Legal Challenges When Hiring Family Members

Legal Challenges When Hiring Family Members

By Bradley S. Hunt, Attorney Family business ventures can be tricky. When the business partners all get along and agree on how to run the business, things can go very smoothly. But when there is dissent, the situation can become very personal. What happens when the disagreement leads to more than a refusal to speak to each other over Thanksgiving dinner at Grandma’s? There are some practical challenges within any family business: Will the business close for a week while the family vacations together? Who will be the CEO, and will the other person’s feelings be hurt? Will everyone contribute the same number of hours of effort? Will the kids want to be part of the business? If they do, will they be qualified to run the company? The list goes on. Above and beyond the practical considerations, there are some common legal issues you should consider: The operative word is business. It’s important that your family business (like any other) be set up as a legal entity, complete with a separate financial structure. Whether you choose to set up a partnership, LLC or incorporate, everything should be in the form of a legal agreement to protect each of the owners individually. I recommend you have a “buy sell agreement” in place. This could be part of the operating agreement and would apply in the event that the owners of the business are in a deadlock and cannot agree on how the business should continue to operate. Buy sell agreements also usually include a method on how to value the business and can guide the parties on the process...
3 Reasons to Use an LLC to Form Your Business

3 Reasons to Use an LLC to Form Your Business

Starting a new business can be exciting and a bit daunting. Should you form an LLC? Incorporate? Borrow money to get started? Lease office space? Bring on a partner? There are many decisions you must make up front, some of which can have long-term implications. One of the most important decisions you will make relates to the structure of your business. Many individuals begin their small business as the sole “employee,” reporting their earnings as income on their personal tax returns without creating a formal structure to minimize their personal liability. Others immediately incorporate without considering the strict reporting required by the government. A limited liability company (LLC) falls in between these two options, giving business owners some protection while requiring less stringent (and time consuming) reporting. Here are three reasons you might choose an LLC to form your business: An LLC, as the name suggests, limits the liability of the owners. Individuals who operate a business without any formal structure are personally responsible for the debts of the business. This means another party could get a judgment against you personally and potentially collect it by going after your assets (bank accounts, personal property, etc.) Under an LLC, the assets and liabilities are owned by the company. While incorporating your business also limits your personal liability, corporations have specific requirements for reporting that must be filed with the state and/or federal governments. The requirements for an LLC are less rigid. In addition, corporations must name officers and have a board of directors. The “members” of an LLC must have a registered agent, but they can divide management responsibilities as...
Proper Classification of Employees Under FLSA

Proper Classification of Employees Under FLSA

Should Employees Be Classified as Exempt or Non-Exempt? By Bradley Hunt, Attorney The Fair Labor Standards Act (FLSA) is administered by the Wage and Hour Division (WHD). The Act establishes standards for minimum wages, overtime pay, recordkeeping, and child labor. These standards affect more than 130 million workers, both full-time and part-time, in the private and public sectors. The Act exempts some employees from its overtime pay and minimum wage provisions, and it also exempts certain employees from the overtime pay provisions only. However, many employers unknowingly misclassify their employees which can lead to costly legal expenses and significant penalties for non-compliance. Federal and State Departments of Labor aggressively pursue and enforce these violations and the best practice to avoid running afoul of the FLSA exempt or non-exempt requirements is to take a proactive approach and be sure that your employees are properly classified. For guidance or additional information you may want to visit the US Department of Labor website or consult with legal counsel for guidance on proper classification of your employees. Within this article you will find some general definitions and guidance for complying with these standards. Employees commonly referred to as “executives,” “professionals,” and outside sales persons and certain administrative and computer employees are examples of employees exempt from the protections of Federal minimum wage and overtime pay requirements under the FLSA and the NC Wage and Hour Regulations. This type of employee typically must be paid on a salary basis with no reduction to their salary conditioned on the quality or quantity of work performed. Executive: This classification of employees must manage the day to day operations...
Options to Collect Past Due Receivables

Options to Collect Past Due Receivables

By Bradley Hunt, Attorney If you own a business and are owed money, especially if that amount is large, you know it can have an impact on your operations. Collecting past due receivables can be time consuming and frustrating. If a friendly reminder doesn’t work, what options do you have? Federal and state laws limit how you go about collecting debts owed to you by individuals (the same rules do not apply to businesses). These laws prevent creditors from harassing or threatening consumers to attempt to get them to pay a debt; they also outline what you can and cannot do in pursuit of collecting the debt. We recommend you research the Fair Debt Collection Practices Act (federal) and review the North Carolina Debt Collection Act or speak to a business law or collections attorney before pursuing action. Most businesses that invoice their clients allow a reasonable payment window (15 or 30 days, for example). When debts are not paid within that window, typical collection activities begin. These may include a friendly reminder via mail or email, followed by more forceful reminders and phone calls. When these activities have not gotten the debtor to pay, the creditor must decide how to proceed. The amount owed will often be the deciding factor on the next steps taken. The location of the client may also make a difference. The creditor may decide not to pursue legal action if the amount owed is relatively small or the client is out of state. Debt collection options include: Pursuing a judgment against the debtor. This can happen in small claims court (if the amount...

Avoiding Wage and Hour Complaints

By Bradley Hunt, Attorney There has been a huge increase in the past decade in wage and hour complaints by workers who believe their employers are breaking the law. Indeed, the increase since 2000 is more than 400%, with over 7,000 cases filed in 2011. Let’s begin by explaining the types of actions by an employer that might be considered wage and hour violations under the Fair Labor Standards Act: Failure to pay employees for working “off the clock.” If a non-exempt employee is on-call for troubleshooting after hours, checks email or handles customer calls from home or in the car driving home, meets with a client for breakfast, responds to comments on the company’s social media site, or does any work outside of the standard workday, he or she may be entitled to payment for these hours. Not paying overtime when owed. Do your policies say that employees can clock in no more than 5 minutes before or after their shift begins/ends? Do they work before or after they clock in/out? Misclassifying workers as exempt from overtime pay when they should be non-exempt. Exempt and non-exempt job classification can sometimes be subjective. Look carefully at the type of work, rate of pay and how they are paid (hourly vs. salary). Labeling a consultant as an independent contractor (or “1099” employee) when he or she technically meets the definition of an employee. If you are providing the materials and equipment, setting the hours, determining how the work is done, and the job has a level of permanence, the individual would likely be considered an employee. Deducting hours for a...

Employment Discrimination Pitfalls

By Bradley Hunt, Attorney As a general rule, information requested and obtained during the employment process should be limited to those pieces of information essential for determining if a person is qualified for the job. Information regarding race, sex, national origin, age, and religion are irrelevant in such determinations. Employers are also prohibited from making pre-employment inquiries about a person’s disability, other than regarding a prospective employee’s ability to perform the “essential functions of the job.” Such essential functions should be spelled out in a written, detailed job description. It is easy to understand that most employers have legitimate concerns about a person and their abilities and therefore it is easy for potential employers to ask the wrong questions of a job candidate. The problem is often that the concerns are addressed in the wrong way. Say, for instance, you are concerned about someone’s character, or you want to know if the employee will be prone to excessive tardiness or absenteeism, or you want to know if the candidate will remain with the company for a reasonable period of time, or you may want to know the job candidate’s health or health history. There are ways to handle interviewing a potential employee so that you get the information you need to consider them for the job without asking the candidate questions that are considered discriminatory. There is an easy way to tell if your question to a job candidate is not discriminatory; ask yourself: 1) does this information have an adverse impact on any protected group? 2) is there a business necessity behind the question? Some selection procedures have...