The Setting Every Community Up for Retirement Act, or the SECURE Act, was passed into law in December of 2019. The original SECURE Act most notably raised the age at which Americans must start taking annual Required Minimum Distributions (RMDs) from their traditional IRAs and 401(k)s from age 70½ to 72.   For more information, refer to our original SECURE Act blog. At the time that the law was passed, lawmakers insisted that this was just the beginning of retirement planning reform in America.   The House of Representatives has now followed through, approving the SECURE Act 2.0 bill with a resounding 414 to 5 vote. The bill is geared toward making it easier for Americans to save for retirement and takes a multifaceted approach to do so. The bill still needs to pass the Senate and is widely expected to become law within 2022 due to its robust bipartisan support as well as the congressional popularity of its predecessor, the original SECURE Act. While we will likely get a SECURE Act 2.0 in 2022, it may end up with some different provisions than those contained in the bill recently approved by the House.  

Effect on Employers

Currently, the highlights of the bill include requiring employers to automatically enroll eligible workers in newly created 401(k) and 403(b) plans at a rate of 3% of salary, increasing annually until the employee is contributing 10% of their pay.  Employees would still be able to opt out. Existing 401(k) and 403(b) plans would be “grandfathered” in and would not be subject to this requirement. Businesses with 10 or less employees or in existence for less than 3 years would also be excluded from this requirement. The bill would permit employers to provide financial incentives, such as gift cards, to employees for 401(k) contributions. Additionally, employers will have the option to match an employee’s student loan payments with corresponding 401(k) contributions. This could be encouraged by federal tax incentives for qualifying employers.

Required Minimum Distribution Age Increases

The bill sets out a schedule of future increases for the age at which RMDs must be taken, leading off with an increase to age 73 at the beginning of 2023. Following the initial age increase, RMDs would not increase again until 2030, when the age will increase to 74.  This would increase yet again to age 75 in 2033. While some current retirees may be disappointed by the staggered timing of the RMD age increases, one year of extra tax deferral can be impactful in the short term, and wealthy retirees in the next decade would reap the benefits of extended tax deferral.  Additionally, the current penalty for missing an annual RMD is a 50% excise tax.  making this one of the steepest penalties the IRS deploys.  This penalty would be reduced to a mere 25%, providing a benefit to taxpayers who may unknowingly fail to make an RMD withdrawal or receive bad financial advice.

Increase in Catch-Up Provision Amounts

 Another change is an increase in catch-up provisions for individuals that are closer to retirement. Currently, the maximum amount that an employee can contribute annually to their 401(k) is $20,500. Employees ages 50 years and older are allowed to contribute up to an additional $6,500 per year. This extra contribution is known as a catch-up contribution. Under the newly proposed Secure Act 2.0, workers between the ages of 62 and 64 would be able to make up to $10,000 per year in catch-up contributions to their 401(k) plan. Although it may not seem like much, every tax-deferred dollar counts in retirement, and when combined with the extended time for investments to grow resulting from the proposed increased annual RMD ages, these changes could provide some measure of last-minute relief for late retirement savers. 

Qualifying Charitable Distribution Opportunities

Wealthy individuals aged 70½ and over currently have the option to transfer up to $100,000 tax-free each year to charity from their traditional IRAs. These qualified charitable distributions (“QCDs”) are used to give the annual RMD amount to a charity, allowing the taxpayer to avoid increasing their adjusted gross income or incurring income tax on the RMD.  Transfers to donor-advised funds, charitable gift annuities, and charitable remainder trusts (“CRTs”) do not presently qualify to be treated as QCDs. If the SECURE Act 2.0 is passed by the Senate in its current form, it would permit a one-time QCD transfer of up to $50,000 to a charitable gift annuity or CRT. Additionally, the $100,000 cap would be indexed for inflation.

If you have any questions or would like to discuss or review your tax and estate planning, you can contact a member of our team directly or contact us through our website.

For the first time in 20 years, the Department of Justice (“DOJ”) has published guidance on website accessibility matters under the Americans with Disabilities Act (“ADA”).

