Contracts: The Basics

Understanding contracts is essential for a small business. Contracts are the basic building block of our economy and the legal principles of contract formation and enforcement go back centuries but are still in effect today.

Contracts require a “meeting of the minds” between the contracting parties and are enforceable in our courts. Contracts need to be clear and unambiguous and should be in writing and signed by the parties. In certain cases, oral contracts are enforceable but without a writing the terms are very hard to prove. For this reason, business contracts should always be in writing. The basic principle of contract interpretation by the courts is to determine what is the intention of the parties as determined by the four corners of the written document. Deals may be sealed with a handshake but fade away without a written document.

Contracts also require consideration to be enforceable. Consideration means that the parties exchange mutual promises or that one party agrees to provide a benefit to the other party or agrees to accept a detriment in consideration for the contract. A promise to make a gift is not enforceable because the receiving party has made no promise, payment or other consideration to the gifting party.

Under the Uniform Electronic Transactions Act (UETA), contracts can be signed electronically by using systems such as DocuSign as long as the parties intend to sign and do business electronically and keep a record that can be stored and reproduced as a copy. All states have adopted the UETA, including Missouri (codified at Section 432.200 RS MO 2003). Electronic contracts are just as enforceable as traditional signed contracts. Thus, it is important to note that the same basic principles of contract formation, interpretation and rules of enforcement apply to contracts in electronic or digital form. Continue reading »

Navigating the Emerging Industrial Lease Market: What You Should Know

While the national real estate landscape is evolving and somewhat unsettled for commercial office space, industrial real estate is in high demand. This reflects a shift in the need for logistics and manufacturing as well as employers seeking alternate and hybrid office settings.  Traditional office and industrial leasing share many of the same key terms, including pricing, common area expenses, and operational costs. However, there are additional and unique considerations for industrial landlords and tenants.

One key consideration is the appropriateness of the facility for the tenant’s use. Industrial tenants often have substantially different use needs from other industrial tenants, based upon the tenant’s industry and operations. This includes the possibility of vastly different needs in terms of transportation and loading facilities, HVAC and ventilation, floor loads, the use of data centers, and power needs.

Tenants also need to ensure that the zoning is appropriate for their needs (light vs. heavy industrial) and that there is flexibility in the lease and the facility for the tenant’s possible evolving needs over the term of the lease.

Both landlords and tenants should also consider the burden and expense of removing industrial fixtures like mezzanines, cabling, and cranes and the lease should clearly allocate these responsibilities and costs between the parties. This may require discussions about specific financial considerations to ensure the availability of funds to de-mobilize a site at lease end, including guaranties and letters of credit. Continue reading »

Illinois Passes Expansive Paid Leave Legislation: The Paid Leave for All Workers Act

Authored by Ruth Binger with assistance from Sarah L. Ayers

One of the most expansive paid leave laws in the nation has passed in Illinois. When the “Paid Leave for All Workers Act” goes into effect on January 1, 2024, Illinois will be one of only a few states, including Maine and Nevada, that require employers to offer paid leave for any reason or no reason at all.

Who Does the New Law Apply To?

The Paid Leave for All Workers Act applies to all individuals and public and private entities that employ at least one person in the state of Illinois. However, federal government employers, school districts organized under the Illinois school code, park districts organized under the Illinois school code, and employers who have already started to allocate sick leave under the Chicago or Cook County Ordinance are exempt.

“Employees” are broadly defined as “[a]ny individual permitted to work by an employer in an occupation.” The new law applies to in-state employees and remote employees based in Illinois who work 40 or more hours in Illinois within a 12-month period.

Under the Paid Leave for All Workers Act, domestic workers are considered employees, but the following workers are not:

• Independent contractors,
• Workers who meet the definition of employee under the Federal Railroad Unemployment Insurance Act or Railway Labor Act,
• College or university students who work part-time at the institution they attend, and
• Short-term employees who work for an “institution of higher learning” for less than two consecutive calendar quarters and do not have an expectation to be rehired.

Another important note is that individual employees cannot waive their rights under the Paid Leave for All Workers Act. However, bargaining unit employees can waive the right in a “bona fide collective bargaining agreement” if it is explicitly stated in “clear and unambiguous terms” within the agreement. Employers who have union employees are required to implement the Paid Leave for All Workers Act, even if it is inconsistent with the terms of the collective bargaining agreement, if the bargaining agreement is not set to expire for several years.

What Does the New Law Require? Continue reading »

Before You Personally Guarantee a Business Loan, Read This

Most small businesses owners have borrowed money to start and grow their businesses and, in most cases, had been requested by the lender to personally guarantee those debts. Sometimes the lender also requires the spouse to guarantee the debt, even if the spouse has nothing to do with the business.

