According to the U.S. Department of Labor an estimated 80% of employers are not in compliance with either federal or state wage and hour laws.  Within recent years, a number of U.S. employers have found themselves on the opposite side of class-action lawsuits by workers who claim that they have been misclassified as contractors rather than employees, and not paid the overtime or given the required meal and rest periods due to employees.  As the recession drags on with more layoffs, longer work weeks, and a bare-bones work force, more claims are likely to arise.

How Does the Fair Labor and Standards Act Protect Employees?

The Fair Labor and Standards Act (FLSA) requires that most employees be paid at least the federal minimum wage plus “overtime” pay.  “Overtime” is pay received for all hours worked over 40 hours in a workweek.  However, under the FLSA certain employees are exempt from being paid both the minimum wage and overtime.  It is the failure to properly classify a group of employees as “exempt” or “non-exempt” which creates the most trouble for employers.  Employees who are exempt from required payment of overtime include executive, administrative, and professional employees.  In some industries these classifications are easy to define; in others, they are not, although the FLSA does describe the managerial duties that help define an “exempt” employee. 

How Does the California Labor Code Protect an Employee’s Meal Periods?

Under the California Labor Code an employee must be provided a 30-minute meal period after five hours of work.  The penalties for a violation are strict, and even retail giants

have been held responsible for not following the law. Consider a recent case against Home Depot, where thousands of employees complained that they were not allowed to take lunch breaks.  The suit resulted in a $25.5 million settlement that gave individual employees amounts ranging from hundreds to thousands of dollars.  California is known for having some of the strictest wage and hour laws in the country – laws that protect a diverse work force in a variety of work situations. 

A Business-Specific Employee Policy Manual Helps Prevent Wage-and-Hour Law Violations

The economic downturn has led to layoffs, and the reduced staff that remains may put in extra hours to get the job done and may skip meals or rest breaks.  This can put your business at risk for being out of compliance with wage and hour laws. 

 San Diego Law Firm helps businesses avoid this hazard by preparing business-specific employee policy manuals.  Your manual will contain formal policies to define exempt and non-exempt employees in your business, and guidelines to make sure that non-exempt employees do not put in uncompensated overtime or miss meal and rest breaks.  To set up an appointment, please call us at (619) 794-0243.  We look forward to helping you.

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What is a Partnership?

 Actually, you may very well be conducting your business as a partnership without realizing it. Under California law, a “partnership” is an association of two or more people who agree to carry on a business as co-owners and share the profits.  Unlike a corporation, a partnership can be created without legal formalities, although a written partnership contract and the related legal documents can be important to long-term success. 

How a Cross-Purchase Plan Protects Your Business if Your Partner Dies

If there are only a small number of owners working every day to provide a product or service, negotiate with vendors and customers, manage shop, and attend business meetings, you can imagine the impact that the unexpected death of one owner would have on the ability of the business to survive.  This is especially true when you consider that the business would, at the same time, be legally required to pay out the value of the deceased partner’s share to his or her heirs.  This could force the sudden liquidation of the business, or use up its cash cushion and require a sale of business assets.   

One way you can protect against the impact of such an unfortunate situation is with a “cross-purchase plan,” drafted by a skilled business attorney and signed by each partner.  In a cross-purchase plan, each partner agrees that the remaining partners will have both the duty and the right to purchase a deceased partner’s interest in the business.  To fund this purchase, the partnership takes out a life insurance policy on each partner for the benefit of the surviving partners.  The cross-purchase plan typically sets the buy-out price at either a pre-determined amount or an amount determined by an independent valuation of the business at the time of death.  The surviving partners then use the life insurance money to buy the shares of the deceased partner, and the money goes into the deceased partner’s estate and eventually is distributed to his or her legal heirs. 

Purchasing a life insurance policy to benefit you in your role as a surviving business partner is not something that may naturally occur to you when you start or formalize your business.  But if your business is the source of your family’s income or the beginning of a legacy you hope to leave behind, a cross-purchase plan with a life insurance policy on your partner(s) can be your best protection.  If you are the surviving partner you can not only preserve your business but also satisfy the financial needs and legal rights of your deceased partner’s family, while providing the same sort of protection and peace of mind for your own family if your business partner survives you.

At San Diego Law Firm, our experienced business attorneys understand the passion and work that goes into operating a small business. A cross-purchase plan is just one of the many beneficial strategies available to you when you formalize your partnership, whether it is new or ongoing, with a written partnership contract and other related legal documents.  We can prepare every document you’ll need to give your partnership the greatest legal, financial, and tax benefits, and advise you on the wide variety of ways you can protect both your business and your personal finances.  We remain available to help you with both minor and serious legal problems whenever you need us.  To learn more or set up a consultation, please call San Diego Law Firm at (619) 794-0243.

