News and Insights

Visit regularly for up-to-date information on relevant news, firm announcements and additions to our AZ Health Law Blog.

Our privacy rights constantly tumble in flux as technology continues to outpace practical legislation concerning data collection and use. Aggregated Information used to, for example, study trends is not the primary issue. Rather, information that contains something an unrelated person can use to identify who it came from is. If I visit a website that tracks details of my visit, I do not expect the website to sell information that alone would allow the buyer to personally identify me without my knowledge or permission. Personal information comes in many forms, but heightened attention is focused on current issues around biometrics.

Biometric identifiers are things like your fingerprint, voiceprint, facial geometry, or iris scan. Biometric information is the information that contains your biometric identifiers. They are unique personal identifiers. Think facial recognition capabilities of Facebook or Shutterfly when people upload photos. This same capability landed both companies in recent litigation for violating an Illinois biometrics privacy law.

With increasing availability of ways to obtain and verify consumer information (say going from gathering my date of birth to gathering my fingerprint or other biometric identifier), companies can implement advanced analytics to recognize and monitor consumers whose information they obtain. Problem is, the more unique my personal information, the more valuable it becomes to me. My finger print is one of the most unique identifiers I possess. My birthday, like everyone else’s in the world, is only one of 365 options. Of course I already know a person who obtains my information, regardless of fault, can cause me harm. To gauge the degree of risk when I share my information, I think of a chart where the more unique my personal information, the more severe the potential harm. People who wrongly access my information can create problems like identity theft, but depending on the information type they may even be able to use it to track my activities and physical location.

Although government’s use of biometrics is not new, prevalence of affordable, accurate applications that businesses can use to gather and analyze the data has gained increasing traction. Now, it is a matter of determining to what extent private sector actors will be obligated to disclose their intentions to consumers to allow for informed consumer consent prior to gathering or using biometric information.

That brings us back to the recent issues Facebook faced in Illinois for violating the state’s 2008 Biometric Information Privacy Act (BIPA) which prohibits collection, use and sale of biometric identifiers absent proper informed consent. Illinois residents filed suit against Facebook for violations of BIPA that have yet to be fully decided. The California courts first had to decide regarding unrelated legal matters like jurisdiction, forum selection and other procedural items. The court decided BIPA applies, but it is still unanswered as to whether Facebook (1) properly informed consumers about the specific use, storage and collection of their biometric data, (2) obtained signed releases from consumers to conduct activities with their biometric data, or (3) sold, traded or disseminated to consumer’s data for profit.

The case against Facebook is just one example of challenges to companies’ over their use of consumer information. As consumers we ideally should own our information, and control how it is used, but the Illinois case shows how the legal framework surrounding ownership, collection, use, and sale specifically of biometric information remains unclear at best.

The difference with Facebook’s facial recognition verse iPhone’s use of fingerprint identification, for comparison, is Apple is not collecting or storing the data. The phone holds the encrypted mathematical mapping of your fingerprint data to help preserve ownership and to avoid unauthorized access from others.

To determine who owns what, including the data that has already been gathered and is stored, legislators need to refine the scope of consumer protection and privacy laws regarding data sharing, storing, collecting, and cross-referencing. Consumers need the ability to make informed consent about the use of their biometric information.

There are substantial benefits to advancing technology surrounding biometric identifiers, which should not be ignored or over inflated when addressing issues of its ownership and use, but the greater the advancement in technology can also lead to a greater risk of biometric data being used improperly.

July 13th, 2016

Posted In: Uncategorized

Businesses must soon determine if the Department of Labor’s (Department) updated overtime rules published under the Fair Labor Standards Act (FLSA), taking effect December 1, 2016, impact them. The revised rules are the outcome of President Obama’s aim to solidify the precept that “a hard day’s work deserves a fair day’s pay.” They raise the standard salary required for application of a “white collar” exemption (in 29 CFR Part 541). Not all employees work overtime or fall into an exemption, but employers need to look at how they classify and compensate employees to see whether changes affect them.

When Do the Rule & Exemption Apply?

Remember FLSA is broadly construed to afford employees protection concerning wages earned and hours worked. FLSA covers employees (a) of organizations with annual gross revenue exceeding of $500,000, (b) engaged in interstate commerce or producing goods for commerce; and (c) of hospitals, medical facilities that care for their residents, schools and public agencies.

