$47,476 – The Magic Number ARE YOU READY?

On December 1,

new overtime rules take effect.

Is your business ready?

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Starting in December, administrative employees making less than the magic number, $47,476 per year, will no longer be exempt from the overtime provisions of the Fair Labor Standards Act. These administrative employees will earn overtime pay if they work more than 40 hours in a week.

 Overtime pay is 1.5 times the employee’s hourly pay rate. The change is huge because it more than doubles the threshold for the exemption. Previously, administrative employees making more than $23,660 a year have been exempt from overtime.

Salary alone is not the only factor for determining whether a salaried employee is entitled to overtime or is exempt. There is actually a three part test:

  • The employee is paid a salary as opposed to an hourly wage;
  • The salary must be at least $47,476 annually for a full time worker to be exempt; and
  • The employee’s primary job must be executive, administrative, or professional, e.g., management, exercise of discretion and independent judgment, or work that requires advanced knowledge.

Otherwise, the employee is entitled to overtime pay at time and a half the employee’s hourly equivalent rate for each hour worked beyond a 40 hour work week.

The Department of Labor has identified four options for employers to comply with the new rule:

  • Raise salaries to maintain the exemption;
  • Keep current salaries, and plan to pay overtime;
  • Adjust workloads and schedules so that employees are not working overtime; or
  • Adjust wages by converting salaried employees to hourly.

What are businesses doing to prepare?

Raising salaries and paying overtime is simply not financially feasible for many businesses. Employees may negatively view adjustments in workloads and schedules or converting them from salary to hourly pay.

There is another way to comply with the new rule without undertaking additional financial burdens: adopt a workplace policy mandating that non-exempt employees cannot work overtime without prior written approval from a supervisor.

Enforce the policy consistently. This will help the business be able to predict and control labor costs while encouraging healthy work-life balance for employees.

Small businesses may have a tough adjustment period ahead.

Adopting a policy regarding overtime, educating employees about the policy, and enforcing the policy will provide some predictability and enable the business to manage workloads in a way that minimizes financial strain and possible cash flow problems. We can help craft company policies that comply with the new rule while providing the ability to manage overtime.

Break Room Art A Quick List of Required Postings for Texas Employers

Ah, the employee break room – the smell of stale coffee, long-forgotten leftovers lingering in the fridge,

and… a panoply of informational posters decorating the walls?

Yesterday, the EEOC raised the penalties for failing to post required notices of employee rights under several federal laws.

At issue are the notices covered in the “Equal Opportunity is the Law” poster.

The maximum fine increased from $210 to a whopping $525 per violation.

This begs the question, “What notices are required?”

EEOC

All employers must post information regarding:

Additionally, federal law requires federal contractors and employers with 15 or more employees to post the “Equal Opportunity is the Law” poster.

There are plenty of vendors who sell the required posters; however, all required posters can be downloaded free of charge through the Texas Workforce Commission and EEOC websites.

Happy decorating!

Taking A Cue From Business: Using Technology to Help More People With Less Resources

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It’s become ubiquitous on customer service web pages: the chat box.

Searching through a site’s FAQs, a box pops up with an avatar of a person who looks eager to help encouraging you to type your question in the box.

Years ago, legal aid lawyers began wondering if we could use a chat box to help people who lived far away from the nearest legal aid office or who didn’t have transportation to their local legal aid office.

Nationally, several groups started working on the idea.

What if we could leverage internet chat to allow lawyers to help low income people from their desk?

Enter Texas Legal Services Center (TLSC) and the Texas Access to Justice Foundation. TLSC proposed and received a grant from the Foundation to start a chat service. We call it Live Help, and it’s still up and running on the Texas Law Help website, www.texaslawhelp.org.

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The site and Live Help are geared to legal issues faced by low income Texans; however, the site contains a plethora of useful information about Texas law. It’s well worth a visit.

The first chat lawyer, Elliott Fontenette, is now the project manager leading a team of paid and volunteer attorneys. I consider him to be a visionary. When we started Live Help in 2010, Elliott and I were swimming in uncharted water. Now, legal aid groups around the world are using chat to help people access legal information, and the service has proved popular here in Texas with nearly 28,000 Texans having used the service.

