Michigan Limited Liability Companies: Stay in Good Standing and Maintain your Corporate Formalities.

February 4, 2020 Leave a comment

Happy Tuesday, all. Well, we are in February now, which, if you live in the Midwest means you are hoping for a glimpse of sun and looking for brighter and warmer days. I am reminded of my trip 6 months back to Amsterdam and the beautiful canals.

Amsterdam Canals, Netherlands

A client recently inquired about whether or not he needed to file his LLC’s annual statement in order to stay in good standing with the State of Michigan.

The answer is “Yes.”

The Michigan Department of Licensing and Regulatory Affairs (“LARA”) reminds us that annual statement are due by February 15 of each year.

Consequences for Failing to File:

LARA also reminds that:

“Section 909(2) of the Michigan Limited Liability Company Act, 1993 PA 23, provides that if a domestic or foreign professional limited liability company does not file the annual report by February 15, then in addition to its liability for the fee, a $50.00 penalty is added to the fee.”

“Penalties will be assessed for 2018 annual reports received after March 1, 2018.”

Further LARA reports that, an LLC that “fails to file its annual statement/report or the filing fee is not paid for two years, the limited liability company will not be in good standing.  The status of the limited liability company will be “active, but not in good standing.”

“A limited liability company that is not in good standing is not entitled to a certificate of good standing; its company name will be available for use by another entity, and no document will be filed on behalf of the company other than a certificate of restoration.”

Is your LLC in Good Standing?

Occasionally I will have a business client come in and I will ask – just to make sure – “is your business still in good standing?”

The common answer is “I think so.”

And of course, after I perform a quick internet check with the State of Michigan it is all too common that I discover that either the LLC is “not in good standing” or worse, the company has been dissolved automatically for failure to file annual statements.

A Word on Resident Agents:

My law firm is happy to provide our business clients with resident agent services. One of the benefits of an LLC is that it provides its owners a level of privacy protection.

You can check out a recent ABAJournal Article on how a Court is making Jared Kushner’s real estate partners disclose their identity.

Michigan law requires Limited Liability Companies to have appointed a Resident Agent.

MCL 450.4207(1)(b) requires an LLC to have a resident agent. A person, or business with a physical presence in the State of Michigan.

Michigan law does not require that an “owner” of the LLC be the resident agent.

“The resident agent appointed by a limited liability company is an agent of the company upon whom any process, notice, or demand required or permitted by law to be served upon the company may be served.” MCL 450.4207(1)(b).

Many of my real estate investment clients will utilize my law firm as resident agent when filing their articles of organization with the State of Michigan.

In Conclusion:

Business owners, if you get these annual statements from the State of Michigan, or from your attorney – do not disregard them! Maintain your Corporate Formalities.

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Latest Update on Bill to Limit Non-Competes against Lower-Wage Employees.

January 22, 2020 Leave a comment

Here’s a shot of Downtown Grand Rapids I took today from the Amway Grand Plaza Skywalk.

Pearl Street, Grand Rapids, Michigan

A month ago I posted on non-compete agreements.

As mentioned before, I am thankful for Judge Yates with the Kent County Business Court who issues a lot of opinions on this area. In fact, he issued one just a few days ago that is helpful:

You can check out this December 3, 2019 Temporary Restraining Order issued by the Kent County Business Court.

In this instance, a local hair salon (where I used to get my hair cut until they moved from downtown) had their stylists sign non-competes.

The stylists left their employer to work with a competitor. The salon filed an Ex-Parte TRO to stop the stylists from working for a competing hair salon.

The Court, in its opinion, granted in part and denied in part the Salon’s request. The Court (at least before a hearing on the evidence) allowed the stylists to work for a competitor and limited the TRO simply to prohibit the stylists from soliciting customers of their former employer.

A broad takeaway from this brief opinion – yes, non-competes are generally enforceable, but not in all cases. The restrictions must be reasonable.

A question to ask: Is it reasonable to prohibit a hair stylist from going to another salon and using the stylists’ general knowledge and skill to cut hair somewhere else?

Is a business really harmed by this type of competition?

Trending to protect low-wage workers from unreasonable restrictions.

Just recently, Michigan’s Attorney General joined the Attorney Generals of several states in a letter to the FTC dated November 15, 2019 to ” to urge it to use its rulemaking authority to bring an end to the abusive use of non-compete clauses in employment contract.”

This isn’t a recent phenomenon. Several years ago Jimmy Johns was sued by a State Attorney General for its use of non-competition agreements to restrict employees rights to “make sandwiches” for a competitor.

