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WHY DO I NEED AN LLC OPERATING AGREEMENT?

A limited liability company (“LLC”) is a popular type of U.S. business entity that is easy to form and manage. As a cross between a partnership and corporation, an LLC provides the benefit of both pass-through taxation and limited liability. While an LLC has lower state-required recordkeeping formalities than a partnership or corporation, when forming an LLC, business owners should take time to prepare a well written LLC operating agreement. This document should not only control how the LLC entity is structured and managed but also spell out the terms of relationship among its members / owners. This article answers questions about why having  an LLC operating agreement is important and what terms it should contain.

What Is an LLC Operating Agreement?

An LLC operating agreement is a document that establishes the rules, structure, management and operation of each specific limited liability company, based on the specific needs of its members. LLC operating agreement is similar to articles of incorporation that govern the operation of a corporation. It helps LLC business owners’ asses the risk of their business and mitigate important issues before they arise. It should outline the structure for major financial and functional decision-making. Once signed, the document acts as a binding contract between the members that serves as a reference document during the life of the company.

Do I Need To File My LLC Operating Agreement With The State?

Unlike certificate of formation or articles of organization, an LLC operating agreement does not need to be filed with the state. Certificates of formation or articles of organization are public documents that are filed with the state to form the LLC. They contain important but basic information such as company name, whether it will be member or manager managed, the name and address of the registered agent and the name of the LLC organizer. By contrast, LLC operating agreement is a private document containing detailed information that is often confidential and may not be desired by the LLC owners to be shared with the public.

Am I Required By Law To Have An Operating Agreement For My LLC?

Although writing an operating agreement is not a mandatory requirement for most states, it is crucial to have a written operating document for members working through a limited liability company. Without a written operating agreement, management and ownership of the business will be handled in accordance with state’s default LLC rules. Most people do not want to run their business only according to the default rules of their state. While state default provisions address some operations of an LLC, a well written operating agreement can override statutory presumptions allowing owners to govern their internal operations according to their own rules and specifications. For example, in the absence of an operating agreement, some states may require that all profits in an LLC be shared equally by each partner, regardless of their respective capital contributions. A written LLC operating agreement should protect each individual member’s investment and reduce the risk of issues or misunderstandings that can arise between partners. LLC operating agreement should outline governance procedures, such as meetings and voting, specify the rules of succession and transfer of ownership interests.

 Does a Single Member LLC Need an Operating Agreement?

Some states, including New York, Missouri, and California, require a limited liability company to have an operating agreement, even if it only has one member. When not required, a written agreement is strongly encouraged for protection of the member from various problems the LLC may encounter, including legal liability.

What Should be Included in an LLC Operating Agreement?

A typical LLC operating agreement is a 10-20-page contract document that provides guidelines for company operation and rules for the LLC members to follow. It should contain some of the following provisions:

• Whether the LLC will be managed by its members or managers
• How the LLC chooses to be taxed, how long it intends to operate, and where it is located
• How the management team will be selected
• Who and how will be making business decisions
• How meetings will be held and votes made (and what percentage will be required for approval of business decisions)
• The duties and responsibilities of the LLC members or managers
• Appointment of LLC officers and their duties and responsibilities
• Allocation of profits, losses, and tax liabilities
• The process of transfer of ownership interests
• The process of bringing in additional members
• Buyout and buy-sell provisions (when a member wants to leave and sell their share)
• Succession plans (including what will happen in the event of a member’s death)
• Events that could trigger the dissolution of the LLC
• When and how the LLC will be dissolved
• List of each member’s ownership interest

Can I Write My Own LLC Operating Agreement?

It is best to consult an experienced attorney and tax advisor for help with the financial and legal aspects of your LLC operating agreement. If you want to try drafting your own operating agreement, be sure to have a business lawyer review it before the members sign it. Avoid free templates because they may contain inappropriate jurisdictional requirements, omit critical terms and fail to properly address the desires of LLC members.  Or worse, a free template could set forth the members’ rights in ways the members do not want. Some states require the use of specific terms or information that may be missing from a free template, leaving you open to liability. For example, failure to include detailed information and terms for resolution of business disputes or member disagreements may result in costly litigation.