I was reminded of my time at TLSC and working on Texas Law Help when Elliott and I were interviewed for a recent ABA Journal article about legal aid agencies that use web chat: http://www.abajournal.com/magazine/article/legal_aid_agencies_are_using_webchat_to_answer_queries/?utm_source=maestro&utm_medium=email&utm_campaign=tech_monthly

Thanks, Elliott, TLSC and Texas Access to Justice Foundation for continuing to bring quality legal services to those who cannot afford it. Well done!

 

New Federal Law Protects Business Trade Secrets

Pres Obama Signs

On May 11, President Obama signed the Defend Trade Secrets Act of 2016 into law. The Act protects businesses from misappropriation of trade secrets and gives businesses the ability to litigate trade secret cases in the federal courts. The text of the new law can be found here:

https://www.congress.gov/bill/114th-congress/senate-bill/1890/text.

Texas adopted the Uniform Trade Secrets Act in 2013. The Texas law is codified in Chapter 134A of the Texas Civil Practice and Remedies Code. The text of the Texas statute may be found here:

http://www.statutes.legis.state.tx.us/Docs/CP/htm/CP.134A.htm.

There are a few differences between the Texas law and the new federal law. The definition of a trade secret is essentially the same under both the federal and state statutes. A trade secret is information that is valuable because it is specific to the business and that the business reasonably tries to protect. Trade secrets typically include a company’s financial data, policies and procedures, customer lists, supplier lists, intellectual property, and other proprietary information such as formulas, techniques, processes, drawings, and the like

The new law allows a business to file a federal lawsuit to protect trade secrets “related to a  product or service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. § 1836(b)(1). Courts traditionally interpret interstate commerce broadly, so many businesses will be able to litigate in federal court. One of the most interesting provisions of the new law is a pre-emptive strike: the law allows a party to obtain a court order for seizure of property to prevent the dissemination of trade secrets in “extraordinary circumstances.” The seizure order can be obtained without notice to the opposing party. A prevailing party may get an injunction to prevent dissemination of trade secrets, an order requiring the opposing party to pay a royalty, damages for actual business losses, damages for unjust enrichment, and attorneys fees. The law also allows an award of up to two times the amount of damages if the misappropriation was willful and malicious.

Protecting trade secrets is of paramount concern when a competitor hires a former employee. The Defend Trade Secrets Act allows a court to place conditions on the former employee’s employment when there is a threat of misappropriation.

There are some circumstances when employees or former employees have immunity from disclosing trade secrets. For example, an individual is immune from liability for disclosing a trade secret in confidence to a government official or attorney solely for the purpose of reporting or investigating a violation of law. If trade secrets are disclosed in documents filed in a court, the statute requires the filing to be sealed to prevent public disclosure.

Important: The Defend Trade Secrets Act requires employers to notify employees of the immunity provisions in the law. If your business has incorporated non-disclosure language in your employee handbook, or if you require employees to sign non-disclosure agreements, you will need to revise your handbook or agreements to properly notify employees that they are protected from liability when disclosures of trade secrets are made to government agencies or attorneys solely for the purpose of reporting or investigation violations of the law. An employer that fails to provide the required notice loses the right to recover attorneys fees and exemplary damages.

The availability of both state and federal court actions to protect businesses from misappropriation of trade secrets is a welcome development; however, most businesses need to revise their non-disclosure agreements, handbooks, or policies and procedure manuals as soon as possible to avoid losing valuable rights under the new law.

8 Reasons Why Your LLC Needs a Company Agreement

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Jane, Mary, and Alice have a thriving business. They decided to operate as an LLC and handled the formation themselves by filing a certificate of formation with the Texas Secretary of State.

Everything was fine until Alice got divorced, and her ex was assigned half her membership shares.

Who’d have known their company shares were community property!

Now, the ex is making life miserable by demanding to see the books, demanding distributions, and threatening to sue. What a mess: a mess that was avoidable. Had they adopted a company agreement, the owners could have managed what happened to the company shares in divorce.

A company agreement, also called an operating agreement, describes the way a limited liability company will do business. The company agreement governs the relations among members, managers, officers, and the company. Even a sole member LLC can, and should, adopt a company agreement. Here are a few reasons why.

