Friday, November 22, 2013

The Afforable Care Act (AKA Obamacare) - How it affects the self-employed and small business owners



Most of my clients are small business owners.  In addition to voicing frustration about cancelled health insurance plans and exchange failures, many of them have expressed their confusion about how the new health care law impacts their businesses.  There has been significant news coverage regarding the very lengthy text of the Affordable Care Act (“ACA”). You may be surprised to learn that in addition to the law itself, there are thousands of regulations being promulgated in connection with it.  The result is a complicated web of legal requirements. Regardless of your thoughts about the functionality of the healthcare.gov website or the exchange websites, if you are a self-employed person or small business owner, you should be aware that the ACA has provisions which will impact your business. The following is neither a comprehensive overview nor intended as legal advice, however it should provide you with some helpful information as you navigate this new law and the regulations that flow from it.

Some of the below information applies to both small businesses and self-employed persons so this article addresses both. Small businesses owners should review both sections.  The ACA is rolling out in stages between 2013 and 2014. 

SELF-EMPLOYED

Some of the provisions that may impact self-employed individuals include:

Provisions Affecting Individuals
In 2014, the Individual Shared Responsibility provisions require each individual to have health insurance coverage, qualify for an exemption, or pay a fee/fine [1] when filing their federal income tax return. Individuals will not have to make a payment if coverage is unaffordable, if they spend less than three consecutive months without coverage, or if they qualify for an exemption for several other reasons, including hardship and religious beliefs. Under the ACA “minimum essential coverage” required includes: Employer-sponsored coverage (including COBRA and retiree coverage), coverage purchased in the individual market, Medicare Part A coverage, Medicaid coverage, and various other government plans applicable to veterans and children, etc.

Individual Insurance Marketplaces
Speaking of controversy:  As we are all well aware, the roll-out of the online insurance marketplace websites has been near disastrous.  It is unclear whether they will be fully functional in time to meet the deadlines.  As of the date of this post, the Covered California site is not functioning properly.  The marketplaces for individuals and small businesses should be in place by January 1, 2014.  Open enrollment was supposed to commence on October 1, 2013. The individual health insurance marketplaces should offer four different levels of benefit packages. Individuals and the self-employed persons may qualify for individual tax credits and subsidies on a sliding scale, based on income. 

Medicaid Expansion
If you are self-employed and reading this, you likely are not eligible for this type of coverage.  However, each state operates a Medicaid program that provides health coverage for lower-income people, families and children, the elderly, and people with disabilities. The eligibility rules for Medicaid are different for each state, but most states offer coverage for adults with children at some income level.  In addition, under the ACA, states have the option to expand Medicaid eligibility.

New Tax on Investment Income
Commencing January 1, 2013, a new tax (about 4%) will be assessed on persons earning net investment income.  Income subject to this tax includes income from certain capital gains, dividends, rents, royalties, and interest.  It applies to taxpayers with Modified Adjusted Gross Income over $200,000 for people filing single and $250,000 for married people filing jointly. I suspect my clients are not fans of this new tax.

Small Business Owners

For people employing fewer than 25 employees, the following is a summary of some key items that affect you and your business:

Health Care Tax Credits
A small business Health Care Tax Credit may be available to your company if you employ “low- and moderate-income” employees[2].   Generally, businesses that have fewer than 25 full-time employees and that contribute 50% or more toward their employees’ health insurance premiums may qualify for a small business tax credit of up to 35% to offset some of the costs of insurance.  In 2014, this tax credit increases to 50% and is available to “qualified” small business employers that participate in the Small Business Health Options Program (SHOP).

The SHOP program is open for enrollment now and can be found here:

I have not tested the site and I have no information as to whether it has the same functioning problems that exist with the individual healthcare.gov site. Employers with up to 50 employees should be able to access and use the SHOP site. 

