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Federal Judge Tosses Unpaid Intern Claims: Four Takeaways—and Good News—for Nonprofit Employers with Internship Programs


The legal requirements for unpaid internships have been in a state of flux the last several years. In Glatt v. Fox Searchlight Pictures, Inc., unpaid interns sought minimum wage and overtime pay based on allegations that they qualified as employees under federal and New York State wage-and-hour laws. In 2013, the federal District Court in Glatt ruled in favor of the unpaid interns, finding that they should have been classified as employees and, therefore, were entitled to minimum wage and overtime pay. That holding was soon reversed, however. In 2015, the Second Circuit Court of Appeals vacated the District Court's Glatt decision and established a different test for evaluating the legality of unpaid internships.

Federal courts in the Second Circuit are now tasked with applying the new Glatt standard. On August 24, 2016, United States District Judge J. Paul Oetken of the Southern District of York dismissed an unpaid intern lawsuit against the Hearst Corporation, using the new Glatt test. A copy of Judge Oetken's decision in the case, which is captioned Wang v. The Hearst Corporation, may be found here.


Busted: Nonprofits Will Have to Pay the Photography Piper

 

Reprinted from Venable LLP

The following discussion is provided for informational purposes only and is not intended to serve as legal advice. For advice on licensing images for use by your organization, consult your attorney.

A nonprofit that is strapped for cash needs an image for its website. Its Web designer does a quick online search, a simple cut and paste, and voilà—photographs for the website, free and easy. The nonprofit has heard that since it is nonprofit and tax-exempt, its uses are not commercial, and thus are "fair use." But not so fast—nonprofits are subject to copyright law just like any other person or entity and do not get a fair use pass simply by virtue of being a nonprofit. They must show, like anyone else, that their use is a fair use under the established tests—a very narrow and limited exception to copyright infringement.

For the last six months, I have been getting no less than three telephone calls or e-mails a week from clients, all of whom run legitimate businesses or nonprofits with robust websites and online publications, and all of whom have gotten letters from photographers (mostly their representatives) seeking licensing fees for photos that have been posted without permission. Many of these photos have been on these websites without incident for years.

For a long time now, nonprofit organizations have generally felt it appropriate to go onto various image search engines, find a photo for a newsletter, website, or other publication, and then cut and paste it into their publication or website. This trend did not generally apply to hard copy publications, because when you cut and paste something from the Internet, the quality is not sufficient to reproduce in hard copy, as it pixilates and becomes distorted. However, because of the limited resolution of computer monitors, a cut-and-pasted image looks perfectly fine when copied to a website. As a result, based on ignorance of copyright law, believing in the myth of "it is on the Internet so I can use it," mistakenly believing that their nonprofit, tax-exempt status provides a blanket exclusion from copyright infringement, or simply thinking the chances of getting caught were so minimal that it was worth the risk, hundreds of thousands of images have probably been cut and pasted without license and put on nonprofit websites and online publications.

One of the reasons this was so easy to get away with in the past was there was no effective way for photographers to find unlicensed uses of their work. When you went onto the various search engines' image sections what, in fact, they were doing was searching for text surrounding images and offering up all sorts of related and unrelated images. A search of "Ronald Reagan" would result in pictures of Ronald Reagan, the Ronald Reagan Building, Ronald Reagan National Airport, Ronald Reagan Highway, etc. Recently, photographers, wire services, and photo agencies large and small have either acquired new technology or have engaged search companies who have image searching technology. These types of entities are now searching for images themselves. If you would like to see an example of how this works, you can go to TinEye and upload an image (it's free), and you will see instantly how it scours the open Internet, finds every use of the image, and gives you the website that is attached to it.

These new technologies make it very simple to identify an image's use and then cross-check the website owner's name with the names of licensees. If there is no match, a letter is sent with a license fee/penalty demand. This is all now done in an automated fashion, which, while making the process economically viable, can cause certain problems. Particularly, it will not identify a licensee website if it does not contain the name of the actual licensee, and it certainly does not perform any fair use analysis of the works. Each of the automated demand letters that I have seen gives contact information, where a licensee or one who believes their use is valid can contact the copyright owner. The letters are being generated and going out, it would appear, without human intervention or any substantive review.

