The Family and Medical Leave Act (FMLA) entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. However, should an employer fail to comply with the FMLA requirements, the employer could be subjecting itself to litigation and possibly fines from the Department of Labor.

“There are a lot of obligations on the employer. To the extent that you’re not aware of these, you should contact an attorney to make sure you’re following the strict requirements of the FMLA,” says Michael B. Dubin, a member at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Dubin about employer compliance with the FMLA.

What does the FMLA allow employees to do?

Eligible employees are entitled to 12 workweeks of unpaid leave in a 12-month period for:

 

 

  • The birth of a child and to care for the newborn child.

 

 

 

 

  • The placement with the employee of a child for adoption or foster care and to care for the newly placed child.

 

 

 

 

  • To care for the employee’s spouse, child or parent who has a serious health condition.

 

 

 

 

  • A serious health condition that makes the employee unable to perform the essential functions of his or her job.

 

 

 

 

  • Any qualifying exigency arising out of the fact that the employee’s spouse, son, daughter or parent is a covered military member on ‘covered active duty;’ or 26 workweeks of leave during a single 12-month period to care for a servicemember with a serious injury or illness if the eligible employee is the servicemember’s spouse, child, parent or next of kin (military caregiver leave).

 

 

What employers are covered by FMLA?

The FMLA only applies to employers that meet certain criteria. A covered employer includes a private-sector employer with 50 or more employees in 20 or more workweeks in the current or preceding calendar year; and public agencies and public or private elementary or secondary schools, regardless of the number of employees.

What employees are eligible for FMLA leave?

Employees are eligible if they: have been employed by a covered employer for at least 12 months, which need not be consecutive; had at least 1,250 hours of service during the 12-month period immediately preceding the leave; and are employed at a worksite where the employer employs at least 50 employees within 75 miles.

Can an employee take intermittent leave?

Under certain circumstances, an employee may take FMLA leave on an intermittent or reduced schedule basis. That means an employee may take leave in separate blocks of time or by reducing the time worked each day or week for a single qualifying reason. When leave is needed for planned medical treatment, the employee must make a reasonable effort to schedule treatment so as to not unduly disrupt the employer’s operations. Employers must be careful to accurately track intermittent leave.

Can an employee be terminated at the conclusion of the 12-week leave?

Upon return from FMLA leave, an employee must be restored to his or her original job or to an equivalent job with equivalent pay, benefits, and other terms and conditions of employment. However, there is a limited exception for ‘key employees’ where reinstatement will cause ‘substantial and grievous economic injury.’

Many employer FMLA policies provide that if an employee fails to return to work at the conclusion of the 12-week leave, the employee will be deemed to have abandoned his or her job and/or will be automatically terminated. Employers are discouraged from maintaining this type of policy as it may be deemed a violation of an employee’s rights under the Americans with Disabilities Act (ADA). At the conclusion of an employee’s FMLA leave, employers should consider whether the employee will be able to perform the essential functions of the job with or without a reasonable accommodation (pursuant to the ADA), which may include additional time off following FMLA leave.

If confronted with an issue under FMLA, employers are cautioned to contact an attorney to ensure they are acting in conformity with the FMLA and avoiding the numerous pitfalls inherent in complying with the FMLA.

Michael B. Dubin is a member at Semanoff Ormsby Greenberg & Torchia, LLC?. Reach him at (215) 887-2658 or mdubin@sogtlaw.com.

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Published in Philadelphia

You’ve been in business for several years and it is profitable. You have a decision to make: Do you want to invest in the business and buy a facility, or will you continue to lease?

With the help of your accountant, you should carefully examine the anticipated capital requirements of your business.  Evaluate your ability to obtain capital or loans. Don’t box yourself into being cash poor and unable to meet business obligations or take advantage of opportunities.

“The prevailing reason that businesses fail is insufficient capital. Draining capital to pay for a real estate project could be a cause,” says Howard N. Greenberg, managing member at Semanoff Ormsby Greenberg & Torchia, LLC.

“My colleague, Jeffrey Rosenfarb, a principal in Hart Corporation, a national industrial real estate firm, advises that small manufacturing firms overwhelmingly desire to own versus rent, whereas larger corporations generally prefer leasing.”

Smart Business spoke with Greenberg about some pros and cons of leasing or purchasing industrial real estate.

What issues should be examined when considering purchasing a facility?

First, what’s the nature of your business?   Manufacturing that utilizes heavy, difficult-to-move equipment is where purchasing may be desirable, to avoid being at a landlord’s mercy when your lease expires. Or is it light manufacturing or distribution, that moves easily?

Second, can you obtain a facility that will remain adequate for your needs? Plan for potential future expansion. Have your counsel review the local zoning code to determine what can be built, either now or in the future.

Do you contemplate children in the business? Real estate can provide a source of income and inheritance. Counsel will need to prepare an agreement that deals with numerous issues including governance, death, disability, termination of employment and sale of the business.

