By David A. Zobel
An Illinois appellate court recently upheld a two-year, non-solicitation activity covenant and one-year anti-raiding covenant between a tax preparation service and its employee, despite the employee’s seasonal employment of just three months. Zabaneh Franchises, LLC v. Walker, 972 N.E. 2d 344 (Ill. App. 2012).
In July of 2010, Zabaneh Franchises, LLC, an income tax preparation service based in Quincy, Ill., purchased an existing H&R Block, Inc. franchise. The sale included an assignment of employment agreements with H&R Block’s employees, including that with Terri Walker. Walker had signed an employment agreement in November 2009, as she did annually beginning in 2003. Pursuant to this agreement, Walker agreed to work during the 2010 “tax season,” from January 2 through April 15, 2010. Walker completed this tax season employment without incident.
In February 2011, Zabaneh filed suit against Walker alleging that within a few months of leaving Zabaneh in April 2010, Walker started her own tax preparation business, solicited clients, and hired employees of H&R Block in violation of her employment agreement. Zabaneh’s complaint sought a temporary restraining order against Walker to bar her from engaging further in such activities. The trial court found Walker’s employment agreement to constitute a “contract of adhesion” (a “take it or leave it” imbalanced agreement favoring one party) and denied Zabaneh’s request for a temporary restraining order. The case was subsequently dismissed with prejudice.
On appeal, the appellate court was asked to consider whether Walker’s employment agreement was reasonable and enforceable. In doing so, the court noted that the Illinois Supreme Court had recently addressed the proper standard for analyzing the enforceability of restricted covenants in an employment agreement in Reliable Fire Equipment Co. v. Arredondo, 965 N.E.2d 393 (Ill. 2012). Continue reading »
11/28/12 10:15 AM
Business Law, Emerging Business, Employment Law, Litigation | Comments Off |
Two-year, Non-solicitation Activity Covenant Upheld in Illinois for Seasonal Tax Employee
By Joseph R. Soraghan
The JOBS (Jumpstart Our Business Startups) Act (the “Act”), was signed into law by the President on April 5, 2012.
The Benefits to Entrepreneurs
Probably, to entrepreneurs, the most important change in the “Act” is the elimination of the ban on “general solicitation”. This elimination in effect allows advertising of small (heretofore “private”) offerings of investments in their businesses. For companies seeking pre-seed, seed and angel investment, this step creates or implements essentially two new types of offerings:
- Accredited investor offerings, in which the investments may be sold only to accredited investors (those who meet significant net worth or income requirements), which offerings are not new, but in which now the issuing company may advertise the offering in mass settings, such as newspapers, broadcast, and most importantly, on the Internet and in social media; and
- “Crowdfunding” offerings, also generally solicited, in which non-accredited investors may purchase the investments, but only (a) up to the lesser of $10,000 and 10% of their annual income; (b) with the assistance to the company of “intermediaries” who must meet certain requirements; and (c) with maximum sales in each offering limited to $1 million in any 12 month period (hereinafter called “crowdfunding”).
It is my belief that perhaps the most beneficial of the above two “new” offerings will be the first, that which simply removes the prohibition on advertising on offerings to accredited purchasers only. The removal of that prohibition will allow an issuer to reach many more possibly interested persons, and therefore many more accredited investors. And although those offerings will not require the use of registered brokers dealers or unregistered intermediaries, the entrepreneur offering companies will now be able to use “intermediaries” (or “portals”) who no longer must be fully registered as broker-dealers, to assist in finding and working with accredited investors. This will be a huge advantage to entrepreneurs seeking capital. And this type offering will place no restrictions on the dollar amount which the purchasers may acquire or the amount which the entrepreneurial business may raise.
Continue reading »
05/17/12 3:14 PM
Business Law, Emerging Business, Intellectual Property, Manufacturing and Distribution | Comments Off |
Crowdfunding is Not the Best Thing in the Jobs Act for Entrepreneurs
By David A. Zobel
Within the past few months more and more news outlets have reported stories of employers asking job applicants for their Facebook login information. While many applicants understandably feel uncomfortable with the idea of their potential employer delving through their private lives, applicants are typically not in the position to decline.
This new trend has sparked an inevitable inquiry: is it legal? At this time, the answer is uncertain. Like many issues arising from the fast-paced and ever-changing world of the Internet and social media, the law has not caught up with the question. There does not appear to be a statute, regulation or court decision directly on point – either at the federal or state level. Consequently, experts on both sides of the issue have begun considering and arguing whether any statutes, regulations, or court decisions indirectly apply to the issue.
