What is the meaning of . . .

“Gross Up”?

Everyone is legally permitted to try to avoid taxes – I did not say “evade” taxes – or to pay as little as permissible, in any legal way available to them.

For employees, the most common opportunity to do so is when they incur work-related expenses that may require them to pay taxes on some of the reimbursement.

Examples may include (a) relocation reimbursement, which is now fully taxable to the employee, (b) educational reimbursement that may be partially or fully taxable to the employee, (c) entertainment or travel reimbursement that may be partially or fully taxable to the employee, especially if in excess of certain allowable limits, and (d) automobile expenses.

So, for example, if an employee is asked to move his or her residence for a year or two from Boston to Belgium, moving expenses (for themselves and their family) is considered non-deductible for them, and if the employer reimburses them for that expense, all of the reimbursement is considered income to the employee, who must pay tax on it.

Here’s another example: if your employer asks you to take courses to enhance your work skills, and the cost in one year exceeds $5,200, the excess amount, if reimbursed by your employer, is considered income to you, and you must pay tax on it. There are many other real-life examples, too.

So what’s the solution? Ask your employer to not only reimburse you for the actual expense, but to also pay you the amount you will have to pay in tax on that reimbursement. That is called “Gross Up” for tax purposes, or “Tax Gross Up.”

While it takes a little “gymnastic arithmetic” to figure out exactly how much “Gross Up” payment to you is needed to precisely “Gross Up” tax that you will have to pay, that calculation can be done by your employer, its payroll service, or your own tax advisor.

The reason that it is a bit complicated to calculate “Tax Gross Up” is that the employer should not only (a) pay the additional tax due by the employee, but (b) should also repay the employee for the new tax to be due on the original reimbursement amount, as well.

As an illustration, if the employee incurs a relocation expense of $1,000, and the employer reimburses the employee the $1,000, the employee may have to pay income tax on the $1,000 received of about $300. But wait a minute: then the employee has to pay tax on that $300, as well, which might come to yet more income tax of $90. So, the employer should also “Tax Gross Up” that amount, too. (I told you it was a bit complicated.)

So, whenever a work-related reimbursement is taxable to you as income, or you believe it may be, ask for “Gross Up” for tax purposes, or “Tax Gross Up” as it is also commonly called.

If you do so, there will be more money in your pocket after tax time, and, hey, there’s nothing wrong with that!!

Be aware. Be alert. Look before you leap. That is to say, be “SkloverWorkWise.” You will be VERY GLAD you did.

Incidentally, we offer a Model Memo titled “Request for Tax Gross Up” to send to your employer. Like all of our Model Memos and Letters, it shows you “What to Say . . . and How to Say It.”™ To get yours, [click here.] Delivered in minutes to you by email.

(Please note: This email newsletter does not constitute legal or tax advice; for such advice or counsel, you need to consult a lawyer or tax adviser. In addition, laws change, and that may include the present tax treatments noted above, and, so, reliance upon this email newsletter must take these warnings into account.)

Need a model memo or letter to transmit a request or complaint? A good checklist or form agreement? For a complete list of our Model Letters, Memos, Checklists and Sample Agreements, Just [click here.]

Interested in Membership? It’s free, and has advantages, including discounts on our products. Just [click here.]

Need a private telephone consultation? Just [click here.] Evenings and weekends can usually be accommodated.

“Your Path to Dignity at Work”™

© 2019 Alan L. Sklover All Rights Reserved and Strictly Enforced.

Be on the lookout for . . .

“Voluntary,” as in “Voluntary Departure,” “Voluntary Resignation”
or “Voluntary Waiver”

You’re quite likely to find the word “voluntary” in several work-related legal documents. If you do notice it, that word may be very advantageous to you.

Generally speaking, “voluntary” means “done on one’s own free will.” It is synonymous with discretionary, unforced and optional. In legal documents, it often suggests that the act described was not required, not coerced, and not demanded.

Let’s say that, according to your employer’s Annual Bonus Plan, you are not entitled to your annual bonus if you “voluntarily” resign before the day it is paid. What if, two weeks before bonus payment date, you resigned and left your job in fear that your boss might beat you up in one of his infamous uncontrolled rages?

Was your departure “voluntary?” I’d say no. Are you entitled to your annual bonus? I’d say yes, although I’m confident that most employers would disagree.

You have a strong, reasonable and likely winning argument that the bonus is yours, so long as you spot, appreciate and point to the word “voluntary.”

