California Supreme Court Clarifies Law Regarding “Rest Breaks”

A recent California Supreme Court decision, Augustus v. ABM Security Services, Inc., has concluded that state law prohibits on-duty and on-call rest periods.  The decision will require California employers to re-examine their rest-break policies and practices.

ABM Security Services required its guard employees to keep their radios and pagers on and respond to needs such as escorting a tenant to the parking lot during their rest period.  The Court concluded the policy violates state law.

Current state law requires employers to offer all employees a rest period that is within the middle of any work period that amounts three and one-half hours or more. Employees must be paid for rest breaks (unlike meal breaks), which must last at least ten minutes per four-hour work period.  Bathroom breaks do not count as rest breaks.

Since employees are paid for their rest breaks, an employer can mandate that employees remain on premises during the breaks. However, the Augustus decision is clear that employers may not require employees to remain on call during their rest break periods. Employers may not require employees to answer calls or respond to customers or vendors during a paid rest break.  Penalties can be significant for failure to comply.

The Court concluded, “During rest periods, employers must relieve their employees of all duties and relinquish any control over how employees spend their break time.”  The 10-minute rest break must be uninterrupted.  “The rest period, in short, must be a period of rest.”

We are available to discuss with you whether your current “rest break” policies and practices comply with current California law.

 

An Ounce of Prevention

ounce-of-prevention-1As Benjamin Franklin famously said, “an ounce of prevention is worth a pound of cure.”  As we continually emphasize to our clients, the best time to establish written agreements and procedures is before disputes arise. Given the fact that many business owners embark on new business ventures with family members, close friends, and other familiar business associates, it is not surprising that they frequently operate with the attitude of getting the business off the ground while “figuring everything else out later.”

Of course, we understand this perspective, and can appreciate that time and resources may be limited. Yet, succumbing to this trap often leads to significant unintended, negative consequences.  The results frequently include loss of valuable time and money, and the uncertainty of unwanted litigation. The cost of cleaning up mistakes is exponentially higher than hiring a good transactional lawyer from the beginning. Sadly, we have seen the closest of friends and family members end up in court, something that could easily have been avoided through thoughtful, proactive planning.

The following are some common pitfalls that could cause issues or disputes later on: operating without written agreements among business owners; failing to document key business transactions; inadequate corporate governance; disorganized management structure; tardiness in state or federal filings resulting in fines and penalties; and commingling of business and personal funds. To be sure, these are just a sampling: there are an endless array of traps for the unwary, uninformed business owner.

Having appropriate agreements and business structure in place is crucial for many situations:  the onset of catastrophic events; preparation for a business acquisition or merger; or the smooth transition of a business triggered by a founder’s disability, death or retirement.

As experienced business lawyers, we strategize with our clients on how to best resolve issues and disputes when they arise. However, we much prefer working closely with our clients to proactively plan and prevent these types of issues from ever arising. And frankly, it’s easier, less costly, and more effective. Our clients are grateful in either scenario – coming to us before or after a dispute – but the before has much less headache.  

We look forward to speaking with any business owners who feel that they could benefit from this type of proactive approach.   

New California Law Defines “Sick Leave” Requirements

Governor Jerry Brown has just signed a new law passed by the California legislature that expands significantly the obligations of business owners to provide paid sick leave to their employees beginning in mid-2015.

The new law, AB 1522, also called the “Healthy Workplaces, Healthy Families Act of 2014,” requires virtually all California employers to provide at least 3 days of paid sick leave per year.  Unlike many other employee benefit laws, the HWHFA encompasses most small business owners regardless of size.  Limited restrictions are provided for in-home supportive services, some flight attendants and crew, and certain employees working under collective bargaining agreements.

Beginning on July 1, 2015, employees working for 30 or more days within a year are eligible to accrue at least one hour of sick leave for every 30 hours worked.  Part-time employees are also covered.  Use of accrued sick days begins on an employee’s 90th day of employment.

Employees will be permitted to carry over unused sick leave to the following year to a maximum of six days of accrued sick time.  However, employers are not obligated to provide monetary compensation to a terminated employee with unused, accrued sick pay.  In addition, employers may limit the amount of sick time an employee can take in single year to 24 hours (3 days).

To determine what your company should do to ensure its compliance with the new law, and avoid what can be significant penalties, please contact my office to schedule a consultation.

Does Your Business Showcase Your Passion?

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On a visit to Mexico City last month, I saw first-hand a stunning example of the danger of focusing on style over substance. It illustrated to me an important lesson for business owners: your ability to attract the clients and customers you want is directly tied whether you connect them emotionally with your company’s vision and mission. No amount of money can overcome your failure to make this connection.

