Business Law

April 23, 2013

NEW JERSEY REVISES ITS LIMITED LIABILITY COMPANY ACT

The New Jersey Uniform Limited Liability Company Act (the Act) was enacted in 1994 and governs NJ limited liability companies (LLCs). The Revised Uniform Limited Liability Company Act (the Revised Act) is the first major revision to the Act since its inception. Only NJ LLC’s formed after March 18, 2013 will currently be governed by the Revised Act. Effective March 1, 2014 however, all LLCs will fall under the authority of the Revised Act.

The amendments are designed to bring the Act more in line with the Model Revised Uniform Limited Liability Company Act. As of this posting, only seven states and the District of Columbia have adopted the RULLCA in some fashion. While it is beyond the scope of this post to identify all changes made by the amendment, I have listed some of the major changes below.

1. Perpetual Duration. Under the Revised Act LLCs will have perpetual duration while under the old Act duration was limited to 30 years.

2. Business Purpose. The Revised Act allows an LLC to be formed for any business purpose, including operating as a non-profit organization.

3. Oral Operating Agreements. Believe it or not, oral operating agreements are now allowed under the Revised Act. Under the old Act, oral agreements were not allowed. If the agreement was not in writing it did not exist. Under the amendments, a course of conduct or behavior can be used as evidence to support the terms of an “oral agreement.”

4. Indemnification. The Revised act now requires that the LLC indemnify and hold harmless its members and managers. Under the old Act indemnification was discretionary.

5. Fiduciary Duties. Fiduciary duties are allowed to be altered if not “manifestly unreasonable” although the operating agreement cannot authorize or otherwise allow intentional misconduct/violation of laws.

Other issues affected by the amendments relate to charging liens, disassociation, oppression and limitations on a member’s liability to another member – to name a few. While we always recommend that shareholder operating agreements are reviewed every few years, it is now critical that LLCs in existence prior to March 18, 2013 have their operating agreements updated to conform to the new rules.
Continue reading

April 16, 2013

EMPLOYERS MUST USE NEW VERSION OF FORM I-9 AFTER MAY 7, 2013 TO AVOID FINES AND PENALTIES

by H. Adam Shapiro

The U.S. Citizenship and Immigration Services (USCIS), a department of Homeland Security, requires all employers to verify the identity of their employees and their authorization to be in the country. In order to comply with this an employer must closely follow all requirements set forth in the I-9 Form. The USCIS has just released a new version of the I-9. However, while both versions of the form can now be used, after May 7, 2013, only the new version will be allowed. If employers do not verify this information or if they use an old version of the form, they may face penalties from the USCIS.

Changes to the form include revised instructions with new fields for employees’ foreign passport information and e-mail address. In addition, acceptable forms of identification have changed drastically. For example, the Employment Authorization Document (Form I-766) has been added to the list of acceptable forms. Forms that were previously accepted that have been removed from the current list include:

– Certificate of U.S. Citizenship – Certificate of Naturalization – Alien Registration Receipt Card – Unexpired Reentry Permit
– Unexpired Refugee Travel Document
It is important to note that current employees are not required to complete a new I-9 Form unless there is a requirement for re-authorization. Unnecessarily requiring re-verification may violate anti-discrimination provisions of the Immigration and Nationality Act. Additionally employers cannot specify which forms employees provide to satisfy the I-9 requirements nor can they refuse to hire an individual based upon a future expiration date of a provided form.

For a copy of the new form, please click this link.
Continue reading

April 2, 2013

It’s All in the Family… Tips for the Family Owned Business

by H. Adam Shapiro

The vast majority of family owned businesses fail to reach the next generation of owners as a result of poor succession planning. In fact, according to the Small Business Administration, while almost 90% of business are family owned, less than 30% of these businesses survive its second generation. Family businesses face unique intra-familial succession issues that can devastate a successful business if they are not dealt with in advance.

While not an exhaustive list, the top succession issues that a family business should examine include:

1. Reconfirm the goal or mission statement of the business and identify the best personnel suited to carry the stated goal forward.

