How to comply with the law when creating a sweepstakes or contest

Marketing promotions such as sweepstakes and contests can be a great way for businesses to create buzz and increase brand awareness. Businesses must be careful when putting these promotions together, however, as giveaways are subject to many overlapping federal and state laws, the latter of which are unique in each state.

“Failure to comply with laws and regulations applicable to promotions can lead to civil and criminal penalties,” says Julia Richie Sammin, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Sammin about the legal aspects of business promotions and how an attorney can help with the process.

What legal concerns should businesses be aware of when sponsoring a promotion?

The law distinguishes between lotteries, sweepstakes and contests. Lotteries combine three elements: a prize, chance — i.e., the winner is selected randomly — and consideration from the entrant. They are illegal in all 50 states unless run by the government or, in some circumstances, by a charitable organization.

Sweepstakes and contests are legal, provided the sponsor complies with the legal requirements. Sweepstakes involve chance and a prize, with no consideration required.

Contests eliminate the element of chance and award a prize on the basis of skill, as in a photo contest or essay contest, and often require consideration from the entrant. ‘Consideration’ in this context does not just mean the payment of money; giving value or undertaking a significant effort, such as making a purchase or sitting through a lengthy sales presentation, can also constitute consideration.

There are different rules and regulations that apply to sweepstakes and contests, so businesses must clearly define their giveaways in order to follow the correct regulations.

How should a business go about creating the rules for a promotion?

Perhaps the most important element of implementing a promotion is drafting the official rules, which will contain all the relevant information about the promotion, such as how to enter, prize description, how a winner is chosen, etc. Federal and state laws dictate what must be included in the official rules and even mandate certain specific disclosures.

Businesses should therefore be very careful in drafting the rules so that they comply with applicable laws while clearly stating all of the terms and conditions of the promotion. For example, describing the prize as a ‘one-year supply’ of a product could be open to interpretation, potentially leading the winner to think that the prize is much larger than the sponsor intended.

What are some other considerations that should be taken into account?

Once a winner has been chosen, he or she should sign an affidavit of eligibility and a liability and publicity release. These are important for several reasons. The winner will certify that he or she meets all of the eligibility requirements. The liability release protects the sponsor from claims by the winner. If the prize is a ski trip, for example, a liability release would prohibit the winner from suing the sponsor if the winner is injured while skiing. A publicity release grants the business the right to use the winner’s name and likeness for promotional and advertising purposes.

What issues can online, mobile and social media promotions present?

Social media promotions, such as, ‘Like us on Facebook for a chance to enter,’ must comply with the social media platform’s guidelines for promotions. Businesses should also consider their privacy policies and how they will handle personal information collected from entrants. If the promotion is directed at children, then businesses must be particularly careful, as additional laws and regulations will apply.

How can an attorney help with the process?

An attorney can help businesses every step of the way. At the outset, an attorney can draft the official rules, privacy policies, and contracts with third parties such as prize suppliers, as well as prepare filings for states that require registration. An attorney also can prepare the affidavit of eligibility and the publicity and liability release.

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

Employers need to get serious about compliance with the Affordable Care Act

Employers could afford to take a wait-and-see approach with the Affordable Care Act (ACA) when it was first signed into law in 2010. Skeptics speculated that the initiative could be modified or even be repealed.

The circumstances have evolved as we enter 2015, says Ralph Breitfeller, Of Counsel at Kegler, Brown, Hill + Ritter.

“The problem now is we’re deep into the time when you have to comply,” Breitfeller says. “If you’re an employer, I don’t think you can say at this point, ‘Well, I’m going to wait and see what happens.’ You have to assume it’s here to stay.”

Breitfeller says more change is always possible, but a wholesale repeal of the ACA seems unlikely. Those who choose to hold out for such an outcome risk incurring financial penalties.

Smart Business spoke with Breitfeller about the key compliance dates and requirements that lie ahead this year and what you can do to prepare.

What key dates do employers need to know this year regarding the ACA?

The biggest date to be aware of came to pass this month, Jan. 1, 2015. Employers that have more than 99 full-time employees now have to comply with the ACA. The other one is Jan. 1, 2016, when employers with between 50 and 99 employees have to comply with the law.

The larger employers, those with 100 or more full-time employees, have to offer coverage to 70 percent of their full-time employees in order to comply in 2015. That goes up to 95 percent in 2016 to be compliant.