Mandatory Employer Notice to Employees
Hopefully you didn’t miss this deadline! On October 1, 2013 all employers covered by the Fair Labor Standards Act (employers with over $500,000 in revenue a year) were required to give written notice to their employees about the ACA Health Insurance Marketplace.  This notice also must be provided to all new hires after October 1, 2013.  The Department of Labor has posted model form notices that you can use.Cut and paste this link for reference: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf

Increased Medicare Withholding for Higher Wage Earners
Commencing January 1, 2013, the ACA increases the employee portion of the Medicare Part A Hospital Insurance withholding by .9% (up from 1.45% to 2.35%) on single filer employees with incomes of over $200,000 and $250,000 for employees who are married filing jointly.  It is your obligation as an employer to withhold this additional tax, so check with your payroll company for compliance. The employer portion of the tax will remain at 1.45%.

Reduced Waiting Period
If your company decides to offer coverage, employees will no longer be required to wait more than ninety days before their coverage commences. 

New IRS Reporting Requirements
In 2015, the ACA requires employers who sponsor employee self-insured plans to submit new reports to the IRS detailing information for each covered individual. Employers should file their first report in 2016.  The reporting rules are not yet completed so be sure to keep abreast of this requirement in the coming year.

The ACA is riddled with issues and problems. The regulations flowing from it continue to grow and change-thereby impacting your business. It would be wise to request periodic updates from your accountants, payroll vendor, insurance representatives and attorney(s) so that you do not miss, or continue to miss, reporting and/or notice requirements as they arise.


[1] Whether this fee is a fine, tax or penalty is the subject of extensive legal and political debate.
[2] Average annual wages of $50,000 or less

Tuesday, February 12, 2013

Uncertain Times- Make Certain Agreements


It seems in these uncertain economic times that more individuals and small businesses are forgoing legal advice and formal written agreements.  Don’t do it. Don’t do a handshake deal. Don’t assume the other party will perform. Don’t assume you can work out the details as you go. Don’t trust that your prior dealings with any person or business are any indication that you can proceed in any transaction without a proper written contract. You may need the deal, but you don’t need the fallout if it falls apart and you have nothing in writing to protect you or your business.

There, I said it. That’s the deal.

Now let me explain. I agree some business opportunities are fleeting and risks sometimes must be taken. However, if a business deal or transaction has any real value to you or any potential risk, it is imperative that you properly document every critical aspect. Why gamble on the good faith of another party or the proper interpretation of your agreement by a court? Even if not acting in bad faith, sometimes well-meaning parties to a handshake deal simply do not have the same understanding or expectations. Furthermore, sometimes the judge assigned to your matter may not have the time or expertise to properly interpret your “agreement”.  If you or your attorney prepare a written agreement, a good agreement includes at the very least the following:

Proper identification and understanding of the parties. Seems simple enough? It’s not. Who is the entity with whom you are contracting? Where was it formed and where does it do business? You need to know exactly with whom you are contracting. More often than not I see agreements that define a party my clients had no idea was involved. In the sales and negotiations process, you are sometimes distracted by the deal points and then presented with a contract that is tantamount to bait and switch. Pay attention and have your attorney run a public records search and advise you about the parties. Are they solvent? Have they been sued for breach of contract or fraud? If applicable, do they have many poor consumer or vendor reviews? Are they really someone with whom you want to do business? Don’t overlook these details. If it’s a big enough contract, I have been known to recommend even further investigative work-up. To date, I have not regretted any such instance. It always proves valuable and informative.

Term. How long will the agreement last? Will it renew and if so, how? My experience is that disputes may arise when the parties do not have the same understanding of the term of the agreement or how it can be renewed. Be clear and specific in setting forth the term.

