Changes to Business Entity Laws Make Pennsylvania More Business Friendly

Pennsylvania has recently enacted a set of laws (known as Act 170) which modernizes the treatment of unincorporated associations (LLCs, Limited Partnerships, Limited Liability Partnerships, and Limited Liability Limited Partnerships) and makes Pennsylvania a much more desirable place for owners of these businesses to run their companies.

The new Act applies to all unincorporated associations formed on or after February 21, 2017, and to all existing entities as of April 1, 2017. The Act completely replaces the statutes governing partnerships, limited partnerships and limited liability companies. Essentially, through the enactment of this Act, Pennsylvania has adopted the most current versions of the Uniform Limited Liability Company Act, the Uniform Limited Partnership Act and the Uniform Partnership Act, putting Pennsylvania in a much stronger position to contend with ultra-business friendly states like Delaware.

There are a number of significant changes imposed by the Act, including the following:

  • Duties of Managers and General Partners: The Act establishes that LLC managers, including managing members, and LP general partners owe a duty of loyalty, a duty of care and an obligation of good faith and fair dealing to the entity and the other members/partners. Although these duties can be altered or limited through the Act by way of an operating or partnership agreement, it cannot be eliminated entirely.

 

  • Apparent Authority: Members of LLCs no longer have statutory apparent authority, which means that they are not an agent of the LLC solely by reason of being a member.
  • Distribution Tests: The new law provides two tests for measuring the legality of LLC distributions, which include transfers of cash or property to members:
    • Insolvency Test” – a distribution is not allowed if the company is unable to pay its debts as they become due; and

    • Balance Sheet Test” – a distribution is unlawful if, after the distribution is made, the company’s total liabilities would exceed the company’s total assets.

Under the Act, companies must satisfy both tests in order for the distribution to be lawful, and these tests apply to both interim and liquidating distributions.

  • Allows for the Creation of Limited Liability Limited Partnerships: A limited liability limited partnership (LLLP) is a type of partnership that is very similar to a limited liability partnership (LLP) in that it has two types of partners, general partners and limited partners. Unlike an LLP, however, the general partners in an LLLP have some liability protection. The general partners of an LLLP are not personally responsible for the debts incurred by the partnership unless they agree to be through debt covenants or other contracts. The main advantage of an LLLP is that all partners are protected by some form of liability protection, but not to the same extent of protection of an LLC or corporation.
  • Transfer of Interests and Governance Rights: Absent a provision in the partnership or operating agreement to the contrary, the only interest in a partnership or limited liability company that may be transferred is the partner or member’s Transferable Interest. The Transferable Interest is the financial interest in the entity that entitles the holder to receive distributions, but does not include any voting or management rights. Essentially, a member can only transfer economic rights (the right to receive distributions) to persons outside the business, but managing rights are not transferable unless the operating agreement provides otherwise.

 

  • Charging Orders: Under the Act, the sole method by which a judgment creditor can extract any value from a debtor’s interest in a partnership or limited liability company is by way of a charging order, which gives the creditor a lien on the debtor’s Transferable Interest in the entity. Notably, this only provides the creditor with the right to receive distributions and does not include any management rights.
  • Full Shield Protection for Partners: The existing laws on partnerships were amended to replace the former ‘partial shield’ protection for partners and replace it with ‘full shield’ protection by removing language that implied that a partner in a limited liability partnership or limited liability limited partnership could be liable for any act of a person under the supervision and control of the partner even if the partner had no responsibility to supervise or control the act giving rise to the liability.  As a result of the revised language, partners are now only liable for their own negligence or wrongful acts.

 

If you’re currently the owner or operator of a partnership or LLC in the Commonwealth of Pennsylvania, the time is ripe to review your operating/partnership agreement with your attorney. There may be changes required or recommended as a result of the passage of Act 170, and your attorney would be in the best position to point you in the right direction. If you have any questions about the information in this article or are interested in getting more specific information regarding the impact of these changes to the business laws in Pennsylvania, the attorneys at Howland Hess O’Connell are available to assist you today. Call for a free consultation at (215)-947-6240 or contact us online to schedule a meeting.

