Five Resolutions for Your Business for the New Year

With the holidays growing faint in the rear view mirror, it’s that time when people reflect, renew intentions and set goals for the upcoming year. To get onboard, we’re providing you the top 5  resolutions for your business in 2019. It’s our hope that your business has the best and the most prosperous year ahead!

1.   Review Your Business Structure. Review your business entity and tax elections to determine whether changes could render significant tax benefits to your business (or personally). Getting a grasp on the pros and cons of different types of business entities (LLCs, Partnerships, Corporations, S-Corps etc.) can be tremendously advantageous so that you can get the most from both a tax and liability perspective. Also, know that the type of business that was good for you three (or five, or ten) years ago, may not be the best fit for you now. So, make an appointment with your legal advisor who can work with your accountant and counsel you on the best business entity for your business. Need to change business forms? Your lawyer can convert your business entity if needed too.

2.   Get a Handle on Your Intellectual Property. It’s likely that your company has intellectual property, which may provide you a competitive advantage as a business asset possessing commercial value. You should evaluate your IP, and if you’re not already proactive, start developing and protecting your company’s intellectual property. Whether or not you have been proactive in the past, it’s always a good idea to assess and identify what IP you do have, review any license agreements, file appropriate trademark, copyright, or patent registrations, and check-in on maintenance requirements. Build a strong foundation today, so that you may capitalize on it tomorrow.

3.   Read and Reread Your Contracts. Make sure you read your contracts in the first place, and review them every so often. It’s all too easy after a contract is negotiated and signed to put it in the filing cabinet, and let it collect dust. For agreements still in effect, take some time to review and refresh your memory on essential terms. A quick scan will jog your memory on essential or materials terms, that you may have forgotten about since signing, or help you identify other problems that would otherwise go unnoticed until a larger issue or dispute arises.

4.   Find a Mentor. Whether it’s through a formal program at an organization or someone you know through your own personal network, recruit a mentor. Having a hard time finding one? Keep looking, and don’t stop until you do. Great mentors can have an enormous impact on your business and personal growth.

5.   Give Yourself a Break and Find Balance. There’s no doubt about it – running a business is hard work. Don’t forget to give yourself a break. Take some time to hit the slopes, take the dog on a walk, go to yoga or read your favorite book. Whatever it is you enjoy, take time and clear your head. You’ll be your best self, and best positioned to build a successful business.

Employment, Confidentiality and Non Disclosure Agreements: What All Employers Need to Know About the Federal Trade Secret Law

On May 11, 2016, President Obama signed a new federal trade secret act into law. The Defend Trade Secrets Act (“DTSA”) amends the prior Economic Espionage Act of 1996, by providing private companies a federal cause of action for trade secret misappropriation occurring after May 11, 2016. Following implementation of the DTSA, it is essential that employers take note of several new mandates, which include providing Notice provisions in all contracts governing the use of confidential information and trade secrets.

Prior to the implementation of the DTSA, a number of states have provided protection for trade secrets by implementing the Uniform Trade Secret Act (“UTSA”), including Colorado. The enactment of the DTSA does not eliminate or preempt those remedies available under state law, but rather acts as a supplement to the UTSA and expands the reach of trade secret protection and regulation.

Perhaps some of the most important changes provided by the DTSA include:

1.   The DTSA now provides companies the ability to avail themselves to the jurisdiction of the federal courts. Before the DTSA was enacted, employers would need to meet stringent federal jurisdiction requirements of diversity in order to file suit in federal court for trade secret misappropriation.

2.   Both the UTSA and DTSA provide employers with a number of remedies against an employee who has misappropriated trade secrets, which include actual damages, punitive damages, and the recovery of reasonable attorneys’ fees and costs. Under the DTSA, employers can additionally seek the extraordinary remedy of ex parte seizure in certain circumstances.

3.   The DTSA contains immunity and anti-retaliation provisions intended to protect individuals who may need to disclose trade secrets.

4.   With new immunity and anti-retaliation provisions, employers must provide specific Notice of these provisions to employees, independent contractors, and consultants in all agreements pertaining to confidential information and trade secrets entered into on or after May 11, 2016.

Of all changes provided by the DTSA, perhaps the most essential for employers to take note of is the required Notice provisions for contracts. Notice must be provided in an expansive number of contracts, which may include employment agreements, independent contractor agreements, consulting agreements, non-compete and NDAs, severance agreements, and employee handbooks.