In a loan context, a guarantee is a promise to pay the debt if the borrower is unable to do so.

In a business loan context, a personal guarantee is the promise of an individual, often the business owner, to pay the debt if the business is unable to do so.

Why is it important to pay attention to these personal guarantees?

Because starting and growing a small business is risky. If the startup fails, the personal guarantor is on the hook for those debts. All of the guarantor’s assets can be seized by the creditor once it obtains a judgment against the guarantor.

Why is it important to pay attention to a request that the spouse guarantee the debt?

Because when in Missouri a husband and wife own an asset together, such as a home or joint bank account, it is said to be owned as “Tenants by the Entirety” or TBE. In Illinois, TBE ownership is limited to homes owned by married couples.

TBE ownership is different than joint ownership. If two owners of an asset aren’t married, creditors of only one owner can reach that owner’s interest in the asset. With TBE ownership, however, only creditors of both owners can reach the asset. Obviously, it is to the business owner’s advantage not to have the spouse on the guarantee. This prevents the lender from seizing the jointly owned asset should the business fail.

Federal law protects a lender from demanding a spouse’s signature unless the spouse is a partner, director, or officer of the business or a shareholder or member. Regulation B, a provision of the Equal Credit Opportunity Act, provides that a lender cannot demand the signature of a spouse who is not involved in the business if the applicant qualifies for credit without the spouse’s guarantee and the spouse is not a joint applicant. Before your spouse signs any loan documents, be sure to consult with your attorney to ensure that a spousal signature is not required.

Should your business fail, and the lender tries to enforce the guarantee, your attorney should review the loan documents to determine if you have any defenses to the guarantee. For instance, a lender cannot enforce an “embedded guarantee,” in which some provision in the loan document itself states that the owner’s signature as a representative of the borrower also serves as a personal guarantee of the loan personally. These are not enforceable.

Because of the risk inherent in signing a personal guarantee, a separate individual signature underneath the terms of the guarantee is required for the guarantee to be effective. This can be either in a separate portion of the loan document or in a stand-alone guarantee document.

Can I limit my risk under a personal guarantee? Continue reading »

What Businesses Should Keep In Mind When Terminating an Employee

Ruth Binger was asked a few employment law questions by Ron Ameln, editor of St. Louis Small Business Monthly. Click here to see the first question about non-compete agreements and Ruth’s response. 

Firing an employee is always tricky. What are some things owners need to keep in mind if they let an employee go?

It is always hard to fire an employee. Employees strike back in a myriad of ways, some fair and some not so fair, such as filing a discrimination claim with the Missouri Human Rights Commission or the EEOC, complaining bitterly on the Glassdoor website, or, absent a non-compete, going to work for your competition or soliciting your employees and customers.

Positive actions include offering a severance agreement which includes a non-compete. Some employers make introductions to other employers where the fit might be better. This works well if the employee is not being let go because of performance but because of a lack of work or occupying the wrong seat on the bus. You could also put the employee on paid or unpaid leave for 3-6 months until the employee finds a job. It is easier to find a job if you have a job.

How important is it to have the proper documentation before firing an employee? Continue reading »

What Businesses Should Keep In Mind About Non-Compete Agreements

Ruth Binger was asked a few employment law questions by Ron Ameln, editor of St. Louis Small Business Monthly. Here is the first question with her response. Click here to see Questions 2 & 3 about things to keep in mind when terminating an employee.

With the tight labor market, business owners are doing everything they can to keep employees. Some are looking at non-compete agreements. Others hope their current agreements will help keep employees in the current environment. What should businesses keep in mind with these agreements?

Non-compete agreements are negative guardrail enforcement to protect your business. To enforce a non-compete, you must be able to prove that the business has a protectible interest in its trade secrets and customer relations and the covenants are reasonable. The key is to have your employees sign non-compete agreements on the first day of employment. If you require that the employees sign the agreement post-hiring, you will have issues with morale (employee may leave) and enforceability. To ensure enforceability of post-hiring agreements, you should consider providing additional consideration, such as bonus, raises, promotions, or benefits.  Inception of employment is consideration for the on-hire non-compete.

The term “non-compete” is used to describe three types of restrictive covenants, and people use the term interchangeably. Continue reading »

Missouri’s New Marijuana Amendment: Workplace Testing and Employees “Under the Influence”

Missouri’s newly approved constitutional Amendment 3 regarding marijuana use will go into effect on December 8, 2022.  With a total of 49 pages, the Amendment 3 has two sections: revised Section 1 (former Amendment 2), which focuses on medicinal use, and Section 2, which focuses on marijuana recreational use.

Employers have long had Drug-Free Workplace policies that test employees for various illegal drugs.  Common tests are pre-employment, random, reasonable suspicion, and fitness for duty/return to work/follow up after rehab or last chance.

