46 states (including California) have enacted laws requiring those who maintain personal information of others to protect that information and to notify the owners of that information of any security breaches. These laws and related regulations usually include an account-holder notification requirement when security breaches occur.

The laws require persons who “own or license” such certain specified personal information to meet minimum standards to safeguard the info. Any firm would “own or license” personal information it stores or maintains in connection both with its clients and its employees.

The “personal information” to which these statutes apply is generally limited to government identification numbers such as social security numbers and financial account information, but don’t take chances. Information such as home addresses and phone numbers, and a wide variety of other information, may be entitled to protection as well, under various “expectation of privacy” laws and regulations.

In the event of a security breach, those individuals whose personal information has been breached must be notified as soon without delay. The notice should include any specific use made of the data, the approximate date of the security breach, and any steps that the owner/licensee of the information has taken or plans to take relating to the incident. The notification requirement also includes informing the applicable state government, typically the attorney general’s office, of these same facts.

The details of what kind of security program is required, which is appropriate to the size, scope and type of business, the amount of data stored, the need for security and confidentiality and the amount of resources available to such business, is beyond the scope of this brief article. Information and assistance is available to our clients if you contact us and identify your particular concerns or general needs.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Business appraisals are not an exact science. A business appraisal can result in a fairly wide range of value, rather than a single number. The appraiser’s approach is likely to be influenced by the reason an appraisal is needed, past history, future prospects (an educated guess, at best!), industry comparisons, whether the appraisal is of a minority or controlling interest, marketability of an ownership interest, and various other factors.

There many situations for which the business owner will want the lowest possible value to be attached to the business, while whoever is on the “other side” will want the highest possible value. And vice versa!

There are a handful of simple approaches an appraiser can use to bias the value results downward:

1. Put weight on low-performing periods when calculating the weighted average revenue and earnings.
2. Use high cap rates and discounts rates, and use low value multipliers.
3. Use pessimistic projections.
4. Exclude methods that give high values.

Ideally, an appraiser can find unbiased, realistic, defensible settings which will be disliked equally by both sides. But in practice, situations can be encountered where the appraiser has blatantly pushed the limits of credibility.

Here’s an example of how a valuation can be biased so far to the low end that it’s almost funny, except for the extreme lowball effect on the departing shareholder’s payout. Or vice versa, if you’re on the other side.

You may remember that the auto industry had a very difficult time in the 2008-2009 recession. A particular dealership, like many of its counterparts, had low sales and big losses. But the auto industry has been steadily improving since, and the dealership’s current outlook is pretty good. Results had been improving steadily to a very nice profit in 2012, and the future looked rosy.

For an appraisal, this question arose: how much weight should be put on each year from 2008 through 2012? A departing shareholder’s payout depended heavily on the answer. Bear in mind that the idea of using historic data is intended to help estimate a sustainable earnings number that a buyer might expect over the next few years.

The appraiser for the remaining shareholders at the dealership put equal weight on all five years, giving the 2008 results the same relevance as the 2012 results. Further, he made no add-backs for shareholder perks, and omitted some other critical factors, without explanation.

This resulted in an estimate of annual “sustainable earnings” of about $200K, compared to $1.2 million earnings in the latest year. He used the $200K number to calculate the value for the departing shareholder’s interest, and he did not use future earnings methods. He then capped this off with a 50% discount for lack of marketability. For most appraisers and business owners, these are classic lowball techniques, and would likely be subject to a “fairness objection.”

Sure enough, the appraiser for the departing shareholder put all the weight on just the last two years, assumed all the add-backs that the first appraiser had omitted, relied heavily on happy projections, and used no marketability discount (remember, all those buyers are
sitting right there). The net effect was a value that was roughly 10x the first appraiser’s value. Astounding and well outside typical norms! Needless to say, the departing shareholder was pleased with this outcome; the remaining shareholders, not so much.

At that point, as part of many transactions, some nominally equitable method of resolving the wide discrepancy in assessments. A third appraiser, more independent than either of the first two, might be the best solution.

[Our thanks and appreciation to Hans Schroeder of BAER for the above info.]

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

If you haven’t taken care of this yet, do so soon, before some noisy visitor (example: a lawyer with too much time on his hands) happens to observe that you don’t have the legally-required notices posted for your employees, and files a complaint against you for breaking the law.

There are a number of mandatory statewide poster changes, and a few which are mandatory only in select cities (San Francisco and San Jose are included).

Conforming posters are available from a wide variety of sources. We see no need other than to shop for the lowest price, which should be less than $30.

You can also call our office administrator to get contact info for the least expensive source we’ve found, which we also use to meet our law firm’s requirements.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Wouldn’t it be nice if you could, for example, make arrangements with some of your employees, at their request, to have a 4-day x 10 hour/day workweek, without having to pay overtime for 2 hours/day?

A few years ago, the legislature authorized alternative workweeks, such as the example we’ve provided above.