Where do you want to invest your limited capital? Be sure that you will not need capital to expand your business versus acquiring a building. Lending rates are at historic lows, encouraging acquisition. Consult counsel concerning special types of financing such as tax free industrial development or state-provided financing, as well as tax abatements.

What issues should you consider if you determine to lease?

Check locally to ensure there are adequate reserves of industrial rentals available. With any lease, secure options to: extend the term; terminate early; purchase the building; for a right of first refusal; and for the ability to assign the lease or sublet in connection with your business sale.

If I decide to purchase, what entity should purchase the property, and how should the lease be structured?

Keep the building owner entity distinct from the entity that occupies it. The building owner entity should be a limited partnership, limited liability company or S corporation to enable you to utilize tax advantages like depreciation and amortization, and to permit gifting. Also, you may want to divvy up interests differently in the operating company versus ownership in the real estate company. You could decide to bring a partner into your business, but not into the building ownership.

You will need a lease between the two entities, especially if you’re going to sell the business and not the real estate. As a landlord, limit the tenant’s options and set a reasonable term.

Does new construction make sense versus purchasing and rehabbing an existing building?

With new construction or significant rehab, you must have a reliable contractor and architect. Assume that it’s going to cost at least 15 percent more and take 15 or 20 percent longer than initially estimated. Weigh the aggravation of new construction versus having your building the way you want. However, over the past 15 to 20 years, sale or leasing of existing facilities has far exceeded new construction, per Rosenfarb.

Buying and holding an industrial property usually works out well for the owner. For heavy manufacturing, building ownership, or a long-term lease with renewal options, is the way to go.

Howard N. Greenberg is a managing member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-0200 and hgreenberg@sogtlaw.com.

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Disputes between adjoining landowners can be bitter. Landowners, whether they be businesses or individuals, want to “protect their turf.” Landowners upset with their neighbors will often rush into court with a spare-no-expense resolve.

“But that can be foolhardy, because they often don’t realize the magnitude of the expense,” says William J. Maffucci, of counsel with Semanoff Ormsby Greenberg & Torchia, LLC in Huntingdon Valley, Pa.

Smart Business spoke with Maffucci about ways businesses that own real property can avoid and economically resolve disputes with neighboring owners.

What types of disputes arise between adjoining owners?

I would put them in five categories.

First are traditional disputes about the location of a boundary. Resolving these disputes almost always requires a survey.  Sometimes the parties agree to be bound by a single survey or by the opinion of a single surveyor. More often, the parties each retain their own surveyor. And the surveyors don’t always agree. A boundary dispute is often a ‘battle of the surveyors,’ with a court or other arbiter deciding which surveyor prevails.

There is a different type of boundary dispute that isn’t resolved by surveys. A claimant may instead be relying upon the doctrine of ‘adverse possession’ or on the related doctrine of ‘consentable line by recognition and acquiescence.’ Both flow from the principle, recognized by the courts, that an open and notorious use of property continuously over a long period (21 years in Pennsylvania) by one who does not hold record title to it but who nevertheless acts like its owner, putting up a hostile front and fighting off competing claims of title, effectively becomes the owner of the property.

Next are easement disputes. These are disputes in which your neighbor acknowledges that you own the property but claims a right to use it, such as to drive across it. Many of these claims are based on either ‘prescription’ or ‘implication.’ A ‘prescriptive easement’ is acquired in the same way title is acquired by adverse possession: through open and notorious use continuously over a sufficient period. But a prescriptive easement doesn’t prevent the owner from using the property, too. And it doesn’t result in a change of ownership; it results only in the right to continue the use perpetually. An ‘easement by implication,’ by contrast, is based upon logic. The law recognizes, for example, that when the obvious consequence of a sale or subdivision is to leave lot owners with no access to a public road other than by passage over the land conveyed or subdivided away, the owner of the landlocked land has an ‘easement by implication’ to travel over the other land.

Then, there are disputes over whether an owner is using his or her own property for an improper purpose. These are usually resolved under local zoning law or under the law of ‘nuisance.’ The latter recognizes that even a use that is permitted under the zoning ordinance may be enjoined if it is inherently offensive to neighboring properties.

Last are encroachment disputes, whether the encroaching items be artificial (buildings, parking areas) or natural (tree branches, roots). Your neighbor’s building or tree’s branches extend onto your property. Here the law usually gives you the upper hand; the courts generally require that a proven encroachment be removed.

Once a lawsuit is filed, is it likely that the case will proceed all the way to a formal court trial?

No. Most cases are eventually settled. They don’t settle quickly, because they begin with so much bad blood. But litigation between neighbors can be very expensive. It could easily cost more than $100,000 in legal fees to take an adjoining-neighbor dispute through trial.

And the expense will often escalate as trial approaches. So even litigants who began with a ‘spare-no-expense’ approach are often forced to undertake a cost-benefit analysis. Winning the case could cost more than the property is worth.

William J. Maffucci is of counsel at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (267) 620-1901 or wmaffucci@sogtlaw.com.

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Intellectual property (IP), whether patents, copyrights, trademarks or trade secrets, is an important asset for almost every company, regardless of industry or market focus.