The original Amendment 2 regarding medicinal use was passed in 2018.  Employers responded to this amendment in several ways including choosing to keep their policies the same but providing reasonable accommodation under the disability statutes or to simply quit testing for THC altogether except for reasonable suspicion.

Now, employers will have to go back to the drawing board.

Section 1: Medicinal Use of Marijuana

Section 1 of Amendment 3 revises the original Amendment 2 in its entirety. One of the revisions/additions includes adding a nondiscrimination in employment section. It prohibits employers from discriminating against “medicinal cardholders” based on off-duty use unless the person was “under the influence of medical marijuana” at or during work. Further, it specifically prevents employers from relying solely on a positive THC test result to terminate a medicinal cardholder unless the person used, possessed, or was “under the influence” of medical marijuana at or during work.

There are exceptions to the “under the influence test” for medicinal cards for the following situations:

1. If the employer would lose a monetary or licensing related benefit under federal law,
2. If the employee has a job where “legal use of a lawful marijuana product affects in any manner a person’s ability to perform job-related employment responsibilities, or
3. If it conflicts with a bona fide occupational qualification that is reasonably related to a person’s employment.

This exception protection does not appear to apply to “recreational” users who do not have a “medicinal card.”

There is no readily available test to scientifically confirm whether someone is “under the influence of marijuana” nor what the threshold of impairment is under BAC for alcohol. How long a person will test for marijuana depends on a multitude of factors but is not limited to: Continue reading »

Updated EEO “Know Your Rights” Poster Now Available

On October 22, 2022, the Equal Employment Opportunity Commission issued an updated EEO poster, a copy of which is attached to this blog post. This is to replace a previous EEO poster and addendum issued by the EEOC in 2019.

In many cases, employers have posted what is known as a 6-way poster, which sets forth an employee’s rights under various federal laws, including Title VII and the Americans with Disabilities Act. You may wish to acquire an updated 6-way poster, or you can simply post the October 2022 poster next to the 6-way poster, or over the section on Equal Employment Opportunity on existing 6-way posters.

Who is Required to Post this Notice?

Any employer with more than 15 employees is required to post the updated notice.

When Should I Put This Up? Continue reading »

Should Your Contracts Anticipate Another Pandemic?

The widespread impact of the COVID-19 pandemic caused many businesses to evaluate whether they are obligated to perform under certain contracts, or whether they can invoke unique contract provisions to excuse a possible or likely failure to perform. While no business wants to consider a downturn due to another worldwide health or other catastrophe, the last several years have made clear it could happen, and there are ways to minimize losses.

Specifically, a “force majeure” clause is a contract provision that excuses a party’s performance of its obligations under the contract when certain circumstances arise beyond the party’s control, and making performance inadvisable, commercially impracticable, illegal, or impossible. These clauses vary in language and length, but many clauses include events like fire, war, unrest, epidemic or pandemic, famine, or otherwise “acts of God.”

There are examples of businesses seeking to excuse or delay performance due to COVID-19.  One such case was Pacific Collective, LLC v. ExxonMobil, in California, in which a developer asked the court to prevent ExxonMobil from selling a property to other buyers, claiming that California’s lockdown during the pandemic was an act of God that prevented the developer from completing the multi-million-dollar property acquisition. Continue reading »

Your Business Needs an Estate Plan, Too

Yes, small businesses need estate plans. Business estate plans determine what happens if the owner can no longer operate the business due to death or disability. A plan must be in place to address either potentially devastating situation.

Businesses with multiple owners commonly use Buy/Sell Agreements for such a plan. These provisions can be inserted into the Operating Agreement if the business is a limited liability Company (LLC) or can be provided in a separate agreement if the business is a corporation or partnership. There are two general forms used:

• Buy/Sell Provisions: Remaining owners (whether shareholders, members, or partners) buy the deceased owner’s interest from the estate. A life insurance policy can provide funds for the purchase.
• Redemption Agreement: The company buys the deceased owner’s interests from the estate. The remaining owners own the company. Proceeds from the sale go to the estate. This arrangement can also be funded by a life insurance policy.

Because of the tax and legal considerations involved, it is critical that these plans be thought out and planned in advance with the advice and input of the business’ attorney, accountant, and insurance professional.

If no agreement exists, the remaining owners must deal with the deceased owner’s estate, possibly controlled by the spouse, children, or other persons not involved in the business. This can be very disruptive. The business may have to be sold or liquidated to the detriment to all concerned. The value of the business is not passed on to the estate. The remaining owners must deal with a hostile party and potential litigation which could destroy the business.

The loss of an owner can also cause a vacuum in the management of the company. Continue reading »