Can an LLC Operating Agreement Be Amended?

The process of amending an LLC operating agreement should be provided in the agreement itself. When not stated in the agreement, the amendment process will be determined by the default rules of the LLC’s state of formation. Procedure for amending LLC operating agreements may vary. Some LLC owners may require amendment to be made by a unanimous vote of all members. It is also possible for an LLC to have an operating agreement that cannot be amended.

Key Takeaways

• An LLC operating agreement is a legal document that contains the terms of operations of a limited liability company
• It gives the business a plan to follow and brings clarity to its operation and management
• In some states, the operating agreement is required as part of establishing the business entity
• One size does not fit all LLC operating agreements
• An LLC without an operating agreement will be governed by the default state rules

Once your agreement is signed, keep a copy of it in a corporate notebook with your other important business documents. Don’t forget to review it frequently to ensure it still reflects the needs of the members and provides specific operational guidelines that take precedence over the default provisions of state law.

Signing an LLC operating agreement should be made after a consultation with an attorney and a tax adviser because it involves consideration of issues regarding tax, liability, management, continuity, transferability of ownership interests, and formality of operation. Business attorneys at FILIPPOV LAW GROUP, PLLC can help you prepare a well written operating agreement that meets the needs of your business and wishes of your LLC owners. Email us at info@filippovlaw.com with your questions or to schedule an appointment.

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This article is intended as an information source for existing and future clients of FILIPPOV LAW GROUP, PLLC and should not be construed as legal advice. Readers should not act upon information contained in this post without professional counsel. The materials presented in our blog, “tweets” and legal articles may not reflect the most current legal developments, verdicts, or settlements. These materials may be changed, improved, or updated without notice. FILIPPOV LAW GROUP, PLLC is not responsible for any errors or omissions in the content of this site or for damages arising from the use or performance of this site under any circumstances.

© Copyright 2022 FILIPPOV LAW GROUP, PLLC

Bulletproof Independent Contractor Agreements

One of the most common issues facing businesses is how to prepare an ironclad agreement with independent contractors. Many businesses use independent contractors to perform critical operations that enable the business to run and grow.

To protect your company’s future, you must have written agreements in place with each independent contractor you hire. Not only do they provide legal protection, but they also create a sense of professionalism and ensure an efficient and streamlined process to complete the project.

The key terms to be included in the independent contractor agreement include:

• Full Legal Identity of Both Parties,
• Detailed description of the services being provided by the independent contractor
• Clear description of payment terms, including fixed job or project fees, how and when payment is rendered
• Scope of the Project, if applicable, including project timeline with deadlines
• Applicable industry standards
• Responsibilities of the Contractor
• Description of materials, supplies and equipment to be furnished by the contractor
• Declaration that agreement constitutes an independent contractor relationship
• Declaration that an independent contractor is self-employed and is not an employee of the company
• Declaration that the independent contractor has the proper licenses and permits to perform the services in question
• Declaration that the independent contractor is a highly skilled professional who does not require additional training
• Declaration that the independent contractor will perform services in compliance with applicable industry standards, policies and procedures
• Declaration that the independent contractor is responsible for paying its own state and federal income taxes, medicare, social security, and other taxes
• Declaration that the independent contractor will not receive any benefits your business provides its employees
• Declaration that the independent contractor carries the necessary liability and worker’s compensation insurance
• An ownership of intellectual property clause protecting business IP, designating contractor’s services as work for hire, and assigning rights to the contractor’s work product to the business
• Indemnification clause that states the independent contractor assumes liability for any violation of patent, trademark or intellectual property infringement
• Indemnification clause that states the independent contractor assumes liability for any personal injury or property damage
• Description of termination and renewal terms of the agreement
• Dispute resolution clause
• Statement regarding the applicable state law and venue for dispute resolution

Call our office to schedule your comprehensive legal audit, so we can advise you on the proper use of contracts to protect your business through effective risk management.