If you are in that 50- to 99-employee range, you have to start preparing. The way it works is there is a measurement period that must be between three and 12 months. It’s during that time that you determine who is a full-time employee and entitled to coverage and who is not. You sort through the numbers, come up with a plan and then offer the plan so that you’ve got everything in place by the compliance date.

What are some factors that complicate this effort?

Smaller employers will likely run into questions about certain employees. Somebody working less than 30 hours a week, looking at the average during the measurement period, does not have to be offered coverage while another person working 30 hours or more a week does have to be offered coverage.

But other questions may need to involve a lawyer. Let’s say you have a particular employee who starts off as part time and then becomes full time. Or the tougher situation where he starts off full time and then becomes part time.

The general rule is if they were full time during the measurement period, you have to treat them as full time during the stability period.

But there are exceptions where you can treat them through a change in status as a part-time employee.

What about employers who choose to pay the penalty rather than offer health insurance?

There has been a lot of talk amongst employers about not offering a health insurance program and just providing extra money to employees so they can buy health insurance on their own. They may be subject to a penalty, but believe it’s less expensive than buying a health plan.

However, there are some complex regulations that were in place long before the ACA that say that if you provide health insurance to your employees, it is treated as pre-tax dollars.

Some employers believe that if they go the route of giving employees money to buy their own health insurance, they need to use post-tax dollars and it will be fine.

However, about a month ago, the IRS and the Department of Labor made it clear that if you do that, even if you’re using post-tax dollars, you have what is treated as an employer health plan that could trigger all sorts of tax issues and potential penalties.

To avoid this, employers cannot condition the payment of the extra money on the employee using it to buy health insurance. So in the end, providing money to employees to buy their own insurance is probably not the solution it appears to be.

Insights Legal Affairs is brought to you by Kegler Brown Hill + Ritter

Misclassifying employees can lead to significant penalties, lawsuits

In an effort to save on labor costs and reduce employee headcounts, businesses have looked to outside independent contractors to perform some of the services once executed by employees.

Some of the cost savings realized by using outsourced workers include not having to pay taxes, not complying with minimum wage and overtime requirements, and not having to provide insurance or other benefits.

This practice has raised concerns at the IRS and Department of Labor (DOL).

The IRS is interested in maximizing tax revenue, while the DOL wants to ensure compliance with employment laws such as the Fair Labor Standards Act (FLSA), which sets forth the minimum wage, overtime requirements and other employee protections.

This use of outsourced workers also catches the attention of class action plaintiff lawyers when companies classify large blocks of people as independent contractors instead of employees.

All of this has led to an explosion of FLSA claims in the past 10 years, with some years seeing the number of FLSA lawsuits increase more than 20 percent over the prior year.

Smart Business spoke with Steve Ciszewski, partner at Novack and Macey LLP, about the misclassification of workers and the risks it creates.

What are the signs that a company might have misclassified employees as independent contractors?

The signs of misclassification depend on the context in which the question arises.

When the question is posed for tax purposes, the IRS has adopted an extensive analysis to determine the right classification. There is a specific tax form  — SS-8 — that is intended to measure behavioral control, financial control and the general relationship between the parties. The general concept is to determine whether the company or the worker controls the working environment.

For purposes of the FLSA, the DOL has developed what it calls an economic realities analysis, which consists of six factors that attempt to determine whether, as a matter of economic reality, the individual is more like an employee or more like an independent contractor.

Many courts interpreting the FLSA have adopted this economic realities analysis.

It’s important to note that each state may have its own interpretation of its state tax and employment laws.

What are the consequences if a business misclassifies an employee?

The company could face a large class action suit by the misclassified employees.

Depending on the number of people involved, there could be significant damage exposure consisting of the amounts that should have been paid as well as statutory damages equal to 100 percent of the amount that should have been paid and attorney fees.

In addition, the government will be looking to the employer for make-up payments and penalties on income taxes and contributions to Social Security, Medicare, the federal unemployment tax, etc.

How can businesses best protect themselves against the risks of misclassification?

Any decision to classify a worker as an independent contractor should be done carefully and only after a close analysis of the specific facts surrounding the relationship.

In some cases, this will be a very easy analysis that can be performed by in-house human resources staff. This type of review would be most appropriate when there are only a small number of people whose classifications are in question or when the relevant factors point heavily in one direction.

Other cases might require a detailed legal analysis from in-house or outside counsel.

