Charlotte, NC Small Business, Workers' Compensation and Estate Planning Attorney

What Do Business Owners Need to Know about Snow?

2/11/2014

For children, snow is a lot of fun, and it can be a great time for parents too as we join them in the fun. But, if you have to go out in the snow and ice, or if you run a business where customers and other people show up during the winter wonderland, you may worry about falls and injuries. Plus, there is the additional worry as a business owner about lawsuits that may arise when someone slips and falls.

Businesses are not required to make their stores or other facilities perfectly safe. Under North Carolina law, they must take what the courts refer to as reasonable step.

What does that look like in practical terms with snow and ice?

First, if it is likely someone might not notice or understand the danger, the business needs to either remove the danger, or put up a warning to keep the public safe. Thus, it is common in supermarkets and restaurants for the staff to put up orange cones to warn about spills, even when they’ve already mopped up.

Second, if a hazard is obvious, an adult is responsible to notice the hazard and choose to avoid it or take their chances. That seems like a fair rule, but most businesses will go a bit further and put up a warning or barricade, or try to remove the hazard if possible. Children are often not assumed to have the same ability to protect themselves as an adult, particularly in the pre-teen years, so extra precautions may be necessary.

So, how can business owners protect themselves from claims of injuries on their premises due to snow and ice? They can plan in advance, trying to identify likely hidden hazards before the storm hits. Then, when the time comes they can execute their plan.

A dose of common sense combined with your company’s lawyer helping you understand your company’s legal duty is time and money well invested. Litigation is costly and lengthy, with an uncertain outcome. Not to mention that we would all like to see people avoid injury.

Can My Company’s Board of Directors Sell Off All The Company’s Assets?

2/10/2014

In a corporation, there is a division of power between the owners (shareholders) and the group of people who the shareholders authorize to run the company day-to-day and to set policy (board of directors or BOD).

One big question is, what are the limits of the power of the Board of Directors?

For example, does the BOD need approval from the corporation’s shareholders before selling, leasing, or otherwise disposing of company assets? This matters a good deal, because the shareholders, as investors, typically want to see their corporation follow the basic business plan which formed the basis of their decision to invest.

Thus, if the company’s business plan did not involve selling off or leasing out most or all of its assets, the shareholders would be understandably displeased if that was what the BOD did or wanted to do.

Until recently, the North Carolina Business Corporations Act was pretty fuzzy on this big point.

Until January 1, 2014, the law was that the BOD had to get shareholder approval to sell, lease, or otherwise dispose of “substantially all” of the corporation’s assets. But, there was no guidance in the statute on exactly what that key phrase meant.

One of the good points in the recent changes to NC’s Business Corporations Act is that shareholder approval is now specifically required when the BOD wants to sell, lease, or exchange the Corporation’s property to such a degree that its assets will drop to below 25% of the prior level.

What is that statute does not fit with what the shareholders want?

Suppose the shareholders want to set some other limit or structure the BOD’s power in some different way?

There is a good answer – the new statute specifically states that Articles of Incorporation or By Laws of the Corporation can spell out some different agreement.

This option provides a good example of the importance of good, personalized corporate bylaws and shareholder agreements.

Having frank discussions up front allows all shareholders to consider what they would want, and negotiate a deal that everyone can accept.

It’s much more expensive to fight a lengthy and complex lawsuit over such issues than to have these discussions with all shareholders and the company’s attorney today.

How Asking For Too Much In a Non-Competition Agreement Gets The Employer Nothing In Court

2/5/2014

Many companies fear the economic damage that can occur when a key employee starts their own competing company or takes a job with a competitor. Lost clients, departing customers, and reduced profitability are foreseen. They may want a non-compete agreement but may fail to meet the legal requirements to have an enforceable agreement.