Should a dispute arise between you and your contractor, a written and signed independent contractor agreement is the most ironclad proof of your relationship. Contract attorneys at Filippov Law Group, PLLC can help you develop a bespoke written independent contractor agreement precisely matched with your business needs, as well as other written agreements and contracts you should have in place with your employees, vendors and client. Call us at (832) 305-5529 or email our managing member directly at info@filippovlaw.com to schedule an appointment.

This blog is intended as an information source for existing and future clients of FILIPPOV LAW GROUP, PLLC and should not be construed as legal advice. Readers should not act upon the information contained in this blog without professional counsel. The materials presented in our blog, “tweets” and legal articles may not reflect the most current legal developments, verdicts, or settlements. These materials may be changed, improved, or updated without notice. FILIPPOV LAW GROUP, PLLC. is not responsible for any errors or omissions in the content of this site or for damages arising from the use or performance of this site under any circumstances. © Copyright 2016 FILIPPOV LAW GROUP, PLLC

The H-1B Visa Requirements

REQUIREMENTS OF THE H-1B VISA IN THE UNITED STATES:

The H-1B is a non-immigrant visa in the United States which allows U.S. employers to temporarily employ foreign workers in specialty occupations for professional-level jobs.

Below are some key requirements you must fulfill to apply for an H-1B Visa. For each requirement, you must include some forms of evidence in support of your petition.

Requirement 1 – You must have an employer-employee relationship with the petitioning U.S. employer.

A valid employer-employee relationship is determined by whether the U.S. employer may hire, pay, fire, supervise or otherwise control the work of the H-1B worker. Usually the company owner or petitioning organization can establish a valid employer-employee relationship, if the facts show that the petitioning entity has the right to control the beneficiary’s employment.

Requirement 2 – Your job must qualify as a specialty occupation by meeting one of the following criteria: 

 A bachelor’s degree or higher degree or its equivalent is normally the minimum requirement for the particular position;

The degree requirement is common for this position in the industry, or the job is so complex or unique that it can only be performed by someone with at least a bachelor’s degree in a field related to the position;

The employer normally requires a degree or its equivalent for the position; or

The nature of the specific duties is so specialized and complex that the knowledge required to perform the duties is usually associated with the attainment of a bachelor’s or higher degree.

Requirement 3 – Your job must be in a specialty occupation related to your field of study.

The regulations define a “specialty occupation” as requiring theoretical and practical application of a body of highly specialized knowledge in a field of human endeavor[1] including but not limited to biotechnology, chemistry, architecture, engineering, mathematics, physical sciences, social sciences, medicine and health, education, law, accounting, business specialties, theology, and the arts, and requiring the attainment of a bachelor’s degree or its equivalent as a minimum (with the exception of fashion models, who must be “of distinguished merit and ability”).

Requirement 4 – You must be paid at least the actual or prevailing wage for your occupation, whichever is higher.

The prevailing wage is determined based on the position in which you will be employed and the geographic location where you will be working (among other factors). The U.S. Department of Labor (DOL) maintains a database with applicable current prevailing wage levels based on occupation and work location.

Requirement 5 – An H-1B visa number must be available at the time of filing the petition, unless the petition is exempt from numerical limits.

The H-1B visa has an annual numerical limit, or cap, of 65,000 visas each fiscal year. The first 20,000 petitions filed on behalf of beneficiaries with a U.S. master’s degree or higher are exempt from the cap. Additionally, H-1B workers who are petitioned for or employed at an institution of higher education (or its affiliated or related nonprofit entities), a nonprofit research organization, or a government research organization are not subject to this numerical cap.  Cap numbers are often used up very quickly, so it is important to plan in advance if you will be filing for an H-1B visa that is subject to the annual H-1B numerical cap. The U.S. government’s fiscal year starts on Oct. 1. H-1B petitions can be filed up to 6 months before the start date, which is generally April 1 for an October 1 start date.

Congressional yearly numerical cap and exemptions.

