Pitfalls to Avoid for Small Businesses, Non-profits and Start-ups in California

Many small business owners and non-profits are unaware that their organization may not have the legal right to enter into contracts, prosecute a lawsuit, or defend against a lawsuit if their business does not maintain a qualified status with the California Secretary of State’s office (SOS) or the Franchise Tax Board (FTB). Contracts entered into during a period of disqualification are typically voidable by the other party or parties, and, in some instances, criminal penalties may apply. To avoid these and other pitfalls, call the trusted business law attorneys at Gehres Law Group for a complimentary consultation.

1. Domestic Companies

Pursuant to California case law, a company which was formed in California but subsequently suspended or otherwise disqualified by the FTB or SOS to do business in the state not only loses the ability to enter into contracts, but it also forfeits the ability to defend against one as well. See Damato v Slevin, 214 Cal. App. 3d 668, 673 (1989). In Tabarrejo v. Superior Court,[1] the California court of appeals recognized that:

“A corporation’s powers, rights, and privileges may be suspended if a corporation fails to file annual statements of information pursuant to Corporations Code section 1502…” (See Corp. Code, § 2205). And, “[a] corporation suspended under the Corporations Code, like a corporation suspended under the Revenue and Taxation Code, is also disabled from participating in litigation activities.” Citing Palm Valley Homeowners Assn., Inc. v. Design MTC (2000) 85 Cal.App.4th 553, 556, 560.

Therefore, a disqualified company could be subjected to a judgment against it without having the opportunity to defend. A result many small businesses, non-profits, and start-ups can ill afford.

2. Foreign Companies

For companies formed in another state but doing business in California, the pitfalls are similar. If the foreign company does not register to do business with the SOS, fails to pay an annual franchise tax, or fails to pay income taxes owed, they may forfeit all “corporate power, rights and privileges” in California, including the right to enter into contracts and to maintain a lawsuit in the State. See Cal. Corp. Code §§2105, 2203 and Cal Revenue and Tax Code §23304.1. While a foreign company which is disqualified to do business in the State may defend itself in a lawsuit filed against it here, service of process may be achieved in any such suit by servicing the SOS instead of the company directly. See Cal. Corp. Code §17708.07. Therefore, a default judgment could be obtained against a foreign company which is not qualified to do business in the State even before it is aware of the lawsuit.

3. Criminal Prosecution

In addition to the risks already mentioned, misdemeanor charges may also be filed against any person attempting to exercise “the power, rights and privileges of a corporation that has been suspended pursuant to the California Revenue and Tax Code, § 23301, or who transacts or attempts to transact…business in this state on behalf of a foreign corporation.” See Cal. Rev. & Tax Code, § 19719.

4. Effect of Reviving a Company

If your company has been disqualified from doing business in California, it may regain its rights by complying with a process known as revivor, which includes the payment of any fines and penalties assessed by the State. Once a company is revived, it regains the power to enter into valid contracts, as well as to prosecute and defend against lawsuits. Any court pleadings that were filed during the period of disqualification may thereafter be found valid by a court. However, any contracts entered into during the period of disqualification remain voidable by the other party or parties, which can potentially devastate a small business.

Summary

This article includes just a few of the pitfalls inherent in doing business in California, whether you operate a for-profit or not-for-profit company. To avoid these and other potentially costly pitfalls (including failing to maintain corporate meeting minutes or other corporate governance records, or inadequate capitalization)[2], seek counsel from the business attorneys at Gehres Law Group, P.C. With offices in downtown San Diego, La Jolla and Irvine, California, our team can help keep your organization on track. Schedule a free consultation today for more information.

[1] Cal. Ct. App. Nov. 24, 2014.

 

[2] See also, Piercing the Corporate Veil: Avoiding Personal Liability for Company Debts.

 

 

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5 Key Differences Between California State Court and Federal Court

If you are involved in business litigation in California, the court system in which your case is heard can have a significant impact on the outcome. The California State Court system differs notably from the federal courts in California in many ways, particularly surrounding the following factors.

 

1. Jurisdiction

In order for a court to preside over a case, it must have jurisdiction in the matter. Federal courts have jurisdiction over cases involving a purported violation of a federal statute or a constitutional matter, such as a party challenging a state or federal law based on the United States Constitution.

 

Federal courts also hear cases with diversity jurisdiction, meaning the plaintiffs and defendants have their principal places of business in different states. The amount in controversy in a diversity jurisdiction claim must exceed $75k in order to reach federal court. For example, if a business in California fails to pay a New York-based vendor $80k for services rendered in a signed agreement, this breach of contract could invoke federal diversity jurisdiction.

 

Diversity jurisdiction becomes much more complicated with multiple defendants, new defendants arising during a case, and motions to remove from state to federal court. It is important to hire an experienced California business attorney to navigate these nuances.

 

2. Judges

California judges are elected, while federal judges are appointed. Because of this difference in authority, federal judges are typically required to possess deeper experience and higher credentials than state judges. That is not at all to dismiss the experience and credentials of state judges, but rather, highlight the fact that federal court is the pinnacle of the profession.