Legal Disclaimer: The contents of this website are intended solely for informational purposes. They neither constitute nor imply an official legal opinion on behalf of Howland, Hess, Guinan, Torpey, Cassidy and O’Connell nor do they establish an attorney-client relationship of any kind. Howland Hess O’Connell encourages all readers to seek and consult professional counsel before acting upon the information contained on this site.

What to do When: Your Business is Sued

No matter how many times you tell yourself it’s simply the cost of doing business, being sued in state or federal court is a dilemma no business owner wants to be confronted with. Individuals or entities likely to bring a lawsuit against a business come in all different shapes and sizes: disgruntled employees, scorned competitors, or unsatisfied customers, just to name a few. The avenues available to bring legal action against a business entity only seem to be growing with no end in sight. As a business owner or member of upper management, it is critical you are aware of the steps necessary to best protect yourself and your company once your business has been named in a lawsuit.

Step 1. Get Your Attorney Involved

Although it may seem to be a self-serving piece of advice, it should go without saying that if your business is sued, the most logical first step is to take a copy of the lawsuit or complaint (in its entirety) to an attorney experienced in handling matters for business and corporate clients. It is critical an attorney advise you on what to do, avoid doing, and absolutely not do in response to being sued. The attorney will be reliant on your complete candor, so it is critical you disclose any and all information to your lawyer that pertains to the suit to enable him or her to prepare the best defense. There may be quick outs available to you with a responsive filing, such as a lack of jurisdiction or improper venue.

Alternatively, you may determine with your attorney that your business is likely in this suit for the long haul and put into place internal procedures for best preparing for this fight (especially preserving potentially relevant evidence). Please recognize that discarding or destroying records while you are in a lawsuit may be considered illegal even if you had no criminal intent. Speak with your attorney about your policy on record preservation and be prepared to put any shredding schedules on hold.

Step 2. Notify your Insurance Provider

The next step is to alert your business’s insurance provider. Here’s a good time to mention what should be obvious: if you haven’t explored obtaining business insurance for your company, now is the time. Meaning right now. Such as, stop what you’re doing and get on the phone today. Then, come back and continue reading this article.

Many claims will be covered by an adequate insurance policy. When shopping for an insurance provider, start by identifying the most likely types of legal issues that your business will confront. With this information, have conversations with potential suitors of your business insurance and receive confirmation that these types of claims will be covered by either your insurer’s general liability protection language or separate professional liability protections as required by your business.

If you already have an insurer and have determined the lawsuit against your company is or should be covered by your business’s insurance plan, get the information relating to the lawsuit against your company to your insurance provider ASAP. Even if your review of your plan demonstrates the lawsuit may not be covered, it’s likely worthwhile to tender the claim or have your attorney do so. But again, do so quickly. Many insurance provider include provisions in their contracts which allows the insurer to refuse to offer coverage if they’re not put on notice of the lawsuit in a very timely fashion. Assuming the complaint filed against your business is covered under your insurance plan, your coverage may include payment or partial payment of attorneys’ fees, settlement, and even contribution to (if not total payment of) a judgement if your business is found liable in the legal action.

The information above should drive home the reality that an adequate insurance policy is critical to protecting your business’s best interests.

Step 3. Consider Your Options and Decide How to Proceed

At this point, your attorney will likely be able to give you at least an initial indicator of the strengths and weaknesses in the action against your business. Recognize, however, that until you have fully engaged in and completed the discovery process (going through depositions, interrogatories and requests for documents), there will still be a lot left unknown.

For many business owners who took an idea and turned it into a fully functioning and profitable company, the mere thought of settling goes against every fiber of their being. However, lawsuits are expensive and uncertain. No matter how strongly you believe you are right, the reality is that all it takes is one judge or a select number of jurors to see the case differently and you’re looking at a significant saddle on your company’s finances.

This is the current model of the court system, and the sooner you are able to come to grips with it in your defense the sooner you can make the best determination for your individual situation. Frankly, it’s never too early to at least start considering other options available to your business in terms of mitigating the financial outlay required to see a case all the way through trial.

