Court Enforces Noncompete Against Independent Contractor

While non-competition clauses are typically enforced in the context of employment agreements, a recent Pennsylvania Superior Court decision extended enforcement of a non-compete in the context of an independent contractor relationship.  In Metro Public Adjusters v. Houck, the defendant signed Metro’s standard independent contractor agreement for new adjusters which contained a non-competition clause.  The clause prohibited Houck from competing with Metro in the states in which Metro does business for two years after Houck’s relationship with Metro ended.  Even before Houck left Metro, however, he began setting up a competing company with two other Metro adjusters.  They created a limited liability company and set up a website.  Upon leaving Metro, Houck and his fellow adjusters sought the same business in states in which Metro was licensed until Metro obtained an injunction.  Judge Rubinstein of the Bucks County Court of Common Pleas held:

The covenant not to compete within the independent contractor agreement is de­signed to prevent an independent contractor from hijacking the training and experience garnered while affiliated with Metro [Public Adjustment Inc.] and utilizing it to create their own business to directly compete with Metro.  Indeed, this pre­cise situation occurred in this case.

Judge Rubinstein was particularly influenced by the evidence that Houck and his accomplices had no experience in public adjusting prior to their association with Metro and actively began plans to compete while still working for Metro.

On appeal, Judge Anne E. Lazarus of the Superior Court affirmed Judge Rubinstein’s decision and largely adopted his reasoning.  The court held that such non-competition agreements protect legitimate business interests and are enforceable.  Quoting from Rubinstein’s opinion, “

Metro provided the tools to be successful in the industry, including basic and advanced training, as well as their proprietary information regarding the best way to maximize profits on a claim.  All three defendants were very successful no doubt due to the opportunity, training and experience provided by Metro.

A close analysis of the Houck opinion, however, shows the courts did not have to reach that far to extend enforcement of the non-competition clause in this case.  Though Metro had the adjusters sign “independent contractor agreements,” the facts showed that Metro’s relationship with its adjusters was closer to employer-employee than true independent contractors.  None of the defendants had previous public adjusting experience.  They worked exclusively for Metro and followed Metro’s methods and instructions.  One wonders if the tables were turned and the adjusters were suing Metro for employee benefits or seeking unemployment compensation whether the courts would find Metro’s “independent contractor agreement” was really a contract of employment?

There is a cautionary tale in this story for both employers and employees.  Employers who use “standard independent contractor agreements” in situations that are more akin to traditional employer-employee relationships might find their agreement is a double-edged sword.  And employees who seek to get one up on their employer by    relying on legal loopholes to avoid agreements they sign might find the courts unwilling to open the loopholes for them.

If you have questions regarding independent contractor versus employee relationships or other legal matters, please call our Yardley office at 215-493-8287 or send us an email HERE. We will be glad to help.

Advantages and Disadvantages of Forming a Limited Liability Company (LLC)

When it comes to starting a business, there are a wide array of issues to consider. How will you scale your idea? How will you go about acquiring customers? How will you let potential customers know about you? Oftentimes, one of the last issues an entrepreneur considers is the legal structure. But if you want your business to survive long-term, it is something you need to think about sooner than later. Today, I will discuss one option for a business formation called the Limited Liability Company or “LLC.”

Advantages

The biggest advantage of the LLC lies in the liability protection its member(s) are afforded.  Members in an LLC enjoy the same protection from potential lawsuits as shareholders in a corporation without having to observe all the corporate formalities.  As a member of an LLC, property you own individually is protected.  No matter what happens in the company, nobody can come after your house, your car, or your individual bank account for the company’s negligence or its debts.

The Small Business Association has some great points regarding limited liability on their website at SBA.gov, including the following explanation:

[I]f the LLC incurs debt or is sued, members’ personal assets are usually exempt. This is similar to the liability protections afforded to shareholders of a corporation. Keep in mind that limited liability means “limited” liability – members are not necessarily shielded from wrongful acts, including those of their employees.

Another great benefit of the LLC form is the ease of formation and the lack of record keeping requirements and formalities like shareholder meetings corporations are required to observe.  You can obtain and download the forms to start an LLC or even complete them online at www.pabizonline.com. However, keep in mind that forming an LLC is merely the first step.  I recommend having an attorney draft the operating agreement.  Sure, you can probably download an operating agreement online also, but I don’t recommend using a form operating agreement to chart your company’s future any more than I’d recommend using an owner’s manual for a GMC to figure out how to operate a Toyota.

Disadvantages

For small businesses, there aren’t many.  The LLC is the entity of choice in most situations.  However, in Pennsylvania, it is not the entity of choice to hold and develop real estate that may appreciate significantly in value.  It is also limited in the number of members it may have so you cannot “take it public.”