Employee or Independent Contractor? The Wrong Decision Could Cost Your Business

Businesses may hire individuals as either independent contractors or employees, and the classification impacts how much the business pays in taxes, whether it needs to withhold taxes from its workers’ paychecks, and what tax documents the business is required to file. For example, if a business classifies a worker as an employee, it must withhold income tax, and a portion of the employee’s social security and Medicare taxes. Additionally, businesses are responsible for paying social security, Medicare, and unemployment taxes on its employee’s wages. Businesses must supply its employees with a W-2, Wage and Tax Statement, which shows the amount of taxes withheld from them. On the other hand, should a business classify a worker as an independent contractor, it is required to provide the independent contractor a Form 1099 to report what has been paid to the independent contractor. The independent contractor is then responsible for paying their own income tax and self-employment tax, and the business does not withhold taxes from payment.

 So how do you make this determination?

Courts have used many facts (and no one fact) when deciding whether to classify a worker as an independent contractor or an employee, so the decision is not always easy; however, relevant factors typically fall into three categories. The categories each business must consider is behavior control, financial control, and the relationship of the parties. Behavioral control looks at whether the business controls or has the right to control what the worker does and how they do their job. Financial control examines the business aspects of the worker’s job controlled by things like how the worker is paid, whether expenses are reimbursed, and who provides tools or supplies to do the work. Last, the type of relationship category considers whether there are any written contracts or any employee-type benefits offered to the worker (such as insurance, vacation pay, pensions etc.). Businesses must weigh all factors when determining how to properly classify a worker, and understand that there is no “magic equation.” Unsure? Contact a lawyer, or contact the IRS (and know that if you ask the IRS, it’ll take at least 6 months for the IRS to make a determination – which may not be conducive to your business or hiring goals).

 Get it wrong?

It’ll probably cost, a lot. There are both financial and legal consequences for misclassifying an employee. If you misclassify an employee as an independent contractor, you may face an audit from the IRS and/or state tax department. If it’s a wage issue, business may find themselves facing a class action lawsuit and individual lawsuits that they must defend in court. Upon a successful lawsuit by an employee, businesses may have to pay back-wages and overtime owed, and a variety of penalties may assessed along with the employee’s attorneys fees and costs. Non-complying businesses may also have to pay amounts that should have been withheld such as taxes, FICA, FUTA, benefit contributions or the value of lost benefits, in addition to penalties, interest or other damages and attorneys fees. Employees who get hurt on the job, and who have been misidentified as independent contractors, may also file a suit under negligence theories.

Misclassifying an employee can be potentially disastrous for a business, and classifying your workers correctly should be a place where you spend extra time and care in the operation of your business. If you’re unclear on the law, or how you classify your workers, you should contact legal counsel to assist you in making the determination.

Everything You Need to Know About Non Compete Agreements in Colorado

Non-compete agreements are most often found in an employment agreement, and can be the subject of concern for both employers and employees alike. They arise because business owners or employers usually want to protect confidential information or trade secrets of the business that an ex-employee may want to take with them when they go to another employer. Conversely, non-compete agreements can become troublesome to an employee when they appear to prevent an employee from opening their own business or seeking employment elsewhere. So, here’s what you need to know about non-compete agreements in Colorado…

The laws governing these agreements vary quite significantly from state to state – some states enforce them, and others will not on the belief that they restrict trade, and therefore, are against public policy. Colorado takes the position that these agreements are void; however, there are four unique exceptions in which they are actually enforceable.

In Colorado, the law provides by statute (CRS §8-2-113), that covenants not to compete (i.e. non-compete agreements) are void (i.e. unenforceable) unless they pertain to:

1.   The protection of trade secrets;

2.   The purchase or sale of a business or business assets;

3.   Recovery of the expense of training or educating an employee who worked for an employer for fewer than two years; or

4.   Executive and managements personnel and officers, in addition to individuals who are staff to executive and management personnel.

If one falls into any of the above four categories, the next step is to consider whether or not the non-compete is “reasonable.” In addition to falling into one of the above four categories, the agreement must be deemed “reasonable” to be enforceable. Reasonableness is determined by the court, which will examine a number of factors to reach their conclusion, including:1) the duration of the agreement, 2) the breadth of the geographical location covered, and 3) the scope of business activities included. For example, an agreement that prevents a doctor from practicing medicine anywhere in the world for the next thirty years, would clearly be unreasonable; and therefore, unenforceable. Oftentimes, the analysis of what is or is not reasonable can be much less clear.