Very clear description of the duties and responsibilities of the parties. Again, this may seem obvious or simple but it is not. This is where the most disputes arise. This is where we look for the “meeting of the minds”.  It’s your obligation to carefully analyze and set forth your expectations of the other party and to verify that they understand those expectations. Similarly, it’s your chance to spell out precisely what you believe are your responsibilities and obligations. What are the deliverables? What are the metrics that must be achieved? Is there an opportunity to cure a defect if delivery dates or deadlines are not met? What are the payment terms? What specific triggers are involved? This is your time to use your critical thinking skills. Consider every angle and especially consider every possibility for a conflict and how it will be resolved. You can dictate the future of your dealings. Don’t leave the fate of your business or this deal to speculation.

Representations and warranties. These are tricky. Here, a warranty is not what most view as the traditional guarantee of a product’s performance. Rather, it is an affirmative representation of facts by a party. If you did not draft the agreement, verify that all representations are correct. If not, you could be setting yourself or your company up for a fraud claim. If you draft the agreement, be sure to include basics such as the legal standing of the parties to enter into this agreement and the fact that doing so does not violate any laws or other agreements, etc. These provisions should survive the termination or end date of the contract. If the other party makes a misrepresentation or breaches a warranty then the ramifications could present themselves well after the termination of the agreement. Sometimes, you need to be able to seek relief from the party or a court at a later date. Don’t foreclose on that opportunity.

Indemnity. This is a week long seminar unto itself. However, suffice it to say that if you are drafting the contract you want the other party to indemnify and defend you in the event you are sued or are required to defend against a claim based on their actions. If you did not draft the agreement, be very careful of the indemnity language. Larger corporations notoriously strap small businesses with oppressive indemnity language that requires them to pay even when there has been no actual improper conduct by the small business-there merely needs to be an allegation. Such a provision can bankrupt a small business, especially if the claim involves patent infringement. You are strongly recommended to seek legal counsel to review any indemnity provisions.

Choice of law/venue. If you draft the contract, then you may want to provide that your state’s laws apply and that any dispute is governed by the laws of your state. This will save you significant time, travel costs and ambiguity in the event of a dispute. If the party drafts the agreement and is located in another state, they may include a provision that specifies that the laws of a state other than your state will be applied to your agreement and further that if there is a dispute- that you are required to come to their state to sue or defend yourself. That can be incredibly costly (and cost prohibitive) for individuals and small businesses.

Obviously, there are many issues you can and should consider and the above is not exhaustive. I am not your attorney and no one article can substitute for case-specific legal advice, but it’s my hope that that these factors will put you in the correct frame of mind if you currently are commencing a new business relationship.  Feel free to email me at shipplaw@cox.net if you need further input or would like an attorney to draft or review your agreement.

Thursday, October 11, 2012

Contracts. Miscellaneous provisions and the potential importance of the "integration clause"



In my practice I find that most agreements I review and negotiate incorporate all of the pertinent business related terms and then typically conclude with miscellaneous standard provisions.  In particular these standard provisions include clauses such as a choice of law provision, attorneys fees clause, and to a lesser extent, an arbitration clause. They are not hard to find-look to the end of the document and scan for the heading "Miscellaneous Provisions". 

The choice of law provision dictates which state law will apply to the interpretation of the agreement or to disputes. The attorneys fees provision provides that the prevailing party shall be awarded attorneys fees in the event of a dispute. A typical arbitration clause provides that the parties agree to waive their right to a judge or jury trial and instead agree to submit any disputes to a private neutral or neutrals. Though arbitration provisions persist in various areas of business and consumer transactions, they are less prevalent in modern business to business agreements.

Irrespective of the subject of the transaction, I typically incorporate an integration clause in my agreements. An integration clause provides that all discussions, representations and agreements made in advance of the final written agreement expressly are disclaimed.  Essentially, the clause means that if it's not in the written contract, it's not part of the agreement. Integration clauses are important when the parties employ sales people, have had protracted negotiations, negotiate through various representatives and where significant time has elapsed between the time essential terms were agreed upon and the time the agreement was reduced to writing.  Representatives of the parties may have made additional agreements that were not given the blessing of the authorized principal negotiators.  Conversely, if I'm representing a small business or individual in a negotiation with a larger entity who has the primary bargaining power, I tend to disfavor integration clauses.  I find that the more resourced party tends to control the terms of the agreement.  They do however usually make representations, clarifications and additional agreements in emails that ultimately are not included in the final agreement.  In that instance, I want my individual or small business client to be able to argue those clarifications in connection with interpreting the final agreement. 

