Understand Contracts Because Words Matter

Contracts, or the lack of them, can be a major legal issue for business owners. With some foresight and preparation, many contract problems can be prevented. In this legal area, an ounce of prevention may be worth thousands of dollars in legal fees.

The benefit to a well written contract is clarity. Courts will enforce a contract based on its meaning in plain English. Courts will seldom rewrite a contract because a party finds its application unexpected or unfavorable. A well written contract has a much greater chance of being enforced as the parties intended. Only when a court finds the language ambiguous or capable of differing interpretations does the court look to other evidence. In those cases, litigation gets more expensive and often winds up before a jury.

A verbal contract can be enforced by a court with some exceptions. The difficulty in enforcing a verbal contract is having to come up with the proof of its existence in the absence of ink on paper. Because the parties haven’t written down their expectations, their rights and obligations, it may be up to a judge or jury to decide if a binding contract was formed and, if so, who broke a promise.

Parties involved in business transactions should have contracts for their agreements with vendors and customers. A basic contract includes a description of the work, product, or service, a price, and a time for performance. In a dispute, courts may fill in non-essential terms if it finds a basic contract was formed. Other common terms in a contract include choice of law or jurisdiction, waiver and modification, and limited warranties.

Contracts with employees, especially those critical to your operation or in management, are worth considering. Employers often use non-competition and confidentiality agreements to prevent employees from going to competitors or starting their own competing businesses with the employer’s know-how. These “restrictive covenants” are simply a form of contract. After all, a contract can be defined simply as an agreement between two parties.

Never sign a contract without reading or understanding it. It is always good advice to seek legal counsel before signing any legal document. Even if the words seem clear to you, an experienced attorney can spot potential problems in the contract language you may not. Don’t give into pressure to sign. It may be a sign that the party who is pressuring you is not someone you want as a business partner.

Uncertainty and risk are not good for any business. Written contracts can prevent or at least help you manage uncertainty and risk when it comes to dealings with a fellow owner, another company or an employee. Call Scott Fegley at the Fegley Law Firm to you create well written contracts or review a contract presented to you. Call our Yardley, PA office at (215) 493-8287 or contact us by email at scott@fegleylaw.com. We Give You Peace Of Mind.

Drug Testing Programs Require Careful Planning

Pennsylvania unemployment compensation law considers an employee’s refusal to submit to a drug test or a failed test grounds for denial of benefits without the employer having the additional burden of proving “willful misconduct.” However, to avail itself of the relaxed standard, the employer must adopt a drug testing policy that is not in violation of law or a collective bargaining agreement. The employer must communicate the policy to its employees and comply with the policy.

Simply putting a paragraph in a handbook that advises employees they may be asked to submit to a drug test is not enough. Careful consideration must be given to when a drug test may be appropriate. Upon hire? After an accident? Upon reasonable suspicion that a person may be under the influence of a controlled substance? Should the employer implement random testing for all employees in safety sensitive positions? These are all important considerations that should be resolved before a policy is drafted. Drug testing policies should be tailored to the needs of the employer. An insurance agency with mostly clerical staff, for example, will not require as onerous a policy as a trucking company.

Once an employer decides when to test, it must also consider the manner and method for testing. Many employers contract with local clinics to conduct drug testing and often forget to inform the employees in the policy what to expect when they get there. There are a variety of tests and collection methods. The U.S. Department of Health and Human Services and the U.S. Department of Transportation both have manuals on drug testing that provide useful information to consider when drafting a policy and can be found on the agency websites. An employer need not adopt a policy that meets stringent HHS or DOT guidelines. However, a policy should inform employees under what circumstances they may be tested, what will happen when they are tested, and the consequences of a refusal to test or a failed test. Consultation with our office and medical professionals experienced in drug testing and sample collection prior to implementation of a drug testing program will enable an employee drug testing program to work effectively and withstand legal challenges.

Need assistance in an employment matter? Call our Yardley, PA office at (215) 493-8287 or contact us by email at scott@fegleylaw.com. We Give You Peace Of Mind.

 

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. 