Unlicensed users are most often violating several copyrights of the underlying photographers. They are copying the works in the cut-and-paste process, making additional copies by placing them on their servers, and then violating the right of public display when they post them on their website or in their publications. Some of my clients have told me that they got the images off "royalty-free" websites or thought they were subject to some kind of "public domain license." Unfortunately, so many of these "royalty-free" license sites are not actually royalty-free, and people just read the headlines and not the terms and conditions. Often the terms of use severely limit the royalty-free aspect of the use permitted, and have fees for commercial uses. The lesson there is not to be misled by a site that claims to be royalty-free until you actually read and understand the fine print.

Creative Common Licenses, even when they cover photographs, may have requirements that the photo not be used in commercial context, or require attribution, copyright notices, and the like. These terms are often violated when the pictures are reposted on websites, fail to comply with the license requirements, negate any licenses that might have been available, and become infringing uses.

The letters that I have seen generally have been asked for licensing fees in the hundreds of dollars. A few have reached $1,000, though that has been the exception. In this price range, it often makes more sense to pay the fee than to contact an attorney. The reality is having your attorney review the demand letter and discuss the situation with you is going to cost more than the demand.

The fees being charged are always more than the original license fee. If the photo agency were to simply ask for its standard license fee after they caught an infringer, there would be no incentive for anyone to ever license the work. They would simply use it without a license. Hopefully, they would not be found out. And if they were to be caught, they would just pay the license fee at that time. Therefore, we generally find the demands to be anywhere from 2 to 10 times the normal license fee that would have been charged if the image had been properly licensed from the outset.

However, these demands represent much less than your nonprofit's possible exposure. Under copyright law, if a work has not been registered prior to the infringement, a copyright owner is entitled to its losses or the infringer's profits. Its losses would be the licensing fee. The infringer's profits could be the money it saved by not acquiring a license, which is the same as the licensing fee; however, one could also make various arguments for seeking indirect profits based on the benefits accrued as a result of the use of the infringing item. This is not always easy to prove, because it cannot be speculative, but it is a possibility. But if a copyright had been registered prior to the infringement (which is what most professional photographers do), the copyright owner is first entitled to recoup its attorney's fees. The owner then has the option of collecting the actual damages described above, or statutory damages, which range from $750 to $30,000 for a regular infringement. If it can be demonstrated that the infringement was willful, than the damages can be anywhere from $750 to $150,000. This is a huge range, and any resulting award is totally subjective and depends on how the judge and jury feel about the respective parties. The copyright owner is entitled at the end of a trial to choose between the higher of the two awards.

There is an interesting court case from several years ago in the Ninth Circuit (Perfect10 v. Amazon) which provides for a work-around where the photographs used are not actually copied from the underlying site and pasted onto the new site or copied onto the server. Rather, a framing technique is used where even though it appears on your website, what you are actually viewing is the underlying work on the original site. If you right-click on the image, go to "properties" and look at the URL, you will see the URL for the original image. If it had been copied outright, you would see the URL for the infringing website. The court found no infringement based on this type of framing.

The takeaway, of course, is that if it is on the Internet, it is not necessarily free; the time of perceived free rides is over, due to the new tracking technologies. Before any photograph is used by your nonprofit, it should be properly licensed. Licensing fees are generally reasonable and there are many images that are available. If one image is too expensive, you can almost always find another that is suitable and which your organization can afford.

Save yourself grief, and attorney's fees. Don't cut and paste—license!

The preceding is a guest post by Joshua Kaufman, a partner at Venable LLP, where he heads the firm's Copyright and Licensing Group.