“Business owners should be careful not to fall prey to the misconception that if their business does not involve manufacturing, research and development, or high-tech innovation, there is no IP to protect,” says Alexis Dillett Isztwan, member at Semanoff Ormsby Greenberg & Torchia, LLC. “In fact, with reliance on the Internet for the delivery of goods and services, as well as marketing, strong brand recognition and the development of original creative works have become an important driver for generating revenue. It is not unusual today for a business to have only one category of assets — its intellectual property.”

Smart Business spoke with Isztwan about how you can know whether you really own the IP that you paid for.

How does ownership typically work when a contractor develops IP?

Often, owners assume if they paid a contractor to create something — a website design, an Internet platform or portal, a logo design, a software program — then the business owns all the rights. The reality, however, is quite the opposite. Under copyright law, the author — the graphic designer or the software programmer — owns the copyright, and under patent law, the inventor owns the rights. This is true regardless of whether, or how much, the company paid.

For copyrights, there is a narrow, often-misunderstood exception called the ‘work for hire’ doctrine. The work for hire exception covers only two categories: (1) employees who create works within the scope of their employment, and (2) nonemployees who create a work that falls within one of the specifically enumerated categories in the copyright law. The second category applies infrequently, covering only works such as contributions to a collective work, parts of a motion picture or other audiovisual work, translations, an instructional text, a test, answer material for a test, or an atlas. The first exception covers works prepared by an employee, not contractors.

Determining whether a person is an employee requires evaluating the level of control the employer has over the work as well as the creator and his or her conduct. Even if the creator is an employee, it calls into question when the work was created and whether the subject matter is related to the scope of employment.

What can business owners do to ensure they own what they pay for?

The best way to solidify IP ownership is with a written contract signed by both parties prior to any services being performed, whether by an employee or contractor. The contract should clearly grant ownership of all works and inventions and related IP rights to the business. Ownership should not be dependent on or timed with payments.

Even businesses that attempt to cover ownership in a written agreement sometimes limit effectiveness by stating that all work should be considered ‘works for hire.’ Since copyright law does not cover all IP rights, the contract language should contain an immediate, explicit and irrevocable assignment of all rights in the work created.

One pitfall is failing to recognize when the contract is necessary. Whenever a business hires an outside party to prepare a product or other deliverable, a written contract for those services should contain a favorable ownership statement.

Too often, the contractor convinces the owner a written agreement is unnecessary or that the contractor operates on a purchase-order basis only. This is a red flag, as trying to extract an ownership statement later will come with a price and often be refused.

Is this an area of growing concern? 

To many business owners, it is counterintuitive that IP ownership generally resides in the author or inventor rather than the party paying for the work. As a result, a number of owners are unaware of the problem until it surfaces in another context, such as when trying to sell the company, looking for financing, or in a dispute with the contractor or employee who created the work.

The ownership issue is not industry specific, but startup companies are more vulnerable to missteps. Startups, often low on cash, frequently look to friends to work for them based on a handshake promise of future interest in the company. When the business starts growing, those ‘friends’ come looking for their equity, and if you did not obtain an assignment of rights, you have little leverage, particularly when the savvy friend holds the IP ownership hostage in exchange for a

percentage of the business.

During the due diligence of a sale or financing, buyers or potential investors look at whether the company owns all of the asset rights, either to determine the value or ensure security. Increasingly, those assets are entirely or largely IP related. An unclear ownership chain often devalues the business. For example, a business hires multiple programmers to develop software without agreements, and tying up ownership requires tracking down each programmer to obtain an assignment of rights. It may be impossible to find each programmer and, if you do, even harder to convince them to agree to an assignment.

If you don’t have an assignment, what can happen to your property? 

If your company does not own the IP rights, not only is the business potentially vulnerable to infringement claims but the actual owner also has the right to license or sell the work to other parties, including competitors. Imagine having a new software platform developed by a contractor without an assignment, and then that contractor licenses or sells it to your competitor. You lose control over what was supposed to add value to your business, and you could have to focus time and resources on either defending an infringement claim or obtaining the rights from other parties, likely at a much higher cost than originally paid.

Alexis Dillett Isztwan is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach her at (215) 887-0200 or aisztwan@sogtlaw.com.

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The way business owners can raise private capital is undergoing an unprecedented expansion.

Pursuant to the Jumpstart Our Business Startups (JOBS) act, the Securities and Exchange Commission (SEC) has proposed new rules that would permit general solicitation and general advertising for certain private placements.

Comments were due by Oct. 5, with the final rules due out shortly.

“It should certainly spur investment,” says Peter J. Smith, a member at Semanoff Ormsby Greenberg & Torchia, LLC.

“The average small business owner might have a $10 million per year company and want to raise a million dollars for an acquisition, a new product line, division or plant, or want to hire or need to grow,” he says. “They may not know the kind of people who can write those checks, and if they don’t, they can now advertise for

investors.”

Smart Business spoke with Smith about how private placements work and what the future holds.

What is a private placement? 