It is also critical that you and your attorney identify any other potential parties that may be financially responsible to either your business or the Plaintiff if the Plaintiff is successful. After you’ve identified these parties, your attorney will then coordinate bringing those parties into the suit if possible and lessening your financial exposure. Additionally, there is always the possibility that your business may have strong grounds to bring a counter-claim against the Plaintiff, which is another bargaining chip and provides greater protection should the Plaintiff bring the claim all the way through to trial. These decisions should always be done with the input of an attorney.

There are a multitude of other legal issues to consider when your business has been sued, far too many to include in one article. As an aside, those of you in the process of starting your own business or with the intention to do so in the future should be wary of using solely the services of an internet-based company to form and register your company without also consulting an attorney. The attorneys at Howland Hess O’Connell are experienced and well-versed in the field of business law and are available to assist you today.

Legal Disclaimer: The contents of this website are intended solely for informational purposes. They neither constitute nor imply an official legal opinion on behalf of Howland, Hess, Guinan, Torpey, Cassidy and O’Connell nor do they establish an attorney-client relationship of any kind. Howland Hess O’Connell encourages all readers to seek and consult professional counsel before acting upon the information contained on this site.

Federal Law Provides Clearer Protection for Pregnant Workers

The United States Equal Employment Opportunity Commission (“EEOC”) recently published a guidance piece that is useful for both employees and employers. One particular article of interest is a description of the legal rights for pregnant workers under federal law. If you’re an employer, it’s important to recognize that you may be required to provide further accommodations now than in the past to your pregnant employees.

The EEOC’s guidance article has three major directives. First, an employer cannot discriminate on the basis of a past or present pregnancy, an ability or intent to become pregnant, a medical condition related to pregnancy, or an abortion. Similarly, an employer cannot harass an employee based on these same considerations. Finally, and potentially most importantly, the employer appears to now be under a heightened expectation to make accommodations for a pregnant employee.

In providing guidance on the issue of a heightened right to accommodations, the EEOC delivered its message in the form of a hypothetical question and answer format as reproduced below:

Q: What if I am having difficulty doing my job because of pregnancy or a medical condition related to my pregnancy?

You may be able to get an accommodation from the employer that will allow you to do your regular job safely.”  Examples include altered break and work schedules (e.g., breaks to rest or use the restroom), permission to sit or stand, ergonomic office furniture, shift changes, elimination of marginal job functions, and permission to work from home.

–           –           –

You don’t need to have a particular accommodation in mind before you ask for one, though you can ask for something specific.  However, you should know that the Americans with Disabilities Act (“ADA”) doesn’t require your employer to make changes that involve significant difficulty or expense.  Also, if more than one accommodation would work, the employer can choose which one to give you.

Q: What if I can’t work at all because of my pregnancy?

If you can’t work at all and you have no paid leave, you still may be entitled to unpaid leave as an accommodation.  You may also qualify for leave under the Family and Medical Leave Act.

Q: What should I do if I need an accommodation, light duty, or leave because of my pregnancy?

Start by telling a supervisor, HR manager, or other appropriate person that you need a change at work due to pregnancy.  You should inform your employer if the source of your problem at work is a pregnancy-related medical condition, because you might be able to get an accommodation under the ADA.  An employer cannot legally fire you, or refuse to hire or promote you, because you asked for an accommodation, or because you need one.  The employer also cannot charge you for the costs of an accommodation.  Because employers do not have to excuse poor job performance, even if it was caused by a pregnancy-related medical condition, it may be better to ask for an accommodation before any problems occur or become worse.

Under the ADA, your employer may ask you to submit a letter from your health care provider documenting that you have a pregnancy-related medical condition, and that you need an accommodation because of it.  Your health care provider might also be asked whether particular accommodations would meet your needs.

Q: What if there’s no way that I can do my regular job, even with an accommodation?

First, if you are being told by a health care provider that you can’t do your job safely and, for example, need light duty or can’t do your job because of a limitation or restriction, you may want to make sure that it’s really true and that your provider has considered the option of an accommodation that would allow you to do your job safely.

If you really can’t do your regular job safely, even with an accommodation, you might be able to get altered job duties under the Pregnancy Discrimination Act (“PDA”).  Depending on how your employer treats non-pregnant employees with similar limitations, the PDA might require your employer to reduce your workload, remove an essential function of your job, or temporarily assign you to a different position if the employer does those things for non-pregnant employees with limitations similar to yours.