The Mexican billionaire Carlos Slim is often cited as the wealthiest man in the world. Known as the Warren Buffet of Mexico, his business holdings include telecommunications, banks, hotels, airlines, and even a significant stake in the New York Times. He has also amassed a personal art collection estimated to be worth $700 million, and recently commissioned Latin America’s largest museum in memory of his wife to showcase those works.

With its aluminum-clad exterior, the museum looks like an alien spaceship come to rest amidst the tony retailers of Neuvo Polanco, Mexico City’s Rodeo Drive. So it was with high expectations that I entered the gleaming edifice. Unfortunately, those expectations were dashed.

Rather than a celebration of art and color, the interior of the Museo Soumaya is stark and sterile. In truth, I couldn’t leave fast enough, definitely not the reaction I’d hope for or anticipated. Those who know me know of my deep passion for art, yet Slim’s creation left me feeling cold and surprisingly uninspired.

Earlier that same day, I’d visited the infinitely more modest quarters of the Museo de Arte Popular. Located in a building so unobtrusive I nearly missed it, the museum is home to the most comprehensive collection of folk art is all of Mexico.

To say I was dazzled is an understatement. Inside the humble exterior is a riot of color and fantasy that left me grinning from ear to ear. Simply stated, this place has soul, soul, and more soul. Indeed, it personifies the glorious, beating heart that is Mexico. Make no mistake: I will be back, again and again.

So what does any of this have to do with business? In a word: everything.

The reaction I had to these two different cultural experiences represents the spectrum of reaction people are having to you and your company. Ask yourself at which end of that spectrum do you reside?

Is your company all flash and dazzle on the outside, but lacking warmth and soul inside? Do your customers come away feeling uninspired, or are they thrilled at the opportunity do business with you again and again? Stated another way, do they connect to you emotionally, or does your lack of passion leave them cold?

As a business lawyer, I look counsel my clients to articulate a vision that speaks with heart and feeling. Nothing excites me more than working with businesses who excite their customers so much that they can’t wait to share their experiences. That excitement starts with an owner who has found her or his true reason for being – the “why” – and can’t wait to let the world know it. Many entrepreneurs resist making that type of emotional appeal, and yet it can – and often does – make the difference.

Ask yourself: would you rather be mediocre or extraordinary? Money has nothing to do with it.

LLC or Corporation? Licensed Contractors Beware

Many California licensed contractors are understandably interested in limiting their liability exposure by adopting a formal legal entity. The question arises whether a corporation or limited liability company best serves their needs.

Prior to 2012, licensed contractors were limited to incorporation due to restrictions in the 1994 Limited Liability Company Act. That is, contractors were permitted to seek issuance of a contractor’s license in the name of a corporation, or obtain transfer of an existing individual license, to a corporation but not to a limited liability company.

Starting in 2012, following a change in the LLC Act, the Contractors State License Board began accepting applications for LLC contractor’s licenses. So the question arises whether there are significant differences between a contractor’s license issued to a corporation vs. an LLC.  The answer is most definitely “Yes”.

  • LLC applicants or licensees are required to file a $100,000 surety bond with the Board to cover unpaid wages or other benefits owed to a contractor’s employees. Such a surety bond is not required of corporate licensees/applicants.
  • LLC licensees must maintain “errors and omissions” (also called E&O) insurance. For LLC’S with 5 or less owners, this minimum amount of insurance is $1 million. For each additional owner, the LLC must maintain an additional $100,000 of E&O insurance coverage. Again, this insurance is not required for corporate licensees.
  • If an LLC’s license is suspended because it fails to maintain its “good standing” with the Secretary of State’s office, the individual LLC owners may face personal liability of up to $1 million each for loss or injury during any period of suspension. Not so with corporations.

In light of these additional financial burdens and exposure, it will rarely make sense for licensed contractors to select the LLC form.

It must be understood that there are also restrictions and issues involved in contractor’s licenses issued or transferred to corporations, which must be reviewed and understood.

If you are a licensed general or specialty contractor currently doing business as a sole proprietor, please contact me to discuss whether incorporating would be beneficial to your company.

 

Do You Dare to be Different?

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Imagine what life would be like if everyone simply followed in the footsteps of those who preceded us. Isn’t it in fact the willingness and courage to try something new and different that personifies true entrepreneurship? As an attorney who advises business entrepreneurs, I often see my clients succumb to the impulse to “stick with what’s always worked.” Stated otherwise, they opt for the “tried and true” path rather than thinking outside the box for innovative concepts and solutions.

