EMPLOYER/EMPLOYEE RELATIONSHIPS ARE LIKE DATING? THE DIRTY LITTLE SECRET OF RESTRICTIVE COVENANTS

When someone is starting out in a new job, one of the last things on his mind is what happens if and when things don’t work out with that employer. Things are all shiny and new, and most people have every hope that the relationship might be lasting. Sounds kind of like dating or marriage, doesn’t it? In a way, it is. The reality is that sometimes things can go horribly wrong in an employer/employee relationship, just like in a personal relationship. When that happens, the question often becomes one of can you just walk away with no further strings attached as you so desperately want to do, or are you somehow still bound to that person with obligations that you just can’t shake? Whether it’s because of a child that you’ve had together or some kind of restrictive agreement that you’ve entered into with your employer, sometimes relationships aren’t that easy to just cast aside.

Today I’ll leave the personal relationship advice to the experts (you go, Dr Phil!), and focus on something that many people face and don’t even realize. While hardly something that every employee needs to worry about it, I direct this article to professionals and/or uniquely talented individuals who were asked to sign a non-competition agreement as a condition of their employment in New York State.

What is a non-competition agreement you might ask? At its most basic level, a non-compete agreement is a contract which restricts an individual’s employment opportunities for a certain period of time and within a certain radius of his current employment following the termination of that relationship. Non-competes often have an additional restrictive condition included which prevents an employee from starting a competing business within a certain period of time following his departure from his employer.

There are no statutes or regulations controlling non-competes within the State, but case law clearly tells us that New York courts generally disfavor such agreements and hold them against public policy. They are viewed are unreasonable restraints on trade and employment. New York typically stand for the proposition that individuals have a right to work, and that right will not unreasonably be infringed upon. Even so, you nonetheless need to understand that your particular non-compete agreement may still be enforceable.

The enforceability of a non-compete agreement comes down to an analysis of one simple, or rather not so simple, word: reasonableness. Reasonableness is the standard by which non-competes live or die, and that reasonableness is evaluated on a case by case basis. It falls on the party seeking to enforce the agreement to demonstrate that measure. Without going into gory and gruesomely boring detail, individuals seeking to enforce a non-compete do have some practical guidance for understanding what amounts to reasonableness.

Courts look to a number of different factors in assessing whether an agreement should stand or be set aside. They include:

(1) An assessment of whether the agreement imposes a restriction that is no greater than necessary to protect an employer’s legitimate protectable interests;
(2) An assessment of whether the agreement imposes an undue hardship on the employee;
(3) An assessment of whether the agreement causes harm to the general public; and
(4) An assessment of whether the agreement is reasonable both in terms of duration and geographic scope.

There’s no bright line answer to assess these measures, as each has to be considered based on each cases unique circumstances. Typical interests, however, that the Court is inclined to protect on behalf of an employer include: potential damage to the business’ trade secrets or confidential information; damage to the business’ goodwill; or to prevent the employer from losing an employee to a competitor whose skills are special, unique or extraordinary that the business would be damaged. Even if some or all of these criteria are met, the court still needs to assess the reasonableness of the agreement in terms of the other restrictions it places upon an individual. This assessment may result in the agreement being wholly enforced or struck down, either in part or in whole. The court exercises a measure of control that enables it to re-write an agreement to make it reasonable if an employer’s interests are truly at risk.

In the event that an employer does seek to enforce a restrictive agreement, it will likely be seeking both an injunction to prevent the arguably prohibited behavior and monetary damages to compensate for the lost profits that it would presumably suffer because of the breach. In light of the fact that these agreements are generally disfavored by the courts, employers need to truly assess with counsel whether they have a legitimate grievance that would justify the time and expense that would be incurred to try and enforce the agreement. Sometimes the answer to that question is an unqualified yes; depending on the skill set and supposed uniqueness of your breaching employee though, I’d urge you to assess that decision well.