The attorneys at Howland, Hess, Guinan, Torpey, Cassidy & O’Connell, LLP are skilled in employment and business law. If you are interested in creating a strategy on how to ensure you are compliant with both the regulations of the Americans with Disabilities Act and the Pregnancy Discrimination Act, call now to arrange for a free consultation at 215-947-6240 or visit us online.

Legal Disclaimer: The contents of this website are intended solely for informational purposes. They neither constitute nor imply an official legal opinion on behalf of Howland, Hess, Guinan, Torpey, Cassidy and O’Connell nor do they establish an attorney-client relationship of any kind. Howland Hess O’Connell encourages all readers to seek and consult professional counsel before acting upon the information contained on this site.

Employee Eligibility for Overtime Pay to Increase Come December 1st

All about the moneyThis past May, the Obama administration issued final rules requiring employers to make overtime payments (time-and-a-half) to perhaps millions of workers not currently eligible. The rules will go into effect on December 1, 2016, giving employers approximately six months from the announcement of the final rules to prepare. The goal of these rules is to update the salary and compensation levels needed for executive, administrative and professional salaried workers to be exempt from overtime pay eligibility. The hourly threshold for overtime payments remains at 40 hours per week.

It should be noted that overtime payment is automatic for those employees who are paid hourly, as opposed to those on salaries, regardless of their actual earnings.

So while these new rules only impact salaried employees, they still have the potential to expand coverage to over four million salaried workers nationwide within the first year of implementation. Here is why: the central component of the new rules is the pay level at which salaried employees are presumed eligible for overtime pay. Under the old rule governing overtime, enacted twelve years ago as the only adjustment to overtime regulation since 1975, only workers making less than $23,660.00 in salary qualified to receive overtime pay when working more than forty (40) hours in a week. Under the new rules, the qualifying salary is increased to $47,476.00 per year, a rather large jump indeed. These rules allow salaried workers, including managers, who earn below the $47,476.00 threshold to collect overtime pay for any time spent working over forty hours.  Those workers earning above that amount are exempt.

It is also important to highlight that the new rules, as opposed to the old rules, are set up so that a new dollar amount for overtime eligibility will adjust every three years. This was included to ensure workers’ ability to earn overtime will keep up with inflation.

If you’re an employer, the time to start developing a plan in response to these new regulations is now. Here are some potential options available to employers to manage this change, as proffered by employment experts nationwide:

  • Keep those salaries which would qualify for overtime the same while eliminating overtime or reducing it greatly.
  • Raise the salaries of salaried employees over the new minimum threshold ($47,476.00), which will allow employers to continue generating unpaid overtime work from now-exempt employees.
  • While not very creative, employers may opt to simply keep the salaries the same while paying overtime. While it may seem an easy option, employers will be tasked with tracking employee hours to ensure they’re not abusing the system.
  • Keep salaries the same, but hire more employees on an hourly basis. This seemingly goes hand in hand with option one. However, if your type of work involves constantly generating overtime from employees, hiring additional workers to be paid hourly to pick up any potential slack from those employees actively avoiding overtime may be a worthwhile option to explore.

The attorneys at Howland, Hess, Guinan, Torpey, Cassidy & O’Connell, LLP are skilled in employment and business law. If you are interested in creating a strategy on how to handle the changes sure to come with this new rule on overtime pay, call now to arrange for a free consultation at 215-947-6240 or visit us online.

Legal Disclaimer: The contents of this website are intended solely for informational purposes. They neither constitute nor imply an official legal opinion on behalf of Howland, Hess, Guinan, Torpey, Cassidy and O’Connell nor do they establish an attorney-client relationship of any kind. Howland Hess O’Connell encourages all readers to seek and consult professional counsel before acting upon the information contained on this site.

Validity of Non-Compete Provisions in Employment Agreement

As it pertains to non-compete clauses in an employment agreement in Pennsylvania, there is no bright line rule which states definitively the validity or “enforceability” of these provisions. In fact, Pennsylvania has no statute specifically addressing the issue of whether these sections of an employment agreement are enforceable. As a result, it has largely been left to the courts of the Commonwealth to provide clarity.