In the publication, posted on March 18, 2022, and available at, the DOJ reiterates its priority for ensuring web accessibility for people with disabilities and emphasizes this is an obligation of both state and local governments under Title II of the ADA, and businesses that are open to the public, or public accommodations, under Title III.

The guidance provides a non-exclusive listing of examples, options, and resources for assistance and guidance in making websites available to the disabled.  Importantly, however, the technical assistance states that “The Department of Justice does not have a regulation setting out detailed standards, but the Department’s longstanding interpretation of the general nondiscrimination and effective communication provisions applies to web accessibility.”  Thus, as the publication further notes, businesses and states have flexibility in how they comply with the ADA general requirements as to websites, but they still must ensure that the programs and services in good faith provided to the public are accessible to people with disabilities.

The publication also notes that automated accessibility checkers and overlays can be helpful tools in identifying or fixing problems, but that they need to be used carefully.  The DOJ further states that pairing a manual check of a website with the use of automated checkers can give a better sense of the accessibility of the website.  The DOJ also explains that the existing technical standards provide helpful guidance concerning how to ensure accessibility, and refers to the Web Content Accessibility Guidelines (WCAG) and the Section 508 standards utilized by the Federal Government for its own website. 

ShuffieldLowman is ready to assist companies and clients with respect to issues that may arise from ADA website compliance. For additional questions on ADA website accessibility, please contact our commercial and civil litigation or corporate law teams. Visit our contact page here

We enter into contracts all the time, but what exactly creates a contract? Simply put, a contract is formed when one entity makes an offer to another, and that offer is accepted. Any time you exchange money for services you have likely signed a contract with the service provider.  Have you ever hired a plumber? Did you receive a written estimate that you signed to accept the estimate and begin services? If so, you’ve entered into a contract.

The three essential elements are the offer, acceptance, and consideration. To begin a contract, an offer must first be extended. Details of the agreement, as well as its terms and conditions, should be included. Simply explained, an offer is an attempt by the offeror to enter into a contract with another party. Once the offer has been made, the offeree has the option of accepting or rejecting the proposal and its terms and conditions. Finally, to have a legitimate legal agreement, something of value must be exchanged such as money, merchandise, property, protection, or services. If the parties are not trading in money, they should ensure that whatever they are trading, commonly known as their consideration, is considered valuable by the court.

Dissecting a contract even further, there are 7 key ingredients that should be included in a contract: Who, What, Where, When, How Much, The Date, and Signatures. The “Who” in the case of contracts are the parties involved. Let’s say you call a plumber to fix a leak. In this case, you and the company the plumber works for is the “who.”

The “What” is the scope of work. The scope of work is the section of a contract or agreement where all expected activities and deliverables are detailed with the goal of harmonizing expectations between both parties is known as the “tasks and deliverables section.” You and the plumber are discussing the problem and they tell you the leak is part of a bigger problem and outline what work needs to be done to correct the issue. They write up a proposal explaining the scope of work. This is the “what.”

The ”Where” is the location of the work. In the case of the plumber, your home is likely the “where” with special attention to specific locations affected such as the front or back yard, the bathroom, the kitchen, etc.

The “When” is the timeline of work. The plumber, in their written estimate that will become a contract if you sign it, will lay out the timeline for completion of the project. It may take a week to get a special part, and then a day to do the work,  and another day to follow up.

The “How Much” is the terms of payment. What will it cost for whatever merchandise, property, protection, or services you’d receive? Going back to our plumber example, the quote you will sign will tell you how much the services will cost and the payment timeline. Will you have to pay a deposit? Will you pay the balance upon completion?

The “Date” is simply the date the contract becomes effective. Usually, that is the date the contract is signed.

Finally, the “Signatures” close the deal and the contract is complete. The plumber has given you the scope of work, the location of the work, the timeline of the work, the expected payment terms, and has dated the estimate. Now you accept or decline. You’ve decided the plumber you’ve called is giving you a good deal, so you accept and sign the estimate.

