Does Your Business Lawyer Draft Contracts That Encourage Dispute Resolution Or Lawsuits?

By | Business Contracts, Dallas Business Lawyer, Intellectual Property | No Comments

Does Your Business Lawyer Draft Contracts That Encourage Dispute Resolution Or LawsuitsImagine your most important business agreement has been breached by the other side. What would you do?

For many companies, the answer is a costly lawsuit that often sucks up more time and money than the amount of damages caused by the breach in the first place.

Is there an alternative to a breach of contract lawsuit?

Yes.

Have your business agreements drafted an experienced business lawyer so that they favor resolving disputes quickly and at minimal cost.

How?

Here are three key issues to cover in your business contracts that should fix most problems:

(1) Include a comprehensive alternative dispute resolution process;

(2) Make the law that governs the agreement favorable to you; and

(3) Have disputes settled in a location that minimizes your costs.

Related Article: 5 Things You Should Review With Your Business Lawyer Annually

1. Alternative Dispute Resolution Clauses

5 Things You Should Review With Your Business Lawyer AnnuallyYour agreements should provide for a multi-step process for solving problems without going to court.

Common stages of dispute resolution include informal discussions between the parties, mediation, and arbitration (binding or non-binding). Many business attorneys who are not trial lawyers prefer binding arbitration for their clients because it typically saves time and is cost-effective.

2. Applicable Law

Make sure that the law governing your agreement generally favors you. This is particularly important when the other party is located in another country whose laws on contract enforcement are lax or nonexistent.

3. Venue

Even if you’re not heading to court, you’ll want the location of your dispute resolution process to be in a location that’s convenient for you. Ideally, that will mean having the contract provide that mediation and arbitration occur in the same geographic area (e.g. city or county) as your company’s headquarters. In the alternative, if the other party insists, agree in the contract to resolve disputes at a neutral location that’s mutually convenient.

What contract disputes should your business lawyer encourage be resolved by a court instead?

Unfortunately, sometimes it’s necessary to sue to protect your company’s legal rights. Because of this, your corporate legal counsel will want to carve out exceptions to mandatory alternative dispute resolution to cover issues like intellectual property infringement, violation of a non-competition clause, and related matters where equitable relief from a court may be needed.

When you invest in a Business Contract Legal Protection Package from our law firm, one of the things we focus on when preparing your agreement is helping protect your interests if there’s ever a dispute between you and the other party. Because life’s too short to spend it in court.

On-Call Scheduling Of Hourly Employees: Should Employers Use It?

By | Employment Agreements, Featured Articles, Texas Business Lawyer | No Comments

on-call schedulingSome businesses require hourly employee on-call scheduling (also known as on-call shifts) to ensure there’s just enough workers to meet labor requirements for shifts. This means employees have to put their lives on hold, calling in a couple hours before coming to work to see whether not they’re actually needed for a particular shift.

For the employer, this appears to save money because during slow times labor costs can be minimized by telling an employee not to come in for all or part of a shift. And if the business has a high turnover, such as fast food restaurants, it may make sense to double book employees with the expectation one will quit or simply not show up.

For example, if two employees scheduled for the same position on a shift call in and expect to work, it’s easy to tell one he isn’t needed while requiring the other to show up.

Is On-Call Scheduling Illegal?

As pointed out by Daniel Wiessner in “Retailers to drop on-call scheduling amid state probes,” some states’ attorneys general contend on-call scheduling violates applicable wage laws because it requires hourly employees to perform some work (e.g. calling in one or more times) without getting paid. That’s in addition to the moral issue of putting workers in limbo where they cannot make concrete plans for a day they may or may not be working.

Implementing On-Call Shifts Effectively

If you’re going to use on-call scheduling in your business where it’s legal to do so, be sure to compensate the employee for the burden of being placed in limbo and try to keep such scheduling to a minimum per employee (e.g. no more than one shift per pay period). Just as you don’t want customers to get your goods and services for free, don’t steal your employees’ lives away by abusing their work schedules.

Alternative To On-Call Schedules

Although wage and hour laws vary by state, a better method to meet labor requirements is to replace on-call shifts with a financial incentive making it worthwhile for an employee who has a day off to want to come in and work an extra shift if requested to do so by management. Because the act is voluntary and compensated, employee productivity is likely to increase, legal risks are minimized, and the employer is less likely to abuse the system when there is a direct additional cost to making a call for more labor.

An experienced business lawyer can help you avoid the legal pitfalls of on-call scheduling and other employee wage and hour practices.

Limited Liability Companies: How Many Should You Own?

By | Business Entities, Limited Liability Companies, Texas Business Lawyer | No Comments

limited liability companiesMany entrepreneurs have big plans for their startups. Unfortunately, as part of those big plans, they often want to treat a small business as if it is a large complex organization that needs multiple limited liability companies (LLCs) for asset protection and tax avoidance.

Trump’s Limited Liability Companies

According to a recent Wall Street Journal article, Donald Trump has at least 96 LLCs that he uses to protect what he owns and to legally minimize taxes paid. This is typical for a large business empire, particularly one that involves intellectual property licensing (the Trump brand) and real estate ownership.

As A Small Business, Should You Have More Than One Limited Liability Company?

According to Texas Business Lawyer Mike Young, author of How to Form a Texas LLC, as a general rule of thumb it makes sense to set up separate LLCs for each asset or annual revenue stream that exceeds $100,000 in value. In addition to the potential tax advantages, each LLC serves as a separate protective basket for one of your nest eggs in case something goes wrong with one venture (e.g. bankruptcy) or asset (e.g. slip-and-fall personal injury lawsuit).