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For instance, sometimes tension is created because of a flawed management approach.  In ManagingEmployees.net, longtime business manager and blogger Pat Brill explains that effective managing means finding a balance between your focus on employee performance and establishing a connection with employees. 

Brill suggests that you learn to identify with the thoughts and feelings of your employees on their work.  Not only can this help your business by boosting performance, but if you’re able to connect with your employees, this can go a long way in reducing the chance of a lawsuit.  The last thing you want is a disgruntled employee who wants to get even when they leave the company. 

Use an Annual Employee Acknowledgement

Another important step toward reducing employee lawsuits is to have an employee annual acknowledgement.  Even if you are sued, a good acknowledgement can still help you improve your chances of winning the lawsuit at trial (or, even better, getting the case dismissed early).

Here are a few general examples of what your written acknowledgement should do:

      ●    Make sure that your employee knows he or she is an at-will employee, and that others are not authorized to change this relationship.  Also confirm that related promises haven’t been made.  This helps you minimize the risk of a wrongful termination lawsuit because when an employee is “at-will,” it means that both the employer and the employee have the right to end the employment at any time and for any or no reason (except, for example, because of retaliation or discrimination).

      ●    Confirm that the employee received the most recently dated employee handbook, and that the employee knows he or she is responsible for its contents.

      ●    Create the type of record that will reduce the chance your employees will sue you for wage and hour issues, harassment, and discrimination.

      ●    Remind the employee that only the employer has the right to change any policies, and can do so at any time.

Not every acknowledgment lives up to its goals, so it’s important to have a knowledgeable business and employment lawyer create a well-planned document.  We’ll prepare your annual acknowledgment to include important terms and make sure it’s in clear and understandable language for employees. 

Also remember that an old acknowledgement may not do you very much good if you’re sued.  A yearly acknowledgement is one of several smart and inexpensive business practices you should put into place.  It may save you a lot of time and money down the road.  Contact San Diego Law Firm’s seasoned business attorneys for more employer advice, including how you can avoid common traps that lead to wrongful termination and other lawsuits against your business.  Call San Diego Law Firm at (619) 794-0243.

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You’re probably cautious about who to bring in as a co-owner, and you might not be sure of what criteria to focus on.  Professional consultant Mary Abbajay writes in her blog about “The Partnership Paradox: How to Choose a Business Partner.”  She suggests that you first look at yourself, because this will help you identify the things you need in a business partner.  This includes examining your own goals, strengths, and weaknesses.  Abbajay then suggests a few more questions to ask, including:

      ●    Will this person be able to invest financially in your business, now and in the long term?

      ●    What types of benefits will this person likely bring (or not bring) to your business?

      ●    What kind of network does he or she have?

      ●    Does this person share your work ethic?

If you do decide to add another co-owner, make a smart decision for your business by first looking into the many legal and tax issues that can affect you.  For example, here are just a few more things that will also play a role in your decision to add a business co-owner:

 1.  The law sometimes limits co-ownership

Under California law, you can’t always bring in a new co-owner.  For example, if you’re in a professional corporation, the law generally requires that every co-owner be licensed in the profession.  Sometimes, California licensed professionals can join your business as co-owners even if their license isn’t in your specific profession (such as in a professional medical corporation).  In these very limited situations, exact legal requirements must be met.  But in most cases, only licensed professionals in your same field can be co-owners in a professional corporation. 

2. Get your agreement in writing

A written agreement is required for many businesses.  You may already have a written agreement, so make sure you follow any rules in that agreement about adding new owners.

Partnership agreements, operating agreements, and shareholder agreements are all examples of written contracts between you and the other co-owners.  This agreement is your opportunity to create a strong business relationship with your new business partner, and detail your business expectations and responsibilities. 

Never depend on vague oral agreements.  Your business is too important, and the risk of misunderstandings that can damage your business is too great.  Here are a few terms to discuss with each other and then include in your agreement:

      ●    Set out the ownership shares, purchase price to buy into the business, and the payment terms.

      ●    Decide if the new co-owner will only be an investor, or also work for the business and be paid a salary.

      ●    Clarify everyone’s rights and responsibilities in the business (including day-to-day management and decision making roles).

      ●    Agree on how profits and losses will be divided.

