Blog – Law Office of Wendy Anderson

10 Steps for Closing Your Business

Mon, 24 Nov 2025 21:30:37 GMT

At some point, many business owners consider closing their business. Maybe partners are splitting up, maybe retirement is calling, or maybe it’s just time to move on.

Dissolving your business the right way will reduce potential future issues related to taxes, registrations and licenses, and other unanticipated issues or costs.

In Arizona, legally terminating an LLC (or dissolving a corporation) is an easy process, provided you have done the work to properly prepare ahead of time. Here are 10 steps to follow when closing your business.

Step 1 - Review Governing Documents

If your business entity has an Operating Agreement or Bylaws, or any other document that provides guidance for how you operate your entity, consult that document for any required provisions or steps related to termination. Also, be sure to review your commercial lease for any outstanding rent obligations and contact your landlord to discuss. If you anticipate any problems with your lease, talk to your business attorney before contacting the landlord to understand your legal options.

Step 2 – Vote

Your governing document may require a majority or super-majority vote of the LLC Members or the corporation’s Directors to close. Take a vote – which can be at a meeting, on a video call, or even by email, if allowed in your governing document – and get each person’s approval (or not) to terminate the entity. Keep notes of the meeting, to document the vote, in your files as it will serve as the legal authority for you to file the paperwork with the state. You may want to draft a Resolution of the Members/Board to memorialize the decision. Even if you are the only Member or Director of your entity, make a written record of the vote. One in favor - zero against is a majority vote!

Step 3 – Coordinate Stakeholders

Closing a business may involve the assistance of a number of internal and external stakeholders. Communicate with your workers and service providers like accountants, bookkeepers, attorneys, insurance brokers, and HR consultants to ensure you anticipate all needed actions and potential costs.

Step 4 – Notify Clients

At some point, and maybe Step 4 is too early, you will need to inform clients that you intend to close the business. Clear communication regarding the timeline and the process will avoid unwanted surprises, will protect the company’s (and the owners’) reputation, and will ensure a smooth transition.

Step 5 – Pay Debts

After getting approval to close, the business must pay all of its debts. This may include employee compensation, perhaps unused PTO, money owed under any contract, bills for services you use in your day-to-day operations, loans, and of course, state and federal taxes. In Arizona, you might need to get a Tax Clearance Certificate from the Arizona Department of Revenue before the termination of your entity will be approved by the Arizona Corporation Commission. If you are registered to conduct business in other states, there may be other obligations for you to manage. Talk to your CPA about the appropriate timing for filing your final return and any other actions required to avoid future compliance issues.

Step 6 – Liquidate Assets

Your company may own a warehouse full of inventory, machinery or equipment, vehicles, or office furniture. Be sure to follow any guidelines set out in your governing documents regarding the liquidation of these assets. Perhaps you can sell them, maybe distribute in-kind to your owners, maybe donate. Be sure to keep a written record of the disposition of each item or group of items – where they went and how much money the company recouped, if any.

Step 7 – Distribute Remaining Assets

After all debts and obligations have been paid, any remaining financial assets can be distributed to Shareholders or Members. Check your governing document for how this distribution should occur. Typically, but not always, the assets are distributed to Shareholders in accordance with the number of shares they own or to LLC Members in accordance with their percent membership interest.

Step 8 – Terminate Contracts and Close Accounts

At this point, if not already done, you can terminate any existing contracts for utilities, insurance, and other services, and close credit card, bank, and vendor accounts. Remember to cancel any active permits or licenses to avoid automatic renewal obligations and ongoing fees.

Step 9 – File Articles of Termination/Dissolution

The final step in terminating your Arizona LLC or corporation is to file the Articles of Termination (LLC) or Articles of Dissolution (corporation). If you are registered as a foreign entity in any other jurisdiction, remember to terminate that as well according to that state’s legal requirements.

Step 10 – Store Documentation

Even after your business entity is legally terminated, it’s critical to keep important documentation including, but certainly not limited to: the initial Articles of Organization/Incorporation, your governing documents, EIN confirmation and any communication with the IRS, tax records, bank statements, annual meeting minutes, employment records, financial statements, files for any legal matters, insurance policies, important contracts (even if terminated), real estate sales, and intellectual property ownership/patents. Retain for at least seven years, longer if you are able, to defend against any future audits or legal matters.

Closing your business involves a number of steps, and it can be helpful to have your professional advisors provide input and guidance. Don’t hesitate to call me for assistance, or schedule an appointment , when closing your Arizona entity.

NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

Contact Me Today

480-825-4509

Small Estate Affidavits – the Good, the Bad, and the Very RISKY

Tue, 23 Sep 2025 20:03:51 GMT

At some point, most of us will have to deal with administering the Estate of a loved one who has passed away. You should know that Arizona Probate law is undergoing a significant change. Earlier this year, the Arizona legislature passed an amendment to Arizona Revised Statutes § 14-3971 that increases the value of a decedent’s assets that can pass to the beneficiaries via a Small Estate Affidavit.

While there are definite positive aspects of this change, please read to the end for a real-life fraud scenario that happened to 3 people I know… It’s worth the time.

What is a Small Estate Affidavit?

In Arizona, and many other states, assets belonging to a decedent (a person who died) can pass to their heirs with a simple written and notarized Affidavit, provided the value of those assets did not exceed a certain amount and the required waiting times were met. This process allowed a grieving family to distribute the personal property and the real property without having to open Probate.

Personal property transfer:
The value of all personal property cannot exceed $75,000
Includes: vehicles, jewelry, furniture, household belongings, and money in any form – bank accounts, investment accounts, stock ownership, etc.
Cannot use an Affidavit until 30 days after decedent’s death

Real property transfer:
The value of all real property cannot exceed $100,000
Includes: homes, buildings, and land
Cannot use an Affidavit until 6 months after decedent’s death

If the Estate contains both personal and real property, the Affiant (the person who signs and uses the Affidavit) must meet the longer time frame. Distributing property with value in excess of those limits would require Probate, as would distributing property in a state other than Arizona.

What changed in the law?

With the recent change, personal property with value of $200,000 or less, and real property with value of $300,000 or less, can now pass via Small Estate Affidavit. The same waiting periods apply.

How does it work?

If you are a legitimate heir of a person who has passed away, you may serve as the Affiant. You would then present that Affidavit to any banks or financial institutions, title companies, and other institutions holding property of the decedent, for them to transfer that property according to a Last Will and Testament or Arizona’s intestacy laws (which determine the order of priority of the decedent’s relatives for receiving the property) if there is no Will.

So while the “good” is that you, as an heir of an Estate, can avoid formal Probate, save time and legal costs, and transfer assets more efficiently using a Small Estate Affidavit, there are negatives and risks.

What are the negatives?

Multiple Heirs – The Affiant must represent on the Affidavit that they are the sole heir of the Estate. The Affiant could be personally liable to other rightful heirs or creditors if they do not distribute the assets properly or have the other heirs assign their own rights to the Affiant.

Incorrect valuation of property – If the Affiant has valued the personal and real property too low, then the use of the Small Estate Affidavit could be improper. This would open up the possibility of litigation by other people who believe they have a claim to the property.

Transferring Real Property – It’s possible that a lender or title company will not accept the Small Estate Affidavit as being a legitimate tool for transferring real estate. Additional documentation may be required, and possibly Probate, if an Affiant attempts to sell or refinance the decedent’s property.

And the risks?

Look out for fraud! Yes, there are fraudsters out there, looking to steal the property of rightful heirs. Since a Small Estate Affidavit cannot be used on real property until 6 months after the death of the decedent, the heirs must be vigilant in ensuring that no other person attempts to transfer title before the heirs have done so. Now, with the ability to transfer real estate valued at up to $300,000 via Affidavit (rather than the previous value of $100,000), these bad actors have an even greater incentive to attempt to illegally transfer the Estate’s property to themselves.

How could this fraud occur?

Many people assume that if a spouse or parent dies, that person’s personal and real property will automatically become their own, as the surviving spouse or child. That’s not true . But because there are so many myths about Probate – it’s expensive, time-consuming, avoid it at all costs - they don’t do anything to legally transfer the property, especially real estate. A home remains in the decedent’s name even if the heirs are living in it and paying the bills and the mortgage.

Well, a fraudster may read about a person’s death in an obituary or some other source, and take matters into their own hands. According to Arizona law, a legitimate creditor of the decedent, someone to whom the decedent owed money, may open Probate and petition the Court to be named the Personal Representative. A fraudster’s Court filings are likely fraudulent, but if none of the rightful heirs are watching, and they don’t know about or file any objection to the fraudster’s petition, the Court might approve it, giving the fraudster significant legal authority over the decedent’s property.

True Stories!

I have personally listened to the stories of 3 people to whom this has happened. Once named as the Estate’s Personal Representative, a fraudster deeded the decedent’s home to themselves and evicted the decedent’s heir – two were elderly spouses of the decedent who had lived in the home for decades, the other was an adult child of the decedent who had lived in the home for nearly a decade after the parent passed and had paid the mortgage, bills, and improvements. In one case, the home had been subsequently sold several times and the current owner was completely innocent of any wrongdoing.

None of these victims had opened Probate or taken any steps to legally transfer the real estate after their family member’s death. And while the transfer of these homes by the fraudster to themselves was illegal, the victims’ only option was to file a civil lawsuit and fight the transfer in Court – a process that could take years and thousands of dollars.

And there’s no guarantee that they would win. It’s heartbreaking.

The Truth about Probate

Probate is the legal process of transferring the decedent’s property to his or her rightful heirs, whether they are named in a Last Will and Testament or determined by Arizona’s intestacy laws. Under NO circumstance will the Courts or the state take the decedent’s property. It belongs to the heirs, and if the heirs do not come forward or cannot be found, then it will be considered unclaimed property, and sit in limbo until a rightful heir makes a claim.

According to Arizona statute, Probate can be opened 120 hours, or 5 days, after a person’s death. Probate requires disclosure to the Court of all rightful heirs and all assets of the Estate, and requires written notice to all heirs and creditors that Probate is being opened. Every step is disclosed to the people who have the right to be notified.

Yes, there is a fee to file the Application to be named as the Personal Representative.
Yes, you may want to seek the help of an attorney, which will involve additional fees.
Yes, the Probate process takes time, at minimum 4 months.
But yes, an attorney can also move the process along more efficiently because they know what to do.

A title company will only transfer a decedent’s real estate in a transaction approved by a Court-appointed Personal Representative. Please make sure that person is YOU.

Bottom line: moving quickly to open Probate can provide a strong defense to any possible fraudulent actions that might take place.

What to do?

If there is a death in your family, please contact the Law Office of Wendy Anderson as soon as possible, at least to have a discussion about how to administer the Estate. It may be that using a Small Estate Affidavit is the preferred method, for all of the good reasons listed above. But it is possible that opening Probate could be the safer method in the long run and well worth the additional time and expense.

Please give me a call or schedule an appointment and we can talk about your situation and the best process for transferring the Estate property to the heirs.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509

Contact Me Today

UPDATE: Temporary Delay in Corporate Transparency Act Enforcement

Thu, 05 Dec 2024 15:30:23 GMT

On December 3, 2024, a federal district court in Texas issued a nationwide preliminary injunction, pausing the enforcement of Beneficial Owner Information (BOI) reporting requirements under the Corporate Transparency Act (CTA). At this time the impact of the court’s ruling is to likely delay the requirement that all Reporting Companies file their BOI with FinCEN by January 1, 2025.

It’s important to note that this injunction is not a final decision in the Texas court case, and that the ruling is just a single lower court’s opinion about the possibility that the final decision may be that the federal law is eventually invalidated. The preliminary injunction means the actual case is still pending, and a final decision will be rendered only after the case is fully reviewed.

If this Texas court does issue a final ruling to invalidate the CTA, there are likely to be appeals filed in higher courts, with the possible results that the injunction is either affirmed or overturned, or restricted in some way.

What should business owners do now?

Until there is a final decision regarding the validity of the CTA, and there are no further appeals available, business owners should assume that the reporting requirements will be reinstituted in the future with a later filing deadline.

If you have not already filed your BOI report, please continue to prepare to file it by identifying your company’s Beneficial Owners and organizing the required ownership data.

For your Reporting Company, if it does not fit into an exception, the information required is:

Full legal name of the reporting company (and any trade names or DBAs);
Tax identification number;
Jurisdiction of formation; and
Current U.S. address.

For each Beneficial Owner (as any individual who either (i) directly or indirectly exercises substantial control over an entity, or (ii) owns or controls at least 25% of the ownership interest in the company) and each Company Applicant (the person who forms the business entity or directs the filing), the required information is:

Name, date of birth, and street address;
Government-issued identifying document, such as a passport or driver’s license, and an image of that document.

As there are developments in this case and in any other cases regarding the CTA, I will keep you informed. You can also read prior articles on my website. As always, please call with questions.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509

Contact Me Today

UPDATE - Is the Federal Ban on Non-Competes Going to Take Effect?

Tue, 20 Aug 2024 16:41:21 GMT

UPDATE 8-22-24 - Federal Rule Invalidated

My blog post below, on August 20, 2024, about the federal ban on Non-Competes was ONE DAY too early! Yesterday, the federal judge Texas invalidated the FTC’s Rule, stating the following in her decision:

“The Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC’s promulgation of the Rule is an unlawful agency action. [The rule] is hereby SET ASIDE and shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.”

It is possible the FTC will file an appeal to this decision, but for now, the Rule is dead.

MOVING FORWARD….

The law on Non-Competes reverts back to state law. In Arizona, Non-Competes are enforceable provided the restrictions are reasonable, narrowly drafted, and with terms that are no more restrictive than necessary to protect the employer's legitimate interests. They must be:

Reasonable in duration
Reasonable in geographic scope
Reasonably related to the type of work the employee or contractor performed for your company

The Non-Compete restriction is not valid if it only serves the purpose of limiting or eliminating competition.

Regardless of the decision on the federal ban, now would be a great time to review your company's agreements and make updates if you believe the terms might not be enforceable if legally challenged.

As always, I am available to assist --- just schedule time on my calendar with the appointment link below.

_________________________________________________________________________________________________________________________

8-20-2024 Blog:

A few months ago, I wrote a blog post regarding the Federal Trade Commission’s Final Rule to ban non-compete agreements that your business has with employees and contractors in nearly all cases. This article is posted on the Blog tab of the this website.

The Rule is scheduled to go into effect on September 4, 2024.

Immediately after it was announced in April, there were lawsuits filed challenging the authority of the FTC to make such a rule. In Ryan LLC v. Federal Trade Commission, the U.S. District Court for the Northern District of Texas granted a preliminary injunction prohibiting the FTC from enforcing the Rule, but only against the specific plaintiff in the case, not on a nationwide basis. The Court is scheduled to make a final ruling by August 30, 2024 which will also decide a Texas lawsuit filed by the U.S. Chamber of Commerce. In contrast, the U.S. District Court for the Eastern District of Pennsylvania declined to issue a preliminary injunction in ATS Tree Services, LLC v. Federal Trade Commission, stating that it believes the Rule will ultimately be upheld.

As of today, the FTC Rule will take effect in just a few weeks. In order to prepare for this, I recommend the following steps:

Read the article on my website to understand the full scope of the Rule and the exceptions;
Review all current agreements to determine if you have any employees or contractors subject to a non-compete restriction with your business;
If so, determine if one of the exceptions applies to your situation; and
Draft the required written notice that you must send to all employees or contractors under a current non-compete that, as of September 4, that restriction cannot and will not be legally enforced.

This notice must be provided to all affected workers BEFORE September 4.

(If you are an employee or contractor subject to a non-compete, you should receive a notice from your employer before September 4.)

If the above situation applies to you as a business owner, there are some steps you can take to protect your business even if you no longer have non-compete agreements. Consider:

Adding a non-solicitation of customers provision to all new agreements;
Amending current agreements to add a non-solicitation restriction - remember, the restrictions must be reasonable for the situation;
Adding or enhancing the protection afforded by non-disclosure obligations for confidential and trade secret information; and
Considering alternative restrictions, such as garden leave, for departing workers in key roles.

If the Rule is invalidated or stayed before September 4, Arizona law will continue to allow non-compete restrictions that are reasonable and no more broad than necessary for the specific situation to which they pertain. If your non-compete is unreasonable or overbroad, even without the federal ban in place, your restriction may not hold up if legally challenged by your worker.

Please take action before September 4 regarding any current non-competes in place so that you are not in violation of the federal Rule if it does become effective.

As always, I am available to assist with reviewing your current agreements, drafting a notice to your workers that explains the impact of the ban and what happens to their restrictions if the ban does not take effect, and amending your agreements going forward. You can schedule time on my calendar with the appointment link above.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509 Contact Me Today

Non-Compete Agreements – Are They Really Banned?

Mon, 20 May 2024 17:23:55 GMT

You may have read the news on April 23 that the FTC issued a final rule banning all non-competition agreements on a federal level. The reasoning is that the FTC views a non-compete as an unfair method of competition, having the result of suppressing worker wages, reducing worker mobility, hindering innovation and entrepreneurship, and harming fair competition in the labor market.

Key components

The rule is scheduled to go into effect on September 4, 2024 ….but business owners need to be aware of the key components now:

A non-compete is defined as a post-employment restriction that:

o prohibits a worker from seeking or accepting work with a competitive employer;

o prohibits a worker from starting a competitive business; or

o penalizes a worker by making a payment to the worker, such as a severance, contingent on non-competition.

The rule bans nearly all non-competes that apply after a worker has ended employment, regardless of whether the worker resigned or was terminated by the employer.
The rule applies to nearly all employees AND independent contractors.
The length of the existing non-compete is irrelevant – any restriction will be prohibited.
The rule bans future non-competes and renders existing non-competes unenforceable.
A requirement that a worker re-pay the employer for training costs might be prohibited under the rule.
The rule does not affect an employee’s legal obligation to refrain from competitive activity while still employed.
The rule supersedes any individual state’s non-compete law unless that state law is more restrictive.

o In Arizona, the law governing non-competes is NOT more restrictive, so this rule would apply.

Written Notice Required

The new rule is retroactive and requires that an employer provide written notice to every employee or independent contractor with whom the employer has a non-compete agreement that the non-compete is no longer enforceable. This notice must be given BEFORE the rule is effective. Please call if you’d like assistance with this.

