Internal Whistle-Blowing Exception To At-Will Employment

Employers may generally fire at will employees without cause at any time without liability. There is a public policy exception to this rule. The Massachusetts Supreme Court recently expanded the exception to include an employee's internal whistle-blowing. Here the employee sued for wrongful firing after she was fired for complaining about her reclassification as an independent contractor. The court found that the proper classification of workers as employees or independent contractors serves an important public policy.

Why This Is Important . . . This case raises the stakes for employers. Employees who report problems cannot be fired without the possibility that the firing will be considered unlawful.

Environmental Liabilities Transferred In An Exchange

A corporation sold all of its assets and liabilities to a second corporation in exchange for all of the stock of the second corporation. Included was a piece of contaminated land. The second corporation incurred the cost of cleaning up the pollution caused by the first corporation. The seller had done no clean up and had not deducted or capitalized any amount for environmental contamination before the sale.

The IRS ruled that the contingent environmental liabilities assumed by the buyer is not money received by the seller for deciding the seller's basis in the stock received. The IRS also found that the liabilities assumed by a buyer are deductible by the buyer as a business expense or a capital expenditure, as appropriate, and will be decided as if the buyer owned the land for the period and in the same manner as the seller.

Why Is This Important . . . As more properties are exchanged subject to environmental contamination, the tax effect on both the buyer and the seller will become a critical issue in determining whether to purchase or sell contaminated land.

President Liable For Penalty Despite Bank's Control

Heritage Building Products (HBP) signed a credit arrangement with a bank under which HBP granted the bank liens on all the company's assets and the right to freeze any accounts with the bank in case of a default. After the bank decided HBP was in default, it froze all company accounts and refused to honor any checks it had not pre-approved.

Although the bank approved payments for company expenses, it refused to approve payments of federal and state withholding taxes, despite HBP's request that those payments be authorized. The IRS assessed "responsible person" penalties against the president. The court found that the company president was a responsible person when he signed the agreement with the bank and could not stop being a responsible person simply by giving the bank the right to exert financial control over the company.

Why This Is Important . . . Many companies enter lending agreements where the bank gets control of company accounts if there is a default. Company officers should be aware that they may still be responsible for the taxes though they no longer have control over company accounts.