      ●    Create an exit strategy.  Usually, this includes a “buy-sell agreement” that’s used in case someone leaves the business later.  Without a buy-sell (or “buyout”) agreement, you could get stuck with someone you don’t want for a business partner.

3.  Look carefully at how your business is set up

There are many different business structures, and not all are created equal.  The most common business forms are:

      ●    Sole Proprietorships (a business owned by a single person),

      ●    Partnerships (including “limited” and “general” partnerships),

      ●    Limited Liability Companies (LLCs), and

      ●    Corporations (including S-chapter corporations and professional corporations).

If you decide to bring in a new co-owner, you may need to change your business structure to address the changing tax and legal issues for you and the incoming owner.  Keep in mind that your options can be limited by California law depending on the type of business you run. 

Some of these business structures provide zero protection for a business owner’s personal assets.  This means money and property in your personal name can be subject to business debts.  Business structures like LLCs and corporations can help avoid this personal liability. 

We’ll help you weigh the benefits and drawbacks of each.  In any case, don’t wait to change your business structure after it’s too late to protect your personal assets. 

Contact your lawyer at San Diego Law Firm for guidance when you expand your business’s ownership circle.  Do your part now to set things up right, because a few simple steps can often help you avoid headache and expense later.  Call San Diego Law Firm’s business lawyers at (619) 794-0243.

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Putting his practices into play can also have the added benefit of promoting a greater sense of loyalty and a stronger relationship among your business’s co-owners.  Business partners aren’t always on the same page, and disagreements are to be expected whenever you go into business with someone else.  Even so, your actions and that of your partners must always be tied to an underlying goal founded on your business’s shared best interests. 

The Business Comes First: Co-Owners Must Act Responsibly to the Business and Each Other

California law says that as a business owner, you must put the best interest of the business above your own personal interests.  This means that, by law, you must act responsibly when it comes to the business.  You can’t do something to profit or benefit yourself at the expense of the business, or the other co-owners or shareholders.  (There is an exception when you tell the co-owners or shareholders what you want to do, and they completely understand how it affects them, and they still agree to it.)  Here are a few examples of the legal “do’s and don’ts” created by your legal responsibility to put the business first:

     ●  Do:  Give the business “first crack” at all opportunities to make money when those opportunities are related to the business in any way.

     ●  Don’t:  Keep secrets from your business co-owners and shareholders when those secrets have any effect on the business, or on the co-owners.

     ●  Do:  Be loyal to your co-owners.

     ●  Don’t:  Betray the business trust of your co-owners, especially in any way that would embarrass them or cost them money, unless they are doing something that is illegal or obviously harmful to others.

Perhaps most important of all is your responsibility to be careful – to make decisions responsibly and to always try to work for the benefit of the business.  This doesn’t mean that every decision will yield perfect results – that would be impossible.  What’s important is to be as careful as possible when you make any decision that affects the business.

When in Doubt, Ask Your Lawyer at San Diego Law Firm

You can improve the likelihood that everyone in your business will put the business first by following the suggestions mentioned above on creating a strong team, since these methods tend to reinforce everyone’s commitment to the business and its goals.

A clear, simple partnership agreement, or LLC documents,  (either of which San Diego Law Firm can prepare for you), can also be used to spell out each co-owner’s responsibilities in placing the business first.  If things fall apart, our skilled business litigation attorneys can help you handle and, possibly quickly stop, a business dispute.  And, if you ever find yourself caught in  a difficult situation between your own personal affairs and your business, don’t mishandle it.  We can advise you on how to handle potential conflicts to protect both yourself and your business.  Contact San Diego Law Firm at (619) 794-0243.

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If you do need to hire new employees, don’t lose sight of the legal issues that go along with hiring.  A few examples here include possible discrimination when advertising for new positions, questions you can’t ask when interviewing potential employees, and the terms of employment.  Federal anti-discrimination laws and additional protections under California law make discrimination illegal when based on categories that include disability, marital status, sex, age, national origin, race, sexual orientation, religion, medical condition, and so on.  Exceptions are very limited (e.g. a women-only hiring policy for women’s locker room workers) and have to be evaluated on a case by case basis.  Discrimination can occur in all aspects of employment, even well before hiring someone when your business advertises a job, chooses its recruitment methods, or interviews candidates for an open position.  When it comes to interviews, you have to be careful not to ask questions about the applicant’s age, what his or her childcare arrangements are, about plans to have kids, or anything else that relates to a status that’s protected from discrimination if the question isn’t required to determine the applicant’s ability to do the job and isn’t legally acceptable.  Discrimination laws are complex, and you need to speak with an attorney who can explain the details of how these federal and California laws apply to your business practices. 

