Law Office of Adam P. Whitney Blog
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Having a Company Holiday Party? Have Fun, but Don't Get Sued.

Your company holiday party comes with potential legal liability. While you can never eliminate all potential liability, you can minimize your risk. Here are some ways to do that:

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Should a Single-Member LLC Have an Operating Agreement?

When you have more than one Member in your Massachusetts Limited Liability Company, having an Operating Agreement is almost a must. Called an “LLC Agreement” in some states, an Operating Agreement is a formal legal document that sets forth the rights and duties of Members and Managers, including financial issues and working relations. But what about when you are the only Member? Isn't this just an agreement with yourself? Why would you need it?

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'London - Bankside - Mar 2010 - Closing the Deal' found at https://flic.kr/p/95rcgU by Gareth1953 All Right Now (https://flickr.com/people/gareth1953) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'London - Bankside - Mar 2010 - Closing the Deal' found at https://flic.kr/p/95rcgU by Gareth1953 All Right Now (https://flickr.com/people/gareth1953) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'100 shares of the Chicago Great Western Railway' found at https://flic.kr/p/e5jWfW by Mike Miley (https://flickr.com/people/mike_miley) used under Creative Commons Attribution-ShareAlike License (http://creativecommons.org/licenses/by-sa/2.0/)
'100 shares of the Chicago Great Western Railway' found at https://flic.kr/p/e5jWfW by Mike Miley (https://flickr.com/people/mike_miley) used under Creative Commons Attribution-ShareAlike License (http://creativecommons.org/licenses/by-sa/2.0/)
'100 shares of the Chicago Great Western Railway' found at https://flic.kr/p/e5jWfW by Mike Miley (https://flickr.com/people/mike_miley) used under Creative Commons Attribution-ShareAlike License (http://creativecommons.org/licenses/by-sa/2.0/)

Document Your Ownership Interest or Stock Rights in an LLC or Corporation

Fox Mulder’s motto was “Trust No One.” Lawyers can understand this. Oftentimes, the practice of law is all about being paranoid. We have to assume that your business partner will screw you over, or that your employer will not fulfill your expectations. Don’t rely on a handshake, oral promises, or vague documents to establish your ownership interest in a business entity. That’s true whether it is a Limited Liability Company, Family Business or Corporation. The courthouse steps are littered...

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'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79Sah by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)
'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79Sah by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)

Myths and Realities - Starting or Joining an LLC or Corporation with Friends, Family Members and Acquaintances.

As a lawyer who litigates disputes among partners, close corporation shareholders, and limited liability company members and managers, I hear a lot of myths about them. The myths below are in italics, with my (sometimes snide) comments below each one.

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'Money Hedge' found at https://flic.kr/p/chEbX5 by Tax Credits (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Money Hedge' found at https://flic.kr/p/chEbX5 by Tax Credits (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

The New Massachusetts Equal Pay Act - How Bad Is it for Employers?

The new Massachusetts Equal Pay Act goes into effect on July 1, 2018. The basic concept of the statute is that you cannot pay employees differently based on gender. You are busy running your business, but don't ignore this statute. You could face lawsuits that result in high damages awards and an award of the plaintiffs' attorneys' fees and litigation costs. There are attorneys who will be actively targeting your company to find violations. The statute will be irresistible because any...

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A Minority Owner's Right to Inspect LLC Records or Corporate Books and Records

An LLC (Limited Liability Company) Member in Massachusetts has a right to inspect certain records of the LLC. This includes basic information, such as the certificate of organization, the names and addresses of all Members and Managers, and a copy of the operating agreement.

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Don't Cause Self-Inflicted Harm to Your Business because You Thirst for Revenge

Think carefully before you embroil your company in a lawsuit. Lawsuits are expensive and risky. A lawsuit can backfire in several ways. You can face counterclaims. You can be charged with the legal fees and costs of your opponent if your claims are not well grounded. You expose your company to producing private business documents and testifying under oath, which can open you up to more problems.

'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79SjE by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)
'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79SjE by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)
'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79SjE by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)

Does Your Business Need an Outside General Counsel?

Big companies have their own attorneys on payroll and at the ready. As likable as most attorneys are, businesses would not keep them on the payroll unless they added value. A general counsel acts as a strategic partner. She understands the business, puts it in the best legal position, and protects it from potential liability. When a dispute arises and a business needs immediate legal action, things go much better when an attorney who is already familiar with the business and issues is ready...

