THIS ISSUE'S HEADLINES

Artificial Intelligence in the Hiring Process: Employers Beware

Who Really Owns This Company? The Importance of Maintaining Complete and Accurate Stock Records

What is a Subchapter V Bankruptcy Proceeding? Why More Businesses Should Consider Filing

How to Legally Change or Revoke a Will in Rhode Island


ARTIFICIAL INTELLIGENCE IN THE HIRING PROCESS: EMPLOYERS BEWARE

The rapid rise of Artificial Intelligence (AI) in the workplace is outpacing our ability to keep up with it. For example, companies are struggling whether and how to allow employees to use ChatGPT at work given the numerous privacy and security risks posed by this new technology. Other companies are being sued by enterprising and creative lawyers who are taking advantage of the yawning gap between existing law and the effects of these technologies. A class action case filed against CVS Health and CVS Pharmacy last month in Massachusetts is the most recent example where AI-based claims are being based on laws that have been on the books for decades.

Massachusetts, like many states, prohibits the use of lie detectors in the hiring process or during employment. The three primary reasons behind these laws are obvious: (1) lie detectors may be unreliable; (2) potential otherwise-qualified employees may not apply for jobs in fear of being asked embarrassing or personal questions during the interview process, and (3) employers might abuse the use of lie detectors by forcing (or threatening) employees to take them as a condition of their employment. For example, it would be quite tempting for an employer conducting a sexual harassment or employee theft situation to require the witnesses and participants to undergo lie detector tests. Fortunately for employees, these laws prohibit such conduct in the workplace, and until now, these laws have not been meaningfully challenged or controversial.

However, new facial-recognition AI tools are on the market that tout the ability to detect numerous personal traits with a high degree of confidence. Some of these traits include “energy, enthusiasm, reliability, honesty, integrity, intelligence, dedication,” among others. CVS is being accused of using these tools to score candidates by running the candidates’ interview videos through this AI-detection tool to determine a candidate’s propensity for truthfulness and honesty. The argument is simple: traditional lie detectors are illegal, so any new tools that promise to do the same thing should also be likewise deemed illegal.

Given this case’s recent vintage, it is too early to tell how the court will decide the outcome. However, it stands as a clear warning to employers to be careful and thoughtful when adopting new technologies in the hiring process. Much like the risk of pouring old wine into new wineskins, as the saying goes, using new technologies without an understanding of how they may violate laws already on the books exposes employers to cutting-edge lawsuits like the one that CVS now faces.

Attorney Brian J. Lamoureux is a Partner on the Firm’s Litigation, Employment, and Cybersecurity teams. He can be reached at bjl@pldolaw.com or 401-824-5155.

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WHO REALLY OWNS THIS COMPANY? THE IMPORTANCE OF MAINTAINING COMPLETE AND ACCURATE STOCK RECORDS

It is not uncommon when a company is preparing for a sale, a significant outside investment or a debt financing to learn that the company has either never issued equity to the Founders or has no complete records of who received equity, when it was issued and for what consideration. When this occurs, it can be both embarrassing and legally problematic for the company.

PLDO Partner William F. Miller discusses key issues and legal problems that can arise from a failure to issue equity in a timely manner and to maintain complete and accurate records. To access the Advisory, click here. If you have questions or would like further information, please contact PLDO Partner William F. Miller at 508-420-7159 or email wmiller@pldolaw.com.

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On August 23, 2019, the Small Business Reorganization Act of 2019 (“SBRA”) was signed into law and became effective on February 19, 2020, which added Subchapter V to Chapter 11 of the United States Bankruptcy Code. Subchapter V is a relatively new and underused avenue of relief for eligible small business debtors to reorganize more expeditiously and at a lesser cost than those associated with a traditional Chapter 11 proceeding.

