Tuesday, June 7, 2016

Do You Want to Grow Your Business? Consider a "Strategic Alliance"

Small business owners and entrepreneurs who want to compete for a bigger piece of the pie should consider coming together. Larger companies do it all the time, why shouldn't you? Through "strategic alliances", entrepreneurs can leverage their skills, talents, and resources to achieve greater success. Not familiar with the term "strategic alliance"? Here's a quick rundown.

A strategic alliance is basically when entrepreneurs or businesses come together usually as a new and separate legal entity. The new entity can exist for an indefinite or definite time for a specific or general purpose. When I think of strategic alliances, two types come to mind:

           1.        Strategic Partnerships
"A Strategic Partnership is when two or more businesses come together with the goal of growing more successfully together than they could separately. Imagine a beer making company teaming up with a bottle making and distribution company. ... Strategic Partnerships may last for an indefinite time with a broad focus." 
           2.       Joint Ventures
"A Joint Venture ... is a partnership-type relationship usually designed to last for a definite time or particular project.  An example of a Joint Venture would be two small cellular phone companies coming together and creating a new company to compete with larger cellular phone companies. In fact, Verizon Wireless started out as a Joint Venture."
Businesses can also join through mergers, acquisitions, or contracts only as well.

Now, you shouldn't just jump into a strategic alliance. There are many things to consider. First is what I call the "relationship test." Are you and your potential partners a good fit? Have you worked with them before? Do you all get along? Could you work well together? Do you even like him or her? What are his or her (business) habits? Are your goals aligned with theirs? What if there's a disagreement? Could you all amicably work it out?  Who's contributing what? Money? Time? Sweat equity? The list goes on. You know, it's almost like marriage or dating. Well ... not quite, but you get the point.

Once you pass the relationship test, then comes the legal considerations. How are you going to structure the alliance? Does it make sense to create a separate legal entity or would contractual agreements alone suffice? If you do choose to form a new business entity, what's the best structure and form. (e.g. partnership, corporation, limited liability company, etc.)

The new business structure and form should fit your business needs, and your business needs should take into account liability--tortious, contractual and tax liability.  The way you structure, form and operate the new business will determine who is liable for what.  For instance, the type of business entity you choose, (s-corporation versus c-corporation versus limited liability company versus partnership) determines your (company and individual) tax liability, including liability in the event of business disputes (internally or from third parties) or injuries (personal or business related).

Another thing to consider is your potential duties owed to members of both the new entity and your separate, original company if you have one. (e.g. duties owed to shareholders, members, etc.) Conflicts of interest definitely come into play.

In all, if you think that a strategic alliance might be right for you, talk to a business attorney and tax professional. Among other things, an attorney can help you navigate the maze of liability and conflict issues. A tax professional, accountant or tax attorney can advise you on the tax implications.

Feel free to contact me if you have questions or comments.


Tuesday, March 22, 2016

Say What!?! A Few Important Things To Know About An Employer's Statements To Third Parties About Current or Former Employees

When applying for a job, have you ever worried about getting a bad reference from a former employer? What about comments at work? Have you ever been concerned with people saying things about you at work without telling the whole story?

You have rights. Employers are prohibited from making false statements of fact (written or spoken) to prospective employers and coworkers about employees. (e.g. "she stole money from the cash register" when indeed the employee did not).  Employers may be held liable when they make false statements without regard for the truth and prevent an employee from getting a job or harm her reputation. This includes, for instance, statements made by an employee's supervisor to another supervisor, human resources personnel, or other personnel with authority to hire and fire. 

Here's the thing though. In many states, employers may lawfully share their opinions and are immune from liability under certain circumstances. With respect to opinions, it's tricky. Generally, opinion statements are not actionable. (e.g. "I think he is a bad worker"). Under Michigan law, however, an opinion is actionable when it implies, without disclosing, something that's knowingly untrue as the basis for the opinion. (e.g. employee's ex-supervisor says to a prospective employer, "I think he is a bad assembly worker because he isn't productive" but does not disclose that the worker has always met his production requirements).

Regarding employer immunity, under Michigan law, an employer's "good faith" disclosure of information from a former employee's employment file about his work performance or qualifications is permitted under Michigan law. Thus, in a situation involving Michigan law, an employer could only be held liable if sufficient evidence establishes 1 or more of the following:
  • employer knew the information disclosed was false or misleading
  • employer disclosed the information with reckless disregard for the truth
  • disclosure was specifically prohibited by state or federal law
The moral of the story is that employees have protection against defamatory statements made by employers to third parties. They must be false statements of fact and not just opinions. As a practical matter, especially under Michigan law, employees will have a tough time overcoming employer immunity in the absence of an egregious situation.

For employers, the lesson under Michigan law is that any comments about an employee's job performance to a third party should be supported by information documented in the employee's employment file. The line between statements of fact and opinions is too close for comfort if you ask me. If it's not directly from the employee file, it should probably be left alone. Employers are also prohibited from divulging information in certain reports (e.g. disciplinary reports, reprimand letters), and must delete these reports before releasing information to third parties, among other things.

Contact me if you have questions about these issues. 

Friday, February 26, 2016

Federal Employment Opportunities Expanding for Individuals with Disabilities

The EEOC recently presented a new proposed rule designed to expand federal employment for people with disabilities. The rule, which should be finalized by this year's end, sets forth  minimum affirmative actions that federal agencies must take for employment of individuals with disabilities. Highlights of the proposed rule and affirmative actions include:
  • 12% representation rate for individuals with disabilities in the federal agency's workforce
  • 2% representation rate for individuals with disabilities that the government recognizes as placing the greatest barriers to employment
  • hiring goals would apply to lower and upper level federal employment
  • special assistance services to individuals with certain disabilities
Although the new rule is expected to significantly increase employment opportunities for individuals with disabilities at federal agencies, it will have no impact on private or governmental employers at the state or local level. Private and state governmental employers are subject to federal and state laws prohibiting discrimination on the basis of a person's disability, but those laws don't go as far as the new rule. It'll be interesting to see if the federal or state disability laws impacting private businesses and state government employers turn towards the EEOC's proposed approach. 

If you have questions about the proposed rule or are experiencing disability-related employment issues, feel free to contact me.  

Thursday, February 25, 2016

Legal Pitfalls: What Small Business Owners Should Know About Running A Business (Part 2 of 2)

Business owners should know about the legal pitfalls of operating a business. Here are some to consider.

No written contracts. When you do business without contracts, you do so at your own risk. What's the use of making an agreement if it's not enforceable? Sure, it may be convenient to just rely on verbal promises. But what if something goes wrong? Good contracts serve important functions like the following:
  • define the parties' obligations and legally bind them to those obligations
  • limit a party's liability or shift the risk of loss if something goes wrong
  • require parties to handle a related dispute outside of court, which is especially beneficial when the dispute requires attention from someone with particular expertise or if the parties wish to maintain confidentiality 
  • supersede other agreements, understandings, or promises that are not included in the contract
  • provide a remedy if a party breaches the contract
Do you need a contract for every transaction? I say that if a matter materially impacts your business, it should be in writing. This includes anything from employment agreements to purchase of materials. An experienced attorney can prepare an enforceable contract or explain a contract.

No licenses. You may need a license depending on your business. A business license permits and authorizes the owner to operate the business. You can incur fines or worse if you operate a business without a license where one is required. Find out if you need a license, and if so, take steps to obtain it. 

Violation of local laws. Most cities or towns have local ordinances related to land use. An ordinance is a set of local laws that govern a city in conjunction with state and federal laws. Many ordinances designate areas within the city for business operations. If you conduct business in an area not designated for business operations, you risk being fined and having your business shut down.

Trademark and copyright infringement. One surefire way to get hit with a lawsuit is to infringe on someone's trademark or copyright. Be cognizant of the material you use for your business. Many people realize that unauthorized use of another's logos or literature is generally prohibited. But did you know that using a logo or literature that is "strikingly similar" to another's trademark material is also prohibited? Before using logos or literature, take a look at what is already out there especially for products or services like your own.