 


Federal Appeals Court Affirms Mandatory Filing of Unredacted Donor List by Charities Registered for Solicitations in California

 

Reprinted from Venable LLP

On May 1, 2015, the U.S. Court of Appeals for the Ninth Circuit issued an opinion in Center for Competitive Politics v. Harris, upholding a California regulation requiring charities that are registered to solicit contributions to file an unredacted copy of IRS Form 990 Schedule B. Schedule B of the Form 990—which is required to be filed with the IRS but which is not subject to public disclosure—requires a listing of certain donors and donation amounts to tax-exempt 501(c)(3) organizations.


When is it appropriate to divert designated funds for general fund uses?

Question:

When is it appropriate to divert designated funds for general fund uses?


Establishing CEO Compensation

The following discussion is provided for informational purposes only and is not intended to serve as legal advice. For advice on nonprofit executive compensation, consult your attorney.

Question: We are a new nonprofit trying to determine the appropriate compensation for our executive director. What standards should we go by right now, and what should we look to for standards as the organization grows and becomes older?

Nonprofit organizations that are recognized as exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code are required to act in a manner that does not result in "private inurement." (Many other types of tax-exempt organizations are also subject to this private inurement prohibition.) In the compensation context, this prohibition requires that amounts paid to an officer or other person in a position to exert substantial influence over the organization be reasonable and not above fair market value. In addition to the private inurement prohibition, individual officers and other insiders may be subject to personal financial penalties if they engage in transactions that result in excessive benefits to them. Finally, those organization managers who approve excessive benefit transactions may be subject to individual financial penalties as well.

Having said that, if a person is new to the nonprofit and is negotiating an initial contract to be executive director, there is a strong argument that the prohibition on private inurement and the penalties on excessive benefits would not apply because the person was not an "insider" at the time he/she negotiated the deal.

However, most nonprofit managers and boards would prefer not to unduly risk revocation of tax-exempt status and/or individual excise tax penalties and, even for newly hired executive directors, will want to take precautions that compensation is reasonable. As such, in both instances addressed in the question above (new nonprofit organization and existing nonprofit), the usual process that an organization will undertake to manage against the risks are:

1. Obtain valid comparability data (such as through www.guidestar.org) to see what similarly situated nonprofit organizations pay executive directors with similar backgrounds.

2. Have a disinterested body (e.g., a compensation committee where no member has a relationship with the candidate that would present a conflict of interest) approve the proposed compensation arrangement.

3. Document contemporaneously the decision of that disinterested body and the fact that the body relied on the valid comparability data in making its decision.

Taking those above three steps should give an organization a presumption that the compensation amount paid to its executive director is reasonable and should not be challenged by the IRS. This presumption may be rebutted by the IRS if, for example, the IRS determines that the comparability data was not accurate or proper to use under the circumstances. Note that there are more detailed regulatory requirements to the three-step process described above which need to be followed. Note, too, that states (notably, New York for New York-incorporated nonprofits) have become more active in regulating executive compensation.

For more information, please see:


George E. Constantine, Esq., Venable LLP
© 2014, Venable LLP

George E. Constantine is a partner at Venable LLP in Washington, D.C. He co-chairs Venable's Regulatory Practice Group.

 

 


Prohibited Discrimination in Hiring: Disparate Treatment and Disparate Impact

Editor’s Note: For more answers to common nonprofit tax and legal questions, don’t miss our upcoming event on April 17th at 1PM with Jeffrey Tenenbaum, Partner and Chair of Nonprofits Practice Group of Venable, LLP, represented below. Find out more and register here.”


The Affordable Care Act and Nonprofit Organizations: An Overview

Question:

What are the implications of the Affordable Care Act (ACA) for nonprofit organizations? Are there any exceptions for employer-based insurance coverage for nonprofit organizations that struggle to provide for this financially?


Nonprofit Insurance Coverage: You Need More Than a Directors and Officers Policy

The following discussion is provided for informational purposes only and is not intended to serve as legal advice. For advice on the types of insurance your organization should carry, consult your attorney.

Question: How protected is our nonprofit's board if we have directors and officers liability insurance? How can we protect our organization?