 

3. Formality

Because federal judges have often held positions with prestigious law firms, run highly successful private practices, and/or served as federal prosecutors, they are much more rigid—as is the federal court system in general, even at the clerk level. They are strict with their rules, and by the book with their processes and documents. Federal courts are usually unbending in their application of the Federal Rules of Evidence, whereas California state courts adhere less strictly to the California Evidence Code. California has a reputation for being relaxed all around; this can, to an extent, be said of its courtrooms compared to federal court.

 

4. Cost

The rigidity of federal court makes a federal lawsuit more expensive to litigate than a state lawsuit. No lawsuit is cheap, of course, and alternative dispute resolution such as mediation is often recommended prior to going to court. It is usually wise to include an arbitration or mediation clause in your business contracts to make litigation the last resort in a claim against your company, or prevent courtroom litigation of most issues.

 

5. Jury Pool

In California State Court, you will be assigned to the courthouse that is nearest geographically either to your place of business or to the place of the incident in dispute. Your jury pool will be drawn from that same judicial district. If you file a lawsuit for a transaction that took place in North County San Diego, for instance, your case will likely be heard in Vista, Calif., where the San Diego Superior Court is located. The jury pool, then, will be from Vista and the surrounding area—a dramatically different demographic than that of, say, Downtown San Diego.

 

A federal court, meanwhile, will draw jurors from throughout the county where the case is heard rather than a single concentrated area. There are fewer federal courthouses than state courthouses in California, usually one federal courthouse for each county, although that one courthouse may have dozens of courtrooms. Litigators need to be cognizant of which jury pool will be best suited for their client, among many other factors.

 

Choosing a California Business Attorney

Where you file can be just as pivotal as what you file; seek counsel from the San Diego business attorneys at Gehres Law Group, P.C. Our team is extremely familiar with both the state and federal court systems, and can explain to you the potential risks and benefits of each option. It is worth every bit of our time and energy to consider the court that will give you the greatest advantage and/or the least disadvantage in your case. Schedule a free consultation today.

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Is it Copyright Infringement? Let’s Find Out

When you produce a unique work from your own vision and ideas, naturally, you are inclined to protect it from being reproduced and/or attributed to someone else. The self-fulfillment of contributing to the world is the reason creative expression has been at the heart of culture since the beginning of time. Factor in the potential commercial value of creative works, and a “copycat” is simply unacceptable.

It’s not just musicians and artists who must protect their work. Today, businesses of all types and sizes turn to copyright law to safeguard their brand assets. Whether you are the former or the latter, this brief guide will help you identify instances of copyright infringement.

 

What Type of Work is It?

United States copyright law protects literary, musical, theatrical, choreographic, motion picture and audio-visual works. Architectural works, engineering designs, and software code are also protected under Title 17 of the U.S. Code, which governs most copyright issues. In order for any of the above to qualify for copyright under federal law, the work must be fixed or tangible, meaning it is preserved in some form that is capable of being reproduced.

Works that you are not able to copyright include typography, symbols, contents lists, processes, procedures, common property (such as charts or calendars), and works in the public domain. Names and slogans cannot be copyrighted and must instead be registered as trademarks. Copyright law can be confusing when it comes to deciphering what can and cannot be copyrighted. Therefore, it is best to consult a business attorney that specializes in copyright registration to determine which works are subject to copyrights.

 

Is the Work Registered?

It is true that common law grants copyright immediately upon publishing a work. However, common law copyright does not provide the same protection as a federally registered copyright with the U.S. Copyright Office. In order to file a lawsuit for copyright infringement and seek statutory damages, your work must have a federal registration on file.

 

Did the Other Party Have Access to the Original Work?

If you have a federally registered copyright and believe your work has been infringed upon, you must be able to prove that the infringer had access to the work. Any opportunity for the infringer to be exposed to your work constitutes access. In today’s connected world, access is usually the lowest barrier to pursuing an infringement claim (especially considering works published digitally). Nevertheless, access must be present and demonstrable in order for an infringement claim to move forward.

 

Is the Copied Work Substantially Similar to the Original Work?

While access is often relatively easy to prove, similarity is where copyright infringement earns its notorious name for debate. There are certainly cases in which large or critical portions of a work – such as a song melody – are egregiously reproduced. More often, though, the “substantial” or “striking” similarity lies in a grey area. Because there is rarely direct evidence of the work being physically copied, copyright law involves several tests surrounding the “ordinary observer,” concept, feel, pattern and other guidelines.

In short, a successful infringement claim will require proof that the work was not only copied, but, moreover, copied in an identifiable and meaningful way.

 

Is it Fair Use?

With the volume and infinite nature of creative works, copyright and free expression can, at times, be opposing forces. The fair use doctrine permits use of copyrighted material, without permission or license, in certain cases. These cases include education, research, news, and parodies. There are four factors considered in determining fair use:

• Purpose and character of the use – Courts typically allow non-commercial use, especially when the reproduction is transformative.
• Nature of the copyrighted work – Courts will consider the level of creative expression.
• Proportion of use – Using a sample of a copyrighted work usually aligns more with fair use than reproducing the work in its entirety.
• Effect on original – If the reproduced work harms the market for the original work, fair use might not be granted.

To learn more about fair use, click here.

 

Do You Have the Right Attorney?