Under the Securities Act of 1933, the sale of securities must be registered or meet a ‘safe harbor’ exemption.

These exemptions are primarily contained in Rules 504, 505 and 506, although Rules 504 and 505 are not often used. Rule 506 provides that a company can sell an unlimited dollar amount of securities to an unlimited number of ‘accredited’ investors, and up to 35 nonaccredited investors.

An individual accredited investor is someone who meets one of the qualification criteria, including:

  • Net assets in excess of $1 million, excluding private residence.

  • An individual annual income of $200,000 per year or a joint income of $300,000 per year for the last two years and anticipate reaching that level again in the current year.

Entities have to meet different criteria to be considered accredited. Under current rules, companies can take up to 35 purchasers who do not meet the accredited investor test. If you are issuing securities to nonaccredited investors, however, you will want to provide adequate disclosures.

Additionally, there are prohibitions on general advertising and solicitation. This significantly restricts who you can solicit.

Why might a business owner utilize a private placement to raise capital?

Growing companies in need of capital and not in a position to borrow could benefit from a private placement. In this lending environment, banks are extremely conservative in their underwriting criteria. So, if a company is growing quickly, capital is generally not available to it through traditional means if it doesn’t have the collateral.

Smaller, privately held companies can’t afford a public offering’s cumbersome registration and reporting requirements. By doing a private placement, the business can raise additional capital through the issuance of equity. Owners give up a piece of their company, but theoretically, are growing the company, so the owner has a smaller piece of a larger pie.

By retaining an experienced attorney, you can structure a private placement in a way that meets your long-term business goals and is attractive to potential investors.

The attorney can assist the business with preparing a private placement memorandum, describing who they are, what they do, why they’re raising capital, the uses of the funds, and includes their business plan, projections, financial statements and risk factors.

This information becomes part of the solicitation materials used to attract potential investors and also protects the company from liability.

What are the new rules for private placements?

The new SEC proposed rules will permit the use of general solicitation and general advertising to offer and sell securities so long as you meet specific criteria, including:

  • The securities can only be sold to accredited investors.

  • The issuer of the securities has an obligation to take reasonable steps to verify that an investor is in fact accredited. For example, if a purchaser claims his net worth is in excess of $1 million, the issuer should ask for a personal financial statement and supporting documentation to demonstrate that net worth.

The intent is to open up additional avenues of capital for small business in order to stimulate the economy and job growth.

How much will the solicitation rule change private placements? 

Most small businesses don’t have a group of high-net-worth individuals waiting to invest.  It’s hard to go to your friends and family and ask for a million dollars. There are a lot of companies with good stories to tell and solid financial statements, but without the right kind of investor contacts. So, if they could go to an attorney or investment banker, put together a package, advertise and openly solicit accredited individuals and companies, it’s going to significantly increase the flow of funds into small businesses.

What are the risks regarding general solicitation and advertisement?

It does create an environment where there is more opportunity for fraud and misrepresentation. Investors will have to be careful and do their due diligence to assure they are making good investments in good companies. The documentation and disclosures will become that much more important. If we weren’t coming off a very difficult recession and sluggish economy, it’s unlikely this rule would have been implemented. For now, it is a way to get capital to small businesses to spur growth. Banks can say they have money to lend, but they’re not lending it. There are many companies that are struggling to get capital; they’ve had lines of credit reduced and borrowing bases limited. It’s very difficult for a growing company to get enough capital to continue on its growth cycle. This new rule should help.

Peter J. Smith  is a member at Semanoff Ormsby Greenberg & Torchia, LLC.  Reach him at (215) 887-4132 or psmith@sogtlaw.com.

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Published in Philadelphia

When starting a business, owners usually think, not surprisingly, that relationships with their partners will be eternally copacetic. Unfortunately, issues among owners arise and resolution of these issues can be both time-consuming and expensive. A bit of planning at the outset, however, can prevent heartache later.

“Because of unforeseen circumstances which may arise and circumstances which business owners may foresee but choose not to address, I advise clients, at the outset of the formation of their business, that it is crucial for them to enter into a comprehensive agreement with the other owners,” says Craig M. Chernoff, a member at Semanoff Ormsby Greenberg & Torchia, LLC.

“There are many areas to be considered in these agreements and each business is unique,” he says. “It is crucial that business owners consult with their attorneys to sort through these issues and determine the best way to handle them.”

Smart Business spoke with Chernoff about the importance of agreements among business owners.

What is the role of agreements among business owners?

These agreements — primarily shareholder, operating, partnership and similar agreements — address and govern a multitude of situations by setting forth the rights and obligations of business owners across a broad spectrum of areas.

What issues might owners address with these agreements?

These issues can be broken down into four categories as discussed below. How each issue is handled may vary from business to business, and there is no one ‘right’ way or answer. So, consulting with your attorney is vital to ensure that each issue is handled in the best way to suit your business.