Missouri statute does not appear to directly prohibit such a practice; however, this does not mean it is wise for employers to engage in it. The reason has little to do with the actual practice of asking for the login information, but rather concerns what may be potentially discovered by such practice. No, I am not referring to finding rants about past employers or photos of bad decisions and misdemeanors. Employers should be concerned about finding family or pregnancy photos, photos of the applicant in the hospital, and/or religious views.
Continue reading »
04/23/12 11:56 AM
Business Law, Digital Media, Emerging Business, Employment Law, Litigation, Manufacturing and Distribution | Comments Off |
The Facebook Folly: Why Browsing an Applicant’s Facebook Profile Could Present Problems for Missouri Employers
By Patrick J. Murphy
Many individuals establish LLCs and then operate a business as if it was an extension of themselves, commingling funds and not following proper formalities. A recent Tax Court decision provides a sobering realization for individuals who fail to properly title their assets and follow the required formalities. In this case, the court found that a taxpayer’s purchase of an RV did not increase the amount he had at-risk in the LLC because he could not show the LLC owned or used the RV. As a result, deductions he had taken based upon that amount at-risk were disallowed by the IRS.
In Estate of Roberts v. CIR, the taxpayer had established an LLC to lease equipment to his S corporation. He lent money to the LLC, which issued him a promissory note in that amount. With the proceeds of the loan, the LLC purchased an RV. However, there were several issues with the RV’s ownership and use. Even though the RV was titled in the name of CTI Leasing, it was not titled in the name “CTI Leasing, LLC,” the company’s legal name. The EIN on the car title belonged to his S corporation. The RV was not on the LLC’s depreciation schedule. The taxpayer used the RV for his own purposes. Lastly, there was no record that the LLC ever used the RV, because there was no written lease between the LLC and the S corporation concerning the RV.
As a result, the IRS concluded, and the Tax Court confirmed, there was no evidence that the LLC owned the RV or used it. Because the taxpayer could not show that the LLC owned or used the RV, the taxpayer was unable to claim tax deductions based upon the LLC’s capital at-risk in connection with the RV.
There are a few items to take away from this case:
- You should always properly title your corporate assets and use the corporate title LLC, Corp., or Inc., as the case may be.
- If you have multiple business entities, you must keep assets of each entity separate from other assets. If you lease an asset among entities, you must have a proper lease in writing executed by both entities.
- It would be much cheaper for the taxpayer to seek the guidance of an accountant or attorney when completing these transactions than suing the IRS in Tax Court for the disallowed tax deductions.
These days, with Legal Zoom and other ready-to-order LLCs, people are buying assets and operating businesses without knowing the consequences of their actions. Before you enter into large transactions, it is important to understand the formalities that must be followed in order to receive the intended tax consequences.
Posted by Attorney Patrick J. Murphy, CPA. As both an attorney and a CPA, Murphy’s practice includes sophisticated estate planning approaches as well as corporate transactions and advice in mergers and acquisitions, buy/sell agreements, corporate structuring, and real estate transactions for small to medium-sized businesses.
03/22/12 9:55 AM
Business Law, Emerging Business, Tax | Comments Off |
Importance of Maintaining Formalities with Your LLC: It Will Affect Your Deductions
By Jeffrey L. Michelman
Politicians constantly speak of the small business entrepreneur as the backbone of America, and in fact many of our largest companies today started out as small businesses. Thus, it is surprising that the same politicians who boast of American small business would allow passage of “The America Invents Act.” It is likely to impact small businesses and certainly the individual garage/basement inventor in ways that the politicos haven’t yet considered.
Prior to this new Act, the law in the United States was that the first person to invent a new patentable product is the one who deserved to get the patent, thus giving that person the 20 years (from filing) a monopoly accorded to inventors who successfully achieved patents protection. This meant that there was time to do further research and development and prototype testing; there was time to raise money for achieving patent protection; and the small business owner had every opportunity to be first in line with rights to the monopoly granted under the patent statute. But now that standard has been changed by law. We are witnessing a transition from a first-to-invent system to a first-to-file system used in many foreign countries. Thus an inventor who races to the Patent and Trademark Office (PTO) to file an invention application may well be the one who successfully obtains the monopoly of patentability over a party who actually came up with the idea and invented the product first.
What’s the difference, you say. The difference is very plain to those who understand the patent system. Large corporations have in-house, or at their disposal, plenty of patent lawyers standing by ready to file for patents any new invention or twinkle in the eye of management that seems to be inventive and to get it on file quickly as a provisional patent application which requires limited filing of actual claim elements or filing as a full blown utility patent. The search for money in order to obtain patentability is not an issue for the large corporation. Thus by the time the small business entity perfects the invention and then seeks the money for the expense of patentability, the small business entity may lose in the battle for its place in line giving big business the opportunity to be successful in keeping the small business and, of course, others out of the marketplace once granted the monopoly.
