Are Non-Compete Agreements Permitted in California?

A business lawyer at Gehres Law Group, P.C. can help employees to understand their rights if asked to sign a non-compete agreement and can provide assistance to employers in taking appropriate legal steps to protect their intellectual property and proprietary information. 

Traditionally, employers used non-competition agreements to protect their business interests when they hired employees who had access to sensitive information. To ensure that employees did not take trade secrets to competitors or did not use client lists to start their own competing organization, employers required non-competes to be signed as a condition of employment. These non-competition agreements would prevent employers from engaging in certain behaviors, such as working for a direct competitor within the same geographic area for a certain time period after leaving a position.

In California, non-competes, however, have increasingly been viewed as unlawful restraints on trade and as contracts that are void and against public policy because they restrict the ability of an employer to make a living. While non-competes will still be enforced in certain states throughout the United States, as long as the contracts are limited in time and scope, they are typically wholly unenforceable against employees and independent contractors within the state of California.

California Laws on Non-Compete Agreements

The state of California essentially declared non-competition agreements unenforceable in California Business and Professions Code section 16600. This section of the Business and Professions Code states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

California courts have aggressively enforced the ban on non-competition agreements, prohibiting employers from enforcing non-competition agreements even in circumstances where disclosure of confidential information is an inevitability for an employee to perform a new job that he has obtained.

The courts in California have also rejected agreements in which California companies attempted to use choice of law provisions in contracts which specify that a different state’s laws would be used to interpret the employment contract, and have refused to enforce agreements in which employers required extended notice for higher level employees under certain circumstances (such as agreements in which an employee would be required to give 90-days notice before resigning). Click here and here for previous discussions on these and related issues.

The strict restrictions in any contract that restrains an employee from performing work after leaving an employer have left companies with few options to take action before an employee goes to work for a competitor after departing employment.

How Can Employers Protect Themselves?

Because employers cannot use non-compete agreements effectively in California to protect their legal interests, employers will need to explore other alternatives. Securing intellectual property protections such as patents, trademarks, and copyrights, can help to protect some types of information, such as by preventing a competitor from using a proprietary (and patented) production process or recipe which is provided to the competitor by an ex-employee.

Non-disclosure agreements which restrict employees from disclosing certain confidential information can also protect an employer from having private information shared with competitors or otherwise misused. And aggressively enforcing trade secrets laws and following the proper process for keeping proprietary information confidential, such as keeping secrets confidential and taking legal action when an employee threatens a breach, can also help to ensure that a company’s information does not fall into the wrong hands. Click here and here for previous discussions on these issues.

Getting Help from A Business Lawyer

Gehres Law Group, P.C. will provide personalized assistance to employees who are asked to sign non-compete agreements, non-disclosure agreements or other contractual agreements related to their employment. We can advise employees on whether a contract they are being asked to sign is legally valid and can provide advice on what types of restrictions the contract will impose upon the employee in the future.

The trusted business lawyer at our firm can also provide assistance to employers who are concerned about how they can protect their confidential information and business interests in light of California’s refusal to enforce non-competition agreements against employees and independent contractors alike. To find out more about how we can help you, give us a call at 858-964-2314 or contact us online today.

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Should You Get Help with a Business Plan from San Diego Business Lawyers?

San Diego business lawyers provide assistance with the creation of a comprehensive business plan. A comprehensive business plan should be created before you start company operations and it should also be updated periodically as your product and the market evolves and customer demands change. 

Your company’s business plan can help your organization secure financing and capture interest from investors; it can reduce the likelihood of disputes or disagreements arising among co-owners and can help to resolve conflicts that do arise; and it can provide an important framework for you to work within as you take steps to ensure the continued success of your business organization.

Creating a Successful Business Plan

The Small Business Administration explains the importance of creating a business plan and offers a step-by-step guide to the different components of a comprehensive plan that you should create for your organization. As the SBA states, your business plan is an “essential roadmap for business success.”