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Employment Severance Agreements Should Be Drafted or Reviewed By Your Attorney

Severance agreements, also called separation agreements or sometimes settlement agreements are legal documents that can greatly impact legal rights and obligations. Some may consider these standard legal documents. While there are many standard provisions, careful drafting and review are in order. Even experienced attorneys make mistakes when drafting these documents. While they seem simple and straightforward, they are more complicated than one would think and there are many traps for the...

Having a Company Holiday Party? Have Fun, but Don't Get Sued.

'Party Time' found at https://flic.kr/p/ihruT3 by Nanagyei (https://flickr.com/people/nanagyei) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

Your company holiday party comes with potential legal liability.  While you can never eliminate all potential liability, you can minimize your risk.  Here are some ways to do that:

1.Don't Serve Alcohol.

If you must have alcohol at your party, do yourself a favor and do not serve alcohol yourself.  Either have a professional caterer who is properly trained, licensed and insured (and ideally, who will indemnify you or name you as an additional insured), or go to a bar or restaurant.  Consider providing employees with a limited number of drink tickets.  

2. Remind Employees to Be Safe and Behave Property.

Remind employees beforehand of company expectations and that people consuming alcohol should have a designated driver.  Offer to pay for rides home, no questions asked.  In the era of Uber and Lyft, there should be plenty of rides available in most areas.  Remind and expect the management team to lead by example.

Sexual harassment is also a major concern for office holiday parties.  Gently remind employees of company policies prior to the party.  

3. Set High Expectations for Managers and Supervisors.

Your first lines of defense are the company supervisors.  Recruit them to look out for employees who are drinking too much.

Remind them also that they lead by example.  If Sales Manager Bob is on his sixth triple IPA and telling dirty jokes, some in his sales team will follow his lead.  In Massachusetts, there is strict liability when a supervisor sexually harasses a subordinate.  If you can't trust your managers and supervisors, then you have a big problem.  If you haven’t provided sexual harassment training to managers recently, here is your excuse to do so.

4. Check with Your Insurer.

The end of the year is as good of a time as any to review your insurance coverage with your broker.  If you don't have a good broker who will take your call and answer your questions, find one who will.  Insurance is complicated and gaps in coverage are more common than business owners may think.  Checking your various policies for a holiday party will also serve as a good year-end check.

5. Remind People that it is a Party and they Can Have Fun.

The key here is to make it clear that the party is voluntary.  No one is going to get paid wages, so no one has to attend.  Hold the party when employees are not working.  You do not want any claims of failing to pay wages or overtime.  Don't require any employees to perform any duties, such as checking coats or tending bar, which could be viewed as work requiring pay.  This may also prevent a worker's compensation claim if someone is hurt at the party (check with your insurance broker).

If you have any questions about dealing with liability issues for an open house or company party, call me at 617.338.7000. As always, the above is general information, not legal advice.

Should a Single-Member LLC Have an Operating Agreement?

'Mirror, mirror...' found at https://flic.kr/p/PBXr1n by Rolf Dietrich Brecher (https://flickr.com/people/rolfdietrichbrecher) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

When you have more than one Member in your Massachusetts Limited Liability Company, having an Operating Agreement is almost a must.  Called an “LLC Agreement” in some states, an Operating Agreement is a formal legal document that sets forth the rights and duties of Members and Managers, including financial issues and working relations.  But what about when you are the only Member?  Isn't this just an agreement with yourself?  Why would you need it?

You might get away with not having an Operating Agreement if you are the sole Member of the LLC, but you should strongly consider having one. Consider these "pros" for doing so:    

  •      An Operating Agreement helps to establish that the Limited Liability Company is separate from the owner, helping to avoid any risk of having personal liability.

  •      Operating Agreements set out procedures for record-keeping and distributions, which can provide clarity to the Member and Manager of the LLC on how to act in certain situations.  

  •      The Operating Agreement can set out a succession plan in case the owner dies or becomes incapacitated, so your family has an easier time knowing how to run the business.  This could also help with estate planning.  

  •      An Operating Agreement can set out the procedures for admitting additional Members.    

  •      If you have a separate Manager, the Operating Agreement can guide the operation of the business.  

  •      Operating Agreements can avoid having your LLC governed by state default LLC and business rules.

  •      Many third-parties such as insurance companies, title companies, and banks may demand to see an Operating Agreement before doing business with you.  