Unfortunately, doing that is riddled with complex and difficult procedures, extra work for both employer and employee, and sufficient complexity such that few employers could be bothered, even when there were some benefits for both employers and employees.

In most other states, it’s easier. Federal law does not require overtime pay for more than 8 hours/day. It is required only for more than 40 hours/week, unlike California, which requires O.T. pay for employees who work more than 8 hours/day OR more than 40/week. In that case, you wouldn’t require anyone’s approval to respond positively to the request of even a single employee to work 4 x 10 hours/day, without receiving overtime pay for 8 hours of that.

Recently in mid-January, the Assembly Labor and Employment Committee rejected a bill that would eliminate the burdensome alternative-workweek election process. Sigh.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

For the second year in a row, California has been identified as the #1 “Judicial Hellhole” by the American Tort Reform Association. We are not sure this is an award California should be proud of.

Let’s hope California relinquishes this honor the next time.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Matters that have significant impact on small businesses rarely find their way to the U.S. Supreme Court. But that’s certainly not an ironclad rule of some sort. Sometimes, a decision arising from a dispute between giants (one of whom is often some agency of the U.S. Government) can have ramifications for virtually all businesses, regardless of size.

The United States Supreme Court began its 2013-2014 term last October with a few new cases that private employers may want to follow. By law, the U.S. Supreme Court’s term begins on the first Monday in October and lasts until the first Monday in October of the next year.

The Court receives approximately 10,000 petitions for legal review of lower court decisions. The Court’s caseload has increased steadily each year. By comparison, in 1960, only 2,313 cases were on the docket, and in 1945, only 1,460.

The nation’s high court agrees to review and hear oral argument in only about 100 cases per term and formal written opinions are issued in only about 80 to 90 cases. Here are a few cases that may be of interest to employers this year.

1. NLRB v. Noel Canning: In this case, the Court is being asked to review a case challenging President Obama’s “recess” appointments to the National Labor Relations Board. This case calls into question the validity of many of the NLRB’s recent key decisions since they were issued at a time when the Board did not have a legally authorized quorum. A lower court ruled that President Obama’s “recess” appointments to the NLRB were “constitutionally invalid” because the U.S. Senate was not actually in recess at the time President Obama made three appointments to the NLRB. Depending on how the Supreme Court rules, several recent NLRB decisions could be reversed. For example, the slew of cases which deal with employee firings when they use social media to complain about their employer could be subject to reversal.
2. Lawson v. FMR LLC: This case asks the Court to determine whether the Sarbanes-Oxley Act’s whistleblower protections should be extended to private companies serving under contract to public companies. Sarbanes-Oxley (SOX) protects employees who provide information or assist in investigations into violations of federal criminal law relating to mail/wire fraud, banking/securities fraud, Securities and Exchange Commission regulations, and shareholder protections. The law protects employees of publicly traded companies and brokerage firms, but the issue before the Court is whether the law should also be extended to privately-held contractors or subcontractors of a public company.
3. Sandifer v. U.S. Steel Corp: Section 203(o) of the Fair Labor Standards Act (FLSA) provides that an employer is not required to compensate a worker for time spent “changing clothes” if that time is excluded from compensable time under a collective bargaining agreement. A crucial distinction in this case revolves around the difference between “clothes” and “protective gear.” Steel workers who do their job wearing flame-retardant gear argue that putting on and taking off (“donning and doffing”) mandatory safety wear does not constitute “changing clothes” and should be compensable time. U.S. Steel argued that the activity of changing clothes “refers to the process of putting on the entire outfit worn by an employee at the beginning of the day, and taking off that outfit at the end of the
   day.” U.S. Steel argued that, when drafting the law, Congress intended the process of changing clothes to include donning and doffing protective items such as boots, aprons, leggings and hoods; items that U.S. Steel argued are “clothes under any definition.” Lower courts sided with U.S. Steel and ruled that such time is not compensable. The case may have a significant impact on employers in unionized industries whose workers must wear protective gear.

The decisions in these cases could have significant impact on some employment practices on businesses of all sizes.

Best Practices

• Use caution in drafting any policies that could interfere with employees’ rights to engage in protected concerted activity.
• Remember, “protected concerted activity” may include employee complaints about working conditions on personal Facebook or Twitter pages, and blogs.
• Seek legal counsel before taking any adverse employment action against an employee who engages in protected concerted activity to try and improve the terms and conditions of his/her employment.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

The California State Board of Equalization (BOE) is the state bureau responsible for administering sales tax collections. It has long been their practice to “automatically” collect a security deposit from new businesses applying for a Seller’s Permit.

The amount? Typically a half year’s worth of taxes, ranging from $2,000 to $50,000 per company. This is a truly significant impediment for many entrepreneurs trying to start a new company.

