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Monday, February 16, 2015

Employee Handbooks: Important Provisions

An employee handbook is an instrument that is widely used by employers to communicate their expectations and policies to employees.  There are many reasons to develop and distribute an employee handbook.  These written documents enable employers to clearly outline what is expected from employees and what employees can expect from the employer.  In the event of a dispute with an employee or when a claim is made with a government agency, the handbook can be invaluable in protecting employer’s position. 

When drafting an employee handbook, certain information should be included. This includes:

Wages, Salaries and Other Compensation

An employee handbook should cover how and when employees will be paid.  It should also note how time worked it to be recorded, what taxes will be taken out and explain overtime policies.

Schedules

This document should also cover daily schedules.  It should note hours to be worked, breaks, attendance, lateness, how to request time off and whether employees are entitled to paid time off and when.

Benefits

An employee handbook can also be used to give employees information about benefits. It should cover what benefits are offered and how employees can qualify for them.

Employee Conduct

This manual should also be used to let your employees know how they are expected to act while at work.  It should also detail the dress code, if one exists.  You might also want to include guidelines for behavior in common situations.

Disciplinary Matters

An employee handbook should always include a section on employee discipline in the event that an employee should violate company rules or guidelines.  This section should detail any disciplinary system that is in place, and, if one is not in place, explain that matters will be handled on a case by case basis.

Safety Concerns

Your employee handbook should also cover how to respond to any and all foreseeable safety concerns.  These might include safety issues relating to work conditions, employee disputes and inclement weather.

Employment Discrimination/ Sexual Harassment

Employment discrimination and sexual harassment in the workplace are real issues that can cost businesses a great deal of money.  By including your company’s firm stance on these matter and explaining that neither will be tolerated might help you avoid conflicts in the future. Employee handbooks differ greatly depending on business structure, size and even the industry in which it operates. Some manuals are just a few pages whereas others may be dozens.  In order to create a comprehensive employee handbook and ensure maximum protection for your business, you should consult with a business or employment law attorney to advise you on these matters.


Wednesday, February 11, 2015

Financing and Growing Your Small Business Through Crowdfunding

What is crowdfunding? Part social networking and part capital accumulation, crowdfunding is simply the collective cooperation, attention and trust by people who network and pool their financial resources together to support efforts initiated by others.

Inspired by crowdsourcing, this innovative approach to raising capital has long been used to solicit donations or support political causes. This method has also been successfully implemented to raise capital for many different types of projects, including art, fashion, music and film.

Entrepreneurs can also tap the internet as a way to raise financing from a broad base of investors without turning to venture capitalists. With crowdfunding, you can raise small amounts of capital from many different sources, while retaining control over your business venture. Crowdfunding for business ventures, however, is not without its risks, and likely requires advice of an attorney.

In the traditional crowdfunding model, donations are pledged over the internet to fund a particular project or cause. The contributors are supporting the project, but receive no ownership interest in return for their monetary donation. This type of arrangement can exist with non-profit ventures and political campaigns, as well as start-up businesses. The person or entity soliciting the funding utilizes existing social networks to leverage the crowd and raise contributions in exchange for a reward, which is typically directly related to the project being funded, such as a credit at the end of a movie. With this type of arrangement, the contributor does not receive any ownership interest in the venture in exchange for the donation.

However, when for-profit companies solicit funds from a large number of individuals to raise capital in exchange for shares of ownership in the company, care must be taken to ensure the arrangement does not run afoul of federal and state securities laws.

Various companies and websites have popped up to assist entrepreneurs in raising capital through crowdfunding. Some operate on a flat fee, others charge a percentage of funds raised.  Keep in mind that any securities in a company sold to the public at large must be registered with regulatory authorities, unless they qualify for a specific exemption from the registration requirement. Selling shares of ownership to low-net-worth individuals (“unaccredited investors”) can trigger numerous registration and disclosure obligations. Additionally, state laws may also affect the transaction. As the number of investors and states involved increases, so do the cost and complexity of obtaining this type of capital financing. The various rules can be difficult to navigate, and missteps can result in significant penalties.
 