Aside from discrimination issues, when hiring a new employee you have to be clear about several terms of the employment relationship to help prevent disputes (and potentially lawsuits) later on with that employee.  Misunderstandings can often be prevented with non disclosure agreements (also called NDAs or confidentiality agreements), and employee handbooks or manuals that make clear whether the employment is at-will and set out company policies without creating unintended terms of employment.  These are just a few general examples, but keep in mind that many other issues can come up when dealing with prospective hires and current employees.  We’ll prepare important agreements you may need and advise you on the legal aspects of running a business, including compliance with California’s harassment laws, wage and hour laws, and employee termination rules so you can avoid many common disputes that carry serious consequences.  Contact San Diego Law Firm to learn more about the best employment and hiring practices and how you can minimize the risk of getting sued.  Our experienced business lawyers can be reached at (619) 794-0243.

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As an entrepreneur, you shape your business strategies with an eye toward reducing risk, and a joint venture agreement can be designed to do the same.  With a written agreement, you can also minimize uncertainty while avoiding damaging misunderstandings and conflicting expectations so you can maintain a better business relationship.  Depending on the type of joint venture you begin and the kinds of risks involved, you may want to structure the new business as a limited liability company (LLC) or corporation created for your specific purpose, or instead detail the project solely through written agreements.  What you do to protect yourself and to fully develop your joint venture will be incorporated into your joint venture agreement.  Among other things, the contract should set out:

- What services, property, or other assets will be contributed by each joint venturer

- Whether intellectual property (e.g. copyrighted material, trademarks, patents needed to manufacture products) will be licensed for use in the joint venture

- What your respective ownership interests will be

- How profits or losses will be shared

- How assets will be divided

- What rights and duties each partner will have, including operational and decision making roles

- How future investments will be handled, should the need arise

- What your exit strategy will be, such as a buyout procedure

Some of these provisions can affect your tax obligations, and when entering into a joint venture you must always take into account potential legal liability.  For instance, a business partner’s actions can be binding on you, such as when a partner enters into contracts on behalf of the joint venture.  You and the other members of the joint venture also take on fiduciary obligations of loyalty and are charged with acting with reasonable care, among other duties that work to promote your common business dealings.  We’ll help you answer key questions through a joint venture agreement, while also managing any related concerns with a confidentiality agreement and a non-competition agreement if needed, and obtain any necessary licenses, permits, or filings required locally in San Diego or by the State of California.  If you’ve decided to seize an opportunity to collaborate with another business, a comprehensive joint venture agreement can go far in helping you maximize your chances of success.  Contact San Diego Law Firm’s skilled business lawyers at (619) 794-0243.

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- Confidential client or customer lists

- Marketing plans

- Manufacturing processes

- Formulas or recipes

- Information or materials shared about your product, brand, designs, or other intellectual property

- Terms and conditions of services provided to clients

These may be considered trade secrets, and you often have to share this information with others in order to pursue opportunities and expand, or for practical reasons such as when you interview prospective employees.  Consequently, your business has to take the right steps to ensure that your proprietary information remains secret and outside of your competitor’s reach.  If you don’t, and someone reveals your confidential information, then the chances are you won’t be able to hold them legally responsible to you for your financial loss.  For this reason, not only is it important to use non disclosure agreements, but even before having someone sign an NDA, you have to be careful about whom you disclose confidential information to, and make sure you only disclose information to the extent necessary. 

In doing so, generic NDAs can be easy to use, but can often provide a false sense of protection.  That’s because when creating a non disclosure agreement, it’s important that its terms are tailored to your situation and are shaped by California law.  This will strengthen the likelihood that your NDA will be upheld in court if needed.  A fine line must be walked when drafting a confidentiality agreement, and we’ll work to create an NDA that’s specific enough to be legally enforceable, while being broad enough to cover all confidential information.  A non disclosure agreement is a valuable deterrent, although it can’t guarantee that someone won’t reveal your trade secrets or use the information for their personal benefit.  Even so, by using an NDA you may be able to sue for compensation for the harm suffered or for the profits gained by a competitor, or take legal action to stop someone from further disclosing your trade secrets.  Act soon to guard against a confidentiality breach, and by doing so you’ll protect the time, effort, and money you’ve invested in your business.  For help in securing your trade secrets through a non disclosure agreement, or if someone has misappropriated your confidential information, be sure to reach our skilled business lawyers at San Diego Law Firm by calling (619) 794-0243.