We cannot stress enough that copyright is one of the most complex areas of law. Just as consumers need to be aware of the seriousness of copyright infringement, businesses should properly register and police their work accordingly. Applying years of experience in copyright and business law, Gehres Law Group, P.C. can assist with copyright registration and, when applicable, pursuing a copyright infringement lawsuit. Click here to learn more, or call us at 858-964-2314 to speak with one of our San Diego business attorneys.

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What to Look for in a Business Attorney

Every business owner needs a reliable business lawyer. You have seen the articles – including our own – outlining what to look for in a business attorney. Experience, expertise, communication, professionalism, and availability are absolute musts. But what if you’re considering several different attorneys who all appear to have the foundational traits? Let us help you drill down a little further to find the right match in a business lawyer.

1. Honesty

When we allude to honesty in a business lawyer, we’re not talking about simply telling the truth. That should be a given. What you really need is someone who is going to be 100 percent direct with every message they deliver. Many attorneys will sugarcoat or even hold back details that a client might find alarming or worrisome. This is a disservice, because as a businessperson, you need to have all the necessary information to protect and defend your business, whether it’s what you want to hear or not. We won’t steer you toward brutal honesty; you don’t want someone who’s downright mean. Let’s call it unfiltered information sharing.

2. Growth

The goal in business is to grow and thrive. Ideally, your business lawyer will exhibit and exemplify growth in their own practice. If a lawyer has been running a one-person practice for decades, it could be a sign that they have not experienced for themselves many facets of business law in which you might be asking them for advice. For business and law firm founder, Tina Gehres, one of the most rewarding aspects of owning a practice has been growing Gehres Law Group, P.C. into a team of San Diego business attorneys serving companies of all sizes in a variety of industries.

3. Efficiency

In order for an attorney to be able to provide affordable legal services, they must have processes in place for every step of their counsel. For example, in business litigation, the attorneys at Gehres Law Group, P.C. typically invest more time upfront identifying potential risks and challenges than most business attorneys. We do this because we know that it will help us develop a complete strategy and avoid potential pitfalls that could otherwise lead to additional legal fees or worse, compromising a client’s interests.

Contrary to popular belief, high-demand lawyers are not looking to rack up unproductive hours billed to clients. Instead, they seek solutions that allow them to provide the services clients need without any wasted motion or excess fees. The more streamlined an attorney’s practice is, the more affordable they can keep their fees, the more likely their clients will return and refer others to them, and the more clients they can serve overall. It’s a winning formula for everyone.

4. Specificity

Experience is a prerequisite in law. Yes, you certainly want someone who has a track record of success. What you also want, however, is an attorney who possesses experience that fits your specific needs. Business owners in the e-commerce, real estate, and professional services industries should know that we have worked with many clients who require similar services and knowledge. We understand that companies who utilize e-commerce as part of their business model, for instance, often need impenetrable trademark and copyright protections in place. This is because of the vast exposure e-commerce provides and the inevitable bad actors who will attempt to steal the profitable ideas of others.

With that said, if you can’t find a business attorney with deep expertise in your industry, that is no reason to pass on someone you believe will take the time to adapt. You can recognize a lawyer of this caliber even in an initial consultation. They will ask questions surrounding your business challenges, terminology, experiences, and industry standards.

5. Versatility

Business law is complex and wide-ranging. If you had to hire a new attorney for every need that might arise, your contacts list could grow by the day. In the same way you rely on your accountant to manage all of your finances, you should be able to pick up the phone and call your business lawyer for consultancy on corporate law, contract law, trademarks and copyrights, employment law and, if necessary, business litigation.

Gehres Law Group, P.C. specializes in all of the above, including the many areas within each practice. For example, employment law alone encompasses wage and hour laws, workers’ compensation, unemployment compensation, disability insurance, anti-discrimination laws and much more. Contract law, meanwhile, spans indemnity, operating agreements, licensing, royalties, franchising, joint venture agreements, employment agreements and virtually every other type of contract a business might need written, reviewed and enforced. We have the knowledge and experience to provide comprehensive representation with the highest integrity. Review our attorney bios here.

Credentials aside, Ms. Gehres and her team will work tirelessly to protect your interests and provide timely access to reliable legal counsel for your business. Contact us today to learn more. Your first consultation is free.

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What is Mediation?

When two parties are in a dispute, it is typically wise for them to consider alternative dispute resolution (ADR) prior to or pending litigation. Mediation is a form of ADR in which a neutral third party—usually a trained mediation attorney or retired judge—meets with the disagreeing parties to assist in reaching a settlement. In business, mediation is often the ideal solution for disputes involving employment, breach of contract cases, various transactional matters, workers’ compensation claims, ownership disputes, buyouts, and many other situations that are not overly complex. Read on to learn about the process and advantages of mediation.

 

How Mediation Works

It’s important to understand that a mediator does not make a binding decision like an arbitrator or judge. Instead, their role is to help guide both parties to a resolution they can both live with and amicably fulfill, with assistance from the necessary legal professionals if necessary. Many people equate mediation to simply “talking it out,” but the process is actually quite defined and deliberate.

Mediation usually begins with opening statements from the mediator and then from the disputants, or their attorneys, in a neutral, mutually agreed upon location. The disputants are given the opportunity to share their respective sides of the story with the mediator and recommend resolutions they might deem to be fair, often in person but also in the form of a mediation brief which is supplied to the mediator prior to a scheduled mediation date. Typically, all parties are in the same room while these statements take place, but the mediator may choose instead to keep the parties in separate rooms if there is a history of animosity between the parties.

