The government cannot take away property from you that you legally own…right? Wrong. Technically, the government is allowed to appropriate property for certain purposes, even if you own the land and building free and clear. It all has to do with the legal principle of “eminent domain.”
How it works: A federal, state or local government entity may need to use your property for legitimate public use or safety. In return, the property owner is entitled to fair and reasonable compensation based on fair-market value (FMV).
Interpreting the Fifth Amendment, the United States Supreme Court has generally approved using the power of eminent domain in connection with efforts to facilitate urban renewal, destroy slums, erect low-cost housing in place of deteriorated housing and promote other aesthetic, as well as economic, values.
The taking of property may be complete, partial, temporary or restricted as in the case of an easement. Typically, the states empower private utility and cable companies to bring eminent domain actions.
Although the exact procedures will differ for each jurisdiction, the process generally follows these steps:
The government seeks to negotiate a fee for purchasing the property.
If the owner does not agree to sell the property, the government files an eminent domain action and serves proper notice.
A hearing takes place where the government must demonstrate that it tendered an offer or entered negotiations in good faith. It must also show the public need for the taking of property.
Assuming the government’s petition is approved, the court establishes proceedings to determine the property’s FMV.
The amount paid goes first to the landowner’s obligations for mortgages and liens. Any balance is then paid to the owner.
Note: Either side retains the right to appeal if they are not satisfied with the results of the eminent domain proceedings.
Can you “fight City Hall” when a government entity tries to take your property? It is possible, but we do not recommend taking on governmental authorities all by your lonesome. If you are ever embroiled in a dispute relating to eminent domain, contact an experienced attorney.
Will Your “Non-Compete” Hold Up?
For some employers, the worst thing that could happen to their business is losing a fast-rising star or trusted staff member to the competition. You might ward off potential problems by having key employees sign non-compete agreements. Generally, such an agreement is signed either as a pre-condition of employment or upon termination (e.g., to enable the employee to receive severance pay).
But don’t overdo things. In general, your company cannot prohibit a former employee from making a living in the same field or industry.
Background: A valid non-compete agreement must distinguish between acts which take legitimate profits from the company and those which are essential to the employee’s livelihood. For example, an employee usually will be permitted to compete with an ex-employer on some levels, but prior clients or customers may be off-limits.
Typically, the agreement may call for a former employee to refrain from specific acts at specific places for a specific period of time. The enforceability of these terms depends on whether the restrictions are “reasonable” or not.
When judging the reasonableness of a non-compete agreement, the courts may consider the following factors, among others: - The length of time the agreement remains in force;
- The scope of the geographic area restricting the employee;
- If the agreement restricts activities not in competition with the company;
- If the agreement prevents the employee from working in his or her chosen field; and
- The reason for termination of the employee.
A dispute over the violation of a non-compete agreement may boil down to two factors: (1) what the employee actually knows about your business and (2) his or her course of action. For example, an employee may claim no knowledge of trade secrets, confidential knowledge or only general knowledge of the business. The burden of proof is on the company to establish that such knowledge is confidential or contains valuable trade secrets.
If a court finds that the employee has only general knowledge or that the agreement was made simply to prevent another company from becoming a more efficient competitor, no legitimate company interest is being protected. As a result, the agreement probably will not be enforced.
In many instances, courts throughout the country have refused to classify general knowledge in the industry or trivial differences in practices as trade secrets. In fact, an employee may get the benefit of the doubt because the employer is often perceived to be more powerful. This is especially true if the employee’s conduct did not contribute to termination of employment or the agreement was signed as a pre-condition to employment.
Final words: A non-compete agreement often accompanies the sale of a business. Reason: Competition from a former owner might reduce the business value. In this case, it’s more likely that an agreement including strict terms will be enforceable.
Overtime Pay: Rules of the Road
Certain types of employees are generally exempt from overtime pay provisions. But it is the actual job being performed that matters for this purpose – not the employee’s title.
New case: A private bus company in Pennsylvania provided a transportation program for disabled individuals and senior citizens. The drivers regularly worked over 40 hours a week, but company policy did not include overtime pay for them. Reason: The company treated these employees as being exempt from overtime pay due to an exception in the Motor Carrier Act (MCA).
However, the MCA refers only to drivers who transport goods across state lines or are otherwise engaged in interstate commerce. In this case, the bus drivers transported individuals to and from doctor appointments within the western region of the state.
As a result, the Third Circuit Court ruled that the drivers were eligible for overtime pay. Simply labeling the employees as “drivers” covered under the MCA can’t override the facts.
Moral of the story: Don’t try to stretch a legal definition beyond its intended use. If you are unsure about overtime pay consequences, seek professional assistance.
Written Contracts for Independent Contractors
After working for years as an employee, you may have decided to strike out on your own. As an independent contractor for several firms, you probably have more flexibility than you have ever had before. On the other hand, you may need a higher degree of legal protection for the work you are now performing.