By way of bringing this article full circle, I think it goes without saying that employer/employee relationships, just like personal ones, sometimes go wrong. When they do, it’s my hope that you originally entered into the relationship with eyes wide open as to what you bargained for. If you are an employee subject to a non-compete, always know your rights and consult with counsel if you think an agreement might unreasonably infringe upon your livelihood. If you are an employer, I would urge you not to willy-nilly have all of your employees sign a non-compete, but understand when and how they should properly be used.

"OPERATION HANG UP" IN EFFECT!

By now I think it’s pretty safe to say that we should all know this fact, but texting and driving and/or talking and driving are becoming ever increasingly more significant factors in not only car accidents across New York State, but also motor vehicle related fatalities. For that reason, police across the region and State are undertaking another round of Operation Hang Up. This is an initiative targeted at drivers using mobile devices unsafely, and in particular, those not using hands-free devices. Starting today and running through Sunday, April 28, 2013, drivers can expect an increased police presence on roadways that will target such drivers. The State’s intention is to both increase public awareness of the hazards of distracted driving, and to reduce its actual occurrence (high ticket fines and surcharges often have that effect, even if only temporarily). Be safe. Drive smart. And keep your eyes on the road! Not just this week, but every day.

UPDATE! STAR PROPERTY TAX REBATE PROGRAM

If you follow my blog at all, you likely saw my recent article in which I discussed upcoming changes to New York’s STAR property tax rebate program that would directly or indirectly affect millions of property owners. When I wrote about this topic in March, details regarding the proposed changes were still up in the air. About the only thing for certain that was known was that eligible property owners who qualify for the STAR program would have to re-register. No time frame was provided for re-registration, nor was any mechanism for doing so communicated to the public when the initial press release was issued.

The legislature’s purported impetus behind requiring all property owners to re-register for the program was a down state investigation that revealed a seemingly systemic abuse of the program. The investigation suggested that ineligible properties, such as rentals, were being registered under the program, thereby costing New York State millions in property tax revenue annually. To stem this abuse, the legislature proposed as part of its recently passed budget that all property owners re-register for STAR status, regardless of when they last applied.

After posting that article, given how little publicity surrounded the legislature’s intentions regarding STAR, I received several communications from readers questioning whether I was mistaken and/or were these changes were really going forward. The reality is, they are! More importantly, we finally have some details provided by NYS that address the upcoming changes. My appreciation goes out to those readers who brought the updated information to my attention.

According to the New York State’s Department of Taxation and Finance (Department), all homeowners seeking to maintain a basic STAR exemption will need to register (or re-register if you already have) with the Department of Taxation and Finance to receive a STAR exemption in 2014 and thereafter. Homeowners, however, will not need to re-register to receive their 2013 STAR exemption. Although the Department indicates that it will mail all basic STAR recipients information on when and how to register for 2014 and on, I’d still recommend staying on top of matters and possibly even contacting your local tax assessor to ensure you understand the required process to avoid missing out.

On a positive note, the legislation indicates that these changes will not affect senior citizens who are eligible for the enhanced STAR program. Seniors, however, must continue to apply annually to maintain registration or participate in the Income Verification Program.

As a remedial measure to prevent against further abuses of the STAR program in the future, the legislature also implemented heightened penalties for those ineligible for the program that nonetheless apply for same. Under the new rules, penalties for intentionally providing misinformation to an assessor will increase from $100 to as much as $2,500, while the number of years for which a taxpayer must repay inappropriate STAR benefits will increase from three to as many as six years. Also, not only will taxpayers whose STAR exemption is revoked will be unable to receive the exemption for six years after the revocation, but an additional $500 processing fee will be imposed whenever an inappropriate exemption granted after April 1, 2013 is revoked. Perhaps these new rules will discourage ne’re-do-wells from abusing the system.

WHY DO PEOPLE AVOID WRITING A WILL?

