New DOL Overtime Rules

By: Frank N. Lago, Esq.

The Fair Labor Standards Act (FLSA) guarantees a minimum wage for all hours worked during the workweek and overtime pay of 1.5 times the employee’s regular rate of pay for hours worked over 40 in a workweek. The DOL has revised the rules that apply to executive, administrative, professional, and computer employees, generally known as “white-collar” workers. These new rules do not apply to employees who are exempt from over-time pay under Section 7(i) of the FLSA. Those employees typically earn more than 50% of their pay from commissions. To determine if an employee is exempt from having to be paid over-time, the employer must apply two test, the threshold test and the duties test.

The Threshold Test. If the white-collar employee earns less than $913 a week, which is $47,476 a year, the employee is entitled to overtime pay for hours worked over 40, regardless of their job duties and responsibilities. If they make more than this amount, they will qualify for overtime only if they meet the standard duties test, discussed below. This is an increase from the previous amount established in 2004 of $455 per week. The threshold will be adjusted every three years, and adjusted to the salary level of the 40th percentile of weekly earnings of full time salaried workers in the lowest-wage census region according to the BLS. White-collar workers who earn less than the $913 per week will be eligible for overtime.

When calculating the salary of an individual, nondiscretionary bonuses and incentive payments, including commissions, can satisfy up to 10% of the standard weekly salary, but the remaining 90% needs to be paid on a regular basis, provided the bonuses are paid at least quarterly. Additionally, if at the end of a quarter, the employee’s salary is less than the $913 per week, the employer will have one week to make a catch-up payment to bring that employee to the threshold limit, so long as the shortfall is only 10% of the salary level.

Here is the example from the final rule. “In January, February, and March, Employee A must receive $821.70 per week in salary (90 percent of $913), and the remaining $91.30 in nondiscretionary bonuses and incentive payments (including commissions) must be $131 paid at least quarterly. If at the end of the quarter the employee has not received the equivalent of $91.30 per week in such bonuses, the employer has one additional pay period to pay the employee a lump sum (no greater than 10 percent of the salary level) to raise the employee’s earnings for the quarter equal to the standard salary level.”

The Duties Test. If the employees “primary duty” is as an “executive,” “administrative,” or “professional” employee, they are exempt from earning overtime pay.  An executive is someone: whose primary duty in management of the business; who customarily and regularly directs work; and who has the authority to hire or fire other employees or advise on their status.

An “Administrative” employees is an employee: whose primary duty is the performance of office or non-manual work directly related to the management or general business operations; and whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. “Matters of significance” refers to the level of importance or consequence of the work performed.

A “professional employee” is an employee: whose primary duty is the performance of work that requires knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction or requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Highly Compensated Employees. If the employee earns more than $134,000, regardless of duties, they are exempt from overtime pay.

We can help. The attorneys at Walk Law Firm, PA is experienced in assisting its clients with FLSA audits, overtime, timekeeping, and pay practices and policies.  We understand how you have to comply with the legal requirements while growing and advancing your business.  Please feel free to call one of our attorneys at (813) 999-0199, or contact us via our website at www.WalkLawFirm.com Please note the above example is a simple scenario that does not involve bonuses, salary deductions, or any other factor that could affect how the effective hourly rate, overtime rate, and overtime pay are calculated.  While FLSA appears simple, there are a myriad of rules involving its applications and possible misapplications by businesses.

Violation of Bank Secrecy Act leads to $200,000 fine for Gold Buyer.

In December 2015, the Financial Crimes Enforcement Network (FinCen) fined a precious metal dealer for violating the Bank Secrecy Act (BSA) anti money laundering (AML) requirements, $200,000, in addition to forcing them to hire an auditor and provide comprehensive financials to FinCen. The gold buyer failed to secure the necessary customer information when buying and selling precious metals. And to think, the fine and penalties could have all been easily avoided.

The Bank Secrecy Act makes “dealers” of “covered goods” create and enforce an Anti-Money Laundering program. “Covered goods” are jewels, precious metals, precious stones, and finished goods (including jewelry. A “dealer” is a person, or entity that has purchased AND sold $50,000 of covered goods. Most businesses that buy and sell gold, fall under this definition.

If the business entity is a dealer of covered goods under the BSA, they must have an anti-money laundering program. The Bank Secrecy Act, Anti-Money Laundering Examination Manual mandates that the program have: “a system of internal controls to ensure ongoing compliance, independent testing of BSA/AML compliance, designate an individual or individuals responsible for managing BSA compliance (BSA compliance officer), and training for appropriate personnel.” The program is intended to identify large cash transactions of potential money launders. Pinellas, Hillsborough, and Paso counties are High Drug Trafficking Areas, so the need to launder money is great. Next time you have a large dollar transaction, think about your AML program.