FLSA includes white collar exemptions from minimum wage and overtime pay requirements for executive, administrative, professional, outside sales, and some computer related employees. The three tests used to decide if an exemption applies are (i) the salary basis test – how is the employee paid; (ii) salary level test – how much is the employee paid; and (iii) duties test – what job-tasks does the employee perform. All tests must be satisfied in order. It is neither job title nor salary alone that guides exemption application. Note, this test does not apply to doctors, lawyers or teachers.

What Do These Tests Mean?

The salary basis test means the employee is regularly paid a pre-determined fixed wage not reduced for quality or quantity of work. Unless the employee does not work for a particular week, the employer must pay her salary regardless of days worked. Employers can chose to pay on a fee basis predetermined for a specific job- the total paid is divided by hours worked on the job to determine satisfaction of the set standard weekly salary amount.

The salary level test is based on the amount an employee earns. This standard salary level is increased by the overtime rule from $455/week ($23,660 annually) to $913/week ($47,476 annually) – or at least $27.63/hr. for computer professionals. Those paid less than the standard salary are entitled to overtime pay when working more than 40 hours/week. Employers are not required to pay a salary at or above the standard level unless claiming a white collar exemption. Overtime rules will automatically update salary and compensation levels every three years starting with 2020.

A big change to the salary level test is an employer can include non-discretionary bonuses or incentive payments to account for up to10% (up to $91/week) of an employee’s. To qualify, incentive payments must be paid at least quarterly. The employer must make a catch up payment no later than the first pay period ending after any given quarter where an employee does not receive at least the 10% of the standard salary in bonus payments. Failure to make the catch up payment means the exemption is lost for the applicable pay-period and all overtime wages that would have accrued are due to the employee.

Employees who meet the salary level may be exempt from overtime pay if they satisfy the duties test. The duties test remains the same in the overtime rules. This test applies differently based on the type of employee and their salary. Highly compensated employees, earning $134,004 base level salary or more annually, are subject to a more relaxed test than other professionals.

What Can Employers Do?

According to the Department, employers have many options for how to respond to overtime rules, none of which are favored by the Department. Employers do not have to require employees use a clock in/clock out system, so long as records are maintained accurately. Past that, once an employer determines if an employee satisfies all three white collar exemption tests, then they need to determine how or if to adjust hours and wages. Options suggested by the Department include (1) raise salaries to maintain exemptions; (2) pay current salaries with overtime pay after 40 hours; (3) reorganize workloads; and (4) adjust wages

Obviously one option is to raise salaries of employees to the minimum standard salary level. Presuming the employees compensated in an amount close to the standard level, this is a decent option- especially if the employee works overtime more often than not.

Reorganizing workloads or adjusting schedules can go a couple ways. Employers with some employees who are each under and over worked can distribute tasks so all employees work 40 hours or less per week. Or the employer may hire more part-time workers, while risking that if those workers want a full-time job they may leave once they find one.

Employers with employees not often working over 40 hours can simply pay overtime payments for the additional hours instead of worrying about the white collar exemption. Note employees must be paid based on actual hours worked for the period – as in the calculation of whether their wages are at or above the standard salary are based on the actual amount paid divided by actual hours worked – but again, employers cannot just reduce a salary if the employee works less than 40 hours in a given pay period.

Last, the Department suggests employers can adjust, with the mutual agreement of the employee, regular hourly wages and overtime wages so the total wages earned for a pay period are roughly the same, but apportioned in a manner that either satisfies the exemption tests or equates in the employer paying overtime- this is a hybrid of the first and second suggestions and may be hard to manage from employee to employee or for employer’s whose business fluctuates in an unpredictable fashion.

June 1st, 2016

Posted In: Uncategorized

April 11th, 2016

Posted In: Uncategorized

April 1st, 2016

Posted In: Uncategorized

March 29th, 2016

Posted In: Uncategorized

PHOENIX – Ben Himmelstein, partner at The Frutkin Law Firm, has been selected as a member of Nation’s Top One Percent by the National Association of Distinguished Counsel (NADC).

The NADC is an organization dedicated to promoting the highest standards of legal excellence by recognizing attorneys who elevate the standards of the legal practice.

Himmelstein, who was named partner earlier this year, represents a number of medium-sized businesses in Arizona. As the former Chairman of the Board of the Arizona Small Business Association, he is passionate about helping Arizona’s business community thrive. He primarily helps clients in business litigation (contract disputes and intentional torts), business transactions (formation and contract negotiation for limited liability companies and corporations).