2. The development of an exit strategy for founding that not only defines the reduced roles but future compensation (cash and/or stock) after the transfer from one generation to the next.

3. The development of a training program to educate and/or mentor the next generation of leaders.

4. Reexamine compensation system and determine whether members are being compensated fairly and establish a system based upon objective criteria or goals.

5. Consider employment agreements designed to prevent key personnel from competing with your business during transition period.
Continue reading

March 19, 2013

SEARCH AND SEIZURE IN THE DIGITAL AGE

by H. Adam Shapiro

Earlier this month the U.S. Court of Appeals for the Ninth Circuit ruled that border agents may not perform a forensic search of a traveler’s laptop merely because he is crossing the border into the United States. In the current climate of heightened security to prevent terroristic acts, we have sacrificed some of our basic freedoms as Americans. In this particular case, it was the breadth of coverage of the Fourth Amendment to our Constitution versus the boarder search exception doctrine.

The Fourth Amendment states in a nut shell that we shall be free from unreasonable searches and seizures. This boarder doctrine is a product of United States criminal law that allows basically unfettered searches and seizures within 100 miles of a border without the need for a warrant.

In the case before the Ninth Circuit, a traveler’s laptop computer was confiscated by the government for 5 days while it ran encryption software to break the traveler’s security codes. The Court recognized that while the Supreme Court has virtually suspended the Fourth Amendment at international boarders, this type of conduct went too far. The Ninth Circuit clearly stated in its Opinion that the government needed a “reasonable suspicion of illegal activity” before border agents can invade a person’s right to digital privacy. In particular, the Court stated, “A person’s digital life ought not be hijacked simply by crossing a border.” Please click this link to read a copy of the Opinion.

Too bad for the traveler in this case however; while the Court stated a standard that required a reasonable suspicion of illegal activity, the Court found that this standard was met. This traveler had a prior conviction for child pornography and was travelling from Mexico which is known to have a high incidence of child sex crimes. Combined with the fact that significant child pornography was indeed found on his computer’s hard drive made for an easy decision to get this predator off the street and rule the seizure valid.

So what should employers in Philadelphia and the surrounding four counties (Bucks, Montgomery, Chester and Delaware) take away from this regarding digital privacy rights? Well, Philadelphia International Airport (and Newark Airport for that matter) is considered an international boarder. Thus, the government conceivably can just walk up to one of your employees and in the name of security confiscate your company laptop, tablet or smart phone. What trade secrets or customer lists are on these digital file servers? What confidential agreements have you just broken by allowing the government to view highly confidential information? Do you have an obligation to immediately file an injunction to prevent the government from viewing the contents of your smart phone? Do you have to report this to your Board of Directors?
Continue reading

March 12, 2013

PHILADELPHIA HAS NEW LEAD PAINT LAW FOR RESIDENTIAL LANDLORDS

by H. Adam Shapiro

Late last year Philadelphia enacted a new lead paint disclosure law that changes the way residential landlords do business in Philadelphia. Under the Lead Paint Disclosure and Certification (LPDC) ordinance effective later this month, a tenant in targeted situations must be given a lead paint certificate when the lease is first signed. This certificate, prepared by a certified lead inspector, must state that the apartment is either “lead free” or “lead safe”. With respect to a sale as opposed to renting, the seller of real property needs to be presented with either of the two lead designations specified above, or a lead based paint disclosure form prepared by the Philadelphia Department of Public Health.

As alluded to above, there are two types of lead based certificates. A lead free certificate mean just that, there is no lead contaminated dust, paint, or soil in the property. Lead free certificates have no termination date, but due to a change in the definition of lead free under the new LPDC, lead free certificates that were obtained prior to the effective date of the ordinance will not work. Alternatively, lead safe certificates are issued when there may be lead contaminated material in the property, but it’s not currently a danger. Usually, this happens when it’s suspected there may be lead paint on the walls, but it’s been coated over with so much latex paint that it’s effectively sealed off from causing a problem for the tenants. Lead safe certificates have a limited life span because, for example, top coats of paint that cover the underlying lead based paint can peel away, or lead contaminated soil that is buried or cover by “clean” soil can push up to the surface over time. As a result, the rules require that “lead safe” certificates be no more than 24 months old when the lease begins. In either event, the certificates need to be signed by the tenant and also filed with the Philadelphia Department of Public Health.

