All Entries in the "Legal" Category
Personnel Practices: Hiring Basics
by C. Alexander Chiulli, Esq. and Kristen M. Whittle, Esq.
As the first step in the employment relationship, the hiring process is also one of the most important. It is an opportunity for both parties to lay the groundwork for a successful relationship, but employers should take certain steps to ensure that the process is completed properly. In addition, employers should be aware of pitfalls for liability, such as claims of discrimination, breaches of privacy, and violation of laws and regulations governing, for example, drug testing and social media. Even prospective employees, who are not ultimately hired, may present claims in this regard. The following do’s and don’ts are intended as best practice tips to guide employers through the hiring process.
DO avoid questions related to a candidate’s membership in protected classes (e.g., race, gender, age, religion, sexual orientation, or disability). Employers should also generally refrain from including this information, such as an applicant’s gender or date of birth, on an employment application. Unless an employer is subject to affirmative action requirements (and most employers are not), hiring decisions should be made based on a candidate’s merit, and not on his or her membership in a protected class. Instead, employers should focus on determining whether applicants are qualified for a position by probing their education, experience, and skill-level. Through fashioning qualification-based questions, employers will not only obtain more useful information for making hiring decisions, but may avoid potential discrimination claims.
DON’T overlook compliance with industry-specific screening procedures. In areas such as healthcare, child care, aviation, and education, among others, certain screening procedures are mandated by law and essential to protecting the public interest. Failure to complete the required screening procedures can potentially give rise to liability on the part of an employer.
“Through fashioning qualification-based questions, employers will not only obtain more useful information for making hiring decisions, but may avoid potential discrimination claims.”
DO, however, proceed with caution when conducting background checks. While an employer may generally inquire about applicants’ background information during the interview process, employers are not typically permitted to run background checks without applicants’ consent. In addition, a recently-enacted Rhode Island law prohibits employers from inquiring about an applicant’s criminal convictions prior to the first interview. This law, known as “ban the box” because of the prohibition on a check-box on job applications concerning an applicant’s criminal history, provides that it is unlawful for most employers to ask job applicants about arrests, charges, or criminal convictions (including any verdicts or findings of guilt, guilty pleas, or pleas of nolo contendre) on any employment application. Employers who do not use formal job applications are similarly prohibited from asking about these topics until at least the first interview.
DON’T forget to comply with Rhode Island’s drug testing statute, if drug testing is part of the application process. Rhode Island has enacted one of the strictest laws in the nation concerning employee drug testing, and violations can lead to criminal liability. If pre-employment drug testing is not required by an industry-specific law or regulation, employers should consider whether to engage in this practice at all.
DO use only publicly available information about job applicants when conducting screening or due diligence research on social media. The Rhode Island General Assembly recently enacted legislation prohibiting employers from requiring applicants to provide access to their social media accounts or to add the employer as a contact on their social media accounts. In other words, an employer may not require an applicant to connect with the employer on a social media site as a consideration in the hiring process.
By creating a culture of compliance in the hiring process, employers may avoid liability down the road. When in doubt, however, employers should always contact a seasoned professional to help navigate this process.
Liquidity Options for Owners of Private Companies
by William F. Miller, Esq.
One of the frustrations of being a shareholder of a private company is that, while their ownership stake in the company may have significant value, historically it has not been readily convertible into cash. Since the shares are not registered with the Securities and Exchange Commission they cannot be traded in the public markets, and transfers of shares of private companies are subject to federal and state securities laws and often to contractual prohibitions on transfer under shareholder agreements. In many cases, shareholders had only two alternatives: wait until the company goes public or, more commonly, is acquired by another company.
However, in recent years, a third alternative seems to be emerging in the form of so-called liquidity rounds or secondary sales of private company stock. In general, these typically fall into one of two categories: company sponsored transactions (usually in the form of a company redemption) and shareholder sales to third parties. Both raise a variety of issues, but in many cases they are different issues from the perspective of the company and the shareholder.
Redemption by the Company
From the company’s perspective, there are distinct advantages to the redemption approach because the company retains greater control. However, the devil is in the details. Under the laws of many states, a redemption offer by a closely held company must be made to all shareholders, although there is no requirement that all or any particular percentage of shareholders elect to participate. Secondly, the laws of the state where the company is organized often limit the source of funds that may be used by the company to redeem outstanding shares. Finally, Section 302 of the Internal Revenue Code can produce some surprising and unpleasant tax results if the redemption is not properly structured. These include treating the payment received by the redeeming shareholder(s) as a dividend, subject to ordinary income rather than long term capital gain treatment, and loss of the selling shareholder’s tax basis in the shares redeemed.
Sales by Existing Stockholders to a Third Party
Most often, these transactions take place in connection with an angel or other private equity financing, where most of the stock acquired is newly issued by the Company but the investor is willing to purchase a limited amount of stock from existing shareholders. They may also arise when an existing shareholder wants to buy more equity in the company but the company is not interested in issuing new shares.In that situation, minority shareholders are often willing to sell some or all of their equity. Since the buyer is a third party and not the company itself, many of the rules that apply to a redemption by the company, do not apply to a third party sale. However, since shares of most closely held companies are subject to transfer restrictions, a third party sale will usually require the company and sometimes other shareholders to waive the transfer restrictions.
Either of the approaches summarized above can provide liquidity to company shareholders in advance of a sale of the company or an IPO. However, both require careful planning and sound professional advice. For more information, contact Attorney William F. Miller at 401-824-5100 or email wmiller@pldw.com.
How Will Federal Rule Changes Affect You?
Sole proprietors, get ready. You now have one more thing to sort out in your business: how you buy health insurance. Effective January 1, 2016, the Affordable Care Act (ACA) redefined the meaning of “small group.” According to the new rules, sole proprietors now fall into one of two health insurance categories: small group purchasers or individual purchasers.