The good news: on December 17, the BOE voted to eliminate the burdensome security requirements for new businesses, drawing praise from the California Chamber of Commerce, which noted that these types of deposits are typically not required in other states.

In addition, the BOE will be reviewing and releasing much of the security currently held in the form of cash and liquid deposits, surety bonds, and personal guarantees. The board will continue to request security deposits from accounts with a history of nonpayment or those that comprise a high compliance risk, which seems reasonable and fair. The state currently holds security belonging to more than 15,000 taxpayers, valued at nearly $300 million. The BOE expects more than half of this amount will be released to taxpayers, boosting California’s economy and jobs.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

When interviewing employment candidates, are you allowed to ask if they’ve ever been convicted of a felony?

A new law, described below, is a warning about this sensitive area.

Governor Edmund G. Brown Jr. recently signed AB218, which will prevent “public” employers from asking job applicants about their criminal records until further along in the hiring process.

This also means that the question on almost every job application, “Have you ever been convicted of a felony?” must be removed by public employers.

This new law is part of a growing trend that protects those with prior felony convictions and gives them a second chance. The bill’s sponsor, Michelle Rodriguez, was quoted as stating: “A mistake from your past shouldn’t be a life sentence to joblessness.”

What About Private Employers?
There is no federal (or California law) that clearly prohibits a “private” employer from asking about conviction records. Nevertheless, to ask about a criminal record early on in the hiring process and using a conviction as an absolute ban from hiring is discouraged by the Equal Employment Opportunity Commission (EEOC), and such a ban can limit employment opportunities for some protected groups. Civil rights groups supporting the bill noted above also confirmed that criminal record questions have a disproportionate effect on minorities.

All of this suggests that there will be moves afoot to extend this bar to private employers as well, so be prepared!

Guidelines
The EEOC issued guidelines in April 2012 on this subject, and concluded that an employer is liable for discrimination when its neutral policy or practice (in asking about criminal convictions) has the effect of disproportionately screening out a protected group and the
employer fails to demonstrate that the policy or practice is job related for the position in question and consistent with business necessity.

Again, “private” employers can ask about criminal convictions, but must not exercise a “knee-jerk” reaction to rejecting those with former felony convictions. Some guidelines to consider are:

• The nature of the job;
• The nature and seriousness of the applicant’s offense(s);
• Whether there has been a multitude of prior offenses, or only a single one; and
• The length of time since the most recent offense occurred.

Employers should allow applicants who committed an offense an opportunity to explain the circumstances of the conviction(s), and should make a reasonable effort to determine whether the explanation is reliable. If an employer is uncomfortable with the explanation and the “business necessity” is questionable, it is best to seek legal counsel before making a decision.

And, one final warning … need we mention? …do not post a sign in your lobby that says “Ex-felons need not apply”.

Employers know that the exempt/nonexempt classification is critical. Failure to correctly classify your employees can result in liability for unpaid overtime. Class action lawsuits brought by employees who claim they were misclassified continue to be a hot area of litigation.

Employers must focus on the employee’s actual job duties in determining whether a worker is exempt or nonexempt. However, employers must also keep in mind another critical component of the test for exempt classification: Exempt employees must be paid on a salary basis.

This generally means, with rare exception, that hourly employees cannot be treated as “exempt,” regardless of their job duties. Also, part-time employees are generally subject to the same restriction: they must be paid on an hourly basis, and cannot be treated or labeled as “exempt.”

Example: a California court of appeal ruled that an insurance adjuster who received $29 per hour was not paid on a salary basis, was not exempt and could proceed with his overtime claim.

Exempt employees must meet two key salary requirements, in addition to meeting all other tests of the particular exemption. First, exempt employees generally must earn a minimum monthly salary of no less than two times the state minimum wage for full-time employment.

For most exempt executive, administrative and professional employees, the minimum salary is currently $2,773.33 per month based on the current minimum wage of $8 per hour. Special minimums apply to certain physicians who are paid hourly and to computer professionals.

Also, be aware that a “salary” is a predetermined sum not subject to variation based on the number of hours worked or the quality of work. Because of this “predetermined sum requirement,” employees compensated on an hourly basis generally cannot be deemed to meet the salary test required for exempt employees.

But there may be an “escape hatch”: if an employee is paid a guaranteed minimum for full-time work, but is also paid a “bonus” based on hours actually worked in excess of the basis definition of full-time work (40 hours is a “safe” definition”), an employee who meets all
other requirements may qualify as “exempt.”

This is one of the most “dangerous” areas, exposing non-compliant employers to very substantial penalties which can easily run into tens of thousands of dollars, even for smaller employers. Be aware, be alert, and be cautious!

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

According to published articles, there are 20 new taxes hitting the code books as a consequence of ObamaCare legislation. Because many of these new taxes will have an impact on your business and/or personal financial planning, and will also affect personnel compensation and benefits, we thought you might like a list or description of the taxes we’re talking about, here’s a good web site reference.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.