Monday, February 9, 2015

Can My Employer Enforce a Covenant Not to Compete?

Many employers require their employees to sign agreements which contain covenants not to compete with the company.  The enforceability of these restrictive provisions varies from state-to-state and depends on a variety of factors. A former employee who violates an enforceable non-compete agreement may be ordered to cease competitive activity and pay damages to the former employer.  In other covenants, the restrictions may be deemed too restrictive and an undue restraint of trade.

A covenant not to compete is a promise by an employee that he or she will not compete with his or her employer for a specified period of time and/or within a particular geographic location. It may be contained within an employment agreement, or may be a separate contract. Agreements which prevent employees from competing with the employer while employed are enforceable in every jurisdiction. However, agreements which affect an employee’s conduct after employment termination are subject to stricter requirements regarding “reasonableness,” and are generally disallowed in some states, such as California which has enacted statutes against such agreements except in very narrow circumstances.

Even in states where such covenants are enforceable, courts generally disfavor them because they are anti-competitive. Nevertheless, such agreements will be enforced if the former employer can demonstrate the following:
 

  • The employee received consideration at the time the agreement was signed;
  • The agreement protects the employers legitimate business interest; and
  • The agreement is reasonable to protect the employer, but not unduly burdensome to the employee who has a right to make a living.

Consideration

Under the principles of contract law, all agreements must be supported by consideration in order to be enforceable. The employee signing the covenant not to compete must receive something of value in exchange for making the promise. If the agreement is signed prior to employment, the employment itself constitutes consideration. If, however, the agreement is signed after employment commences, the employee must receive something else of value in exchange for the agreement to be enforceable.

Legitimate Business Interest

Legitimate business interests can include protecting and preserving confidential information (trade secrets) and customer relationships. Most states recognize an employer’s right to prevent an employee from taking advantage of information acquired or relationships developed as a result of the employment arrangement, in order to later compete against the employer.

Reasonableness

Based on the circumstances, a covenant must be reasonably necessary. If the covenant is overly broad, or unduly burdensome on the employee, the court may refuse to enforce the agreement. Therefore, the covenant must be reasonable in both duration and scope. If a covenant is overly broad, the court may narrow its scope or duration and enforce it accordingly. But if a covenant is so broad that is clearly was designed to prevent lawful competition, as opposed to protecting legitimate business interests, the court may strike down the agreement in its entirety.

To enforce a covenant not to compete, the employer can file a court action seeking an injunction against the employee’s continued violations of the agreement. The company can also seek monetary damages to cover losses resulting from the employee’s breach.


Monday, February 9, 2015

To Incorporate or Not...That Is The Question

Should I Incorporate My Business?

The primary advantages of operating as a corporation are liability protection and potential tax savings. Like any important decision, choosing whether to incorporate involves weighing the pros and cons of the various business structures and should only be done after careful research.

Once incorporated, the business becomes a separate legal entity, and assets of the corporation are separated from the owner’s personal finances. As a result, the owner’s personal assets generally can be shielded from creditors of the business.

To maintain this legal separation and avoid “piercing the corporate veil,” the corporation must observe certain formalities, including:

  • Keeping corporate assets and personal assets separate (no commingling of funds)
  • Holding shareholder and director meetings at least annually
  • Maintaining a corporate record book including bylaws, minutes of shareholder and director meetings, and shareholder records
  • Filing annual information statements with the Secretary of State
  • Filing a separate tax return for the corporation

Many business owners are concerned about “double taxation” of income that affects certain types of corporations known as “C-Corporations”.   Double taxation results when the C-corporation has profit at the end of the year that is distributed to the shareholders. That profit is taxed to the corporation, at the corporate tax rate, and then the dividends are taxable income to the shareholders on their personal tax returns. However, the corporate tax and dividend rates can be lower than the individual tax rate that a sole-proprietor would pay on a 1040 Schedule C, and a knowledgeable accountant or tax attorney may be able to advise on how to minimize the burden of double-taxation and indeed pay an effective tax rate which is lower than what a sole proprietor would pay.