After opening statements have been completed, the mediator usually facilitates a joint discussion to identify and address the key challenges. Then, each disputant is provided a private meeting with the mediator before another joint discussion. Ideally, a written agreement is then reached, and the parties can obtain closure upon executing the agreement. However, the process can repeat if needed, negotiations may continue, or the mediator may recommend other options for resolution, such as arbitration. If mediation and arbitration do not successfully settle the dispute, formal litigation may be required.

 

Deciding Whether Mediation is Right for Your Business

Mediation is most commonly used in civil cases, such as divorce or non-criminal disputes. However, there are also many business disputes that can often be settled with mediation, such as conflicts with customers, employees, vendors, competitors, or even among business partners. The key requirement for mediation in any dispute, of course, is that both disputants must be on stable enough terms and able to communicate rationally for the process to have any hope of reaching a resolution. In other words, if there have been repeated threats of violence, emotional outbursts, or other conduct suggesting the parties would be unable to mutually agree on anything, then mediation may not be productive.

Mediation is generally much faster and more cost-effective than hiring a lawyer to seek a settlement and/or proceed with litigation. Even if the mediation process goes through several rounds of joint negotiations, these meetings do not take near the time a lawyer would spend preparing a case for court hearings and a trial. The San Diego business attorneys at Gehres Law Group, P.C. often represent parties in mediation and also act as mediators in business-related matters. Our mediation attorneys will schedule a mediation date once each party makes a deposit reflecting their intention to proceed with mediation. If the mediation goes beyond the deposited number of hours, the additional time is billed to the parties in quarter hour increments.

In addition to time and cost savings, mediation can also help mend the relationship between disputants through direct and confidential conflict resolution. In business mediation, it’s not unheard of for disputants to completely resolve their conflict and continue working together since mediation brings the parties together, rather than encouraging them to fight, as is the case with the litigation process in general.

 

Preparing for Mediation

Once you have decided to enter mediation, you might find yourself anxious or nervous for the first meeting. You can diffuse the nerves—and the emotions—by taking a few simple steps to prepare:

• Remind yourself that your reason for choosing mediation is to solve the conflict, and commit to providing a productive statement.
• Organize any necessary documentation to support your statement.
• Be direct and concise with what you are looking for in a resolution.
• Make an honest attempt to understand the other party’s grievances.
• Envision the other party’s potential claims or responses, and compose answers to them beforehand.
• List your main talking points separately from the rest of your notes and materials.

 

Writing Mediation into Contracts

Adding a mediation clause to your contracts can help to prevent lawsuits against your business. At the very least, a mediation clause should outline how a mediator will be chosen and how the costs of mediation will be covered. The clearer the terms are, the less room there will be for future disputes regarding the process itself. Learn more about developing an effective mediation or arbitration clause in this article.

 

Choosing a Mediation Attorney

A mediator is typically trained in conflict resolution and negotiation, however, the level of skill and aptitude can vary greatly. The State of California does not have strict training requirements for mediators, allowing professionals from different fields to simply complete a recommended 40-hour program and begin seeking mediation opportunities. Because of the loose training requirements, many people in need of mediation seek an experienced mediation attorney with a good track record to ensure they are getting the best expertise and service.

With many years of experience as mediation attorneys in San Diego, Gehres Law Group, P.C. is able to provide affordable, legal-focused dispute resolution for businesses of all types and sizes, as well as representing parties in mediation. If you are considering mediation for a business dispute, call us at 858-964-2314 to speak with a qualified mediation attorney today.

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CALIFORNIA STATEMENT OF INFORMATION, WHEN TO FILE?

Don’t miss your deadlines for filing a Statement of Information with the California Secretary of State. Below are the required due dates for filing (penalties assessed range from $50 to $250):

90 Day Statement of Information/Change of Corporate Information:

For Domestic Stock, Agricultural Cooperative, Foreign Corporations and Limited Liability Companies, a Statement of Information is due within 90 days after registration with the California Secretary of State, and when ANY information has changed since the last complete Statement of Information was filed. Clients who purchase our VIP Formation Package will have this filing included. For all others, you will need to request a Tailored Flat Fee Package, or ask us to file the 90 day Statement of Information or change of information at our current hourly or flat fee rate.

Annual Filings

Domestic Stock, Agricultural Cooperative Corporations and Foreign Corporations must file a complete Statement of Information every year. The due date depends on the date the corporation was formed.

Every Other Year Filings

Limited Liability Companies and Not-For-Profit Corporations must file a statement of information every other year.

• Filing tip: If the corporation’s Articles of Incorporation were originally filed with the California Secretary of State in an even-numbered year, file statement of information every even-numbered year. If the corporation originally filed Articles of Incorporation with the California Secretary of State in an odd-numbered year, file every odd-numbered year.

Electronic Filing

The required Statement of Information for most corporations can be submitted electronically and is generally processed in one business day. Statements submitted on paper should be directed to the Secretary of State’s office in Sacramento, either by mail or dropped off in person. Statements for limited liability companies and common interest developments must be submitted on paper, by mail or in person (drop off), at this time.