To determine whether H-1B Petition is subject to the regular congressionally mandated cap of 65,000 the United States Citizenship and Immigration Services (USCIS) uses the information provided in Sections 2 and 3 (or Part C) of the H-1B Data Collection and Filing Fee Exemption Supplement. USCIS has already reached the congressionally mandated H-1B cap for fiscal year (FY) 2016. They also have received more than the limit of 20,000 H-1B petitions filed under the U.S. advanced degree exemption. USCIS will continue to accept and process petitions that are otherwise exempt from the cap. Petitions filed on behalf of current H-1B workers who have been counted previously against the cap, and who still retain their cap number, will also not be counted toward the congressionally mandated FY 2016 H-1B cap.

Free Trade Agreements carve out 1,400 H-1B1 visas for Chilean nationals and 5,400 H-1B1 visas for Singapore nationals. However, if these reserved visas are not used, then they are made available in the next fiscal year to applicants from other countries.

USCIS starts accepting applications on the first business day of April for visas that count against the fiscal year starting in October. USCIS will begin accepting H-1B petitions that are subject to the FY 2017 cap on April 1, 2016. You may file an H-1B petition no more than six months before the employment start date requested for the beneficiary.

Duration of stay.

The duration of stay on an H-1B visa is three years, extendable to six years. An exception to maximum length of stay applies in certain circumstances

If a visa holder has submitted an I-140 immigrant petition or a labor certification prior to their fifth year anniversary of having the H-1B visa, he is entitled to renew their H-1B visa in one-year or three-year increments until a decision has been rendered on their application for permanent residence.

If the visa holder has an approved I-140 immigrant petition, but is unable to initiate the final step of the green card process due to their priority date not being current, he may be entitled to a three-year extension of their H-1B visa.

The maximum duration of the H-1B visa is ten years for exceptional United States Department of Defense project related work.

H-1B holders who want to continue to work in the U.S. after six years, but who have not obtained permanent residency status, must remain outside of the U.S. for one year before reapplying for another H-1B visa. Despite a limit on length of stay, no requirement exists that the individual remain for any period in the job the visa was originally issued for. This is known as H-1B portability or transfer, provided the new employer sponsors another H-1B visa, which may or may not be subjected to the quota. Under current law, H-1B visa has no stipulated grace period in the event the employer-employee relationship ceases to exist.

Application process.

The process of getting an H-1B visa has three stages:

1)         The employer files with the United States Department of Labor a Labor Condition Application (LCA) for the employee, making relevant attestations, including attestations about wages (showing that the wage is at least equal to the prevailing wage and wages paid to others in the company in similar positions) and working conditions. Employer must submit evidence of the beneficiary’s education credentials at the time of filing.

2)         With an approved LCA, the employer files a Form I-129 (Petition for a Nonimmigrant Worker) requesting H-1B classification for the worker. This must be accompanied by necessary supporting documents and fees.

3)         Once the Form I-129 is approved, the worker may begin working with the H-1B classification on or after the indicated start date of the job, if already physically present in the United States in valid status at the time. If the employee is outside the United States, he/she may use the approved Form I-129 and supporting documents to apply for the H-1B visa. With a H-1B visa, the worker may present himself or herself at a United States port of entry seeking admission to the United States, and get an Form I-94 to enter the United States. Employees who started a job on H-1B status without a H-1B visa because they were already in the United States still need to get a H-1B visa if they ever leave and wish to reenter the United States while on H-1B status.

Dependents of H-1B visa.

H-1B visa holders can bring immediate family members (spouse and children under 21) to the U.S. under the H4 Visa category as dependents. An H4 Visa holder may remain in the U.S. as long as the H-1B visa holder retains legal status. An H4 visa holder is not eligible to work or get a Social Security number (SSN).[9] However, a DHS ruling made on Feb 24, 2015 provides certain H4 visa holders with eligibility to work, starting May 26, 2015.  An H4 Visa holder may attend school, get a driver’s license, and open a bank account in the U.S. To claim a dependent on a tax return or file a joint tax return, the dependent must obtain an Individual Tax Identification Number (ITIN), which is only used for tax filing purposes.

The experienced attorneys at FILIPPOV LAW GROUP, PLLC can alleviate your process of obtaining an H-1B Visa. Our attorneys offer knowledgeable advice and provide excellent immigration services when dealing with Immigration and Naturalization Service. If you are looking into obtaining an H-1B Visa or have questions regarding obtaining an H-1B Visa, call us at (832) 305-5529 or email our managing member info@filippovlaw.com.