  •      Presenting an Operating Agreement to investors/lenders can give them an idea of your business plan to make them more willing to provide you with the necessary financing.  

The biggest “con” to having an Operating Agreement is the cost.  You want it done right, by a lawyer who knows what he or she is doing. You might be reluctant to spend money on legal fees that could go to operations or supplies or more material things.  Some other potential cons:

  • Having an Operating Agreement in place dictating procedures can limit the flexibility of LLC owners somewhat, since you may not have complete autonomy in any scenario.

  • If your Operating Agreement is poorly drafted and not a fit for your business or industry, it could create more problems than it solves. A “standard” Operating Agreement free from the Internet is worth every penny that you paid for it.

  • There could be some problems with self-dealing in the creation of the Operating Agreement since you are negotiating an organizing document with yourself, but this is unlikely.  

In summary, the pros outweigh the cons, as long as you do it right.  

Adam P. Whitney, Esq. 617.338.7000, awhitney@awhitneylaw.com

Brandon J. Sloane (J.D. Candidate - 2020, Boston College Law School)

WHAT HAPPENS TO SALES COMMISSIONS NOT YET PAID WHEN THE EMPLOYEE QUITS OR IS TERMINATED?

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Intro:  Disputes over sales commissions are often the subject of litigation. The stakes are high. Under the Massachusetts Wage Act, a commission can be considered wages. Failure to pay wages can result in liability for triple damages, payment of the employee's attorney's fees, litigation costs, and 12% interest.

Commission Defined:  Massachusetts courts have generally defined a commission as a payment of money due to an employee based on sales.  A true bonus is not a commission.  A true bonus is not based on an individual’s employee’s sales.  It may be wholly discretionary or may be based on the overall profits of the company.  A bonus is not subject to the Wage Act.  However, just calling a payment a “bonus” or a “sales bonus” doesn't itself exclude it from the statute.

The Wage Act:  The Massachusetts Wage Act was enacted to prevent the detainment of wages. G.L. c. 149, Secs. 148, 150.  The Wage Act is a powerful statute for employees, and it can be enforced by the Attorney General.  Failure to pay wages when they are due can result in a lawsuit by the employee.  The employer will be liable for triple damages for unpaid wages, interest at 12 percent, and the employee's attorney's fees and costs.  There is also personal liability for the officers of the company, which could include managers or members of a limited liability company.

How the Wage Act Applies to Commission:  The Wage Act contains the following language: “This section shall apply, so far as apt, to the payment of commissions when the amount of such commissions, less allowable or authorized deductions, has been definitely determined and has become due and payable to such employee, and commissions so determined and due such employees shall be subject to the provisions of section one hundred and fifty.”

What Does Definitely Determined Mean?:  Definitely determined means that you can determine it arithmetically.  You can calculate how much is due.  It's an open question as to when they must be calculable. 

What Does Due and Payable Mean?:   Commissions are “due and payable” when any contingencies relating to their entitlement have occurred.  

Other Key Language of Statute:   “No person shall by a special contract with an employee or by any other means exempt himself from this section or from section one hundred and fifty.”  This "special contract" prohibition creates confusion.  Employers, on the one hand, are allowed to create their own policies and define when a commission is due. But if they are too draconian in denying commissions, some courts will rule that you are exempting yourself from the Wage Statute by a “special contract,” which is not allowed.  This is especially true if the employer fires the employee.

Continued Uncertainty:  What if the employee is fired or quits before payment is made?  When do you have to be able to calculate it?  When does it have to be due and payable?  You should see by now there is no easy answer to this question.  The law is far from an exact science.  The answer is, it depends.  A lot depends on the commission contract or compensation plan.  A lot may depend upon whether the commissions were to be paid in the near future or distant future.  A lot will depend on how good the lawyers are for each side of the dispute.  And a lot will depend upon how the particular judge in your case views the law, at least until we get some more clarification on the statute.  Just yesterday, the Massachusetts Supreme Judicial Court heard arguments on these issues in the Parker v. Enernoc, Inc. case.  We may get at least some new clarifications on these issues next year.  Until then, I have some takeaways below.

The Takeaway for Employers:  Commissions agreements have to be drafted extremely carefully.  You can change them at any time, but only prospectively.  There are a few tricks of the trade that can protect you.  Moreover, when an employee leaves and commissions are in their pipeline, the employer must proceed with caution.  This is even more so if the employee is terminated.  If it can be inferred that you fired the employee to deprive the employee of commissions, you might be held liable for the commissions no matter what your contract says.  This is a doctrine called the covenant of good faith and fair dealing.  Some courts would triple those damages, others would not.  The Massachusetts SJC may decide whether tripling is proper in the Parker case.

