The employment contract of a headmaster of a private prep school in Florida was not renewed. He thought he was the victim of an age discrimination and retaliation lawsuit, so he sued.

A settlement was reached, which included him being paid $80,000. As is typical in such situations, the settlement agreement included a confidentiality and non-disclosure agreement that required non-disclosure to third parties of the amount of the settlement.

Within a week, the school notified the discharged headmaster that he had breached the settlement agreement, and that the school was no longer obligated to pay him the $80,000?

Why? Because his college-age daughter posted this on her Facebook site:

“Mama and Papa won the case against the school. They are now officially paying for my vacation to Europe this summer. SUCK IT.”

This is an important lesson for not only abiding to a Confidentiality and a Non-Disclosure Agreement, but also a real life example of how social media can impact our lives!

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.

AB 2688 is a proposed new law winding through the legislative process (“AB” stands for “Assembly Bill”).

This bill prevents an employer from being financially penalized through the assessment of statutory civil and criminal penalties, fines, and interest if the employer relies in good faith on written advice from the Division of Labor Standards Enforcement, and a court ultimately determines the DLSE’s advice was wrong.

Currently, employers are encouraged to refer to the DLSE’s written materials for “guidance” on these topics when there is no published, on-point case available to clearly identify how the courts will interpret the law. Employers are provided with no certainty, however, that
they will be shielded from liability if they comply in good faith with the DLSE’s written opinions or interpretations. AB 2688 eliminates this problem and provides businesses in California with the security to know that, if they seek out and receive written advice from the DLSE regarding how to comply with the law, they can actually rely upon that information.

California has unique and burdensome labor and employment laws. Small businesses that lack the financial resources to hire a human resources department or outside counsel for advice on how to comply with these labor and employment laws have only the DLSE for guidance. AB 2688, if it’s adopted in substantially its present form, will help such small businesses by encouraging them to seek out and rely upon the advice they receive from the DLSE regarding how to comply with the law. Even when you don’t have the internal resources to evaluate the
impact of a law, your attorney may want the same guidance from the DLSE.

There are various other constraints embedded in this proposed law, so even if it is adopted (as we hope will be the case), legal guidance may still be required regarding how to properly obtain the benefits of the law.

It’s worth noting that since 1947, the federal government has provided employers who rely in good faith upon the advice, opinion letters, and guidance of the U.S. Department of Labor regarding the Fair Labor Standards Act with a complete defense against liability (see 29 U.S. Code, sections 258–259).

This law, the Portal-to-Portal Act, has been in effect for more than 60 years, and there have not been any reported abuses of “bad actors” manipulating the system or process in order to gain an unfair advantage.

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.

Here’s a sad story: a few years ago, one of our current clients invested a few hundred thousand dollars in a friend’s company, purely as an investment. He allowed himself to be listed as an officer, and had a seat on the Board of Directors. He also cosigned for an SBA loan

You can guess what happened next: the company is now insolvent, and lawsuits are being filed all over the place. The underlying “investment contracts” which define our client’s liability, are unclear or overreaching in various respects.

To make matters worse, the owner/President failed to deposit payroll taxes with the IRS. Result: the IRS is now naming all directors and officers as “potentially responsible persons” to be personally responsible for those payroll taxes.

We think we can get our client out of this, but it is by no means certain. And, the legal fees and costs to accomplish that will by themselves be a significant expense.

Is it possible to make such an investment which avoids you ever being named as a “potentially responsible person” for obligations you had nothing to do with, and no control over?

Yes, it’s possible. But it requires very carefully-drafted agreements.

So, if you are approached about the possibility of making such an investment, consult an experienced business-law attorney who can help you avoid the traps and pitfalls in such an arrangement.

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.

In an appellate case released about two months ago (Bay Cities Paving & Grading v. City of San Leandro, Cal. Ct. App. – Feb. 13, 2014), the plaintiff argued as follows:
I can’t believe the City gave that contract to the lowest bidder! That’s outrageous!! It should have given the bid to me, even though my $5 million-plus bid would have cost the City over a half-million dollars more! Didn’t you notice that the lowest bidder’s bid accidentally left out page 33 of its bid — a page that’s about the terms of a bid bond. That error should entitle me to win the bid.

It’s also worth noting that the lowest bidder promptly gave the City page 33 once it realized it was missing, and that the error was inconsequential and caused no serious harm or unfairness.

The City’s response? It’s not an “abuse of discretion” by us to accept the lowest bid under these circumstances of “harmless error”.

What’s a bit amazing is that it took the court 21 pages to decide it agreed.

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.

Once again, California enacted many new employment laws that will affect California employers’ day to day operations and policies in 2014. Some of the new laws make significant changes in key areas such as minimum wage, new protection for immigrants and expanded leave of absences. The prudent small business owner already is aware of the new laws that could affect their business such as:

1. Wages & Hour Changes
2. Discrimination and Retaliation Protection
3. Immigration Protection
4. Leaves and Benefits
5. Background Checks
6. Worker’s Compensation

Some of the new laws went into effect on January 1, 2014, and others are delayed until later in the year. To see a full list and description of these new labor law changes for 2014, you can check the Cal Chamber website or contact our office to discuss any concerns you may have.

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.

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.