You now have a contract with the plumber’s company. You have been given an offer, you have accepted, and you have met the consideration standards. In doing so you have met all seven key ingredients for a contract. You know the who, what, where, when, how much, have the date, and have given your signature to confirm your intent to follow through with the agreement. Our commercial litigation, real estate, construction teams, and other attorneys within our practice areas are here to advise our clients on their options based on the specific terms outlined in their contracts. For more information and assistance with a contract, you can contact us here.


The Emergency Temporary Standard (ETS), newly issued by the Occupational Safety and Health Administration (OSHA), requires compliance by all companies with over 100 employees. This rule establishes new regulations associated with employers’ COVID-19 safety standards and has firm deadlines to maintain compliance

To aid companies that may be affected by the ETS, this guide, which includes common questions and answers, will assist in navigating this new OSHA standard.

  1. What actions must employers take within the next thirty (30) days (by SUNDAY, December 5, 2021)?

It is not sufficient to post the ETS in your breakroom or email it to all employees. This ETS requires that companies institute a written policy and procedure document that incorporates the ETS’ requirements and stipulates how those will be applied throughout the Company. Failure to furnish this information to employees by Sunday, December 5, 2021, could result in fines for non-compliance with OSHA’s ETS.

There are currently no exemptions for social distancing or sitting in an enclosed office. The ETS states that the Company is required to “ensure that each employee who is not fully vaccinated wears a face covering when indoors…”

The mask mandate is required to be instituted by employers by December 5, 2021. Further, Employers are required to implement policies and procedures that ensure that their employees are compliant with this mask mandate.

OSHA can, and will, request this information during an inspection. Employers should err on the side of caution and have all employees send their vaccination cards to the company’s Human Resources representative for storage in their medical records file. The Employer should maintain an updated list of each employee and their vaccination status.

2. What actions must employers take within sixty (60) days? (by TUESDAY, January 4, 2022)?

3. Are there any exemptions?

4. What are the consequences for not complying with OSHA’s ETS?

OSHA can fine an Employer $13,653.00 per violation. For example, if an Employer is cited for three unvaccinated persons working indoors and not wearing masks, then the Employer could be fined for each one separately totaling $40,959.00.

If OSHA determines that an Employer is willfully violating its ETS, then it can fine up to $136,532.00 per violation.

5. For Your Information

Employers are required to report any COVID-19 employee hospitalizations directly to OSHA within twenty-four (24) hours of finding out about the hospitalization. If an employee dies from COVID-19, the Employer is required to notify OSHA within eight (8) hours of finding out about the Employee’s death.

Employers are required to make available to employees and their representatives the aggregate number of fully vaccinated employees within the workplace along with the total number of employees at that workplace. Since this provision states specifically “at that workplace”, an Employer with employees at multiple locations is required to provide this information for each separate location.

6. Where do we go from here?

While the lawsuits snake their way through the legal systems, employers must take action to ensure compliance and to avoid any fines or complaints for noncompliance. Employers should not wait and see if an injunction is issued that may delay these deadlines. Given the proximity to the holiday season, employers need to be prepared and ready to comply.

Questions? Contact us!

If you have any questions or need assistance in preparing a policy that complies with the ETS, please do not hesitate to contact our labor and employment attorneys at Shuffield, Lowman & Wilson, P.A. We look forward to helping you protect your business!


Following President Biden’s late-day bombshell of a press interview on Thursday, September 9, 2021, employers frantically researched various policies and standards over the weekend. The dilemma facing many employers includes the current labor force shortage juxtaposed against the politically charged vaccination efforts. While OSHA can, and will, fine employers for failing to provide safe and healthy work environments for their employees, those requirements typically include such regulations such as wearing steel-toed boots and hard hats during work hours, yellow vests while entering work floors, or the prohibition of wearing jewelry in and around certain equipment. These logical requirements, while not preferred by some or maybe even most employees, are at least justifiable for why such measures are required and easily explained by employers. But, how far can the government legislate to promote the health and safety of employees? The above-cited examples do not impact a worker’s bodily integrity, do not violate an employee’s religious or medical rights (for the most part) and the consequences for noncompliance are easily understood. Indeed, if you wear a 30-inch necklace that gets caught in a printing machine, you could lose your head. That type of consequence is real, and employees understand them.