The Takeaway for Employees:  You probably cannot negotiate the language of your contract unless you have a lot of bargaining power.  But if you can, it would be worth hiring a well-versed lawyer.  You might be able to negotiate if you are a part-owner of a small corporation or LLC.  The Wage Act will still apply to you.  While you are employed, there are steps you can take to document your earned commission.  And if you are no longer working at your employer, but you have earned commissions in your pipeline, make sure you go to a lawyer who really knows what they are doing.  These claims can be screwed up easily.

The above is general information and not legal advice.

Adam P. Whitney, Esq.

awhitney@awhitneylaw.com

617-338-7000

Document Your Ownership Interest or Stock Rights in an LLC or Corporation

'100 shares of the Chicago Great Western Railway' found at https://flic.kr/p/e5jWfW by Mike Miley (https://flickr.com/people/mike_miley) used under Creative Commons Attribution-ShareAlike License (http://creativecommons.org/licenses/by-sa/2.0/)

Fox Mulder’s motto was “Trust No One.”  Lawyers can understand this. Oftentimes, the practice of law is all about being paranoid.  We have to assume that your business partner will screw you over, or that your employer will not fulfill your expectations. Don’t rely on a handshake, oral promises, or vague documents to establish your ownership interest in a business entity.  That’s true whether it is a Limited Liability Company, Family Business or Corporation. The courthouse steps are littered with the hopes of those who received false promises of equity.  

Sometimes vaguely promised equity claims can prevail.  I was part of a trial team that prevailed on an equity claim when a promise was literally written on a bar napkin.  We obtained seven figures for our client.  But you don’t want to have to roll the dice on a judge and jury.  Get it and writing and make sure it is clear and without contingencies.  

The greatest abuses I usually see are employees who are “promised” stock or stock options or some other type of equity interest in employment offer letters.  These promises are often empty and meaningless, although they sound good, and the sales pitch makes it appear that everything will go swimmingly (“These are just formalities that are lawyers make us write.”). The devil is usually in the contingencies.  You have to be employed to get the stock.  Your stock has to be approved by the board. Vaguely defined profitability benchmarks must be reached.  Some companies notoriously fire employees before the stocks vest.  Others have boards that never approve the stock.  It turns out, the “formalities” matter.

Sometimes people go into business with others and think that they are an “owner,” but have no documentation to prove it.  Sometimes people deliberately do not document their ownership for some reason or another, be it a pending divorce, tax reasons, immigration reasons, a noncompete or some other reason.  This failure can come back to bite you if your business partners get greedy (and they always do in my world).  Others go to work for the family business expecting that they will be made owners, but it doesn’t always happen.

When you start or join a private business as an owner (you think), you are surely working very hard and devoting a great deal of effort and heart into making the business a success. Don’t leave it to chance that you are going to enjoy the fruits of your labor.  Document your ownership interest and have a lawyer review the documentation. A few hundred of few thousand dollars in legal fees could literally save you millions.  Put on your lawyer’s cap and try being paranoid until your interest is well documented.

If you are already in a situation where your claim to equity is tenuous or unclear, all may not be lost. Get legal advice now to see where you stand and what can be done.  Avoiding the problem and hoping that things will work out is no way to go through life. There may be certain guerilla tactics (ethical ones) to strengthen your position.  Even if your position is hopeless, you are better off knowing so you can decide to cut your losses and start over. 

The above is general information, not legal advice.

By Adam P. Whitney

617.338.7000 

 

 

Myths and Realities - Starting or Joining an LLC or Corporation with Friends, Family Members and Acquaintances.

'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79Sah by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)

As a lawyer who litigates disputes among partners, close corporation shareholders, and limited liability company members and managers, I hear a lot of myths about them.  The myths below are in italics, with my (sometimes snide) comments below each one.

I will be an owner, so of course, I will be employed by the Limited Liability Company.

Unless you have a strong employment agreement for a term of years (or until you die or retire) or employment is guaranteed in the Operating Agreement, there is nothing inherent in being a Member/Owner of an LLC that guarantees employment.  

An LLC Operating Agreement is a standard document that can be found on the internet.