How different – and frankly boring – the world of art would be if artists like Picasso had been unwilling to move beyond their classical training and instruction. The image on the left above was painted by the artist as a young man. Without question, the woman portrayed is a magnificent example of classic portraiture, exhibiting Picasso’s mastery of imagery and light. And there’s little doubt he would have been a success had he just stuck to “traditional art.”

And yet something within the young Pablo compelled him to look beyond the popular conventions of late 19th century culture and visualize a world no one else had ever imagined, much less seen. In so doing, he left the comfort of what he knew he could do, and dared to blaze a new path by trying something neither he, nor any of his role models had ever tried before. As he himself wrote, “I am always doing that which I cannot do, in order that I may learn how to do it.”

Many critics of the time were aghast at the 19 year-old artist’s work. Of Picasso’s 1900 exhibition in Paris, Carl Jung wrote, ““The picture leaves one cold, or disturbs one by its paradoxical, unfeeling, and grotesque unconcern for the beholder.” The brilliant impressionist Paul Cezanne suffered similar disdain: “Mr. Cézanne merely gives the impression of being a sort of madman, painting in a state of delirium tremens.” Both artists are now universally acknowledged as groundbreaking artists whose influence continues to the present day.

Transferring these notions to the world of business, truly innovative entrepreneur must have boldness to be willing to re-imagine their industry or profession in ways not previously considered. Yes, it is important to have the solid foundation of basic business models and concepts before we launch ourselves – and our companies – into the unknown. In similar vein, no one can dispute that stepping outside the established traditions has a higher risk of failure.

Even the most daring entrepreneur should thoughtfully weigh the potential risks and benefits of whatever concept or strategy one attempts. Seeking counsel from trusted and skilled professional experts in the legal, financial or other appropriate arena is always imperative when contemplating “breaking the mold.” To do otherwise would be foolhardy rather than innovative.

Beyond the realm of art, where would we be today without Thomas Edison? Henry Ford? Steve Jobs? Oprah Winfrey? Richard Branson? A common denominator among them is their ability to use their unique vision and creativity to imagine what their predecessors could not.

Think of the person you most admire for having challenged the status quo and fundamentally changed the paradigm of the business arena in which she or he operated. And then ask yourself: Is the way I run my company, how I communicate what I do, mired in the safe, the predictable? Is it possible that by injecting a little more “right brain” creativity and passion, I could truly inspire my customers, my employees, and my community to flock to my door?

Going against the grain. Inverting business models. Doing the “impossible.” From the point of view as a business attorney, these are the kinds of client I live for, and with whom I love to work. It allows me to challenge and counsel them while at the same time being inspired to evolve and grow.

Irrespective of what you do in life, the willingness to think creatively and outside the norms gives you an edge many others will simply never have. What the leaders of innovation truly teach us, if we’re willing to listen, is that the ability to achieve genuine and lasting success is limited only by the boundaries we create for ourselves. Dare to be different.

What Machu Picchu Teaches About Business Success

Just as in construction, when building a business, one’s success depends on the time and energy spent establishing a solid foundation.

Those who know me are familiar with my love of international travel.  In particular, I am fascinated in understanding why certain structures have survived the tests of time whereas others are but a pile of rocks and rubble.

Recently a friend and I visited Machu Picchu, most famous of the Incan temples.  We were both amazed by how well preserved the buildings are, despite the fact the ancient city sits on a mountain top that has nearly 100 inches of annual rainfall in one of the most seismically active regions on earth.

Without question, Machu Picchu is an “engineering marvel.” The ancient builders invested as much effort into creating a stable infrastructure for Machu Picchu—underpinned by layers of topsoil, sandy gravel, and granite waste rock—as on the visible buildings. More than 700 terraces retained and channeled moisture and preserved soil, reducing erosion while providing space for agriculture.

I use this particularly vivid analogy to illustrate an important lesson: the more thought, time and planning one spends in constructing the foundation for a business, the more successful that business will be in weathering the storms and quakes of an uncertain and often volatile economic climate.

Over the 30+ years I have counseled business owners, the more passionate I have become in advocating these concepts.  Without exception, the businesses I have seen fail are those whose owners were so eager to “get out of the blocks” that they overlooked the key building blocks necessary to ensure their long-term viability and success.

When starting a business, it is essential to ask:

(1) Have we identified and evaluated all the potential risks involved in our particular type of business?

(2) Have we determined what type of business entity is best suited for our particular enterprise, and which will provide us the most legal protection and financial benefit?

(3)  Do we understand clearly the legal requirements and procedures we must follow in order to retain the financial benefits and legal protections the business entity can provide?

(4) Do we have a plan to protect the company and its owners in the event of a catastrophic event?

Certainly, there are a many other issues that must be considered.  If you’d like a list other questions you should be asking, email me at brian@brianaripley.com.