With the COVID-19 vaccine, there is no quantifiable consequence. The research shows that a fully vaccinated person can still be a carrier of the virus and infect other individuals. Also, and as new strains develop, vaccinated persons are not immune from catching the virus. Employers may find it difficult to justify to their workforce the purpose of these rules. Unfortunately, the consequences for abstaining from the vaccine are too intangible for an employer to justify the reasoning behind requiring vaccinations of all employees. The only explanation an employer may provide at this juncture is, “because the government requires it.” This serves as a drastic contrast to previous OSHA standards where the prevented harm is foreseeable.

Despite its intangible consequences, the Federal Government, using health and safety standards concerns intends to require that all employees of companies exceeding 100 employees must obtain a COVID-19 vaccine. But in today’s climate with the politically charged controversy enveloping the COVID-19 vaccines, a deficient labor force, and unclear consequences for failing to obtain the COVID-19 vaccine, can OSHA enforce a mandate such as one proposed by President Biden? Historically, OSHA has neglected to institute a similar mandate relating to the annual influenza vaccine. While it “expects facilities providing healthcare services to perform a risk assessment of their workplace and encourages healthcare employers to offer both the seasonal and H1N1 vaccine…OSHA does not specifically require employees to take the vaccines, an employer may do so.” See 2009 OSHA Letter regarding Influenza Vaccine Mandate. All OSHA standards through the present instituted mandates related to uniform or attire standards worn by workers, and various requirements concerning spacing and location of machinery, the storage of categorized materials such as chemicals, and conducted inspections of various employer’s facilities to ensure compliance with its imposed industry standards. Until now, OSHA has declined to require vaccinations and has left that decision up to individual employers.

While Biden’s speech failed to provide exemptions for the vaccine based on religious or health-related grounds, he does state that employees who refuse to get vaccinated must be tested once per week. Testing allows objectors to the vaccine to continue employment by providing an exception, but President Biden failed to articulate who would bear the cost of the testing, if the employer would be required to pay the employee to take time off to take the test, and how the employer is required to maintain the test results from the employee.

This latest policy by the federal government leaves employers nervously wondering – Can the Government require such measures? In the interest of public health and safety, where is the line drawn? OSHA historically has declined to require vaccines by employees. This deviation from prior policy will assuredly lead to a mass influx of litigation instituted to contest the enforceability of such measures. This litigation will largely come down to the interpretation of the federal government’s justification that it has the ability to require individual Americans to obtain the COVID-19 vaccine. However, and while these measures snake through the slow channels of the courts, what are employers supposed to do right now? Today?

Right now, employers should wait until further guidance is published by OSHA. A rule has not been promulgated yet. Until then, we can only hypothesize what the proposed rule from OSHA will include based on the content within the President’s speech.

Unfortunately, President Biden’s speech left open insurmountable questions that are simply just not available at this time. For instance, how many employees equal 100? Does that include independent contractors? What about part-time employees? What about subsidiaries and any employees classified as working with those subsidiaries – are they counted towards the 100? What are the OSHA fines associated with refusing to enforce COVID-19 vaccines within its workplace? (Reports state that fines could be up to $14,000.00 but is that per employee, per inspection, and a finding of non-compliance, or as a total?) Will refusal to institute such requirements make more sense in an employer’s cost-benefit analysis than potentially alienating employees who may quit their job in response? How will OSHA conduct inspections into whether or not the workforce of an eligible employer is compliant? Are employers fined for employees refusing to obtain the vaccine requiring the employers to terminate their employees? When will these rules go into effect? These questions may be answered following OSHA’s new rule which is forthcoming according to various reports.