Case in point: When you agree to perform services for a client, you are entering into a legal contract. It does not matter if the deal is sealed by just a handshake (although, as you will see, this is strongly discouraged). In effect, you are obligated to do the work and the client is obligated to pay you for it.
Unfortunately, things may not go as planned. Suppose that the client refuses to pay you or argues that you are not living up to your end of the bargain. The client could have a legitimate gripe or could be distorting the facts. In either event, you are facing an uphill battle. Essentially, you will have to convince a court that you are in the right and your client is wrong.
However, there is a relatively easy way to sidestep potential problems: Get it in writing. By using a written agreement, you can head off serious disagreements, define expectations for both sides and clarify the terms of the deal. And, should the case ever come to court – after all, even written contracts are subject to dispute – you will have the proof in hand needed to support your position.
As an added bonus, a written contract can help establish that you are, in fact, an independent contractor rather than an employee of a good client. This can protect you from a challenge by the IRS that you are trying to evade payroll taxes.
What should be included in a written contract for an independent contractor? Although the terms will vary according to your situation, a basic contract should cover the following: - The services that will be performed;
- The amount that will be paid for the services (or the formula to be used);
- The length of the services to be provided;
- The manner of payment (e.g., time and place for payment, installments or a lump-sum, etc.);
- Any penalties assessed for late payment
- Responsibility for paying expenses (usually, this falls to the independent contractor); and
Rights of termination.
Note: The agreement should also reflect information concerning your independent contractor status and refer to any permits and/or licenses required to do the work as well as insurance provisions. Furthermore, make sure that standard legal provisions are included, such as a statement that there are no independent agreements about the terms of the contract.
It helps to negotiate the best terms possible at the outset. Do not hesitate to rely on your professional advisers every step of the way.
Estate Planning: Pieces of the Puzzle
Putting together an estate plan is like working on a jigsaw puzzle. The entire picture will come into focus as the pieces begin to fit together. Consider these aspects:
The will: A will is usually the centerpiece of an estate plan. For one thing, your assets are distributed according to its terms. Secondly, it may contain other key provisions (e.g., naming the guardian for minor children). And you can use a will to establish tax-saving trusts (more to follow). It is generally recommended that you prepare a letter of instructions to accompany your will.
Credit shelter trust: This type of trust is used by married couples to maximize the tax benefits of the federal estate-tax exemption in conjunction with the unlimited marital deduction. Currently, the credit can be used to shelter up to $2 million from estate tax. (This figure will increase to $3.5 million for 2009 before the estate tax is eliminated in 2010. However, the tax is scheduled to be revived in 2011 with a lower estate-tax exemption.)
Living trust: A living trust allows you to pass assets to your beneficiaries without going through the probate process. In some cases, this can save both time and money for your family. However, a living trust is generally used as a complement to a will – not as an outright replacement. Living trusts may cause other complications, depending upon the applicable state laws. Be sure to get expert advice in this area.
Charitable remainder trust: If you own property that has appreciated in value, you might set up a charitable remainder trust. Typically, the trust provides you with income during your lifetime. After your death, the proceeds go to a designated charity. Added incentive: You are entitled to a current tax deduction based on the value of the property transferred to the trust.
Living will: A living will, when valid under state law, typically provides that an individual should not be kept alive by artificial means in the event of a disabling injury or a terminal disease. Be careful about the wording.
Life insurance trust: In brief, the trust acquires a life insurance policy on your life (or you may transfer an existing policy to the trust). Each year you put money in the trust to pay the premiums. The life insurance proceeds generally are not subject to federal estate tax upon your death (unless you die within three years of transferring a policy to the trust).
This is just a brief overview of several common estate-planning devices. Reminder: It’s important to focus on the big picture.
Legal Briefs
Landlord Duties – If you are a landlord, your legal responsibilities may be more extensive than you think. For instance, you generally have the duty to protect tenants from certain criminal activities. This can range from burglaries to assaults to illegal activities such as drug dealing on the premises. The best approach is to take the preventative measures (e.g., installing security systems) required for your situation.
Don’t Be a Bully – Sexual harassment can take many forms. Latest example: Three female employees alleged that their supervisor berated them in public and cursed at them. The supervisor only exhibited this behavior toward female employees. Result: The Ninth Circuit Court upheld their sexual harassment claim, even though the behavior was not “sexual” in nature.
Age-old Problem – In a new case, an insurance company decided to abolish its “employee” relationships with agents. Then it offered the agents four different options to keep working as independent contractors. The plaintiff chose an option that kept her on board less than a year and then sued for age discrimination. Now the Seventh Circuit Court has sided with the company. It reasoned that all employees were offered the same options – regardless of their age.
Plain English – A cosmetics store required sales clerks to speak English whenever customers were in the store. The clerks could speak in a foreign language only if the store was empty or they were on a break. A New York district court has ruled that this policy is not discriminatory. Reason: Speaking a foreign language in front of customers could have a negative impact on accessibility.
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