In Repayment Agreements, you might promise to repay your employer in, as examples, a Sign-on Bonus Agreement, a Relocation Expenses Policy, or a Tuition Assistance Plan if you “voluntarily” leave before two years of service. What if you left earlier than that because, all of a sudden, your salary was reduced by 40%, and your family likes to eat three meals a day? (Some kids demand 4 or 5!!)

Is feeding your hungry family “voluntary?” I’d say No. Was your departure to take a better paying job truly “voluntary?” I’d say No. For this reason, you have a very good, and probably winning, basis to argue, with likely success, that your repayment is not required.

So, in this circumstance, too, you may very well not have to repay any sign-on bonus, educational assistance, etc., so long, that is, as you spot, appreciate and raise in your defense the word “voluntary.”

The same goes for whether a Non-Compete Agreement is valid or void, according to its own words. If the non-compete says it is valid if you “voluntarily” leave your job, and you can show that you are allergic to the new paint used throughout the office, then it is void as to you, so long, that is, as you spot, appreciate and raise the word “voluntary.”

There are many other legal documents that may contain the word “voluntary.” Look for “voluntary” in any and every workplace document, whether in an agreement, a company policy, an Employee Handbook, Stock Award, or other document.

You may be VERY GLAD you did.

Need a model memo or letter to transmit a request or complaint? A good checklist or form agreement? For a complete list of our Model Letters, Memos, Checklists and Sample Agreements, Just [click here.]

Interested in Membership? It’s free, and has advantages, including discounts on our products. Just [click here.]

Need a private telephone consultation? Just [click here.] Evenings and weekends can usually be accommodated.

“Your Path to Dignity at Work”™

© 2019 Alan L. Sklover All Rights Reserved and Strictly Enforced.

“I busted a mirror and got seven years bad luck, but my lawyer thinks he can get me five.”

– Steven Wright

ACTUAL “CASE HISTORY”: Charlene, a furniture designer, had been with her employer for seven years. She was happy in her job, was well-liked, and quite productive. Her job was a short commute from home, and her manager was family-friendly. All was good.

One morning she received an email from the Human Resources Director, addressed to all of the company’s 150 employees, advising them that the company was updating all of its employment practices, and for this reason all employees were required to sign an updated “Confidentiality and Inventions Agreement” to safeguard the company’s trade secrets and proprietary information. (Rumor had it that a private equity firm might be interested in buying Charlene’s employer, and it was for this reason that a new, revised Confidentiality and Inventions Agreement was being required.)

The agreement was six pages long and contained a lot of complicated legal language. Charlene thought she understood it, but there was a lot “legalese” in it. She considered having our firm review it with her, but knew it would cost her a consultation fee of hundreds of dollars. When she called, she mentioned the unfairness of her employer requiring her to pay to review a document that they needed, not her.

We suggested she simply ask for the cost to be reimbursed. Sure enough, she did. After a few emails back and forth, her employer agreed to treat it just like any other business-related expense. Charlene was pleased. We were pleased, and now we suggest all employees in this situation do so. You never know. Sure is worth a shot.

LESSON TO LEARN: If you don’t ask, you won’t get. So long as any workplace request has the “Three R’s,” that is, it is (i) Respectfully presented, (ii) Reasonable in what is sought, and (iii) is based on a sound and logical Rationale, there really is no downside to making it.

The logic is simple: When someone wants something from you, and even moreso when they need it, there is nothing wrong with asking for something in return, especially the amount of money it will cost you to provide it for them.

Who knows? You might just get what you want. In this context, your chances are pretty good. Why not give it a try?

WHAT YOU CAN DO: In most – but not all – workplace instances of your employer asking you to sign an agreement, consider asking, in return, before you sign the agreement, that your employer agree to reimburse you the cost of an attorney’s review and consultation. Here are some tips in doing so:
Read the rest of this blog post »

Question: I am a physician, and have an employment contract with a hospital. It is extremely one-sided on the hospital’s side, and I was not represented by an attorney when I signed it. 

The employment contract says “If the employee does not remain employed for the entire three-year term of the contract, he must repay to the hospital (i) his signing bonus, (ii) his relocation reimbursement received, and (iii) the costs of a continuing malpractice (so-called “tail” coverage) policy.” Either party can terminate the employment contract without “cause” if they give the other 90 days advance notice. The hospital has terminated my employment without “cause,” and is now demanding I pay it $50,000 for the reimbursement provisions I mentioned above. 