Non-Competition Agreements: The Devil’s In The Details

Employers are resorting to use of non-competition agreements more frequently.  The attempt to prevent an employee from not only leaving with business, but working for a competitor, is on the rise even in businesses where it has not been common practice before such as beauty salons and doctors’ offices.  Unless a court finds the terms of the agreement are overly restrictive, non-competition agreements are enforceable. In Pulse Techs, Inc. v. Notaro, the Pennsylvania Supreme Court recently reaffirmed its willingness to enforce a non-competition agreement when the employee signed the agreement upon hire.  Employees anxious to have a job may unfortunately sign whatever the employer asks them to at the time of hiring and do not find out until much later the unanticipated consequences.

Employees should always seek an attorney’s advice before signing any legal document.  If you have the opportunity to negotiate the terms of the non-competition agreement, here are some ways to protect yourself:

1.  If they don’t want you to work elsewhere, ask them to continue your pay for the restrictive period or until the employer chooses to release you from the obligation.  Unfortunately, only employees who bring considerable value to the employer will have the leverage to negotiate for this term.

2.  Define what it means to “compete” as narrowly as possible.  For example, many companies have more than one product line.  If the employee worked only on one product, the employee should not be prevented from going to work for a competitor on an entirely different product.  If competition is undefined in the agreement, you can be sure the employer will interpret it as broadly as possible.

3.  Limit the time and geography of the restrictive period.  Non-competition agreements up to two years and with reasonable geographic limitations generally do not draw a court’s disapproval. However, in Lucciotti v. American Management Advisors, Inc., a decision out of Bucks County, PA, the court held that restricting the employee from working for a competitor anywhere in the United States for two years was unreasonable.  The court noted the employee brought with him to the employment many clients from around the country.  Employees should think about who they could go to work for, and where, if the job ends within the restrictions of the agreement the employer is asking them to sign.

Courts will address the reasonableness of a non-competition agreement on a case-by-case basis.  It will involve an examination of the employee’s job and skills and the nature of the employer’s business.  A small, local company will not be able to impose the same restrictions as a globally competitive corporation.  In the end, it may be more beneficial to seek employment elsewhere than to work for an employer who can end your employment at any time and severely restrict your ability to find new employment elsewhere.

If you have a legal matter, please call our Yardley office at 215-493-8287 or send us an email HERE.  We will be glad to help.

The Legal Side of Employers Using Social Media in Researching Potential Job Candidates

We all know by now that a trend has emerged with employers perusing potential job candidates’ Facebook, Twitter, and other social media accounts before they even invite somebody in for an interview.  The idea of privacy online is a bit of a punch line these days as more and more people suffer from an ill-advised status update or one too many photos depicting their “Animal House” days.  But, should employers be snooping around employees’ or prospective employees’ accounts?  On the other hand, if employees truly have nothing to hide, should it matter?

As the technological landscape continues to grow, especially for social media, mobile devices, and cloud computing, legal and societal changes will inevitably come at the hands of government and the legal profession.  We are seeing this play out daily in the courtroom with Facebook being using for discovery and it is no surprise we continue to see it in the hiring process.

Additionally, bills are now being introduced at the state level that protect the privacy of employees when it comes to their online presence and account information.  For instance, an article by Jennifer L. Parent at the McLane Law Firm explains that the state of New Hampshire considered “a bill that would prohibit an employer from requiring an employee or prospective employee to disclose his or her social media passwords” — and it passed in the House.  It would not be a surprise to see other states follow suit.

Parent also explains in the article that we can expect more litigation in the social media area:

We can also expect employees who have accounts and connections of their own to seek to protect their ownership upon hire. It is in the interests of both companies and employees to address these issues at the commencement of the employment relationship. Social media remains a developing area of the law, and one area in which we can expect a lot more litigation.

I now pose the question again that I started this post with — should employers be snooping around employees’ or prospective employees’ accounts or does it simply not matter?  Also, have you or anyone you know had a current or potential employer check out their social media accounts? Please comment below!

If you have a legal matter, please call our Yardley office at 215-493-8287 or send us an email HERE. We will be glad to help.