In addition to the certificates, the LPDC also requires certain informational brochures and statements be provided in a Philadelphia residential lease. Many of these rules apply in the case of lease renewals as well, so you do not avoid the costs merely by keeping the same tenants in place.

Not surprisingly, there are significant penalties if a landlord fails to comply with the LPDC. Penalties include exemplary damages up to $2,000 per day, attorneys’ fees, punitive damages, and injunctions to enforce. In addition (and this is the kicker) if rent was already paid by the tenant, the tenant will be entitled to a refund of the paid rent for the entire period of time the landlord was not in compliance with the LPDC.
Continue reading

March 5, 2013

PENNSYLVANIA EMPLOYERS WILL NEED TO UPDATE EMPLOYEE HANDBOOKS AND OTHER CORPORATE POLICIES IF NEW SOCIAL MEDIA BILL PASSES

by H. Adam Shapiro

Last month Philadelphia City Council proposed a bill that would prevent employers from legally requiring employees to provide them with access to an employee’s social media account.

Highlights of the social media protections afforded to employees or prospective employees under the proposed bill include:

• prohibits requiring an employee to log on to a site in the employer’s presence;
• prohibits the employer from gaining access to an employee’s social media indirectly;
• protects the employee from retaliation if he refuses to give his username and password, or any other related account information.

The proposed bill does not however prevent an employer from monitoring an employee’s use of his corporate computer, email and cell phone for use not consistent with corporate policy. What this bill makes clear is that every employer needs to have a clearly written corporate policy on what is and is not allowed relating to the use of its technology in an employee handbook.
Continue reading

February 26, 2013

PHILADELPHIA REAL PROPERTY OWNERS MAY BE ENTITLED TO A REALTY TRANSFER TAX REFUND

by H. Adam Shapiro

If you recently transferred real property in Philadelphia between July 1, 2012 and January 5, 2013, you may be entitled to a refund in the amount of transfer tax paid. For clear cut real estate transaction where property is being conveyed by a deed at fair market value, the transfer tax is based upon the purchase price of the property. However, when the purchase price is not fair market value, or the deed recorded relates to a long term lease, for example, the common level ratio (CLR) comes into play.

Typically the CLR is updated each year, but due to Philadelphia’s tax assessment issues, the State Tax Equalization Board (STEB) did not establish for Philadelphia County a CLR for the period July 1, 2012 to June 30, 2013. Since the ratio in effect for this period remained “to be determined”, the CLR from the previous period remained in effect. This amount, 3.97, was used to determine a property’s computed value until the updated CLR was published.

Recently, the CLR for July 1, 2012 through June 30, 2013 was determined to be 3.27. Since the new CLR is lower than the previous CLR (3.97), taxpayers are entitled to refunds for transfer taxes paid relating to real property transfers made after June 30, 2012 from both the Pennsylvania and Philadelphia revenue departments (if they used the 3.97 CLR).

This has the potential to amount to a significant refund. For example, if a property has an assessed value of $1,000,000, the computed value with the old CLR would be $3,970,000. The resulting realty transfer tax would then be $158,800. With the new CLR the realty transfer tax would $130,800, with a difference and refund of $28,000.
Continue reading

February 19, 2013

DO WEBSITE TERMS OF USE BIND CUSTOMERS? SOMETIMES.

by H. Adam Shapiro

At the bottom of virtually every website is a link titled “Terms of Use” or “Terms and Conditions.” Click on this and you will see the conditions a company wants to impose on its customers who click through their website. Traditionally courts have held that “terms of use” and “privacy policy” sections of a website are binding. However, a recent federal court decision ruled that a major company’s Terms and Conditions was not enforceable and how the implementation of the user agreement (user agreements are what the courts typically call Terms of Use and/or Privacy Policies) was why the court decided the user agreement was not enforceable.