Inevitably, Courts must grapple with the differing political ideologies on the COVID-19 vaccine and will be the ultimate decider in this evolving landscape debate between personal integrity v. worldwide health and safety concerns. Here in Florida, a Leon County Circuit Court Judge determined that the Governor overstepped his authority in instituting a ban against mask-wearing mandates for education facilities.  See Governor Ron DeSantis, et al. v. Allison Scott, et al., Case No. 2021-CA-1382, Leon County Civil Circuit Court.  On appeal, the First District Court of Appeals issued a one-page ruling quashing the stay and stating that “we have serious doubts about standing, jurisdiction, and other threshold matters. These doubts significantly militate against the likelihood of the appellee’s ultimate success in this appeal.” See September 10, 2021 Order.  The stay, while remaining in place for the purposes of the appeal, is evidence that the Court of Appeals could rule in favor of Governor DeSantis having authority to institute a statewide ban on mask mandates for Florida school districts.

Conversely, a Southern District Court Judge intervened against a law that prevented cruise liners from requiring customers to be fully vaccinated prior to sailing with the cruise liners. That Judge states that such measures violate a business’ integrity as companies attempt to “reopen.” See Judge Kathleen Williams’ Order in Norwegian Cruise Line Holdings, Ltd., et al. v. Scott Rivkees, M.D., Case No. 21-CV- 22492-KMW (S.D. Fla. 2021). While this Court Order directly analyzed the cruising industry with particularity, the reasoning behind the Order could apply across many industries. What seems to be the essence of these most recent orders is that the government should refrain from prohibiting or legislating vaccine bans or mandates. Judge Williams’ order has been appealed and is presently pending before the United States 11th Circuit and will likely be addressed by the Supreme Court of the United States.

Ultimately, this unpredictable and expensive litigation provides little to no relief to frustrated employers who simply want to go about their business and avoid politics in the workplace. Unfortunately, for both employers and employees, it appears that avoiding these contentious discussions will soon come to an end and many business owners are going to have to make difficult choices moving forward.

The labor and employment attorneys at Shuffield, Lowman & Wilson are happy to answer any questions and assist with preparing policies to protect your company and your workforce so that you can focus on your business.

Small business owners cringed when Florida’s minimum wage law was passed in November 2020 by over sixty (60%) of the voters.[1] Why? Well, because with small profit margins the minimum wage increase will affect a large segment of business owners in the State of Florida. In more rural communities, the new minimum wage law may cause entrepreneurs to crunch the numbers on whether or not continuing their business is even viable. So, what exactly do we all need to know?

Beginning September 30, 2021, and continuing each following year on September 30 through 2025, the minimum wage will increase by $1.00.

The minimum wage in the State of Florida will be as follows:

January 1, 2021                                   $8.65 per hour

September 30, 2021                            $10.00 per hour

September 30, 2022                            $11.00 per hour

September 30, 2023                            $12.00 per hour

September 30, 2024                            $13.00 per hour

September 30, 2025                            $14.00 per hour

September 30, 2026                            $15.00 per hour

This new law also increases the amount earned by tipped employees. For restaurants, bars, clubs, valets, or other tip-based enterprises, the minimum wage for tipped employees are as follows:

January 1, 2021                                   $5.63 per hour

September 30, 2021                            $6.98 per hour

September 30, 2022                            $7.98 per hour

September 30, 2023                            $8.98 per hour

September 30, 2024                            $9.98 per hour

September 30, 2025                            $10.98 per hour

September 30, 2026                            $11.98 per hour

Employers are required to implement and follow the new minimum wage and will face severe consequences for failing to abide by its incremental increases. This law permits the state attorney general’s office to sue to enforce the minimum wage. Also, if an employer is determined to be intentionally violating the new minimum wage, then that employer may be fined up to $1,000.00 for each violation.

There is a safe harbor for employers. Employees who believe they are not being paid the correct amount must notify the employer and provide fifteen (15) days to the employer to evaluate whether or not their rate of pay is in adherence with Florida’s law. After fifteen (15) days expire, and the employer does not re-calculate the employee’s wages, then the employee may file a civil action against the employer for back wages plus damages and attorney’s fees. The employee is provided protection against retaliation by the employer for filing any claims for lack of payment. But, for the employer, this provides you the opportunity to receive notice of a grievance and remediate any defaults without the shock of being sued.