This would be most appropriate when many people are in question or when it is a close call as to whether those involved are independent contractors or employees. ●

Insights Legal Affairs is brought to you by Novack and Macey LLP

Why the new year offers the chance to address important legal matters

You probably have a lot on your mind as you start to think about what your business can do in 2015. As you think about growth strategies that could bring in additional revenue and untapped potential that may exist in your workforce, the dawn of a new year is also a good time to make sure you have covered all your bases from a legal standpoint.

“When was the last time you reviewed your insurance coverage?” says Suzana K. Koch, Attorney at Law at Brouse McDowell. “Take some time to make sure you have the appropriate coverage for your size and specific type of business. Do you have a document retention policy? If not, you should. Knowing what to keep and for how long will keep you organized, streamlined and protect your company if a lawsuit is ever filed.”

Smart Business spoke with Koch about some other key New Year’s resolutions you can make for your business and why they are so important to address.

Think about your succession plan

No one thinks succession planning is fun, and no one wants to do this, but everyone agrees how important it is.  If you have a business, especially a small business, then you should consider what your succession plan is and how it fits into your estate planning. This can be an emotional process so be careful not to get overwhelmed — estate lawyers can pose the questions that you need to consider. This is not a quick process, so set aside the time to think, with careful consideration, about your answers to these questions.

Get some legal guidelines

This is what protects corporate owners from corporate liability. Have an operating agreement for an limited liability company or a set of regulations for a corporation (or bylaws if outside Ohio), hold official meetings, keep a corporate records book that includes minutes of those meetings and resolutions.  If your company is ever sued, you will be glad you kept up all the legal corporate formalities.  Don’t know where to start? A corporate lawyer can walk you through the steps and guide you on the process. Keeping your personal and corporate assets and liabilities separate is what insulates owners from corporate liabilities like large debts or lawsuits.

Protect your intellectual property

If your IP is not being protected, you are inviting someone else to steal from you. Copyrights, trademarks and patents are your first line of defense in protecting what is yours. You also want to make sure that you are not using someone else’s IP and inadvertently violating someone else’s rights.

Know which kinds of IP rights apply to your business and take the steps you need to protect what is yours.

Review important business forms

Do your contracts, purchase orders and other forms reflect reality? Are you using your forms in the correct manner? Are your forms up to date? What about the boilerplate? Is it drafted in such a way to best serve the needs of your company? So many times in commercial litigation, it’s the boilerplate that is at issue. Taking the time to review your contracts proactively can help keep you out of litigation.

Go over trade secrets and confidential information

Do you want to protect your company’s goodwill? Do you have noncompete agreements to address these issues? A noncompete agreement has to bridge the gap of protecting the business while not restricting the former employee’s ability to make a living. Make sure your noncompete agreements are reasonable in duration and scope because that is what courts review in litigation.

Look at your employee handbook

Is your employee handbook current? Does it need some attention? Have you provided anti-harassment or discrimination training for your employees? How do you evaluate your employees? Critique your evaluation process and conduct employee reviews annually.

It helps your employees to receive regular and constructive feedback, as well as protecting the company against employee claims like discrimination or wrongful termination.

Insights Legal Affairs is brought to you by Brouse McDowell

How to maintain corporate integrity while monitoring employees

There are many reasons why companies choose to monitor their employees. They do so to help protect against theft, ensure safety, promote good customer service, protect company information, and as a deterrent against bad acts in general. Employee monitoring can also be a useful tool in reducing or eliminating workplace harassment. It is important, however, to strike a balance between corporate integrity and employee privacy.

“Employers want to make sure they are not illegally invading their employees’ privacy at the same time they are protecting the smooth functioning of their business,” says Alfredo Sergio, an attorney in the Employment Law and Commercial Litigation groups at Semanoff Ormsby Greenberg & Torchia, LLC.

Balancing monitoring and privacy is attainable when organizations communicate to their employees the purpose of monitoring activities, set privacy expectations and implement reasonable monitoring policies.

Smart Business spoke with Sergio about corporate integrity, the importance of signed documentation and factors to consider when implementing various monitoring tools.

What corporate integrity concerns do employers have relating to email, video or audio monitoring?

Corporate integrity concerns include preserving confidential corporate information, business records and trade information, ensuring employees comply with work rules, and maintaining a workplace free of harassment and discrimination.

Employers need to have a variety of written human resource policies in place, which employees acknowledge, that address email usage and monitoring, the types of video and telephone monitoring that might be used, and should implement those practices and policies in compliance with federal, state and local laws.