Exceptions

There are several exceptions to the rule:

In the bona fide sale of a business, it is still permissible to restrict the Seller from competing against the Buyer for an agreed upon length of time and geographic area.
For senior-level executives earning total compensation of at least $151,164 and who are in policy-making roles, non-competes signed before the rule takes effect will be enforceable.
A franchisor’s non-compete agreement with a franchisee is still enforceable (since a franchisee is not a “worker”).

What Protections Remain?

Without the protection of a non-compete agreement to keep your departing workers from competing against your company, there are still protections you can put into place now.

Employers are not restricted from seeking non-solicitation agreements, pertaining to their employees and their customers, with their workers.
Confidentiality provisions, related to the employer’s confidential information and trade secrets, are fully enforceable as a departing worker does not have the right to disclose this information, whether or not their future employer is considered competitive.
Additionally, an arrangement known as “garden leave” is not prohibited. Garden leave is a post-employment arrangement where the worker’s job duties may be significantly or entirely curtailed but she continues to receive salary and benefits for the period of time she is prohibited from taking a competitive role.

Immediate Legal Challenges

The US Chamber of Commerce immediately challenged the rule by filing a lawsuit in the U.S. District Court for the Eastern District of Texas arguing that the FTC does not have legal authority to issue binding regulations that prohibit unfair methods of competition. Other challengers claim that the rule is unconstitutional, arbitrary, and capricious. The possible outcomes of these lawsuits could be that the rule is declared invalid entirely, perhaps declared invalid as to the plaintiffs in those cases only, or declared valid and enforceable as of September 4 or another date.

What Should an Employer Do?

While any legal challenges remain, it is unclear if the rule will become effective on September 4, 2024 or if it will be invalidated. It is also unclear if any rule that does eventually take effect will be modified from this current rule. Watch for news about this and act accordingly. If it appears that the rule will become effective, any company with current non-competes will have to immediately provide written notice of unenforceability.

Please give me a call if you’d like assistance with any of the following:

Reviewing and modifying current employment or contractor agreements
Adding to or amending your non-solicitation provisions as they relate to your customers and your workers
Enhancing the protection afforded by non-disclosure obligations for confidential and trade secret information
Considering an alternative restriction, such as garden leave, for departing workers in key roles
Determining if one of the exceptions applies to your situation
Drafting the required written notice that all existing non-competes are unenforceable

So…are non-competes really banned? Perhaps. Read my articles for future updates.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509

Contact Me Today

Overtime Pay: New Rules from the US Department of Labor

Fri, 10 May 2024 22:03:49 GMT

Thank you to my friend, Wendy McClellan of Structure for Success, for allowing me to reprint this article.

Because of the recent Department of Labor ruling regarding the FLSA, I have been asking my clients the same questions repeatedly.

Do you have employees who are currently on salary?
Is their salary less than $58,656 annually?
What are their job duties and title?
Do you know about the new DOL (Department of Labor) Overtime ruling?

What new ruling you ask? On April 23, the DOL ruled that Fair Labor Standard Act (FLSA) required an increase in the annual salary-level threshold determining a worker's eligibility for overtime pay by 23.4%.

If you are reading this and saying “Huh?” Or if you have no clue if this applies to you. Or if you want to understand the changes you need to make with your workforce – keep reading. I am going to try and simplify it as much as I can. Remember this is only a brief summary. If you have questions, please reach out directly.

Who needs to comply?

The FLSA regulates essentially every employer which means every business owner with at least one employee must comply with the changes.

What are the changes?

Effective July 1, 2024, workers who earn less than $43,888 (the minimum salary requirement) will need their employment status classified as a non-exempt employee, which means that they are eligible for overtime pay.
Effective January 1, 2025, workers who earn less than $58,656 (the minimum salary requirement) will need their employment status classified as a non-exempt employee and are eligible for overtime.
The next update will take place on July 1, 2027, and the salary threshold will increase again at that time.

Things to consider:

Many employers think because they pay their employee on salary, the employee is exempt or ineligible for overtime pay. That is not accurate. You can continue to pay your employees a salary provided they are reclassified as non-exempt and they receive overtime pay for any workweek in which they work more than 40 hours.
Simply raising your worker’s salary to the new limit will not necessarily meet the classification requirements.
Simply changing the employee's title to "manager" or "supervisor" will not meet the new classification requirements.

What do I mean by that?

In addition to meeting the minimum salary requirement, a position must meet certain “specific duties tests” in order to be exempt from the overtime pay requirement. There are DOL websites where you can run the duties through and see if they qualify for an exception. Here are the two most common; there are other exceptions.

Executives: These workers do not qualify for overtime pay if they meet the above minimum salary AND:

their primary duty is “managing the enterprise or managing a customarily recognized department,” and
they regularly direct the work of at least 2 or more other full-time employees, and
they have the authority to hire or fire other employees.

Administrative Workers: These workers do not qualify for overtime pay if they meet the above minimum salary AND:

their primary duty is “the performance of office or nonmanual work directly related to the management or general business operations,” and
their primary duty includes “independent judgment with respect to matters of significance.”

Certain Positions are NOT eligible for salary or exemptions from the new overtime rule. If you are currently paying these employees on salary, you will need to reclassify them to hourly workers by July 1 ^st and they will also qualify for overtime pay.

Blue collar workers or manual laborers. These employees perform work involving “repetitive operations with their hands, physical skill and energy.”
Inside sales employees
Paralegals and legal assistants
Most administrative assistants

Almost certainly there will be legal challenges to this DOL ruling, but that doesn’t mean you shouldn’t comply. This is not a “let’s wait and see” situation. If you do not comply with the new requirements, be prepared to pay hefty penalties. It isn’t worth jeopardizing your business. I recommend you begin these changes sooner rather than later and be ahead of the game.

Structure for Success is happy to help you with assessing your workforce. Please reach out and let’s see how we can help.

Structure for Success is a full-service Human Resources, Business Development, and Strategy consulting firm. Schedule a no-charge Discovery Call with Wendy McClellan at www.structure4success.com .

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509

Contact Me Today

Corporate Transparency Act - March 2024 Update

Tue, 12 Mar 2024 21:39:04 GMT

You may have read in the news recently that the new federal law, the Corporate Transparency Act, has been held unconstitutional. Well, yes. By a federal judge in Alabama.

This new law became effective on January 1, 2024 and applies to the majority of small businesses and their owners in the United States. If you are unaware of this, please read my blog articles here .

The Corporate Transparency Act

The law requires most small businesses (there are some exceptions) to register with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) by providing information about the business entity, its Beneficial Owners, and its Company Applicants.

A Beneficial Owner is someone who either (i) owns 25% or more of the entity’s stock or interests or (ii) has substantial control over the entity, as defined by the law.
A Company Applicant is the person who files the documentation to form the business entity with - in Arizona - the Arizona Corporation Commission or the Secretary of State.
The information required to be filed for a Beneficial Owner or Company Applicant includes their name, address, birthdate, and a photo of their driver license or passport.

The Lawsuit

Last month, a business owner in Alabama, in conjunction with the National Small Business Association, filed suit against the U.S. Treasury Department in the United States District Court for the Northern District of Alabama. In National Small Business United, et al., v. Yellen, et al., the plaintiffs argued that the CTA’s mandatory disclosure requirements exceed Congress’ authority under Article I of the Constitution and violate the First, Fourth, Fifth, Ninth, and Tenth Amendments.

In response, the Treasury Department argued that the law falls within the Commerce, Taxing, and Necessary and Proper Clauses, along with Congress’ foreign affairs and national security powers.

The Ruling

The Court ruled that the CTA is unconstitutional for exceeding the Constitution’s limits on Congress’ enumerated powers, without addressing any potential violations of the Amendments.

Importantly, the ruling applies only to the Alabama plaintiffs in this case and the CTA remains effective and enforceable in all other states unless and until further legal action changes that.

What it Means for Arizona Businesses

For businesses in Arizona, until there is a nationwide ruling, I strongly recommend compliance with the CTA’s deadlines:

Businesses registered with the Arizona Corporation Commission or Secretary of State prior to January 1, 2024 must register its Beneficial Owner Information reports by December 31, 2024. No need to file early, mark your calendar for 4th quarter.
Businesses registered between January 1, 2024 and December 31, 2024 must file with FinCEN within 90 days of formation. If your entity was formed in January, that deadline is fast approaching for you.
Businesses that register on or after January 1, 2025 must file within 30 days of formation.

If you have any questions about the provisions of the CTA or how to determine your entity’s Beneficial Owners and Company Applicants, just give me a call and let’s get together to discuss.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509 Contact Me Today

Forming a Business with the Arizona Corporation Commission

Thu, 28 Dec 2023 20:29:45 GMT

In Arizona, any business owner can form a new corporation or limited liability company (LLC). This blog will identify the decisions you need to make and outline the steps required to form a for-profit entity with the Arizona Corporation Commission (ACC).

If you are looking to form a nonprofit entity, please contact the Law Office to discuss before completing any online formation.

Initial decisions to make before you file

1. Check for name availability. Before you begin, make sure that the name you want for your new entity is available. Click here to enter your desired name and click “Name Availability Check” at the bottom of the page. ACC Name Availability

2. Decide if you want to form a corporation or LLC. (Advice on this question is beyond the scope of this blog.) Other entity forms, such as different types of partnerships, can also be formed through the ACC.

3. Determine who your owners, officers, or directors are. These people will most likely be considered Beneficial Owners of your entity, under the Corporate Transparency Act. (See other blogs on the Law Office website for information on this new Federal law.)

a. For a corporation, you must name at least one director, and you can name any officers you have already appointed.

b. For an LLC, you must decide what form you will have:

i. For Member-Managed, you must name at least one member.

ii. For Manager-Managed, you must name at least one manager. You can name the Members if you choose.

4. Determine who will serve as the Statutory Agent. The purpose of a Statutory Agent is to accept service of process if your entity is named in a lawsuit. The Statutory Agent’s address must be listed on the ACC website, and cannot be a P.O. Box, because a process server must be able to serve the Statutory Agent in person. An officer, director, member or manager, in their individual capacity, or any person over 18 with a physical address in Arizona can serve as the Statutory Agent, or you can hire a third-party or different entity to fulfill this role. The Statutory Agent does not have any actual liability for the lawsuit; their role is simply to accept the papers and transmit them to the entity representative.

5. Determine what addresses you will use. Remember that all information you enter on the ACC website is public. You can use your home address, if you want. If you have an office address that is already public, you can use that. But if you want to keep your office and/or home address private, you will need to get an Arizona P.O. Box to use for your entity’s address and for your address. If you take this route, you will need to have someone else serve as the entity’s Statutory Agent, so that you can file the Statutory Agent’s public physical address with the ACC.

6. Decide who will do the entity formation. For an LLC, you have an Organizer; for a corporation, you have an Incorporator. This person can be an officer, director, member or manager, or any outside third party. This person will be considered the Company Applicant when your entity files its Beneficial Owner Information pursuant to the Corporate Transparency Act.

7. And for a corporation only….

a. You will determine how many shares and what class of shares you will authorize. After the entity is formed, you will separately issue shares to shareholders.

b. Additionally, as part of the online filing, you will be required to complete a Certificate of Disclosure for all directors and officers that are listed in your filing. Click here to see the questions that you will need to answer online. Certificate of Disclosure

Filing with the ACC

8. First, create an ACC account. Once you have your entity’s name selected, click here to create an online account so that you can use the ACC website to form and maintain your entity. ACC Registration

9. Form your entity. Once you are logged in, and are on the “My Dashboard” page, click “Online Services,” then “Start a New Business.” You can click “Frequent User” and the wizard will present the forms for entering the information regarding the controlling persons and the Statutory Agent and their addresses. If you would like the ACC system to walk you through the steps, click on “Guide Me.”

10. Pay for the filing. After approving the information, follow the prompts to pay for the online formation.

11. Statutory Agent Acceptance. Your named Statutory Agent will immediately receive an email from the ACC to accept the appointment. They must accept within 7 days or the entity’s filing will be rejected.

How can the Law Office of Wendy Anderson help?

Serve as your entity’s Statutory Agent.
Provide counsel regarding what type of entity might best fulfill your business objectives.
Provide counsel regarding your obligations for reporting pursuant to the Corporate Transparency Act and assist in identifying your Beneficial Owners.
Provide information in the form of articles on the firm’s website to explain the Corporate Transparency Act and your obligations as an officer, director, member or manager of an Arizona entity.
After your entity is formed, the firm can assist with changes to the information and in filing amendments or annual reports with the ACC.

The firm does not serve as an Organizer or Incorporator when initially forming your entity and does not assist in the online formation process.

Please understand that the above does not constitute legal advice and there is no attorney-client relationship created when you read this article or if you follow the steps herein; this is only information regarding how to form a new Arizona entity yourself.

Once your entity is approved by the ACC, the Law Office would be happy to assist with any other legal business or employment questions or matters that arise. Just give a call or schedule an appointment !

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509

Contact Me Today

Preparing for the Corporate Transparency Act, Part II: Keeping the Company Compliant

Tue, 05 Dec 2023 17:57:01 GMT

As you may know, the Corporate Transparency Act (CTA) is just around the corner – it becomes effective on January 1, 2024. Prior blogs on my website explain the details of this new federal law and what information - pertaining to all Reporting Companies, Beneficial Owners, and Company Applicants - is required to be reported to FinCEN in 2024.

But collecting and reporting the information is just part of what should be done by company owners and officers. Because business entities that are subject to this federal law will have ongoing obligations, it would be prudent to review and update your company’s governing documents and agreements to ensure that certain individuals who are classified as Beneficial Owners contractually agree to provide the required personal information and updates to the company (or directly to FinCEN) so that the company can fulfill its mandatory reporting obligations.

Some steps to consider:

Build CTA and Beneficial Owner Information Reporting compliance into governing documents.

Newly created entities often draft and adopt governing documents, like operating agreements, bylaws, shareholder or subscription agreements. You should consider adding a provision that imposes an express obligation on any person that could be classified as a Beneficial Owner - LLC members, corporate shareholders, officers, general managers and others with significant control or ownership – to provide and update the personal information that the company must submit in its Beneficial Owner Information (BOI) forms.

Additionally, consider adding representations and warranties regarding this obligation in your agreements and remedies for any breaches. And, the company may want to secure indemnification from its Beneficial Owners for any penalties assessed due to a Beneficial Owner’s failure to provide accurate or timely information or updates.

Update Employment Agreements for executive level employees.

A high-level executive will likely have substantial control over the entity’s decisions and, therefore, is considered a Beneficial Owner, even if they have no actual ownership stake in the company. Executive employment agreements should be amended to include required reporting and updating of BOI during the term of the employment.

Include BOI requirements in entity purchase/sale agreements.

If you are selling your ownership interest in your entity, whether it’s an LLC Membership Interest or a certain number of corporate shares, it is important to include a post-closing provision that requires the entity or the new owner to update the Reporting Company information and BOI – since it will no longer include you!

Create a plan for filing, updating or correcting Beneficial Owner Information.

Reporting Companies will have only 30 days to update or correct Reporting Company and BOI information - whether a name or address change, or issuance of a new form of identification that must be uploaded. Accordingly, companies should implement a process to monitor and track any changes in information among their Beneficial Owners so that an updated report can be timely filed, avoiding any penalties.

Each Reporting Company will have to decide who will actually file the reports with FinCEN – will it be a company employee or a third-party facilitator? If the company will be filing its own reports, there must be a secure storage process for each Beneficial Owner’s personal information so that it is safe from a data breach.

Appoint a Compliance Officer.

Companies that own numerous other entities or that have a number of Beneficial Owners should consider appointing a control person to standardize and simplify the process of providing BOI for the initial report and any subsequent updates. Perhaps this compliance officer can be the person doing the actual filing or can be the company’s liaison to an outside facilitator.

Consider requiring all Beneficial Owners to obtain a FinCEN Identifier.

If your company requires its Beneficial Owners to obtain a FinCEN Identifier, then the individual will be responsible for ensuring their information is always up to date, rather than the Reporting Company being responsible for that. This will also ease the burden of safely securing a Beneficial Owner’s personal information, as the company will not be handling that information.

Next steps.

Take some time to think about how your company will be affected by the Corporate Transparency Act. If you’d like some guidance in how to ensure that your company and its Beneficial Owners are compliant, don’t hesitate to contact me and schedule a call or meeting.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509

Contact Me Today

Preparing for the Corporate Transparency Act, Part I: Next Steps for Business Owners

Fri, 17 Nov 2023 17:19:22 GMT

The federal Corporate Transparency Act (CTA) will be in effect as of January 1, 2024. More than 32 million registered businesses in the U.S. will be subject to this law. If yours is one of them, continue reading to discover what you need to do.

If you’ve not seen previous posts or articles, the purpose of this new regulation is to combat money laundering, human and drug trafficking, terrorism financing and other illegal activities by requiring business entities to disclose information about the individuals who beneficially own and control them to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

As a business owner, here are your next steps:

1. Determine whether your company qualifies as a Reporting Company.

Any corporation, limited liability company, or similar entity which is created by filing with a secretary of state (or similar office, such as the Arizona Corporation Commission) or is formed in a foreign country and registered to do business in the United States is considered a Reporting Company. A Reporting Company will have to submit the following information:

Full legal name of the reporting company (and any trade names or DBAs);
Tax identification number;
Jurisdiction of formation; and
Current U.S. address.

2. Determine if an exemption applies.

Certain entities are exempt from filing:

Companies (i) employing more than 20 full-time employees in the United States, (ii) operating from a physical office in the United States, AND (iii) having more than $5 million in gross receipts/sales, as shown on its most recent tax return
Federally registered entities such as banks, credit unions, investment advisors, securities broker dealers, insurance companies, accounting firms, and public utilities
Tax-exempt entities if registered with the IRS
Publicly traded companies that are subject to SEC regulations
Additional exceptions apply to certain entities, such as trusts, that do not require the filing with a government agency

3. Determine the Company’s Beneficial Owners.

A Beneficial Owner is defined as any individual who either (i) directly or indirectly exercises substantial control over an entity, or (ii) owns or controls at least 25% of the ownership interest in the company. Substantial Control can include individuals who are senior officers, those who have authority over the appointment of officers or board members, or those who have significant influence over important decisions and matters affecting the Reporting Company. Ownership Interest can include shares or membership interests, or any other documentation that establishes a level of ownership in the entity.