One way employers create problems for themselves is asking the employee to give up too much. That is basically what happened in a new North Carolina Court of Appeals case, Copypro, Inc. v. Musgrove.  Copypro spent a lot more money fighting this losing lawsuit than they ever would have getting a clear, enforceable contract that would have protected them against any potential harm when their salesperson, Joseph Musgrove left the company.

The Basic Facts

Copypro is in the office equipment business. They sell and maintain office equipment, but over 90 percent of their revenue is from three to five year leases on office equipment from their eastern North Carolina customer base.

Near the end of 2009, Mr. Musgrove joined the company as a salesperson. He was assigned to Pender and Onslow counties, where Musgrove carried out over 95 percent of his job duties. He did a few deals for friends in other counties which were also included among a laundry list of eastern North Carolina counties where Mr. Musgrove’s non-competition agreement said he could not work for three years after leaving
Copypro for any competing company.

In August 2012, Musgrove took a new job with a competitor after being told his old sales territory with Copypro would no longer be exclusive. The new employer, Coastal Document Systems, is one of Copypro’s competitors but operates solely in Brunswick, Columbus, and New Hanover counties. By way of reference, Wilmington is located in New Hanover County.

Copypro learned Mr. Musgrove had put in a competing bid on an order. Immediately, they filed a lawsuit claiming Musgrove was violating their non-competition agreement. As is typical is a non-compete case, Copypro asked the judge for what is called a “preliminary injunction,” a court order requiring Mr. Musgrove to stop the actions leading to the lawsuit until the lawsuit was over. No work, no pay. That's a big problem for the employee. The opposite result would have been a big financial hit for the employer.

The local judge decided that Copypro would likely win the lawsuit when the evidence was heard. Thus, the preliminary injunction was granted and Mr. Musgrove was ordered to stop selling for Costal Documents Center. In practical terms, he was out of a job in his chosen field.

The Course of The Appeal

The North Carolina Court of Appeals agreed to decide Mr. Musgrove’s appeal before the case was fully decided on the merits. In most instances, that would not have been the case. The Court of Appeals stated that “[a] preliminary injunction is interlocutory in nature,” which means that an order issuing a preliminary
injunction “cannot be appealed prior to [a] final judgment absent a showing that the appellant has been deprived of a substantial right which will be lost should the order escape appellate review before final judgment.” Clark v, Craven Regional Medical Authority, 326 N.C. 15, 23, 387 S.E.2d 168, 173 (1990).”

However, the Court stated that “when the entry of an order granting a request for the issuance of a preliminary injunction has the effect of destroying a party’s livelihood, the order in question affects a
substantial right and is, for that reason, subject to immediate appellate review. See Precision
Walls, Inc. v. Servie, 152 N.C. App. 630, 635, 568 S.E.2d 267, 271(2002).

In other words, not being able to work for any competitor of his old company for three years in 33 counties was too much of a burden to ask Mr. Musgrove to carry until the full trial was over.

Here, a 3 year non-compete was deemed by North Carolina Court of Appeals to qualify.

What The NC Court of Appeals Decided

First, we need to know the basic rule on when an employment non-competition agreement can be enforced.

The agreement must be (1) in writing; (2) cover only a reasonable amount of time and territory; (3) be part of an employment contract; (4) provide reasonable consideration to the employee for accepting its terms; and (5) protect the employer’s legitimate business interest. Where any one of these criteria are not met, the court should throw out the agreement

In Copypro v. Musgrove, the NC Court of Appeals concluded that the non-competition agreement kept the former salesperson from too many types of jobs with Copypro's competitors to be enforceable.  The problem was that Mr. Musgrove was not simply prevented from being involved in sales. He was not eligible to drive a truck or sweep the floor for a Copypro competitor in their full 33 county footprint.

Thus, the Court of Appeals held that there was not “ample comptent evidence to support the decision. Wrightsville Winds Townhouse Homeowners’ Ass’n v.Miller, 100 N.C. App. 531, 535, 397 S.E.2d 345, 346 (1990)" and reversed the trial court and thus denied the company the requested preliminary injunction.