Earlier this year the Legislature proposed a bill to restrict non-compete agreements with “lower-wage” employees – defined generally as $15.00/hr or $31,000 annually.

This bill has made some progression.

You can check out the House Fiscal Agency’s January 15 Analysis of the House Bill Substitute.

According to the Report, the changes to the Bill surround the definition of “Low-Wage Employee”

Low-wage employee would mean either of the following:
1. A minor.
2. An employee, as defined in section 203 of the federal Fair Labor Standards Act who receives annual wages from the employer (excluding overtime) at a rate less than 138% of the last published federal poverty line for a family of three. The bill would require the Department of Labor and Economic Opportunity (DLEO) to keep this rate posted on its public website.

It seems there is a growing trend to protect employees from unreasonable restrictions on the ability to work. States are pushing for limitations on non-competes against employees – particularly employees in lower skilled jobs.

And it is hard to argue with sensibility of binding “sandwich artists” or “hairstylists” from making a living. That being said, under Michigan law non-competes are general enforceable.

MCL 445.774a provides:“1) An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests…”

Questions? comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Business Law Update: Consequences for Misclassifying Employees as Independent Contractors

January 8, 2020 Leave a comment

Schuss Mountain, Bellaire, Michigan

Happy New Year! We celebrated the New Year up north with lots of snow. It was a beautiful way to start the New Year.

Businesses: There are Consequences to Misclassifying Workers

Businesses: misclassifying your  workers as independent contractors v.s employees (“IC” vs “EE”) could cost you serious money.

Apparently a local landscaping company found this out the hard way.

According to a December 31 article posted on MLive, this company will have to pay “32 former employees $59,212 in back wages and an equal amount in liquidated damages.”

Calling a worker an IC just to save on paying taxes may seriously hurt your business in the long run. States are enacting laws to make businesses pay for such misclassifications.

New Laws Penalizing Businesses for Misclassification

Back in September 2019 California passed a Bill to correct misclassification of workers as Independent Contractors

Around the same time, Michigan proposed a similar Bill, House Bill 4877

HB 4877 would place the burden on the employer to prove, by a preponderance of evidence, that the employee was not misclassified – with the threat of penalties.

That Bill was referred to the committee on commerce and tourism and has made no movement.

Court Cases go Back and Forth on the Issue

As reported by the ABAJournal, The 9th Circuit Court of Appeals, provided a victory for FedEx Truck Drivers classified, by their employer FedEx, as “independent contractors”  – reversing  “a finding in multidistrict litigation in Indiana and held that nearly 2,700 plaintiffs in California and Oregon are in fact employees.”  See the ABAJournal article here

Different Tests to Determine IC vs EE

States, Federal Government agencies, and Courts all have their own standards of how to distinguish independent contractors from employees.

Look at the Code of Federal Register, as provided by Cornell Law School,  for the definition of Employee and you will get one definition; go to the IRS website and you will find another extensive resource on the subject, see that resource here.  States have their own rules, statutory and case law, as well.

One of the reasons for the lack of uniformity, is that the distinction between IC/EE matters for different reasons – from the federal government’s perspective, it matters, among other things,  from a Federal tax stand point- or whether or not an EEOC , or fair labor standards act claim is at issue.  From a state law perspective, the distinction  can matter regarding unemployment/workers compensation taxes and claims.

Under Michigan law, 3 conditions must be met in order to find an individual is an employee for purposes of Workers Disability Compensation Act Claims, MCL 418.11(1)(d) –  employee means every person performing service in the course of the trade, business, profession, or occupation of an employer at the time of the injury, provided the person in relation to this service does not maintain a separate business, does not hold himself or herself out to and render service to the public, and is not an employer… McCaul v Modern Tile and Carpet, Inc 284, Mich App 610, 616 ( 2001)

The Fed Ex Case

As reported by the ABAJournal:

Under a “right to control” test that applies in both states (California and Oregon), the FedEx drivers are clearly employees, not independent contractors, a three-judge appellate panel held.”

“The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx’s appearance standards,” wrote Judge William Fletcher in both opinions. “FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx’s consent.”

The fact that FedEx called the drivers independent contractors in an operating agreement did not change their actual status as employees, the court said.”

Take Away: 

This last point made by the 9th Circuit Court of Appeals cannot be under stated- how you decide to label your workers is not going to determine their true status as either IC or EE.  How are your workers  actually operating? E.G. – Do you truly have control over their duties to the extent that they are effectively employees?

Definitely a conversation you may want to have with  your legal and tax counsel.

Questions? comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Michigan Business Law Update: Trends to Limit Non-Competes against Lower-Wage Employees.