That Operating Agreement that you found on the internet is worth every penny that you paid for it.  It may be even worth less than nothing.  An Operating Agreement that the parties do not understand and that is not specifically tailored to meet the needs and expectations of the members may have unintended consequences.  The provisions might work in your favor, but they might just as well work against you.

We hired a lawyer to set up the company, so she will look out for my interests.

Not necessarily. It is understandable to want to save costs when setting up a company and to jointly hire a lawyer to draft the Operating Agreement or By-Laws.  But that cost-savings comes with a price.  The lawyer cannot advocate for any one of the founders.  The minority owners are in particular need of protection, but the lawyer cannot advocate for the minority because she owes a duty to all the founders.  In a perfect world, everyone gets their own lawyer, but of course, this rarely happens.  If you are the minority owner or you are joining an existing company, at least consider having an independent lawyer review the Operating Agreement and suggest changes to protect you and your expectations in the company.

We are equal owners, so we must get paid the same salary and have equal say.

Nope.  The people running the business (President, CEO or Managers) will decide the compensation.  You could argue that the compensation is unreasonable, but you will have to prove it and you may have to file suit to do anything about it.

As for equal say, usually, the officers, managers or board of directors have all the say.  If you are not one of those, your opinion may count for very little.

At least my business partners won't withhold dividends or engage in self-dealing.

But what if they do?  You need to guard against this as much as possible.  When it does happen, you have a few options: (1) a legal battle; (2) sell your interest to the majority at a discount; (3) go away with your tail between your legs.  

My business partners and I trust each other, so that's enough.

Ha!  That one made me laugh.

Of course, you might be right that your business partners are good and decent people.  But even those rare birds will have legitimate disagreements. Documenting your expectations can help avoid this.

Also, think about what happens if your reasonable business partner dies and her crazy husband Larry inherits her ownership interest.  A buy-sell agreement with life insurance can address this, but it also shows why you need a strong operating agreement or shareholder agreement.

If I need to liquidate or if I can't work with my partners, I can just sell my shares. 

Maybe you can in theory if there are no restrictions on transferability.  But if the environment is toxic, no one will want to buy your interest.  You need an exit strategy going in.  You need to foresee potential disputes and guard against them.

If my business partners try to screw me over, I'll just call the LLC Police.

Okay, I made that one up.  The point is that no one is going to assist you in a private business dispute other than a lawyer that you hire on your dime.  You can't expect the Attorney General or Secretary of State to get involved unless there is a public interest.  

If you have a clear case of embezzlement, maybe you can get law enforcement interested.  But these situations are usually not clear-cut and law enforcement sees them as civil matters.

My own father/son/mother/brother/sister won't turn against me.

Maybe not your family member, but I've seen all of these unsavory situations in family businesses.  

At least I can't be personally liable for corporate obligations or wrongs that I or the LLC commit.

This is partially true part of the time, but now always.  Clear? Here's the thing, if you properly follow corporate procedures and record keeping, you may avoid contracts that you did not personally guaranty and wrongs that you were not involved in.  The reality is that the owners of most small businesses are involved in all actions and decisions.  Creditors, banks, landlords and others may insist that you personally guaranty company obligations.  So personal liability can be hard to avoid unless you are a larger, more established business.

As always, the above is not legal advice.

By Adam P. Whitney, Esq.

617.338.7000

The New Massachusetts Equal Pay Act - How Bad Is it for Employers?

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The new Massachusetts Equal Pay Act goes into effect on July 1, 2018.  The basic concept of the statute is that you cannot pay employees differently based on gender.  You are busy running your business, but don't ignore this statute.  You could face lawsuits that result in high damages awards and an award of the plaintiffs' attorneys' fees and litigation costs.  There are attorneys who will be actively targeting your company to find violations.  The statute will be irresistible because any employee will be able to show a prima facie case if he or she is paid less than employees of another gender for comparable work.  The statute is unclear on the employee's burden of proof, but it may fall to the employer to justify any discrepancies in pay.

In my opinion, while the statute is generally well crafted and has laudable goals, there are going to be some unintended consequences that will interfere with an employer's legitimate business judgment.  It doesn't even matter if you did not knowingly violate the statute because it is a “strict liability” statute.  The statute is tricky because you cannot necessarily pay an employee more who has a higher skill level.  You cannot necessarily pay an employee more because the employee commands a higher salary on the open market.  If you have a few outlier employees who have high earnings on your payroll, you cannot lower their compensation to bring your company into compliance with the statute.  You will either have to pay other employees performing comparable work at the same rate (unless you can justify the higher rates based on a specific factor in the statute), or you will have to fire your highly paid outliers.     