Of course, each entrepreneur has a unique story with specific legal needs. This means you’ll want to discuss your assets and income streams with an experienced business lawyer. Working together with your accountant, you can set up the number of limited liability companies you need to achieve your goals.

Phantom Equity: How To Use It To Grow Your Business

By | Business Entities, C Corporations, Employment Agreements, Independent Contractor Agreements, Limited Liability Companies, S Corporations, Texas Business Lawyer, Texas Business Lawyer | No Comments

phantom equity certificateIf you’re tight on working capital or don’t want to give up partial ownership of your company by granting shares or stock options, you may want to consider using phantom equity (PE) to compensate employees and independent contractors who are essential to the growth of your business.

What is Phantom Equity?

Phantom equity is a means to reward employees later (deferred compensation) when you can afford to do so. It’s common to tie such payments to key events for your company, such as meeting an annual revenues target for your products/services, sale of the business, a successful venture capital round, or your company goes public (IPO).

According to Texas Internet Lawyer Mike Young, whatever you choose as the payment triggering event must make sense as a “carrot” because you want to encourage workers to stay with you and perform in order to receive the compensation.

If structured correctly, you’re getting the same benefits from the workers with PE as if you had awarded sweat equity but without the headaches of dealing with minority shareholders in the process.

How Do You Pay Phantom Equity?

There are a variety of ways to pay out PE to your workers. Popular methods include:

  • A single lump sum payment triggered by one event
  • A series of bonuses paid as multiple milestones are achieved
  • Extra payment(s) into employee 401k retirement accounts

Who Should Receive Phantom Equity?

Because phantom equity is deferred compensation that reduces your share of the monetary pie, be careful who you choose to give it to. If an employee or independent contractor is essential to the success of your business, then that person is a potential candidate for PE, particularly if they’re willing to work for less now with the promise of deferred comp later if they perform.

However, if you can easily replace the worker with someone else, chances are phantom equity should not be included as part of that worker’s compensation package.

Setting Up a Phantom Equity Plan

Working with an experienced business lawyer and your accountant, you can form a phantom equity plan that’s right for growing your company with respect to, eligibility, vesting, and other legal and tax issues.

5 Business Consulting Agreement Essentials

By | Consulting Agreements, Intellectual Property, Texas Business Lawyer, Texas Business Lawyer | No Comments

consulting agreementWhether you’re a consultant or looking to retain one for your business, there are some fundamental issues that must be covered your consulting agreement to ensure performance by the other party while reducing your liability exposure if something goes wrong.

Here are five key areas that should be covered in every consultant agreement you sign.

1. Detailed Scope of Work (SOW).

Your scope of work (a.k.a. scope of services) for a project should specifically identify what will be done and exclude services that will not be performed.

According to Texas Internet Lawyer Mike Young, one of the most common mistakes is to have a consulting agreement vaguely refer to the services that will be performed, with each party having a different view of what’s included in those services.

Retaining a consulting firm to provide “marketing services” without defining activities, milestones, deadlines, and objectives is a recipe for disaster because invariably one party will not deliver according to expectations of the other.

Business management believes they have been cheated by nonperformance. Conversely, the consultant thinks he has actually over delivered.

Yet neither party can prove or disprove their position because there is not a detailed scope of work as a standard against which to measure performance.

2. Defined Compensation.

The second most common area of dispute in consulting contracts is the amount of compensation to be paid and the milestones that trigger payment.

As a general rule of thumb, it it’s not in the agreement, the compensation will not be paid. For example, there’s a consultant who is currently suing his client for a performance bonus.

Under the agreement, the consultant has been paid $2 million. However, he contends that there was a “general understanding” that the client would pay a bonus consisting of 5% of the additional revenues he generated. The client takes the position that no such understanding exists and there is no obligation to pay beyond what the written contract requires.

Even when the amount of compensation is clearly defined, payment issues arise when the milestones triggering payment are too vague. Each milestone should be specific (by date, objective met, etc.) so that there is no room for confusion.

3. Changes in Scope of Work.

Your consulting agreement should provide a mechanism for written change orders to the scope of services that will be performed, including agreed upon payments with related milestones, so that both parties know what’s expected going forward with the consultancy.

Oral or other informal modifications (e.g. emails) that modify the scope of work often create misunderstandings that can easily be avoided by detailed written change orders.

4. Confidentiality and Publicity.

Consulting contracts should address the nature and extent of confidentiality, both as to the client’s data and the existence of the consulting arrangement. Will the consultant be able to identify the client by name as a client for marketing purposes (on the consultant’s website, press releases, etc.)?

What constitutes confidential information? If the consultant is using subcontractors (e.g. website designers), will the subcontractors also be required to sign confidentiality agreements?

5. Alternative Dispute Resolution.

When there is a dispute concerning performance by either party, it’s rarely a good idea to head straight to court (notable exceptions for breaches of confidentiality and intellectual property infringement).

If the client is upset about the services rendered or the consultant feels cheated as to compensation, a good first step to resolving the issue is informal mediation using a neutral third party as conciliator.

Should mediation fail to achieve a resolution of the dispute, the consulting agreement should provide for binding arbitration at a mutually agreed upon location. In the United States, it’s common to have such commercial arbitration handled per the rules of JAMS or the American Arbitration Association.

Other Consulting Agreement Provisions

“There are other clauses you’ll want to include in your written contract,” Texas Internet Lawyer Mike Young said. “An experienced transactional attorney can prepare a customized consulting agreement template for you to use that can be modified on a per-project basis.”