  • Dispositions of interests upon certain triggering events: What happens with an owner’s interest when that owner dies, becomes disabled, is terminated, becomes bankrupt or divorces? Typically, owners enter into relationships based on various personal and business factors. When a ‘triggering event’ occurs, owners generally do not want to be forced into a new relationship (for example, they do not want to be in business with their partner’s spouse). Typically, agreements provide the business and the remaining owners an option to purchase the interest of the owner affected by the triggering event. The more difficult question is valuation, and how it is to be paid so as not to cripple the business. Other considerations include obtaining insurance to fund the buyout and purchase price discounts depending on the type of triggering event.

  • Transfers of interests in the business: What happens when a business owner wants to transfer his or her interests in the business? For example, Trey (75 percent) and Mike (25 percent) own Piper Pipe, Inc. Jon offers to buy Trey’s 75 percent interest in Piper for $10,000,000. If there is no agreement, Trey may sell his interest to Jon, and Jon and Mike would be co-owners of Piper. Because business owners want to control who they are in business with, agreements may provide that an owner may not transfer an interest without first offering to the business or to the other owners on the same terms and conditions as offered by the potential purchaser. If Trey and Mike had an agreement, Trey would offer Piper and/or Mike his interest for $10,000,000. Piper and/or Mike may accept or reject the offer. If they reject, Trey would be free to sell his interest to Jon. Agreements may provide for ‘tag along’ and ‘drag along’ rights. ‘Tag along’ rights allow an owner with the right to ‘tag along’ in a sale by the other owner (favoring minority owners), and ‘drag along’ rights allow an owner to ‘drag along’ the other owners in a sale (favoring majority owners). If there are ‘tag along’ rights, Mike may choose to include his interest in the sale to Jon. If there are ‘drag along’ rights, Trey may be able to force Mike to sell his interests to Jon.

  • Management and voting rights in the business: Agreements may provide owners with certain management and voting rights. Depending on the business, one person (or a group) may run the day-to-day operations or have the right to do whatever they want with the business. Owners may vary voting requirements for certain business actions. For example, appointing officers may require a majority, but approving a merger may require unanimity. Owners may also provide a mechanism to break deadlocks, including mediation, arbitration, ‘shoot out’ provisions or even the business’s dissolution.

  • Miscellaneous: Anything may be provided for in agreements among owners, if such provisions are not contrary to applicable law. Examples are anti-dilution provisions; restrictive covenants; requirements when additional capital is needed; escrow and voting right provisions upon the sale of an interest; contribution and indemnity obligations; and truncated arbitration or other dispute resolution mechanisms.

What steps should be taken when owners are considering agreements?

When an owner wants to start a business or prepare an agreement for an existing business, the owner should meet with their attorney to discuss which issues are applicable and how to address those that are. It is often prudent to include financial and insurance advisers who may have greater insight into the inner-workings of the business, particularly with regard to valuation of the business.

What is the most common error an owner can make?

The biggest error is not having an agreement or using an ‘off-the-shelf’ agreement. Too often, people tell their attorney, ‘We never got around to signing an agreement, but now my partner and I are not getting along and we cannot amicably resolve our differences. What can we do?’ There are solutions, but resolution of these issues is less time consuming and expensive if there is an agreement in place beforehand.

Craig M. Chernoff is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-4835 or CChernoff@sogtlaw.com.

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Published in Philadelphia

The Pennsylvania Wage Payment and Collection Law (WPCL) allows employees to bring a civil legal action against an employer if they are not paid for work performed and wages earned.

“The law, which has the aim of making sure employers are paying employees what is due when due, provides tough consequences for employers who don’t comply,” says Alfredo M. Sergio, an attorney with the Employment Law and Commercial Litigation groups at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Sergio about what employers need to know about the Pennsylvania law, including possible individual penalties for noncompliance.

What are the highlights of the Pennsylvania Wage Payment and Collection Law?

The WPCL requires employers to notify employees at the time of hire of their rate of pay, the time and place of payment, and the amount of wage supplements and fringe benefits. Employers must pay wages on regular paydays designated in advance, and must pay non-salaried employees semimonthly or more frequently, unless stipulated in an employment contract. The statute has a fairly broad definition of wages, and includes all earnings of an employee, such as regular wages, overtime and commissions.

Employers are also responsible for keeping accurate records of hours worked and wages paid to each employee. If an employer is separating or terminating an employee from the company, the business must pay any wages due by the next regular payday.

If not, the employee can file a claim with the Department of Labor and Industry (which can take up the action on behalf of the employee), or the employee can file suit against the company.

What penalties can an employer and its personnel face for failing to comply?

Penalties for failing to pay wages can have a substantial impact on an employer, whether resulting from a private civil action or action by the Secretary of Labor and Industry. If an employee files a claim for unpaid wages, the employer must immediately pay any undisputed portion of wages.

If the employer or former employer fails to pay the claim or provide a satisfactory explanation of the failure to do so within 10 days after receipt of a certified notification (or ultimately, if the explanation is deemed unsatisfactory), the employer will be liable for a penalty of 10 percent of the portion of the claim found to be justly due, in addition to the principal. If the employer goes 30 days past the regularly scheduled payday without paying wages due an employee, the penalty increases to 25 percent of what is owed, or $500, whichever is greater, plus the principal.