How should a company address email monitoring and computer use?

Employees should be informed by a policy, which they acknowledge, that the company computer system and emails thereon are the employer’s property and should be used for business purposes only. The policy should make it clear that employees have no privacy rights when it comes to company email usage and that email may be monitored. It is also recommended to inform employees that other policies, such as confidentiality and anti-harassment/non-discrimination/anti-retaliation, extend to the use of email.

Employees should be held responsible for following the policy, and policy language should clearly state that failure to adhere to the rules could result in disciplinary action up to and including termination.

What advice would you give about telephone monitoring?

Employers need to be careful with monitoring employees’ phone calls, even if the calls are on company equipment. There are federal and individual state laws regarding electronic monitoring or wiretapping. Pennsylvania has the Wiretapping and Electronic Surveillance Control Act.

In general, employers are not allowed to monitor employees’ telephone conversations unless all parties to the communication have given prior consent. There are, however, limited circumstances where this is acceptable, such as monitoring personnel of businesses engaged in telephone marketing or telephone customer service, if the business only uses the interceptions for training, quality control, and one party has consented to the interception. This is commonplace for quality control or training purposes.

In the appropriate instances, employees and call participants should be informed that calls may be monitored.

How should video surveillance be handled?

There are various reasons an employer might want to install video cameras. For instance, in a manufacturing environment a camera might be important for safety concerns or complying with procedure, or retailers may need cameras for security and loss prevention. Typically, the recording should not include audio because this would be counter to the wiretapping laws in place. Also, video surveillance cannot be used where employees have reasonable expectations of privacy, such as in restrooms or changing rooms.

There are numerous laws that impact and relate to employee privacy. A judicious implementation of employee monitoring should meet employers’ needs in maintaining their corporate integrity while not running afoul of laws that protect employee privacy.

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

Washington Redskins’ trademark battle and the implications for brand owners

One of the more interesting and controversial trademark cases of the past decade is the invalidation of the Washington Redskins trademarks. The social implications are apparent, but there are also lessons to be learned for businesses.

Nearly 10 years ago, the Trademark Trial and Appeal Board (TTAB) cancelled all Washington Redskins marks, a decision that was later reversed by the U.S. District Court for the District of Columbia in Pro-Football, Inc. v. Harjo. Under Section 2 of the Lanham Act, a trademark cannot be registered if it is disparaging to persons living or dead, and a mark is disparaging if it may “slight, deprecate, degrade, or affect or injure by unjust comparison.”

“The social ramifications stemming from any decision are fairly predictable. Legally, however, the lasting effects are less obvious,” says Ashley Johnson, a law clerk at Fay Sharpe LLP.

“Moving forward, it would be beneficial for trademark owners to take a step back and look at whether or not a group or an individual may find their marks disparaging,” says Rachel A. Smoot, an attorney at Fay Sharpe. “Should the marks imply insult or ridicule, it may save registrants a great deal of effort to change the marks.”

Smart Business spoke with Johnson and Smoot about the Redskins’ trademark cases and what they could mean for businesses.

What happened in the Redskins cases?

The District Court ruled that the TTAB lacked evidence to find disparagement in the time frame at issue, and Harjo’s petition was barred by laches, a legal theory prohibiting a party from waiting so long to file a claim that it becomes unfair to the other party. Harjo appealed, but ultimately the District Court found in favor of Pro-Football, asserting that laches barred the case.

Fast forward to 2012 and Blackhorse v. Pro-Football, Inc. Pro-Football is again named as a party, but this time the opposition includes younger plaintiffs unhindered by laches. In June 2014, the TTAB again found disparagement and voided six Redskins marks. With millions of dollars and a decades-long reputation at stake, Pro-Football has filed an appeal.

Where do the cases stand today?

As of now, the Redskins marks are scheduled to be cancelled, but Pro-Football is still fighting. Should the TTAB’s decision stand, it will effectively make the Washington Redskins’ marks available for public use, preventing Pro-Football from receiving benefits of federal registration.

Pro-Football is taking up the fight on several issues, and is asking the District Court to dismiss the case against it, asserting that because Blackhorse is not seeking economic or legal benefits from the decision, Blackhorse has no stake in the outcome of the case, and therefore the case against it is improper.

What implications could this have for sports teams with similar names?