There are two categories of user agreements. The least effective user agreement is the browsewrap agreement. Businesses who adopt this approach take the position that the customer agrees to the user agreement by virtue of the customer merely visiting the website. No affirmative action is required by the customer other than visiting the website.

Contrast this approach with the clickwrap agreement. In the clickwrap agreement, the customer must click “OK” or “Agree” in order to accept the User Agreement before he can access the website. The best example I can think of is Apple. Anybody who has iTunes is familiar with the almost biweekly updates to the “terms and conditions” and that if you want to continue to use iTunes, you have to “Agree” or click “OK”.

However, as much as people may criticize Apple, they are doing it correctly. Every time a change is made to a user agreement, it is a best practice to obtain the affirmative consent of the user. Failure to do so leaves the user agreement open to attack. The argument is that because the user was not aware of the one-sided unilateral change, it will not be controlling. In fact, this is exactly why the federal district court invalidated the Zappos user agreement. Because Zappos failed to obtain the customer’s acceptance of new terms and conditions, Zappos was unable to impose its mandatory arbitration provision against its customer.
Continue reading

February 12, 2013

CLIENT ALERT: RECENT COURT RULING REGARDING THE VIOLATION OF A COVENANT NOT TO COMPETE – SOLICITATION OF PAST CUSTOMERS

by H. Adam Shapiro

In a breach of contract case last month (January 2013), a Pennsylvania trial court correctly ruled (in my humble opinion), that a seller did not violate the terms of a covenant not to compete in an asset purchase agreement by providing services to its former clients. The new owners of the company argued for a broad interpretation of the word “solicit” and a holding that the seller had solicited its former business clients. The court disagreed, and in a very clearly worded opinion held the word “solicit” means more than just accepting work from a former client. In this case, the seller did not proactively reach out to any of his former clients, but merely agreed to work for them after the former clients unilaterally approached him.

This unfortunately was a case of a lawyer not paying attention to the details. The main asset in this sale appears to have been the customer list, and the buyer failed to ensure it was properly protected. This problem could have easily been easily avoided by including in the agreement a list of clients the seller could not work with, a mandatory referral clause, or perhaps a broader geographical restriction, just to name a few options. Realize now, every case turns on its own unique set of facts and circumstances and your situation may differ from what the court analyzed here. In the above example, the key fact for this particular court was that the plaintiff was unable to produce any evidence to contradict the seller’s statement that he did not reach out to former clients.
Continue reading

February 5, 2013

WORKPLACE NOTICE REQUIREMENTS – NEW JERSEY

by H. Adam Shapiro

Earlier this year (January 22) I blogged about workplace notices that are required by a business that maintains an office in Pennsylvania. Our New Jersey clients have spoken and I apologize. Set forth below is a list of the posting requirements for New Jersey businesses. These posters are in addition to the federal posting requirements and must be displayed in a conspicuous area. Hard copies are available through the New Jersey Department of Labor and printable copies may be found at
http://lwd.dol.state.nj.us/labor/employer/content/employerpacketforms.html

– Wage and Hour Law Abstract – Child Labor Laws – Reporting and Recordkeeping Requirements Under State Wage, Benefit, and Tax Laws
– Payment of Wages
– Schedule of Minors’ Hours (if applicable)
– Family Leave Insurance
– Unemployment Insurance and Disability Insurance Laws
– Conscientious Employee Protection Act ( also known as the “Whistleblower” Act)

In addition, the New Jersey Office of the Attorney General requires that businesses that provide services to the public (i.e. doctor’s offices and movie theaters) post a Public Accommodation poster.

The OAG also requires employers to post a Notice regarding Discrimination in Employment and post the required Notice regarding the Family Leave Act. In addition, businesses associated with the sale, rental and or lease of real estate are required to post a Discrimination in Housing poster. These materials are available at http://www.nj.gov/oag/dcr/posters.html.

Please remember that these Notices are in addition to the federal notices discussed earlier.
Continue reading