Next Blog: The necessary elements of an AML Program.

 

The Walk Law Firm can help you become compliant with the BSA/AML statutes. Contact Frank Lago if you have questions or concerns about your BSA/AML compliance.

Understanding Limited Liability Company (LLC) Taxation

Once you’ve decided to form a limited liability company (LLC), your next decision is most likely going to be “how am I going to be taxed?” An LLC is not a tax entity. Instead, the IRS considers the LLC “disregarded” and applies tax laws that apply to sole proprietorships, corporations, and partnerships to the LLC. But, to avoid an esoteric discussion of tax law, I hope I can give you enough information in this article to help you in determining which tax entity is best for you.

If your LLC has one owner, it may elect to be a C corporation or S corporation, otherwise it will be a Disregarded Entity.  “Disregarded Entity” means the IRS ignores there is a legal entity between you and the income, losses, assets, etc. for tax purposes. A single owner disregarded entity will be treated as a sole proprietorship. If your LLC has multiple owners, it may elect to be a C corporation or S corporation, otherwise it will be a Disregarded Entity. A multi-owner disregarded entity will be taxed as a partnership.

To be or not to be… Disregarded

          Sole Proprietorships

The single member LLC, when disregarded, is analogous to a sole proprietorship. That is to say, you are your business and your business is you. Per the IRS, as a consequence of not making an election you will report your income and deductions, from your LLC, on a Schedule C, on your Form 1040. This is the simplest form of taxation and provides for single-level taxation. “Single” or “Double” taxation, as you’ll read later, refers to how many times the federal government gets to tax your “income.” With a sole proprietorship the only income tax that applies would be your individual income tax. But, the drawback of the sole proprietorships is that you have to pay Self-Employment Tax on all the income you make from the business. So keeping that in mind, you are going to pay income and self-employment tax on the profit you’ve made.

How much is self-employment tax? Generally it’s 15.3% on the first $117,000. Anything above $117,000 is subject to a 2.9% Medicare tax. There is an Additional Medicare Tax 0.9% tax for income over a threshold amount. The threshold amounts vary by filing status, but if you’re married filing jointly it is $250,000.

So in addition to your self-employment tax of 15.3%, you’re going to pay personal income tax. Assuming a 20% effective personal income tax rate, that’s a whopping 35.3%. Keep in mind that personal tax rates range from 0% to 39.6%, and possibly higher with the investment tax. As my good friend George says, the IRS is not my business partner, and luckily for him and for you there is a tax planning opportunity here.

C and S Corporations

The IRS allows for single members LLCs to elect, according to the check the box rules, to be taxed as a corporation. When you elect to be taxed as a corporation you are electing to be taxed under subchapter C of the internal revenue code, hence the nomenclature “C Corporation.” C corporations pay income tax on their income, though at preferential graduate tax rates. That means the overall tax brackets are lower than individual brackets. The profits stay in the company until there is a distribution. Typically, you’re going to distribute money from the corporation in the form of a dividend. Dividends are taxed at different rates than your income is taxed, typically much lower, at “capital gain” rates of 15-20%. But, you’re paying tax twice. Which is why this generally isn’t used as a tax structure, but the C Corporation’s brother, the S corporation is much more useful in reducing federal taxes.

Subchapter S corporations give the benefit single taxation at the individual level, while relieving some of the self-employment tax. Thus, instead of paying a corporate income tax, the S corporation pays nothing. In exchange, all of the income is deemed to have been distributed to the shareholders, unlike a C corporation, which only taxes its distributions when actually distributed. This is known as “phantom income.” The S corporation shareholders, whether or not they received the distributions, will pay taxes on that amount. One major benefit is that the shareholders do not pay self-employment tax on the income that is considered a distribution. This has the potential to greatly lower your tax bill. But, you have to approach this structure with caution. An S corp. does have to employ someone to do work. So if you’re doing all the work, you do have to pay yourself a “reasonable salary,” and you and the corporation will share the self-employment tax on your amount of compensation and file employment tax returns, Forms 941/944 and Form 940. Individuals get in trouble when they pay themselves too little and all the income as distribution. As in the case of Mr. Watson who found himself in court after paying himself $24,000 in wages and taking $203,651 in distribution.  While paying yourself a less than reasonable salary will lower your tax bill, it places you at risk. Nonetheless, any amount of money on which you do not have to pay employment tax, will reduce your taxes. Here’s an oversimplified example:

You’ve taxable income is $150,000 as an individual and you’re married. As a sole-proprietorship, you pay $39,528 in federal income tax plus $17,901 self-employment tax for a whopping $57,435. You keep $92,565.