The Small Business Administration indicates that most business plans will set forth projections for the three-to-five years of business operations that are upcoming. Detailed business plans should typically include:

• An executive summary, which serves as a snapshot of the entire business plan and which includes a brief description of the goals of your organization.
• A description of your company, which is focused on your company’s core competencies and on the key features that set your business apart from competing entities.
• An analysis of the market in which your company will be operating, which is produced after you have conducted detailed research into the industry, the demand for products or services you are producing, and any competing organizations within the same field.
• An outline of your business structure, which should detail the different levels of hierarchy within your organization and provide insight into the management structure and management techniques your company will incorporate.
• Details about the services or products your company will be providing, including information on the product life cycle and the way in which the products or services your company offers can meet the needs of your current customers and potential customer base.
• A marketing plan, including not only details about how to reach your desired audience but also information about your sales strategies.
• Financial projections, which are especially important if you are seeking funding, but which are also a core component of any business plan for a variety of reasons. Projections are necessary so you can determine what it will take for the organization to become or remain profitable. You should be as specific as possible when setting forth financial projections, as these projections can guide you in setting prices, negotiating with suppliers, and making decisions about building up an inventory or hiring staff members.

Every business plan is different, but by ensuring you incorporate these core components into your plan, you can have a roadmap for your organization to work from as you move forward. The SBA confirms that a business plan is invaluable when seeking funding from investors or lenders.

Whether you are pitching your company to investors, trying to secure a loan, or simply setting up a plan for your company’s ongoing operations, it is important to ensure that you both make an initial plan and update it regularly. Both startups and established business organizations benefit from having a detailed plan to achieve profitability and guide ongoing operational decisions.

Getting Help from San Diego Business Lawyers

San Diego business lawyers can provide you with the type of comprehensive legal advice you need to ensure your business plan is a valuable guide towards profitability and continued success. By working with an experienced attorney as you create your plans, you can take active steps to minimize and mitigate risks such as employment discrimination lawsuits, injury claims, or breach of contract cases.

You can make a plan to address tax compliance and to appropriately structure your operations to minimize tax liability. You can also ensure you work within the current regulatory framework which applies to your industry, and ensure that you take proactive steps to comply with all federal and state requirements for operations. And, you can make plans for the survival of your business organization if something happens to you or any co-owners of the organization.

The business attorneys at Gehres Law Group bring both legal experience and practical business knowledge to the table when we work with startups and other small businesses. To find out more about the ways in which our legal team can help, give us a call at 858-964-2314 or contact us online to today.

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A Trademark Lawyer Explains What Your Company Can Trademark

A trademark lawyer at Gehres Law Group can provide you with insight into how best to protect your company’s intellectual property. Today, intellectual property is often among the most valuable property that acompany owns. It is vital that you understand the different kinds of protections that are available, and that you follow the appropriate process for securing protection of your intellectual property as soon as you begin operations. In particular, it is essential that you understand the rules for trademarksand copyrights. 

Trademarks and Copyrights

Trademarks and copyrights both protect intangible property that most companies own. However, thesedifferent types of intellectual property protection offered by the federal government protect very different things:

• Trademark registration protects identifying marks, logos and names
• Copyrights protect original creative works

The U.S. Patent and Trademark Office provides an example of how the different kinds of protections are used to secure a company’s property, based on a company that has invented a vacuum cleaner. If a business invents a vacuum cleaner, a patent would protect the design and operation of the vacuum, copyright would protect creative marketing material used to sell the vacuum, and a trademark would protect the brand name that the company uses on the vacuum cleaner.

One real-world example of valuable trademarked property is the famous “LV” trademark that belongs to Louis Vuitton. As Tech Dirt explains, Louis Vuitton has been aggressive about protecting its trademarks, filing numerous lawsuits including against the manufacturer of a joke tote bag that said “My Other Bag is a” and then included a representation of a bag with the distinctive LV symbols on it.

While Louis Vuitton has not been successful in all lawsuits that the company has brought for trademark infringement, the incredible value of the LV markings (which can turn a simple purse or bag into something worth thousands of dollars) demonstrates the strong importance of a company’s ability to protect its distinguishing marks. The LV’s that Louis Vuitton is so famous for are recognized throughout the world, so the company must have the abilityto protect these distinguishing marks.

What Can Your Company Trademark?

