January 2007

Significant Changes in the Law

With the arrival of the New Year businesses have many changes to think about, including some new laws.

On July 1, 2007, the minimum wage in Illinois will increase to $7.50 per hour and will increase annually over the next three years - $7.75 per hour in July 2008, $8.00 per hour in July 2009 and $8.25 per hour in July 2010.

The Trademark Dilution Revision Act of 2006 ("TDRA") became effective October 6, 2006. The TDRA makes several significant changes in the law that protects famous trademarks against other uses that impair their distinctiveness (dilution by "blurring") or harm their reputation (dilution by "tarnishment"). Either form of dilution can occur even when there is no likelihood of confusion, the key element of a trademark infringement claim.

The TDRA was largely precipitated by the U.S. Supreme Court's decision in Moseley v. V Secret Catalogue, Inc., 537 U.S. 418 (2003), which had required that a party bringing a claim for dilution under federal law prove "actual dilution" rather than a likelihood of dilution. The TDRA effectively overturns the Moseley decision by providing that a trademark owner need only establish a likelihood of dilution, not actual dilution. Under the TDRA, an owner of a famous mark is entitled to an injunction against a party that uses "a mark or trade name in commerce as a designation of source that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark, regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury." 15 U.S.C. § 1125(c)(1) (emphasis added).

The Pension Protection Act of 2006 ("PPA") was signed into law on August 17, 2006 with the stated purpose to encourage employers to increase contributions to a growing number of under-funded pension plans. Under the PPA, employers may now automatically enroll employees in their 401(k) plans (and employees may opt out) without conflicting with state payroll withholding laws. The PPA also provides a "safe harbor" for 401(k) plans under which certain employer-matching contributions will be deemed to have satisfied the problematic "actual deferral percentages" and "actual contribution percentages" qualification tests and the top-heavy test. The PPA further provides new regulations relating to defined contribution plans (such as 401(k) plans), charitable donations and other taxpayer-friendly provisions of the Internal Revenue Code (the "Code"). Finally, the PPA makes permanent the taxpayer benefits provided in the Economic Growth and Tax Relief Reconciliation Act of 2001, which had been scheduled to sunset after 2010.

Effective January 1, 2007, the Illinois Business Location Efficiency Incentive Act provides qualifying businesses with an opportunity to receive additional business tax credits (up to an additional 10% over the maximum allowed under the Illinois Economic Development for a Growing Economy Tax Credits Act). To qualify for the additional tax credits, businesses must locate or expand their places of business to an area that is "location efficient" -- that is, an area that (a) is in close proximity to affordable housing options or is within one mile of accessible and affordable mass transit, and (b) does not require or minimizes additional expenditures by the State to improve the area's infrastructure. The State determines whether a site is "location efficient" by reviewing a business's "location efficiency report," which addresses the availability of affordable housing, mass transit and sufficient infrastructure in the area. If the State determines a proposed site is not "location efficient," a business may still qualify for tax credits if the proposed location would provide employees with better access to housing and/or transportation and would create jobs in a "labor surplus area" (unemployment rate 20% over the national average).

Nonqualified deferred compensation ("NQDC") plans, under Section 409A of the Code, are arrangements between employers and employees to pay compensation in the future, which fall outside the narrow scope of "qualified" plans under Section 401(a) of the Code. Examples of NQDC plans include some discounted stock options plans and severance agreements. In 2004, the American Jobs Creation Act significantly revised the rules and restrictions regarding NQDC plans and provided that plans must comply with the newly enacted Section 409A by December 31, 2006; otherwise, an additional tax (and possible interest penalties) equal to 20% of the deferred compensation would be levied. The IRS and Treasury Department, however, have not yet issued the final Section 409A regulations, and the IRS extended the compliance deadline to December 31, 2007. For now, employers should operate NQDC plans in "reasonable, good faith compliance" with Section 409A to avoid liability under the Code.

The Illinois Minimum Wage Act was recently amended to provide the Illinois Department of Labor ("IDOL") and private individuals with additional means to investigate and compel the payment of wages and overtime to Illinois employees. The IDOL may now augment its investigation of wage claims by issuing subpoenas to employers for the production of books and records as well as witnesses. If a determination is made that an employer has withheld, delayed or failed to pay wages to its employees, the IDOL, or an employee through a private action, may also recover as additional damages 2% of the underpaid or unpaid amount for each month during the period of non-payment. If an employer's non-payment of wages is found to be willful, repeated or done with reckless disregard, the employer is liable for a penalty up to 20% of the amount in question.

FVLD publishes updates on legal issues and summaries of legal topics for its clients and friends.  They are merely informational and do not constitute legal advice. We welcome comments or questions.  FVLD has prepared antitrust compliance policies and conducts antitrust compliance seminars for managers and employees. If we can be of assistance, please call or write Glenn Rice 312.701.6895 grice@fvldlaw.com, Wilson Funkhouser 312.701.6810 wfunkhouser@fvldlaw.com, or Damon Dunn 312.701.6825 ddunn@fvldlaw.com, or your regular FVLD contact.