There are options for employers to determine what is in the best interests of their business and in compliance with the new state law. The employer may consider reclassifying the employees. You may classify an employee who is eligible to earn a salary as opposed to being paid an hourly rate. These considerations can be tricky, though, so make sure you consult with your legal advisor before you institute new classifications of employees within your business.

If you have any questions or would like to discuss your options, your labor and employment advisors at Shuffield, Lowman, & Wilson, P.A. are happy to advise you through this new legislation to ensure you avoid any pitfalls.

[1] See Article 24(c), Section X, Florida Constitution (2021).

What is Eminent Domain?
Eminent Domain is the power of the government to condemn (take) private property for a public purpose without the property owner’s consent.  The Florida Constitution requires that no private property shall be taken except for a public purpose and with full compensation paid to each owner.  The Florida Constitution’s guarantee of “full compensation” is intended to ensure that the owner receives full, fair, and complete compensation.

What is the Public Purpose Requirement?
The Florida Constitution prohibits use of the power of eminent domain except for a “public purpose.”[i] In determining whether a particular use of eminent domain is for a public purpose, Florida courts have historically held that the public interest must dominate the private gain.[ii]  Additionally, a condemning authority must only take the amount of land reasonably necessary to achieve this public purpose. The requirement of public purpose and public use is essentially a limitation on the exercise of the power of eminent domain.  When faced with a government taking, it is important to seek representation right away to evaluate whether the condemning authority has properly complied with Florida law.

How Much will it Cost in Attorney’s Fees?
As part of the Florida Constitution’s guarantee of full compensation, a condemning authority is required to pay the property owner’s attorneys’ fees and reasonable costs of the condemnation proceedings.  These costs include reasonable appraisal fees and other costs associated with formulating the property owner’s claim.  The amount of the attorneys’ fees to be paid in an eminent domain matter is calculated based upon a statutory formula in the Florida Statutes.  Attorney’s fees are paid separately from the property owner’s compensation and do not reduce the property owner’s overall recovery.

When Should I Seek Legal Representation?
When facing a taking, it is important that the property owner seek legal counsel as soon as possible.  A government taking by eminent domain can have significant impacts on property rights and values.  Understanding how the process works can assist in ensuring that the property owner is adequately compensated and that property rights are preserved.  Our law firm is committed to ensuring that your property is protected, and you are compensated to the fullest extent of the law. If you have received a condemnation notice, contact one of our Orlando eminent domain attorneys right away.

[i] Article X, § 6, Fla. Const.

[ii] Demeter Land Co. v. Florida Public Service Co., 99 Fla. 954, 128 So. 402, 406 (1930)

On June 16, 2021, Florida Governor Ron Desantis signed into law Senate Bill 56. The new law, which became effective July 1, 2021, requires homeowners associations and condominium associations to deliver, by first-class mail, a 30-day “Notice of Late Assessment” to owners delinquent in the payment of assessments and wait until the 30-day period expires before taking any collection action that will result in the imposition of attorney’s fees and costs against the delinquent owner.  The notice is deemed to have been delivered upon mailing.  When an association produces an affidavit by a board member, officer, manager or agent of the association attesting to the mailing of the notice, a rebuttable presumption is established that the association complied with the notice requirements.

In addition, the new law amends Chapter 718, Florida Statutes, which governs condominium associations, to extend from 30-days to 45-days the period a condominium association must wait, after providing notice to a delinquent owner, before the association may record a claim of lien for unpaid assessments (a “notice of intent to lien”) or before instituting an action to foreclose its claim of lien (a “notice of intent to foreclose”).  Florida law already requires HOAs to provide owners a 45-day notice prior to recording a lien and again before filing a lien foreclosure action.      

With the addition of this new 30-day “Notice of Late Assessment” requirement, there will be a further delay in the ability of a condominium or homeowners association to initiate an action to foreclose its claim of lien to collect a delinquent assessment.  As such, associations that did not previously act early to collect delinquent assessments may now find a need to accelerate the beginning of the collection process.  It may be advisable to now begin that process within a week of the date when an assessment first becomes delinquent.