Public Disclosure

Please note that the public can view information and download documents contained in the Secretary of State’s electronic records using digital search tools and information posted on the Secretary of State’s website. Also, please note that individuals and private companies use this public information to create third party access to these records.

For more information, see the California Secretary of State’s website at http://www.sos.ca.gov/business-programs/business-entities/statements/. Penalties for late filed statements of information are $250 against for profit companies and $50 assessed against not-for-profit companies. Contact the business attorneys at Gehres Law Group today to have us handle your statement of information filings.

 

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California Companies Brace for Change in 2018

The San Diego business litigation lawyers at Gehres Law Group, P.C. provide trusted and knowledgeable assistance in understanding your company’s obligations involving both state and federal regulations. The laws in California regularly evolve and businesses can face consequences, including civil liability, if they fail to follow the most current requirements. There are, for example, numerous new regulations going into effect in 2018 and the Pasadena Star-News indicates companies are bracing for big changes.

New Laws Affecting California Companies in 2018

New laws going into effect in 2018 will profoundly impact the rights and obligations of employers and employees. Some of the new rules that will begin being enforced in 2018 or in subsequent years include the following:

• The New Parent Leave Act: Under this newly passed legislation, small companies that have at least 20 employees will now be required to provide unpaid leave for parents to bond with a new child. The leave must be taken within a year of a child being born or adopted or within a year of a foster care child being placed. Employers are required only to provide the leave for the birth or placement of a child, not for any other medical needs of family members.
• Assembly Bill 1008: This new regulation prohibits an employer with at least five employees from making inquiries into an applicant’s criminal history on a job application. Employers are also barred from from considering an applicant’s criminal history at any time until the employer has made a conditional offer of employment, except in limited circumstances such as when a background check for the profession is mandated under local, state, or federal laws.
• Assembly Bill 168: Employers are not permitted by law to ask about a job applicant’s prior salary or job benefits, and employers are not allowed to use salary history as a factor in setting an applicant’s current pay. If a job applicant discloses salary information voluntarily, however, the employer is permitted to use that information. This law is aimed at combatting alleged wage discrimination whereby women are paid less than men for similar work.
• The Immigrant Worker Protection Act: This law protects undocumented workers from immigration enforcement while they are working. Under the law, employers aren’t permitted to reverify whether current employees remain eligible to work.
• SB 396: This law requires that any employer who provides a mandatory training course must include in the course a discussion of harassment or discrimination based on sexual orientation, gender expression or gender identity.
• SB 295: This law establishes new requirements for sexual harassment prevention training and requires the training be conducted in a language spoken by the workers who are receiving the training.

This is just a small sample of the laws expected to go into effect in 2018. It is critical to speak with your San Diego business litigation lawyer for assistance complying with these changes in rules and regulations that could affect your rights or obligation as a business owner.

Contact a San Diego Business Litigation Lawyer

Gehres Law Group, P.C. represents small to medium-sized companies in California who need assistance ensuring labor laws are followed and who need assistance responding to violation claims. To find out more about how a San Diego business litigation lawyer at our firm can help you, give us a call at 858-964-2314 or contact us online today for your complimentary consultation.

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Restrictions on Employers Limiting PAGA Claims With Arbitration Agreements

The employment litigation attorneys at Gehres Law Group, P.C. represent California owners and their businesses in defending their rights in court, through mediation or arbitration. Under certain circumstances, the Labor Code Private Attorneys General Act (PAGA) provides employees with another tool to assert claims against California employers, making it imperative that these businesses understand how PAGA works, and how they can thwart such claims. 

Julian v. Glenair Addresses Arbitration Clauses and PAGA Cases

The Labor Code Private Attorneys General Act (PAGA) provides authorization for aggrieved workers to file civil lawsuits. Civil lawsuits under PAGA allow the worker who files the suit to recover civil penalties both on his or her own behalf, or on behalf of other employees, and the state of California. Employees may recover a portion of these penalties for themselves if an employer has been found to have violated the labor code.

There are very specific requirements as to when a PAGA claim has ripened, allowing employees to assert such a claim against their employer or former employer. There are filing fees, rules for providing notice to opposing parties, and other conditions that must be met in order for a plaintiff seeking to recover civil penalties under PAGA to prevail.

However, employers have been increasingly limited in their ability to preclude employees from asserting PAGA claims through the use of arbitration agreements, as illustrated by a recent case, Julian v. Glenair.  There, the California Court of Appeals addressed the issue of arbitration agreements as a mechanism to limit the use of a judicial forum for PAGA claims.

The Julian v. Glenair case involved employees who brought claims against an employer for violations of the Labor Code, and for violations of the unfair competition act. The employees sought to make a PAGA claim for civil penalties in connection with the employer’s alleged violations. However, while the suit was pending, the employer attempted to short circuit the employees’ ability to pursue such claims, or at least to minimize the company’s exposure to liability and damages, by requiring the employees enter into a new employment agreement. More specifically, the new agreement included language indicating that continued employment with the company would constitute consent to mandatory arbitration of any employee claims. The proposed agreement stipulated that employees could no longer utilize the courts, but must submit to arbitration on a wide range of claims, including claims related to wages, rest breaks, meal periods, and all violations of federal, state, and local laws and regulations. The arbitration provision specified that the Federal Arbitration Act would govern the agreement and should, to the fullest extent permitted, preempt state laws.

