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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

Real Estate Law Update: Published Court Case: the Scope of a Construction Lien and consequential damages.

September 11, 2019 Leave a comment

I took this photo today – flags at half mast in downtown Grand Rapids.

I will #NeverForget where I was – at the cafeteria in McDonel Hall @michiganstateu watching the horror on the T.V.

Thank you all who gave their lives and prayers to all who lost loved ones 18 years ago today.

Flags at half mast outside of DeVos Place, Downtown Grand Rapids, Michigan

Yesterday a published court decision came out that affects the scope of a construction lien. Check out TSP Services, Inc. v National Standard Company, et al

Update: On September 17, 2019 the Court Vacated its Prior decision and issued a new decision – see here

This case involves a breach of contract claim and a construction lien foreclosure claim.

The case went to arbitration and, according to the Opinion, “the arbitrator approved a lien for $782,469.05, which is $641,386.05 greater than the unpaid balance under the contract.” –

Wow!

The very first page of the Opinion gives you much of the information you need to know to understand the holding:

” Michigan law limits a construction lien to the amount of the contract less any payment already made. Although a party suing for breach of contract might recover consequential damages beyond the monetary value of the contract itself, those consequential damages cannot be subject to a construction lien. “

The construction lien act provides: “Each contractor, subcontractor, supplier, or laborer who provides an improvement to real property has a construction lien upon the interest of the owner or lessee who contracted for the improvement to the real property.” MCL 570.1107(1).

“A construction lien acquired pursuant to this act shall not exceed the amount of the lien claimant’s contract less payments made on the contract.” MCL 570.1107(1)

“Michigan’s construction lien act authorizes a lien up to the unpaid balance of the amount contracted. A lien that includes an amount for consequential damages flowing from, but otherwise outside of the four corners of the contract, exceeds the authorized amount of the act. “

To summarize – consequential damages are not allowable under a construction lien.

consequential damages are a permissible damage under contract law – but you won’t get them added to your lien to foreclose on. You will need to find some other way to recover under a judgment.

A good question to ask: what happens if you file a lien and indicate too much?  Is your lien void? Typically. no.

In order to void a construction lien that is filed in an excessive amount a showing of bad faith is required.  Tempo Inc v Rapid Elec Sales & Services, Inc, 132 Mich App 93; 347 NW2d 728 (Mich Ct App 1984).  “A lien is not lost because the amount claimed is excessive, unless the claim was made in bad faith. In such instances, the proper remedy is to reduce the amount of the lien to the correct amount.” Id

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

http://www.dwlawpc.com

Business Law Update: Business Owners: Bill Would Restrict Non-Competition Agreements with Employees.

September 9, 2019 3 comments
Cedarville, Michigan

I hope you all had a great Labor Day Weekend. I spent the long holiday weekend with my family in Michigan’s Upper Peninsula.

On September 4, 2019, Senate Bill 0483 was introduced in the Michigan Senate.

If passed it would limit the enforceability of a non-competition agreement signed between an employer and an employee.

In my opinion – in some pretty significant ways.

I have spent several articles discussing the legal consequences/enforceability issues of non-competes.

It appears the Legislature is wrestling with the question posed by Nick Manes previously with MIBiz in an article a few years back: “Are noncompetes a barrier to growth?

You can check out the text of the bill here

The Bill was referred to the committee on Government Operations.

The Bill has a few key components to it:

1. Require Employers to follow a Specific Procedure prior to executing a non-compete.

The Bill would only permit Employers to execute a non-competition agreement if the Employer followed a procedure intended to notify the Employee of the requirement of signing a non-compete as a condition of employment.

(A) INFORMED THE PROSPECTIVE EMPLOYEE IN WRITING OF THE REQUIREMENT AT OR BEFORE THE TIME OF THE INITIAL OFFER OF EMPLOYMENT.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

http://www.dwlawpc.com

(A) Informed the prospective employee in writing of the requirement or before the time of the initial offer of employment;

(B) Disclose the Terms of the Non-Compete in writing; and

(C) Post the Text of the Law at the Worksite in a CONSPICUOUS LOCATION

2. Non-Compete unenforceable if the Employee is a “low wage” worker.

Defined generally as $15.00/hr or $31,000 annually.

3. Voids Certain Provisions in a Non-Compete – shifts the burden to Employer.

The Bill also has some teeth in it for Employees, including:

  1. Prohibits an Employer from including a clause that states a different state’s laws control the Agreement – this would be an obvious attempt to circumvent the prohibition of non-compete against “low wage” workers;
  2. Gives the Attorney General power to prosecute a violation of the Act;
  3. Automatically places the Burden on the Employer to prove that the Non-Compete was reasonable, as to “scope, duration, time limit.”
    1. Moreover, if a Court limits the non-compete in any respect, the employee is entitled to recover attorney fees.