The employment contract does not have what people call a “survival clause” that says, in effect, certain of the obligations of the contract – like the reimbursement clause – continue in effect even after the employment is over. 

Can I defeat the hospital’s demand for repayment of $50,000 due to the absence of a “survival clause?”

 Mike
Ashland, Kentucky

Answer: Dear Mike: I must admit it: I particularly enjoy questions about employment contracts. In law school, my “Contracts Law” professor was my favorite, and I was actually a bit sad when the course was over. Here are my thoughts:   

1. First and foremost, because I am not licensed in Kentucky, and because I have not read every single word of your employment contract, my answer is surely limited. To my mind, for a doctor to give a good diagnosis, he or she must know both (a) the medicine, and (b) the patient. Likewise, for an attorney to give a good opinion, he or she must know both (a) the law, and (b) the facts. Since I am not admitted to practice law in Kentucky, I can’t comment on Kentucky law, except I can say what I have experienced over 30+ years as to laws of most states and countries. Likewise, I have not read every single word of your employment contract, and to “diagnose” your situation I really would have to do that. So, bear those facts in mind. 

2. Just as an aside, the facts that (a) your employment contract is one-sided, and that (b) you didn’t have an attorney look it over, will not help you at this time. In your note to me, you mentioned that your contract was one-sided, and you did not have an attorney look it over for you. In my experience, 90% of employment contracts are, in fact, one-sided on behalf of the employer, and maybe 98% of employees don’t bother having an attorney review the employment contract they have. They just want the job so badly, they will sign almost anything.   

It might be different if you were illiterate, legally incompetent, or indigent, but you are none of those, and your earlier failure to get a clear picture or a fair shake generally will not help you now. 

While I don’t like to see people spend money on anything, including lawyers, without good reason, I always recommend that employment contracts be reviewed by an experienced employment law attorney before signing. I have never understood why people sign things as important as employment contracts they don’t fully understand. That is not only my view, but the view of the law and the Courts, as well.   

3. When a contract “expires” or is “terminated,” it is treated as if it had “died,” and  all of its obligations are presumed over and done. There are two ways a contract can run its course, that is, have its life be over: (i) by expiration, that is, a three-year contract is “over” after three years, or (ii) by termination, which means one of the two parties ended it before it “expired.” I liken “expiration” of a contract to “dying a natural death of old age,” and I liken “termination” to being “put to sleep,” without necessarily any suggestion of impropriety or bad faith.    

4. However, by use of words that express, one way or another, “This obligation continues in force after the contract dies,” an obligation can be made to overcome the presumption of invalidity, and instead “survive” contract expiration or termination. There are two basic ways the parties to a contract can make one or more of the contract’s obligations “survive” contract expiration of termination. 

First, the parties can do so by the words that are part of how the obligation, itself, is written. Here is an example: “Upon the expiration or termination of this contract, within ten days Mary must return to the Company the Company laptop she uses.” That obligation, by its very own words, arises only after the contract expires or is terminated. Those words, themselves, exhibit an intention by both parties that Mary’s obligation to return the Company’s laptop “survives” the contract’s being either expired or is terminated. I believe that it is likely that in this is the way your obligation to repay the Company for sign-on bonus, relocation expenses and tail insurance policy is worded, or something quite close to it. 

Second, the parties can use a “survival” clause, which is a clause separate from the words of the obligation, itself, but refers to the obligation and says it “survives.” Here is an example of a “survival clause” in a contract: “The parties agree that the obligations in Paragraphs 4, 8 and 11 shall survive the expiration or termination of the contract.” Though your employment contract does not have such a “survival” clause, I think your repayment obligations still survive the contract because of the words within them. 

5. But, wait: “Hope is Not Lost!” for you. Upon careful examination of your email, something you have written makes me feel you may yet be free from the $50,000 repayment obligation, and that is that the hospital has terminated your employment “without cause.”  

Like people, words and contracts are not perfect. Sometimes what is written and what words are used make no (or little) sense. When that happens, Courts will take a deeper look at what was written, and consider whether it was probably poorly drafted, or mistakenly agreed to by one or both parties. 