Senate Bill 56 also establishes requirements that must be met before a homeowners or condominium association may change the method of delivery for assessment invoices and account statements.  The legislation states that invoices for assessments and account statements may be delivered via U.S. mail or by electronic transmission to an owner’s email address on file with the association.  However, before changing the method of delivery, an association must provide notice to the owner by first-class mail 30 days before the association sends the invoices or statements by the new method, and an owner must affirmatively acknowledge his or her understanding, either electronically or in writing, that the association will change its delivery method before the invoice can be sent by the association using the new delivery method.

If you have questions regarding your association’s compliance with these new laws, contact Shuffield, Lowman & Wilson’s community association legal team.

Planning for key employees is an important aspect of the growth of any business. Key employees can either drive value to your company or create a roadblock down the line when preparing for an exit transaction. This is why, as a business owner, it’s never too early to plan for ways to retain and reward key employees through the ultimate sale of your business.

Luckily, your first resort for keeping a key employee happy does not automatically mean giving up ownership. We have seen an uptick in companies using constructs like “phantom stock,” “equity participation shares” and other similarly named plans that, in essence, motivate an employee by enhancing their opportunity for participating in the growth of the company and giving them “skin in the game” all without selling actual shares in the company.

Why not actual stock?

Employees and employers alike are sometimes surprised to find out that issuing actual stock to an employee typically means that the employee must pay income and employment taxes on the value of the stock in the year in which they receive it (as if the stock was cash compensation). There are ways around this, such as requiring the employee to pay for the stock or issuing options to buy stock at a later date. But unless the employer is willing to give them the cash to pay for the stock, which additionally also triggers income and employment taxes, employees will rarely exercise their stock options until an exit transaction is imminent, and will have at that point already forfeited the potential tax benefits of stock ownership. In addition, employees holding actual stock in their employer have the rights to call owner meetings, inspect books and records, review financials, and exercise various other rights of a stockholder under state law. For pass-through entities in particular, employees will have to be issued K-1 statements that will hold up the filing of the employee’s own personal tax returns, and they may potentially have to pay taxes on “distributable” income of the company that they never actually receive. Further, once an employee holds actual stock, it is very difficult to get it back (in the event of a termination, for instance) without that employee’s sign-off. For all of these reasons, we are seeing more and more emerging and established companies steer clear of awarding actual stock to their key employees.

What is a Phantom Stock Plan? 

A phantom stock plan is a compensation plan that provides key employees the financial benefits of actual stock without the tax and other legal issues involved in ownership. This allows key employees to still participate in the growth and profitability of the company. 

Who are the Key Employees?

Key employees are typically those that meet the following criteria: they are highly compensated or they carry out management-level duties (as defined by the Department of Labor), and in either case, they must be able to negotiate their compensation packages. Employees that do not fall into one of these buckets are typically not eligible for phantom stock plans. 

How is a Phantom Stock Plan Structured?

The value of the phantom stock units can be measured by the value of the company stock. There are two main types of phantom stock plans: “appreciation” plans and “full value participation” plans. The full value participation plan pays both the value of the underlying stock and any appreciation in the value. The appreciation-only plan pays just the increase in value of the stock share going forward from the issuance of the shares. For either of these plans, employers will often pick a percentage of the company or a specific number of shares that are used as the basis of the calculation of the value of what is due to the key employee. 

The payout under the plan will often be based upon revenue, EBITDA, multiples and ultimately the value of the company upon exit.  

Further, the employer can choose to vest the plan benefit over a certain number of years, give vesting credit to certain employees for years served, or make the plans fully vested from inception.

When is the key employee paid?

A phantom stock plan will typically payout upon the occurrence of an exit transaction. The payment of the value accruing to the key employee will typically be structured to be contingent on them remaining with the company through at least until the end of the transaction and often up to one or two years after the completion of the transaction. Some plans also have other payment triggers, to the extent they occur prior to an exit transaction, such as the key employee’s death, disability, retirement, or termination of employment. Regardless of the payment trigger, the plan will specify if the payment will be made in one lump sum or as payment installments over time once one of the payment triggers occurs. 