I caution my clients against merely scanning the miscellaneous provisions and assuming they are standard and/or fair. In some cases, these provisions can govern significant disputes and may have a huge impact on the deal. I also caution any individual or small business that it is always better to have an attorney review your agreements before execution. As with many things, the relatively minor expense of legal review could save you thousands, or millions, later.










Tuesday, January 10, 2012

Bankruptcy. Is it right for you?

When the economy started to turn in 2007, most people never expected that it would decline to the extent that it did or that it would later be called the "Great Recession." If you are like many Americans, you have a strong work ethic and you take responsibility for your actions and debts. You may see your obligation to pay debts you have incurred as something fundamental, even if it does not make economic sense. For example, if you purchased a home at the top of the real estate market and now find your property underwater, or if you experienced a significant health problem that left you with large medical bills, you now may be faced with debt that far exceeds your assets. If you are hard wired with a sense of responsibility, you may be paying these debts to the detriment of your mental and physical health.

Bankruptcy is not for everyone. For example, people with significant assets, or significant income or those who need to access credit in the foreseeable future are often times not good candidates. In addition, bankruptcy may not be the right choice for people who are seeking employment where their credit report will be viewed by potential employers or those who are in positions of trust and whose creditworthiness is a factor that impacts their employment.

However, people who have lost their jobs, suffered health issues or who are completely overwhelmed by debt and debt collectors should seriously consider if bankruptcy is the right choice for them. The bankruptcy laws are designed to allow people to press the "reset" button. It allows you to stop, assess and reset. It stops creditor harassment, phone calls and persistent letters. Furthermore, it is not as humiliating as one might believe. Indeed, if you are honest with your attorney and the bankruptcy trustee by fully and accurately disclosing your financial information, it is an entirely respectful, appropriate and cathartic process. Bankruptcy is there to protect good people who are thoroughly overwhelmed, who never expected to be in the position they are in, and who just can't make ends meet.

In my practice, I have selectively taken on bankruptcy matters over the years. Many lawyers who focus on bankruptcy practice, in my opinion, are mass producers who do not give individual clients the time and attention they deserve. By this, I mean that they are focused on handling as many cases as possible, thereby leaving the individual needs of their clients largely unattended. Although in California, attorneys are required to meet with their clients and counsel them prior to filing a bankruptcy petition, I have found that some self-proclaimed bankruptcy attorneys never meet with their clients and do not return their telephone calls or emails. Worse, I have attended several meetings of creditors at the court, presided over by the bankruptcy trustee, with clients who later commented to me that they were astonished at the number of other bankruptcy filers at these hearings who were there without the attorney they paid to do the work. Yes, some bankruptcy attorneys do not show up. Imagine, you are there alone, appearing before the bankruptcy trustee and creditors after you paid good money for representation. Mostly though, my clients comment that the attorneys send "special appearance attorneys" to appear on their behalf and represent the client at the meeting of creditors. Typically, the client was not informed that someone that they do not know and have never met will be representing them at a hearing. It is simply reprehensible in my opinion. Indeed, I have postponed a vacation because it was important to me that I be present with my client at a meeting of the creditors.