The arbitration language also stressed that it was voluntary and employees could opt out. While most employees who had claims pending against the employer did opt out, two employees did not. Meanwhile, the employer continued trying to force the plaintiffs into arbitration through the pending court proceedings until the case made it to the Second Appellate District Court of Appeals for California.

While pre-dispute waivers of PAGA rights have previously been invalided in California, the Appellate court found there was no existing authority clearly determining the enforceability of a post-dispute waiver of the right to assert a PAGA claim in court. The Court utilized a two factors in determining the boundary between a permissible post-dispute waiver and an unenforceable one: a) the capacity of the employee to make a “knowing and voluntary” choice on whether to waive the right to bring a claim in a judicial forum given sufficient knowledge of the law, and b) the absence of public policy considerations.

The court reviewed past legal precedent finding that a person who acts in two legal capacities (e.g. in their individual capacity and on behalf of the state) in executing a pre-dispute agreement in one of those capacities (as an individual), does not effectively waive the rights that may exist in their other capacity (as an agent for the state). An arbitration agreement signed by an employee who has authority to commence a PAGA action which has not yet ripened does not, therefore, extend to PAGA actions because the employee isn’t the one authorized to bring the PAGA action – the state retains the control of the right to bring the underlying PAGA claim and the employee acts as an agent of the state. A pre-dispute arbitration agreement thus would not be effective in requiring the employee to arbitrate PAGA claims, even though it would typically be effective in requiring arbitration of individual claims.

The Court in Glenair further held that an individual employee may not waive their right to pursue a PAGA claim through the state courts even on a post-dispute basis if the employee was not represented by counsel, which would be necessary to reveal a “knowing and voluntarily” waiver of the employee’s rights. This analysis is required as to each employee, since the statute permits similar actions by employees against the same employer, and more than one employee can act as the state’s agent to assert PAGA claims for other employees (who may have waived their right to pursue their rights in court).

Therefore, in light of the holding in Glenair, even post-dispute arbitration agreement may be unenforceable with regard to PAGA claims if the affected employee has not retained counsel or if there is a clear public policy involved.

Getting Help from An Employment Litigation Attorney

If you or your business is being threatened with claims based on California Labor Code violations, including PAGA claims, contact the litigation lawyers at Gehres Law Group, P.C. for help. Give us a call at 858-964-2314 or contact us online to schedule a complimentary consultation with one of our knowledgeable employment litigation attorneys.

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Will California’s Business Tax Incentive Program End?

A San Diego business litigation attorney at Gehres Law Group, P.C. can provide assistance to companies in understanding their rights and obligations under current laws in California and can help companies navigate the court system to enforce their rights. 

The law regularly evolves in California, and companies should ensure they have an experienced, knowledgeable legal professional to assist them in operating within the current regulatory framework.

One potential change companies may need to address in the future, for example, is the end of California’s business tax incentive program.

Will California’s Business Tax Incentive Program End?

For four years, California has had a program in place called California Competes. The program’s purpose is to incentivize business organizations to move to the state or to remain within the state. The program works by providing tax credits to eligible organizations. It has been a very expensive program, awarding companies with close to $800 million in tax credits.

However, the Los Angeles Times indicates that the future of the program is in question. The program was scheduled to end next year and the nonpartisan Legislative Analyst’s Office has now released a new report indicating that the program should not be continued. The report from the Analyst’s office suggests that the state should instead provide broad-based tax relief instead of giving specific tax incentives to businesses that participate in this program.

The legislative analysis determined that in excess of one-third of the total credits that were made available through the California Competes Program did not produce any demonstrable change to the overall economic conditions of the state, and thus continuing the tax credits could not be justified by providing value to the state’s economy. The analysis also determined that awarding the substantial tax credits created a competitive disadvantage for existing businesses within the state of California who were not eligible for the tax relief that California Competes provides.

The Legislative Analyst’s office was not able to assess the value of the remaining nearly 2/3 of the tax credits that were awarded as part of California Competes because the analysts were unable to make a determination regarding how the businesses who received the credits would have reacted if they had not received the tax breaks.

The Legislative Analyst’s office was able to use the data they collected to make a recommendation regarding California Competes overall though. They indicated that the program should be allowed to end in 2018 on its scheduled expiration data. The office suggested that instead of continuing the program, the state should consider lowering overall business taxes for all organizations. They also recommended that if lawmakers do intend to extend the existing California Competes program, they should narrow the program to focus more specifically on providing tax incentives to attract and retain high-value companies.

Getting Help from a San Diego Business Litigation Attorney

The San Diego business lawyers and business litigation attorneys at Gehres Law Group advise California companies on legal developments that affect their operations or their legal rights, and represent small to medium-sized businesses and their owners in utilizing the state and federal justice systems to advance and protect client interests.

To find out more about how Gehres Law Group, P.C. can assist you with understanding California’s current laws and with asserting your company’s rights in court, give us a call at 858-964-2314 or contact us online today.

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The Economics of Paid Parental Leave

The employment litigation lawyers at Gehres Law Group, P.C. provide representation to companies and individuals in connection with alleged violations of labor law. California has some of the most stringent laws aimed at protecting workers, including laws related to employee family leave. 