At ShuffieldLowman, our corporate law and mergers & acquisitions team are here to advise clients on their options when looking to retain and reward key employees before, during, and after the exit transaction. If you have any questions, you can contact a member of our team directly or contact us through our website. Phantom stocks programs should be reviewed by an attorney to ensure it is drafted properly and meets the requirement as set by IRS code 409(a).  

On June 16, 2021, Governor DeSantis signed Florida SB 630, which will become effective on July 1, 2021.  The bill modifies certain provisions in the Florida Statutes that impact condominium associations and homeowners’ associations.  Among the changes made was one that restricts the right of a homeowner’s association to implement rental restrictions applicable to properties subject to the association’s governing documents.

Before this new legislation, the only limit on rental restrictions in the Florida Statutes, which pertained to community associations, related to condominium associations; there was no such limitation for homeowners’ associations.  For a condominium association, the limit on rental restrictions, found in Section 718.110(13), Florida Statutes, provides as follows: “An amendment prohibiting unit owners from renting their units or altering the duration of the rental term or specifying or limiting the number of times unit owners are entitled to rent their units during a specified period applies only to unit owners who consent to the amendment and unit owners who acquire title to their units after the effective date of that amendment.”

However, effective July 1, 2021, a declaration or other governing document of a homeowners’ association that has more than 15 parcel owners, or an amendment to a declaration or other governing document of such a homeowners’ association, that contains a prohibition or regulation as to rental agreements, “applies only to a parcel owner who acquires title to the parcel after the effective date of the governing document or amendment, or to a parcel owner who consents, individually or through a representative, to the governing document or amendment”.  This new statutory provision will be reflected in a new subsection “(h)”, to be added to Section 720.306 of the Florida Statutes. 

While this language closely mirrors the language found in Section 718.110(13), Florida Statutes, there are certain differences. Section 718.110(13), Florida Statutes states that the rental restriction applies to condominium owners “who acquire title to their units after the effective date of that amendment” and to those “who consent to the amendment”.  In contrast, Section 720.306(1)(h), Florida Statutes, will provide that the rental restriction will apply to a parcel owner “who acquires title to the parcel after the effective date of the governing document or amendment” and to a parcel owner “who consents, individually or through a representative, to the governing document or amendment”.  It is unclear what is meant by the reference to an owner who “consents to the governing document” as no vote of the parcel owners is taken at the time a declaration (the governing document) is first adopted.  A vote of the parcel owners is only taken when a declaration is amended.        

The new section “(h)” added to Section 720.306 of the Florida Statutes will also clarify that a rental prohibition or regulation that does not apply to a current title holder (because that owner did not consent to the amendment) also will not apply to a subsequent title holder following certain “ownership changes”. In particular, the rental prohibition or regulation will not apply to an heir who acquires the title as a result of the prior owner’s death or where title is transferred from the prior owner to an entity affiliated with a prior owner. Instead, the prohibition or regulation will only apply once the heir or affiliated entity transfers title to another party.

There will be an exception to the rule of limited application (to successor owners or owners voting for the amendment) as to certain rental prohibitions or regulations for those restrictions that are put in place on or after July 1, 2021.  However, those exceptions are limited to: (a) rental restrictions that prohibit or regulate lease terms which are less than 6 months; and (b) rental restrictions that prohibit rentals of a parcel more than three times in a calendar year.  Those restrictions, once adopted into an association’s governing documents, will apply to all owners in the association regardless of when or how the owner’s title was acquired and regardless of how that owner voted as to an amendment adopting said restrictions.

Again, the restrictions will not apply to rental restrictions that are in place prior to July 1, 2021.  As a result, HOA governing documents or amendments that were recorded prior to July 1, 2021, and which contained prohibitions or regulations as to rental agreements, remain binding as to all owners, regardless of the nature of those prohibitions or regulations.

For guidance as to how to prepare a proposed amendment  to your HOA declaration that complies with the new HOA rental restrictions or for guidance on additional changes resulting from Florida SB 630, you can reach out to our association law team.