Additionally, the WPCL provides for mandatory attorney’s fees in the event a lawsuit is filed to recover wages. The court has some discretion regarding the amount, but if an employer has violated the law, the employer will end up paying the principal, the penalties and some degree of the employee’s attorneys’ fees, which can be significant. While criminal penalties are not always imposed, the law provides that an employer can be fined up to $300 or for imprisonment of up to 90 days, or both, for each offense. The nonpayment of wages to each individual employee constitutes a separate offense.

Can company personnel be held personally liable for noncompliance?

In addition to general and criminal liability, the WPCL provides for individual, personal liability for violations. This surprises many employers, as they generally think of the corporate structure as providing protection from individual liability or debts of the company.

The WPCL defines ‘employer,’ in part, as including a company’s agent or officer. An agent or officer who has been involved in the decision to withhold wages can be found individually liable for violations of the law. This can even include the company CEO, president or CFO.

Employees often file wage claims not just against the company but also against individual officers of the company to place additional pressure on the employer and its principals to recover unpaid wages.

In what situations do employers most often violate The WPCL?

Among the biggest missteps to avoid are not paying an employee’s wages when due and making deductions from the last paycheck when the employer is not entitled to do so.

Wage payment and collection issues often arise when an employee is separated from an employer, either because he or she quits or is terminated. These issues are arising more often in recent years in a difficult economy. A company might be closing, contemplating bankruptcy or laying off employees, but employers need to pay employees what is owed.

When a company files for bankruptcy, employees often seek to hold corporate officers personally liable for unpaid wages. Even short of bankruptcy, if an employer thinks it will not have enough funds to continue the employment of certain employees, it is dangerous to fire them and not pay what is due.

Wage payment and collection issues also often arise when an employee owes money to the company at the time of separation. While certain enumerated deductions from wages are permitted by the law, it is easy for an employer to think it is justified in making a deduction from a paycheck, only to run afoul of the WPCL (for example, the employer might want to deduct from a separated employee’s final paycheck the cost of a missing piece of equipment or unreturned laptop).

In general, the employer needs to pay the full amount of wages owed to the employee and can pursue the disputed sums separately.  The WPCL needs to be foremost in employers’ minds because the consequences — including the danger of individual liability — can be severe.

Alfredo M. Sergio is an attorney with the Employment Law and Commercial Litigation groups at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-0200 or asergio@sogtlaw.com.

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Published in Philadelphia

Without the protection of a non-competition agreement, most courts are reluctant to prevent a former employee from working for a competitor. However, even when a company has a non-compete agreement with an employee, it may be unenforceable if it is not drafted in accordance with the laws of the state in which the company seeks to enforce it, says Stephen C. Goldblum, a member at Semanoff Ormsby Greenberg & Torchia, LLC.

“There’s a perception that Pennsylvania courts do not enforce non-compete agreements, but that’s incorrect,” says Goldblum. “Covenants not to compete are routinely enforced by Pennsylvania courts to the extent they are reasonably necessary to protect the legitimate business interests of the employer.”

Smart Business spoke with Goldblum about the importance of having properly drafted non-compete agreements in order to best ensure that they will be enforced by a court.

Why are non-compete agreements important?

In conjunction with other restrictive covenants such as a non-solicitation of customers and employees, confidentiality and inventions clauses, non-compete agreements are the best way a company can protect itself from the harm it can potentially suffer in the event an employee leaves the company and then solicits the company’s customers on behalf of a competitor.  Although non-compete agreements are fairly common for executives and managers, they are not utilized as frequently as they should be for salespeople and other employees that regularly communicate with a company’s customers.

How does Pennsylvania law differ from other states regarding non-compete agreements?

Many states are less inclined to enforce non-compete agreements than Pennsylvania. For example, California has a statute that prohibits non-compete agreements except in very limited circumstances. Generally, Pennsylvania courts will enforce a non-compete agreement as long as the agreement is narrowly drawn and the company seeking to enforce the non-compete agreement can meet the threshold requirement of having a legitimate, protectable business interest such as customers and customer goodwill, confidential information, specialized training or trade secrets. Pennsylvania courts will not enforce covenants aimed at repressing or eliminating competition to gain an unfair economic advantage.

What should employers know when entering into non-compete agreements with employees?

In Pennsylvania, the offer of employment is sufficient consideration for a non-compete agreement entered into between a company and an employee at the outset of employment. In Pennsylvania, there are four requirements for an enforceable non-compete agreement. The non-compete agreement must be:

  • Ancillary to an employment relationship.

  • Supported by adequate consideration.

  • Reasonably necessary to protect a legitimate business interest of the employer.

  • Reasonably limited in duration and geographic scope.

There is no precise formula for what makes a covenant not to compete reasonable. A court will evaluate the circumstances and make a factual determination as to whether it will enforce a non-compete agreement on a case-by-case basis.

