During the upcoming holiday season, your company might celebrate a successful year by hosting a party for workers. In fact, it might be an occasion staff members look forward to all year long. But your good intentions could lead to problems -- or even tragedy.

Case in point: Suppose one of your employees causes a serious accident when he or she drives away from the party in an intoxicated state. Besides the obvious moral issues at stake, you or your company may be held liable for damages.

Why would you be liable if you are not the one who caused the injury? It all has to do with the “social host” theory of law. Depending on state law, the same basic legal principles that could hold business establishments responsible for accidents caused by patrons may be extended to hosts of social gatherings.

Basic premise: As a general rule, an injured party must prove that the following three conditions existed to succeed with a claim based on social-host liability.

For example, say that you serve an alcoholic drink to someone who is visibly drunk or a known alcoholic. A subsequent accident caused by this person may be viewed as a foreseeable consequence of your negligence.

Note that it is possible for a company to be held liable even if the party takes place outside the business premises and after regular working hours. But company liability is less likely if the employees organize the get-together and provide the alcohol themselves.

How can your company protect itself when hosting a holiday party?

Although there are no absolute guarantees, here are several “common sense” suggestions you might observe:

• If you absolutely have to provide alcohol, use trained bartenders or waiters to serve measured drinks. Don’t put out unsupervised punch bowls, kegs or coolers.
• Assign someone to observe guests. Refuse drinks to any employee who becomes obviously drunk.
• Arrange for transportation -- such as carpools, cabs, etc. -- for employees who are unfit to drive.
• Make sure the company insurance policy covers all liabilities arising from company parties.

Be aware that some states have laws on the books that provide immunity for social hosts. The best approach is to obtain expert legal advice before you send out your invitations.

Happy New Year: At this time, we would like to wish all of our clients and friends a happy, healthy and prosperous new year.

 Complying with New Discovery Rules

Due to the ever-expanding use of technology, employees are now able to use e-mail, instant messages (IMs) and other forms of electronic communication almost anytime or anyplace. Although this can be beneficial from a work standpoint, it also leaves a virtual trail for years to come. That could end up causing legal problems for the employer.

Main reason: Once your company is sued, the discovery process begins. You may be required to turn over information buried deep in your computer logs. If you don’t comply, you may be liable for fines or other sanctions. The Federal Rules of Civil Procedure provides courts with broad discretion for enforcing discovery requests.

New developments: Recognizing technological advances in this area, the Supreme Court recently approved significant chances in the application of the discovery rules. The revised rules, which are scheduled to take effect on December 1, 2006, require employers to reveal details about the retention of their electronic records.

Specifically, the employer must explain the nature of the electronic files it has maintained, including e-mail communications, IMs, hard-drive records, photographs, sound recordings and other data. It must provide direction for turning over these records as part of the discovery process of the lawsuit.

An attorney representing an employee will be able to demand copies of these records in an electronic format. In other words, the employer cannot simply print out the records in bulk. This will save the parties from having to search through reams of paper to ascertain vital information.

The new rules are expected to open up electronic records to greater scrutiny. As a precaution, an employer may take steps to create logical boundaries for use of electronic communications such as restrictions on use of e-mail.

Finally, your company should develop an electronic retention policy that suits your needs. Of course, the policy should adhere to the new discovery rules, but it should not be overly burdensome or interfere with your ability to delete outdated information. Again, you will probably need the assistance of your information technology department.

It makes sense to coordinate your high-tech efforts with your legal obligations. It may be helpful to arrange a meeting of your key advisers for this purpose.
 Protecting Against Age-related Claims

It is usually a good idea to have a departing employee sign a waiver of rights to any age discrimination claims. The Older Workers Benefit Protection Act (OWBPA) specifies how such waivers should be handled.

New case: An employee was 55 years old when his position was eliminated. The company offered him a choice between two severance packages. After talking matters over with his attorney, the employee agreed to one of the severance options.

However, the employee then sued the company for age discrimination anyway. Reason: He alleged that the agreement violated the OWBPA because it contained contradictory language.

The questionable wording stated that the employee would not sue the company for “work-related” claims. But it still allowed the employee to file an age discrimination lawsuit based on the agreement’s validity. The employee claimed that this provision provided a means for invalidating the entire agreement.

Result: The Eighth Circuit Court sided with the employer. It said that the agreement was clear enough to establish the employee’s rights under the agreement.

 New Guidelines for Racial Equality

The Equal Employment Opportunity Commission (EEOC) has established new guidelines regarding racial discrimination in the workplace. Although the revisions do not alter the basic application of Title VII of the landmark Civil Rights Act of 1964, it is an indicator that the EEOC intends to be more vigilant in enforcing the rules.