“I’m humbled to be among the attorneys selected by the NADC,” says Himmelstein. “It’s an honor to join this nationwide network with other distinguished members of the practice.”

Himmelstein has received numerous awards and recognitions over the course of his career, including AV Preeminent rating from Martindale-Hubbell. He has been named one of the Southwest’s Rising Stars by Super Lawyers for the last five years in a row, is listed as one of Arizona’s Finest Lawyers and is a Lead Counsel Rated Attorney.

“The NADC has recognized Ben is a well-respected attorney in the industry – not just in Arizona,” says Jon Frutkin, principal of The Frutkin Law Firm. “We’re all proud of his latest achievement.”

February 22nd, 2016

Posted In: Uncategorized

PHOENIX – The Frutkin Law Firm is proud to announce Principal Jonathan Frutkin has been selected as a panelist for the fourth annual Silicon Valley Crowdfunding Conference.

The conference, to be held March 3 and 4 at the Computer History Museum in Mountain View, Calif., is a gathering of the industry’s established leaders.

Frutkin’s practice focuses on business and corporate law, and he is a respected source in how companies can harness crowdfunding potential. In May 2013, he published “Equity Crowdfunding: Transforming Customers into Loyal Owners.”

“Equity crowdfunding is going to change our view of capitalism,” Frutkin says. “This trend is about more than raising money for a company. It is a book about how business owners can turn their customers into loyal owners. Smart leaders will further transform their investing customers into evangelists for the business. With its ability to leverage social networks to gain market share, crowdfunding offers established local businesses the largest marketing opportunity of all time.”

Formed in 2007, The Frutkin Law Firm has 11 attorneys who serves companies, individuals and families throughout Arizona in business and corporate law and related areas, ranging from taxation and asset protection to bankruptcy and estate planning. The firm leads the Valley of the Sun in estate planning and trust administration law. The Frutkin Law Firm’s attorneys are respected sources in their field and contribute to local and national media.

Frutkin is a frequent media contributor and has appeared in The Economist, Kiplinger Personal Finance and The Washington Post.

February 22nd, 2016

Posted In: Uncategorized

Finally, starting-May 16, 2016, businesses can raise up to $1 million every 12 months by crowdfunding–or targeting the public with low dollar, internet-based securities investment offerings-without general public registration.

Why the Wait? Congress gave the SEC 270-days to finalize rules upon implementation of the JOBS Act in April 2012. Those days came and went with the New Year. The 2013 New Year, that is. Proposed rules were not even approved until October 2013. To which the SEC received hundreds of response letters before the 90-day comment period ended. A speech by SEC Chair White left people expecting final rules in October 2014. However, an SEC agenda published shortly after, set a target adoption time of October 2015-making SEC’s crowdfunding rules creation a 24 month process.

The misnomer of naming the act the “JOBS Act” when in fact no new jobs were guaranteed (directly at least), left skeptics feeling this was merely an attempt to avoid transparency and to increase the likeliness of fraud on unsuspecting investors. Legislation faced serious opposition to rolling back Securities Act disclosure and investor protection provisions. Past SEC Chair Schapiro, even submitted an opposition letter, sparking debate over audited financial statement requirements. The SEC was not pleased with Congress’ haste to craft bipartisan legislation without sufficient time to formulate it. However, proponents urged Congress to pass legislation to democratize access to capital without cumbersome restrictions.

Considering the SEC rose out of the great depression, its weariness of fraudulent offerings targeting vulnerable consumer is not surprising. Let’s face it, smaller businesses are more apt to fail than succeed, highlighting the need to reduce risk when non-accredited investors are involved. To address concerns, the Commission balanced financial integrity against stifling capital formation. In theory, low dollar offerings and investment amounts protect all investors because it curbs the risk borne by any one investor. Still regulators worry people will not be self-accountable, or will too easily fall victim to fraud. The idea that people lack sophistication to properly vet potential investment opportunities is, however, short sided. Like the ‘call before you dig’ PSA, maybe regulators should make a campaign like ‘Q&A before you pay.’ Or maybe regulators will take comfort in knowing the low dollar amounts susceptible investor can actually lose are minimal (based on a lesser of salary or net worth for annual max contribution calculations). Instead of playing Chicken Little, regulators may consider protecting investors with education on how to analyze an investment opportunity. We cannot forget the intent of Congress that the crowd would network and share facts to, in essence, make a popularity contest where the issuer with the best presence prospers.