For example, a small C-Corporation will likely have a shareholder who is also an employee. Paychecks to the shareholder/employee are, of course, tax deductible to the business. To the shareholder/employee, they are taxable income (as would be the case with a paycheck from any employer). A bonus could be paid to the shareholder/employee in order to lower the corporation’s taxable profit, eliminating the double-taxation. These calculations should be performed by a tax advisor, but shifting income from the corporation to the shareholder/employee (or not, depending on which has the lower tax rate) can be an effective way to lower your overall tax liability. In addition, there are certain advantages that are only available with a C-Corporation, such as full tax-deductibility of medical benefits for a shareholder/employee.

The S-Corporation avoids the double-taxation by offering a tax structure similar to the Limited Liability Company. A corporation with 100 or fewer shareholders can elect to be treated as an S-Corporation. If the corporation is profitable, the shareholder/employee must draw a reasonable salary (and pay employment tax on it), but then all remaining corporate profits flow through to the shareholder’s personal tax return (thereby avoiding the FICA tax on the portion of profits that is taken as a dividend).

An experienced attorney can help you decide which form of ownership is best for your business, help you establish the entity, and ensure the required formalities are observed.


Monday, June 16, 2014

Questions You Shouldn't Ask or Answer During an Interview

Job-seekers have to be ready to respond to any interview question asked of them, but not every question has to be answered. 

To ensure that employers do not discriminate against candidates based on age, gender, race, health and family arrangements, there are certain regulations which restrict the type of questions which are permissible during an interview. Below, we explore several topics that may be problematic and should not be asked of potential employees: 

Questionable Questions

Let’s take a look at a few topics that may be problematic. 

  • Age: Does anyone like to be asked their age unless just turning 21? Probably not. While an interviewer may ask whether a candidate is over the age of 18 or 21, he or she may not ask for a specific age.  
  • Nationality: An interviewer can ask whether a candidate is legally allowed to work in the U.S., but he or she can’t ask about the applicant’s nationality or status as a citizen. 
  • Religious beliefs: Same goes for questions that ask about religious beliefs. The interviewer may be in the right if he or she needs to know if the interviewee can work on certain holidays, but otherwise, this topic should be off limits.
  • Health: While in many states an interviewer cannot ask if a candidate smokes, he or she may inquire as to whether the applicant has ever violated any corporate policies on alcohol or tobacco. Furthermore, an employer may ask whether the person being interviewed uses illegal drugs, is able to lift a given weight, or can reach items at a specific height. They also can ask if the individual is capable of completing certain tasks associated with the job and if any reasonable accommodations might be needed.
  • Family status: Employers want to know about an applicant’s availability which may sound like a legitimate concern.   They cross the red line, however, when they try to determine if a candidate has children or plans to have children in the future. An interviewer also cannot ask about an applicant’s maiden name or marital status.
  • Criminal record: A prospective employer is allowed to ask the applicant whether or not he or she has ever been convicted of a crime that relates to the job, but may be restricted from asking whether the candidate has ever been arrested.
  • Military service: An interviewer cannot discriminate against a member of the National Guard or Reserves. He or she can, however, ask if a candidate will anticipate any extended time away from work. 

Acing the Interview Process

The interview process can be a stressful time for employers and employees alike, but it will be a smoother process if you have a basic understanding of what can and can’t be asked during these initial meetings. 

As a candidate being interviewed, remember that if you’re asked a question which you’re not comfortable answering, or you think may be illegal, be sure to keep a positive attitude and try not to focus on the negative and instead deliver an answer which showcases your ability to fulfill the requirements of the job. For example, you may be asked if you can have a babysitter in a moment’s notice if an unexpected work emergency pops up. In answering this question, you may be concerned that you will be divulging too much information about your family life and, like many mothers, you may fear that they may not hire you because of the responsibilities that come along with motherhood. Rather than answering the specific question about a babysitter, you may instead wish to say “I am very flexible and am able to travel or work late when the need arises.” This answer addresses the interviewer’s question while preserving your privacy and also keeps the conversation going in a positive direction-one which showcases why you are the best candidate for the job. 

