technology consortia are generally defined as collaborative efforts among companies and other key players (such as research institutions) in a particular industry that collectively try to address and solve key technology or research challenges.

Some technology consortia, for example, are formed to create “standards,” which facilitate greater compatibility among the various technologies in that space, so that the industry can collectively develop increasingly innovative products. Other consortia may be formed to address other technology or research roadblocks, which are challenging an entire industry sector. In many of these situations, the consortium members, who are often fierce competitors, are voluntarily coming together to collaboratively solve significant obstacles, which are holding back the next generation of research and development.

Many sectors of the high technology industry have seen a rapid growth in the number of technology consortia, including the hardware, software, semiconductor, Internet, wireless, telecommunications, electronic funds transfer, and cable industry sectors. Consortia have also expanded in the life sciences industry, due in part to the increased cost of research and development.

The decision of whether your company should participate in a particular consortium can have significant implications for your company’s future. How a particular consortium functions and the specifics of its membership can have a profound effect on your company’s business and your intellectual property rights. So, before you join any consortium, you should always take a closer look at the business and legal ramifications of your participation.

Benefits of Participating in Technology Consortia
Though technology consortia are often promoted by major technology companies, membership can be a benefit for small to mid-sized companies, and even research institutions, because such participation can give you a “voice” in the research and development that might impact your industry for years to come. However, every company needs to evaluate the specific pros and cons of participating, or not participating, in any particular consortium.

Some potential benefits of participating in a particular consortium include: increased market acceptance of your technology, the ability to help create new technologies that would not exist absent broad industry collaboration (such as new standards or other technological solutions) and the ability to spread substantial research and development costs across multiple consortium members. There are, however, potential pitfalls to joining a particular consortium—or the wrong consortium—which could prove to be detrimental to your business. Generally, these pitfalls fall into two categories: business and legal risks.

Business Risks
If your company joins a consortium that promotes a “losing” technology or standard, there is a possibility that your company’s market share will decline, perhaps precipitously. Trying to play “catch up” with your own R&D (if catching up is even possible) could be prohibitively expensive. Eventually, your existing technology or products could approach obsolescence as competing technologies or standards evolve in a different technological direction.

To avoid the negative business implications of not joining the “right” consortium, it is critical to evaluate competing consortia and then analyze which collaborative initiative has the potential of winning the broadest industry acceptance. It’s also imperative that you make sure that a particular consortium’s purpose aligns with your company’s overall business plans and direction.

Moreover, it is important to examine the organizational structure of each consortium. These factors could determine the extent and nature of your company’s participation in the consortium’s governance and the obligations imposed on you as a member.

Legal Risks
One of the most significant legal risks posed by joining a consortium that your company could inadvertently relinquish some of its most crucial intellectual-property rights. Membership agreements increasingly require each consortium member to comply with all of the consortium’s “policies and procedures.” This commitment, when fully evaluated, could mean your company is obligation to: (i) disclose confidential patents and other intellectual property to the other members of the consortium (at a minimum); (ii) license certain company patents and other intellectual property, sometimes royalty-free, to other consortium members; and (iii) share, or even transfer, ownership of your company’s technology if you contributed it to the collaborative efforts of the consortium. Thus, it is essential for a company to carefully review all consortium agreements and policies to fully evaluate how membership might impact your company’s valuable intellectual property rights.

Maneuver Carefully
Technology consortia are already an essential part of research and development in many companies. Companies that are often competitors increasingly are turning to consortia to collaboratively address technology and research challenges impacting that industry sector. While consortia membership could catapult your company toward greater industry-wide success, the decision to join a particular consortium is fraught with complexity and should not be undertaken lightly. Evaluation of each consortium should be part of your larger business plan. As with every other piece of your company’s business roadmap, maneuver the path with caution, and make sure you fully understanding every avenue you pursue.

Frank X. Curci is Chair of Jennings, Strouss & Salmon's Intellectual Property & Technology Practice Group and Biotechnology & Life Sciences Industry Group. Mr. Curci represents technology and life sciences entities in domestic and international intellectual property and technology law matters in a variety of industries including high technology and life sciences companies as well as research universities and research institutions. He can be reached at 602-262-5851 or fcurci@jsslaw.com.