How Did Copypro Asking For Too Much Lead Directly To Them Getting Nothing?

In practical terms, that's probably going to be the end of the story. Fighting through a full trial usually chews the timeframe covered by a non-compete agreement.

The Court of Appeals ruled that Mr. Musgrove should not have been barred for all work with competing companies. Otherwise, the agreement would have likely been enforceable.

Here is a good example of where working carefully with a good business or employment lawyer would have been beneficial. When an attorney understands the client’s business, their business needs, and concerns around the particular type of job an employee carries out, the attorney can create a non-competition agreement that would be rock solid.

Instead, a careful lawyer for Mr. Musgrove took a close look after Copypro had rushed to court, and took the company to task. Copypro may have spent a lot of money on trial and the appeal, but you can be sure that a good contract that would have been enforceable would have been a lot cheaper.

Written Work Guidelines and Discipline Procedures May Preclude Unemployment Claims

1/23/2014

In many instances, employers are unsure of whether an employee who is discharged will be eligible for unemployment benefits. This is a complex question, but a recent decision by the North Carolina Court of Appeals in Bailey v Department of Employment Security (Jan 2014) provides some useful guidance on how the process works, and how working with your company's employment attorney to create and follow appropriate policies can protect an employer.

Written guidelines for employees, if consistent with the law and regularly followed, may protect employees from unemployment claims when they terminate employees for violations of these guidelines.

The Basic Facts of the Case

Cynthia Bailey worked for Pro Temps Medical Staffing as a certified nursing assistant (CNA). On December 11, 2011, she was terminated because she was sleeping on the job. Keep in mind, the employee was responsible for watching a patient who was on suicide watch.

The patient slipped out of the hospital room where Ms. Bailey was supposed to be keeping tabs on her overnight, and was found wandering the halls. Not surprisingly, Pro Temps terminated her employment, and subsequently Ms. Bailey filed for unemployment.

The Winding Course of the Case Through The Courts

Employers may be pleased to learn that the individual charged with the initial decision on Ms. Bailey’s unemployment application found that she was not eligible for unemployment because she was discharged for misconduct. Ms. Bailey appealed to the Appeals’ Referee, and again her application for unemployment was denied.

However, the story does not end here. The former employee again asked for a review of her case, and was heard by the North Carolina Department of Commerce, Division of Employment Security (DOC). For the third time, Bailey’s unemployment application was denied. Yet she still did not give up and asked for
review by the local county court.

Not all state agency decisions can be appealed to the local county court. For instance, appeals in workers’ compensation claims have to be appealed to the North Carolina Court of Appeals. Not so with unemployment
claims.

The local county judge disagreed with the DOC. The judge agreed that Ms. Bailey had violated the employer’s rules, which required that Ms. Bailey turn down the shift if she was too tired to handle the duties, namely staying awake so that she could watch the suicide watch patient. However, the county court found that Ms. Bailey was not guilty of misconduct.

Afterwards, the DOC appealed the trial court’s ruling, and the Court of Appeals reversed the trial court’s ruling, holding that the facts of the case, as found by the trial court, “could only support the conclusion that plaintiff had engaged in misconduct, and do not support a conclusion to the contrary.”

How The Employer’s Written Policies Protected Them

Importantly, the employer’s policy stated that an employee found sleeping on the job could be immediately terminated. The employer required employees to turn down shifts if they were too tired to perform their job duties. Finally, the employer made sure its employees were aware of these rules. Having good legal advice on setting policies for their employees, identifying the specific issues that were likely, and following their rules and their employment attorney's solid, practical advice allowed the employer to prevail.

What’s The Point of An Estate Plan?

1/21/2014

An Estate Plan is about taking care of the people you love after you’re gone using the assets you leave behind. Unfortunately, many people don’t take time to work with an estate planning attorney to create the legal documents needed to ensure their wishes are followed.