Having appropriate insurance coverage—not just directors and officers liability insurance but all relevant insurance policies (such as property insurance, commercial general liability insurance, errors and omissions insurance, fiduciary liability insurance, and meeting cancellation insurance [in certain circumstances], among others)—is a critical risk-management tool for any nonprofit. Such policies help to protect both the organization and its staff and volunteer leaders against the risks that arise in the functioning of every nonprofit. These policies function collectively as a safety net in the event that other risk management practices fail, sometimes through no fault of the organization or its management.

Securing and maintaining good insurance coverage—coverage that is appropriately tailored to the organization's risks, provides limits of liability that are reasonable and affordable, that minimizes coverage gaps, and that contains other important features (and avoids the more problematic ones)—is a best practice in the nonprofit community. Importantly, insurance coverage can cover not only the ultimate judgment and settlement amounts, but also the very significant fees that can accompany any lawsuit, investigation, or similar legal process.

Beyond insurance coverage, individual nonprofit leaders—both staff and volunteers—can be protected personally through indemnification (often contained in the nonprofit's bylaws), state volunteer protection statutes (not always applicable to all types of nonprofits or to all volunteers), and the "corporate shield" of the nonprofit corporation itself.

Of course, if volunteer leaders—such as officers and directors—fail to fulfill their fiduciary duties of care, loyalty, and obedience to the corporation, then irrespective of all of the above, the nonprofit can hold them liable for any harm that befalls the organization as a result of their acts or omissions.

For more information on nonprofit insurance coverage issues, see:

Jeffrey S. Tenenbaum, Esq., Venable LLP
© 2014, Venable, LLP

Jeffrey Tenenbaum is a partner at Venable LLP and chairs the firm's Nonprofit Organizations Practice Group.

 




Informing Regulators When You Alter Your Mission

The following discussion is provided for informational purposes only and is not intended to serve as legal advice. For advice on how notices related to changes in mission apply to your organization, consult your attorney.

Question: If we alter our mission a bit, what steps do we need to take to update the relevant agencies (e.g., state agencies, IRS, etc.)?

A change to a nonprofit organization's mission likely will require notice to the organization's state of incorporation and the Internal Revenue Service ("IRS").

Most nonprofit organizations are incorporated as nonprofit corporations in a particular state. The document filed with the state in order to obtain corporate status generally is called the articles of incorporation or certificate of incorporation (depending on the nomenclature used in the particular state's law). An organization's mission is very often set forth in its articles of incorporation, and perhaps in its bylaws as well. As the organization's articles of incorporation is a document that is on file with the state, any amendment (even a very minor one) to any portion of the document also needs to be filed with the state. Note that most states set forth certain minimum approval thresholds and processes that organizations must meet in order to formally approve amendments to articles of incorporation.

Once amendments are approved, an articles of amendment (following the form required by the state) should be submitted to the applicable state office. State officials are known to scrutinize closely these filings and will reject them if there is not technical compliance with all legal requirements; as such, it is often advisable that counsel be consulted before undergoing the amendment process.

If the organization's mission statement also is contained in its bylaws, it also will need to amend that document so that it is consistent with the articles of incorporation. An organization's bylaws is generally viewed as an internal set of regulations; revisions to this document generally do not need to be reported to the organization's state of incorporation.

Further, if an organization changes its mission statement, particularly if that change entails amending the articles of incorporation or bylaws, the organization will need to report that change to the Internal Revenue Service as part of its annual Form 990 filing. Specifically, Part VI, Line 4, of the Form asks whether an organization has made any significant changes to its organizing or enabling document or bylaws and, if so, to report that change as part of its Form 990 filing. In the instructions to the Form 990 on this question, it lists examples of changes which should be viewed as "significant." One of the examples is "changes to the organization's exempt purposes or mission."

It should be noted that smaller organizations—those that are only required to submit the Form 990-N postcard filing with the IRS—are not obligated to notify the IRS of amendments to their articles of incorporation or bylaws.

George E. Constantine, Esq., Venable LLP
© 2014, Venable LLP

George Constantine is a partner at Venable LLP in Washington, D.C. He co-chairs Venable's Regulatory Practice Group.

 


Nonprofits and HIPAA Violations: An Overview

Question:


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