Why is this important?
“If you think about the Rhode Island economy, small business immediately comes to mind because it is the lifeblood of Rhode Island,” said Melissa Cummings, senior vice president and chief customer officer at Blue Cross & Blue Shield of Rhode Island (BCBSRI). The state’s well being is directly tied to the health of the business community.
To know where a business fits under the change, understand the primary difference between these two groups—number of employees.
“A sole proprietor can retain their ‘small group’ status if they employed at least one person during the preceding calendar year and they continue to employ at least one person (who is not a spouse of the owner) on the first day of their annual health insurance cover period,” explains George Tager, manager of small group sales at BCBSRI. In this case, nothing changes for the small business.
The owner of a business that has no employees, regardless of incorporation, must purchase coverage in the “individual” market. This change actually presents business owners with a range of options for various budgets, so they should learn what their choices are. They also can use HealthSource RI (HSRI), the state’s health insurance exchange, and may be eligible for federal tax credits.
These credits can help reduce the cost of individual coverage, but you need to be careful when you apply for them. They are based on net income, and if you suddenly find your income higher than expected, you will need to contact HSRI and make adjustments to avoid having to pay back some, or all, of the tax credits.
Although change is not always welcomed, opportunity is. Many of the people who make up the lifeblood of Rhode Island are currently facing change in how they insure themselves and their families. But with this comes the opportunity to better understand their medical and dental insurance needs.
About Blue Cross Blue Shield of Rhode Island:
Blue Cross Blue Shield of Rhode Island (BCBSRI) is committed to assisting small business owners through this transition. “We proudly provide coverage to 95% of sole proprietors in Rhode Island, giving them all the information they need to get the right plan,” said George Tager, manager of small group sales at BCBSRI. “We know the new federal regulations can be confusing, so our top priority is to help small businesses understand how the rules affect them.
“We’re already contacting small businesses that might be affected,” Tager added.
BCBSRI has put special emphasis on customer service, adding phone service seven days a week and recently opening its third Your Blue Store retail location. You can ask questions face-to-face at Your Blue Stores in Bristol, Lincoln, and Warwick.
Sole proprietors who start purchasing their insurance as individuals will continue to enjoy the same BCBSRI value-added features they received as small group purchasers, like CVS/pharmacy discounts and the 24/7 Nurse Care Line. They also can purchase medical and dental coverage together with just the one Blue Cross card.
Personnel Practices: Legal Considerations for Start-Ups
by C. Alexander Chiulli, Esq. and Kristen M. Whittle, Esq.
When organizing a start-up, business owners typically engage the services of a number of professionals, including realtors, accountants, and attorneys. It is important for new businesses to determine where the business will operate, ensure that its finances are in order, and confirm that it is in compliance with applicable laws and regulations. Start-ups often have substantial flexibility in their operations and will face many decisions as to how to set up their business within the confines of the law. The following topics are examples of areas that new businesses should discuss with their attorneys and iron out prior to opening their doors.
Entity Choice and Formation
At the outset, it is essential that business owners secure the right legal benefits and protections. Early on, business owners should select the legal entity that best suits their business’s needs with respect to liability protection, corporate governance, and day-to-day operations. Specifically, start-ups may choose to organize as a sole proprietorship, partnership, limited liability corporation, or corporation. Each of these entities has risks and benefits, and there are numerous legal, financial, and managerial implications that must be carefully considered. For example, sole proprietorships may offer business owners more flexibility than corporations, but also carry a higher risk of personal liability.
Contract Basics
Very few people enjoy the rigors of producing and executing contracts. Well-written contracts are nonetheless vital to a business’s continued growth. Contracts such as purchase and sale agreements, employment agreements, vendor agreements, terms of service, and leases (plus many others) establish the “meeting of the minds” needed to conduct business while protecting the discrete interests of the parties. Professionally-drafted contracts not only help prevent problems before they arise, but can prompt more efficient dispute resolution.
Intellectual Property
Intellectual property is enormously important to today’s economy. All businesses—regardless of their type, size, market, services, or products—should understand the distinctions between copyright, patent, trademark, right of publicity, and trade secret as well as what these areas of law mean to their business. For example, businesses should consider trademarking their business name or logo to better manage their goodwill and reputation, and businesses in the science and technology fields may wish to pursue patents to protect their newly-developed products. By failing to recognize the significance of intellectual property, businesses drastically increase their risk of confused consumers, unrealized opportunity, and ultimately lost revenue. Identifying, securing, and protecting intellectual property is essential to realizing a business’s success.
Licenses and Regulations
Many businesses may be subject to local, state, and/or federal regulatory and licensing requirements. Ignorance by business owners as to the governing regulatory scheme may lead to undesirable delays, costly problems, and long term consequences that new businesses cannot sustain. Certain industries are subject to significant governmental oversight, including health care, food service, and construction. Before moving forward with a business, business owners should check with industry-specific licensing bodies and regulatory agencies in order to understand and better navigate their requirements.
Employment Considerations
Prior to hiring, business owners should determine whether to engage employees or independent contractors, and whether employees will be at-will or contractual. Although there is no one-size-fits-all solution for start-ups, potential employers should weigh the benefits of these options. For example, contractual employment may provide more workforce stability but decreased flexibility in discontinuing an employment relationship.
Although start-ups often (rightly) focus on the substance of their new business, it is important to remember these legal considerations so as to protect the business from potential pitfalls down the road. Proactive legal consideration can prevent problems and provide substantial cost-savings to a new business as it grows.
C. Alexander Chiulli, Esq. Associate, Barton Gilman LLP
Kristen M. Whittle, Esq. Associate, Barton Gilman LLP