Breaching privacy and security. Be careful when dealing with people's personal information. Companies that store or transmit certain types of information must, by law, properly secure and dispose of the information. You should develop and present a privacy policy to your customers and clients that clearly communicates how your business will protect their personal information. 

No liability insurance. Even if you protect yourself from personal liability by forming a business entity, you still need to protect the business itself. A single lawsuit could wipe out an uninsured business. By obtaining the right insurance policy, including comprehensive general liability and automobile liability coverage, you can protect your business's assets. 

These are just some of the pitfalls of running a business. Consult an experienced business attorney if you have questions about legal issues effecting your company.

Wednesday, August 5, 2015

Legal Pitfalls: What Small Business Owners Should Know About Running A Business (Part 1 of 2)

Many small business owners may think they are saving money by not using an attorney. Ironically, this is a costly way of thinking. Running a business is rife with legal pitfalls--from starting up to winding down. One slipup could be devastating to your company.

Granted, you don't need an attorney for everything. But engaging one only after a lawsuit has been filed might be too late. An attorney can actually help save precious time and money by helping businesses avoid legal pitfalls up front.

Finding the right attorney is the key. I've learned from some excellent attorneys who have great working relationships with small and large companies, and each attorney possesses unique qualities. Here are 7 of the most notable qualities:

Knowledgeable and Skilled
  • Experienced in the specific area(s) of law affecting their clients' business
  • Thoroughly understands how the law applies to their clients' situation and can predict possible outcomes with reasonable accuracy 
  • Identifies legal and ethical issues, which allows them to properly assess risks associated with their clients' business decisions     
  • Gives cogent advice on how to prevent and resolve disputes and clearly explains their clients' options
  • Proactive and aggressively moves legal matters forward
Impeccable Ethics
  • Exercises great ethics in all activities  
  • Displays a firm understanding of what's ethically right and wrong in all situations 
  • Strives to do the right thing at all times
Effective Communicator
  • Empathically listens in order to thoroughly understand client needs and interests, facts and client goals 
  • Conveys complex information clearly and concisely 
  • Provides their clients with regular status updates   
  • Provides their clients with a written plan of action pinpointing what to expect moving forward
  • Explains to clients how the law impacts their business from a practical standpoint
Adds Value To Clients
  • Always thinking of ways to help their clients save or make money  
  • Understands their clients' business and looks out for business opportunities or other beneficial connections for their clients
  • Seeks to resolve disputes in a way that helps their client gain value even when faced with adverse outcomes  
  • Actively considers ways to provide their clients with value beyond money saved or made
Direct and Decisive
  • Avoids hedging when reaching a conclusion and/or giving advice 
  • Clearly explains risks associated with their clients' businesses decisions and provides a firm opinion 
  • Deliberate when recommending a course of action  
  • Promptly identifies weaknesses in their clients' legal positions and addresses them 
  • Immediately gives their clients any "bad news" such as an adverse court decision
Prevention and Solutions Oriented
  • Aims to prevent legal problems before they arise 
  • Seeks to resolve disputes efficiently  
  • Doesn't prolong litigation 
  • Doesn't just identify problems and risks, but also offers solutions
Understands Their Clients' Business
  • Genuinely interested in their clients' business, which helps them understand the legal implications of their client's business decisions
  • Knows their clients' business interests and how to preserve them in a legal dispute or negotiation  
  • Knows the common legal issues surrounding their clients' business and how to address them
Indeed, exceptional attorneys have other special qualities, but those discussed above typically produce great legal services and increase client satisfaction. Keep these 7 qualities in mind when searching for an attorney. Now, you're probably asking, "What are some of those legal pitfalls of running a business mentioned earlier?" Be sure to check out my next blogpost for insight.

Tuesday, July 14, 2015

What Effect Does Employment Termination Have On An Employee's Fringe Benefits?

Someone recently asked me an interesting question. What happens if an employer orally promises to pay her employee a bonus, but the employee voluntarily leaves (or is discharged) before she receives the bonus? Is the employee legally entitled to receive that bonus payment after termination?