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To the extent possible, you’ll need a buy-sell agreement that’s comprehensive and covers many different scenarios in anticipation of what could happen in your business.  The purchase of the departing owner’s share may be made by individual co-owners or the business entity itself, and the best purchase structure often depends on the size of your company.  You may also be asking about where the money will come from to buyout a co-owners share.  In this respect, small business owner John Ingrisano highlights the value of a buy-sell agreement in his blog on TheFreestyleEntrepreneur.com, since in certain situations a buy-sell agreement can ensure that there’s cash available for a buyout when the time comes.  We’ll advise you on the different options for funding a future purchase, but for many businesses, a cost-effective solution is to purchase life or disability insurance to fund the buyout when triggered by these events.  Your agreement also must address whether the owners or the business itself must pay the insurance premiums.  Here are just a few other considerations surrounding the events that often trigger the purchase of a co-owner’s interest:

- If a business partner wants to sell, you’ll need to decide whether his or her interest must be offered first to the other co-owners, or whether the other owners will be required to buy back the departing owner’s share.  The agreement should also cover whether any non-compete restrictions should be placed on the departing owner, to the extent allowed by California law.

- If retiring, the agreement will set the conditions for retirement that will qualify for a buyout, and you’ll also decide on payment arrangements.  For example, a percentage of the buyout price might be paid in installments with interest, but you’ll want to take the business’s potential for future profitability into consideration.

- Upon death or a disability as defined by the agreement, decide whether the buy-sell provisions will require the remaining owners to purchase the other owner’s share, and how the owner or the owner’s heirs will be paid. 

- If a business associate is faced with bankruptcy, a buy-sell agreement can require that partner to notify co-owners before filing, giving the others the opportunity to buy his or her interest.  This can help prevent the loss of company assets, since the money paid to the departing owner will be subject to the bankruptcy, instead of the business’s assets.

- Divorce also has the potential of bringing third parties into the picture, but the buy-sell agreement can require that the business interest be sold back to the other co-owners or the business entity.

As you decide on the terms of your agreement, we’ll explain your options and the possible benefits and drawbacks, and go over other triggering events that may be appropriate to include in a buy-sell agreement for your business (such as provisions in the event of an acquisition or an employment termination).  Besides identifying which events will prompt a mandatory or optional buyout, a buy-sell agreement also resolves crucial valuation questions.  By determining now how you’ll calculate the business’s worth and the value of your respective interests, you’ll minimize uncertainty and help prevent conflict later.  Values can vary greatly depending on the valuation method used, but by agreeing to a formula ahead of time it’s much more likely that you’ll be able to fix a fair price.  Many times it can also help reduce estate taxes upon death, although you must tread the law carefully in doing so. 

To be effective, a buy-sell agreement must be carefully thought out and comprehensive.  With years of experience, we’ll evaluate the legal and business considerations and strategize to help protect your mutual interests and that of your family through a buyout agreement or other retirement or business succession plans.  Take a close look at your business and guard against future uncertainties by contacting San Diego Law Firm’s experienced business attorneys at (619) 794-0243.

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Every business needs to be evaluated on its own merits, but in his Brighthub.com blog, contributor W.A. Swan identifies seven signs that can help you decide if it’s time to exit your business.  Among the warning signs:

 - You can’t afford to advertise, which means you probably won’t be able to bring in the new business you need.

- No matter what you try, your sales are simply not improving.

 - You’ve dropped key inventory, supplies, or services offered because you can’t manage to pay for them anymore.

If you decide to close your business, remember that winding up doesn’t mean just selling your business’s assets and calling it a day.  While this may seem like a quicker way out, the potential consequences may be more costly than getting things done right the first time.  The steps for terminating your business will depend on how your business is set up, for example, is it a limited partnership, corporation, LLC, or a sole proprietorship?  To start the termination process, many businesses need to abide by the rules set out in company documents, such as your Articles of Incorporation or Organization and By-Laws.  We’ll also work to settle any disputes that arise among business partners, and advise you of your rights in termination, and in dividing assets and liabilities.

Next, you must follow all legal requirements for shutting down your business to avoid facing potentially greater liability even after you stop operating your business.  Under certain circumstances, your personal assets may become liable for business debts.  California and federal tax issues need to be evaluated early and before assets are sold, and local permits and licenses should be cancelled as well.  Protect your financial interests when closing your business by contacting San Diego Law Firm.  We’ll handle the legal steps required to close your business or sell your business.  You can then move on with greater security after you’ve exited your business, and minimize the chances of being sued or held personally liable post-closing.  Reach San Diego Law Firm’s experienced business law attorneys at (619) 794-0243.

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