If you were operating as an S corporation, let’s assume you pay yourself as a wage $75,000 and receive $75,000 in distributions. First, you’d pay self-employment tax on your wages of $75,000, which is $11,475. Reducing your distribution by that amount leaves you with $69,262 (75k for tax purposes) in compensation in your pocket and $69,262 available for distribution. Your income tax will be $35,928 plus 36% over 140,000. The product being $1,534 plus $35,928, totaling $37,426 in taxes. From $150,000 less self-employment taxes paid, take home $101,099 versus $92,565 as a sole proprietorship. A savings of $8,534 in taxes.

One caveat to keep in mind is that an S corporation generally cannot deduct health insurance and term life premiums while a C corporation can deduct up to $50,000 per employee. If you really wanted to make these amounts deductible, you could actually setup two separate entities and get the best of both worlds, primarily using a management contact.

S corporations also cannot make distributions unevenly, this is known as the “single class of stock” rule and have restrictions on ownership, unlike C corporations.

Partnerships

LLCs, with two or more members, who do not elect to be taxed as a corporation, will be taxed as a partnership. Partnerships, like S corporations, are a pass through tax entity. Meaning, the income is passed directly from the partnership to its Partners. Partnerships do not pay separate income taxes like C corporations. Partners of a partnership are not employees and should not receive a salary. There is a rich, legal history in understanding the employment status of partners in partnerships. Here is a detailed history. Otherwise, understand that a partner will pay self-employment tax on all of his income that flows from the partnership. A partnership can make “guaranteed payments,” which look like a salary to the partner. But, the partner will still need to pay self-employment tax on this income. There are several reasons to avoid the self-employment tax, but there are several reasons why you might choose to be taxed as a partnership.

Partnerships offer the most flexibility with a pass-through tax entity. A partnership will undoubtedly need a partnership agreement, or in the case of an LLC, an operating agreement. Both are contracts that govern the relationship between the entity and its members (LLC) or partners. With a partnership you can get creative in how cash will be distributed, who will be allocated income and losses, foreign or domestic, how debts are repaid, etc. For this reason, when there are multiple members who are not even partners, they often choose to be taxed as a partnership. But, to the extent that your entity doesn’t need a complicated structure of distributions or allocations, it is usually advisable not to be taxed as a partnership.

 A Note on Liability

As a general rule, LLC members are not liable for the debts of the LLC. But, in Florida, in accordance with the Olmstead case, the single member or a single member LLC, may become liable for the debts of the LLC, after the creditor secures a charging order. This is not the case for a multi-member LLC. If you are considering a single member LLC, you may consider a Florida Corporation with an S Corporation election, because you will get the limited liability you are searching for and the benefits of pass through taxation.

Need more help?
If you have more questions or need help establishing your entity please call our offices at (813) 999-0199, www.WalkLawFirm.com.

Frank Lago is an attorney at the Walk Law Firm, PA. HE is a graduate of Stetson University School of Law and holds an LLM in Taxation from Georegetown University.

WHEN THE DOL PROPOSES CHANGES TO THE OVERTIME RULES, EMPLOYERS MUST TAKE NOTE

WHEN THE DOL PROPOSES CHANGES TO THE OVERTIME RULES, EMPLOYERS MUST TAKE NOTE.  In 2014, 8,086 lawsuits were filed in federal courts for violations of pay practices under the Fair Labor Standards Act (“FLSA”).  Of these, 1,837 lawsuits, or approximately of 23% of all FLSA lawsuits in the United States, were filed in Florida.  In March 2011, a Florida-based company paid more than $754,000 in overtime back wages following a finding by U.S. Department of Labor (“DOL”) that its temporary supervisors were misclassified as exempt employeesSimply, improper time and pay practices are costly mistakes.

Earlier this month, the DOL proposed changes to the rules governing the white-collar exemptions (executive, professional, administrative, highly compensated, and computer related employees) to the overtime requirements under the FLSA.  The DOL estimates that the proposed rule changes will extend overtime protections to an additional 5 million employees.  Any business with at least 1 employee, should:

  • Understand the existing rules and proposed changes
  • Assess the impact of how the proposed changes will affect employee classification, timekeeping and pay practices, and payroll
  • Consider submitting comments to the DOL concerning how the proposed changes will affect your business. You may do so at: regulations.gov  on or before September 4, 2015.