Tax Considerations

As far as the IRS is concerned, the LLC is a “disregarded entity.”  This means that the IRS will treat a one-member LLC as a sole proprietorship and a multi-member LLC as a partnership.  Members will pay “self-employment tax” on their income.  However, members can elect to be taxed as an S-Corporation at the time of or within sixty days of formation.  Members can realize significant tax savings through this election, but it comes at a cost.  Members must put themselves on payroll as employees of the LLC and may only take profits from the LLC quarterly.  I recommend S-Corp taxation for LLCs that can count on a reliable revenue stream.

To decide whether an LLC is the right business form for your company, call our Yardley office at 215-493-8287 or send us an email HERE –We will be happy to get you started or discuss your options. 

Look Before You Stage Dive: Concert-goer injured during Fishbone stage dive awarded $1.4 million

I am not familiar with the band, Fishbone, but based on this article on The Pennsylvania Record website, you might want to stay out of the first few rows if you attend their concerts.

Here are the basics from Jon Campisi:

Kimberly Myers, who says her skull was cracked on Feb. 23, 2010, while she was attending a musical performance of the band Fishbone at Philadelphia’s World Café Live venue, received a judgment of $1,117,145.93 in compensatory damages and $250,000 in punitive damages.

The judgment was against Angelo Moore, Fishbone’s leader singer who dove into the crowd that day, and fellow band member John Norwood Fisher.

Myers filed suit in 2010 against Moore, Fisher, who is the band’s bassist, Fishbone, Silverback Artist Management, the Trustees of the University of Pennsylvania, Behind Closed Doors Touring, Hajoca Associates, and Real Entertainment – Philadelphia Inc.

She alleged claims of negligence relating to the defendants’ failure to warn the audience that the concert would feature stage diving.

Myers, 46, who resides in Voorhees, N.J., and who worked as the director of operations and business development at Comprehensive Clinical Research, which conducts pharmaceutical clinical trials, says that she sustained a fractured skull, a concussion, a broken clavicle, a perforated eardrum, hearing loss, autoimmune problems, lacerations, headaches and other physical injuries and mental impairments as a result of being struck by Moore when he dove off the stage and into the crowd during the concert four years ago.

Interestingly, Moore is still stage diving at his concerts. As U.S. District Judge Jan DuBois writes, “Moore continues to stage dive at almost every performance and exhibits nothing but apathy and hostility towards his victims, whom he repeatedly characterized, during his deposition, as ‘predators’ out to steal his money.”

Give me Bruce Springsteen.

Let us know your thoughts in the comments below or sound off on our Facebook page. And remember, if you have a legal matter related to an injury or your employment, please call our Yardley office at 215-493-8287 or send us an email HERE. We will be glad to help.

Who Is Liable for Outdoor Injuries?

Winter snows and chills bring the excitement of speeding downhill on a sled or toboggan or sliding across a frozen pond.  However, these seasonal activities, like any other outdoor activities, are not without risk.  A child in Maryland impaled herself on a piece of rebar sticking out of the snow while sledding during the recent February 3rd storm.  More common are injuries caused by collisions between sledders or skaters or collisions with natural objects like rocks and trees.

In Pennsylvania, we have a law called the Recreational Use of Land and Water Act.  The RULWA provides landowners immunity from lawsuits if they allow the general public access to their land for recreational purposes without a fee. The law was intended to encourage landowners not to post their lands with “No Trespassing” signs and enable fishermen, hunters, hikers and other outdoor enthusiasts greater access to our open spaces.  In general, landowners who allow access are given the same protection from liability as if they had posted “No Trespassing” signs.  The landowner cannot be liable unless he actually knew of a hazard on his property and deliberately failed to take steps to correct it or warn about it.

Let’s look at some examples.  A sledder walking across land to a snowy slope falls in a deep, uncovered well on the property.  If the landowner (a) knew people walked on his land for recreational purposes, (b) knew about the well, and (c) failed to take steps to cover it or prevent someone from falling into it, the landowner may still be sued.  The RULWA offers no protection in that circumstance.  However, if the sledder, while sledding down the hill, loses control and suffers a head injury, the landowner will not be liable.

Landowners may also rely on a doctrine called “assumption of the risk.”  Those of us who enjoy outdoor activities are assumed to know the risks inherent in the activity and assume the risk of being injured while participating.   However, the doctrine generally affords protection to landowners only for known or expected risks such as collisions with natural objects.  A landowner who lets a vicious dog loose on his property while children are sledding will still be liable if the dog attacks a child.

Before engaging in winter activity, it is always important to be familiar with the area and to ski, skate or sled in control.  Enjoying the sport safely is far more important and worthwhile than trying to figure out who’s at fault after an injury occurs.  If you have any questions regarding possible exposure as a landowner or if you sustained an injury due to someone else’s fault, call our Yardley, PA office at (215) 493-8287 or email us as scott@fegleylaw.com.

Your Rights At Work: Know More Than Your Boss!

Do you have questions about privacy and social media?  Exactly what is a hostile work environment?  Get answers to these and other questions at a FREE 90-minute seminar given by Employment Law expert Scott I. Fegley, Esq. at the Newtown Athletic Club on Thursday evening, March 22, 2014, at 7:30 p.m.  Light refreshments will be served.