This blog is intended as an information source for existing and future clients of FILIPPOV LAW GROUP, PLLC and should not be construed as legal advice. Readers should not act upon information contained in this blog without professional counsel. The materials presented in our blog, “tweets” and legal articles may not reflect the most current legal developments, verdicts, or settlements. These materials may be changed, improved, or updated without notice. FILIPPOV LAW GROUP, PLLC is not responsible for any errors or omissions in the content of this site or for damages arising from the use or performance of this site under any circumstances.

© Copyright 2016 FILIPPOV LAW GROUP, PLLC

The Importance of an Independent Contractor’s Agreement

The use of independent contractors, typically a sole proprietor or small business, has significantly increased in recent years. Independent contractors allow companies to outsource work without the risk of investing the time and resources they would for an employee. Use of independent contractors continues to rise as businesses respond to health insurance mandates, a changing economy, and growing compensation demands. Independent contractors do not require overhead costs, overtime pay, workers’ compensation insurance, vacation pay, unemployment insurance, or payroll taxes.

The prospects for independent contractors for 2016 are expected to increase and double by 2020. Given the expected growth rate for 2016 and beyond for independent contractors, it is important for companies to prepare appropriate Independent Contractor’s Agreements. Furthermore, it is still vital to avoid erroneously classifying employees as independent contractors or to evade payroll taxes and other employment-related expenses.

Misclassification challenges can result in significant liabilities and penalties under state and federal laws. Specific examples include state and federal income tax payments, Social Security, Federal Insurance Contributions (FICA) taxes, Medicare and Federal Unemployment Tax Act (FUTA) taxes. Penalties include failure to withhold and pay taxes, liability for violating the Fair Labor Standards Act (FLSA), failure to pay minimum wages, failure to pay overtime, liability for employee benefits, vacation, sick pay, stock options, pension plan contributions, and vesting.

For example, Uber, the company who digitalized on-demand transportation, is currently facing a class action lawsuit that stemmed from one (1) misclassification challenge. US District Judge Edward Chen sided with an earlier decision that ruled against Uber and opened the case to class-action status. Now, Uber faces a jury trial to resolve this class-action lawsuit in California regarding misclassifying their drivers as independent contractors.

Because of these stringent regulations, companies that utilize independent contractors need to protect themselves from inadvertently misclassifying these entities and facing a class-action lawsuit similar to Uber. Creating and implementing an Independent Contractor’s Agreement is imperative.

Independent Contractor’s Agreement

It is imperative to implement a written contract between the Company and the independent contractor. The contract should clearly state the nature of the independent relationship between the parties and expectations for completion of the project. Also, having a written contract allows for customization for each Independent Contractor the Company retains. Customizable contracts protect the Company by:

• Defining the parameters and expectations for all parties involved.
• Defining the nature of the business relationship—clearly stating that the independent contractor is not an employee.
• Form agreements hold little credence in a misclassification lawsuit.
• Customization provides opportunities for the addition of specific provisions. For example, the inclusion of a provision that requires refraining from unfair competition.

The Contracts Limits

All contracts have limits; an Independent Contractor’s Agreement is no different. In the event of a dispute, the contract can withstand the scrutiny of a court if executed as written. The court scrutinizes the implied relationship per the contract and the reality of the relationship based upon the facts each party provides. However, if the duties of an Independent Contractor resemble that of the Company’s employee, the court may consider the contract to be invalid.

Certain industries imply the presumption that they only hire employees, posing a problematic assumption for the Company to overcome. If the Company has links to one of these industries, consider the options and have a well-written contract drawn up before hiring the Independent Contractor.

Legal Considerations

Write Independent Contractor’s Agreements with the intention that the Internal Revenue Service (IRS) or an associated agency may be reviewing the contract for classification purposes. Writing an Independent Contractor’s Agreement with this view in mind, provides an asset in the event of a dispute or misclassification challenge. In the case of a misclassification challenge, the IRS looks at multiple factors grouped into three (3) distinct categories:

Control

• The level of behavioral control that was exerted over the independent contractor by the Company.
• Whether the Company had the right to control and direct job performance of the independent contractor.