THE EXISTING RULES AND THE PROPOSED CHANGES

Currently, under the FLSA, all employees covered by the Act, unless they specifically exempted, must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay. Employees who fall within the white collar exemptions are not entitled to receive overtime pay — regardless of the number of hours they work within a workweek.  To fall within one of these exemptions, employees must (1) be paid on a salary basis, (2) be paid at least a fixed minimum salary per week of at least $455.00 per week ($23,660.00), and (3) meet certain requirements as to their primary job duties that are specific to each exemption.

For more detailed discussions on the FLSA, 
please see the videos on the FLSA previously made by our new Of Counsel 
Attorney Kerry Raleigh at:
·         Introduction to FLSA
·         Employee Overtime:  Common Mistakes & Perceptions
·         Employee Overtime: Employers Need to Get It Right

THE PROPOSED CHANGES:

The DOL proposes three key changes to:

  • Set the standard salary requirement for the white collar exemptions from $455.00 per week to the 40th percentile of weekly earnings of full-time salaried workers, which is currently $921.00* per week ($47,892.00* annually);
  • Increase the total annual compensation requirement for the highly compensated employee exemption to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers, which is currently $122,148.00* annually; and
  • Establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.

Continue reading

Key Reasons to Create an Employee Handbook— or at least appropriate policies

An Employee Handbook organizes and contains company policies and procedures. There are numerous reasons for employers to choose to issue an Employee Handbook or Employer Policy Manual. Although there is no federal or Florida law requiring private employers to provide a handbook, there are some communications you are required to make to your employees.

Each month, we receive numerous calls form clients with employees who would like to make a change in how they handle anything from payroll to work hours to ethics matters and use of computers, mobile phones, tablets, internet, social media and websites. Without policies and procedures in place, and without a clear statement of expectations, clients often find themselves stuck on making changes and communicating expectations.

Policies are governed by both federal law and state specific law and regulations. Compliance with both is a necessity. The Federal Department of Labor has a terrific tool called E-laws Adviser. At the Walk Law Firm, we recommend our clients review and use that tool in addition to calling us for advice. It covers wage and hour laws as well as other important matters such as determining if someone and independent contractor or an employee.

At the Walk Law Firm, we pride ourselves in assisting our clients with practical advice that is compliant with the law. Not every decision is black and white and when making decisions to eliminate a position or downsize in general, it is important to seek quality advice. We represent employers primarily, but have also assisted many executives as well as employers with executive compensation matters such as stock bonuses or stock incentive plans or other equity incentive plans, separation agreements and employment agreements.

Employee Handbook FAQs:

  • An Employee Handbook introduces new employees to the company, gives the company a chance to set forth your expectations for your employees, and provides an introduction to the company;
  • An Employee Handbook makes it easier to ensure that all employees receive notice of the company’s policies;
  • An Employee Handbook creates a centralized place for employees to look for answers and guidance on your company’s practices and expectations, and what to do in various situations; and
  • An Employee Handbook and signed acknowledgments of receipt can assist in an employer’s legal defense, such as when non-compliance leads to termination of employment or another kind of adverse employment action.

Do Not Inadvertently Create a Contract

  • Employee Handbooks must be drafted in a manner that does not create legal obligations that the employer did not intend, and contain provisions reserving certain employer rights. Preparation of the handbook or at least review by your counsel is crucial.

Maintaining a Handbook

  • Employers must review Employee Handbooks periodically to ensure that all policies are current and lawful. At a minimum, a handbook must be reviewed and revised, if necessary, when there is a change in the law, employer policies or procedures, and when the employer expands into new states.Employer

What is Venue? Why Does Venue Matter? The Essentials of Venue Selection Clauses

Construction contracts, design services contracts, and for that matter most contracts typically contain a provision governing the location (venue) for litigation/arbitration/mediation of disputes arising out of or related to the contract. The terms relating to venue is often hidden in governing law provisions under the “Miscellaneous” terms.

What is Venue? 

Venue is the geographical place and court where the lawsuit will be handled.  Without a contract clause that establishes venue, the venue law allows an action to be brought in various locations: 1) the place of the defendant’s residence, or principal place of business; 2) the place where the cause of action accrued; or 3) where the property in litigation is located [§47.01 et seq., Fla. Stat. is the general venue law]. The party bringing the action gets to initially select the location because they are the party filing the action. However, if they file the action in an improper venue, a change of venue may be sought.  Avoid waiving the right to enforce the venue selection provision in your contract.

Why Could Venue Matter?

If you do business with a subcontractor or supplier to whom you make payments, the suit may be filed at the place where payment is due, thus a subcontractor with its principal office in Atlanta, could file suit against you in Atlanta. This would be inconvenient to say the least, and could be quite costly. There are various reasons to assign the venue for litigation within your contract; included among them are expenses and costs for litigation.