What Are the Benefits? On the bright side, at least audit requirement are out for company’s raising less than $500,000 a year. First-time crowdfunding issuers will be required to submit accountant reviewed financial statements (not audited statements) when raising between $500,000 and $1,000,000. Many commentators voiced concerns about burdensome requirements that would limit the ability of businesses already lacking capital to spend large amounts of money for audited financials. Another positive – issuers can conduct simultaneous offerings without running afoul of integration (presuming proper exemptions are followed).

In short, this isn’t an “either/or” proposition. This is good because having a limitation on raising other money for a full year could have chilled companies desire to participate in crowdfunding at all. It also would have prevented private equity funds from making larger investments in successfully crowdfunded companies for an entire year. Capping all investment at $1 million is obviously contrary to the underlying purpose of the law: to make it easier for smaller and startup companies to raise money. To some, the small stream of investment obtained by a crowdfunding offering will only provide limited opportunities for business growth at best.

Another benefit is that the SEC recognized challenges with monitoring individual investment amounts, and suggested investors “self-report” income and net worth, as well as their annual crowdfunding investments (not to completely relieve portals of monitoring requirements, though). This is also good news; without self-reporting of previous investments, it would be near impossible to track cross-portal activity.

Additionally, the delay allowed state petri dishes to enact their own versions of more flexible crowdfunding rules without pre-emption of Federal rules because of certain safe harbors or exemptions. In practice, however, the problem remains that by virtue of having funding portal listings online, the audience becomes difficult to control.

Of course fretting may prove wasteful at the end of the day. Investment capital will likely come primarily from people directly involved in the issuer, as it does in rewards based crowdfunding initiatives. There are always exceptions. But the critical mass of investors funding a campaign will likely be those closest to the issuer and therefore in the best position to evaluate whether they are comfortable with making an investment. In sum, crowdfunding is a catchy idea to spark consumer loyalty and raise awareness that may fizzle before reaching full potential.

To read all 685 pages of the final rules go to: http://www.sec.gov/rules/final/2015/33-9974.pdf.

February 17th, 2016

Posted In: Uncategorized

Washington D.C. – The U.S. Securities and Exchange Commission (SEC) adopted Title III of the JOBS Act today – which paves the path for the legalization of equity crowdfunding for small businesses.  This means that investors will be able to put as little as $10 into their favorite local business or real estate venture. The passage of this rule is expected to increase the volume of deals and capital to be raised in Arizona.

Using previous rules geared toward wealthy investors, real estate has been a major beneficiary of crowdfunding as investors look to directly go after investments that may return from 7 percent to 12 percent a year. Multiple companies have sprung up as online intermediaries between investors and borrowers.

Jonathan Frutkin, founding attorney of The Frutkin Law Firm in Scottsdale, Arizona, explains the opportunity for small to medium sized businesses with this new SEC ruling:  “The opportunity to raise capital using crowdfunding isn’t exciting. What is exciting is that local businesses can make their customers into owners. This marketing opportunity has huge potential.”

In addition, Frutkin is also the author of the book Equity Crowdfunding: Transforming Customers into Loyal Owners. He believes equity crowdfunding is the single largest marketing opportunity for local businesses to transform mere customers into loyal owners.

http://www.amazon.com/Equity-Crowdfunding-Transforming-Customers-Owners/dp/0989238202/ref=sr_1_2?s=books&ie=UTF8&qid=1446056516&sr=1-2&keywords=equity+crowdfunding

For Reference: The Jumpstart Our Business Startups Act or JOBS Act is a law intended to encourage funding of United States small businesses by easing various securities regulations. It passed with bipartisan support, and was signed into law by President Barack Obama on April 5, 2012.

About Jonathan Frutkin:  Jonathan is a Principal at The Frutkin Law Firm and CEO of Cricca Funding, a crowdfunding advisory company. As an entrepreneur who has led companies in diverse areas including software, digital marketing, food service and real estate, he understands the unique challenges facing business owners. The Frutkin Law Firm is a leading law firm in Arizona with 12 attorneys located in Scottsdale. Frutkin has been recognized by AZ Business Magazine as one of the top business attorneys in Arizona.

October 30th, 2015

Posted In: Uncategorized

October 30th, 2015

Posted In: Uncategorized

« Previous PageNext Page »