That typically presents a significant problem. Under North Carolina law, your property probably would not go to the people to whom you might wish to leave that property unless you have a legally valid Estate
Plan.

What Happens When You Don’t Have An Estate Plan?

For example, suppose a married couple has 2 children and one parent dies with no Estate Plan. What
happens? As to real estate, the surviving spouse gets 1/3rd of the real estate, such as the family home. The children split the remaining ownership of the family home with the surviving parent.

Similarly, as to personal property, such as automobiles, furniture, and jewelry, if there was no Estate Plan, the serving spouse gets the first $60,000 of the personal property, with the remainder split with the children or their heirs.

That’s almost certainly not what the couple wanted.

Many Alternatives

Some people prefer a will. Others need a trust, or a will with a trust attached, in the even that both parents die prematurely and their property needs to be used to raise the children and perhaps pay for college. Other individuals need trusts to take care of children who will always require assistance.

There are many variations but the simple facts of what happens when someone dies without any Estate Plan
is a good reason to seek assistance from a qualified attorney in developing your individual plan.

Mergers and Acquisitions: Not Just For Wall Street

1/16/2014

Mergers and Acquisitions might sound like something just for Wall Street and publicly traded companies.
However, there can be great value for successful business owners and entrepreneurs in joining forces with another company to grow their business, to exit when the time is right, and for investors looking for a solid private market opportunity to help a company reach its full potential.

Legally speaking there are many different options. Businesses can merge with both sets of owners joining forces to run the combined venture. In these cases, candid conversations may help figure out who is the best person for each role.

For example, one set of business owners might prefer to let the other side take on the headaches of
day-to-day running the business. Another person might be best cast as the visionary leader, heading up marketing, or heading up operations.

When you don’t have to wear all of the hats, being part owner of a larger company might just let you wear
the hat that fits you best.

In other cases, the owners of one company may be bought out and move to a new venture or retirement. Or the company may bring on a new investor to grow to the next level, in a less dramatic version of the
made-for-TV melodrama of the show Shark Tank.

The exact nature of the deal, whether buying assets, selling stock, swapping equity in your current company for ownership in a new company, or contributing assets in your current company for an equity stake in a new venture have many tax and legal consequences and require careful planning.

There are lots of ways to move forward from a lawyer’s vantage point, but the real questions from business
owners are often focused on how any of these sorts of transactions can help them meet their goals – either growing their business, increasing returns, a larger share of the office, geographic expansion, offering new services and products, or the like.

Where the businesses and the business owners are really compatible, where the culture of the companies
mesh, and where the numbers and business prospects make sense, the sum can really be greater than the individual parts.

Why I Become A Mediator

1/15/2014

Mediation is a process where individuals and companies work to voluntarily resolve disputes through mutual compromise. The parties are free to shape their mutually agreed settlement in a fashion different from what a jury or an administrative body, like the North Carolina Industrial Commission, would be allowed to rule based on the law.

At mediation, no one gets their best possible result – but they also avoid their worst case scenario. The advantage is they can control their outcome.

With the help of a mediator, most civil lawsuits, employment cases, workers’ compensation claims, and other disputes are able to be settled at mediation.

It has been my experience, over a number of years handling these types of cases, that most parties achieve an outcome through mediation that is better than the time, stress, uncertainty, and costs that going through court entails.

At mediation, the parties control their outcome. With good advice from their attorneys, with a skilled mediator, and a willingness to take a second look at their case, mediation often allows the parties to take back control over a dispute that can take on a life of its own.

Can every case be settled? No. Sometimes the parties have such different views of the merits of their cases that they can’t find a point of compromise. There may be significant uncertainty on some key point of law on which the case turns. In some cases, litigants may harbor unrealistic views of what the case is worth. Strong emotions often play a role when a matter does not resolve.

The list of reasons is long but the value of mediation remains high.