Professional teams such as the Cleveland Indians, in addition to thousands of high schools and recreational leagues, may find themselves under examination as to whether a ‘substantial composite’ of Native Americans are offended. Moreover, should the District Court maintain the TTAB’s decision, then the door is opened to dozens of questions, such as: Will the court take the composite of Native Americans as a whole? Will it focus on a particular state? Where does the line between disparaging and nonoffensive actually lie?

While the forthcoming ruling may not have an immediate economic effect on the Redskins franchise, cancellation of marks in sister franchises as well as of marks in other professional sports may lead to a lasting impact legally and financially.

How might this affect business owners?

For business owners who may need to prepare for national cancellation, international mark protection may still be available as long as the marks are registered directly in other countries. Ultimately, whether or not a mark owner should launch an alternative mark is an individual decision based on many factors including: the amount of time and money required to rebrand, the likelihood that the new brand will bring in revenue compared to the old brand, and the potential impact on any profit-sharing partners.

Insights Legal Affairs is brought to you by Fay Sharpe LLP

The differences between employees and independent contractors

A driver making a delivery for your company is involved in a car accident that seriously injures someone, resulting in a lawsuit against your company.

Will your company have to pay?

This is a complicated subject with numerous exceptions. Usually, while an employer can be held liable for acts committed by an employee that fall within the scope of employment, a business typically is not responsible for the conduct of an independent contractor.

Smart Business spoke with Elizabeth Wolicki, an associate at Novack and Macey LLP, about proper classification of independent contractors.

How can businesses protect themselves and limit their liability?

First, it is important to be aware that merely labeling a relationship with somebody who is providing services for your company as that of an independent contractor is not enough.

Whether a worker is an independent contractor or employee depends on how the relationship between the parties actually works in practice.

To determine the true classification of a worker for liability purposes, courts consider a variety of factors.

These include an employer’s right to control the manner in which the work is performed; the nature of the work performed in relation to the general business of the employer; the manner of hiring; the right to discharge the worker; the character of the supervision of work done; the kind of occupation; the nature of the skill required, including whether the necessary skills are obtained in the workplace; the responsibility for the cost of operation, such as equipment, supplies, fees, licenses; whether the worker receives paychecks or benefits from the employer; whether taxes are deducted from the payment received from the employer; and whether the worker wears a uniform with the company name and logo.

Of these factors, the most important is whether the business has the right to control the manner of the work, regardless of whether the business actually exercises that right.

How would the courts view the worker in the example?

In the example of the delivery truck driver, a court might look at who owns the truck; who is responsible for costs associated with the truck, such as insurance and maintenance; if the company requires its logo to be on the truck; whether the driver is wearing an outfit with the company logo; whether the driver is free to contract with other companies; and whether the driver sets his own schedule.

The court may also examine written documentation between the truck driver and the company, such as a contract or a drivers’ manual, to see whether these documents allow for control by the company over the driver.

How can businesses ensure workers are classified as independent contractors?

If a business wishes to have true independent contractors and limit its potential liability for their actions, then it needs to take steps to ensure that legally the worker will be considered an independent contractor.

For example, the business can allow workers to establish their own schedules, such as hours worked and whether or not to accept certain assignments; require workers to provide their own equipment without too many specifications as to the type of equipment; require that the worker cover any costs associated with the maintenance of that equipment; have third parties pay the worker directly; and not outfit the worker in company attire.

While it is not a dispositive factor, the employer should make sure that the worker’s contract refers to the worker as an independent contractor.

What compromises will businesses need to make to utilize independent contractors?

A downside to having independent contractors and not employees is that, for a worker to be considered an independent contractor, the business must give up a large amount of control over the worker. You need to compare the risks of having workers doing things for your business that you do not control to the risks of having employees under your control subject you to liability for their actions. ●

Insights Legal Affairs is brought to you by Novack and Macey LLP

What to do when your company has fallen victim to a breach of contract

Read before you sign. It seems like good advice in any setting, but Loriann E. Fuhrer says a surprising number of breach-of-contract cases come about simply because the breaching party did not read or understand the terms of the contract into which it had entered.

“Certainly, paying attention to the details of the obligations placed on your company by the contracts it enters goes a long way toward preventing an inadvertent breach,” says Fuhrer, a director at Kegler, Brown, Hill + Ritter.

But not all breaches of contract are that simple. Contract language, however well-intended, can often be ambiguous or susceptible to more than one interpretation.