December 12, 2019 Leave a comment

Last Friday was the tree lighting in downtown Grand Rapids. The Christmas season is officially here!

Rosa Parks Circle, Grand Rapids, MI

A question that comes up often in my business practice: “when are non-competes enforceable?”

I am thankful for Judge Yates with the Kent County Business Court who issues a lot of opinions on this area. In fact, he issued one just a few days ago that is helpful:

You can check out this December 3, 2019 Temporary Restraining Order issued by the Kent County Business Court.

In this instance, a local hair salon (where I used to get my hair cut until they moved from downtown) had their stylists sign non-competes.

The stylists left their employer to work with a competitor. The salon filed an Ex-Parte TRO to stop the stylists from working for a competing hair salon.

The Court, in its opinion, granted in part and denied in part the Salon’s request. The Court (at least before a hearing on the evidence) allowed the stylists to work for a competitor and limited the TRO simply to prohibit the stylists from soliciting customers of their former employer.

A broad takeaway from this brief opinion – yes, non-competes are generally enforceable, but not in all cases. The restrictions must be reasonable.

A question to ask: Is it reasonable to prohibit a hair stylist from going to another salon and using the stylists’ general knowledge and skill to cut hair somewhere else?

Is a business really harmed by this type of competition?

Trending to protect low-wage workers from unreasonable restrictions.

Just recently, Michigan’s Attorney General joined the Attorney Generals of several states in a letter to the FTC dated November 15, 2019 to ” to urge it to use its rulemaking authority to bring an end to the abusive use of non-compete clauses in employment contract.”

This isn’t a recent phenomenon. Several years ago Jimmy Johns was sued by a State Attorney General for its use of non-competition agreements to restrict employees rights to “make sandwiches” for a competitor.

Earlier this year the Legislature proposed a bill to restrict non-compete agreements with “lower-wage” employees – defined generally as $15.00/hr or $31,000 annually.

It seems there is a growing trend to protect employees from unreasonable restrictions on the ability to work. States are pushing for limitations on non-competes against employees – particularly employees in lower skilled jobs.

That being said, under Michigan law non-competes are general enforceable.

MCL 445.774a provides:“1) An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests…”

Two Lessons:

  1. Non-competes are generally enforceable – a court will narrow the scope of such a restrictive covenant if a court believes necessary in order to protect a legitimate business interest.

  1. Non-competes are less likely to be enforceable against low-level positions with no access to proprietary information.

Questions? comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Community Spotlight: Boys & Girls Club of Grand Rapids – Steil Club

December 3, 2019 Leave a comment

Today I visited with Patrick Placzkowski, Angie Stumpo and Taylor Crison with Boys & Girls Club Grand Rapids – Steil Club (B&G Club).

Patrick, Angie, & Taylor.

What really impacted me about my visit was touring the space on Straight Street in Grand Rapids where roughly 80 kids aged 6-18 meet every weekday after school.

These kids will receive snacks, dinner, and interaction with adults who care about them.

Many of these kids may not have positive interactions with adults.

The staff and volunteers of B&G Club are telling these kids on a consistent basis that they matter.

They have inherent value.

A Vision to Assure Kids That Success is Within Reach.

B&G Club states on its website that:


its Vision is “to provide a world class Camp and Club Experience that assures success is within reach of every young person who enters our doors, with all members on track to graduate from high school with a plan for the future, demonstrating good character and citizenship, and living a healthy lifestyle.”

Relationships Change lives.

I had originally met Patrick and Angie at a luncheon held at Mel Trotter Ministries, another community partner along with B&G Club serving the most vulnerable in our community.

I love this quote that is often spoken of at Mel Trotter Ministries – “People don’t become homeless when they run out of money. They become homeless when they run out of relationships.”

That is our job.

Being those relationships for the most vulnerable.

Not just “one-way relationships” but truly reaching out in community in a sustainable way.

Keep up the good work Patrick, Angie, Taylor and Team at B&G Club! B&G Club would love to partner with you if you want to learn more about the work they are doing in our community. I encourage you to check out their website.

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

New Rent Control Law is Trending in Places like California & Oregon, but is it a Proper Response to an Affordable Housing Crisis?

November 25, 2019 Leave a comment

Last month California announced that in order to combat a staggering growth in homelessness it will implement rent control laws effective January 1, 2020.

Ghent, Belgium

According to Market Watch:

The law limits rent increases to 5% each year plus inflation until Jan. 1, 2030. It bans landlords from evicting people for no reason, meaning they could not kick people out so they can raise the rent for a new tenant. And while the law doesn’t take effect until Jan. 1, it would apply to rent increases on or after March 15, 2019, to prevent landlords from raising rents just before the caps go into place.

