Your business is doing well and your profit is growing – Great! But this also means that there are some new legal concerns that your growing business must face now.
When Hiring New Team Members…
As your business grows, you will likely need to hire more people. Hiring can raise many potential legal concerns.
First, while often overlooked by many small businesses, it is extremely important to clearly distinguish “independent contractors” from “employees.” In California, we have a stringent “ABC” test for determining whether a worker is an employee or an independent contractor and it applies retroactively. The ABC test, an employment-classification test in California that presumes workers are employees rather than independent contractors, was first adopted in April by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court. Under this test, anyone hired by a business is presumed to be an employee and the burden is on the employer to demonstrate that every worker is not an employee. The punishment of misclassification is steep, which includes a fine for each person misclassified and penalties for failure to withhold income taxes (1.5% of the wages, plus 40% of the FICA taxes (Social Security and Medicare) that were not withheld from the employee and 100% of the matching FICA taxes the employer should have paid). Criminal penalties of up to $1,000 per misclassified worker and one year in prison can be imposed as well. In addition, the person responsible for withholding taxes could also be held personally liable for any uncollected tax. All it takes is one disgruntled person to cause a huge thorn in your business.
Second, it is important to have an employment handbook to set the policies, procedures, working conditions, and behavioral expectations your business has on its employees. A handbook tailored to the way you do business helps ensure that managers across the organization handle issues consistently and provide a framework for your employees to follow. In case the need arises, a well-written handbook is the first step of a successful defense of unemployment or other legal claims because these cases often require the employer to prove that the terminated employee was on notice of a certain rule and had been warned that violating the rule would lead to disciplinary action up to and including immediate termination.
Stop Relying On Informal Agreements…
As your business grows, you should start to always put your business agreements in writing and stop relying on informal, verbal agreements. Having written agreements are helpful in ensuring that everyone keeps their promises and gets what they want. You should start using customized written agreements that accurately when working with business partners, lenders, and other businesses.
Intellectual Property Protection Issues…
When your business first started, it was probably hard to imagine that you’ll potentially later face issues with people infringing on your intellectual property assets (or vice versa). As your business grows, it becomes more and more worthwhile of the investment of time and money to get your copyrights, trademarks, patents and trade secrets legally and properly registered so you don’t have to worry about it if, and when, an issue arises.
Non-Disclosure Agreements…
It is crucial for your business to maintain its competitive advantage by keeping working projects, innovative ideas, or exciting new products secret and away from potential competitors. A non-disclosure agreement is a legal document that keeps the lid on such sensitive information. When working with investors, creditors, clients, or suppliers, you should use Non-Disclosure agreements to protect your intellectual property because these outside entities will have access to business information that you may want to keep private.
If you need legal help to guide your business’s growth, feel free to schedule a consultation with an attorney using this link or calling our office at 323.543.4453.