Additionally, the agreement must also be supported by legal consideration. What is consideration? Consideration is a legal term, and a component of any enforceable contract. Consideration simply means that a benefit has been bargained for between the parties (often referred to as a “quid pro quo”). Colorado courts have upheld a non-compete (as having consideration) where the agreement was signed at the time of hiring; however, courts have struck down a non-compete where it was provided after the employee was employed, or in anticipation of immediate termination.

The Problem With "Legal Zoom" Forms

Most small businesses are run by do-it-yourself types. Entrepreneurs.   People with self-made, “I’ll figure it out”  attitudes.

All of that’s commendable, and that’s partly why I love working with these folks.

But when it comes to anyone using DIY legal forms – whether from LegalZoom or from an office supply store’s shelf – at least three problems inevitably crop up.  Here’s a summary of what to remember:

Problem #1 with DIY Legal Forms: They May Mis-state the Law.

The law constantly changes.  Legislatures make new laws and amend old laws, agencies make new regulations and amend old ones, and courts interpret old laws, claims, and defenses in new ways daily.

How can a form – prepared at some unknown date in the past – keep up with those changes?

No matter how smart the person who drafted the form was – and do you really know that, when the form’s from a company? – there’s no possible way to be sure that the form follows current law.

Take non compete agreements for instance, the law varies in every state regarding their enforceability and requirements.

But while that statute has essentially remained unchanged, the Texas Supreme Court has interpreted the statute in different ways at least three different times — since 2006.

Hiring an experienced attorney can help assuage that concern by knowing they’re licensed, competent, and up-to-date.

Problem #2 with DIY Legal Forms: They May Mis-State the Facts.

Each client’s facts are unique.  While there’s some overlap within similar businesses and industries, no two situations are precisely the same.   This means that each client’s goals and hurdles will be slightly different, and the agreements the client enters should be slightly different.

How can a form – prepared by someone unfamiliar with your specific business – possibly reflect those differences?

Even assuming that the form says it’s appropriate to your industry or business – and do you really know that? – there’s no possible way to be sure that the form achieves what you’re hoping.

Take a form for a non-disclosure agreement, for example, that you hope will protect your trade secrets.

Obviously, if the form “under-protects” you – by omitting types of trade secrets you may use, then the agreement is probably worthless as to those trade secrets.

On the other hand, if the form you’re using “over-protects” you – naming all kinds of information that you really don’t use as trade secrets, then at a minimum you face a skeptical judge (or an unfriendly jury) when you seek to enforce the “real” trade secret protections.

Or it could be worse.  Overly “protective” forms can even invite the other party to file a lawsuit – as one dentist who used a “protective” form she bought online learned the hard way.

Problem #3 with DIY Legal Forms: They Cannot Answer Your Questions

But let’s set all of those issues aside.  Let’s assume that the form follows precisely the law applicable to your situation and that it recites precisely what the facts are that apply to the agreement.

Is there still any reason to have an attorney on hand?

Yes.  The competent counsel can work with you to understand – in a way that no form can – how the form works with all the moving parts of your business.  For instance:

·      Do the agreements tie into or relate to one another?  How?  Is that what you really want?

·      Are there other agreements between the parties that these agreements amend or supersede?  How?  Is that what you really want?

·      How will these agreements work as the business expands, pivots, or is sold?  Is that what you really want?

·      What are the costs and savings of each approach?  Have you chosen the one that makes most sense for you?

·      How comfortable are you with the risks you’ve assumed?  What are your options for negotiating through (or out of) some of those risks?

No form anywhere can answer these questions, or be there to work through those issues with you.

That’s why every DIY legal form worth its salt now comes with a large and clear disclaimer that the company is NOT providing legal advice and is NOT responsible for the use of the form.

These companies well know that their forms do not (and cannot) replace competent legal counsel.

That’s an interesting and appropriate term – counsel.  It suggests an interaction, a responsiveness to your particular needs, and an ability to learn from you as much as to teach you.

Summary

Does all this mean that we should banish DIY legal forms, and out-law LegalZoom?

Not at all.  These forms can often  be used as a starting point to achieve your goals.

But a starting point is not the ending point.  And before you rely too heavily on such a form, particularly for sensitive and highly-valuable assets (like intellectual property protection), seek competent legal counsel who can work through the issues with you.