For this reason, in my 30+ years in employment law, I have several times seen the following to be a winning argument for someone in your repayment predicament: 

“The parties must have meant that, if the doctor leaves voluntarily, he or she must repay. Or if he or she is fired for bad conduct, he or she must repay. But for the hospital to have the right to terminate at any time, for no good reason, and still make the doctor pay $50,000 makes absolutely no sense, and simply cannot have been what the parties intended. Either it was an error of drafting, or a mutual mistake, or there was not a true ‘meeting of the minds’ on this. Otherwise it is nothing less than an undeserved punishment.” 

Even the words you sent to me sound like they were meant to make you liable for repayment only if you depart voluntarily. I refer to the words “If the employee does not remain . . .” These suggest quite strongly to me that it does not mean “If the hospital decides, on a whim, that the employee cannot remain, even if he or she wants to.” Instead, it sounds most like “If the employee, on his or her own, decides not to remain.” 

Doctor, in your circumstances, this is what I believe will give you a very good chance to avoid repayment where you have done nothing to be, in effect, “punished.” No guarantees, mind you, but still a very good chance of winning, and what I view to be the fairest and most just result of the events.  

Repayment obligations are, in fact, quite common, but I say this with great sincerity: It is exceedingly rare that a repayment obligation is sought to be enforced where the employer decided to terminate the employment without “cause,” that is, where the employee did nothing wrong. Exceedingly rare, and highly doubtful in your case. 

6. My strong recommendation is that you start by sending a respectful letter to the hospital Trustees (each one a separate copy) and lay out what you have told me, and what I have expressed above. It is in this context that your “I had no attorney” argument may, in fact, “carry some water.” I know that the medical profession is now big business, and getting more profit-oriented every day. Still, it is difficult for me to believe that a hospital Board will not likely call off the hospital’s accountants and attorneys once they are aware of what really happened.   

In addition, if you have to go to Court to fight this – and I recommend you do so if you do not prevail at the Board of Trustees level – it would be helpful to point out that you tried to resolve this amicably and respectfully, only to be turned down with what is close to an irrational view and a lack of common sense.   

7. If this does not work, another approach might be worth considering: Compromise or Mediation. You may not know it, doctor, but all Courts strongly encourage litigants to resolve through compromise. And almost all lawsuits are settled; very, very few ever go to a jury. No matter who “wins,” both sides will have to waste an awful lot of money paying lawyers. You might consider mentioning this reality, that is, “Does it make sense to pay $100,000 to a law firm in order to collect $50,000 from a doctor? And even then, you may lose.”  

If all else fails, consider offering the hospital a compromise. You might also consider asking the hospital or its Board of Trustees to appoint a Clergy Person to act as a “mediator” to avoid public embarrassment, legal expense, and considerable distraction to all, and bring a semblance of fairness, rationality and perspective to what has transpired.   

This all reminds me of a Yiddish saying, “A thin settlement is better than a fat lawsuit.” 

Mike, thanks for writing in. I hope I was not too wordy, but as I told you, I particularly enjoy contract negotiation and contract dispute resolution. It has been a part of all civilized societies for thousands of years. If this has been helpful, I ask you for one small favor: please tell two people about our blogsite. We yearn to help all those we can.   

Best,
Al Sklover

P.S.: You’ll soon be looking for a new job. One of our most popular “Ultimate Packages” of forms, letters and checklists is entitled “Ultimate New Job Package” consisting of 9 items, including Resume Cover Letter, Thank You After Interview, Memo Confirming Terms Offered, Response to Offer Letter, our Master Checklist of Items to Negotiate, and 50 Good Reasons to Explain Your Departure from Your Last Job. To obtain a complete set, just [click here.]

If you agreed to repay your former employer (a) tuition reimbursement, (b) relocation expenses, (c) a sign-on bonus, or even (d) a short-term loan, you may be able to have that obligation waived and forgiven. To obtain a copy of our Model Memo entitled “Model Letter for Repayment Obligation Forgiveness – with 18 Great Reasons,” just [click here.] “What to Say, and How to Say It.™” – Delivered by Email – Instantly!

Repairing the World –
One Empowered and Productive Employee at a Time ™

© 2012 Alan L. Sklover, All Rights Reserved.                

Question: Hi, Alan. I received a job offer from a major Fortune 100 company (you definitely have heard of the firm.)

On the offer letter, it says: “If I voluntarily terminate my employment within 12 months of my start date, I agree to reimburse the Company for any expenses paid or reimbursed and for any hiring bonus provide by my offer letter.”