Continue reading »
11/11/11 2:50 PM
Business Law, Emerging Business, Intellectual Property | Comments Off |
Is The New Patent Statute Patently Unfair to Small Business?
By Marcia Swihart Orgill
Both the IRS and the Department of Labor have indicated their intent to target misclassification of workers as independent contractors rather than employees. In the proposed budget for fiscal year 2012, $240 million is allocated for initiatives specifically related to enforcing this misclassification.
Employers who have misclassified workers in the past may want to consider taking part in a new program that will allow them to voluntarily correct their misclassification of workers at a relatively low cost. As part of its “fresh start initiative”, the IRS recently announced a new Voluntarily Classification Settlement Program (VCSP).
Under this program, eligible employers will only pay an amount that equals just over one percent of the wages paid to the misclassified workers in the past year, if they prospectively treat these workers as employees. The IRS will not audit employers on payroll taxes related to these workers for past years, and employers will not be subject to interest or penalties for past misclassifications.
In order to be eligible for the program the employer must:
- consistently have treated the workers in the past as non-employees,
- have filed all required Forms 1099 for the workers for the previous three years, and
- not currently be under audit by the IRS, the Department of Labor, or a state agency concerning the classification of these workers.
To apply for the program, an employer must file Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before it wants to commence treating the workers as employees.
Employers participating in the program will be subject to a six-year statute of limitations for the first three years under the program, rather than the three-year statute of limitations that generally applies to payroll taxes.
Information about the VCSP is contained in IRS Announcement 2011-64.
Posted by Attorney Marcia S. Orgill. Orgill concentrates her practice in the area of business and personal taxation—especially complex domestic and international tax strategies.
10/14/11 6:00 AM
Business Law, Emerging Business, Employment Law, Manufacturing and Distribution | Comments Off |
Misclassification of Workers as Independent Contractors: How to Take Advantage of IRS’s New Voluntary Classification Settlement Program
By Christopher D. Vanderbeek
The United States Department of Labor has initiated a crackdown on enforcement of federal wage laws. The Labor Department has signed agreements with twelve states, as well as the I.R.S., to share information about wage violations. Missouri is one of the states that has signed on to assist in the effort. Illinois reportedly plans to become involved in the near future.
The hope is that the shared information will help the Labor Department target businesses that improperly classify employees in order to pay employees less.
The most prevalent violations across the country involve employers classifying employees as “independent contractors.” This allows employers to avoid paying employees overtime pay and avoid complying with minimum wage requirements. Employers also do not pay for workers’ compensation and unemployment insurance for these misclassified workers. Employers also skip out on federal payroll taxes for the workers, which is why the I.R.S. is involved in the effort.
The practice of misclassifying workers is illegal, but U.S. businesses have been employing it as a cost-cutting measure for years. Misclassification for the purpose of depriving workers of overtime pay and minimum wage – known as “wage-theft” – is most prevalent and wide-spread in the hotel, restaurant, janitorial, health care, and daycare industries. The Labor Department has recently intensified efforts to curb the practice of misclassification, including getting states like Missouri involved, due in large part to the practice growing across corporate industries in recent years.
Thus far, the Labor Department’s crackdown has been an overwhelming success. From 2008 to 2010, collection of back wages for misclassified workers increased by 400 percent. The Labor Department expects even better results now that states like Missouri are involved in the effort.
Missouri businesses looking to ensure compliance with employer classification legal requirements, as well as other employment-related legal requirements, can find more information here.
Posted by Attorney Christopher D. Vanderbeek. Vanderbeek is involved in the evaluation and defense of workers’ compensation and other insurance claims, protecting the interests of employers and insurers.
10/10/11 8:56 AM
Business Law, Emerging Business, Employment Law | Comments Off |
Federal Crackdown on Misclassifying Employees Includes Missouri and the I.R.S.
By Jeffrey L. Michelman
October 28, 2011 is the Deadline to Protect Your Trademarks from the New .XXX Domain
In the Jurassic age of the Internet, it seemed that only some nerds (now mostly wealthy) understood the full potential of Internet commerce. Large and small businesses appeared to have failed to grasp the importance of web sites and a proper Domain Name for such sites as well as its use for email addresses. Both have blossomed across the world and become a gateway to new methods of selling products and promoting brand recognition and goodwill.
Unfortunately, many of the nerds became pirates, taking the names of big well known brands as their own Domain Names and then holding those names for ransom. For a fee the company that never thought or sought to register a Domain Name for itself found they had to hire counsel to get their names back.
In those days, the law was behind the technological advancements and (as with most things technical) failed to anticipate the problems for business. Rather we lawyers had to show the Federal and State legislatures as well as the courts what action was appropriate. Lawsuits flew from antique word processors and physically delivered to a court’s inbox.