You also cannot rely on a contract.  Even a shareholder, minority owner/LLC Member with a specific contract, operating agreement or shareholder agreement could have a claim under the statute even if he or she expressly agreed to the compensation.  Under the express language of the statute, it would not matter if that person contributed less initial equity to the corporation or LLC, because that is not a specific factor in the statute that can justify a discrepancy.

I recently attended a continuing legal education course on the new statute, Mass. Gen. Laws c. 149, §105A. A representative of the Attorney General's Office spoke at the seminar, so I have a pretty good idea of what the AGO will focus on. The AGO has released some thorough and well-drafted guidelines for employers, including guidelines for performing self-evaluations (discussed below).  The AGO is not out "to get" employers, but it does want to eradicate gender-based pay discrepancies.  There are ways to reduce your risks under the statute, but you need to act very soon.  The four big takeaways are: (1) transparency; (2) salary history ban; (3) comparable work; and (4) self-evaluation.

Transparency simply means that employees cannot be prohibited from discussing salary.  You may want to check all your policies and contracts to make sure that there is nothing that prevents employees from discussing wages (limited exception for HR or managers who have access to other's compensation). Consider even putting out a new policy when the statute takes effect.

Salary history is another target of the Massachusetts Equal Pay Act.  Not only can you not ask about it, you can't use salary history to justify unequal pay.  It is potentially even dangerous to ask about salary expectations unless you are just using the expectations to see if they are in the ballpark.  The thought is that women workers are not as aggressive at negotiating.  You can't base salaries on negotiating skill.

Employees can volunteer salary history. Also, employers can seek to confirm salary history after making an offer (although there does not seem to be much of a legitimate reason to do so).  You can also ask about an employee's sales volume at a previous employer, but not the earnings from such sales.

Comparable work is another key concept that I expect will be hotly litigated.  The basic idea is not simply “equal pay for equal work;” it is “equal pay for comparable work.”   One mistake that employers may make is to not compare employees in various divisions.  Also, the nature of the work, not the job title, will control.  If a worker of one gender is earning less for comparable, you must justify it by one of the specific, limited reasons in the statute.

Self-evaluation. This is a peculiar statute in that it gives employers a chance to carefully evaluate their payrolls to see if there is any gender discrepancies (this is likely because the statute is so potentially dangerous and burdensome).  If you make a real effort to do this and to fix discrepancies, you can get a lot of protections against damages claims.  Really, even without the protections, every employer should self-evaluate so as to comply with the statute.  The existence of the protections makes it a no-brainer.  That doesn't mean that there are no risks to a self-evaluation.  There are.  The self-evaluation could be used against you for alleged violations of federal statutes.   

But many employers may conclude that they should still perform the self-evaluation.  A lawyer, accountant or another professional can help you with this.  Smart, proactive companies are already starting their self-evaluations in an effort to protect their companies from what could be a tide of new lawsuits.

This post merely scratches the surface of this important new statute and how an employer should protect itself.  As always, this post is not legal advice.

By Adam P. Whitney, Esq.

617.338.7000


A Minority Owner's Right to Inspect LLC Records or Corporate Books and Records

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An LLC (Limited Liability Company) Member in Massachusetts has a right to inspect certain records of the LLC. This includes basic information, such as the certificate of organization, the names and addresses of all Members and Managers, and a copy of the operating agreement.

Minority LLC Members who feel that they are being oppressed or frozen out will want to obtain as much information as possible, including especially financial information. A Massachusetts LLC must, by statute, have an office in the Commonwealth where it must keep certain records. These records include the following:

  1. Income tax returns for last three years; and

  2. Financial Statements, if any, for the last three years.

Any Member of the LLC shall be allowed to inspect and copy the records, at that member's expense, and at reasonable times. Subject to the provisions of the Operating Agreement or standards set by the Manager(s), each Member shall also be allowed to obtain “true and full information regarding the state of the business and financial condition of the limited liability company, [. . . inluding] other information regarding the affairs of the limited liability company as is just and reasonable.” M.G.L. c. 156C, Sec. 10.  How to determine what is "just and reasonable?"  The wise majority owners should develop uniform standards regarding access to documents to prevent a claim of unfair treatment by the minority owner. The test is whether a request is “reasonably related” to the Member's interest. A minority owner that makes repeated and numerous requests may be seen as being a pest or having an ulterior motive. By contrast, a Delaware court (addressing a similar statute) ruled that the following were “proper purposes” for requesting documents from the LLC: (1) putting a valuation on one's ownership interest; and (2) investigating potential wrongdoing by the majority.