If an employer has employees in multiple states, it can include a provision that ensures Pennsylvania law will govern the interpretation and enforcement of the non-compete agreement.

What common mistakes do employers make when entering into non-compete agreements with existing employees?

The most common mistake is to fail to give additional consideration and simply demand the employee sign the noncompete agreement. Continued employment alone is insufficient consideration for a non-compete agreement entered into subsequent to the commencement of the employment relationship.

If the company seeks to enter into a non-compete agreement with an existing employee, it must give additional consideration, which could include many different items such as a promotion, an increase in salary or benefits or a monetary payment.

How can employers determine when and how to enforce non-compete agreements?

When an employee resigns or is terminated, the company should remind the employee of his or her non-competition obligations and provide the employee with a copy of the signed non-compete agreement. If it is subsequently determined a former employee is in violation of the agreement, the company has the right to proceed against the employee in court. The company may seek preliminary injunctive relief to prevent employment in violation of the non-compete and file a breach of contract action against the former employee and seek permanent injunctive relief and monetary damages. Typically, a case against a former employee also includes the new employer for interfering with the company’s contractual relationship with its former employee.

When hiring, a company should always inquire whether potential employees are bound by agreements that could restrict them from accepting employment or limit the performance of their duties. Otherwise, the company could be inviting a lawsuit if it hires an employee who is contractually bound not to compete with a former employer.

How often should an employer review its non-compete agreements?

Noncompete agreements should be reviewed no less frequently than every two years because the laws that govern their interpretation and enforceability change. Legal counsel that is up to date on the ever-changing landscape of employment law in Pennsylvania should review non-compete agreements to determine their compliance with existing law, which will best ensure their enforceability.

 

Stephen C. Goldblum is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-5961 or sgoldblum@sogtlaw.com.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

Published in Philadelphia

Before entering into an international commercial agreement, it is vital to ensure your company will be protected in the event of a dispute.

Litigation can drag on for years and can be extremely disruptive and expensive.  Litigating against a foreign company can be particularly complex with issues that include service of the complaint in a foreign country and jurisdictional objections that can be raised by a foreign defendant. That is why international arbitration may be the answer, says Michael B. Dubin, a member with Semanoff Ormsby Greenberg & Torchia, LLC.

“International arbitration is an easy way to litigate against a foreign company that allows you to avoid a lot of the headaches,” says Dubin. “With any international commercial agreement, consult with an attorney early to assist with both the structure of the business terms as well as contingencies in the event of a dispute.”

Smart Business spoke with Dubin about the advantages and intricacies of international arbitration.

What is international arbitration?

International arbitration is a confidential, private arbitration proceeding to resolve disputes between parties to an international commercial agreement. The agreement provides that all disputes arising out of or relating to the agreement will be resolved by binding arbitration by one or more arbitrators (usually three) selected by or on behalf of the parties and sets forth under what rules the arbitration will be conducted.

The arbitration is similar to a trial but heard before experienced attorneys and/or businesspeople sitting as the arbitrator(s), rather than a judge or jury. After the arbitration, the arbitrator(s) will issue a binding award that cannot be appealed except under limited circumstances, such as for fraud or undue influence on the arbitrator(s).

How can international arbitration help resolve a dispute for my company?

International arbitration provides a quicker, more efficient resolution of a dispute than litigation and allows the parties to avoid the uncertainties of litigating in a foreign court. A typical international arbitration can be completed in approximately one year from the date of filing.

Arbitration generally, including international arbitration, substantially limits the exchange of discovery between the parties, thereby expediting the entire process. The arbitrator(s) routinely allow the parties to request information and documents from the opposing party and possibly take a limited number of depositions, if warranted. However, depositions are discouraged.

One disadvantage to arbitration is the actual out-of-pocket costs to the parties. For example, a party initiating an arbitration seeking damages of $500,000 to $1 million can expect to pay a filing fee of approximately $8,500.  In addition to the filing fee, the parties are required to pay the hourly or daily rates of the arbitrator(s), which can be expensive in a case with three experienced arbitrators.

How can companies best protect themselves before international arbitration, especially mid-sized companies that might not be familiar with the process?

Most mid-sized companies are unfamiliar with international arbitration. If your company is contemplating entering into an international commercial agreement, consult with an attorney during the initial stages of negotiation instead of waiting until after the agreement is signed and a dispute has arisen.

There are several critical items that companies should consider and provisions that should be included in international agreements if arbitration is the desired dispute resolution method. These provisions include:

  • A clause providing that all disputes arising out of or relating to the agreement will be resolved by binding arbitration.
  • Under what rules the arbitration will be conducted.
  • That interim (injunctive) relief shall be permitted.
  • The number of arbitrators and how they will be selected. For instance, agreements commonly provide for three arbitrators, one to be selected by each party and the third arbitrator, who will act as the chairperson, to be selected by the two party-selected arbitrators.
  • The language in which the arbitration will be conducted.
  • The state and/or country’s substantive laws that will govern the arbitration.
  • The city and country where the arbitration will be conducted.
  • Whether the prevailing party will be awarded its attorneys’ fees and costs.
  • The award can be enforced in any court of competent jurisdiction, meaning the prevailing party can enter the award as a judgment in court to enforce and collect on the award.