If your entity was created many years ago, it’s likely that there have been changes to the owner’s names and addresses, and possibly some ownership interests have changed hands through sales or inheritance. Start now to identify the current Beneficial Owners and collect the information listed below.

4. If your entity is created in 2024 or later, determine the Company Applicant.

This is the person who files the document that forms the entity and/or the person who directs or controls the filing of the document. This can be an individual at your company, at your attorney or accountant’s office, or a third-party registration company.

5. Obtain information on Beneficial Owners (and Company Applicants, if applicable).

For each Beneficial Owner or Company Applicant, the following information must be reported:

Name, date of birth, and street address; and
Government-issued identifying document, such as a passport or driver’s license and an image of that document

6. Apply for FinCEN identifiers when possible.

A FinCEN identifier allows a Beneficial Owner or Company Applicant to enter their information directly with FinCEN, rather than providing their personal information to the Reporting Company. If the Reporting Company collects this information, it will be responsible for safeguarding the information and for updating it with FinCEN when there are changes. If the individual applies for a FinCEN identifier, the individual will be responsible for any updates and the Company does not have to create any process for securing the information.

7. Submit Initial Filing on or after January 1, 2024.

The Beneficial Owner Secure System (BOSS) will be available on January 1, 2024 for Reporting Companies to complete their Beneficial Owner Information (BOI) reports. If your company was formed before this date, you have until December 31, 2024 to file your BOI report. If your company is formed in 2024, you have 90 days from the date of formation to file your BOI reports. If your company is formed on or after January 1, 2025, you have 30 days from the date of formation to file your BOI reports. The BOI report will likely not be available to you after submission, so be sure to save your filing as a PDF so that you can reference the information later.

8. Submit Updated Filings.

If any of the information previously reported to FinCEN changes, the Reporting Company has 30 days to file an updated report. If the Reporting Company submitted inaccurate information, a corrected report must be filed within 30 days of the date it knew, or should have known, that the information was inaccurate.

Beware of Penalties.

It is unlawful for any person to willfully provide, or attempt to provide, false or fraudulent BOI, or to willfully fail to report complete or updated BOI. Such willful actions constitute federal crimes subject to civil and criminal prosecution, including civil fines of up to $500 per day and criminal penalties of a $10,000 fine and imprisonment up to two years.

Final Thoughts.

These obligations are new to many business owners in the U.S. Take the time now to review the required steps, to determine who your company’s Beneficial Owners are, and to make a plan for obtaining the needed information. The CTA forms are not yet available, so work now to address any issues prior to January 1, 2024 so that you can timely file your BOI report. Please contact me if I can be of assistance.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509 Contact Me Today

Legal Dispute? Perhaps Mediation can Lead to a Quick Resolution

Tue, 13 Jun 2023 17:57:55 GMT

In last month’s article, we discussed negotiation as a time and cost-efficient way to resolve a business dispute. If negotiation is not an option – perhaps the parties are so at-odds that they can’t effectively communicate – then mediation might be the answer.

Mediation is an informal and non-adversarial process in which a neutral third-party facilitates the resolution of the dispute, but does not actually make any decisions. With the ultimate goal of coming to a compromise after discussing the issues and exploring potential resolutions with the mediator, the power to actually agree on the settlement rests with the individual parties. Often, if the disputing parties are friends or business partners, using mediation will allow them to maintain that relationship because neither one is seen as the winner or loser.

The process itself is voluntary and each party has the authority to accept or reject a potential settlement, which often will not be exactly what either of them wants. But, if the parties do come to an agreeable compromise, it becomes binding upon the signing of a settlement agreement.

Unlike using litigation or arbitration to settle a conflict, with mediation there is no submission of evidence, no filing of motions, and no formal proceedings. Because they are in control, parties that settle a dispute through mediation are often more satisfied with the result than if the exact same result was imposed on them by a judge or arbitrator.

Mediation generally results in a resolution more quickly than litigation or arbitration, which also means less cost. Of course, if the parties fail to come to a settlement, then other avenues are available for resolving the dispute. But mediation should be considered as a first step. Give me a call if you would like to explore this option for any conflict you may be facing.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509
C ontact Me Today

Legal Dispute? Try Negotiating Before Filing a Lawsuit

Mon, 15 May 2023 23:49:11 GMT

As a businessperson, you interact every day with customers, employees, suppliers, partners, and others. And you know that in every interaction, whether for business or personal reasons, there is the possibility of a misunderstanding or an action (or inaction) that could lead to a legal dispute.

Taking your case to court is certainly one way to resolve the conflict. But is it really the best way? A lawsuit can be costly, time-consuming, and stressful, and the result is unknown. A judge or a jury will ultimately decide the winner.

Instead, consider one of several Alternate Dispute Resolution options.

This article will discuss NEGOTIATION as a method for resolving a business or personal dispute.

When you are in conflict with another person, it may be impossible for you to speak to them without your emotions getting the best of you. It may be the same for them. And that makes it unlikely that you will resolve the situation.

But negotiation CAN be a non-adversarial way to resolve a dispute, if you have someone representing you and arguing your case to the other side. Often the negotiators are attorneys representing the people involved in the dispute. As outsiders to the conflict, attorneys can communicate in an objective way, creating the opportunity for meaningful discussion.

The goal of negotiation is not to determine which party is right and which is wrong. The goal is to come up with a resolution that both sides can live with. It’s a compromise, and it’s very possible that neither side will feel that they got what they really wanted.

But in the overall picture, winning the actual argument is not the only consideration. With every dispute, you need to consider how much:

time it will take to get to the final resolution;
money that will cost; and
stress will be created.

Every minute of mental energy expended on thinking about the dispute means one minute NOT spent on managing your business or on something else that’s important to you.

With negotiation, the disputing parties – not a court or other outside third-party - are ultimately in control of the process and the resolution. And once there is a resolution, the attorneys will draft a settlement agreement, legally binding both parties to what you both agreed on.

Negotiating a resolution to a legal conflict often results in an outcome that is good enough to satisfy both parties, and one that is also cost and time efficient. If I can assist in negotiating a settlement on an issue in dispute, don’t hesitate to call.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509
C ontact Me Today

The Corporate Transparency Act - Be Aware and Be Prepared

Wendy@wendyandersonlaw.com (Wendy Anderson) — Tue, 28 Feb 2023 02:18:12 GMT

If you are an owner of a company, the federal Corporate Transparency Act (CTA) applies to you!

This is a long blog post, but it’s important. Hang in there and click here for your next steps!!

Passed in January 2021 after a decade of congressional efforts, this new federal law provides a tool for national security, intelligence, and law enforcement agencies to counter money laundering, the financing of terrorism, and other illicit activity by eliminating the use of anonymous shell companies.

Until now, the collection of business entity ownership information fell to financial institutions and their due diligence requirements when opening new business accounts. In 2024, this burden will shift to the businesses themselves. All US business entities will be required to report information about its owners to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

On September 29, 2022, FinCEN issued its final rule regarding which entities and individuals must file a report, what information must be reported, and when a report is due. Here is what you need to know.

WHO MUST REPORT?

Any corporation, limited liability company, limited partnership or similar entity which is created by filing with a secretary of state (or similar office, such as the Arizona Corporation Commission) or is formed in a foreign country and registered to do business in the United States is considered a Reporting Company and must comply with the requirements.

Additionally, every Reporting Company must report certain personal information about all of its Beneficial Owners. Under the CTA, a Beneficial Owner is defined as any individual who directly or indirectly exercises substantial control over an entity OR owns or controls at least 25% of the ownership interest in the company.

Substantial Control is defined as a person who:

Serves as a senior officer including any individual holding the position or exercising the authority of president, CEO, CFO, COO, general counsel, or any other officer performing a similar function;
Has authority over the appointment or removal of any senior officer or a majority of the board of directors or similar governing body; or
Directs, determines or has substantial influence over important matters of the Reporting Company.

Ownership Interest is defined as any instrument, contract, arrangement, understanding, or mechanism used to establish ownership in the Reporting Company.

Finally, the rule also requires a new company that is created or registered on or after January 1, 2024 to provide identifying information of the person who created or registered it (Company Applicant). Reporting Companies created or registered prior to January 1, 2024 are not required to report their Company Applicants.

WHAT INFORMATION MUST BE REPORTED?

Each Reporting Company must provide:

Entity name (and any alternative trade or d/b/a names)
Business street address
Jurisdiction of formation and, for foreign entities, the State or Tribal jurisdiction of registration
A unique identification number (such as TIN, EIN, LEI, etc.)

For all Beneficial Owners and, if applicable, the Company Applicant:

Full legal name
Date of birth
Current address
A unique identifying number, from an acceptable identification document such as a passport, driver's license, or FinCEN identifier
An image of the acceptable identification document

WHEN MUST COMPANIES REPORT?

Companies created before January 1, 2024 have one (1) year to file their initial reports with Company and Beneficial Owner information, so that’s a deadline of December 31, 2024.

Companies created or registered in 2024 have 90 days after formation to file the information on their Company, Beneficial Owners and Company Applicants.

Companies created on or after January 1, 2025 have 30 days after their formation to file the information on their Company, Beneficial Owners, and Company Applicants.

Any change to the information previously filed about a Reporting Company or its Beneficial Owners, or any inaccuracies in such reported information, must be reported to FinCEN within 30 days of the date of the change or the date the inaccuracy was discovered. No updates are required with respect to Company Applicant information.

WHAT ENTITIES ARE EXEMPT?

Certain business entities already report the required information to the federal government and are exempt from the CTA requirements. The exempt entities include, among others:

Companies (i) employing more than 20 full-time employees in the United States, (ii) operating from a physical office in the United States, AND (iii) having more than $5 million in gross receipts/sales, as shown on a tax return
Federally registered entities such as banks, credit unions, money services businesses, registered broker dealers, insurance companies, accounting firms, public utilities, and certain tax-exempt entities
Publicly traded companies that are subject to SEC regulations
Additional exceptions apply to certain entities, such as trusts, that do not require the filing with a government agency

WHAT ARE THE PENALTIES FOR NON-COMPLIANCE?

The objective of the CTA cannot be realized if business owners do not to comply with the requirements. The penalties are stiff. An individual who willfully fails to meet the reporting standards may face civil penalties of up to $500 per day. An individual who willfully provides or attempts to provide false or fraudulent information, or willfully fails to provide FinCEN with the requisite information, may face criminal fines up to $10,000 and/or imprisonment for up to two years.

WHO WILL HAVE ACCESS TO THE INFORMATION?

Clearly, there are legitimate concerns about the privacy of the reported information. The information will not be publicly available and it is not subject to Freedom of Information Act requests. FinCEN is authorized to disclose the information to:

U.S. federal law enforcement, national security, and intelligence agencies and the Treasury Department
State, local and tribal enforcement agencies, with a court order
Non-U.S. law enforcement agencies, upon a request from a U.S. federal law enforcement agency
Financial institutions and their regulators, with consent of the Reporting Company

IS THE INFORMATION PROTECTED?

FinCEN recognizes the sensitivity of Beneficial Owner and Company Applicant information and the severe adverse effects that the unauthorized release would have on those people. FinCEN is currently developing the secure infrastructure necessary for millions of Reporting Companies to adhere to the CTA’s guidelines in 2024. Under the law, the Beneficial Ownership Secure System (BOSS) must meet the highest Federal Information Security Management Act (FISMA) level by the effective date of January 1, 2024.

NEXT STEPS?

Business owners, and anyone that could be considered a Beneficial Owner under these Rules, should ensure that their company and personal information is updated in the company’s file with the Arizona Corporation Commission. That will ensure that, when you enter your information into the CTA database in 2024, it matches the ACC files.

If your company has experienced changes in ownership through sales of shares or membership interests, or through probate or trust administration, begin to identify all individuals who will be considered Beneficial Owners so as not to delay your required reporting. Also make sure that the correct addresses are showing for your entity and your Beneficial Owners.

The LAW OFFICE OF WENDY ANDERSON is available to assist with any questions you may have about the law and with the reporting process itself. If you believe your ACC file is not accurate, click here for more information on how we can help.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509
C ontact Me Today

Nonprofits: Don’t Jeopardize Your Tax-Exempt Status!

Wendy@wendyandersonlaw.com (Wendy Anderson) — Thu, 21 Jul 2022 22:46:23 GMT

Over the years, numerous clients have asked for advice on how to form an Arizona nonprofit organization. I’m glad they asked, because forming and running a nonprofit is not the same as a for-profit LLC or corporation, and if not done correctly, the nonprofit could run afoul of state and federal laws.

The most common form for a nonprofit is a Public Benefit Corporation, which is a charitable or social-welfare organization, including educational, scientific, and religious entities. Nonprofit does not mean that the organization cannot bring in revenue; however any profits are retained by the organization and no individuals (or for-profit entity) can take profits for their own benefit.

One of the greatest advantages of operating a nonprofit is that it can be recognized by the IRS and state taxing authorities as “tax-exempt.” This means that, among other things, the organization:

Is exempt from state and federal taxes
Can accept donations that are tax deductible for the donor
Can apply for state, federal and private grants
Pays no sales tax on purchases

Running a nonprofit properly will protect it from jeopardizing this tax-exempt status. And to run the entity properly, certain policies and procedures should be adopted, and followed, by the board of directors and the officers.

Policies Required for Tax-Exempt Status

Conflict of Interest/No Self-Dealing Policy

The IRS prohibits a nonprofit’s board members, officers and key employees from using nonprofit funds to personally benefit themselves by directing the entity to purchase goods and services from for-profit companies they own or manage. This is called “self-dealing” and it is so important to the IRS that a nonprofit not engage in this practice that having a policy against self-dealing is required for the initial approval of tax-exempt status.

Record Retention/Destruction Policy

Certain records of the entity must be retained so that the entity can show the IRS or any other governmental body that its practices have complied with the law. Some of these records include financial, accounting and tax records related to donations and expenses, employment records, entity formation documents, contracts and legal records, and the like. On a nonprofit’s annual tax return, it must acknowledge that it has adopted a policy addressing the time frames for retention.

Whistleblower Protection Policy

Also required on the annual tax return is a policy that encourages staff and volunteers to come forward if they have credible information on any illegal practices or violations of policies committed by any person in the organization. The policy must also protect those individuals from retaliation should they make a formal report of wrongdoing.

Additional Policies that are Prudent to Adopt

In addition to the above, it is a good idea for a nonprofit to establish the rules by which it intends to operate. While the needs of nonprofits vary from one to another, some of those policies should include:

Confidentiality Policy

This policy stresses the importance of confidentiality, not only related to the organization’s operations, but related especially to its donor’s personally identifiable information and certainly any HIPAA protected medical information that the organization might collect if the nonprofit’s mission relates to medical research or helping people with certain medical challenges.

Compensation Policy

While a nonprofit does not distribute profits to individuals, its employees certainly can be compensated with salaries that are reasonable for the job they do. This policy might dictate that salaries are determined only after compensation experts are consulted, market surveys are done, or the board votes on a compensation schedule, to ensure that no individual is personally compensated at unreasonably high levels.

Employment Policies

Documenting policies related to employees is always a smart idea. For a nonprofit, these may be no different than a for-profit company, but they will communicate the entity’s expectations for its workers and how the entity handles issues or disputes with employees.

Travel and Expense Reimbursement Policy

This will clarify what expenses are covered by the entity for any employee, volunteer, or fundraiser that incurs expenses as part of their duties.

Volunteer Policy

This document will make it perfectly clear to a nonprofit’s volunteers that they are donating their time and services, and should have no expectation of pay or benefits, like an employee would.

Fundraising Policy

If fundraising is a significant component of a nonprofit’s activities, a policy related to this is a good idea. The entity should determine how it will track all fundraising income and expenses, what will be provided to donors to document their donation, and under what terms external fundraising personnel will be hired.

Investment Policy

Arizona law requires that any person managing and investing institutional funds do so “in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.” A nonprofit should clearly define what guidelines it will establish to meet this legal standard.

Next Steps

This is not a comprehensive list, of course, but having these various policies written, adopted by the board of directors, reviewed periodically, and enforced on a regular basis by the officers will go a long way toward protecting that all-important tax-exempt status.

If you feel that your nonprofit’s operations could be shored up, or if you are just forming your organization, please give me a call so that we can ensure you have the right procedures in place.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509
Contact Me Today

Non-Compete Agreements - Are they Legal in Arizona?

Wendy@wendyandersonlaw.com (Wendy Anderson) — Mon, 16 May 2022 23:56:39 GMT

One of the most common questions I get from business owners is whether or not Non-Compete Agreements are legal. Yes, in Arizona they are!

There’s a significant body of legal decisions in Arizona to guide us in drafting a Non-Compete that will be held valid if legally challenged at some point. Below are some of the major considerations, but first….

What is a Non-Compete?

A Non-Compete Agreement is a contract between an employer and employee (or between a hiring company and an independent contractor) that, following the worker’s termination, he or she will not engage in the same line of work that he or she performed for the company. The purpose, of course, is to protect the employer’s business in the aftermath of the departure of a worker who has skills and knowledge about the industry and the specific company and can successfully compete against their former employer, causing financial harm.

But because this restriction can keep the worker from earning a living at their chosen profession for some period of time, the courts will not enforce a Non-Compete that contains unreasonable or overbroad provisions, meaning that the restrictions should only apply to the company’s “legitimate and protectable business interests.” But what does THAT mean?

Temporal Restrictions

Most Non-Competes define a time frame after the worker is terminated during which they cannot engage in competitive work. While a 2-year restriction might be reasonable for some workers, such as a high-level executive with access to a company’s most sensitive data, it will not be reasonable for a mid or low-level worker with limited knowledge of the company’s operations or confidential information. Your temporal restriction must be reasonable for the position, and generally should be no longer than required for the company to find a replacement worker and get that worker up to speed. A court will not view an unduly restrictive time frame as a legitimate and protectable interest.