I’d like to say that it’s a recent phenomenon, but I’m writing today about a trend that I’ve noticed throughout my career. Truth be told, I’d be naïve to think that this trend doesn’t predate my practice by decades, if not centuries. What am I talking about exactly? I’m talking about the propensity of much of society to hesitate (if not complete avoid) writing a will. Both in my practice and my everyday life, I regularly hear from people who recognize and wholeheartedly admit that they should put a will in place, but despite their best intentions, there’s simply a wall up that seemingly prevents them from taking that final step to do so. Why is that? What keeps us from doing what we should do to protect our family?

FALLACY ONE: I DON’T NEED ONE

One of the primary reasons that people avoid preparing a will is they don’t think they need one. If truth be told, there are some limited instances when a person truly doesn’t need one. That, however, is the exception to the rule. Individuals need to understand one very simple thing. If you pass away without a will, it falls on the court to decide not only how your belongings are distributed, but also who will be responsible for raising your minor children after you pass. If you’re okay with that, then you can skip to the next section. If, however, you want your last wishes to be known and honored, I highly recommend doing the right thing by your loved ones and prepare a will.

Even if you don’t think that you have assets enough to warrant the necessity of one, if you’ve got minor children, I would pose this question to you. How could you not want to ensure that you have provided for their future well-being by making known who you want to raise them? I can guarantee that the individuals you would choose are not necessarily those the court would choose in your stead. That issue aside, however, you should understand that having a will in place really does make it easier on those you’ve left behind to handle your estate. Your loved ones will have enough to deal with when you pass; shouldn’t you do what you can to ease their burden?

FALLACY TWO: IT’S EXPENSIVE AND COMPLICATED

While no two estates are alike, it’s typically not an expensive proposition to have at least a basic will prepared. Can it become expensive? Certainly, but the reality is that not everyone requires a complicated estate plan or a living trust. For the average person, it will be money well-spent to retain counsel to assist you with the preparation of a last will. Not only will it provide you with peace of mind knowing that everything has been set in place and done properly, the nominal investment that you make now to ensure your wishes are carried out could save your estate considerable money down the road after you pass if matters aren’t otherwise set in place.

FEAR OF DEATH AND OUR OWN MORTALITY

In my experience, the final driving factor which deters many individuals from preparing a will is that they don’t want to face their own mortality. It’s hardly a bad reason, and I can’t necessarily fault them. Many people feel that if and when they do memorialize their last wishes that they’ll be tempting fate or inviting something terrible to befall them. While this is intellectually an irrational and unfounded fear, it’s hard to minimize the psychological impact which results from being made to ponder your last wishes.

There is no easy answer to this quandary. Without diminishing the very real distress that many people face when forced to think about their last wishes let alone talk through with their attorney and/or spouse, I would offer this bit of advice: Get over it. I hate saying that, and I certainly don’t intend to be rude, but you have no choice. You need only consider what’s at stake after you pass to truly understand that reality. Do you really want the court to make critical decisions for you as far as who raises your children or where your assets go? I’d wager that the answer is probably no. I’m not saying it will necessarily be a comfortable conversation to have, and you might even disagree with your spouse about your final plans, but given the alternatives, is a little bit of discomfort really worth the potential chaos that you could leave your family in should you choose not to have that conversation and take action?

FINAL THOUGHTS

It will probably come as no surprise, but I’ll conclude this article simply by saying that I believe each of us has an obligation to those we love to do everything we can to ease the transition process once we pass away. Those obligations include writing a will and making our final wishes known. If you haven’t already done so, I would urge you to write one for not only your own sake, but, more importantly, for the sake of those you hold most dear. They are the ones after all who will be left to pick up the pieces.

CONSIDERING FORMING A SMALL BUSINESS? THE CHOICE BETWEEN AN S-CORP AND C-CORP IS CRITICAL

There’s no question that entrepreneurs and small businesses are the life blood of this great nation. For those just starting out or who are only now considering incorporating an existing business, your choice of entity is critical. While I’m personally partial to limited liability companies for most small businesses, many individuals, for a myriad of reasons, still want to conduct business as a traditional corporation. While other forms of corporations exist, the two most common for-profit types are S-corporations and C-corporations. If you’re undertaking to incorporate, you need to understand the difference between them and how they can affect you, especially your bottom line.