As an employer looking to hire a new employee, it’s important that everyone in your organization from the receptionist to the hiring manager who might come in contact with the candidates have a basic understanding of what topics and questions are off limits. You might even consider having a list of approved questions and a list of questions which are prohibited, regardless of the position being filled. These procedures should be a matter of strict company policy and should be reviewed each year to ensure compliance with all discrimination laws. 


Friday, June 13, 2014

Overview: Buy-Sell Agreements and Your Small Business

If you co-own a business, you need a buy-sell agreement. Also called a buyout agreement, this document is essentially the business world’s equivalent of a prenup. An effective buy-sell agreement helps prevent conflict between the company’s owners, while also preserving the company’s closely held status. Any business with more than one owner should address this issue upfront, before problems arise.

With a proper buy-sell agreement, all business owners are protected in the event one of the owners wishes to leave the company. The buy-sell agreement establishes clear procedures that must be followed if an owner retires, sells his or her shares, divorces his or her spouse, becomes disabled, or dies. The agreement will establish the price and terms of a buyout, ensuring the company continues in the absence of the departing owner.

A properly drafted buy-sell agreement takes into consideration exactly what the owners wish to happen if one owner departs, whether voluntarily or involuntarily.  Do the owners want to permit a new, unknown partner, should the departing owner wish to sell to an uninvolved third party? What happens if an owner’s spouse is involved in the business and that owner gets a divorce or passes away? How are interests valued when a triggering event occurs?

In crafting your buy-sell agreement, consider the following issues:

  • Triggering Events - What events trigger the provisions of the agreement?  These normally include death, disability, bankruptcy, divorce and retirement.
     
  • Business Valuation - How will the value of shares being transferred be determined? Owners may determine the value of shares annually, by agreement, appraisal or formula.  The agreement may require that the appraisal be performed by a business valuation expert at the time of the triggering event.  Some agreements may also include a “shotgun provision” in which one party proposes a price, giving the other party the obligation to accept or counter with a new offer.
     
  • Funding - How will the departing owner be paid?  Many business owners will obtain insurance coverage, including life, disability, or business continuation insurance on the life or disability of the other owners.  With respect to life insurance, the agreement may provide that the company redeem the departing owner’s shares (“redemption”).  Alternatively, each of the owners may purchase life insurance on the lives of the other owners to provide the liquidity needed to purchase the departing owner’s shares (“cross purchase agreement”).   The agreement may also authorize the company to use it’s cash reserves to buy-out the departing owners.  

Tuesday, April 22, 2014

The Pros and Cons of Settling a Case

If you have been injured by the negligent actions of another, or have lost your job due to wrongful termination, or are involved in a contract dispute with someone, you may be entitled to compensation for your lost income, property damage, or other economic losses. Deciding whether to settle a lawsuit without taking the case to trial is a major decision demanding the full consideration of many factors.

Some plaintiffs wish to settle the matter quickly, while others want to let a judge or jury determine whether damages should be awarded and how much. There are advantages and disadvantages to each option; only you can decide what is best for your specific situation but an attorney can help you put the pros and cons of each option into perspective.

The vast majority of lawsuits never see a courtroom, evidence that the benefits of early settlement are compelling to a great number of plaintiffs and defendants. Settling a case is often more advantageous to the various parties rather than taking the case to trial. If you have received a settlement offer from the defendant or the defendant’s insurance company, you should review the offer with your attorney as soon as possible.

Settlement agreements have many advantages. Settling your case is much quicker than taking your case to trial, which can take up to a year – or more, depending on the jurisdiction and the complexity of the case. You can receive the money, or at least a portion of it, immediately so you can pay your bills and repair property damage. Your attorneys’ fees and other legal costs are greatly reduced by avoiding protracted discovery and the trial itself. Additionally, the emotional benefits are undeniable. You have the peace of mind of knowing exactly how much money you will receive, and you can get emotional closure right away so you can move on. Finally, settlement agreements can remain confidential, whereas court proceedings are public records.