Geographic Restrictions

Additionally, most Non-Competes specify a geographic area within which the worker is prohibited from engaging in competitive work. Of course, this is intended to prevent the company’s clients jump to a former worker’s conveniently located new company. In today’s business world, however, more and more companies have state-wide, national, and even international clients, making a Non-Compete that restricts the worker’s activity around the company’s location potentially irrelevant.

If a Non-Compete is legally challenged, a court will want to enforce only the least restrictive terms needed to protect the company. For certain local businesses – medical or personal services, home repair, and the like – a geographic restriction may make sense, but not for companies whose clients are outside the local area. This is no longer a term that should automatically be included, but rather used strategically, where relevant.

If a geographic restriction does make sense, an employer should seek to include only those areas actually served by the company - and by the worker. Restricting the worker from working in an area not serviced by the company, or one in which the worker did not actually work, will most likely be considered overly broad. For instance, limiting a sales representative whose territory was the West coast from working for 1 year in a competitive business on the East coast may not be considered reasonable and protectible.

So what’s the rule?

The “rule” is that there is no “one-size-fits-all” when it comes to Non-Competes. In the 1979 Arizona case Gann v. Morris, the court said, “What is reasonable depends on the whole subject matter of the contract, the kind and character of the business, its location, the purpose to be accomplished by the restriction, and all the circumstances which show the intention of the parties.” Clearly, every Non-Compete must be evaluated on its own.

Arizona v. other states

While Arizona courts have consistently recognized a business’ right to protect its interests after a worker leaves, the Non-Compete cannot simply be a means of eliminating competition. There must be a valid reason for any term that restricts an individual’s ability to earn a living.

Numerous other states have recently enacted laws prohibiting companies from requiring their workers to sign Non-Competes or limiting the restrictions that those companies can include in their agreements. Arizona has not yet done so, but the body of case law in our state clearly outlines the parameters for enforceability.

What should I do?

If you are a business owner with employees or independent contractors, it’s very risky to use a template Non-Compete Agreement or one with overbroad or unreasonable terms. You could be taking the chance that the entire agreement will be declared invalid (not just the offending provision). You have the right to protect your company – let me know how I can help!

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

Arbitration Agreements… and New Federal Law

Wendy@wendyandersonlaw.com (Wendy Anderson) — Sun, 20 Mar 2022 19:05:20 GMT

If you are a business owner, disputes with customers, business partners or workers are inevitable at some point. And if you allow it, that dispute could turn into a lawsuit that is all-encompassing in terms of your attention, finances, and time - for many months or even years.

Arbitration is a process where a neutral third-party decides the outcome of your dispute. This third-party may be an attorney, a retired judge, or another legal professional, but it is someone that the disputing parties jointly select.

The arbitration process is similar to litigation, because each party submits its evidence, witnesses may be called, and there is a final decision, declaring which party prevails. The procedural rules may be more relaxed than with a court case, and often the arbitrator has discretion to determine how the process will go without being strictly tied to the formal rules of court.

Arbitration

Two contracting parties can agree, in advance, that if a dispute arises, the aggrieved party will NOT file a lawsuit, but instead, will initiate arbitration proceedings. Arbitration, for business owners, is preferable to litigation for numerous reasons:

Lawsuits can take years to resolve. Arbitration is likely faster.
The losing party in a lawsuit in Arizona has the statutory right to appeal the decision to a higher court. Arbitration decisions are final and binding.
Costs tend to be lower and can be controlled by the terms included in an arbitration agreement.
Court records are public. Arbitration is private.

Arbitration Agreements

But this understanding between parties may be ineffective unless there’s a written and signed document, binding the parties in advance of any dispute. This arbitration provision can be a stand-alone document or can be included in an overall services or partnership agreement.

In addition to the promise that neither party will initiate a lawsuit, other clauses may include the process for selecting the arbitrator, rules or process for the proceeding, and what damages and legal fees the arbitrator is permitted to award. Importantly, the agreement needs to make clear that there is no option to submit disputes to the courts – arbitration is the agreed-upon and exclusive dispute resolution forum.

Employment Arbitration Agreements

For those companies with employees, arbitration agreements are equally beneficial and your policy should be clearly outlined in your Employment Handbook and in any employment contracts.

Employees may bring allegations against the company for any number of reasons:

Unpaid wages
Adverse employment actions, such as termination or demotion
Alleged discrimination or harassment related to an employee’s age, gender, religion, race, national origin, disability, or other protected class
Breach of the terms of an employment contract or other promise made to the worker
Disputes over entitlement to and receipt of benefits

Under the law, an employer may require an at-will employee to agree to mandatory arbitration as a condition of new or continued employment. Additionally, the employer can prohibit class-action arbitrations in which multiple employees demand joint arbitration over a common work-place grievance. Be sure to include these provisions in your Handbook and in the agreement.

New Federal Law

Just 3 weeks ago, on March 3, 2022, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 . This law is limited in scope and applies only to arbitration agreements between employers and employees. Effective immediately, the employer can no longer require arbitration for claims of work-place sexual assault and sexual harassment even if an employee has already signed a mandatory arbitration provision. Employers may continue to require arbitration for other grievances, if there is a signed arbitration agreement, however an employee is now legally entitled to file a lawsuit for sexual harassment and assault claims if he or she chooses to do so.

What Should Business Owners Do?

Business owners should consider whether or not they want to require that arbitration will be the exclusive resolution method for disputes with customers and business partners. If so, drafting an agreement, or including a new clause in an existing contract, is critical.

Employers that want to institute a mandatory arbitration policy should consult with their human resources expert or employment attorney to ensure the policy complies with the new federal law related to employee claims of sexual assault or harassment. In order to enforce the arbitration policy when a dispute later arises (over a different matter), an employer will need to have the employee’s signature, as his or her voluntary and knowing waiver of their legal right to bring a lawsuit, prior to the occurrence of the dispute.

Additionally, for those companies that already use arbitration agreements in their employment-related documents – such as non-disclosure, non-solicit, non-competition, employment agreements and any other agreements utilized by the company – an immediate review and update is recommended. If the arbitration clause attempts to mandate arbitration for sexual assault or harassment claims, a court could invalidate the entire clause.

Make sure that your company’s policies regarding dispute resolution are legally enforceable and that you have the documentation to support them. Don’t hesitate to call if you have questions or if you need your policies and documents reviewed or created.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

The Settlement Agreement – the Critical Step to Solidify the Resolution of a Business Dispute

Wendy@wendyandersonlaw.com (Wendy Anderson) — Tue, 08 Mar 2022 20:25:54 GMT

As a business owner, you know that there will be a time that your company is in a legal dispute with a customer, or maybe another company. Perhaps you and your business partner disagree over an important issue. Maybe an employee has made an allegation against the company.

Hopefully, the dispute is easily resolved. But what if it’s not?

Taking a dispute to litigation is a time-consuming, costly, and stressful endeavor. Your attention and mental energy will be diverted for months. And the final resolution is out of your hands. I believe a more appealing process is to engage the opposing party in negotiation so that each of you achieves a result you can live with, even if it’s not everything you wanted.

Once this compromise is agreed upon, it’s critical to draft a comprehensive Settlement Agreement. Such a document will clearly lay out the original reason for the dispute and the full negotiated agreement, which is always more detailed than simply noting what one party will pay to the other or do to resolve the issue.

Topics to consider for the negotiation – and for the Agreement - include:

The obligation for one party to take any certain action, like complete a project, deliver an item, or withdraw a complaint
Payment (or other consideration) from one party to the other
Timing and terms of any payment, and responsibility for any tax liability
A release from future claims under certain specified state or federal laws
Recognition of any rights that cannot legally be waived
Promises that the aggrieved party will not subsequently file a lawsuit or bring any claim against the other
Any confidentiality obligations relating to the dispute and the settlement

A Settlement Agreement is a legally binding contract, as both parties sign the document as evidence of their acknowledgment and agreement to its terms and conditions. If either party violates the terms of the Agreement, then the non-breaching party has the right to then make a formal legal claim against the breaching party.

A well thought out and well-drafted Settlement Agreement can provide peace of mind to both parties. Ideally, each party will be clear on the steps that will be taken to resolve the conflict, and both agree that, with the signing of the Agreement, the matter is completely and finally resolved.

On the other hand, a poorly written document may leave numerous issues undetermined and may leave the door open for either party to raise the disputed issues again in the future. And that’s not acceptable.

If you are in dispute over a business or personal matter, please don’t hesitate to contact me. I can assist in negotiating the terms and in drafting the actual Settlement Agreement so that you are relieved of the uncertainty of what might happen if you don’t address the issue head on.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509

Contact Me Today

The Corporate Transparency Act: What are your Obligations as a Business Owner?

Wendy@wendyandersonlaw.com (Wendy Anderson) — Wed, 26 Jan 2022 21:54:35 GMT

If you are a member in an LLC, a partner in an LP or LLLP, a shareholder in a corporation, or an owner in any other business entity, the new Corporate Transparency Act (“CTA”) applies to you!

Passed in January 2021 after a decade of congressional efforts, this new federal law aims to combat money laundering activities, terrorist financing, tax fraud and evasion, and other corruption by discouraging the use of shell companies.

Until now, the collection of business entity ownership information fell to financial institutions and their due diligence requirements when opening new business accounts. Once the CTA’s regulations are fully approved and published, this burden will shift to the businesses themselves. All US business entities will be required to report information about its owners to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).

(The public comment period ends on February 7, 2022, and the final regulations will come after that; the information presented below, therefore, is current as of this writing and may change.)

WHO MUST REPORT?

WHAT INFORMATION MUST BE REPORTED?

Information must be reported concerning all “beneficial owners” of the entity. Under the CTA, a beneficial owner is defined as any individual who directly or indirectly exercises substantial control over an entity AND owns or controls at least 25% of the ownership interest in the company. The information required to be reported for each beneficial owner includes:

Full name
Date of birth
Current address
A unique identifying number, such as a passport, driver's license, or FinCEN identifier.

WHEN MUST COMPANIES REPORT?

Under the current proposed guidelines, the timeline for reporting would begin on the date the regulations are finalized. Companies created before the effective date of the final regulation would have one (1) year to file their initial reports; companies created or registered after the effective date would have 14 days after their formation to file.

Reporting companies would have 30 days to file updates to their previously filed reports, and 14 days to correct inaccurate reports after they discover or should have discovered the reported information is inaccurate.

WHAT ENTITIES ARE EXEMPT?

Certain business entities already report the above information to the federal government and are exempt from the CTA requirements. The exempt entities include:

Publicly traded companies that are subject to SEC regulations
Companies (i) employing more than 20 full-time employees in the United States, (ii) operating from a physical office in the United States, AND (iii) having more than $5 million in gross receipts/sales, as shown on a tax return
Dormant companies which (i) have been in existence for more than one year, (ii) are not engaged in active business, AND (iii) are not owned (either directly or indirectly) by a non-U.S. individual
Additional exceptions apply to certain financial institutions and charitable trusts

WHAT ARE THE PENALTIES FOR NON-COMPLIANCE?

The objective of the CTA cannot be realized if business owners do not to comply with the requirements. The penalties are stiff . An individual who fails to meet the reporting standards may face civil penalties of up to $500 per day. An individual who willfully provides or attempts to provide false or fraudulent information, or willfully fails to provide FinCEN with the requisite information, may face criminal fines up to $10,000 and/or imprisonment for up to two years.

WHO WILL HAVE ACCESS TO THE INFORMATION?

Clearly, there are legitimate concerns about the privacy of the reported information. The information will not be publicly available, and the CTA requires the Treasury Department to establish confidentiality and security protocols. FinCEN is authorized to disclose the information to:

U.S. federal law enforcement, national security, and intelligence agencies
Certain other enforcement agencies, with court approval
Non-U.S. law enforcement agencies, prosecutors or judges based upon a request of a U.S. federal law enforcement agency
Financial institutions and their regulators, with consent of the reporting company

NEXT STEPS?

Once the regulations are finalized and the reporting procedures are published, beneficial owners of current legal entities will need to report their information within one year. If your company has experienced changes in ownership through sales of shares or membership interests, or through probate or trust administration, begin to identify all individuals who will be considered beneficial owners so as not to delay your required reporting.

The LAW OFFICE OF WENDY ANDERSON will be available to assist with any questions you may have about the law and with the reporting process itself.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

What's an NDA? Why is it Important?

Wendy@wendyandersonlaw.com (Wendy Anderson) — Mon, 27 Sep 2021 19:24:00 GMT

Non-Disclosure Agreements – also called Confidentiality Agreements - have a place in many business transactions, yet few business owners use them on a regular basis. What is a non-disclosure agreement, and what’s so important about it?

Confidential Information

Businesses have confidential information of all sorts - names and contact information for clients, pricing information from suppliers, marketing plans for the upcoming quarter. Those with employees have human resource files with very sensitive information about their workers.

In the contracts that I draft for clients, the definition of confidential information often includes:

Business and marketing strategies, plans, and budgets
Financial records, loan documents, and accounts payable/receivable
Names and contact information for clients, suppliers, and business partners
Product costs and specifications, sales material or literature, inventories, and distribution methods
Contracts, trade secrets, processes, and procedures
Data, designs, drawings, work sheets, blueprints, concepts, samples, and inventions

That’s a lot of information. But it’s meant to cover all information that you, as a business owner, need to remain confidential.

Sharing Confidential Information

In the course of operating your business, however, there will be many occasions that you need to share this information. When you get an order, you need to inform your staff so they can deliver the products or services that your client just purchased. Your HR team and outside payroll and HR partners need the confidential information that your employees give you when they are hired. Your independent contractors need to know about your products and services, your pricing, and the methods you use to fulfill your orders and commitments. In short, confidential information is not necessarily “secret.”

Who is being restricted?

An NDA restricts one (unilateral) or both (bilateral) parties from disclosing the confidential information for any reason other than what is required for the business deal. If you are selling your business and must disclose your financial records to the potential buyer, that buyer may use your confidential records for its due diligence in determining if your purchase price is fair. But they cannot – if precluded by an NDA – share that financial information with your competitors, for example. Likewise, a confidentiality agreement with your employees may allow them to use your proprietary information to perform their duties, but not allow them to share it with any subsequent employers or outside third parties.

Often both parties are obligated to keep each other’s information private. Perhaps you are hiring a business consultant to work with your management team. The consultant will be prohibited from revealing any private information about your company and its employees, and you might be prohibited from using the consultant’s proprietary materials for any reason other than for working with your management team.

What should be included?

Arizona courts, and I assume courts in every state, recognize that a business has a legitimate interest in maintaining the confidentiality of its private information. For that reason, NDAs are generally held to be legally enforceable.

But don’t make the terms of your NDA so all-encompassing that you risk it being deemed overbroad. Be as specific as you can regarding the:

purpose of the NDA
categories of confidential information that will be disclosed by one or both parties
permitted uses for the confidential information
time frame that the confidential information can be used
time frame for either party to maintain the confidentiality of the information
remedies for breaches

As an example, for the sale of your business, you may permit the potential buyer to use your confidential financial records only for its due diligence process, but not at any time after the sale has completed. On the other hand, if you hire a computer security consultant, you may permit them access to your confidential information on your systems indefinitely, or at least until your contract with them terminates.

If the confidential information that you share includes trade secrets, be sure to treat this information differently, by providing for ongoing confidentiality, at least as long as your company maintains its secrecy.

What happens if someone violates the terms?

Having your confidential information shared improperly can cause serious harm. For that reason, courts allow – and your NDA should include – provisions for an injunction to prevent future disclosure (if you believe the other party is going to violate the confidentiality) and for monetary damages to compensate for the financial harm the business may suffer.

How do I use a confidentiality agreement?

In many circumstances, a stand-alone NDA is appropriate. But confidentiality provisions are found in many other types of agreements where limitations on the use of confidential information are needed. Non-disclosure provisions can be used in employment and independent contractor agreements, business or asset purchase or merger agreements, consulting agreements, loan documents, severance and employment separation agreements, to name a few.

If you need to protect your company’s confidential information from unauthorized disclosure, schedule an appointment so we can discuss your specific situation, and make sure your company is protected with an NDA customized for your needs.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

Protect Your Business with Non-Solicitation Agreements

Wendy@wendyandersonlaw.com (Wendy Anderson) — Mon, 23 Aug 2021 17:23:39 GMT

Many business owners have serious concerns about employees or contractors hurting their business after the worker leaves. A primary fear is that the worker will take confidential information or steal away profitable customers that the business owner worked hard to get!

Arizona case law has established that employees have a fiduciary duty to not solicit your customers to move their business to a competing company while they are employed by you. But the duty does not apply after they are fired or have quit. Additionally, contractors owe no fiduciary duties to your company at all.

Proprietary Information

Almost all of my clients collect confidential information about their customers in their normal course of business. This can include basic contact information, customer preferences, items and dollar amounts of past purchases, potential future orders, and customer business strategies and plans. It’s the quality of this proprietary information that is a significant contributor to the overall success of their business, and why this information is so attractive to a former worker looking to compete with them.

Many of their workers have access to this information so that the customer can be properly serviced. The improper or unauthorized release of this data may create substantial revenue loss for my clients if those customers turn elsewhere for a similar product or service.

Arizona Case Law

Arizona courts have ruled that a company has a protectable interest in its relationships with its customers and in its confidential and proprietary information. In plain language, this means that it’s legitimate for a company to take steps to protect their customers’ information so that others cannot use it in ways that would harm the company.

Any agreement you ask your workers to sign must be narrowly-tailored to protect your legitimate business interests while not placing overly burdensome restrictions on your employee or contractor. In the event of a lawsuit, it will be your burden to prove the scope of your protectable interest.

Non-Solicitation Agreements

A Non-Solicitation Agreement restricts the future actions of a terminated worker regarding their use of your valuable proprietary information. Your company’s protectable interest has limits, however. It may be considered unreasonable to prohibit a former worker from contacting one of your customers if the worker had no contact with the customer while working for you.

A customer Non-Solicitation Agreement can apply only to current customers, as the courts do not see any protectable interest in former clients who have decided to no longer do business with you, or in prospective clients who have not yet decided to do so. Prohibiting your former worker from contacting these folks will result in your agreement being deemed overbroad and unenforceable.