Wow. This bill has a lot of bite to it – particularly the fee shifting mechanism if a court limits a non-compete in any respect. My first thoughts – if this Bill does come out of Committee, I can’t imagine it will look the same as its current version.

I understand the legislature’s interest in protecting “low wage workers” from unreasonable restrictions. Check out my prior post on the subject of Jimmy John’s non-competes.

However, in my opinion the restrictions as written places an enormous burden on the employer to narrowly tailor the non-compete, to a judge’s definition of “reasonableness”. Otherwise, like I said, the fee shifting provision is a huge penalty.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

http://www.dwlawpc.com

Detroit Startup Week Kicks Off – Schedule Now Available, Includes Legal Workshops

Today starts art festival in Grand Rapids – I took this photo just minutes ago.

Summer is coming fast and so is Detroit Startup Week. Scheduled from June 18-22.

6.1

According to its website, Startup week is:

“A week long celebration of Detroit’s entrepreneurs. Volunteer-led and completely free for attendees, we are aiming to create a community driven event that builds a stronger startup ecosystem. Startup Week is held in dozens 

of cities around the world.”

Crain’s Detroit reported  that the venue will be moved to outdoors where a crowd of 8,000 – 10,000 is expected, up from last year’s 6,500.

Crain’s reports that Startup week will consist of similar “weeklong collection of panel discussions, speeches, activities, networking and competitions is bringing back its women-tailored entrepreneur events.”

 

The Schedule is Now Available

Check out the great workshops and events for entrepreneurs which will take place in Detroit in the coming weeks.

Last year the week kicked off with Detroit’s Small Business Legal Academy.

 

This year there are several types of legal workshops including:

  • Social Enterprise/non-profit.

Social Enterprise is definitely a trending area in Michigan.

 

I think it is no secret – that startup businesses would do well to get some basic legal  during their business startup

 

I had a client send me this e-mail, below (unprompted) which I was given permission to share – it is extremely on point:

 

“I don’t think you understand how valuable your assistance is. A small guy like me, without you, would sign whatever they put in front of me and get into big trouble because of that someday.  The problem is that most small businesses don’t understand how critical legal review is either.” – client

 

The reality is that there are a host of legal areas that can turn into pitfalls for startup businesses – over the years I have written on quite a few of those areas, including:

Terms and Conditions in Contracts

Non-Competition Agreements

Entity Formation and Personal Liability

Personal Guarantees

 

 

Cash flow is a barrier for startups. This doesn’t mean you should avoid educating yourself on the legal issues affecting your business.

Take advantage of the resources available.

Consult with an attorney – Particularly law firms friendly to startup businesses.

 

e-mail: Jeshua@dwlawpc.com

www.dwlawpc.com

twitter: @JeshuaTLauka

Small Businesses and Startups: What you Don’t Know Can Hurt You.

It is truly starting to feel like summer in downtown Grand Rapids! This was the scene today from my office.

5.17.18

 

Summer is coming fast and so is Detroit Startup Week. Scheduled from June 18-22.

 

According to its website, Startup week is:

“A week long celebration of Detroit’s entrepreneurs. Volunteer-led and completely free for attendees, we are aiming to create a community driven event that builds a stronger startup ecosystem. Startup Week is held in dozens of cities around the world.”

 

Crain’s Detroit reported this week that the venue will be moved to outdoors where a crowd of 8,000 – 10,000 is expected, up from last year’s 6,500.

Crain’s reports that Startup week will consist of similiar “weeklong collection of panel discussions, speeches, activities, networking and competitions is bringing back its women-tailored entrepreneur events.”

Last year the week kicked off with Detroit’s Small Business Legal Academy.

I think it is no secret – that startup businesses would do well to get some basic legal  during their business startup

 

I had a client just yesterday send me this e-mail, below (unprompted) which I was given permission to share – it is extremely on point:

 

“I don’t think you understand how valuable your assistance is. A small guy like me, without you, would sign whatever they put in front of me and get into big trouble because of that someday.  The problem is that most small businesses don’t understand how critical legal review is either.” – client

 

The reality is that there are a host of legal areas that can turn into pitfalls for startup businesses – over the years I have written on quite a few of those areas, including:

Terms and Conditions in Contracts

Non-Competition Agreements

Entity Formation and Personal Liability

Personal Guarantees

 

Cash flow is a barrier for startups. This doesn’t mean you should avoid educating yourself on the legal issues affecting your business.

Take advantage of the resources available.

Consult with an attorney – Particularly law firms friendly to startup businesses.

 

e-mail: Jeshua@dwlawpc.com

www.dwlawpc.com

twitter: @JeshuaTLauka