A venue far from your or your attorneys would increase the time and expense related to the action. The party with whom you contract, or the property being improved may be quite far from your office or your attorney’s office. Also, preferences for venue may be based upon factors related to the court system, judges or the jury pool. Some courts are back-logged and litigation may take a longer time in that jurisdiction.

Venue Selection Clauses are Not Bullet-Proof

Although a well drafted mandatory venue selection provision is ordinarily enforced, in limited circumstances the courts may not enforce the venue provisions contained in your contact. The rule in Florida recognizes a free and voluntary choice of forum that may be enforced. A Florida court is not required to enforce a venue selection clause if compelling reasons exist to not do so. One such compelling reason would be to avoid multiplicity of lawsuits. Another reason could be a conflicting clause in a related agreement under consideration in the same lawsuit, or a statute requiring venue in a particular location such as a lien transfer bond per F.S. §713.24. A venue selection clause may not be enforced when the clause or underlying contract was induced by fraud.

Bear in mind, that other states have their own rules and may not enforce the venue selection clause.

Conclusion.

In your contracts, if you have the ability to negotiate, it is good to have a favorable venue provision protecting your interests.  When presented with someone else’s form of contract, pay careful attention to this simple provisoin, as it may hae profound effects on your rights.  If you have any questions, please contact us.

May all your projects be successful.

 

Deadlock is Often the Ultimate Demise of Good Business

Consider this common scenario.

You’ve entered into business with your spouse, friend, or relative. At the inception of your business, you agreed that both of you would serve as the directors or managers of the Company, and you would be equal partners, each allocated fifty percent (50%) of the shares or ownership interest in the Company. Your relationship with your partner is healthy; you trust them; you trust their judgment; you’re excited about your idea, about your business. And life is great until…….

….. You have your first real dispute. The one that does not solve itself nor does it resolve with a drink at the bar.

As the business develops, you’re faced with decisions about the future direction of the business, about major business activities. Eventually, there may be a decision on which you simply cannot agree. And because you have equal control of the Company, your conflicting views ultimately stalemate or deadlock the business until you come to some agreement or decision.

Unfortunately, more often than not, people in this common scenario do not properly plan for or consider the potential for corporate deadlock, and it can lead, not only to the deterioration of a personal relationship, but also a business relationship and a business.

 HOW TO RESOLVE CORPORATE DEADLOCK

Planning for the Future.

The best way to avoid corporate deadlock is to plan ahead.  This should be a major consideration when you enter into a business relationship with anyone.  Sit down with your partner and discuss setting up a procedure for what happens if a deadlock arises.  It may not be an easy conversation to have – it may be difficult to imagine disagreeing with your partner. But sit down with your partner early and really consider the following things: (i) the nature of the business; (ii) your business plan; (iii) you and your partner’s individual ideas of the direction of the business; (iv) what problems that could arise in the business, financial or otherwise; (v) each person’s individual skill set. All these things can play a role in your deadlock discussion and the most appropriate procedure for resolving a potential deadlock. These frank conversations are even more important when one party is providing the money and the other is providing sweat equity.

Shareholders’ Agreements and Operating Agreements.

We find a lot of times that people who enter into business with a family member or close friend don’t even have a Shareholders’ Agreement or an Operating Agreement. This might be for a variety of reasons – they didn’t plan for initial legal costs and fees; they feel that they will be able to run the business through oral agreements and understandings; or, they find it uncomfortable to discuss the issues found in corporate governance documents, like transfer upon death, disability, divorce, debt, dissolution, or simply the desire of one partner to monetize and be paid out etc.

We recommend to all our clients, regardless of relationship between partners, shareholders, or members (even husband and wife), that they have some form of Shareholders’ Agreement or Operating Agreement in place establishing the governance of the entity, the rights, duties and obligations of the parties, including, if necessary, provisions addressing potential deadlock scenarios in management or between members or shareholders.

Alternative Provisions.

There are a number of different ways that an entity can resolve deadlock, and, in fact, it may be beneficial to a Company to implement multiple or hybrid deadlock methods. These methods can easily be incorporated into a Company’s governance documentation. Here are a few ways to resolve deadlock:

  1. Create a third party advisory board – either with other Members or Shareholders of the Company, or even an outside third party knowledgeable in the business and/or decision subject to deadlock;
  1. Consider implementing automatic mediation or arbitration – this may not be feasible for all companies or for all deadlocked scenarios – it can be costly and time consuming – but it can be quite effective in preventing dissolution when there is a deadlock for a major decision;
  1. Consider splitting or designating certain decisions to each partner – for examples, this partner has the ultimate decision making authority on banking and property, and the other partner has the ultimate decision making on sales and marketing – this method requires the partners to determine strengths and weaknesses and delineate accordingly – this method is useful when doing some form of hybrid deadlock provision;
  1. Consider a buy-out provision – if the partners cannot agree, one partner can buy the other partner’s shares or membership interest – there are a number of ways to structure a buy-out provision;
  1. If nothing else works, provide for a definitive right to withdraw or force dissolution or liquidation without court intervention. In this instance, you may be left relying on the default solutions contained in the Florida Statutes [Sections 605 and 607] or the decision of a judge who is unfamiliar with your business.

Need help in putting in place a shareholders’ agreement or an operating agreement?

Need help revising your current agreement with some alternative deadlock provisions?

The Walk Law Firm is available to review your current Shareholders’ Agreement or Operating Agreement in order to help you determine if, in fact, it’s appropriate for you and your partner(s).  Document review and drafting can be handled on a Flat Fee or Fixed Fee basis. To learn more, please contact us at the Walk Law Firm.

 

Is It Safe Send an Email to Canada after the New Canadian Law on Marketing and Solicitation Email?

It sounds like a silly question: Is it safe to send email to businesses and friends in Canada? You may have a friend or a business colleague and  communicating one to one with that friend is no problem at all. But if you are sending bulk emails to Canadian contacts, list serves, clients and prospective clients you need to be aware that Canada passed a law that could result in large fines for your business.  You may still want to inform your clients of new services or products that your business offers and you may still want to send emails to prospective clients, but now you need to beware that it needs to be done right you you may be fined.

Did Canada really pass a law that impacts businesses who send email to Canadian citizens and businesses? The answer is yes, Canada did pass a law, commonly referred to as the Canadian Anti-Spam Law (the title of the law would take up more than 5 lines of text, so we will refer to it as the “Law”) that creates a risk of a fine for any business or individual that sends an email to a Canadian email address without consent.  The stated purpose of the Law is to reduce spam, spyware, and identity theft.  The stated purpose of the Law does not seem to seek to ensnare normal business email marketing, but the Law as written does seem to apply to virtually any email sent from a business or individual to a Canadian email address.  Therefore, it is completely uncertain how the authorities in Canada will treat even a minor violation.

You might ask, can I send an email to request the necessary consent to send additional emails?  The answer is, maybe.  If you don’t have express or implied consent, as defined in the Law, you would be in violation of Law for asking for consent.  Moreover, almost anything sent via telecommunication could fall under the Law, including email, text, instant messaging, and possibly telephone calls.

How large could the fine for violating the Law be?  The maximum penalty for a violation of the Law is $10 million for a business and $1 million for an individual.  There are transitional provisions that will be in effect for the first three years of the Law that could help soften the blow, but it’s unclear how the transitional provisions will be applied and there is no grace period during which the penalties do not apply.

What can I do to comply with the Law?  There are three steps to comply with the Law.  First, you’ll need either express or implied consent to send the email.  Second, you must identify yourself in the email.  Third, you’ll need to include an unsubscribe mechanism in each email you send.

There are a handful of exceptions where consent is not required to send an email.  For instance, there are exceptions for warranty and product recall emails and for emails that supply a quote which was requested by a customer.  The email still must include the identification, contact information, and the unsubscribe option.

What are a few steps to take to reduce the risk associated with the Law?  The first step is to start a database documenting any consent, express or implied, from clients and prospective clients with Canadian email addresses.  If you have any implied consents you may want to send a message requesting express consent because express consent is valid until revoked while implied consent is only valid for two years.

As the sender of emails, you will have the burden to show that you had consent to send the email.  Because the burden to prove consent rests with you we’d suggest keeping detailed records of express consents in writing, if possible, but an unedited audio recording of the express consent would suffice.  We would also suggest documenting the source of all implied consents.

Does the United States have a Similar Law? Yes and No. In 2003, President George Bush signed into law the CAN-SPAM Act of 2003. It applies to more than just email and the FTC website provides the following guidance on compliance with the law:

“Despite its name, the CAN-SPAM Act doesn’t apply just to bulk email. It covers all commercial messages, which the law defines as “any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service,” including email that promotes content on commercial websites. The law makes no exception for business-to-business email. That means all email – for example, a message to former customers announcing a new product line – must comply with the law.

Each separate email in violation of the CAN-SPAM Act is subject to penalties of up to $16,000, so non-compliance can be costly. But following the law isn’t complicated. Here’s a rundown of CAN-SPAM’s main requirements:

  1. Don’t use false or misleading header information. Your “From,” “To,” “Reply-To,” and routing information – including the originating domain name and email address – must be accurate and identify the person or business who initiated the message.
  2. Don’t use deceptive subject lines. The subject line must accurately reflect the content of the message.
  3. Identify the message as an ad. The law gives you a lot of leeway in how to do this, but you must disclose clearly and conspicuously that your message is an advertisement.
  4. Tell recipients where you’re located. Your message must include your valid physical postal address. This can be your current street address, a post office box you’ve registered with the U.S. Postal Service, or a private mailbox you’ve registered with a commercial mail receiving agency established under Postal Service regulations.
  5. Tell recipients how to opt out of receiving future email from you. Your message must include a clear and conspicuous explanation of how the recipient can opt out of getting email from you in the future. Craft the notice in a way that’s easy for an ordinary person to recognize, read, and understand. Creative use of type size, color, and location can improve clarity. Give a return email address or another easy Internet-based way to allow people to communicate their choice to you. You may create a menu to allow a recipient to opt out of certain types of messages, but you must include the option to stop all commercial messages from you. Make sure your spam filter doesn’t block these opt-out requests.
  6. Honor opt-out requests promptly. Any opt-out mechanism you offer must be able to process opt-out requests for at least 30 days after you send your message. You must honor a recipient’s opt-out request within 10 business days. You can’t charge a fee, require the recipient to give you any personally identifying information beyond an email address, or make the recipient take any step other than sending a reply email or visiting a single page on an Internet website as a condition for honoring an opt-out request. Once people have told you they don’t want to receive more messages from you, you can’t sell or transfer their email addresses, even in the form of a mailing list. The only exception is that you may transfer the addresses to a company you’ve hired to help you comply with the CAN-SPAM Act.
  7. Monitor what others are doing on your behalf. The law makes clear that even if you hire another company to handle your email marketing, you can’t contract away your legal responsibility to comply with the law. Both the company whose product is promoted in the message and the company that actually sends the message may be held legally responsible.” [http://www.business.ftc.gov/documents/bus61-can-spam-act-compliance-guide-business]

The Walk Law Firm is available to help businesses understand laws which apply to them when marketing their business, including the Canadian Anti-Spam Act and the US CAN SPAM Act of 2003.

The Walk Law Firm, PA and its attorneys are licensed in the States of Florida and Ohio only. We do not provide advice on the laws of Canada and this article is not intended as legal advice; rather, it was written for general information purposes only.

Is this Non-Compete Enforceable?

You’ve invested a lot in your business.  It’s becoming successful. You even have trade secrets and know-how that give you a leg-up on your competition. And you have personnel that you have invested time and money acquiring, training and maintaining.  Your confidential information and your personnel are major assets of your business and big reason for your success. As such, you require all employees and contractors to sign a non-compete or restrictive covenant agreement. But, is it enforceable, or are you just wasting time and energy with these agreements?

The enforceability of non-compete agreements (or restrictive covenant agreements) is determined by state law.  Florida has a fairly strong valid restraint on trade or commerce statute (Fla. Stat. Section 542.335).  According to Florida Statute, a non-compete agreement that restricts or prohibits competition during or after the term of employment or engagement is not prohibited, provided that the agreement is reasonable in duration, geography, and line of business.  So, what’s reasonable?

What is reasonable in duration?  For a former employee, agent, or independent contractor, a term of six (6) months or less is presumed reasonable and a term greater than two (2) years is presumed unreasonable.  However, both of these presumptions are rebuttable, which means that the other party can provide factual evidence to defeat the presumption of reasonableness or unreasonableness.  These numbers increase for persons that were distributors, dealers, sellers, and licensees; and they increase even higher for restrictive covenants predicated upon the protection of trade secrets.

What is a reasonable geographic scope?  The geographic scope should not be broader than is necessary to protect the legitimate business interests of the company. For some companies, the geographic scope might be limited to a five mile radius or a small town; whereas, for other larger companies, it might be reasonable to have a nationwide geographic scope.  This will be factually dependent upon the size of the business, the nature of the business, and the type of engagement the company has with the person.

What is a reasonable limitation for line of business?  The line of business prohibited in the non-compete should also not be broader than is necessary to protect the business. The agreement does not necessarily need to be limited to exactly what the employee does; but it does need to be narrowly defined.  For example, a sales person in a pharmaceutical sales company might have a non-compete that prohibits a former sales person from taking employment with a pharmaceutical manufacturing company or distributing company. In this example, it might not be enforceable to prevent or prohibit the former employee from gaining employment with any manufacturing or distributing company, but it might be enforceable to prevent or prohibit the former employee from working for or with specific manufacturing or distributing companies, especially ones with a close relationship.