Additionally, the restricted time frame and the geographic area that you define for the prohibition must be reasonable and not overly broad. While the courts support protecting your interests, over time that interest fades and you cannot restrict your former worker for an unreasonably long period of time nor restrict them from contacting customers in a geographic area that you are no longer doing business.

How does this differ from a Non-Compete?

A Non-Competition Agreement restricts your former worker from performing the job they did for you - after they no longer work for you. A Non-Compete might prohibit a freelance photographer from working as a photographer for a year after she stops freelancing for you. In essence, you would be standing in the way of her earning a living at her chosen career for a certain period of time. Courts view these agreements much less favorably than Non-Solicitation Agreements, which only restrict contact with a defined group of customers.

Key Takeaways

Arizona courts respect the valuable relationships you’ve created with your clients and permit you to protect them from former workers. But your restrictions must be reasonable, narrowly-drawn to your former worker’s specific situation, and only apply to your legitimate protectable interests.

Figuring out what your Non-Solicitation Agreement should look like can be complicated. Make sure your provisions are enforceable before you have your workers sign it so that you don’t find out that its overbroad or unreasonable after your valuable customers have been poached. Feel free to schedule time to talk if I can help with this.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

Can You Require Your Employees to Get the Covid-19 Vaccine?

Tue, 20 Jul 2021 22:56:00 GMT

By Jakob Goldfarb, Summer Intern at the Law Office of Wendy Anderson and 2L at University of Washington School of Law

A common question from business owners, as the world transitions to a post-COVID era, is whether or not they can require employees to be vaccinated for COVID-19. While the short answer is that yes, you can require that employees get vaccinated, there are several things for you to consider when deciding whether or not to do so.

Due to the nature of the COVID-19 vaccine, businesses that require their employees to be vaccinated should be aware of the guidelines set by the Occupational Safety and Health Administration (OSHA) and any local standards as well. Being in-tune with these guidelines can prepare you for managing employees’ time off or for what to do when an employee refuses to get the vaccine for one reason or another.

Consider Accommodations

The Equal Employment Opportunity Commission (EEOC) issued guidance stating that employees may be exempt from employer vaccination mandates under the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964, and other workplace laws if they have a disability or religious objection. If you require vaccinations, you may face discrimination claims if you deny reasonable accommodation requests to these employees.

However, if an employee who cannot be vaccinated poses a direct threat to the workplace, you must then consider whether an alternative accommodation can be made, such as allowing the employee to work remotely or take a leave of absence. If accommodations can be made in these cases without undue hardship (defined under Title VII as having more than a de minimis cost or burden on the employer) to your business, you need to do this.

Adverse Reactions

If you require your employees to be vaccinated, then any adverse reaction to the COVID-19 vaccine is work-related. The adverse reaction is recordable if it is a new case and meets one or more of the general recording criteria determined by OSHA. Employers who require COVID-19 vaccines must notify OSHA within 24 hours of an employee’s inpatient hospitalization (or within eight hours of an employee’s death) resulting from an adverse reaction. Adverse reactions may also be required to be recorded if they meet other criteria, such as causing someone to have days away from work or medical treatment beyond first aid.

In order to incentivize more people to get the vaccine, OSHA has begun to relax the recording requirements for adverse reactions to the vaccine. Furthermore, the standards are even more lax when you simply recommend the vaccine and make it available to your employees – this is a viable alternative for many businesses that may be worried about unforeseen consequences of requiring employee COVID-19 vaccinations.

Should I require my employees to get vaccinated?

If you are a business owner, part of operating smoothly is ensuring that your employees have a healthy, safe work environment. Requiring that your employees get the COVID-19 vaccine can confirm that there is one less significant danger to worry about in the workplace.

Studies show that roughly 60% of employees plan to get vaccinated once the vaccine is available to them. However, up to 28% of employees have said they are willing to lose their job if they are required to get the COVID-19 vaccine. Given these statistics, it may make more sense for your business to recommend that employees get vaccinated and make it available for them. And of course, continuing to require the use of personal protective equipment, health checks, masks, and social distancing at your workplace may also allay some fears of transmission of the virus.

If you are considering requiring that your employees get vaccinated for COVID-19, let’s discuss the concerns you have about your company’s operations and determine what the best route to a healthy work environment is for you.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

The post Can You Require Your Employees to Get the Covid-19 Vaccine? appeared first on Law Office of Wendy Anderson .

Have you Accidentally Created a Franchise?

Mon, 14 Jun 2021 22:02:00 GMT

Creative entrepreneurs come up with unique, profitable business ideas every day. Some of those concepts rely wholly on the talents of the business owner, like a craftsman or a writer. But sometimes the business model is easy to duplicate from an operational standpoint – like how a product is made, or what steps employees take in delivering a service. In this case, an entrepreneur might see the promise of additional revenue by allowing other entrepreneurs to pay a fee to use his or her replicable concept.

Of course, this is a Franchise, and it’s been done for years and in countless industries – from fast food to maid service to tutoring academies to hotels. And Franchise businesses can be very successful when they deliver on the expectation that the products or services are the same, from one location to another that use the same business name and trademark.

The business qualities that legally create a Franchise, however, are not that unusual, and an enterprising business owner may find that he or she has accidentally created a Franchise – without intending to, and without following the proper legal steps.

A Franchise is created, by default , if the following three qualities are present in a business transaction between two entities:

1. Right to use a trademark .

The Franchisor may have created a recognizable name, trademark and brand image for the business through advertising and marketing channels. In a Franchise, the Franchisor gives permission for the Franchisee to use that trademark or other identifiable marks or designs to promote the Franchisee’s offering of products or services to its customers.

2. Subject to control .

The Franchisor may have established an effective and efficient business model related to production of goods or the provision of services. In a Franchise, the Franchisor has the right to impose significant controls over the Franchisee so that there is an operational consistency from one Franchise location to another, and the Franchisee will be contractually obligated to run its business accordingly.

3. Required payment .

n exchange for providing an overlay of marketing and branding for the Franchisee’s business, and for access to the tried and true business processes that made the original business successful, a Franchisor imposes the obligation for its Franchisees to pay either a fee or royalties.

It’s easy to see how an Accidental Franchise could be created. You come up with a great concept for a business, develop effective and profitable operational processes, spend money to develop a brand identity and purchase advertising to drive in the customers. And then others want to share in your success – and avoid going through the trial and error that you did.

But if your agreement with these other business owners includes the above three qualities, then you have inadvertently created a Franchise.

The Federal Trade Commission Franchise Rule regulates the sale of Franchises, and numerous states have their own additional regulations. The Rule mandates that any person or legal entity offering or selling a franchise must provide a franchise disclosure document (FDD) to all qualified prospective buyers (1) at least 2 weeks before the execution of a franchise agreement and (2) before the prospect makes any payment. The FDD is a comprehensive questionnaire on 23 topics about the Franchisor and the opportunity for Franchisees, such as financial status, business experience, fees to be charged, marketing strategies, intellectual property, territories, litigation, among many others, and is generally competed with the assistance of an attorney with specialized knowledge

Over the last few years, I have worked with several clients who have considered licensing their business concept and we have gone through the above exercise to ensure that any potential transaction would not be considered an offer for a Franchise. Operating a Franchise in violation of the Rule is considered an “unfair and deceptive trade practice.” The FTC is empowered to impose fines, recover funds on behalf of those business owners that bought into your Franchise, and require that the purported Franchise Agreement be rescinded.

Licensing a successful business idea to other entrepreneurs can be very lucrative and satisfying. If you are considering allowing others to use your concept, please give me a call so we can structure any transaction properly and avoid any future legal trouble!

If I can be of assistance as you review your opportunities to expand on your successful business concept, don’t hesitate to call!

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

The post Have you Accidentally Created a Franchise? appeared first on Law Office of Wendy Anderson .

Hot Topic! Is your Worker an Employee or Independent Contractor?

Fri, 14 May 2021 11:00:00 GMT

A hot topic in employment law right now is the proper classification of a worker as either an employee or independent contractor. Employees, of course, have the benefit and protection of numerous state and federal laws (regarding minimum and overtime wages, workers’ comp and unemployment, anti-discrimination laws, collective bargaining, and others). Employees also create added cost to the employer, when compared with contractors, such as employment tax, benefits, and other overhead.

Contractors, on the other hand, are not protected by employment laws, but are subject instead to whatever agreement is signed between the contractor and the hiring company, and that allows for companies to have skilled workers at a reduced cost. Generally, contractors must fund their own professional liability and medical insurance, pay their own taxes, and purchase the tools and equipment needed to do their work. Remember, typically, an independent contractor is someone that has a specialized skill or ability, advanced education in their area of expertise, can work with little or no supervision, and simultaneously performs services for multiple clients, not just you. Very different from an employee.

Federal Guidance

In January 2021, the US Department of Labor proposed a set of guidelines that would standardize the test regarding how a worker should be classified. In May 2021, the DOL rescinded that proposal given that the new administration is seeking to provide greater legal protections for all workers, including contractors, than the previous guidance would have offered.

With no current federal rule, companies must look to state statutes and caselaw to help them determine what factors to consider to properly classify their workers. The following test factors provide the types of questions you need to consider when bringing on a worker.

Economic Reality Test

The Economic Reality Test asks whether the worker is truly operating a business (an independent contractor) or is economically dependent on the employer (an employee)? The 6 factors create a “balancing test” that business owners can use to determine where their workers fall. Companies must weigh each factor; some may indicate that the worker should be an employee, while others may lean toward contractor. No one factor stands alone in making this determination and factors which are relevant in one situation may not be relevant in another.

Integration : Are the worker’s services an integral part of the employer’s business? Do they significantly impact the company’s overall success?

Permanency : Has the worker worked for the employer a long time? Or do they work on a project basis?

Investment : Has the worker invested in owning facilities, tools, equipment? Or do they use the resources provided by the company?

Control : Does the employer control the worker’s performance, schedule, etc.? Or does the worker have the right to work for competitors and to take on clients of their own?

Exposure : What are the worker’s opportunities for profit and loss related to the fees charged, the clients accepted, and the cost of necessary resources to do the job properly?

Skill : What level of skill does the job require – routine tasks with little training, or more specialized skills that require initiative, judgment, independence?

ABC Test

Many states use the ABC Test to determine how a worker should be classified. If the company cannot prove A, B and C, then a worker would be classified as an employee, even if there is a valid independent contractor agreement, as most states would look to the reality of the work situation and not to the letter of an agreement.

With this test, Prong B is typically the hardest one to comply with. Many companies hire contractors to supplement their work force and perform tasks that are integral to the company’s mission. For instance, a company that designs websites might engage contractors who are skilled website designers. Likewise, a medical practice might bring on licensed physicians as contractors to provide medical services to their patients. In both cases, these situations violate Prong B of this test.

It’s critical to check the laws of your state – some states that have adopted the ABC Test do not require Prong B, and others may have certain exceptions, such as those permitting highly educated and licensed professionals to work as contractors.

IRS Test

The IRS test considers the degree of control that the hiring entity has over the worker vs. the level of independence the worker may exert. According to IRS.gov, facts that provide evidence of the degree of control and independence fall into three categories:

Behavioral : How much control does the company have over the worker’s tasks, method of working, and where and when the work is done?

Financial : Does the company control the financial aspects of the worker’s job, such as the rate and frequency of pay, reimbursement for expenses, and purchase of the tools needed for the worker to do the job?

Type of Relationship : Have the worker and company executed an independent contractor agreement? Are employee benefits, retirement plans, vacation, or paid time off provided? Does the relationship LOOK like an employment relationship, or does it appear to be a relationship between independent businesses?

Arizona Statute

In 2016, A.R.S. 23-1601 became effective, providing for a Declaration of Independent Business Status which would establish a rebuttable presumption of an independent contractor relationship. The terms of this declaration are similar to the factors presented in the above tests. Even if fully signed by the worker and the company, this presumption can be rebutted if a worker claims that an employment relationship existed instead and can prove that the actual relationship is not substantially consistent with the terms of the declaration.

What’s Next?

From a federal standpoint, we don’t know. The DOL may (or may not) propose a new federal rule that provides a uniform test or analysis.

In the interim, remember that there is no “safe harbor” for misclassifying, even unintentionally. If there is a dispute, the burden will fall on the hiring company to prove that a worker was properly classified as a contractor (using the above test factors). If the decision goes against the company, it may be liable for back wages and overtime, employee benefits, tax obligations, and penalties.

What Can a Business Owner Do?

Whether working under any potential federal rule or under current state laws, there are steps you can take to protect your business by establishing a relationship with a worker that tips far in the favor of a contractor relationship. (Of course, hiring a worker as an employee is always acceptable, and legally, is the safer way to go.)

As we’ve seen in just the last 5 months, this area of employment law is very fluid right now. Stay up to date on the developments so that you remain compliant and reduce your risk of liability for misclassifying. If I can be of assistance as you review your current worker classifications, or if you are looking to bring on new workers, don’t hesitate to call!

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Telecommuting… Will it be a Permanent Policy for your Company?

Mon, 26 Apr 2021 15:39:00 GMT

The workplace of April 2021 looks vastly different than it did just 14 months ago. For businesses that are generally not customer-facing, or for certain office jobs that support those workers who do interact directly with customers, the possibility of long-term or even permanent telecommuting is real.

If you’re considering this as an option for some of your employees, there’s a myriad of factors to think about. The goal is for your company to adopt policies and practices that can equally apply to workers in the office and those at home, and to ensure that your remote workers are aware of, and comply with, those policies.

Employee Handbook

Review your current Employee Handbook and any office policies you have adopted. Make sure that you update any policy for remote work, including the use of social media during work hours and on-the-job impairment due to the use of drugs (even if used legally) and alcohol. You may want to reissue the handbook to all employees by posting on a shared site or sending a PDF to each worker.

Privacy and Technology Security

The security measures on your employees’ home computers and their internet connections are critical if they will be accessing company documents from home. Talk with your technology provider and make sure that your remote workers have the necessary firewalls, encryption, and other measures in place. Losing data or suffering a breach will be equally painful (and your company will be equally liable) whether it originates from your office or from a worker’s home.

Work Hours, Breaks and Overtime

As the employer, you are ultimately responsible for paying your employees according to current state and federal law. This includes their base wage, payment for breaks and overtime, and tracking their sick time properly. You can require that your workers track their time, but providing a user-friendly tracking tool will go a long way toward achieving accuracy.

Tracking time is essential for those hourly or salaried workers who work overtime in any given week. Remember, in 2021, any salaried worker earning less than $58,240 annually is eligible for overtime pay, pursuant to the Fair Labor Standards Act (with some exceptions).

But you don’t have to allow overtime, if the demands of your business don’t require it. Make sure your policy is clear, so that workers who have the convenience of a home office don’t tend to work all hours of the day, while racking up the overtime. You must pay employees for all hours worked, so having a clearly communicated policy make it easier for you to manage payroll.

Management Tools

Every business has different needs when it comes to efficiently and effectively managing its workers. Investigate and implement tools that allow for virtual meetings, chatting, file and data sharing, calendar scheduling, continuing education and training, performance reviews, and all other functions that previously were done face to face. Employees are still subject to your rules and they still need effective management, regardless of where they are working.

Intellectual Property Rights

If your workers create intellectual property as part of their employment, make sure that the ownership of that intellectual property is clearly understood by all parties. Simply using one’s own computer while working at home does not necessarily vest ownership rights.

There’s no reason to discontinue telecommuting if you have realized over the last year that it can be an effective tool for your business. But there’s nothing wrong with letting your workers know that telecommuting is not their right – it’s your choice as the owner of the company, and they must comply with your rules.

If you are looking into making telecommuting a permanent part of your business model, make sure that you’ve considered the relevant laws as well as the operational aspects of managing remote workers. Schedule a consultation with me if I can help get this process started.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Indemnification – What is it? Why do you need it?

Wed, 31 Mar 2021 18:34:00 GMT

If you have ever read a contract and did not understand at least one of the provisions, chances are it was the indemnification section. Yes, the words are confusing and there might be only a single long sentence in the whole paragraph, and that paragraph could be as long as a full page. Ugh! Even I’ve had to re-read these sections multiple times!

The concept of indemnification, however, is not that hard to understand. Essentially, to indemnify someone is to promise that you will take responsibility for any financial expense or damage you cause but which they are held responsible for.

An Example…

As an example, let’s say that a general contractor brings on a flooring installer as part of a home remodel. During installation, the flooring installer drops a box of expensive tile and it is completely ruined. The homeowner, who has already paid for the box of tile, may demand that the GC buy the replacement because the homeowner hired the GC to manage the remodeling project. But the financial damage was really caused by the flooring installer who dropped the box. If the GC had an indemnification agreement with the flooring company, the flooring contractor would reimburse the GC for the cost of the replacement tile. Ultimate financial liability would fall to the party who actually caused the damage.

Another Example…

Likewise, consider an event planner who signs a contract for meeting space at a convention center on behalf of her client who is holding an employee conference. The event planner will want to have an indemnification agreement with her client so that if the client’s employees cause any damage to the meeting room, she will be able to recover any financial loss – that she had to pay to repair the damage at the convention center – from her client, whose employees actually caused that damage.

But what about Insurance?

Liability insurance is the usually the first line of defense for a business owner when unexpected damage occurs. So in the example above, if the damage to the convention center was significant, the event planner might file an insurance claim to pay for the repair expense, but then the indemnification with her client would likely mean that the client’s insurance carrier would reimburse the event planner’s insurance carrier, or actually fund the payment directly to the convention center.

So do I need this?

If you are a business owner, it’s critical to know what risks your company faces – both in the ordinary course of business and in more unexpected circumstances. One-size-fits-all indemnification agreements are not a good idea because every business (and the risks it faces) is unique and the indemnification you need to secure can be very different from the indemnification any other company needs.

Accidents will happen, and indemnification exists to protect the not-at-fault parties. But if you fail to get an agreement with the other professionals you work with, you risk taking on the financial responsibility yourself – even if you are not truly at fault.

If you believe your company is not adequately protected, let’s discuss the concerns you have about your company’s day to day risk factors, and let’s create an indemnification agreement that will give you peace of mind. Just click below to schedule some time to talk.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Buying or Selling a Business – Have You Done Your Homework?