Recently, Scientific America published a report on the economics of paid parental leave. According to the report, California’s paid parental leave policies demonstrate that offering paid leave can provide businesses with financial savings.

Paid Family Leave Can Save Companies Money

California passed the first comprehensive Paid Family Leave (PFL) program in the United States back in 2002. Because there are no federal laws guaranteeing paid leave, California’s program provided substantial benefit to parents which would not otherwise be mandated by any law.

California’s program provides that workers who add a new biological child, adopted child, or foster child to their family are eligible to receive up to six weeks of partial paid leave. Both fathers and mothers are entitled to this time off and leave can be taken within the first year that a child is born or is placed with the family.

California’s paid leave program for bonding with children is in addition to the medical leave that mothers can receive in order to recover from pregnancy and child birth. Parents are permitted to take the six weeks of leave either continuously or intermittently at any time during the first year of their child’s life.

To ensure that the program is operating effectively, California regularly updates the program in response to data regarding how the program is used.

In 2017, for example, the program offered payments of 55 percent of the earnings that a parent would be making while working, up to a maximum payment of $987 weekly. For 2018, the wage replacement rates increased to 60 percent of wages for most taxpayers. Employees with low wages that are close to the minimum wage will be entitled to receive 70 percent of their customary weekly wage during their six weeks of leave. The change is prompted by the fact that most low wage workers aren’t able to make use of California’s paid leave program as currently operated because they cannot afford to live on 55 percent of their wages.

California’s program has been funded by a payroll tax that is paid by employees, which is indexed to inflation. Employers do not incur any direct costs through the operation of the program and do not incur administrative costs because the program is administered through California’s state disability insurance system.

A survey of employers determined that these paid family leave policies had either a positive impact or no noticeable impact on productivity, turnover, employee performance, or employee morale. Employers did not identify abuses of the program, and small businesses were especially unlikely to report any negative effects. Furthermore, 60 percent of California employers indicated they were able to coordinate their own benefits programs with the state’s program, providing cost-savings for employers.

As Scientific American concluded: “California’s experiment showed that paid family leave generated cost savings for businesses, either due to reduced turnover or because they coordinated their own wage replacement benefits.”

Contact Employment Litigation Lawyers

Employment litigation lawyers at Gehres Law Group, P.C. can provide assistance to companies and employees in addressing legal issues arising in connection with workplace benefits, including paid family leave. Give us a call at 858-964-2314 or contact us online to find out more about the assistance we can offer.

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Is California Experiencing an Economic Chill?

A business attorneys and business litigation lawyers at Gehres Law Group, P.C. provides assistance to small and medium-sized California business organizations by helping companies to ensure compliance with current regulations and by assisting them in taking appropriate legal action to protect their rights. 

Companies in California may face new challenges in growth going forward, as evidence suggests that the economy in California is cooling.

California May be Experiencing an Economic Chill

The OC Register reported on the evidence of slowed economic growth in California. According to the OC Register, California has slipped from fourth to 35th in terms of economic growth across the nation.

This ranking is based on state-by-state gross domestic product. It revealed that California’s economy grew at a rate of 2.1 percent annually in the second quarter of 2017. This is actually an increase compared with the first quarter, when California’s economy was growing at a very slow .6 percent growth. However, it reflects a marked decline from a year ago when economic growth in California was measured at 3.7 percent. It also suggests California is likely to fare far worse in annual growth this year than it did last year. In 2016, California’s economy grow at a 3.3 percent annual pace, which was the fourth best among all of the states in the U.S.

The growth rate in California of 2.1 percent was below the national growth rate of 2.8 percent annual growth, and it placed California as 35th among the 50 states in terms of its growth. This data point is not the only one suggesting a weaking economy in California either. Job creation was measured at just 1.6 percent statewide in 2017, which OC Register indicates is the slowest rate of job creation in the past five years. Furthermore, total wages paid in California also grew very slowly last year. In the second quarter, total wages paid in California increased at a rate of just 3.5 percent annually. This is the second slowest increase in total wages paid since 2013.

Because so many metrics show that California is experiencing slow growth, the outlook for the state going forward in 2018 is not as positive as some leaders hoped it would be. The Federal Reserve Bank of Philadelphia aggregates data on growth and tracks six-month outlooks for each state, and their analysis revealed more bad news for California. California was found to have the 10th worst economic prospects of all of the states in the U.S., when measured in August 2017, and was found to have the 13th worst economic prospects of all of the states when measured in September of last year. These are the worst projections for the state since 2010.

However, the OC Register indicates that the troubles in California could affect not just people in the state but also the nation as a whole. That’s because California’s GDP in the second quarter accounted for around 1/7 of the total business output across the nation. As a business leader, if California performs poorly, it could affect the economy as a whole.

Contact a Business Litigation Lawyer

When economic conditions are less than optimal in California, companies will need to work even harder to be successful. Companies should ensure they are not undermining their prospects of achieving success by making mistakes in compliance with regulations or by being lax in protecting the legal interests of their organizations.

Gehres Law Group, P.C. provides a broad range of assistance to companies in understanding their obligations and enforcing their rights in the state of California. Contact a business attorney or business litigation lawyer at our firm today to find out more about how we can help. You can give us a call at 858-964-2314 or contact us online at any time for a complimentary consultation.