“It is helpful to have someone who litigates contract disputes weigh in on whether a breach of the contract has occurred and what options there are for either bringing the relationship back on track or recovering damages,” Fuhrer says.

Smart Business spoke with Fuhrer about what to do when a breach of contract occurs and how to prevent it from happening in the first place.

What are common types of breach of contract?

Most breaches of contract are backward-looking and relate to what happened in the past. These typically fall into two general categories.

Either a party fails to perform an obligation that is required by the contract or it takes an action that is prohibited by the contract. Depending on the terms of the particular contract at issue, either action or inaction may be the basis of a breach of the contract.

Some breaches are forward-looking. An anticipatory breach of contract is where a party states its intention not to perform its obligations in the future. Even though the time for performance may not yet have arrived, expressing an intention not to perform future obligations can actually amount to a present breach of contract.

Once a breach of contract occurs, what steps should the company take?

If you’re the non-breaching party, give thought immediately to how to minimize your damages. Every party to a contract has a duty to mitigate damages, so you can’t wait around forever, letting your damages mount, if there are steps you could reasonably take to minimize them.

If you are thinking about suspending your own performance under the contract because of a breach by the other party, you have to think about and determine whether the breach was material or nonmaterial. Under Ohio law, only a material breach excuses further performance by the non-breaching party.

If a company has some question about whether there was a breach, or whether that breach was material, contact an attorney experienced in helping businesses deal with breach-of-contract disputes. You also want to make sure you keep all records. Documentation of the breach, and any damages accrued, will be important if the matter ends up in court.

Is a breach of contract preventable?

Maintain good and open communication with the other party about how the relationship is going and whether expectations are being met to identify and correct problems before they get out of hand. Breaches of contract are sometimes simply the result of bad communication.

What if litigation becomes necessary?

If litigation becomes necessary, you and your attorney will go back to the contract to find out, for example, what law applies to the action, and where it can be brought. Most commercial contracts contain provisions that select the applicable law and the agreed-upon forum.

Some contracts contain arbitration provisions, which are routinely enforced, and which mean that any dispute will be decided by one or more arbitrators, rather than by a judge or jury. Sometimes contracts will also have provisions that govern what damages will be recoverable in the event of a breach, and how they will be measured.

Ohio law generally presumes that businesses know what they are doing when they enter into contracts. Typically, the unambiguous terms of a contract will be enforced to the letter. Companies would be well-advised to understand their contracts, to perform their obligations and to hold trading partners to their obligations.

Insights Legal Affairs is brought to you by Kegler Brown Hill + Ritter

Planning is critical to a sale you can feel good about well beyond closing

While business owners strategically plan for growth and other key initiatives, when it comes to selling a business, preparation is often lacking among those who are nearing the next phase of life.

This lack of planning happens for a number of reasons, but the most simple is that business owners are not in the business of selling companies and they typically don’t focus on a sale until either an opportunity presents itself, or worse, a health or other life event makes a sale necessary.

In either case, the sale is reactionary and almost always results in owners leaving money and other desires on the table.

Smart Business spoke with Mark E. Krohn, a partner at Brouse McDowell, about the right way to prepare your business to be sold.

What’s the first step?

Create a strategic plan around the sale of your business and do so a year or two in advance of when a sale is likely. In the process, you should identify accounting and legal experts who have great experience representing buyers and sellers, not just the company’s everyday accountant or lawyer who says, “I do that.” Selling a business is the culmination of a life’s worth of work and is a specialty, so finding people who know the process can maximize value and the terms of the sale are essential.

What should one consider when beginning the planning process?

Start by talking to your advisers about your dreams, goals and non-negotiables. Considerations such as price, payments over time, continued involvement in the business, continued opportunities for employees and keeping the business local are all important. What matters most, where you are willing to compromise and what is not an option, usually paints a clear picture of what you want and dictates the next steps.

In most cases, it’s not about maximizing price. You may feel an incredible loyalty to the cities, counties and employees that helped you get to the sale and you want to be loyal to those people post-closing. Very few owners are happy if a company is relocated after the sale. Options exist to keep a company local, but those priorities have to be identified before a buyer is found or a term sheet is executed.

If the main consideration is price, you may need to make certain adjustments to increase value, such as improving revenue/EBITDA margin (an approximate measure operating cash flow based on the income statement), securing management succession and achieving better customer diversification. Making some of these changes can take months/years to achieve, but the end results are worth it.

How do you find the right buyer?