People need someone to hold their hands when they file bankruptcy. It is not an easy decision and it is not fun. The last thing you need to feel is abandoned. If you are thinking about bankruptcy, consult with an attorney to see whether it is something that is right for you and your circumstances. I am of the opinion that the consultation should be free. Be sure to inquire about whether the attorney will be available to you when you have questions and whether he or she will be there for you at the meeting of the creditors or other scheduled hearings. If you are in financial trouble, the consultation will be worth your while and asking the attorney the right questions will save you a lot of stress. After all, if you are considering bankruptcy - you don't need any added stress!

Wednesday, December 28, 2011

Have a great logo, slogan, design or other unique idea? Time for a Trademark or Copyright

I have a small business client who is incredibly talented and incredibly smart as well. She designs some of the most exquisite jewelry. That is the talent part, of course. Her jewelry is made of the finest sterling silver and often includes precious stones. She has a line of fine jewelry using diamonds that is truly captivating. When she creates a particularly interesting or marketable design, she files a Copyright application with the U.S. Copyright office.

On several occasions, yes, you read that correctly, SEVERAL...retailers have knocked off her treasured designs with cheap, base metals. Not only is this offense reprehensible to her as an artist and small business person, but it dilutes the good will of her business. People actually have been confused and believed that she had "sold out" to some large chain. This is where her copyrights are most effective. You see, filing a Copyright registration puts the public (and any would be thieving mass retailers) on notice that the design, or other creative product, belongs to you alone. An infringer is liable to the Copyright owner for damages and any illegally obtained profits as well as the Copyright owner's attorney’s fees.

Typically, a cease and desist letter combined with a demand for payment of a settlement is sufficient to stop the infringement and after some negotiation, should lead to a payment for the infringement. However, if forced to litigation by a defiant infringer, a lawsuit can be filed and the Court can issue an injunction to stop the infringing acts. Additionally, a Court can impound the illegal works and award damages, court costs and attorneys fees.

No matter what your business or side business, if you are the creative type, you should consider whether you should apply for a Copyright or Trademark registration.

Copyrights relate to creative works such as this text, books, manuscripts, song lyrics, poetry, and works of art such as jewelry designs.

Trademarks relate to brands, logos, slogans, company names, and the like.

Copyright registrations are relatively easy. They involve a one page application and if filed online, run about $35. The filing fee, time and attorneys fees are not cost prohibitive and are certainly worth your effort.

Trademarks are more expensive in that they involve a filing fee of $275 -$325 to the United States Patent and Trademark Office, some legal research and analysis, and they involve a more extensive application. The work involved however is not necessarily cost prohibitive if your slogan, logo or brand is valuable to you and/or has the risk of being unfairly exploited by another. Like Copyrights, trademark infringements carry significant potential liability in the form of disgorged profits, damages and attorney’s fees-all of which are significant deterrents to any would be infringers.

Are you an artist? Do you run or own your own business? Do you have a logo or a brand associated with a product, service or your business? If you have a creative work or idea that is valuable to you, you should consider whether a Copyright or Trademark is an investment you need to make.

Tuesday, December 13, 2011

WHEN IT COMES TO ESTATE PLANNING DOCUMENTS-YOU NEED ORIGINALS!

First, do you have a will and trust? If you have children or own property-you should. Why would you want to burden your family with probate after your passing? It is extremely messy, opens your estate up to all kinds of challenges and guess what? The court and probate lawyers get a sizeable piece of your estate. I know you don't want that. Honestly, it is not that expensive and it is completely worth it.
Second, if you have estate planning documents, where are they? Does your executor/successor trustee have a copy with an ORIGINAL signature? If not - they should. Why? Well, In California, if a will does not have an original signature, it is presumed REVOKED. That means that if you give a copy to your executor and he or she files that with the probate court, the court will assume you revoked your will unless the copy has an original, wet ink signature. Seems crazy right? The reasoning is that people make lots of copies of their documents and there must be an original. Therefore, if it cannot be found (or is not filed) it must have been revoked.

Don't leave your loved ones in a lurch! Create a will and trust. Keep an original in a safe, an original with your lawyer and an original with all designated executors and/or trustees.