Your company can, and should, trademark identifying marks, words or phrases that are associated with your organization and that distinguish your business from others. Your company is permitted to register a trademark as long as it is:

• A unique identifying symbol or phrase that distinguishes your brand or organization from others.
• Not likely to cause confusion with an existing registered trademark owned by another party. When assessing the similarity of trademarks and the likelihood of confusion, the US Patent & Trademark office considers whether the trademark is a phonetic equivalent (i.e. whether it sounds like an existing registered mark), the meaning of the mark, the appearance, the design elements, and whether the mark conveys a similar meaning and produces the same mental reaction as existing registered marks. If an existing mark is similar to yours, the US Patent and Trademark Office will also determine whether you will be providing similar goods or services to the company with the existing registered mark. The goal is to determine the likelihood that a consumer would become confused about the source of goods or services.
• Non-generic: You cannot trademark a generic word, like “Bicycle” for your bicycle store. As the US Patent and Trademark Office explains, generic words are “never registrable or enforceable against third parties.”

It is important to officially trademark identifying names, phrases and symbols associated with your organization. Naming your business and using that company name is not sufficient to provide you with ownership and protection of that name. Click here for the Top 10 Reasons to Register Your Trademark.

If you register the name of your company in states where you conduct operations or if you incorporate your company under the name you have chosen for the business organization, neither of these actions will establish trademark protection. You must officially go through the federal registration process to secure protection for your trademark.

Getting Help from A Trademark lawyer

Gehres Law Group provides personalized assistance with all aspects of intellectual property protection. We can take action to help your company trademark its identifying marks and slogans, and we vigorously pursue trademark litigation on your behalf if someone is improperly using your trademark without your company licensing that mark.

To find out more about how a trademark lawyer can help you, give us a call at 858-964-2314 or contact us online today.

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A Business Lawyer’s Guide to Incorporation Benefits

A business lawyer in San Diego can provide assistance with the choice of business entity when your organization is formed or when your organization expands. The selection of the proper way to structure your business can impact many aspects of business operations going forward. Gehres Law Group can help you to understand options and can provide advice on selecting the right structure for your organization.  

Among the services we provide, our legal team can explain benefits of incorporation for those companies considering the formation of an S-corp or C-corp, LLC, other type of entity, or a combination of entities. In this article, we discuss some of the benefits of incorporation.

Protection from Liability

Millions of civil cases are filed in the United States each year against individuals and companies, and plaintiffs win the majority of tort cases that go to trial. Your company faces the risk of lawsuits by visitors to your premises who suffer harm; by those who you enter into contracts with who feel you breached your obligations to them; by customers who believe you breached a warranty or that your product injured them; and by current or former employees. Creditors may also sue for nonpayment if your business falls into substantial debt.

When a lawsuit is decided in favor of a plaintiff, business owners could be personally responsible for the judgement against the company if the business does not exist as a separate legal entity. This means personal assets are at risk whenever a company is operational unless steps are taken to avoid personal liability. Incorporation is one of the key ways to protect personal wealth.

When you incorporate your business, your company becomes a separate “person” in the eyes of the law. As long as you do not co-mingle assets and as long as you follow corporate formalities as set out in the California Corporations Code, such as regularly holding a meeting of shareholders, you are typically protected from substantial loss. While there are some exceptions, such as section 302 of Sarbanes-Oxley which can result in CEO’s and CFO’s being held responsible for certifying false financial reports under certain circumstances, incorporation generally protects you from losing more than you invested in the business as long as you follow corporate formalities. This protection is one of the most important reasons for incorporation.

Ease of Ownership Transfer

It can be very difficult to transfer an ownership interest in a business like a sole proprietorship, which does not exist independently of its owner. Because a corporation is a separate legal entity with its own identity, the transfer of assets can be facilitated more easily. Corporations, including closely held private corporations, issue stock to owners. These shares can be transferred to new owners. While there are still valuation issues for private companies that can present challenges, the corporate form does simplify the process of allowing new owners to take control of a business organization.

Tax Flexibility

Sole proprietorships and partnerships do not offer much, if any, tax flexibility to their owners. The owners of these types of organizations will simply declare profits and losses on personal tax returns. The income from the businesses are taxed as regular wage income, subject to all federal and state taxes on wage income.

Incorporating a business can provide much more flexibility. First, you have a choice of electing S corporation status, which is a pass-through entity so owners declare profits and losses on personal returns, or as a C-corporation, LLC or other type of entity. Read more here about electing S corporation status.

A C corporation pays taxes on profits, while its owners are taxed only on distributions. If you choose to structure your company as an S-corporation, you also have the option to classify some portion of your income as a distribution, which means that you do not have to pay Social Security or Medicare taxes on the part of your income not considered wages.