Over the years, I have handled workers’ compensation claims, civil law suits, and commercial contract disputes. I was also involved in cases of alleged violations of employment laws and disputes among business owners.

This experience taught me many things – but among the lessons that sunk in over the years, none rang truer to me than the conviction that all parties were often best served by settlement.

I admire the skillful mediators who I’ve worked with and learned from over the years. That’s why I have joined their ranks. I am certified by the North Carolina Dispute Resolution Commission and look forward to mediating workers’ compensation claims, civil lawsuits, commercial contract matters, employment law cases, and business disputes.

I look forward to working with the attorneys I’ve worked with and against over the years to help their clients find out if a mediated settlement will work for them.

An Important Issue for Trial– What is an Expert Witness? When Can They Testify?

1/10/2014

Types of Witnesses

In a trial, there are 2 types of witnesses. One is called a “fact witness” – a person who tells the jury what he/she saw or said. The second kind is called an “expert witness” – this witness can give opinions on things that he/she did not see – he/she can give opinions about something relevant to the case, if the judge determines that they are an expert in the field and can help the jury understand the issues in the case.

The trial judge decides if a proposed expert can give opinion testimony. This decision is based upon whether the judge determines that the person is actually an expert in a subject relevant to the case. Only in rare circumstances will the appellate courts second guess the trial judge’s decision in this area.

Thus, when the South Carolina Court of Appeals reversed a case based on this issue this week, I thought you might want to hear about it. By the way, there is a similar rule in North Carolina about when a witness can give expert opinion testimony.

Just The (Key) Facts

Tesnair v. Professional Plastering & Stucco, Inc. provides a nice primer on this important legal issue in South Carolina. It’s not ground breaking, but it can provide a good education and hopefully help us understand an important and contested issue that arises in many trials.

This case involves allegations of extensive damage to a large condo development on John’s Island, South Carolina. The suit was about whether there were problems with the design of the building and the work by the various contractors. Fixing the damage cost millions of dollars, even by the lowest estimate.

By the time of trial, everyone except Professional Plastering & Stucco, Inc., which had installed the stucco, had settled. From my experience with such cases, the litigation cost for the many defendants was probably very high. Everyone who touched the building seems to end up being sued in these kinds of cases.

All About The Expert

Professional Plastering offered a witness who seemed to be very knowledgeable and experienced, but the trial judge did not allow Chris Dawkins to testify as an expert. Dawkins has a civil engineering degree from NC State University and a master's degree in civil engineering with a specialty in construction management from Georgia Tech. He is licensed in North Carolina and Georgia, but not South Carolina. He has 30 years of experience and focused on determining the problems with buildings, including stucco issues in coastal Georgia.

Dawkins knew about the International Residential Code of 2000 (IRC) which was at issue as well. Dawkins had witnessed the testing done on the building, but did not conduct the testing himself.

The South Carolina Court of Appeals ruled that the trial judge had made an error in keeping out Dawkin’s opinion testimony. It is important to understand that the appeal’s court did not simply disagree with the trial
judge. They ruled he had abused his substantial discretion as the trial judge. Specifically, the Court of Appeals ruled that “trial court abused its discretion because it did not delineate any particular reason for its decision to not qualify Dawkins.”

The South Carolina Court of Appeals cited Rule 702 of the South Carolina Rules of Evidence and ruled that Dawkins’ combination of education and experience would have helped the jury understand the issues before them.

The South Carolina Court of Appeals went on to rule that Professional Plastering & Stucco, Inc. was prejudiced in the company’s ability to defend the case before the jury by this error. Thus, the Court of Appeals reversed the case.

What are the lessons for South Carolina trial lawyers and their clients?

First, it is important to understand the sorts of issues on which you need an expert to give an opinion in order to make your case.

Second, choose an expert who is clearly qualified based on the issues about which you want them to testify. If Mr. Dawkins had lacked a thick resume with appropriate education and relevant experience, the South Carolina Court of Appeals would not have ruled in this fashion.