Financial control

• The reimbursement or payment of business expenses by the Company.
• The Company’s role in the Independent Contractor’s decision of seeking out additional employment opportunities.
• The Company’s payment method to the Independent Contractor—lump sum, weekly, bi-weekly, or at project milestones.

Relationship

• Definition of the relationship between the Company and the Independent Contractor within the written contract.
• If a defined end was projected or permanency was implied in the contract.
• Expected work and work performed resulting from the relationship.
• The role the Company played in the methods and schedule of the Independent Contractor completing the project.
• If the work performed by the Independent Contractor is a crucial aspect of the Company’s business.

If the Department of Labor (DOL) brings the misclassification challenge, the “economic realities” test is utilized to determine the status of the independent contractor. The “economic realities” test looks at the definition of employ, which includes “to suffer or permit to work.” The test determines whether the Independent Contractor is economically dependent upon the Company or purposely in business. However, if the Equal Employment Opportunity Commission (EEOC) brings the misclassification challenge, the Independent Contractor is considered an employee and a discrimination challenge asserted. As a result, the Company faces scrutiny in the manner and method of how the Independent Contractor conducted his duties. Did the Company exercise too much control?

In summary, writing an Independent Contractor’s Agreement to meet the standards of a particular test or means of measure is ill advised. An Independent Contractor’s Agreement should reflect a business relationship, where each party is on equal footing. Most importantly, companies need to consider the element of control. The higher the degree of control exerted by the Company over an Independent Contractor results in a decreased chance to defend successfully against a misclassification challenge. The IRS considers the amount of control the Company exerts over Independent Contractor’s to be a critical element in their decision process.

As a rule, never prepare a contractor’s agreement without a lawyer’s review and approval. The FILIPPOV LAW GROUP, PLLC provides sophisticated legal services and business advice to individuals and businesses of all sizes, ranging from start-ups to Fortune 500 companies. Our attorneys are experienced in negotiating, drafting and reviewing independent contractor and vendor agreements with an eye towards the client’s best interest. If you need an independent contractor or vendor agreement or want to consider your legal options, call us at (832) 305-5529 or email our managing member info@filippovlaw.com.

This blog is intended as an information source for existing and future clients of FILIPPOV LAW GROUP, PLLC and should not be construed as legal advice. Readers should not act upon the information contained in this blog without professional counsel. The materials presented in our blog, “tweets” and legal articles may not reflect the most current legal developments, verdicts, or settlements. These materials may be changed, improved, or updated without notice. FILIPPOV LAW GROUP, PLLC. is not responsible for any errors or omissions in the content of this site or for damages arising from the use or performance of this site under any circumstances. © Copyright 2015 FILIPPOV LAW GROUP, PLLC

Handling Employee Layoffs as a Business Owner

HOW TO IMPLEMENT A LAYOFF

Employers often think of layoffs as a cost-cutting strategy. However, business owners can frequently employ a variety of strategies—discussed in my blog on avoiding a layoff—to help them stay profitable and retain employees during difficult economic times. Nevertheless, when you exhaust all available options for keeping your workforce intact, downsizing can quickly become a complicated task. Careful planning and methodology implementation to protect both the employer and the employee is required.

Plan

To implement a layoff requires planning. While employers lay off workers because there isn’t enough work or as a cost-cutting measure, layoffs create potentially significant legal costs if carelessly handled. Knowing the difference between an illegal layoff and an unfair layoff can help your company decide how to handle a layoff in a legal and ethical manner. Being laid off is an emotional event that can leave employees feeling wronged, especially if they believe their treatment was unfair, and/or they believe management is not sharing the company’s financial pain. The company should exude empathy and fairness when alerting personnel of the layoff.