Wed, 17 Mar 2021 17:56:00 GMT

Buying or selling a business can be a very exciting time for both the buyer and seller. As a buyer, you may be starting a brand new venture or growing your existing business. As the seller, you may be moving on to new and different projects or life experiences. Either way, this transaction involves much more than just agreeing on the purchase price.

The first question is to define what you are truly buying or selling. Will only certain assets of the business be transferred from the seller to the buyer? Or will there be a transfer of all of the membership interests of an LLC, or all of the shares of stock of a corporation?

Asset Sale

Assets of a company can include not only equipment and inventory, but also client lists, intellectual property, accounts receivable, goodwill, and current contracts if they are assignable to a new owner. The sale will include whatever elements the buyer and seller agree upon and negotiate into the price. The company itself, however, is not sold, even if it is left with no assets after the sale completes.

Membership Interest or Stock Sale

Transferring the ownership of a company – whether that takes the form of membership interests or shares of stock – means that everything about the entity transfers. This includes the assets listed above, but also the entity’s name, tax and legal history, business credit score, liabilities, employment contracts, and other tangible and intangible elements.

Do your Homework

When buying all or part of a business, it’s important to do your research – to make sure that you are buying what you think you are buying. The due diligence process is intended to ensure that there are no surprises that show up after the sale has concluded, because that will likely cause time, effort and expense that the buyer did not anticipate. Information disclosed by the seller should include:

On the buyer’s part, certain representations and warranties should be made regarding the buyer’s ability to finance the purchase and to competently run the business after the sale.

Non-Compete Agreement

A seller of a business generally has deep knowledge and significant contacts within the industry that he or she has worked for years. It may be important to the buyer that the seller not establish or join another entity that competes with the business he or she just purchased. Non-competition provisions in this context are legally enforceable for significant periods of time and geographic distances, and are well-settled law in Arizona.

More than 40 years ago, the Arizona Court of Appeals upheld an agreement against a former business owner for non-competition within a 100-mile radius for 10 years. Gann v. Morris , 596 P.2d 43 (Ariz. App. 1979). Despite the scrutiny that non-competes in employment settings face, this ruling, in the context of a business sale, has been upheld in numerous subsequent cases. “When a business is sold, the value of that business’s goodwill usually figures significantly into the purchase price. The buyer therefore deserves some protection from competition from the former owner.” Valley Med. Specialists v. Farber , 982 P.2d 1277 (Ariz. 1999).

As excited and optimistic as you may feel, you need to be sure to protect your interests – whether you are the buyer or seller. Making the effort to research the transaction so that you are not surprised after the fact, by something that was left unaddressed, will be time well spent.

If you are in this position, let’s have a conversation regarding the most advantageous type of transaction and how to best ensure that the proper information is disclosed and communicated – as early in your buying/selling process as possible. Let me know how I can help. Just click below to schedule some time to talk.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Arbitration Agreements – Ensuring a Better Way to Resolve a Dispute

Tue, 02 Mar 2021 10:00:00 GMT

Often, the first words out of the mouth of someone who feels they’ve been wronged are “I’ll sue you!”

But is filing a lawsuit really the best way to resolve a dispute?

As a business owner, you are in control of the agreements you have with your customers, your suppliers, and your contractors. Consider the benefits of having a written agreement specifying that the parties will submit any disputes to arbitration, rather than permit either party to file a lawsuit in the Arizona courts. (Arizona permits an employer to have an arbitration agreement with its employees, but that process is outside the scope of this article.)

An arbitration agreement can be a stand-alone document, or it can be a single section within a more comprehensive agreement, such as a master services agreement or consulting agreement. In the agreement, the parties can lay out some or all of the rules of the proceeding – how much discovery is allowed, how many depositions will be permitted, how long is permitted for the entire process, and what type of damages the arbitrator can award. At its most brief, the arbitration provision may just detail the procedure for jointly selecting the arbitrator, who then is given the discretion to determine the rules and overall process.

In Arizona, the courts can require opposing parties to arbitrate if the dollar amount in contention is less than $50,000. Otherwise, each party has the right to initiate litigation if there is no agreement. Having this agreement or clause as part of your business documentation library will ensure that – should there be a dispute that cannot be resolved through conversation and negotiation – the dispute resolution process is clearly defined and eliminates the right of the opposing party to haul you into court!

Litigation can be protracted, expensive, public, and unpredictable. If you would like to take control of this potential situation before it arises, give me a call and we can determine the best way to protect your business from being subject to the litigation process.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Your Original Work – Who Really Owns It?

Wed, 17 Feb 2021 17:35:00 GMT

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It’s 2021…What’s New for Business Owners?

Wed, 03 Feb 2021 22:01:00 GMT

If you own a business, and especially if you have employees, there are several legal developments you need to be aware of as we move into 2021. With the new administration, it’s likely that other changes will be coming, but in this first week of February, there are just a few things to note — Arizona’s new law regarding distracted driving is now in effect, the minimum wage has increased, and adult-use recreational marijuana may affect your workplace.

Distracted Driving Law

On January 1, Arizona’s distracted driving law became effective. It is now illegal to hold your mobile device while driving, or use it unless it is in hands-free mode. As a business owner – how does this impact you?

If you have employees that drive for your company, either in their own vehicle or in a company vehicle, ensuring that they adhere to this new law is critical. As an employer, you hold vicarious liability for the actions taken by your employees when they are acting in the scope of their job duties. This means that if your employee is making a delivery, on a service call at a customer’s home or office, or simply picking up lunch for the office staff – your company is responsible for any actions they take while driving. Should your employee be involved in an accident, they may get the ticket, but you may be liable for the cost of any damage incurred. (Now is a good time to make sure your business insurance covers auto liability.)

Be sure to inform your employees of this new law and stress that your company has a zero-tolerance policy for using a mobile device – for talking, texting, or any other activity – while driving. If your employee handbook does not address this new regulation, it’s time for an update!

Arizona Minimum Wage

The Fair Wages and Healthy Families Act, passed by Arizona voters in 2016, provides for a cost-of-living increase on January 1 of each year after 2020. Effective this past January 1, the minimum wage in Arizona is $12.15 – until the next increase in 2022. If you have workers who receive tips, they can be paid at a lower hourly rate, however their total compensation, when tips are factored in, must be equal to or greater than Arizona’s minimum wage. Make sure your payroll provider has accounted for this change. Penalties for withholding wages can be stiff!

Recreational Marijuana

In 2020, Arizona voters approved the adult use of recreational marijuana. Of course, you can prohibit possession or use of marijuana while on the job, but how else can you protect your company?

As an employer, you do not have to allow any worker who is under the influence of marijuana used on personal time to remain on the job, and you are permitted to require a drug test for any employee you suspect is impaired (and for job applicants, of course). Be sure that the procedures you follow related to the drug testing and any subsequent discipline (up to and including termination) are communicated clearly to your staff and are documented in your employee handbook. Let me know if you’d like assistance crafting a firm, clear, and legally-enforceable policy.

If you have any questions about how your business might be impacted by new laws or would like to review your existing documentation, don’t hesitate to call or schedule an appointment.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Record-Keeping under the FFCRA and CARES Act

Mon, 30 Mar 2020 21:47:00 GMT

Avoid future headaches by getting and keeping the information NOW that you will need LATER

Last week, your rights and obligations as an employer changed at a dizzying rate! The beginning of the week brought fear and uncertainty as business owners were newly required to provide wages for sick time and medical leave far in excess of their normal obligations.

But the end of week brought some relief, with the announcement about tax credits and forgivable loans for businesses that maintain their payroll and pay certain bills – all in the government’s attempt to keep commerce moving at a close to normal pace. Below is some information regarding documentation that you should create and keep over the next few months.

FFCRA

The Families First Coronavirus Response Act (FFCRA) allows your employees to take paid sick leave and expanded family and medical leave, between April 1 and December 31, 2020, due to circumstances related to the coronavirus outbreak. See my previous article here .

Your company may be eligible for tax credits for paying sick leave wages. When an employee applies for leave (to your HR department) under this new law, they must provide appropriate documentation, including:

The supporting documentation may include a copy of the federal, state, or local quarantine or isolation order related to COVID-19 or written documentation by a health care provider advising you to self-quarantine.

If an employee takes leave to care for a child whose school, place of care, or child care provider is closed, this requirement may be satisfied with a notice of closure or unavailability from the facility or person, including a notice that may have been posted on a government, school, or day care website, published in a newspaper, or emailed from an official of the school, place of care, or child care provider.

Note also that all existing certification requirements under the FMLA remain in effect if an employee is taking leave for one of the existing qualifying reasons under the FMLA. For example, if a worker is taking MORE time off than the two weeks of emergency paid sick leave because their COVID-19-related medical condition rises to the level of a serious health condition, they must continue to follow your company policies and provide medical certifications under the FMLA for the leave time. Of course, you are free to waive this requirement given the stresses on our healthcare system right now.

If you intend to claim a tax credit under the FFCRA for the wages paid to employees taking sick leave or expanded family and medical leave under the Act, you should retain all of the above documentation. As the exact process for claiming tax credits has not been fully communicated yet, you should consult the IRS’s applicable forms, instructions, and information for continuing information about claiming a credit and what other documentation may be required. You will be glad you collected the relevant information up front, rather than having to scramble to find it later.

Required Poster from the DOL

All employers are required to post notices related to federal and state employment laws that apply to their company in their workplace. With the passage of the FFCRA into law last week, the Department of Labor now requires this new poster – explaining an employee’s rights to take sick leave for reasons related to the coronavirus – to be posted on April 1, 2020, the date the Act takes effect. I recommend you post it by end of business TOMORROW, on March 31. This and all other required posters must be in a conspicuous place where they are easily visible to all employees, such as in a breakroom or near restrooms.

CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allocates funds for small businesses with 500 or fewer employees, and for those who are self-employed or independent contractors, via emergency grants, forgivable loans through the Payroll Protection Program (PPP), and relief for existing loans:

Payments made by your business during the 8-week period beginning on the date of the origination of the PPP loan may be forgiven. If you plan to apply for a loan under the PPP, be sure to keep detailed records of all of your expenses and proof of your payments to submit to your lender when you seek forgiveness of some or all of the loan repayment. Stay updated through online sources for the application for PPP forgivable loans. Things are changing fast, but it may be a number of weeks before systems are put in place to accept the volume of applications that are expected.

Information will continue to be available on government websites and in news articles. It’s all very complicated, so if I can help you navigate through, please schedule a call with me. I’m always here to help.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Keeping Your Workplace Safe during a Public Health Crisis

Wed, 25 Mar 2020 21:24:00 GMT

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Coronavirus Laws – What Business Owners Need to Know

Fri, 20 Mar 2020 15:05:00 GMT

Here is valuable information for business owners related to new legislation dealing with the effects of COVID-19. On March 18, the President signed the Families First Coronavirus Response Act into law. Here are highlights of two parts of the law that you need to know about right away.

Please understand that this situation is changing daily and various governmental agencies will be providing guidance continually. If you have any specific situations related to your business or employees, please feel free to schedule a call with me using this link .

For both the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act , the following apply:

Emergency Family and Medical Leave Expansion Act Effective April 1 through December 31, 2020

This provision expands FMLA to apply to employees who must care for children due to school closures. Below are a few key elements of the expanded FMLA provisions.

Emergency Paid Sick Leave Act Effective April 1 through December 31, 2020

This provision provides for 10 days of mandatory paid sick leave for COVID-19-related events. Below are some of its key provisions.

Next Steps

This is a very confusing and uncertain time. Please use good sense and treat your workers with kindness as we try to navigate through this together.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Legal Information for your Business related to the Coronavirus Outbreak

Fri, 20 Mar 2020 14:57:00 GMT

By now, you are certainly aware of what is occurring in our community and state, the country, and even the world in relation to the outbreak of the coronavirus (COVID-19). In addition to questions you may have about your personal health risks, you may also be concerned about risks to your business. It’s important that you communicate safety policies, and any changes in your daily operations, to your employees. Such changes may encompass the move to working from home for those employees whose positions allow for that, granting sick leave to employees who have or may have been exposed, postponing meetings or using an online meeting room, and reducing or eliminating work-related travel.

If you believe your company will be unable to fulfill contractual obligations due to the effects of the outbreak, please give me a call to discuss. The Force Majeure section of your contract may protect you from liability. Generally, Force Majeure events listed in a commercial contract include natural disasters (fire, storms, floods), governmental or societal actions (war, invasion, civil unrest, labor strikes), infrastructure failures (transportation, energy), acts of God, and other events beyond the control of the affected party. Under certain circumstances, this may apply now and, if so, will grant you temporary relief from having to hold up your end of the deal within the time frame specified in the contract.

Regarding any actions you take related to your workforce, please be aware that an employee’s state and federal law protections still apply:

Americans with Disabilities Act (ADA) protects applicants and employees from disability discrimination. It is relevant to COVID-19 because it prohibits employee disability-related inquiries or medical examinations unless:

Sending an employee home when displaying mild symptoms of the virus would not violate the ADA’s restrictions because that would be unlikely to be considered a disability-related action. On the other hand, if the illness were serious enough, the action would be permitted under the ADA as the illness would pose a “direct threat” to your other employees. In either case, an employer may send employees home, or allow employees to work from home, if they are displaying symptoms of contagious illness. Be mindful to treat employees equally to avoid any appearance of discrimination and, in all cases, avoid asking any illegal health-related questions.

You have the right to require clearance from a doctor before permitting an employee exposed to the virus to return to work. With our medical professionals facing an increasing workload, however, consider permitting employees to return following an appropriate quarantine period, and requiring that they be symptom-free for 72 hours. The ADA requires that information about the medical condition of an employee be collected and maintained on separate forms and in separate medical files and treated as a confidential medical record. You should refrain from announcing to employees that a coworker is at risk of or actually has a disease. Instead, focus on educating employees on best practices for illness prevention.

Family and Medical Leave Act (FMLA) and Arizona’s Fair Wages and Healthy Families Act may apply at this time. An employee who is experiencing a serious health condition or who requires time to care for a family member may be entitled to take leave for continuing medical treatment or exams. If your company employs 50 or more people, FMLA may apply. In Arizona, all companies are subject to our Earned Paid Sick Time laws.

Some employees may wish to stay home from work out of fear of becoming ill. You may allow the employee to use any PTO or vacation time available, and of course, can allow unpaid leave at your discretion. Exempt employees must be paid if they work for part of a workweek, but do not have to be paid if they are off work for the entire week. Before disciplining an employee for violating any company policies related to extended unauthorized absences, however, consider each situation individually. If you have any questions about this, please contact me.

Employees may be entitled to workers’ compensation benefits if they contract the disease during the course of their employment. For example, employees in the healthcare industry may contract the disease from a patient who is ill. Whether an employee is eligible for other benefits, such as short-term disability benefits, will depend on the terms of the policy and the severity of the employee’s illness.

Occupational Safety and Health Act (OSH Act) requires that an employer provide a safe workplace conditions that are “free from recognized hazards that are causing or are likely to cause death or serious physical harm.” Workers also have the right to receive information and training about workplace hazards, and to exercise their rights as employees without retaliation. There is no specific guidance covering COVID-19. However, some OSHA requirements may apply to preventing occupational exposure to COVID-19, such as in the healthcare industry. Please contact me if you have concerns specific to your business.

I am here, as always, to be a resource to you. Please let me know if I can help.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Increasing your Staff? Classify them correctly as Independent Contractors or Employees

Wed, 04 Mar 2020 23:58:00 GMT

Most business owners, at some point in the life of their business, will bring on help in order to run or grow the company. Some owners may be looking for help only a few hours a week while others may be creating a sizable enterprise. Regardless of the circumstances, any company that seeks to pay individuals for their labor must decide if that worker will be an employee or a contractor.

Employment is presumed by the government

Over the years, federal and state legislatures have enacted a comprehensive set of laws designed to protect employees. As a result, in a dispute between the company and the worker, a governmental agency is likely to presume that the worker should be classified as an employee, giving the worker substantial legal protections, and making the hiring company subject to these laws:

Classifying workers as Independent Contractors

In addition to avoiding oversight by the agencies administering the above-listed laws, many business owners see numerous benefits in engaging their workers as independent contractors, rather than hiring them as employees.

First, contractors are ineligible for employee benefits, such as health insurance, retirement plans, stock options, paid vacations, sick days, life insurance, disability insurance. The hiring company is not required to cover contractors under their workers’ compensation or unemployment insurance policies. This means less cost for the company and less effort to administer these programs for the worker.

Additionally, the hiring company can avoid tax obligations, as it is not required to withhold or pay payroll taxes for independent contractors.

And, while this may not apply to all companies seeking to hire workers, independent contractors have no legal rights to collective bargaining, as employees do.

Balancing Test

A governmental agency is likely to look to numerous factors to determine if a worker should be classified as an employee or as a contractor. When you bring on a worker, consider these tests so that you make the decision that is in the best interests of your company, but also the one with the least risk.

YES responses to the following questions will lean toward the worker being considered an independent contractor. NO responses will indicate an employer-employee relationship. Keep in mind that none of these are controlling, but when all of the circumstances are considered, where does the balance tip?

CONTROL
Does the worker have the right to accept, reject, or ignore any work opportunity offered to them? Do they control if, when, where, how, and for whom they will work? Do they have freedom to work for your competitors? Are they subject to minimal, if any, monitoring of activities or control over the details of their work?

PERMANENCE
Does the worker have a high degree of freedom to exit the relationship? Is the worker engaged on a project-by-project basis (even if numerous subsequent projects), rather than in a relationship with no stated or anticipated termination?

INVESTMENT
Does the worker invest in his or her own technology, software, facilities, equipment, or helpers? Is the worker responsible for all costs associated with the necessary resources to get the job done?

SKILL AND INITIATIVE
Does the worker have an advanced level of education and skill, or a license or certification, necessary to perform the work? Does the worker take initiative to complete the work, rather than wait for direction from a supervisor? Does the worker arrange for and fund the continued training needed to maintain or advance his or her skills?

OPPORTUNITY FOR PROFIT AND LOSS
Does the worker control the major determinants of profit and loss by (a) selecting among different jobs with different fees, (b) accepting as many jobs as they see fit, and (c) negotiating with customers over the fees they will be paid? Is the worker at risk of loss due to his or her own decisions?