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Benefits of Professional Corporations in CA

Corporate attorneys at Gehres Law Group, P.C. provide assistance to business owners in determining what type of business entity makes the most sense for their situation. For many companies, the creation of a professional corporation is the right choice. 

Advantages of Operating Your Business as a Professional Corporation

Operating as a professional corporation can have significant advantages compared with other business entities. Advantages of professional corporations, as summarized by Chron.com include:

• Protection from liability: Sole proprietors and partners are liable for business losses and for judgements entered against a business. Operating as a professional corporation can provide protection from liability. Business owners are not only shielded from possible losses caused by financial mismanagement or other related issues, but are also protected if co-owners engage in criminal or negligent behavior. Losses are limited to the invested funds in a business operated as a professional corporation.
• Favorable tax treatment: Professional corporations are not only eligible for general business tax deductions available to all types of professional entities, but are also eligible for some specific tax perks not available to all companies. For example, a professional corporation can write off salaries and bonuses that the corporation pays out to employees and owners. Professional corporations can also write off fringe benefits as business expenses.
• Retained earnings: Professional corporations are permitted, under the tax code, to retain some portion of company profits in order to invest in and improve their business. Money from retained earnings can be used to accomplish important goals, such as acquiring equipment or real estate or undertaking significant renovations. Many other types of business entities, including those entities operating under pass-through rules wherein profits and losses flow to owners and are reported on individual tax returns, are not set up for retained earnings like professional corporations are.
• Retirement planning: Professional corporations typically can provide retirement plans to workers that have higher contribution limits than in most unincorporated businesses. This is a major benefit that can provide help in attracting top talent.
• Professional corporations can last in perpetuity: When you operate as a sole proprietor, the business is irrevocably intertwined with you and the company may not survive your incapacity or death. Operating as a professional corporation, on the other hand, can allow the company to be passed on through a seamless business succession plan so the company can serve as your legacy and still be operational decades later even after you are gone.

These are just a few of the many advantages of operating as a professional corporation. If you have concerns about whether you should create a professional corporation or if you have any other questions related to how to structure your business, you can reach out to an experienced attorney for help.

Contact San Diego Corporate Attorneys For Help

If you are ready to get legal advice on whether the creation of a professional corporation is right for you, it is best to reach out to an attorney with experience on startup companies and business structures. A knowledgeable corporate attorney at Gehres Law Group, P.C. can provide insight into whether the creation of a professional corporation is advisable for you. Give us a call at 858-964-2314 or contact us online to talk with San Diego corporate attorneys to find out more and to get help forming a professional corporation if this is the right choice for your situation.

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Personal Liability for Employers Under A Fair Day’s Pay Act

A San Diego employment litigation attorney at Gehres Law Group, P.C. can provide assistance to companies accused of wage-and-hour violations, as well as to individuals who could potentially face personal liability under California’s Fair Day’s Pay Act. 

Could Owners or Directors Face Personal Liability for Unpaid Wages?

California’s Fair Day’s Pay Act stipulates that owners, directors, managing agents, or officers could be held personally liable for wage and hour violations under California Labor Code section 558.1.

The bill established provisions through which Labor Commissioners could enforce judgements against owners, directors, and others who can be held liable for wage theft, including placing levies on bank accounts and personal property. The goal of the bill is, in part, to ensure employers cannot escape liability for unpaid wages by closing companies and starting new ones.

Wage and hour violations that could give rise to personal liability include failure to pay minimum wage, failure to pay overtime, failure to pay for off-the-clock work, theft of tips, and failure to pay final wages to workers.

Those who are held personally liable under the bill could be liable for not just unpaid overtime wages, but also situations where miscalculations of the regular rate resulted in employees being underpaid. Owners, directors, and others who are held liable under the bill could also be held personally responsible for unreimbursed business expenses, for rest and meal premiums associated with missed breaks, and for providing wage statements to employees that do not meet all of the requirements set forth in California’s Labor Code section 226.

The law also stipulates that employers who have previously been found to have committed wage violations could be required to post bond before continuing operations.

An analysis of the Fair Day’s Pay Act conducted by the Senate Judiciary Committee indicated the law was necessary because cases of wage theft have been increasing, depriving workers of the money that they have earned. According to the brief of the bill by the committee, a UCLA study found that an estimated 654,914 workers just in LA County alone experience at least one violation of wage-and-hour laws weekly. Estimates also suggest that front-line workers who work within low-wage industries lose in excess of $26.2 million weekly due to wage and hour violations.

The California Labor Commissioner Julie Su has also indicated that she has sought, and will seek, to enforce criminal provisions of the Fair Day’s Pay Act if employers commit wage theft.

Employers face significant personal risk under the Fair Day’s Pay Act because of these provisions imposing personal financial liability and because of the provisions enhancing the tools for enforcement of wage and hour laws.

Getting Help from a San Diego Employment Litigation Attorney

It is imperative to get legal help if you or your company has been accused of violating any wage and hour laws as a substantial amount of money could be at stake, along with potential impacts on both ongoing business operations and personal financial security.

Gehres Law Group, P.C. is here to help. Give us a call at 858-964-2314 or contact us online to find out more about the assistance our legal team can offer in connection with wage and hour claims under the Fair Day’s Pay Act.

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