Third, make sure your expert’s credentials are set out clearly for the trial judge.  Ensure any errors by the judge in ruling on whether your expert can testify are put into the record so that you can appeal the trial's outcome if the judge's error impacted the outcome in the case. Hard work and solid preparation are the keys to getting the best results at trial.

Finally, litigation is complex, expensive, and time consuming. There is no easy way and no cheap way to handle such matters. An experienced trial attorney can help you navigate through the process.

The New North Carolina LLC Act - What is an Operating Agreement? Why do we need one?

1/9/2014

Effective January 1, 2014, North Carolina adopted a new statute governing Limited Liability Companies (“LLC”). I will be writing several posts in coming weeks on some of the nuances of this important law.

Today, we will consider a fundamental point which many small and mid-sized businesses fail to consider:
what defines the ownership and management rights of the people (or companies) which own a North Carolina LLC?

An experienced business attorney has the specialized knowledge to help business owners have informed conversations on these very important matters up front. Such candid conversations and a clearly
written agreement, called an Operating Agreement, help ensure LLC members think though these issues carefully and seriously, hopefully avoiding expensive, time consuming lawsuits which result from business owners not being on the same page.

Before the new law was adopted, an Operating Agreement had to be in writing. Now, an Operating Agreement can be verbal or written, and the Articles of Incorporation is treated as part of the Operating
Agreement.

Still, the best practice is to have a written Operating Agreement created after candid discussions among business owners, and revisited as circumstances change.

Consider some key points –

(1) What percentage of the LLC is owned by each owner (“member”)?

(2) Who can vote on what sorts of issues in the management of the LLC?

(3) How can this agreement be changed?

(4) What vote is required to sell the business?

(5) What are the powers and limits of the powers of each member in running the business?

(6) Can any member sell their part of the LLC?

(7) Can any member be required to put more money into the business?

(8) How are profits split?

(9) Are members paid salaries for their work for the business?

(10) How does any member gain access to the financial and other records of the LLC?

(11) What happens if a member of the LLC should die or becomes too sick to work for a long time?

(12) When do the members of the LLC meet to discuss company business?

(13) What protection is given to any member or manager sued for their work for the LLC?

The list goes on from here, but this provides a good starting point for thinking about how the members of a LLC work together to run their company. The Canipe Law Firm, PLLC regularly works with business owners who are ready to have these important conversations.

FMLA: What Is It? And Does My Company Have To Provide FMLA?

1/8/2014

The Family and Medical Leave Act (FMLA) is one of the many Federal laws that govern relationships between employers and employees. It is quite complex and knowing whether your company falls under this statute and its regulations is a question that takes some analysis.

FMLA is a Federal law that was passed in 1993 and amended a good bit after that point. If an employer is required to adhere to this law, then qualified employees must be given up to 12 weeks of unpaid leave to take care of their own serious health condition, the serious health condition of a family member, and some other situations involving military service of a qualified employee’s family member.

A study by the DOL suggests that 1/3rd of all employers are required to provide FMLA benefits to qualified employees. The basic rule is that, if a company has 50+ employees for 20+ work weeks during the
current or prior year, then they must provide FMLA benefits to qualified employees. Public employees, as well as private elementary and secondary schools are also covered, and some other specific types of situations are covered as well.

If the company must provide FMLA benefits, the question becomes which employees are covered? The basic rule is that an employee must have been employed for at least 12 months, working at least 1,250 hours during the prior 12 months, and the employer must have had at least 50 employees within 75 miles of the employee’s particular work site. To say this is a moving target for most covered companies is an
understatement.

The Canipe Law Firm, PLLC provides guidance to companies so that they can understand their obligations under FMLA and other relevant employment laws. This blog will give some high points, but if you have specific questions, please contact us to set up a meeting where we can address your concerns.