Non-Compete and Non-Solicitation Agreements Under Attack!

Soon companies may be prohibited or severely limited from using employee non-compete and non-solicitation agreements. The Federal Trade Commission’s (FTC) January 2023 proposed Non-Compete Clause Rule would prohibit employers from using non-compete agreements with any employee or independent contractor, paid or not, with very limited exceptions. The proposed rule is retroactive requiring employers to rescind all existing non-compete agreements and notify workers that these agreements are no longer in effect.

The FTC’s proposed rule does not prohibit customer or employee non-solicitation agreements unless they are overly broad. The proposal indicates that eradicating non-compete agreements is a priority for the FTC. The vote is scheduled for April 2024 and will likely be subject to extensive litigation if passed.

In May 2023, Jennifer Abruzzo, the National Labor Relations Board (NLRB) General Counsel, issued a memorandum stating that offering, upholding, and enforcing non-compete agreements may interfere with Section 7 of the National Labor Relations Act (NLRA). Employees could interpret the agreements as creating a lack of employment mobility by denying them the ability to quit or change jobs or by blocking access to other employment opportunities. Non-compete agreements could be lawful if they are narrowly tailored and only restrict individuals’ managerial or ownership interests in competing businesses or true independent contractor relationships. According to the memorandum, the NLRB will focus on pursuing enforcement actions against employers utilizing non-compete agreements. Continue reading »

Be Sure You’re Ready: The Corporate Transparency Act is Coming Soon!

To help combat money laundering, prevent financing of terrorism and drug and human trafficking, and deter securities fraud among other illicit activities, January 1, 2024, will usher in the new reporting requirements for most small and closely held businesses. Courtesy of the Corporate Transparency Act (CTA) established under the Anti-Money Laundering Act of 2020, companies will be required to disclose beneficial ownership information to the Treasury Department’s Financial Crimes and Enforcement Network (FinCEN).

What does this mean for existing entities?

All domestic corporations, limited liability companies, and other entities created under state law and formed prior to January 1, 2024, will have until December 31, 2024, to report the required information to FinCEN.

Because the CTA aims to garner information on shell companies and entities with no or little operations, it provides 23 exemptions allowing an entity not to report. One such exemption is for operating companies that meet the following requirements: (1) employ more than 20 full-time employees in the U.S., (2) had more than $5,000,000 in gross receipts or sales as reported on the prior year’s IRS Form 1120, and (3) have an operating presence at a physical office in the U.S.

What does this mean for new entities?

New entities created on or after January 1, 2024, will have 30 days from actual notice of creation or after a secretary of state provides public notice of the entity’s creation or registration, whichever is earlier, to file the required reporting information.

Whose information is reported?

Individuals who directly or indirectly exercise substantial control over the entity, senior officials who have substantial control over a company, and individuals who own or control 25% or more of ownership interests are the Beneficial Owners who must disclose required information under the CTA.

What kind of information do Beneficial Owners have to report? Continue reading »

Your Business and the ADA: Ensuring Accessibility and Inclusion

Part 2 of 2-Part Series on Accessibility and Accommodation

It is important for small businesses to be aware of and comply with the requirements of the Americans with Disabilities Act (ADA). The ADA has two sections that can potentially impact small businesses: Title I and Title III.

Title I of the ADA applies to businesses with 15 or more employees (or 6 or more employees under the Missouri Human Rights Act) and requires employers to provide reasonable accommodations for employees with disabilities. This means making modifications or adjustments to the work environment that enable employees to perform their job duties which could include providing assistive devices, modifying work schedules, or allowing telecommuting.

Title III applies to all businesses, regardless of their size, and requires them to make their physical premises accessible to individuals with disabilities. A key aspect is the removal of architectural barriers that may hinder accessibility and ensuring that physical structures are designed and constructed in a way that accommodates individuals with disabilities. Elements such as entrances, parking spaces, ramps, doorways, hallways, and restrooms must be accessible to people with mobility impairments.