Create a Method

The best way to minimize legal exposure when implementing a reduction in force is to create a record of decision-making and implementation processes. There should be a written format, detailed methods, and a structured guideline. In the case of a mass layoff, employees must be provided with a written, dated notification. There should be a business justification for the layoff, for example, the loss of a major contract. Employers must document how the reason for the layoff affects business and why particular employees must be laid off. The layoff notice should provide employees ample time to plan and prepare for the layoff.

Consider Severance Pay

While there is no legal requirement in the Fair Labor Standards Act to provide severance pay, employees will frequently offer it based on the length of employment and employee’s contribution to the business. When and how you provide the final paycheck is an important factor that requires consideration.

Coordinate with Human Resources

Work directly with Human Resources throughout the process to help the company navigate and foresee the adverse impact of the layoff. Some employees sign a written employment agreement that guarantees employment for a certain period. If such an employee is laid off, the employer could be liable for breach of contract and resulting penalties. In addition, collective bargaining agreements may also limit an employer’s freedom to lay off employees without paying compensation.

Consult an Attorney

Every potential or planned layoff creates a number of critical, and possibly expensive, legal issues. Remedies can include job reinstatement and payment of back wages. Five major federal laws protect laid-off employees. States have specific laws addressing employment, to ensure a layoff is legal, check with a local attorney. Consult the company’s in-house counsel or other designated company attorney throughout the entire process to protect the company from costly litigation and to ensure no laws are inadvertently broken.

Follow Federal and State Laws

Employment in most states is “at will,” meaning an employee can quit, or the company can fire an employee without cause. However, companies still have to follow federal and state employment laws covering issues such as discrimination, whistleblowing, and layoff notices. The Department of Labor (DOL) administers and enforces more than 180 federal laws covering many workplace activities. For example, U.S. Equal Employment Opportunity Commission (EEOC) regulations prohibit employers who target particular groups by laying them off in disproportionate numbers. Some of the EEOC protected groups include race, gender, nationality, skin color, disability, or age (over 40). Other issues that can create legal liability for employers when planning and carrying out layoffs include retaliation, worker’s compensation claims, WARN Act, USERRA, FMLA, COBRA, poor documentation, inadequate document retention, employees protected by whistleblower laws, and poorly crafted severance agreements and waivers.

Company Image

Following a specified procedure will save the company money and promote a positive image to competitors who hire your former employee. Laid-off employees are, essentially, great employees. Their future employer will see a quality, high-performing employee that your company trained. Therefore, utilizing appropriate lay off methods will have a positive effect on your company’s image.

In conclusion, the company must allow a long-term view towards the future to guide their decisions for planning and implementing a layoff. A well-planned layoff will enable your business to bounce back when it once again needs to hire skilled talent. In addition, understanding the difference between laying an employee off and terminating an employee will serve the company’s long-term view of maintaining a professional image to its competitors. To learn more about the difference between termination and a layoff, please read my blog about termination.

FILIPPOV LAW GROUP, PLLC provides sophisticated legal services and business advice to individuals and businesses of all sizes, ranging from start-ups to Fortune 500 companies. Our attorneys are experienced in negotiating, drafting and reviewing employment contracts and other commercial agreements with an eye towards the client’s best interest. If you need to consider your legal options, call us at (832) 305-5529 or email our managing member victoria@filippovlaw.com. For questions concerning your businesses employee layoffs, contact a business attorney at Filippov Law Group, PLLC by calling (832) 305-5529.

This blog is intended as an information source for existing and future clients of FILIPPOV LAW GROUP, PLLC and should not be construed as legal advice. Readers should not act upon information contained in this blog without professional counsel. The materials presented in our blog, “tweets” and legal articles may not reflect the most current legal developments, verdicts, or settlements. These materials may be changed, improved, or updated without notice. FILIPPOV LAW GROUP, PLLC is not responsible for any errors or omissions in the content of this site or for damages arising from the use or performance of this site under any circumstances.