In many cases, if the limitations relating to duration, geographic scope or line of business are not reasonable, a court will not modify the agreement to make it reasonable, it will simply void the agreement or make the agreement entirely unenforceable, so it is extremely important that you narrowly define these terms when you are drafting your non-compete.

In Florida, the non-compete must be in writing and it also must be signed for it to be enforceable. If the language is simply included in an outdated employee handbook, and it is never signed, a court will not enforce the agreement.

Also, you must have a legitimate reason, a legitimate business interest, in order for your non-compete to be enforceable.  According to Florida Statutes, the company seeking enforcement of the non-compete must be able to show that the non-compete was or is being used to protect one of the following legitimate business interests: to protect (1) trade secrets; (2) valuable confidential business or professional information that otherwise does not qualify as trade secrets; (3) substantial relationships between vendors, manufacturers, distributors, etc.; (4) customer, client or patient goodwill; (5) extraordinary or specialized training.

Any non-compete or restrictive covenant not supported by a legitimate business interest is UNLAWFUL and is VOID and UNENFORCEABLE, so it is extremely important that you have a good reason for using a non-compete agreement.

The Walk Law Firm is available to review your current non-compete agreement in order to help you determine if, in fact, it would be enforceable should you ever need to use it.  Document review and drafting can be handled on a Flat Fee or Fixed Fee basis. To learn more, please contact us at the Walk Law Firm.

This article is not intended as legal advice; rather, it was written for general information purposes only.

 

Florida Annual Report for LLC’s, Corporations and Partnerships due by May 1

Many of you have corporations and limited liability companies domiciled in Florida and other states. As you know, to keep those companies active, it is necessary in most states to file some variety of an annual report or franchise report. You will likely receive emails or mail to your principal address listed in the state records, but often it looks like junk mail that can be ignored, or is sometimes set aside and just simply forgotten. There are also companies that send very official looking letters offering to update your records for a fee. These updates are advertisements and may or may not include filing your state annual report. You can tell if they are advertisements by looking carefully at the fine print.

For those of you doing business in Florida, the Florida Department of State, Division of Corporations requires each organized business doing business in the state, whether a corporation, limited liability company, or partnership, whether domiciled or just licensed to do business in the state, to file an annual report between January 1st and May 1st of each year in order to maintain an active status in Florida. The annual report is used to confirm or update the Florida Department of State, Division of Corporation’s records, including information related to the managers, members, officers and directors, the registered agent or registered office, the principal address or mailing address, and the federal employer identification number. For other states, similar reports and fees will also be required. The timing varies and it is important to check the dates so that you do not miss important deadlines.

If the annual report is timely filed between January 1st and May 1st, the reporting fee is as follows: $150 for a profit corporation; $61.25 for a not for profit corporation; $138.75 for a limited liability company; and $500 for a limited partnership or limited liability limited partnership. A $400 late fee will be assessed for any report filed after May 1st for profit corporations, limited liability companies, limited partnerships and limited liability limited partnerships. Failure to file an annual report by the third (3rd) Friday of September will result in the administrative dissolution or revocation of the business entity on the records of the Florida Department of State.

In addition, the Florida LLC Act has been revised and restated in whole. Effective January 1, 2014, any new limited liability company formed will need to be formed pursuant to the new Act. Any existing entity will need to amend its operating agreement and articles to reflect the new Act no later than December 31, 2015. With that in mind, we are recommending to clients that the amendments be done now and that the Annual Report filing be made reflecting the new Act requirements, specifically, the elimination of the concept of Managing Member. We also recommend filing a Statement of authority recognizing those in your company authorized to act on behalf of the LLC. This may avoid the need to file additional amendments during the year.

We are ready and able to assist you in amending your operating agreements and answering questions regarding the new Act. We are also available to assist you in properly filing your annual report in Florida and assisting you with other states.

The annual for Florida report can be submitted electronically on Sunbiz.org. Annual reports filed using credit card, debit card or Sunbiz E-file Accounts through the E-Filing tab on Sunbiz.org are processed immediately and should be posted on Sunbiz.org within twenty-four (24) hours. Check and money order payments must be submitted by mail and are processed within twenty-one (21) days, so e-filing is the preferred method of filing. For Delaware companies, the annual reported can also be submitted by following this LINK.

The e-filing process is very simple and can be completed in minutes. An Overview and Step-by-step instructions for completing the annual report can be found HERE.

If you have any questions or concerns, please let us know and we would be happy to assist you with completing the annual report.

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