Background: Racial discrimination at work is often related to employment decisions -- e.g., hiring, firing, pay scales, promotions, work conditions, etc. -- that are based on a person’s physical or cultural characteristics. This may include physical attributes such as skin color, hair texture or style, and facial features.

In recent years, increased attention has been paid to issues involving color discrimination. For instance, a person may be discriminated against based on the pigmentation of his or her skin or the complexion, shade or tone. Color discrimination isn’t limited to incidents involving individuals of different races or ethnic origin; it can even occur among people of the same race or ethnic group.

Note that neither Title VII nor the new guidelines provide an absolute definition of “race.” Thus, discriminatory practices may be subject to interpretation.

The EEOC manual prohibits employers from using categories to avoid hiring qualified minorities. In particular, the new EEOC guidelines indicate that investigators will be on the lookout for the following “red flags.”

• Race-related statements: This applies in particular to decision-makers and participants in the hiring and firing process. Certain types of comments can reveal an underlying bias on the part of management.
• Comparison of treatment: The EEOC will examine if the employer treats employees differently based on racial or color classifications.
• Personnel policies: If the employer deviates from the usual personnel procedures, it may indicate discrimination.
• Background: Facts concerning the treatment of others from the same racial or ethnic background of an employee may be considered.
• Statistical evidence: The EEOC emphasizes data that shows the employer treats members of one race differently from another. For example, if minorities are consistently grouped on the bottom of the organizational chart, it might indicate a biased opinion by management.

That’s not to say that employers will be unable to justify the reasons for employment-related decisions.

However, even if sound business practices are employed by management, they cannot be used to create a disproportionate impact on protected classes. Even a relatively neutral practice resulting in a disparate impact can lead to legal problems.

It is recommended that you meet with your legal advisers to ensure you can measure up under the new EEOC guidelines.

 The Benefits of a QTIP Trust

Estate planning remains a concern for many affluent families. Although a great deal of uncertainty still exists over potential law changes under current law, the federal estate-tax exemption can effectively shelter transfers of up to $2 million in 2006. However, complications may arise if you have been married more than once.

In the event you die before your current spouse, you may want to protect the surviving spouse and the children of your earlier marriage(s). In this case, a Qualified Terminable Interest Property (QTIP) trust may meet your needs.

How it works: The trust pays out money to your surviving spouse while he or she is alive. Upon your spouse’s death, the assets go to the beneficiaries you have selected. Best of all, there is no estate-tax bill when you pass away. Your surviving spouse’s subsequent transfer to your children may be sheltered by the estate-tax exemption.

Under the current unlimited marital deduction, any property that is transferred from one spouse to another is completely free of estate and gift tax. In other words, if you leave property to your spouse when you pass away, there is no tax whatsoever. However, the marital deduction generally is not allowed for property passing to a spouse for his or her life and then to someone other than the surviving spouse.

Fortunately, there is an exception for QTIP property transferred to a trust. If certain requirements are met and a timely election is made, the value of the property qualifies for the marital deduction. Subsequently, the remaining assets are included in the taxable estate of the surviving spouse.

Although a QTIP trust is commonly used in second and third marriages, it can serve other purposes. For instance, you might be concerned that your surviving spouse will squander his or her inheritance. In that case, a QTIP trust may be appropriate.

Note: The election to qualify for the QTIP exception is made by the executor of the estate of the first spouse to die. Once the election is made, it is irrevocable.

Reminder: A QTIP trust, as well as other estate-planning devices, should be considered as part of an overall plan designed for your personal needs.

Legal Briefs

Noncompete Agreements -- In a new case, a salesman signed a noncompete agreement with a supply company. The agreement prevented him from working for a competitor for two years after leaving. Any modifications had to be made in writing. After the company made policy changes affecting his pay, the salesman left for another company in the same field. Result: The company’s breach invalidated the agreement, so the noncompete is unenforceable.

Money Matters -- The IRS recently joined forces with 33 states and Puerto Rico to combat money laundering in the business sector. The agreements allow the participants to share Bank Secrecy Act (BSA) information and other resources for ensuring compliance. Note: Although BSA information does not include tax information, the IRS and the individual states have long-standing arrangements for sharing that information.

Easy Access -- A living will can provide health care instructions in the event of a life-threatening circumstance. Frequently, living wills are kept in safe deposit boxes or other secure locations. However, it is important that the document is easily accessible. For instance, you might give a copy to your primary care provider or include a copy in your medical records.

Back Pay Penalty -- An employee in a new case quit her bank job after working there 25 years. She claimed that male employees in the same position were paid more than she was. Subsequently, the employee filed a lawsuit under the Equal Pay Act (EPA). Result: Not only did the jury agree with the plaintiff, it authorized back pay under the EPA due to “willful” discrimination under the law.