Who Can File:
To be eligible for relief under Subchapter V, a debtor must be engaged in business and have a combined total of secured and unsecured debts not more than $7,500,000.00 (excluding debts owed to one or more affiliates or insiders) as of the date of filing for bankruptcy relief. Not less than fifty percent (50%) of the total debt must have arisen from the commercial or business activities of the debtor. The debtor bears the burden of proof that it is eligible for Subchapter V. Courts focus on commercial or business activities, not operations, in assessing a debtor’s eligibility for Subchapter V.¹ Thus, even a nonoperating company may be eligible for Subchapter V if it is otherwise engaged in commercial activities.²

Subchapter V Advantages:
The advantages of a fast-track Subchapter V plan confirmation include: (i) no creditor’s committee; (ii) only the debtor can propose the plan; (iii) expedited timeline for confirmation³; and (iv) there is no absolute priority rule.⁴

Considerations for Businesses Contemplating this Avenue of Relief:
Financial reporting is integral to the Subchapter V process and the successful confirmation of a plan. Because of the expeditious time frame, it is better to prepare for a Subchapter V filing in advance. A filing must include a recent balance sheet, a statement of operations and a federal tax return. Financial projections will be required to support a plan and the use of a secured lender’s cash collateral.

If you have any questions pertaining to Subchapter V bankruptcy filings or any other insolvency matters, please contact Attorney Joseph M. DiOrio, Chair of PLDO’s Banking & Creditor’s Rights Practice Group, or Attorney Amanda M. Perry at 401-824-5100, jdiorio@pldolaw.com or aperry@pldolaw.com.

¹ In re Offer Space LLC, 629 B.R. 299, 306 (Bankr. D. Utah 2021) (term “activities” is not equated with “operations” under Subchapter V); see also In re Vertical Mac Constr., LLC, 2021 WL 3668037 at *3 (Bankr. M.D. Fla. July 23, 2021) (the term “activities” is very broad and encompasses “any act of a business or commercial nature” and is broader than the narrower term “operations”).
² Offer Space, 629 B.R. at 306.
³ The debtor’s plan must be filed within ninety (90) days of petition date. 11 U.S.C. § 1189(b)
⁴ "Absolute priority rule" provides that a reorganization plan may not give "property" to the holders of any junior claims or interests "on account of" those claims or interests unless all classes of senior claims either receive the full value of their claims or give their consent. Special Commentary: Construction and Application of Absolute Priority Rule in Confirmation of Plan Under Chapter 11 of Bankruptcy Code of 1978 (11 U.S.C.A. § 1129(b)(2)), 175 A.L.R. Fed. 485, 2. In a Subchapter V proceeding, equity holders may retain their interests without providing “new value” that is typically required to meet the new value exception to the absolute priority rule.  (New value exception to the Absolute Priority Rule is defined in Bank of Am. Nat'l Trust & Sav. Ass'n v. 203 N. Lasalle St. P'ship, 526 U.S. 434.)

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A last will and testament is a legal document that states your final wishes for your assets and estate. Commonly, the will you originally create will need to be amended or modified as life circumstances change. For example, births, marriages, divorces, and deaths often result in one’s testamentary wishes to change. It is crucial when making a change or revocation to your will that the required formalities are followed. In many instances people attempt to modify their will by crossing out and writing over provisions on the document itself. Others may attempt to draft a new will on their own but fail to follow the proper procedures. In both of these examples, the changes would not legally take effect, nor would the person’s prior will be revoked.

Under Rhode Island law, you can make a change to your will by executing a codicil, which is a separate document that dictates any amendments or modifications to your prior will (or codicil) you wish to make. The Rhode Island Supreme Court has held that an alteration in a will, either by substitution or cutting out, cannot effectively be made except by a properly executed codicil. Nelen v. Nelen,161 A. 121, 122 (1932). A codicil must be executed in the same manner as a will requiring two witnesses and a notary.

Under Rhode Island law, you can revoke your will by:

• properly executing a new will;
  
  
• declaring an intention to revoke the will in writing, however this writing must again be executed in the same manner as a will; or
  
  
• burning, tearing, or otherwise destroying the will with the intent to revoke the will.

If you decide to revoke your will by burning, tearing, or otherwise destroying the will, you should make certain that the will is destroyed intentionally by the testator, along with any copies. Courts have strictly construed the statute that provides a testator may revoke their will by burning, tearing, or otherwise destroying, and the Rhode Island Supreme Court has held that a testator marking out every word with a red pencil and writing her initials, the word obliterated, and the date by each clause, does not revoke the will.

If you have questions or need assistance with making changes to your current will or estate plan, please contact Attorney Katherine B. Dunn at 401-824-5100 or kdunn@pldolaw.com.

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