© Copyright 2015 FILIPPOV LAW GROUP, PLLC

Averting Employee Layoffs as a Business Owner

In the current economic downturn, when companies of all sizes are searching for different ways to cut costs, a layoff is often one of the first tactics considered. However, alternative methods of labor cost reduction can help businesses avoid a reduction in force. Considering alternative options also provides employer’s evidence that alternatives to layoffs were considered or tried. One thing to keep in mind when questioning the pros and cons of a layoff is the possibility of being short-staffed, the consequent need to rehire and train new staff when the economy recovers, and the cost of losing valuable institutional memory. Here are some lay of the alternatives:

OPTIONS TO AVOID LAYOFF

Shared Work Program

The Shared Work Program is unique to Texas employers and provides an alternative to layoffs during an economic downturn. The program allows companies to reduce normal weekly hours for a minimum of 10 percent of their targeted employees by at least 10-40 percent. Lost wages are supplemented with partial unemployment benefits. Shared Work program offers flexibility by allowing the company to:

• Implement multiple different plans for each department affected,
• Return workers to full-time status for short periods of time without affecting the plan,
• Layoff workers who were originally in the plan and still maintain the plan as long as the requirements are still met.

Workweek Alternatives

Utilize an alternative workweek such as 4-day/10 hour days or 3-day/12 hour days, with no overtime. The company has the option to propose alternate work schedules to different “work units” within the company. Alternative workweeks require notices before implementation.

Go Virtual

Implementing a virtual office that utilizes software packages allows managers to videoconference with employees or view their work progress, along with a sound policy dictating expectations and responsibilities of employees is a new trend to cut costs. The company should keep in mind the use of personal devices, reporting mechanisms, timekeeping procedures, length of the arrangement, compensation, and OSHA obligations when considering a virtual office.

Take a Break

Temporary shutdowns, forced vacation, and/or offering extra days of unpaid leave are all viable options, but before considering this, the company must review collective bargaining agreements and relevant policies. Exempt employees cannot work for the length of the temporary shutdown or else they are entitled to their full workweek pay. Also, exempt employees cannot be forced to use their vacation time unless they receive proper notice of the shutdown—90 days.

Freeze the Nonessentials

Utilize hiring freezes, wage reductions or freezes, cut bonuses, cut unnecessary travel, postpone non-vital equipment upgrades, and cancel office perks and company gatherings. When implementing such measures be sure to be fair and avoid any partiality. Always review policies before implementing new measures. You can also offer retirement packages to employees close to retirement.

Offer Retirement Packages

This provides employees who desire to retire the opportunity to do so now. It also serves the company as a voluntary layoff and eases the pressure to reduce personnel. One downside to offering retirement packages is that the company has no control over who will take advantage of the opportunity to retire and who will not.

Ask For Help

Request employee suggestions for reducing cost and increasing productivity—this will increase morale and ease insecurity. In addition, request new estimates from suppliers and their competitors to ensure you are not overspending on supplies. Your supplier may be able to assist you in cutting costs and saving money.

Bring an Intern

Replace part-time staff and contractors with retired employees who already know the company practices and/or interns. Work with local colleges/universities to establish a guideline to create for-credit internships, thus reducing company costs while pro-actively marketing your company image by turning out future talent trained by your company.

Insource Jobs

Bring in an employee from a department that is not busy to assist the department in need of assistance. This will boost employee loyalty and morale. Not to mention the positive impact it will have on your company’s image.

Swap the Coworker

Swap or lend employees to another company to learn new methods and strategies. The positive note is that the new organization will take on the employee’s salary and further training. Be sure to clearly outline expectations and the length of internment.

When cutting business costs fails to address the needs of the company, and a layoff is imminent, it is important to understand the many methods available to avoid litigation. The business justification for a workforce reduction should be well documented along with all preventative measures taken.  You can read further about layoff implementation in our next post in this series.

FILIPPOV LAW GROUP, PLLC provides sophisticated legal services and business advice to individuals and businesses of all sizes, ranging from start-ups to Fortune 500 companies. Our attorneys are experienced in negotiating, drafting and reviewing employment contracts and other commercial agreements with an eye towards the client’s best interest. If you need to consider your legal options, call us at (832) 305-5529 or email our managing member victoria@filippovlaw.com. For questions concerning your businesses employee layoffs, contact a business attorney at Filippov Law Group, PLLC by calling (832) 305-5529.

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