What steps should a company take once it becomes aware of a dispute?

 

Once you become aware that your company is involved in a dispute that could lead to arbitration or litigation, it is important to preserve all relevant documents and to inform your employees (and IT team) not to delete or destroy any documents, including electronic documents, that may be relevant to the dispute. Also contact your company’s in-house counsel and/or outside counsel early on to best protect your company.

International disputes can be complicated and expensive, but a well-drafted international commercial agreement can simplify the process, help control costs and put your company in the best position for a successful resolution.

 

 

Michael B. Dubin is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-2658 or mdubin@sogtlaw.com.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

Published in Philadelphia

Documents written by lawyers are often hard to understand. They’re chock-full of arcane terms, and they systematically violate every precept of the “plain language” movement.

Lawyers have only themselves to blame. Most of them can, and occasionally do, write clearly. But should you insist that your lawyer always use plain English? No, says William Maffucci, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Maffucci about when to insist that your lawyer speak clearly and when, instead, to leave legalese alone.

What is plain language?

Plain language is language that a listener or reader is likely to understand.

Lawyers in the plain-language movement reject the assumptions that legalese is indispensable, that every fact recited at the beginning of an agreement must begin with ‘whereas,’ and that every affidavit must end with ‘further affiant sayeth naught.’ They begin sentences with ‘and’ and ‘but’ rather than ‘moreover’ and ‘notwithstanding the aforesaid.’ They use contractions. Even sentence fragments.

Advocates of plain language prefer small words (provided they do not compromise meaning), short sentences (but not to the point of monotony), short paragraphs (ditto), and the active tense (except when the passive tense serves a purpose). They strive to ‘omit needless words,’ but they recognize that sometimes repetition itself serves a need.

Is plain language always preferable to legalese?

In a perfect world, everyone — lawyers included — would always use plain language. Even in our imperfect world, lawyers should use plain language rather than legalese when all other things are equal. But rarely are all other things equal.

Writing an original document in plain language is hard, and excising legalese from an existing document is harder. Both take time.

Sometimes you should insist that your lawyer take that time. Clarity is critical in some documents, such as employee handbooks. Plain language is sometimes mandatory in consumer contracts. And the ability to enforce a waiver of a constitutional right often depends upon proving that the other party actually understood the waiver.

But sometimes it makes no sense to require a lawyer to spend the time necessary to express a concept with plainer language or greater concision. Common commercial documents that conform to centuries of custom in an industry are likely to be understood by people in the industry. What would requiring your lawyer to rewrite them in plain English achieve, other than a higher legal fee?

Other times, a lawyer may be unwilling to buck tradition. Every term traditionally used in deeds, for example, has at some time been interpreted by the courts. The fact that the term still appears in modern forms leads lawyers to assume that the term serves some (often unknown) purpose.

Have the courts concluded that the traditional terms always serve a purpose?

No. Occasionally the courts have declared that some of traditional conveyancing words can be omitted without consequence. So have the legislatures.

By statute in Pennsylvania, the words ‘grant and convey’ are sufficient to convey real estate, so conveyancers no longer need include the other terms traditionally used for that purpose — ‘bargain and sell, release and confirm.’ But here’s a dirty little secret of the legal profession: Very few lawyers have memorized all of the authorized shortcuts. And I don’t think any court or legislature has ever handed down an opinion or enacted a statute specifying that the continued use of a term that has been deemed to be surplusage makes the instrument ineffective.

At the same time, there have been court decisions and statutes establishing that certain boilerplate phrases (think ‘small print’) are indispensable. One statute makes it important to include in certain contracts a provision specifying that, by signing the contracts, the parties ‘intend to be legally bound.’

And court decisions have turned on the distinction in construction subcontracts between the words ‘if’ and ‘when’ in the phrases ‘pay if paid’ and ‘pay when paid.’ Lawyers share horror stories of fortunes lost in court decisions interpreting such seemingly inconsequential terms. Naturally, the lawyers develop a reluctance to change words that have been used since time immemorial.

Is there a rule of thumb for deciding when to tell you lawyer to use plain English and when to leave legalese alone?

Never stop considering the context in which a lawyer is being asked to communicate. If the lawyer is drafting a loan-participation agreement that will bind only long-established financial institutions conducting business as usual, the lawyer should not be faulted for pulling a tried-and-true template off the shelf and making no effort to clarify it. If the lawyer is drafting workplace rules for a glass factory, the lawyer should be faulted for not using the vernacular of that trade. If the lawyer is drafting an agreement by which the client’s neighbor would grant the client an easement over the neighbor’s property, the lawyer should use language that is likely to be understood not just by the client but also by the neighbor — and by future owners of the properties, if the original parties intend that the easement last in perpetuity.

Consider the additional time that your lawyer would spend to communicate more clearly to be an investment, and always ask yourself whether the investment makes sense.

Published in Philadelphia
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