How did such a thing happen in the tech savvy end of the last millennium? Simple, business failed to keep up with the developments in the Internet and its opportunities for new forms of commerce. And the lawyers who predicted dire consequences of this lack of attention went unheeded and unnoticed.
Today the cyberpiracy epidemic has dwindled to a trickle and filing lawsuits on line has become commonplace. There are a host of statutory prohibitions, remedies and even newly created quasi judicial bodies to battle the few pirates left sailing. One such entity created to “help promote the natural expansion of the net” is an international body known as the Internet Corporation for Assigned Names and Numbers, or ICANN.
Now, as legal problems were quieting down, this international power that directs Internet Domain Name usage has decided to stir up the pot with the issuance of two new policies that, if again unheeded by business, could cause as much upheaval, costs and litigation as occurred when Domain Names were new.
ICANN first approved a rapid and unprecedented policy allowing the expansion of the number of generic Top-Level Domains (gTLDs). Business owners by now are familiar with the .COM, .NET, .ORG, and .EDU specifically approved Top-Level Domains as well as those indicating a specific country. Domain registrants were free to register almost any sequence prior to the Top-Level Domain, but had few options when choosing a Top-Level Domain.
With ICANN’s new program, the Top-Level Domain Name space has been opened to allow the registration of nearly any combination of letters, including brands or other terms, such as .bank, .Lawyer, .plumber, .boeing, .nordstroms, .stlouis, etc. While the full impact of this expansion is uncertain, it is clear that regardless of their intent to participate in the new program, business owners will need to reevaluate the way they currently monitor and enforce their brands on the Internet.
Continue reading »
09/22/11 3:29 PM
Business Law, Emerging Business, Intellectual Property, Litigation | Comments Off |
The Domain Name Game: Category 4 Internet Storm Warning for Business
By James M. Heffner
With downtown St. Louis office vacancy now at 19%, landlords are being forced to compete aggressively and find creative ways to market their office properties.
Landlords have found they also have to create major incentives for tenants: everything from rent concessions to significant tenant improvement allowances.
If you are looking at moving your business, or if you are opening a new office, your best bet may be a move to downtown St. Louis.
Now may be a good time to be looking! Read more in this article from the St. Louis Business Journal.
07/26/11 3:10 PM
Business Law, Emerging Business, Real Estate | Comments Off |
It’s a Great Time to Become an Urban Business Dweller
By Christopher D. Vanderbeek
Good news for Missouri: A survey conducted recently by the United States Chamber of Commerce has determined Missouri to be the seventh most business-friendly state in the country, according to its ranking in the survey’s “taxes and regulation” category.
The category took into account five criteria affecting businesses and economic functioning: overall state and local tax burden, corporate tax burden, impact of “government-imposed and related costs” on small businesses and entrepreneurs, anticipated state budget gap in fiscal year 2012, and cost of living. Missouri was ranked in the top twenty in all five criteria. It ranked eighth in terms of cost of living.
The study specifically recognized Missouri for “comprehensive reforms” in its workers’ compensation system in recent years. This language undoubtedly refers, at least in part, to the sweeping amendments enacted in 2005. Prior to 2005, the system generally favored injured employees. However, the 2005 amendments dramatically shifted the landscape in favor of employers. A microcosm of the shift can be found in Missouri’s statutory directive regarding judicial interpretation of workers’ compensation statutes: prior to 2005, judges were directed to generally interpret the statutes liberally and in favor of employees, but the 2005 amendments called for “strict interpretation” of all statutes and struck the language regarding favoring employees.
The survey further noted the recent passage of legislation in Missouri to eliminate the state franchise tax. It is suggested that the measure will save Missouri businesses $80 million over the six-year period during which the tax is phased out.
Finally, the survey credited Missouri’s tax credit programs and state tax structure with providing corporations with “one of the most favorable situations in the nation.” For example, the state only considers income earned within the state taxable. Furthermore, manufacturer inventories (such as raw materials), as well as goods held by retailers, distributors and wholesalers, are exempt from property taxes.
What this means for Missouri businesses is, essentially, that Missouri is a great place to start, run, or relocate a business. The state tax structure allows businesses to keep a higher percentage of earned income than they would be able to keep in most other states. In addition, the employer-friendly workers’ compensation system keeps workers’ compensation insurance carriers’ liability exposures down relative to other states, which in turn bolsters relative the earning capacities of Missouri businesses even further.
The full U.S. Chamber survey report is available here.
07/18/11 7:36 AM
Business Law, Emerging Business, Tax | Comments Off |
Missouri Ranks High for Businesses in U.S. Chamber Survey