This offer does not have any relocation package or sign on bonus. Could they be talking about – and could I be liable for – their other internal expenses? For example, since the Company outsourced its recruiting function to another service company, could I be liable for money they pay to the service company for recruiting efforts associated with me?  

J.M.
Manchester, New Hampshire

Answer: Dear J.M.: From the wording of the agreement that you have provided me, I think it is unlikely that the Company would make such a claim, and even if it did, I think it is even more unlikely that you would be found liable if it ever went to court. Here’s my thinking:            

1. In figuring out what an agreement means, we must first look at what the words say. This is always the first step in analyzing an agreement. Your agreement says “expenses paid or reimbursed.” It does not say “internal costs and expenses.” Since companies do not “pay” or “reimburse” themselves, it is hard to imagine that “paid or reimbursed” applies to “internal expenses.” Bear in mind: any employer – and especially a large, sophisticated employer like yours – could have written “internal expenses incurred” if they wanted the agreement to cover those. They did not, and we must presume they did not because they did not mean that. 

So, in looking at the exact words – and only the exact words – it sure looks like you should not be liable for “internal costs and expenses” because “internal costs and expenses” was not expressed by the words.  

2. Next, if any doubt remains as to the meaning of the words, we then consider their most likely meaning. In considering what is most likely meant by the words expressed, we can then take into account their context, other words used in the agreement, our experience, and logic. [As an aside, I think of this phase of analysis as an arithmetic equation: context + experience + logic = common sense.] 

In this phase of analysis, I notice that your agreement also requires repayment of hiring bonuses, but you did not get a hiring bonus. This leads me to believe your employer used a “form” or “stock” agreement, even though it does not totally apply to you. The same is probably the case for the “expenses” sentence: it is likely meant to be for relocation, temporary housing and similar expenses commonly “paid or reimbursed” to new hires, but not to you. So, context, experience and logic all suggest that “expenses paid or reimbursed” in your agreement refers to such other expenses – such as relocation and temporary housing – and not to “internal costs or expenses.”

In fact, I view “internal costs or expenses” to be a real stretch of logic and experience: as an attorney doing these things for 30+ years, I have never seen an offer letter that requires a new hire to repay “internal costs or expenses.”   

3. Also, there is a general “rule” of legal interpretation: “If a document is unclear as to its meaning, then it is interpreted against the interests of the author.” In this, too, we see that the law is common sense and simple fairness passed down from one generation to the next. Quite a long time ago, our Courts decided that our entire society would be better served if people did not use vague words – either intentionally or accidentally. 

So, slowly but surely more and more Judges wrote in legal opinions, “If anyone should lose out in a battle over vague words, it ought to be the person who wrote them.” As you might imagine, this encourages people to be clear, and precise, and not to claim words meant something that they didn’t express. It is in this way that the law helps our society remain a peaceful and orderly society. It gives people confidence that “The rule of law will protect the honest among us.” Though we often feel that the law is difficult and expensive, we truly underestimate how wonderful it is in preventing problems and “keeping the peace.”

J.M., for these reasons I think you do not have to worry about repayment of “internal costs or expenses” being demanded if you voluntarily leave your employer before the 12 months is up. If you do receive such a request, respond with this reasoning in an email, and ask them how they can ignore (a) words, (b) context, (c) experience, (d) logic, (e) common sense, and (f) the rule of interpretation I have mentioned above. That, I think, will surely do the trick. 

You may also want to review our other blogsite articles on repayment obligations. To do so, just [click here.]    

Thanks for writing in. I hope this has been helpful, to you and to all of our blog readers.  

 My Best,
Al Sklover

P.S.: If you plan to resign, one of our most popular “Ultimate Packages” of forms, letters and checklists is entitled “Ultimate Resignation Package” consisting of four Model Letters/Memos and our 100-Point Pre-Resignation Checklist.” To obtain a copy, just [click here.]

If you agreed to repay your former employer (a) tuition reimbursement, (b) relocation expenses, (c) a sign-on bonus, or even (d) a short-term loan, you may be able to have that obligation waived and forgiven. To obtain a copy of our Model Memo entitled “Model Letter for Repayment Obligation Forgiveness – with 18 Great Reasons,” just [click here.] “What to Say, and How to Say It.™” – Delivered by Email – Instantly!

Repairing the World –
One Empowered and Productive Employee at a Time ™

© 2012 Alan L. Sklover, All Rights Reserved.