INTEGRATION
Does the worker perform work that is outside the normal scope of the company’s business operations? Is the worker’s function to support the work of the company, and not to be another person providing the services that the company normally offers? Do the worker’s services insignificantly affect the company’s success or failure?

Several states use a stricter version of a test, leaning toward a broader definition of what constitutes an “employee” and being less friendly to companies who prefer to engage with contractors. Currently, those states are California, Connecticut, Florida, Illinois, Massachusetts, and New Jersey.

Mis-classifying can lead to harsh penalties

If your company is found to have mis-classified its workers, the financial costs and penalties can be significant. Claiming that you were unaware of your obligations to classify a worker as an employee will not get you off the hook. Consider what a company might be required to pay:

How can you protect the company?

Clearly, taking a good look at the responsibilities and duties involved in the position in question is the first step. If you can definitively answer YES to the majority of questions above, then you might be safe in engaging the worker as a contractor. But if you cannot, then it’s a significant risk to do so and hiring the worker as an employee might be the best option for the company.

Another step, if you determine that classifying the worker as a contractor is the best way to go, is to have a formal agreement drafted that clearly outlines the roles and responsibilities of each party, and that unambiguously defines the nature of the relationship. Please understand that an agreement, even if signed by both parties, that says the worker is an independent contractor will NOT hold up if the reality of the situation proves otherwise.

This area of the law is very fluid right now and staying on top of the latest developments will reduce your company’s risk. If you are considering adding staff, schedule a consultation with me to discuss the situation and your options.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

The post Increasing your Staff? Classify them correctly as Independent Contractors or Employees appeared first on Law Office of Wendy Anderson .

Employment Law Changes for 2020 – Do You Need to Review Your Company’s Policies?

Sat, 08 Feb 2020 02:17:00 GMT

For employers, several important rulings and decisions were announced in 2019 that are likely to affect your relationship with your employees going forward. Not all of these will apply to every business, but be sure to note those that are relevant to you. You may choose to take action, such as reviewing your compensation structure, reevaluating your relationship with other companies, and updating your employee handbooks and policies.

New Overtime Rules

It’s common knowledge that workers who are paid hourly are eligible for overtime pay, under the Fair Labor Standards Act, if they work in excess of 40 hours in any given week. Less well known is that salaried workers also may qualify for overtime pay, based on their total annual compensation. Since 2004, any salaried worker earning less than $23,660 per year, or $455 per week, should have been paid overtime. Now, effective January 1, 2020, any worker earning less than $35,568 per year, or $684 per week, is eligible for overtime.

This change is in recognition of the increasing cost of living over time and the increases in wages and salaries since 2004. For businesses, this means that any salaried employee earning less than $35,568 must keep track of their time worked (as the employer, the burden is truly on you to track employees’ work hours) and their payroll stub must show overtime pay. Of course, you may establish a policy that any overtime work must be approved in advance, or that overtime work is prohibited entirely. Or you can increase any individual worker’s annual salary to above the threshold, and they will continue to be exempt from overtime.

Rate of Pay for Overtime Calculation

The Department of Labor issued another decision related to overtime pay in December 2019. The rule was issued to address the uncertainly about the role benefits and perks play when calculating an employee’s regular rate of pay, which is then multiplied by one and one-half to determine the pay rate for overtime hours. This rule became effective January 15, 2020.

Employers compensate their employees in numerous ways. In addition to an hourly or salaried wage, workers may receive compensation through payment of benefits premiums, paid time off, tuition for education, gym memberships, parking or commuting discounts, coffee and snacks, and bonuses, to name a few. Under the new rule, these categories of compensation may be EXCLUDED when calculating the employee’s regular rate of pay.

Joint Employer Test

The Department of Labor recently updated its criteria for determining Joint Employer status. In the past, “joint employment” might have arisen when an individual had employment relationships with two or more employers that shared control of the employee. The criteria was very broad and placed the responsibilities of serving as an employer on entities that had only indirect control of the employee.

Workers falling under this scenario might be an employee that worked at multiple retail storefronts owned by the same parent company, a temporary worker placed in an administrative role by a staffing agency, a restaurant worker in a franchise location that follows the operational direction of the parent franchise company, or an electrician hired by a general contractor who worked for the owner of the building project.

The final rule, effective March 16, 2020, provides updated guidance for determining joint employer status if an employee performs work that simultaneously benefits the employer and another individual or entity. The rule adopts a four-factor balancing test. Does the potential joint employer:

If your company benefits from the work of a worker but you do not meet the above criteria, you will no longer be considered that worker’s joint employer.

Employee Use of Company Property for Personal Communication

The National Labor Relations Board recently overturned a 2014 ruling that an employer’s policy prohibiting an employee from using the company’s email system for non-work purposes was invalid. The 2014 decision held that barring an employee from using the company email was a violation of the National Labor Relations Act, which protects a worker’s right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid and protection.” Employees had the right to use company email to communicate with others about their work conditions and concerns, which was construed very broadly under the 2014 ruling, such that an argument could be made that many personal emails fell under this protection.

The new ruling reestablishes an employer’s right to control the use of its own property by restricting the use of the email system, and other company owned communication tools, like smartphones and internet connections, to only work-related communication (unless truly for purposes of forming a union or collective bargaining). The Board recognized that rarely, today, is company-owned equipment the only reasonable communication means available to employees.

Confidentiality of Workplace Investigations

The National Labor Relations Board also overturned a prior decision that prohibited employers from requiring confidentiality during all workplace investigations. The prior ruling was intended to support an employee’s right under the National Labor Relations Act to discuss the terms and conditions of their employment. However, employers found that, without required confidentiality, they experienced less candor and cooperation during the investigations.

With the new rule, employers may now require confidentiality of an employee’s conversations with investigators while an investigation is open. Once the investigation ends, non-management employees may discuss the investigation unless there is a significant reason for the employer to continue to require confidentiality.

Arbitration Agreements between Employers and Employees

In 2018, the US Supreme Court ruled, in Epic Systems Corp. v Lewis , that mandatory arbitration agreements between employers and employees were generally enforceable under the Federal Arbitration Act. While that case focused on class action lawsuits by employees, the decision had implications for all discrimination claims (race, color, religion, sex, national origin) protected by Title VII of the Civil Rights Act.

Back in 1997, the Equal Employment Opportunity Commission (EEOC) issued a policy statement, disfavoring mandatory arbitration agreements between employers and employees. Mandatory arbitration was seen as (a) unfairly limiting an employee’s right to a jury trial, (b) biased against employees, and (c) undermining public policy. Recognizing the holdings in Epic and numerous other cases decided since 1997, the EEOC rescinded its policy in December 2019, stating that it did not reflect current law. However, the ruling indicates that the EEOC maintains its authority to challenge the enforceability of any particular arbitration agreement, so employees still may file a claim against an employer with the EEOC.

While EEOC policy statements do not have the force of law, they are relied on as guidance by both EEOC investigators and courts. Several states have enacted laws banning mandatory arbitration agreements for certain discrimination claims, particularly in light of the #MeToo movement, but there has been no resolution yet in federal courts whether these laws are preempted by the Federal Arbitration Act.

Your Next Steps

These recent decisions may shed light on some employment situations that you have not encountered or had reason to even think about. In order to protect your company, it’s wise to think about how you could be affected and what changes need to be made now, or what policies should be put into place for potential future situations.

I can help determine how your company could be affected and together we can devise a plan to make sure that your company is not vulnerable. Remember, state and federal law is very fluid in the area of employer-employee relations, and it’s critical to stay on top of the issues that are getting attention. Call me to set up a time to meet so we can review your current situation and devise your plan.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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How Protected is your Business? Make Sure your Bases are Covered with a Legal Strategy Session

Wed, 08 Jan 2020 21:43:00 GMT

The only thing constant in business is change. Whether it’s your business operations or matters relating to your workers, changes in your supply chain or in your customer base, federal regulatory updates or new case law in your state…changes bring both concerns and opportunities.

As a business owner, it’s your responsibility to anticipate, recognize, and respond to changes in a positive way. Ensuring that your documentation is current given the status of the business, that it clearly outlines your agreements with others, and that it is compliant with existing laws is a necessary step to protect your business from potential disputes or other legal matters.

In 2019, I helped clients in disputes with their partners about how to split up the assets of their LLC. I worked with employers whose employees left and solicited customers away from the business. I helped business owners come to resolution with their clients over past due payments and services not rendered as expected. And I responded to lawsuits such that all matters were resolved through negotiation, and not actually through protracted litigation. With advanced planning, these situations might not have become antagonistic.

A legal strategy session is just what many business owners need!

The goal of this session is primarily proactive. Here’s what will occur:

A great benefit of an annual strategy session is the chance to discuss matters that are not part of your day to day operations with an independent third party – your attorney. In addition to offering my experience representing and advising many small business owners in their legal matters, I can also offer the perspective of someone who managed a marketing department in public and private companies for more than 20 years. This dual perspective – business and legal – will allow us to discuss problems and opportunities in a completely different and eye-opening light.

Cost of legal services is always a concern for business owners. With a legal strategy session, you will know what next steps are recommended, but the choice is yours. Often, the recommended next steps are not urgent, and can be spaced out to accommodate budgeting throughout the year. The one-hour session itself is an investment of only $350.

If you own a small business and do not regularly consult with an attorney, a legal strategy session is a low-risk, low-cost opportunity for you to gain valuable insight into the health of your business. It’s my passion to help business owners protect themselves. Contact me to schedule your legal strategy session so we can work together to do this for you.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Remote Workers… How Can You Protect Your Company When Your Workers Work From Home?

Wed, 13 Nov 2019 03:33:00 GMT

Working from home – it’s the dream of so many workers! With today’s technology, working outside the confines of a traditional office has never been easier. Whether your employees are based at their own home office, using a co-working or executive office space, or taking up residence at their favorite coffee shop, remember that they are still entitled to all the protections afforded by state and federal law, and you as the employer still have all the obligations.

Wage and Hour Laws

As you know, under the federal Fair Labor Standards Act, you must compensate your workers for all hours worked, including paying overtime to qualifying employees for any hours worked in excess of 40 in a given week. Remember, as of January 1, 2020, even salaried employees can earn overtime pay, if their weekly compensation is less than $684.

A remote employee is very likely working irregular hours by logging on, checking email, or doing any type of work throughout the day, rather than working a straight 9-5 workday. As the employer, you should come up with a system for remote employees to easily track their hours, and make sure that your record-keeping is accurate so that they are compensated for all hours worked.

Many companies have employees that work remotely only occasionally, with the bulk of their work time in the office. This could include attending off-site meetings or training classes, and even checking work emails from home at night or on weekends. If you know, or have reason to believe, that an employee is doing this, you are obligated to compensate them for that work.

As the employer, however, you can set the rules for what work is performed out of the office, if any. You can adopt a policy that prohibits your employees – both remote and otherwise – from working overtime, unless specifically authorized. Just be sure to very clearly communicate this in advance. This will go a long way toward maintaining control over the number of hours your employees work and the overtime obligations you may incur.

Workers’ Compensation Laws

Remote employees are covered by your workers’ compensation insurance in the same way that your other employees are – if an injury or illness occurs while they are working or if it is directly related to the performance of their work, regardless of the location. See last month’s newsletter specifically about workers’ comp HERE .

Because they are working in a place where work and non-work activities may mix, it’s important for your remote worker to keep track of when they are “on the clock” or not. An injury that occurs in a coffeehouse, for example, after your employee has finished working for the day and is meeting with a friend will not be compensable under workers’ comp. Explain the importance of accuracy in their record-keeping and make sure your payroll department gets a copy of the time records on a regular basis.

OSHA Laws

Believe it or not, OSHA (Occupational Safety and Health Administration) laws apply to home-based worksites. As the employer, you are responsible for any materials or equipment that you provide or require that may be hazardous.

While OSHA does not routinely conduct inspections of home-based worksites, they will do so upon a complaint of a violation or a concern that the conditions present a threat to a worker’s physical safety. Be proactive with this. Question your remote employees about the conditions of their workspace and counsel them about safety factors.

Employment Law Posters

State and federal laws require that all employers post notices informing employees of their legal rights. Depending on the size of your company, these posters may include the Equal Employment Opportunity Act, the Family and Medical Leave Act, information about unemployment compensation, Arizona’s minimum wage, and Arizona’s Earned Paid Sick Time law, among many others.

Generally, these posters would be in a central location in your office, perhaps a break room or near the restrooms. If you have remote employees, make sure you communicate these notices clearly. Send an email when a new employee is hired with all required notifications. Post these notices on your company intranet or other employee portal. As a last resort, print and mail to your remote employees.

Remote Employee Policies

Allowing remote work does not relieve the employee of their obligations to you in any way. While it is becoming much more mainstream, remember that it is not a worker’s “right” but rather a choice you, as the employer, are making based on a belief that working remotely will not diminish the worker’s productivity or effectiveness at their job.

If you have remote workers or are considering instituting this as a policy, become educated on the relevant employment laws. Schedule a consultation with me if I can help get this process started.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Workers’ Compensation Insurance… It’s not just for your Employees

Thu, 10 Oct 2019 17:58:00 GMT

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Your Business Agreements…Is there a “Meeting of the Minds”?

Tue, 17 Sep 2019 15:38:00 GMT

Business is all about relationships. Day in and day out, a business owner is coming to agreement with customers, employees and partners about how they will do business together. Although it may seem unnecessary, especially when conducting business with friends or family members, taking the time to document the agreement in writing is a sound strategy to reduce risk to the business and to save business relationships from becoming contentious.

Meeting of the Minds

First and foremost, a strong contract will be written in language that all parties understand so that there is less chance that one party interprets any of the sections in a way that the other party does not. In Arizona, according to long-standing case law, one of the required elements of an enforceable contract is mutual assent to the terms of the deal, or a “meeting of the minds.” An agreement may not be enforceable if there is no objective evidence – such as written notes, email communications, or a written contract, of course – to show that parties had the same intentions when they came to that agreement or that they truly understood the agreements between them in the same way.

A verbal agreement is much more likely to fall into this trap than a written contract. Just think about the times that you and a friend or family member agreed on something, only to realize later that you were actually thinking about different things.

In these instances, there was no “meeting of the minds” and likely no objective evidence to prove both parties had the same intention. In business, this kind of ambiguity can have significant implications – both in cost and time. Documenting your business agreements in writing, in plain language understood by all, will greatly reduce the chances of this occurring.

Essential Elements

A strong contract will include the essential business terms of the arrangement as well as any promises or representations one party is making to the other. This can include the items or services that one party delivers to the other, the price and payment terms of those items or services, and when it will all take place. If there is any warranty or guarantee, that should also be specified, along with the remedies in case one party does not live up to those promises.

Additional Provisions to Consider

Further, a strong contract will include legal protections that work in your favor. Consider including the following provisions to improve the level of protection the contract offers your business:

Keep in mind the above is not an exhaustive list; an enforceable contract will contain many additional critical provisions that are specific to your business and to the deal at hand.

Templates

In order to save on cost, some business owners may be tempted to use a template contract, perhaps found on the internet, for little or no cost. Such a contract has the potential to create more problems than it solves because it was not written for you. It’s very likely that provisions relevant to your deal, such as critical protections and liability limitations applicable to your business and how it operates, will be missing. Additionally, template contracts may contain sections that are not enforceable according to the law of the state governing the contract, resulting in a completely invalid or unenforceable document.

The Contract’s Primary Function

A well-reasoned contract serves as the guiding document for the relationship. Should a dispute arise, clear contract terms that dictate the steps to be taken to resolve the dispute are critical. When there is ambiguity, both sides may believe they are right and finding a middle ground may be impossible. People who previously were good business partners may say or do things, or circumstances may occur, that completely ruin the relationship. For example,

The terms of a solid contract can be used to work through the dispute and save the relationship.

Every business relationship is unique and the contractual needs vary greatly from one to another. Having the agreements between the parties decided in advance and memorialized in a strong contract will lay the groundwork for a long and mutually beneficial relationship and may save a valued relationship that has run into some complications.

If your business does not have current documentation related to your business relationships – whether with your customers and clients, your employees and contractors, or your partners and investors, schedule some time to talk with me.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Terminating an At-Will Employee: 5 Steps to Protect your Company

Wed, 07 Aug 2019 18:19:00 GMT

Most employers and employees are aware that the relationship between them is characterized as “at-will” meaning that either the employer or the employee can terminate the relationship at any time and for any reason (or no reason), as long as it is not illegal. Most employers, I would venture to say, find the termination process to be difficult and unpleasant. However, if the employer takes certain steps before and during the actual termination conversation, the overall process can be smoother than anticipated.

The goal for a termination meeting should be to part with the employee on the best terms possible. This meeting may be a complete surprise to an employee who believes he or she has been complying with corrective measures, or who was unaware of the severity of the situation. Allow the employee to defend his or her position, but leave no doubt about the company’s decision to terminate employment. Giving the employee a carefully drafted letter stating the company’s decision, but not a laundry list of reasons for the termination, may be helpful.

Remember to pay the employee’s final wages within seven working days of termination or at the end of the next regular pay period, whichever is sooner. Handing the employee a check for this amount, plus any incentive or vacation pay that is due upon termination according to your company’s policies, at the termination meeting may ease their pain of having just been fired.

Planning ahead is the most beneficial step an employer can take to protect itself from legal liability. If you are facing a difficult termination decision and are unsure whether or how to proceed, follow the above steps, and please schedule a consultation so we can determine the best plan of action for your specific circumstances.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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The LLC Liability Shield… Don’t Put it in Jeopardy

Wed, 10 Jul 2019 19:17:00 GMT

The limited liability company, or LLC, is a type of business entity that provides protection for the owner’s personal assets should the business not have sufficient assets to cover debt that becomes due. If your business is organized as an LLC, your own personal liability for the LLC’s actions is significantly limited. If your company is organized as a Partnership or Sole Proprietorship, you do not have this legal protection.

To ensure this shield of liability remains intact, you need to maintain a distinct identity and existence for your LLC so that you are not personally obligated should your business find itself with greater debts than assets. The following steps are not complicated nor costly, yet they are key to ensuring that your personal assets are protected by the liability shield afforded by your LLC.