If the majority owners refuse a request for information, the minority owner must determine what action to take. There are no “LLC Police” to call. A minority owner will have to file suit to obtain the documents it wants. If there are enough facts to support such a claim, a minority owner can also bring a claim for a freeze out, which occurs when the majority owners violate their fiduciary duties to the minority owner and frustrate her reasonable expectations of ownership.  A Member's ownership interest in an LLC is considered personal property and a Member is entitled to obtain an accounting from a fellow Member, but you will have to file suit for an accounting. At least one Massachusetts court has held that a Member of an LLC is entitled to an accounting from a controlling Member or Manager where there is a fiduciary relationship between the parties. By contrast, there is no right to an accounting against the LLC itself because there is no fiduciary duty owed by the LLC to the Members.

The rights to records of a minority shareholder of a Massachusetts corporation are similar, but not identical to the rights of an LLC Member. A shareholder should be able to articulate specific facts regarding possible mismanagement or wrongdoing by the controlling interest in order to see financial records, meeting minutes and other business records (other than the basics).

The takeaway is to first check the Operating Agreement or Shareholder Agreement or other company documents and then the statute to determine what documents a minority owner is entitled to. Both sides should consider carefully whether their dispute over records can be resolved without resorting to litigation. Perhaps an independent mediator could help the parties resolve their dispute before both sides incur substantial legal fees.  In other situations, someone is being unreasonable or someone is hiding something. This is a recipe for contentious litigation, so you better lawyer up if you think that the minority owner is being unreasonable or has an ulterior motive, or if you think that the majority is hiding something. As always, this post contains general information in a cursory fashion and is not legal advice.

By Adam P. Whitney, Esq.

617.338.7000

Don't Cause Self-Inflicted Harm to Your Business because You Thirst for Revenge

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Think carefully before you embroil your company in a lawsuit. Lawsuits are expensive and risky. A lawsuit can backfire in several ways. You can face counterclaims. You can be charged with the legal fees and costs of your opponent if your claims are not well grounded. You expose your company to producing private business documents and testifying under oath, which can open you up to more problems.

As a successful business, you have to deal with some dirty, rotten scoundrels. These could include competitors, current or former business partners, former employees or other business enemies. They may pull various dirty tricks on your business. Steal your key employees. Defame you. Falsely report you to government agencies or authorities. They may even file frivolous lawsuits against you or your clients. If you are feeling paranoid, it’s only because they are out to get you.

These dirty tricks can hurt your business. It is human nature to be enraged and want to fight back. Resist the temptation to go off half-cocked and respond in kind. Take a deep breath. Tell yourself that it is just business. Now start plotting your revenge.  Plotting is the key word. Speak to an experienced business litigator about the risks and rewards of various courses of action. You may greatly hamstring your own position if you do not plan carefully.

For example, don’t defame your opponents just because they have defamed you. Defamation law, which includes libel and slander, is surprisingly complicated. Unless you are 100% sure that the nasty letter/e-mail you are about to send is not even arguably defamatory, you probably should not send it.

Just because someone sues you does not mean you can or should sue them back. They may have a right to sue you or to report you to the government. These are protected activities under the Massachusetts Anti-SLAPP Statute. A lawsuit or counterclaim in this situation could subject your company to having to pay the other side’s attorney’s fees and costs, much to the delight of the scoundrel who took actions against you.

The takeaway is that businesses can get themselves in serious trouble when they act to harm a competitor, even when the competitor drew first blood. It’s like in sports when the referee always notices the player who reacts to a dirty play with one of his own. Your reaction, or over-reaction, may get your business in trouble and may even mask the original bad act by your business enemy.

The best revenge is to continue your success and crush your competitors in the market. You also may have a legitimate legal claim against them that will allow you to sue for your damages. While you should only file legitimate suits seeking legitimate damages, litigation may send an additional message that you will not be a punching bag. Sometimes there are other legal and ethical guerrilla tactics for particularly unsavory scoundrels.

There is no legal advice here. Contact a business litigator in your jurisdiction if you need legal advice on this topic.

By Adam P. Whitney, Esq.