 

  1. Retaining control. A company agreement allows the members to determine how the company is governed and what happens to membership shares if a member dies, divorces, files for bankruptcy, or just wants out. These kinds of events can erode members’ control over the business. It is best to deal with these contingencies before they happen. A company agreement does that.
  2. If you don’t have a company agreement, the State of Texas will set the operating rules for your company through Chapter 101 of the Texas Business Organizations Code. Many of the Code provisions can be waived or modified to better suit your company.
  3. With a company agreement, you can establish different classes of ownership. For example, a you may want to retain control of the company but give others a share in ownership. This can be accomplished by having two classes of membership: voting members and non-voting members. Without a company agreement, an LLC is limited to one class of membership.
  4. A member of an LLC cannot withdraw or be expelled from the company unless you have a company agreement that describes a process for a member to withdraw or be expelled. In other words, if one member wants to leave, or if members want to kick out a non-performing member, you can’t do it unless you have a company agreement.
  5. A company agreement can limit assignment of interests. What if a member gets into financial trouble and wants to pledge membership shares as collateral for a loan? If the member defaults on loan payments, you may up with a business partner you never intended to have.
  6. A company agreement can describe the relationship between members and managers. While the certificate of formation states whether an LLC is managed by its members or managers, there is no guidance or restrictions on managers without a company agreement.
  7. A company agreement can expand or limit the duties, responsibilities, and liability of members, managers, and officers. Many members are shocked that Texas law does not impose a fiduciary duty between them. A fiduciary duty is a duty of loyalty to act in the best interest of another. If you want members to owe a heightened duty to one another or to the company, you must have a company agreement.
  8. Having a well-drafted company agreement saves money in the long run. By fully describing expectations in a company agreement, members have a means of resolving disputes without resorting to litigation. The initial investment in legal fees for drafting a solid company agreement is tiny compared to the cost of arbitration or litigation.

 

A company agreement is a valuable tool that allows LLC owners to control the destiny of their company and to manage relationships between themselves, their managers, and their officers.

They can expand or limit responsibilities and liability as they see fit.

Adopting a company agreement early can be a cost saving strategy that staves off expensive problems later, and the agreement can be modified as the company grows. It is critical to use an attorney to draft a company agreement, but it is money well spent.

The President’s Supreme Court Nominee: Chief Judge Merrick Garland What Would His Confirmation Mean for Small Employers?

Chief Judge Merrick Garland

In the wake of U.S. Supreme Court Justice Scalia’s death, there has been a lot of political hullabaloo about the confirmation process for Chief Justice Merrick Garland of the D.C. Circuit, President Obama’s nominee, to fill the position. However, little of the political maneuverings has anything to do with what is most important to small business owners: whether his judicial opinions have helped or harmed businesses.

Let’s take a look at a few opinions authored by Justice Merrick to see what we can glean.

First, there are several federal agencies that have regulatory power over American businesses including: the Department of Labor, the National Labor Relations Board, the Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, the Internal Revenue Service, and the Federal Trade Commission. Justice Garland has a reputation for giving deference to agency determinations. Most of the time, agency contact with a business happens because the business has been accused of violating a rule, regulation, or statute.

When a business is appealing an adverse agency decision, Justice Garland appears to rule in favor of the agency more often than not.

Here is an example that explains why:

In a case involving the escape of a large amount of a corrosive and deadly chemical that sent 150 people to the hospital, the OSHA cited the business for multiple safety violations. The case went to a hearing in front of an administrative law judge who affirmed most of the violations. The company appealed to the D.C. Circuit, and in upholding the violations, Justice Garland wrote that the Court must uphold OSHA’s fact findings and conclusions so long as they are supported by substantial evidence and not arbitrary, capricious, abuse of discretion, or otherwise contrary to law.

This is simply a restatement of what the standard of review already is.

However, Justice Garland went on to quote a prior D.C. Circuit opinion stating, “We defer to [an agency’s] interpretation of the Act and regulations, upholding such interpretations so long as they are consistent with the statutory language and otherwise reasonable.”

The opinion goes on to painstakingly review OSHA’s fact findings. What this opinion tells me is that Justice Garland is not an activist judge. He follows historical precedents. Unfortunately, we are in an era when those precedents frequently favor employees over their employers.

This is not to say that Justice Garland hasn’t authored decisions favorable to businesses. He has.

When an employee wrongly tried to invoke protection of the Americans with Disabilities Act, Justice Garland sided with the employer. The employee asked for reduced work hours as a reasonable accommodation for arthritis. Days later, she fell and stopped working. For four months the employer asked for information about her health condition. She gave none, so the employer asked her to return to work. She didn’t. The employer terminated her. After that, she sent a doctor’s note saying she was totally disabled and could not work. She claimed the employer failed to give reasonable accommodation and retaliated against her. The trial court sided with the employer, and the employee appealed. Justice Garland wrote, “there can be no genuine dispute that [the employee] was not a qualified individual  . . .one who can, with or without reasonable accommodation, ‘eperform the essential functions’ of her position.”  Noting that an essential job function is the ability to appear for work, the Court found that the employee’s termination was legitimate, so there was no retaliation.