In order to create a corporation, one initiates the process by filing article of incorporation with the Department of State. Aside from indicating your intention to create a new entity, articles of incorporation do not state what type of corporation you are filing. By default, corporations are considered C-corporations under subchapter “C” of the tax code upon formation. S status is secured only when the entity files for same with the Internal Revenue Service (IRS).

On many levels, the choice between C or S status is irrelevant. Both forms provide owners with limited liability. This is generally the paramount reason individuals decide to incorporate in the first place; to avoid personally liability resulting from the ordinary, everyday operation of your company. The shield which results from incorporating results from the fact that corporations are considered entities separate and apart from their owners and directors. Corporations, nonetheless, are still owned by their shareholders and controlled by their boards of directors.

The real difference between C-corporations and those which choose an S election comes down to tax treatment under the Internal Revenue Code. Traditional C-corporations face two levels of taxations. Not only will the entity pays taxes on the net income it generates, but its shareholders will pay a secondary layer of taxes on the distributions they receive from the entity. S-corporations, however, are not subject to this double layer of taxation. Rather, they are instead subject only to a single level of taxation at the shareholder level, and ate referred to as “pass-through” entities. In this sense, corporations which choose an S election are treated instead much like LLCs or partnerships.

In order to be an S-corporation, your entity must be limited to no more than 100 shareholders, all of which must be U.S. citizens or resident aliens. Shareholder status is not limited to natural persons, but can also be enjoyed by other corporations (remember, corporations are separate entities in the eyes of the law).

In order to choose S status from the beginning, the corporation must file an S election with the IRS within 75 days of formation. If you elect S status from the beginning (or during the election period), your business will never be treated as a C-corporation. If you miss that window and are considered for taxation purposes as a C corporation, all hope is not necessarily lost. C-corporations can convert to S status, but it may not be that simple. Because of its complicated accounting rules, many C-corporations find it difficult to convert to S status, at least without the risk of nonetheless facing that double layer of corporate taxation because of a built-in gain tax that was instituted to take effect upon conversion from a C to S. Nonetheless, the law does provide a mechanism for converting from a C to an S corporation, just as it provides a mechanism for converting from an S to a C if desired.

When one weights all of the costs and benefits associated with a C-corp versus an S-corp, it ends up making very little sense for most small business owners to stick with C-corp status to run their business. Aside from the fact that small businesses fiscally can’t afford the hit of paying the two levels of taxation that accompany C-corp status, conducting business as an S-corp allows business owners to personally claim losses on their taxes – a feature simply not offered by C-corporations. At the end of the day, corporations have their time and place. If you’re considering one over an LLC, you need to at least make sure you elect wisely when forming one so as to get the most out of your chosen entity. Last but not least, rules and laws change regularly, so always consult with counsel when choosing an entity form. While this article gives one a sense of the differences between S-corps and C-corps, there are multiple other differences that I’ve not touched on which could affect your choice of entity.

CAN I REFUSE TO LEASE MY "NO-PET" APARTMENT TO SOMEONE WITH A "COMPANION ANIMAL"?

Imagine the dilemma. You’re a landlord with a house or apartment to rent. As a conscientious property owner, you’ve made what you believe to be well-reasoned decision to keep the property pet free because you recognize the potential damage they can cause to the premises. Despite your best intentions, a potential tenant comes a knocking with a lease application in hand. The applicant on paper looks like the perfect tenant, except for the fact that he has a “companion animal” in tow… Even though your well-reasoned policy to exclude tenants with pets remains in effect, can you legally refuse to rent to him? The answer might surprise you.