Many advisers are simply looking to find “a” buyer and evaluate “an” offer. It’s often more beneficial to create a competitive bidding environment, so long as you do so under strict confidentiality so that the news of a possible sale does not become public.

Once your team knows what is important to you, it can evaluate who the most likely acquirers are, both strategic (in the industry or vertically aligned) and/or private equity. This team can develop a package establishing who the company is, what the company wants, the value proposition offered and that the entity being contacted has been identified as one of a select group of potential acquirers.

This creates an air of selectiveness and makes the buyer feel special. Establish a timeline for the prospects to express interest and then close the transaction. It is typical to have two to three companies desiring to purchase the business, and it is much easier to get the price and terms you want when there are multiple parties vying for the right to buy.

What else should an owner be thinking about?

Ensure that key pieces of information about your company are organized in a central location, where they can be easily accessed confidentially by your advisers and the purchaser.

One of the most disruptive parts of a sale is due diligence. Taking the time in advance of a sale to make certain that the things that an adviser or buyer is going to review, and having those things in one place is paramount.

It saves a lot of time, money, stress and employee awareness issues.

Insights Legal Affairs is brought to you by Brouse McDowell

Paid sick leave: First statewide mandate leaves many companies asking questions

Effective July 15, 2015, all California employers regardless of size will be required to provide up to three days of paid sick leave for eligible part-time and full-time employees. On Sept. 10, 2014, Gov. Brown signed the Healthy Workplaces, Healthy Families Act of 2014, which implemented this significant change. While the City and County of San Francisco passed a paid sick-leave mandate in 2006, this is the first statewide mandate.

“Any part-time or full-time employee who as of July 1, 2015, has worked in California for 30 or more days within a year from the commencement of employment is an eligible employee,” says Kara L. Arguello, an associate with Berliner Cohen. 

Smart Business spoke with Arguello and Jennifer Y. Leung, an associate at Berliner Cohen, about how the California mandate applies to certain employees and not to others.

First of all, the Act does not apply to certain employees:

  • Employees covered by a valid collective bargaining agreement that expressly provides for paid sick days, final binding arbitration of disputes concerning the application of its paid sick days provisions, premium wages rates for overtime worked and a regular hourly rate of pay of not less than 30 percent more than the state minimum wage;
  • Employees in the construction industry covered by a valid collective bargaining agreement expressly providing wages, hours for work, working conditions of employees, premium wages rates for overtime worked and regular hourly rate of pay of not less than 30 percent more than the state minimum wage;
  • Employees who work as providers of in-home supportive services; or
  • An individual employed by an air carrier as a flight deck or cabin crew member subject to federal labor laws.

For what reasons may the employees use the paid sick leave?

An employee is entitled to use the paid sick days to take care of his or her own health, including if the employee is the victim of domestic violence, sexual assault, or stalking, for diagnosis, care or treatment of an existing health condition of, or preventive care for an employee or employee’s family members.

How is the paid sick leave accrued?

Employees will accrue the paid sick leave at a rate of no less than one hour for every 30 hours worked. Accrued paid sick days shall carry over to the following year of employment, but an employer may limit the use of paid sick days to 24 hours or three days in each year of employment.

How much of the leave may employees take at a time?

Generally, employees may determine how much paid sick leave they need to use, but the employer may set a reasonable minimum increment, such as two hours.

When may workers start taking the leave?

Employees are entitled to use accrued sick days beginning on the 90th day of employment.

What if there is a paid sick leave or paid time off policy in place?

An employer is not required to provide additional paid sick days pursuant to the Act where the employer has a paid leave policy or paid time-off policy as long as the policy satisfies the requirements of the Act.

How is the paid sick leave to be paid?

The rate of pay for paid sick leave is the employee’s regular hourly wage. Payment must occur no later than the payday for the next regular payroll period after the sick leave is taken.

Upon separation, what happens to sick leave?

An employer is not required to provide compensation to an employee for accrued, unused paid sick days upon termination, resignation, retirement or other separation from employment.

What documentation or notice of this policy must be given to employees?

An employer shall provide an employee with written notice detailing the amount of paid sick leave available, or paid time off an employer provides in lieu of sick leave, for use on either the employee’s itemized wage statement or in a separate writing. Employers must maintain at least three years of records documenting the hours worked and paid sick days accrued and used by an employee. A poster provided by the Labor Commissioner must also be displayed.

Are there penalties for failing to comply with the Act?

Employers can face administrative fines and civil penalties.

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