President Trump’s tax reform proposals also include a plan to allow S corporation owners to be charged at a lower corporate rate on company profits, which could substantially lower the tax liability of many small business owners, as the Wall Street Journal explains.

While there is a risk of being double-taxed when you form a C corporation (the company is taxed on profits and you are taxed on distributions which come from those same profits), there are many other benefits that may outweigh this potential downside, which you should discuss with your business attorney prior to making a decision.

Getting Help from A San Diego Business Lawyer

A San Diego business lawyer at Gehres Law Group will explain both the pros and cons of incorporation, including disadvantages such as initial incorporation costs, complex incorporation paperwork and ongoing costs and compliance demands. To find out more about the ways in which our legal team can help you to determine if incorporation is right for you, give us a call at 858-964-2314 or contact us online today.

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5 Services San Diego Business Attorneys Can Provide to Sole Proprietors

San Diego business attorneys represent companies of all different types, including sole proprietorships. More than 70 percent of all businesses within the United States are operated as sole proprietorships. As the Small Business Administration explains: “a sole proprietorship is basically an unincorporated business owned and run by one individual (no partners are involved), with no distinction between the business and its owner.” 

Forming and operating as a sole proprietorship is simple, but there are significant downsides. If you are operating a business and have not incorporated or formed an official business entity that is separate and distinct from your individual identity, you should talk with Gehres Law Group to find out the implications of operating as a sole proprietor and to find out about the services we can provide to help your business grow and prosper, including the following five key types of legal service.

Assistance with liability protection

Sole proprietors face a significant risk of personal liability. When you operate a business without creating a separate legal entity, there is no separation between you and your business organization.

Only around 20 percent of new businesses continue to operate after their first year and just 1/3 are still operational after 10 years, according to USA Today. If your business is not profitable and becomes indebted, you will be personally liable for debts as a sole proprietor. If lawsuits are filed against your company for any reason, ranging from employment discrimination to breach of warranty or injury, a judgement against the business could affect your personal wealth, including any real property you own, your personal bank accounts, investments and other personal assets.

It is vital to understand the risks and to minimize them. One possible option to consider is forming a different type of business entity, such as a corporation or LLC, which provide significant protection against personal liability. Understanding and complying with premises liability laws, employment laws and other applicable laws, and utilizing well-drafted legal documents, will also reduce the risk of a judgement against you and your company. Another vital method for protecting your personal and business assets is to purchase sufficient insurance coverage. These are a few of the more common and effective approaches to reducing the risk of a lawsuit and adverse judgments.

Advice on tax compliance

Sole proprietors declare business profits and losses as income on personal returns. There is no flexibility in terms of how profits are declared as a sole proprietor. In contrast, owners of other types of business entities, such as S-corporations, have more tax flexibility because they can categorize some of their income as distributions rather than wage income, avoiding FICA taxes.

Advice on contract law issues

As a sole proprietor, you may need to lease or buy office space. You may need to enter into agreements with investors or review loan documentation. You may need to enter into contracts with suppliers or customers. Both drafting and signing contractual agreements requires legal knowledge.

For example, it is important to understand how laws like the Uniform Commercial Code (UCC) can impact when a contract is formed and what contractual terms will be when a contract has been created. For example, under standard contract law, a meeting of the minds is required and all parties to a contract must have the same understanding of all contract terms. Under UCC rules related to the battle of the forms, contracts can be created even if two companies use different forms with slightly different terms for the same transaction. Understanding the nuances of contract laws applicable to companies is vital for sole proprietors.

Intellectual property protection

Many sole proprietors have valuable intangible assets, such as a recognizable trademark or a creative invention the company will be producing. It is vital to secure protection for intellectual property through the use of patents, trademarks and copyrights. You may also wish to use non-disclosure agreements to ensure that employees do not share trade secrets, especially as non-competes are unenforceable within California.

Business Succession Planning

Many companies do not survive the death of an owner, according to Forbes. If you want your business to continue to thrive after you are gone, making a business succession plan is vital. A comprehensive plan should address the transfer of ownership and other legal issues raised by the death of a sole proprietor. You can also expand your business succession plan to address disability and retirement, as well as the death of an owner.

San Diego Business Attorneys Can Help

Our San Diego business attorneys can provide invaluable assistance to sole proprietors with business succession planning, risk mitigation and liability protection, contracts and more. To find out about the services Gehres Law Group can provide to sole proprietors, give us a call today.

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