This question is related to the impact of employment termination on fringe benefits. In Michigan, "fringe benefits" means
"compensation due an employee pursuant to a written agreement or written policy for holiday pay, time off for sickness or injury, time off for personal reasons or vacation, bonuses, expenses authorized during the course of employment, and contributions made on behalf of an employee."
Courtesy of Daimeon Cotton
Fringe benefits are distinct from "wages", which, in Michigan, include
"all earnings of an employee whether determined on the basis of time, task, peace commission, or other method of calculation for labor or services except those defined as fringe benefits ..." 
An employer must pay wages either weekly, biweekly, semi-monthly or monthly. Again, fringe benefits must be paid in accordance with a written agreement or written policy.

Without a written agreement or written policy, employers aren't usually required to pay employees for time not worked or pay employees incentive payments like bonuses.

Now considering the original question and Michigan law, an employee is only entitled to a bonus to the extent provided by a written agreement or written policy. Therefore, an oral promise alone is not sufficient to create a legal basis for a bonus payment. So despite an employer's oral promises, if there is nothing in writing covering bonus payments, the employer is not required to pay the employee a bonus either during the course of the employee's employment or when she voluntarily leaves or is discharged. The same is true for other fringe benefits like unused vacation time and sick time. That is, an employer is only required to pay employees for unused vacation time or sick time upon employment termination if there is a written agreement or written policy providing such payment.

Nevertheless, employees are still entitled to all wages earned during their employment after leaving voluntarily or being discharged. Those wages must be paid out on the employee's regularly scheduled payday for the period in which termination occurs.

When an employee is entitled to a bonus or other fringe benefits upon employment termination, the employer must pay those fringe benefits on the employee's regular scheduled payday for the period in which the termination occurs, unless a written agreement or written policy states otherwise.

Moreover, federal law is similar to Michigan law in that employers are generally required to pay fringe benefits in accordance with a written agreement or written policy. Other states may have similar laws as well. Consult an employment attorney if you believe that you have not received wages or fringe benefits owed to you.

Thursday, July 2, 2015

Changes Are Coming To Overtime Pay Regulations, Workers and Employers Should Prepare For The Impact

This week, the U.S. Department of Labor is expected to present proposed rules raising the guaranteed overtime pay threshold salary amount from $23,660 annually to $50,440 per year, indexed to inflation. The new rules are expected to do away with the current "duties test," which exempts workers from overtime pay if they perform managerial-related duties and make over $23,660 annually. As a result, about 5 million additional workers would be automatically eligible for overtime pay.

The increase has supporters and naysayers. Those in favor of raising the overtime pay threshold point to pay increases for millions of middle class Americans. Other supporters say that the increase will help address significant flaws in our pay regulations that exploit workers. Under the current rules, for instance, workers with low salaries can easily be misclassified as managers and consequently miss out on overtime pay.  Harry Holzer, Former Chief Economist for the U.S. Department of Labor under the Clinton Administration, touched on this issue as he explained President Obama's push to extend overtime pay to more workers.

On the other hand, critics believe that the change will increase the cost of labor, which will lead to job losses, loss of benefits for salaried workers, lower base pay to offset overtime pay, among other things. Labor economists, however, estimate substantially less change to labor costs and employment than critics claim.

Although there is much disagreement about the impending change, many people agree that the current overtime pay exemption framework needs to be fixed. The line between those entitled to overtime pay and those who are not is blurry at best, especially for low-salaried workers who are considered managers. Plus, many employers probably don't really know what their overtime pay obligations are under the current rules.

This uncertainty has contributed to the sharp increase of lawsuits filed based on wage and overtime pay violations. The suggested "salary-based test" should bring much needed clarity and hopefully ease court dockets. Employers can also take steps to mitigate litigation, including the following:
  • Stay current on pay and overtime regulations and understand how the rules apply
  • Implement policies focused on accurate time-keeping from employees and managers
  • Train employees and managers on proper time-keeping and reporting
  • Regularly monitor job duties and responsibilities to ensure that workers are accurately classified as overtime or non-overtime workers
  • Implement complaint and dispute resolution procedures to address pay and overtime issues 
In any event, changes are coming to the overtime pay regulations very soon and both workers and employers should prepare for the impact.