617.338.7000

awhitney@awhitneylaw.com

Does Your Business Need an Outside General Counsel?

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Big companies have their own attorneys on payroll and at the ready. As likable as most attorneys are, businesses would not keep them on the payroll unless they added value. A general counsel acts as a strategic partner. She understands the business, puts it in the best legal position, and protects it from potential liability. When a dispute arises and a business needs immediate legal action, things go much better when an attorney who is already familiar with the business and issues is ready for action.

Many private businesses cannot justify the cost of a full-time general counsel on the payroll. But could your business benefit from a long-term relationship with an outside general counsel? Think of the benefit of having a lawyer who understands your business and how you operate. You can quickly vet issues, including complex employee termination issues, contract issues, client issues, government issues and competitor issues. Your lawyer can keep you up to date on changes in the law so that you make the necessary changes in your handbook. He can train you and your managers on how to avoid legal traps. An outside general counsel is ready to immediately send a letter to competitors, ex-employees or others who pose a threat to your business.

If you think that having an outside general counsel is expensive, try not having one. If you leave your company exposed, one bad lawsuit can kill your bottom line or even put you out of business altogether. Owners can sometimes face personal liability, so not just your business assets are at risk. Businesses often reach out to an attorney after an issue has arisen. While this is certainly better than not hiring an attorney, the business will be scrambling to bring the lawyer up to speed. There won't be time to see if the lawyer is a good fit for the company and how it operates. An attorney who values a long-term relationship will also be more conservative with billing compared to an attorney who sees your business as a one-time billing opportunity.

By contrast, having a lawyer who you know, like and trust at the ready will greatly reduce your stress should a sticky legal situation arise. Smaller issues can be nipped in the bud before they grow into vexing lawsuits. Having an attorney who understands how you like to approach problems could make all the difference. Successful business owners and managers are smart, driven and great decision-makers. The right outside general counsel will be a trusted advisor who will provide perspective along with guidance to allow you to make the best decisions.

By Adam P. Whitney, Esq.

617.338.7000

Employment Severance Agreements Should Be Drafted or Reviewed By Your Attorney

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Severance agreements, also called separation agreements or sometimes settlement agreements are legal documents that can greatly impact legal rights and obligations. Some may consider these standard legal documents. While there are many standard provisions, careful drafting and review are in order. Even experienced attorneys make mistakes when drafting these documents. While they seem simple and straightforward, they are more complicated than one would think and there are many traps for the unwary.

Businesses Should Have Every Severance Agreement Drafted or Reviewed by an Experienced Employment Attorney

If you use the severance agreement you found on the internet or that a general practitioner drafted 5 years ago, you do so at your peril. While severance agreements are, at their essence, contracts, they are also governed by a myriad of state and federal employment laws as well as agency decisions and court rulings. As a result, an agreement that was sound five years ago may not be today. Moreover, what applies to one employee may not apply to another.

Why does this matter? For example, if you don't include the right language, the release in your Severance Agreement could be ineffective against Wage Act claims and leave you exposed to triple damages and attorneys' fees. You also need specific language for Age Discrimination claims in order for them to be waived. As you may know, there are new state and federal employment laws going into effect quite frequently (including marijuana laws and pregnancy discrimination and accommodation laws), which might need to be addressed.

Even the contract issues are not as simple as you might think. For example, if you have an existing noncompete agreement with your employee, you have to be careful regarding your merger clause. Otherwise, you could inadvertently void your noncompete agreement. Employers sometimes make mistakes such as this.

Executives and Other Employees Should Have their Severance Agreements Reviewed by an Experienced Employment Attorney

Even if it is a friendly split, look out for your own best interests. When you sign a severance agreement, you will be waiving substantial rights and perhaps taking on substantial obligations, such as noncompetes or non-solicitation provisions or a duty to cooperate. A recent case report in Massachusetts demonstrates why you need professional assistance. An executive entered a severance agreement and inadvertently waived his right to valuable stock options. Although the right was not specifically addressed, the court ruled that the general release provisions controlled, and the executive was out of luck.

While severance agreements are sometimes not negotiable, sometimes they are. You might get a better deal or at least clarify problem language if you hire a lawyer to advocate on your behalf. Consider if the peace of mind and chance at a better deal would be worth the relatively small dollars.

Or you can rely on the company lawyer to do what's best for you (not really).

By Adam P. Whitney

617.338.7000

awhitney@awhitneylaw.com