These are only two of the many legal opinions authored by Justice Garland.

However, they illustrate that he is a jurist that painstakingly reviews the facts of each case and who analyzes and complies with legal precedent. This is consistent with the observations of most commentators who have described Justice Garland as a moderate and as more conservative than President Obama’s previous nominees. What is apparent from the two cases described here is that Justice Garland appears to be neutral – neither pro-business nor anti-business.

Interestingly, Justice Garland’s father ran an advertising business out of the family home. Justice Garland describes it as the smallest of small businesses. He is known for being tough on crime and for having served as lead investigator and prosecutor of the Oklahoma City bombing case. Perhaps most importantly, Justice Garland has garnered praise from both sides of the aisle – Republicans and Democrats.

Regardless of the outcome, the path this nominee takes through the confirmation process will be interesting to watch.

Writing it Down: 4 A Recipe for Writing Simple & Personal Agreements

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My last post explored common problems with handshake agreements.

Now that you’re convinced to write stuff down, what do you write?

A contract is no good if it isn’t enforceable. To be enforceable, a contract must be made by people who are legally able to make a contract (generally, adults who understand what they are doing), must have a lawful purpose, and must have an offer, acceptance, and consideration.

An offer is exactly what it sounds like – a promise to do something if the other person will do something else. Acceptance means both parties agree to hold up their end of the bargain. Consideration is payment. Consideration can be money, a promise, an action.

The Texas Comptroller’s Office has a handout that describes the legal elements of a binding contract: 

http://comptroller.texas.gov/procurement/pub/contractguide/LegalElementsofaContract.pdf.

Continue reading

Writing it Down: 2 It's All About the Relationship

Every profitable business is a complex web of relationships. Think about it. Common relationships on which a thriving business is based include:

Customer-Supplier

Co-Owners (shareholders, partners, members)

Employer-Employee

Supervisor-Supervisee

Owner-Management

Business-Regulators (taxing authorities, licensing boards)

Landlord-Tenant

Networking partners

Of course, there are more. On the most basic level, a business cannot exist without customers, and a business will not last long without strong customer relationships. Every profitable business is built on a web of thriving relationships. Relationships are strong when everyone is on the same page, expectations are clear and realistic, and the parties trust each other to do what each has agreed to do.

 

Relationships deteriorate when everyone is not on the same page, expectations are ambiguous or unrealistic, or someone fails to keep a promise. Many times, misunderstandings between parties cause or contribute to the deterioration of otherwise healthy relationships. Misunderstandings happen for a number of reasons – many of which are avoidable. A common cause of misunderstanding is the failure to accurately describe a task to be performed. Who will do what by when, and how will it be done?

Details may be assumed differently by various parties when the details are not written down. For example, John hires Dan to paint a wall. The two negotiate a price and a time for completion. Dan paints the wall. John refuses to pay full price because Dan did not prime the wall before painting it. A critical item was not discussed. Dan assumed the wall did not need priming because it was not discussed. John assumed that any painter would prime the wall first. Now, everyone is dissatisfied.

Had the two written down the terms of their agreement, they may have uncovered the missing information in time to clarify and correct. This example uses a very simple agreement. In reality, the more complicated an agreement is, the more terms and details are needed, and the more steps toward completion of each party’s agreed tasks, the more critical it is to write everything down.

Dan and John did not need a lawyer or fancy language to write their agreement. Their agreement could have been in the form of a work order signed by both of them. It seems obvious that a written agreement would have helped them avoid conflict and would have led to a better working relationship. So, why do we resist writing things down? My next post will explore our propensity to rely on a handshake over pen and paper.

Five Things That Will Save Your Start-Up Money In The Long Run

It’s a fact that many small business ventures fail in their first year. There are tons of resources on the web about why so many new businesses fail, and I won’t attempt to recreate them here. However, I’ve noticed five things that many failed businesses have in common. The purpose of this post is to help you avoid these shortcomings when starting your business. Here they are in a nutshell:

  1. Write a business plan.
  2. Set goals.
  3. Get professional help early.
  4. Understand the difference between employees and contractors.
  5. Write everything down.

Show me How!