When constructing a new building or making alterations or renovations to an existing building, businesses are generally required to comply with the ADA Standards for Accessible Design adopted by the Department of Justice in 2010. However, even if a business is not engaged in construction or renovation, they still have an obligation to make alterations to their premises to provide access if it is “reasonably achievable.” The term “reasonably achievable” has not been precisely defined, but courts consider factors such as the nature and cost of barrier removal, the business’ financial resources, technical difficulties, the number of employees and visitors, safety requirements, and the impact on business operations. Continue reading »

Clicking Towards Disaster: The Cost of ADA Non-Compliant Websites

Authored by David R. Bohm with assistance from Sarah L. Ayers, contributor

Part 1 of 2-Part Series on Accessibility and Accommodation (Updated July 2023)

Business websites are an invaluable tool for businesses to reach and grow their customer base. Entire businesses now operate completely online. Interactive websites that conduct transactions with consumers must be accessible by anyone, including those with hearing or vision disabilities. Non-compliant websites violate Title III of the Americans with Disabilities Act (ADA), which prohibits discrimination in public accommodations. A business could be found liable if its website is not accessible.

To be ADA compliant, the website should comply with the Web Content Accessibility Guidelines (WCAG). WCAG addresses accessibility issues such as contrasts, subtitles, and compatibility with screen reader equipment. This area of law is still developing. Federal courts are split as to whether Title III applies to businesses with no physical location. The Justice Department has not developed exact criteria for accessibility but has released various settlement agreements giving business owners some insights into ADA requirements.

When Rite Aid’s vaccine appointment portal was found to be inaccessible to individuals with disabilities, the company settled with the Justice Department. The issues were: (1) images, buttons, links, headings, and form fields that were either unlabeled or inaccurate, (2) pop-up windows and error messages that were not reported to screen readers, (3) tables that were missing information and proper mark-ups, (4) screen contrasts, and (5) navigation of the screen without a mouse. According to the settlement agreement, compliance is determined by “…whether individuals with disabilities have full and equal enjoyment of the goods, services, facilities, privileges, advantages, and accommodations offered.” Rite Aid agreed to continuously use an accessibility testing tool, address any barriers found within 15 days, provide annual training to employees on how to make its website accessible, and retain an outside website accessibility consultant. Continue reading »

Why Your Business Needs Trademarks: Protecting Your Intellectual Property

Authored by Ruth Binger with assistance from Sarah L. Ayers, contributor

Trademarks are a vital aspect of intellectual property, offering unique proprietary rights with several advantages. Unlike other forms of property, a brand or trademark can remain valuable indefinitely with proper care. In fact, trademarks tend to increase in value with use. They can be sold or licensed, making them reasonably liquid assets. Additionally, trademarks serve as powerful marketing shortcuts, influencing consumer purchasing decisions for a company’s goods or services.

However, there are misconceptions surrounding the protection trademarks provide. Incorporating, qualifying to do business, or reserving the business name with various Secretary of State offices provides limited brand name protection. The right to exclude others from using a similar name on goods and services is not automatically granted. Conduct a thorough trademark search of any new corporation or LLC name used to identify a product or service to determine the availability of a mark for your specific purposes and ensure the name does not infringe on another entity’s trademark.

Trademark registration is not mandatory to establish a protectable and exclusive right to a mark. Registered trademark remedies are injunctions and damages, but often the only remedy for an unregistered mark is an injunction. Under common law, trademark rights can be obtained within a specific geographic area of use. State trademark registration does not offer protection beyond these rights. Continue reading »

NLRB Decision Places Limits on Non-Disparagement Provisions in Severance Agreements

Authored by Katherine M. Flett with assistance from Kristina M. Stevenson, contributor

Non-disparagement clauses have historically been a common element of severance agreements and aim to protect an employer’s name from negative commentary by a former employee to others. The severance agreement is a contract that outlines the compensation and benefits an employee will receive in exchange for the release of any and all employee claims against the employer arising out of the employment relationship.

Confidentiality clauses limiting an employee’s right to disclose the terms of a severance agreement have also been a common element of severance agreements.

A recent National Labor Relations Board (NLRB) decision has placed a warning sign on all employment severance agreements. Retroactively, the NLRB’s decision in McLaren Macomb may invalidate non-disparagement and confidentiality clauses in severance agreements both before and after February 21, 2023. Generally, employers are now prohibited from proffering severance agreements that require non-supervisory employees to broadly waive their rights under Section 7 of the National Labor Relations Act (NLRA) in exchange for severance benefits.

Under the NLRA, Section 7 and Section 8(a)(1) work together to protect an employee’s right to unionize, assist labor organizations, and engage in concerted activities. Employers may not interfere with the Section 7 rights of their employees. To assist in understanding how non-disparagement and confidentiality clauses interfere with Section 7 rights, NLRB General Counsel Jennifer Abruzzo issued a memorandum providing guidance for the applicability of the McLaren Macomb decision.

Five Major Takeaways from the McLaren Macomb Decision Continue reading »

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 »