For reference, a non-compete clause typically includes the following language: “Employee agrees that for a period of “X” months after the Employee is no longer employed by Company Y, the Employee will not engage in the same or similar activities as were performed by the Employee for Company Y in any other business within a 50 miles radius of Company Y.”

Generally speaking, restrictions on a former employee’s right to work are not favored in Pennsylvania. Omicron Sys., Inc. v. Weiner, 860 A.2d 554 (Pa. Super. 2004). However, the Courts in Pennsylvania are willing to enforce non-compete covenants but only to the extent reasonably necessary for the protection of the employer’s interests. Id. In order to be deemed reasonable, and therefore enforceable, the non-compete provision must be reasonably limited in regards to (1) duration of time the non-compete provisions applies (can’t generally be for former employee’s lifetime, for example) and (2) geographical extent of the non-compete (must be limited to certain radius, can’t generally be all of the country).

So, if you’re an ex-employee seeking employment in the same field and in the same general area in violation of your employment agreement with your former employer, what should you expect? Well, if you find another job which fits these features, your former employer may file a lawsuit against you to attempt to force you to quit this new job.

As an employer, it must be clear in your non-compete clause that your sole goal is to protect your business interests. As previously stated, while these type of provisions are not necessarily favored in Pennsylvania, courts will uphold and enforce them provided they stand up to a level of scrutiny which is fairly strict. If a court is in the position of reviewing your agreement and concludes that the non-compete clause is broader than necessary to protect a legitimate business interest or simply not reasonable, they have the right to invalidate it and remove it from the employment contract.

Additionally, if you’re an employer, it’s important to take note that the inclusion of such a provision must be incident to an employment relationship between yourself and your employee. While this may seem obvious, there are minor subtleties regarding consideration for the making of a new contract. For instance, Pennsylvania Courts have ruled that if an employee is already employed and later an employer asks the employee to sign a non-compete, there must be some mutually exchanged benefit. Therefore, the employer could be required to offer additional salary or some other form of consideration in order for an agreement under such circumstances to be deemed enforceable.

If you’re an employer or employee confronting legal issues concerning a “non-compete” provision in your employment contract, the Business and Corporate Law attorneys at Howland Hess O’Connell are willing and able to assist you in handling this matter. Call for a free consultation at (215)-947-6240 or contact us online to schedule a meeting.

Legal Disclaimer: The contents of this website are intended solely for informational purposes. They neither constitute nor imply an official legal opinion on behalf of Howland, Hess, Guinan, Torpey, Cassidy and O’Connell nor do they establish an attorney-client relationship of any kind. Howland Hess O’Connell encourages all readers to seek and consult professional counsel before acting upon the information contained on this site.

Starting a Business? Here are a Few Key Legal Issues to Consider.

I am awed by the drive, ingenuity and courage of those willing to make the jump and carry out their dream of being their own boss. It takes a lot of hard work and skill, and for those of you who have recently started your own business or are planning to in the future, here are a few legal issues to keep in mind as you make the jump!

  • Business Form: In today’s market, businesses take on many different shapes and sizes. There are sole proprietorships, partnerships, corporations, Subchapter S Corporations (S Corporations), and Limited Liability Corporations (LLCs), to name a few. Why is the business form decision so important? Because, depending on your state, it will likely affect how much you pay in taxes, the amount of paperwork your business is required to prepare and file, the personal liability you face and your ability to borrow money. Notably, sole proprietorships remain the most popular business structure, which is likely due to the ease of their formation (you may not even realize you’ve created one!).
  • Exit Strategy: It may seem like a strange proposition, but arguably just as important as considering how to get your business off the ground is considering how to get out or how to get others out. What’s your plan if you or one of your partners wants to withdraw from the venture? How much are you being paid to go or paying your partner to go? What other terms will apply to your or their buyout? What happens if one of you passes away unexpectedly? These are key issues to consider (and document) when starting a business to avoid confusion down the line.
  • Employees: Whether you have one or one-thousand employees, make no mistake: employee issues will arise. The number of employees under your hire will determine whether you are subject to certain laws (such as those relating to age discrimination, for example), but regardless of the number of your employees there are several key provisions to include in your agreement to hire. The two most important are non-compete and non-disclosure agreements. It is your obligation as the employer to make the terms extremely clear as ambiguity in a contract is read against the party who drafted it. If you’re not sure what to say and/or how to say it, you should consider speaking to a business law attorney in your area!
  • Dollars and Cents: It’s a beautiful thing to start seeing money come in, not always so beautiful seeing it go out. However, you have to be incredibly diligent in accounting for both. Bookkeeping is critical in managing finances, and a small mistake today could cost you big down the line if you don’t exercise caution. There is software and CPAs to help you manage your dollars and cents, and this is one area you definitely don’t want to spare.