As a landlord and/or property owner, the law is often on your side as far as permitting you to set reasonable criteria for renting to people. Maintaining a rental as pet-free or cigarette (smoke) free is hardly atypical, so one wouldn’t think that adhering to such policies could result in potential legal problems, but they could. The overriding issue relates to the American with Disabilities Act (ADA) and the obligation that it places on landlords to reasonably accommodate disabled applicants and residents – in this case, those with service pets and/or companion animals.

This discussion might be facilitated by some definitions to enhance everyone’s understanding of exactly what we’re talking about. According to the ASPCA, companion animals are defined as either “domesticated or domestic-bred animals whose physical, emotional, behavioral and social needs can be readily met as companions in the home, or in close daily relationship with humans.”

With that definition in mind, we need to turn to the federal government for a moment to determine how it defines these animals and what special treatment it provides them. While you might think that the ADA codifies what is meant by the term “service animal”, that guidance and is actually found in a joint memoranda issued by the Department of Justice (DOJ) and the Department of Housing and Urban Development (HUD).

The memoranda states that “service animal” means: any guide dog, signal dog, or other animal individually trained to do work or perform tasks for the benefit of an individual with a disability, including, but not limited to, guiding individuals with impaired vision, alerting individuals with impaired hearing to intruders or sounds, providing minimal protection or rescue work, pulling a wheelchair, or fetching dropped items.

Service animals are specially trained not only to perform tasks or work for the benefit of a disabled person, but also to behave properly in places of public accommodation. Companion animals, however, receive no such training and their primary purpose is to provide companionship (i.e., they are little more than pets!). Given the training that service animals receive, all service animals can be considered companion animals, but hardly all companion animals are service animals.

Interestingly, while the aforementioned agencies recognize and use the term “service animal”, none of them use or recognize the term “companion animal”, “emotional support animal” or “therapy animal” in connection with a landlord’s duties. Despite that fact, disability rights groups refuse to draw a distinction between service animals and companion animals.

There is no question that the ADA mandates that a landlord must make reasonable accommodations relative to a disabled person with a “service animal”, which includes leasing to him despite a no-pet policy. What about applicants with something other than a service animal though? Given the seemingly bright line that exists as far as the ADA is concerned relative to what constitutes a service pet, you would think that you’d be on solid footing refusing to lease to an applicant with an emotional support pet based on your no-pet policy, but it’s not that simple.

Advocacy groups are vehemently promoting the notion that landlords are obligated to waive their no pet rules for applicants who use emotional support or companion animals. They further push landlords into leasing to disabled or mentally ill persons who are merely emotionally dependent on their pets. As improbable and counter-intuitive as it might seem, many courts are endorsing these advocates’ point of view, including some courts in good ol’ New York State.

In a case dating back to 1991, Crossroads Apartments Associates v. LeBoo, Rochester City Court reasoned that a landlord had a duty to reasonably accommodate a mentally ill tenant with a companion cat if the tenant could prove to a jury that he needed the cat to help him cope with his illness. What exactly needs to be demonstrated though?

In 2004, the Appellate Division took up that very issue in the matter of Landmark Properties v. Olivo. The court determined that a landlord had a right to refuse a tenant’s accommodation request because the applicant had provided nothing more than an ambiguous statement from his physician stating that those in a depressed state might benefit from a pet. The court impliedly installed a standard that requires a tenant to produce either by expert medical or psychological evidence that a companion animal is necessary for him to use and enjoy his apartment.

This issue, nonetheless, continues to be litigated; courts have yet to reach full consensus as to how companion pets should be treated, including those courts in New York where opinions remain divided. The tide, however, seems to be favoring advocates who support a tenant’s right to a companion animal.

At the end of the day, what’s a landlord to do when faced with so much conflicting information? Although I personally feel it’s an infringement of a landlord’s rights, it appears more likely than not that as time pushes forward, property owners will have no choice but to always “accommodate” the companion pet movement. That said, you do have the right to verify an applicant’s purported disability and the medicinal and/or emotional basis supposedly necessitating their need for a companion pet before you consent to lease to the lease. And then you should consult with counsel if you have any other questions about your rights and/or options going forward.