Your company’s status as a limited liability entity is a valuable asset. Follow these easy steps to ensure that you have the protection you need personally should the company be held responsible for unexpected debts or liabilities. If you have questions regarding the risks your LLC faces, contact me to schedule a meeting.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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LLC Operating Agreements: What’s the Big Deal?

Thu, 06 Jun 2019 17:27:00 GMT

What’s an Operating Agreement?

An Operating Agreement is a contract among the Members of the LLC in which they agree upon their future actions for nearly every possible contingency, whether for day-to-day operations or for long-term or special circumstances. While it may seem that creating this comprehensive document is a lot of trouble, especially if all the Members trust each other and have agreed upon every decision so far, the Operating Agreement exists specifically for those times that disagreements arise or when the Members do something related to the business that was never previously discussed. It is the LLC’s roadmap so that the Members can navigate the conflict successfully and amicably.

The Arizona LLC Act

The Arizona LLC Act was recently updated and signed into law. The revised Act – Title 29, Chapter 7 of the Arizona Revised Statutes – completely replaces the 1992 act and takes effect on September 1, 2019, applying to all LLCs formed on or after that date, and it takes effect one year later, on September 1, 2020 for all previously existing LLCs. These laws govern how LLCs operate in the absence of an Operating Agreement or if an Operating Agreement fails to address certain situations. Importantly, Section 29-3105 specifically states “In the event of a conflict between a provision of the Operating Agreement and this section, the provision of the Operating Agreement governs.”

So, effectively, the Act imposes an Operating Agreement on those LLCs that have not executed their own. Some of the statutes are mandatory for LLCs to follow, such as the requirement to register with the Arizona Corporation Commission and to have an in-state Statutory Agent. Other statutes, called default statutes, can be changed by the terms of an Operating Agreement.

If You Fail to Adopt an Operating Agreement, What Might Result?

It’s important to be aware of the LLC default statutes because they often contain unexpected provisions that may result in drastically different outcomes than you intended or expected when you went into business with the other Members. A few surprising default rules are:

What should you do?

If you are considering forming a business, either by yourself or, more importantly, with business partners, please meet with me or another experienced attorney so that you can be sure to get started on the right foot.

If you are already in business, it’s never too late to update or create an Operating Agreement specific for your LLC with governance provisions that are fully agreed upon. This is one significant step you can take as a Member of an LLC to ensure the long-term success of your business and of your business relationships.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Interns…Is it Legal Not to Pay Them?

Wed, 01 May 2019 17:37:00 GMT

The Fair Labor Standards Act

Many business owners hire interns on an unpaid basis. Depending on the circumstances, this may be legal. The federal Fair Labor Standards Act (FLSA) requires “for-profit” employers to pay employees a minimum wage, and overtime pay where applicable, for their work. Interns and students, however, may not be considered “employees” under the FLSA and, accordingly, compensation may not be required.

The Primary Beneficiary Test

In order to determine if the intern should be considered an “employee” for purposes of the FLSA, courts evaluate whether the intern or the employer is the “primary beneficiary” of the relationship using the seven factors below. These factors are weighed and balanced in light of the specific circumstances; no one factor is controlling, and courts may consider other relevant evidence to help make the determination.

In February 2019, in Velarde v. GW GJ, Inc. , the 2nd Circuit Court of Appeals, which has jurisdiction over New York, Connecticut, and Vermont, confirmed this multi-factor test regarding the legality of hiring interns without pay. (This test was first set forth in Glatt v. Fox Searchlight Pictures, Inc. in 2016 in a well known case brought by interns on the movie production set of “Black Swan”.) Although the courts in other states are not bound by this decision, the test presents a good guideline for business owners to consider when hiring interns.

How Do You Decide?

Essentially, a business owner should keep in mind that having an unpaid intern perform routine tasks that, under other circumstances, would be done by a paid employee or which do not further the intern’s knowledge or education in a specific professional field, presents a risk. On the other hand, using an intern to perform work that is out of the normal course of business that also provides educational opportunities or school credit for the intern is generally a justifiable use of the intern’s unpaid labor.

If you are considering using interns this summer, or at any time during the year, click below to schedule a meeting so that we can ensure that your practices are legally compliant.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Non-Compete Agreements: In Arizona, They ARE Enforceable!

Wed, 03 Apr 2019 15:22:00 GMT

What is a non-compete?

A non-compete agreement is a contract between an employer and employee that, following the employee’s termination, he or she will not engage in the same line of work that he or she performed for the company. The purpose, of course, is to protect the employer’s business in the aftermath of the departure of a worker who has skills and knowledge about the industry and the specific company and can successfully compete against their former employer, causing financial harm. Generally, there are restrictions related to the length of time and a geographic area within which the employee is precluded from engaging in the prohibited work, and if the employee violates the restrictions, the employer could sue them if their actions caused harm to the company.

What makes a non-compete enforceable?

The cases in Arizona have provided clear direction regarding the enforceability of the provisions in a non-compete agreement. Primarily, the restraints on the worker’s future actions must be reasonable and must be no broader than the employer’s legitimately protectable interests.

But what is reasonable? What is a legitimate protectable interest? In the 1979 Arizona case Gann v. Morris, the court said, “What is reasonable depends on the whole subject matter of the contract, the kind and character of the business, its location, the purpose to be accomplished by the restriction, and all the circumstances which show the intention of the parties.” In short, for non-competes, there is no ‘one-size fits all.’

Often employers will seek to restrict their former employees for as long as possible and in as large a geographic area as they can justify. In most cases, this will render the non-compete unreasonably broad and therefore invalid.

Regarding the time restriction, an employer should seek to restrict for only as long as necessary to replace the employee and give that replacement a chance to (1) prove he or she can competently do the job and (2) demonstrate his or her effectiveness to the company’s customers.

Regarding the geographic restriction, an employer should seek to only include those areas actually served by the company. Limiting the employee for a longer time frame or from working in an area not serviced by the company will most likely be considered overly broad.

By way of example, restricting a departing hairdresser from working within 50 miles of the salon for a two-year period would probably not hold up because the salon would not need two years to find a replacement and the market area served by the salon is probably substantially smaller than a 50 mile radius.

Additionally, an enforceable non-compete will only restrict the employee from performing the function that he or she performed for the company. If the employee previously worked in a sales capacity, restricting the employee from future work as an operations manager will not be valid.

What a non-compete cannot do…

In our free market society, Arizona courts recognize that a worker has the right to use the skills he or she has learned on the job in a new job. As such, restrictive covenants such as non-competes are generally not favored, and in a legal dispute, the burden is on the employer to prove the extent of its protectable interest.

A non-compete agreement, even if validly signed by both parties, cannot simply be a means for a company to eliminate competition if there is truly no valid interest to protect. A company cannot, therefore, impose a restriction on a worker that provides no benefit to the company beyond limiting competition.

What can you do?

As a business owner, you do have the right to protect your business and prevent your departing employees from competing against you…as long as your restrictions are legitimate and reasonable. Jimmy John’s found this out the hard way, by agreeing in 2016 to pay $100,000 in settlement for the unlawful agreement it required workers to sign, prohibiting them during their employment and for two years afterward from working at any other business within 2 miles of any Jimmy John’s shop in the United States that made more than 10% of its revenue from selling sandwiches.

Call me to find out how you can do it better! Click to schedule a meeting so that, together, we can ensure your business is protected.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Who Owns It? Protecting Your Company’s Intellectual Property in the Gig Economy

Wed, 06 Mar 2019 15:19:00 GMT

In today’s gig economy, business owners are outsourcing tasks that are critical to the success of their business. These outsourced experts may be creating a tagline, designing a website, photographing your products, writing code for an app, or drafting the messages for your marketing materials. While they may be great partners and may produce great work for you, they certainly have no legal obligation to protect your company’s interests just because you’ve hired them to do a job.

The Law Regarding Copyright

The Copyright Act of 1976 (and its later appendices) defines the ownership rights related to “original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” A work of authorship can be literary, pictorial, graphic, audiovisual, artistic, musical, or many other forms of expression.

The Copyright Act does not protect ideas and concepts, but as soon as an original idea or concept is “fixed” on paper, in an email, on a website, in a digital file, or in any other format that exists now or in the future, the creator of that work owns the rights to it. No ownership rights are automatically conferred on the person or entity that paid for the creation.

Registering a copyright with the U.S. Copyright Office has benefits, however it is not required for copyright protection under federal law. Simply by virtue of creating the “original work of authorship,” a copyright owner has the right to exclude others from using or displaying that work, and he or she may file a lawsuit for copyright infringement to enforce those rights.

What Can You Do?

It’s both strategic and cost-effective to engage others to help with the necessary tasks of running your business. As the owner of the business, however, it’s important to understand what Intellectual Property assets you use, and who truly owns the rights to use those assets for a commercial purpose.

While you may have paid a designer, writer, artist, or photographer to create something for you, only a separate agreement – such as an assignment or license of rights – will ensure that you own the rights or that you can use those finished works without infringing on the creator’s rights. Not doing so can lead to legal disputes that could have been avoided.

Grow your business with the knowledge that your Intellectual Property rights are secure. Click to schedule a meeting so that, together, we can ensure your business is protected.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Last Will and Testament: Starting an Effective Estate Plan

Mon, 10 Dec 2018 20:14:00 GMT

It’s an unpleasant topic—planning for one’s own death—but it needs to be done. In fact, once estate-planning documents are drafted and signed, most people feel a giant weight lifted from their shoulders and wonder why they didn’t do it sooner. There are several essential documents that make up a complete estate plan for most people. In this article, we will address the Last Will and Testament (or the Will).

The Basics

A Will addresses several critical decisions that must be made after someone passes. Primarily, it directs the distribution of property to one’s heirs and survivors. Property can include a home, other real estate, vehicles, money in the bank or investment accounts, furniture, jewelry, other possessions in a home, and even pets.

You may be thinking that you don’t own enough property or have enough money to make it worth your while to prepare a Will. But without a Will, upon your death, your property will be divided pursuant to Arizona statute. The result of this may be that your property could pass to your legal heirs—

children, parents, and siblings—against your wishes, and those you would have chosen—perhaps more distant relatives, friends, or unmarried partners—may not receive anything.

Regardless of the monetary value of your property, it may provide comfort to your loved ones to receive something thoughtfully designated by you, rather than by state law. If there is something special – a piece of jewelry, some artwork, an unfinished project that you’ve been working on—that you want to leave to a specific person, it can only be done via a Will.

It’s critical that your Will comply with Arizona law or you run the risk of having it declared invalid. In Arizona, any person 18 or older who has “testamentary capacity” may make a Will. According to the Arizona Court of Appeals’ decision in In re Estate of Killen, 188 Ariz. 562, 937 P.2d 1368 (App. 1996), testamentary capacity is (a) the ability to know the nature and extent of one’s property, (b) the ability to know the natural objects of one’s bounty, and (c) the ability to understand the nature of the testamentary act. Arizona courts presume the person making the will, or the testator, has capacity at the time the Will is signed. If someone chooses to contest the validity of a Will, the burden is on the person contesting the Will to prove that the testator did not have testamentary capacity.

Attested and Holographic Wills

According to Arizona law, a will is only valid if it (1) expresses the intent of the testator and (2) is either an Attested Will or a Holographic Will. An Attested Will is signed by the testator and witnessed by at least two people whose signatures appear on the Will itself. See A.R.S. § 14-2502. A Holographic Will is a document that is signed by the testator and has the material provisions in the testator’s handwriting. A.R.S. § 14-2503. To avoid the potential for future questions about the validity of a Will, many attorneys strongly recommend that, whenever possible, a testator follow the formalities of having at least two witnesses sign.

Probate

Following one’s death, the estate, which is the name given to the entirety of the decedent’s financial assets and property, must be probated. Probate is a process by which a designated person, the Personal Representative, settles the financial affairs of the decedent by paying all outstanding debts and distributing the decedent’s property. Unlike what many people think, probate can be a straightforward process if the decedent has done some basic planning in advance. Executing a Will is one of those planning steps.

You may be thinking that your family members will be cooperative enough to split everything fairly without any guidance from you. Unfortunately, you cannot predict that behavior, and many legal battles have been (and will continue to be) fought over the money and possessions of someone who died without a Will. In addition to the costs of fighting in court, these disputes often tear apart families at the very time they may need each other the most.

Estate planning, and creating a Will, is not only for people of substantial means. The most vital function of a Will is to communicate your wishes regarding your property, so that your loved ones don’t have to try to come to agreement or resort to using the legal system to resolve disputes. Preparing a Will is a gift you give to your family. Depending on your specific circumstances, additional estate planning—such as the creation of a trust—may be advisable. And as noted at the outset, other estate-planning tools (like the Healthcare and Financial Powers of Attorney and the Living Will) will be covered in later articles.

If you have questions about estate planning, please contact an attorney experienced in preparing documents that comply with the law and who can provide you with peace of mind.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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Protect Your Business 101: The Case for Trade Name Registration

Fri, 28 Sep 2018 19:30:00 GMT

One of the most exciting decisions when you start a new business is deciding upon the name of the business. You will, of course, be using that name in so many ways: on business cards and letterhead, in marketing materials and social media, on signage if you have a physical location, and many more. Over time, that business name will develop a reputation (hopefully a good one!) and the value of that name will increase.

What is a trade name?

A trade name is the name under which you will do business. Sometimes a trade name is referred to as a “business name,” a “fictitious name,” a “Doing Business As” name, or simply a “DBA.” It can be, but does not need to be, the same name as the legal name of your business.

Registering a trade name

Registering your trade name with a government agency can benefit you as the business owner by helping to protect its growing value. Different rights and benefits come with registration through different state and federal agencies.

At the state level in Arizona, registration of a trade name is done with the Arizona Secretary of State. Registering your trade name provides some proof of the date you began to use the name in commerce and puts others who may want to use the same trade name on “record notice” that the name is not available for them. Likewise, your registration with the Secretary of State causes the agency to block any future registration with the agency of the same trade name by someone else.

Registration of a trade name in Arizona also brings statutory benefits to the business owner in the event another person or business uses the same name. Among other things, these benefits include:

Registration through the United States Patent and Trademark Office (“USPTO”) at the federal level is beyond the scope of this article. Information regarding federal-level registration may be found at the USPTO’s website. It is worth noting, however, that registration through the USPTO allows you to use the “®” symbol to put others on notice of the registration.

Do I have to register?

Registering trade names is NOT required at either the state or federal level. And if you choose not to register your trade name, there are state laws that may still provide minimal protection for your trade name. However, registration is required to obtain many of the statutory benefits listed above.

Trademarks

If you progress to the point that you want to protect a logo, symbol, or other mark associated with your business, you will want to investigate securing a trademark registration, which may or may not include your business trade name. Trademark registration can be secured at both the state and federal levels as well.

Meeting with an attorney before you begin to use your chosen trade name, to understand Arizona’s registration requirements and process, is a smart step. The Law Office of Wendy Anderson is familiar with Arizona’s laws, and we look forward to assisting you as you start and grow your business.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

The post Protect Your Business 101: The Case for Trade Name Registration appeared first on Law Office of Wendy Anderson .

Independent Contractors: Does Your Worker Pass the Test?

Tue, 27 Mar 2018 18:48:00 GMT

New and growing businesses often face the dilemma of whether to hire employees or engage independent contractors. A business may have the need for a specific task to be performed by an individual with a unique skill set, or the business could generally be increasing its workforce. Regardless of the reason, it is critically important to properly classify employees and contractors to ensure compliance with the law and avoid serious legal problems down the road.

Why does the classification matter?

Both state and federal employment laws address a wide variety of issues such as minimum wage, overtime pay, workday hours, break times, worker’s compensation benefits, unemployment insurance coverage, family medical leave, and the obligation to pay taxes. Most of these laws are designed to protect the rights of employees. Independent contractors are often not afforded these legal protections.

Proper classification matters because the government wants to both collect tax revenue and ensure that the nation’s workers are covered by laws designed to protect them. The failure to properly classify a worker may lead to the devasting consequences discussed a little further below.

Written agreements are not determinative

A common misconception is that a simple independent contractor agreement, stating that the individual (or separate company) is in fact an independent contractor, suffices to make a classification. However, written agreements are not always determinative of a proper classification. Even with an independent contractor agreement in place, the worker may be classified as an employee and not a contractor.

The law looks more to the realities of the relationship than what the parties may put in writing. If in reality, the worker’s relationship with the business is one of employment, the worker will be classified as an employee regardless of what any private agreement may otherwise state.

In Arizona, there are also specific statutes designed to help businesses properly memorialize a worker’s relationship with a business. These statutes may provided added protection for Arizona companies.

Employee or Contractor?

There is no single rule or test to determine whether a worker is an employee or an independent contractor. Instead, different federal and state agencies apply different rules and tests in making this determination. It’s thus wholly possible for different agencies to arrive at different conclusions relative to the same worker.

Some business owners may think that if a worker has independence concerning the hours and location of the work, the worker may be safely classified as a contractor. This is a vast oversimplification, and one that may result in significant adverse consequences to the business.

Most agencies apply varying versions of balancing tests when classifying workers. The tests generally consider factors such as:

Penalties for Misclassification

It is understandable that businesses want to hire independent contractors for both strategic and economic reasons. The government, however, leans heavily on the side of the worker and exacts serious consequences for businesses that fail to make proper classifications.

The laws generally do not allow for a company to plead ignorance, mistake, or lack of intention to classify a worker incorrectly. Additionally, the job title given by the company and a worker’s understanding or belief that they are a contractor are not relevant. The government will hold a company responsible for misclassification regardless of the reasons if the worker was misclassified.

Aside from being illegal, the failure to properly classify a worker as an employee or contractor can have devastating consequences for businesses. The business may be required to pay things like back wages, past overtime compensation, back taxes, or large amounts for past unemployment and worker’s compensation insurance. The business may even be hit with civil and criminal penalties for an improper classification.

What’s a company to do?

When hiring workers, a company would be best served by seeking the counsel of an experienced attorney to evaluate how each open position should be classified. It is worth the time to critically evaluate the specifics of each job opportunity so that the business and worker enter into the new relationship with a clear understanding of the law and of how the law classifies the work that will be performed.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today

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