On the other hand, there are tradeoffs. In exchange for the benefits stated above, you will typically have to accept a smaller monetary award than you might get if the case goes before a judge or jury.

Taking your case to trial, letting the court (or jury) decide the outcome, also has its advantages and disadvantages. If you go to trial and win, you may feel a sense of emotional satisfaction having prevailed in the lawsuit. And, as noted above, you may be awarded a much higher amount than what was offered in the settlement negotiations.

However, there is never any guarantee that you will win your case at trial, or that the amount awarded will be more than what you could have settled the case for. The value of any settlement offer or potential court verdict must be weighed against the increased costs of dragging the case out for many more months before a trial can take place. In considering your options, an experienced lawyer can provide you with a realistic assessment of whether a settlement offer is fair, and the likelihood of winning a greater award at trial.


Thursday, April 17, 2014

Do You Need Meeting Minutes?

Regardless of the size of the business, corporations (including those organized under Subchapter S) must observe all of the required formalities in order to maximize the benefits of a corporation. Corporate meeting minutes document the decisions made by the company’s board of directors, and are necessary to preserve the “corporate veil” in the event of a lawsuit or other claim against the company. If corporate formalities are not observed, your own personal assets may be at risk.

One such formality is the maintenance of a corporate record book containing minutes of meetings conducted in accordance with the company’s bylaws. Even in a one-person corporation, board resolutions must be drafted, signed and kept in the corporate records. Every major decision that affects the life of the business must be ratified by a board resolution contained in the corporate records.

There is no specific required format for meeting minutes, but the document should include any important decision made regarding the company, its policies and operations. Minutes should include, at a minimum:

  • Date, time and location of the meeting
  • Names of all officers, directors and others in attendance
  • Brief description of issues discussed and actions taken
  • Record of how each person voted, whether the vote was unanimous and whether anyone abstained from voting
  • Vote and approval of the prior meeting’s minutes

How do you know whether a decision needs to be documented in the meeting minutes? Generally, if a transaction is within the scope of the company’s ordinary course of business, it need not be addressed in the minutes. On the other hand, major decisions should be documented in the minutes, such as:

  • Significant contracts
  • Leases
  • Loans
  • Marketing campaigns
  • Reorganizations and mergers
  • Employee benefit plans
  • Elections of directors or officers

Non-incorporated entities such as limited liability companies are generally exempt from performing such formalities.
 


Monday, April 7, 2014

Making Sure Your Teenagers Don't Text and Drive

No self-respecting teen wants to take the school bus, particularly in his or her senior year. But with so many statistics on the dangers of young people on the road, you may wonder if it is ever a good idea to let your own teenager drive. In fact, distractions or recklessness are the most common cause accidents in which teenagers are involved. The most common distraction is the cell phone and texting in particular. Texting is significantly more dangerous than talking while driving because it takes more concentration and requires the driver to take his or her eyes completely off of the road. As learning to drive is seen as a rite of passage, how do you allow them this rite while making sure they don’t text and drive?


Read more . . .


Monday, March 10, 2014

Email @ Work: Is There Any Expectation of Privacy?

The proliferation of high-speed communication devices have made us more productive and more vulnerable in terms of our privacy. Desk-bound workers may be tempted to use the office email account to engage in personal communications – however, they do so at some risk to their privacy. How much privacy can employees expect for their electronic communications at work? Practically speaking, it is safe to presume everything may be monitored by your employer.


Read more . . .


Monday, January 14, 2013

Start-up Business: When is the Best Time to Consult with a Lawyer?

If you are starting a new business, it is vital that you assemble your team of advisors immediately. Many entrepreneurs are short on cash during the start-up phase, and forego retaining legal counsel or other professional advisors in order to preserve capital for other aspects of the business venture. But this approach is usually penny-wise and pound-foolish. And many small business start-up lawyers are a lot more affordable than you think.


Read more . . .


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