There are a multitude of other legal issues to consider in starting your own business, like business permits, licenses, federal tax ID numbers, business names, and protection of intellectual property, just to name a few. As an aside, those of you in the process of starting your own business or with the intention to do so in the future should be wary of using solely the services of an internet-based company to form and register your company without also consulting an attorney. The attorneys at Howland Hess O’Connell are experienced and well-versed in the field of business law and are available to assist you today.

Legal Disclaimer: The contents of this website are intended solely for informational purposes. They neither constitute nor imply an official legal opinion on behalf of Howland, Hess, Guinan, Torpey, Cassidy and O’Connell nor do they establish an attorney-client relationship of any kind. Howland Hess O’Connell encourages all readers to seek and consult professional counsel before acting upon the information contained on this site.

Philly Employers, Take Heed: Ban the Box is Stronger Now Than Ever

Last month, then Philadelphia Mayor Michael Nutter signed an amendment to the city’s “Ban the Box” law which is set to take effect 90 days from December 15, 2015. This amendment adds to the already burdensome hiring restrictions on Philadelphia employers. Philadelphia is now recognized as having one of the most restrictive policies in the country for employers seeking to perform background checks.

To understand the amendment to the law, Ban the Boxit’s important to compare the new policy with the original 2012 “Ban the Box” legislation. When the policy first went into place, it was limited to private employers with at least ten employees. Now, any employer (public or private) in Philadelphia with even as few as one other employee is subject to the law. This is a huge change to the potential reach of this law and burden on employers. It essentially mandates that unless you work entirely by and for yourself, you must now comply with this law for any and all applicants in your hiring process.

Under the previous version of the law, the main obstacle for Philadelphia employers was that they were barred from asking an applicant about his or her criminal history on the application itself or during the initial interview. However, under the previous law, there was no bar on employers conducting these background checks after the initial interview and before making any conditional offer of employment. Now, the most impactful change created by this amendment is that employers can only conduct criminal background checks after the employer makes a conditional offer of employment to an applicant.

Additionally, under the new law, employers are restricted to a window of seven years prior to the application to investigate an applicant’s criminal record. Under the previous version of Philadelphia’s “Ban the Box” legislation, an employer had the ability to conduct background checks as far back as they desired.

Finally, the new addition to the law mandates that an employer notify the applicant and send to the applicant a copy of their criminal background check if the applicant is rejected. From that point, the applicant is provided ten (10) days in which to contest the employer’s decision and three-hundred (300) days to file a complaint with the Philadelphia Commission on Human Relations.

PRACTICAL: If you’re an employer in Philadelphia, big OR small, you need to be fully aware of this amendment to the “Ban the Box” Law. If either you or an employee of yours (such as an HR Manager) is charged with interviewing potential candidates for hire, it is critical to cover all bases to demonstrate you complied with the law and engaged in a holistic analysis of the individual before rejecting him or her.

The Law Firm of Howland, Hess, Guinan, Torpey, Cassidy & O’Connell is well versed in Business and Corporate Law. If you’re an employer in Philadelphia seeking to determine how best to defend yourself from claims by rejected applicants who are claiming you violated the “Ban the Box” legislation, the attorneys at Howland Hess O’Connell are ready and able to guide you through this new policy.

Legal Disclaimer: The contents of this website are intended solely for informational purposes. They neither constitute nor imply an official legal opinion on behalf of Howland, Hess, Guinan, Torpey, Cassidy and O’Connell nor do they establish an attorney-client relationship of any kind. Howland Hess O’Connell encourages all readers to seek and consult professional counsel before acting upon the information contained on this site.