Michigan’s Affordable Housing Crisis

California’s new law, as well as Oregon’s passage of the Rent Control Bill, and demands for other measures in Boston, is in response to an Affordable Housing Crisis that we have been experiencing across the U.S.

In fact, over two years ago a Rent Control Bill was introduced in the Michigan House of Representatives- you can check out my post on that here

That Bill made no traction. It died in the Local Government Committee.

The Bill was most certainly a response to Michigan’s Affordable Housing Crisis.

It has been several yeas since the Grand Rapids Chamber hosted an Issue Summit on the Housing Crisis in Grand Rapids.

The Summit brought speakers representing many community stakeholders, including representatives from Grand Rapids Urban League,Rockford ConstructionICCFMSHDA, and many local non-profits, including Mel Trotter MinistriesHQHeartside Ministries, on the lack of affordable housing, what is as Mayor Bliss emphasized, admittedly, “a complex issue”.

I have previously offered my own perspective, both as a lawyer representing real estate developers/investors, and as Board Chairman at Mel Trotter Ministries.

Private and Public Community Stakeholders Doing Their Part

A few years have gone by since Kent County was first acknowledged to have an affordable housing crisis. The crisis is still present. There many community stakeholders that are actively playing a role in being part of the solution: providing housing for the most vulnerable. I think of a company like Urbaneer and Bruce Thompson and applaud Bruce for his work. We need more companies like Urbaneer – providing innovative solutions to a housing crisis.

I also think of the non-profit sector – organizations like ICCF and Mel Trotter Ministries finding unique ways through social enterprise to house the most vulnerable.

Kent County has provided several unique tools, including the Eviction Prevention Program.

I don’t think rent control is the answer.

I believe we all have a role to play.

We should all ask ourselves: Am I working to build a better community?

E-mail: Jeshua@dwlawpc.com

www.dwlawpc.com

Twitter: @JeshuaTLauka

Fintech Charters No More?

November 5, 2019 Leave a comment

Good morning, all. It is Tuesday in Grand Rapids. Just last week I was in Belgium and snapped some photos of the beautiful city of Ghent, here is one of my favorite.

Ghent, Belgium

Last year I posted that the Office of the Comptroller of the Currency (OCC) announced it will begin accepting applications for national bank charters from fintech companies In July 2018.

Joseph M. Ottin, Comptroller of the Currency gave the following remarks concerning Fintech Companies:

“The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation’s economy,” 

Mr. Ottin also commented that accepting applications from Fintech Companies:

helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America.”

You can read the full press release here.

Fintech recap…

The prior OCC, Thomas Curry announced in 2017 that OCC would move forward with considering applications from financial technology (fintech) companies to become special purpose national banks.

“The OCC published a paper discussing the issues and conditions that the agency will consider in granting special purpose national bank charters.” You can check that paper out here

What’s made clear from the press release is that “[e]very application will be evaluated on its unique facts and circumstances.

Fintech Charter: Praise, Debate, Criticism and a Lawsuit.

The propriety of a Fintech charter has been supported by the Fintech community in general.

As previously reported by Crowdfund InsiderBrian Peters, Executive Director of Financial Innovation Now  “a public policy coalition comprised of Amazon, Apple, Google, Intuit and PayPal” stated;

“FIN believes that payments and lending regulation needs streamlining for the modern era. We commend the

OCC’s leadership and vision in driving this regulatory discussion. The OCC has rightly concluded that its approach must evolve to ensure that all American consumers and small businesses are empowered with better access to the benefits of financial technology.”

According to Crowdfund Insider  “Fintech Charter could benefit innovative financial firms that can provide superior services at a lower cost for both consumers and businesses.”

That being said, the propriety of such action by the OCC has been questioned by others, and officially sued by the Conference of State Bank Supervisors as an “unprecedented, unlawful expansion of the chartering authority”- check out the Press Release from the CSBS back in April of last year.

Fintech Charters Overturned by Federal Court.

Well it appears a federal court recently sided with the CSBS. I recently read an article by Attorney Daniel S. Cohen from K&L Gates informing that a Federal Court struck down the Fintech Charter.

Why Fintech Intrigues me – Purpose Driven.

Regardless of how the appellate courts ultimately rule on Fintech Charters, I’ve previously talked about why fintech is so intriguing.

I’ve highlighted some fintech companies doing unique things in the past, like Lemonade.

a. taking a risk doing something different (being an innovator);

b. disrupting business as usual;

c. for the good of others (being mission driven).

That’s social entrepreneurship at its finest.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka