Agreements and Contracts

LESSONS IN LIABILITY – Contract Liability

This is the first article of a new series from LegalStandard.com entitled “LESSONS IN LIABILITY – HOW FLORIDA BUSINESSES CAN AVOID COSTLY LAWSUITS.” This series is designed to promote LegalStandard.com’s goal of keeping its clients “in compliance and out of the courtroom.” Even though America’s judicial system is the most advanced in the world, very rarely is a civil lawsuit a smart financial investment for a small to mid-sized business due to the extreme legal costs and time constraints associated with prosecuting or defending a lawsuit. The first area of potential liability every business faces in Florida is contract liability. Contracts are essential to business and form the backbone of any successful business relationship. Regardless of whether agreements are sealed by a handshake or a twenty-page written contract, business agreements allow the parties to operate with a level of certainty regarding what they can expect from their owners, employees, suppliers, customers and anyone else they have a contract with. Unfortunately, contracts also provide the potential for significant liability if they are found to be unenforceable of if you knowingly, or worse, unknowingly breach a contract without understanding the consequences of your actions. Many contracts also include choice of law, venue selection and attorney fee shifting clauses that can substantially limit your ability to litigate a breach of contract claim. These types of clauses can make the potential liability for contract breaches even more severe and, potentially, devastating for a small business. Contracts in General To form a contract in Florida, there needs to be: (1) an offer to do or not do something in the future; (2) consideration provided in exchange for the performance of the other party (consideration must have some sort of value and cannot be a gift); and (3) verbal or written acceptance of the proposed terms

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Intellectual Property Disputes Between Employers and Employees

The creation and development of intellectual property can be an exciting and profitable process.  Unfortunately, disputes often arise regarding the ownership of intellectual property when the intellectual property is created while the inventor is employed by someone else.  Intellectual property can be extremely valuable and, in this situation, both the employee and employer can have an expectation of ownership. The general or default rule is that employers own the intellectual property created by their employees during the scope of their employment, while the employees own the intellectual property created outside of the scope of their employment, even if these creations were created during the time of employment.  As with most “general” or “default” rules, there are exceptions and numerous factors that must be considered in determining ownership. The most important factor that must be considered regarding intellectual property ownership is the type of intellectual property at issue. Copyrights:  Pursuant to the federal Copyright Act, ownership of a copyright initially vests with the author unless the work falls within the statutory definition of a “work made for hire.”  A “work made for hire” automatically is owned by the employer.  If a copyright does not qualify as a “work made for hire,” an employer must obtain a written assignment signed by the author to acquire legal ownership. Trademark:  Trademark ownership is dependent upon who first uses the mark pursuant to federal law.  Conception without use does not establish an ownership right.  If a trademark is created during the course of employment, the employer must still establish that it was the first to use the mark to identify its goods or services, or that an employee’s use of the mark is on behalf of or for the benefit of the employer.  Common law trademarks may arise by usage in commerce, but ownership may

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Franchisor Liability As a Joint-Employer

Franchisors have a valid interest in protecting the brand they have worked hard to create. they accomplish this by requiring uniformity from their franchisees and exercising control over certain aspects of their franchisees’ operations. This includes control over the location and look of their franchisees’ places of business, the products and services offered by their franchisees and how intellectual property is utilized and protected by their franchisees. Franchisors also exercise control over their franchisees’ “employees by dictating minimum employment standards, the type of training that is required for employees and the clothing or uniforms employees must wear. Unfortunately, this control over their franchisees’ employees can sometimes create liability for franchisors when employees sue the franchisees for violations of Title VII, the Fair Labor Standards Act or other labor laws. It is becoming increasingly common that employees are also suing the franchisor claiming the franchisor is liable because they acted as a joint-employer based upon the amount of control they exercised over their franchisees’ employees. This joint-employer claim creates a second, deep pocket for them to pursue. Background of Joint-Employer Liability The current standard for determining whether an individual or entity is a joint-employer was set forth in the National Labor Relations Board (the “NLRB”)’s 2015 decision in the Browning-Ferris Industries matter. Specifically, the NLRB held the primary inquiry for determining joint-employer status is whether the purported joint-employer possesses the actual or potential authority to exercise control over the primary employer’s employees, regardless of whether the control is in fact ever exercised. In December 2017, the NLRB established a more employer-friendly standard in the Hy-Brand Industrial Contractors, Ltd. matter that required the purported joint-employer to actually exercise joint control over essential employment terms, rather than just reserving the right to exercise such control. This control had to be “direct and immediate”

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Employee Handbook Prep 101

Employment Handbooks for Small Businesses (less than 50 Employees) An employment handbook – if done right, provides a small businesswith legal protections and can be used to demonstrate legal compliance. Without an employment handbook, a small business misses legal protections and opens itself to liability and legal expenses (even for frivolous claims) that far exceed the time and costs associated with ensuring a well-drafted employment handbook is in place. A well-drafted handbook means the handbook is current with laws and legal protections, which constantly evolve with new laws and court decisions.   Are Employment Handbooks Legally Required for Small Businesses? There may not be a law that expressly states that a small business (or large business for that matter) is legally required to have an employment handbook, but without an employment handbook – there may be a presumption that your company is not in legal compliance. And, worst yet, your small business is missing out on legal protections and the right to enforce your lawful rights and expectations with regard to employees. So, the better question is the following: Is your small company in a much better position (legal or business) with an employment handbook? Yes…if done right! Here’s a simple example. If a disgruntled employee threatens to sue your small business for being wrongfully terminated – having employment handbook policy expectations in place and showing the employee failed to meet such written handbook expectations – can stop a potential lawsuit in its tracks. Beyond the legal issues, an employment handbook also helps employees understand your company expectations and policies, which is a great tool for a better workforce. What’s Addressed in the Employment Handbook? It depends on your business. Generally speaking, an employment handbook summarizes employment rules, policies, and expectations of the small business and addresses many legal compliance

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Papa John’s–Franchise Lessons To Be Learned

By now everyone has heard about the public feud between Papa John’s Pizza and the company’s famous founder and former CEO and Chairman, John Schnatter. The problems started in November 2017 when Schnatter blamed the NFL and how it was handling the players’ National Anthem protests for declining pizza sales. Two months later Schnatter voluntarily stepped down as CEO, but remained as the company’s Chairman. Then in May 2018, Schnatter reportedly used a racial slur during a conference call which resulted in Schnatter stepping down as Chairman. In July 2018, Papa John’s announced it was removing Schnatter and his likeness from all marketing efforts, including commercials, pizza boxes and the company’s logo. That same month, Papa John’s evicted Schnatter from the company’s headquarters and requested that he stop making any media appearances on behalf of the company. In response, Schnatter stated that he regretted resigning as CEO in 2017 and that his alleged racial slur was taken out of context. Schnatter further stated that Papa John’s new management was trying to push him out of the company and he sued Papa John’s to obtain documents relating to his ousting. Schnatter then took out a full-page ad in the company’s hometown newspaper in Louisville, Kentucky, directing employees to a website he launched called savepapajohns.com where he criticized the company’s new leadership. Schnatter wrote on his website that “the Board wants to silence me…so this is my website and my way to talk to you.” He added “Papa John’s is our life work and we will all get through this together somehow, some way.” Schnatter even posted many of the legal documents from his legal fight with the company on his site. Schnatter claims that employees and they accomplish this by requiring uniformity from their franchisees are rallying around him. However, other

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Waning Support for Non-Compete Agreements in Florida?

The State of Florida has been a longstanding proponent of noncompete agreements. In 1996 the Florida legislature enacted the current non-compete statute, 542.335 Florida Statutes, which governs all noncompete agreements entered into after July 1, 1996. Due to some of the extreme provisions in this statute, Florida is considered to be one of the most “employer-friendly” states in the country. Florida’s statute expressly provides that noncompete agreements will be enforced as long as “such contracts are reasonable in time, area, and line of business,” and the employer is able to prove “the existence of one or more legitimate business interests justifying the restrictive covenant” and the “contractually specified restraint is reasonably necessary to protect the legitimate interest.” While these provisions are common and reasonable, the statute also includes more extreme provisions that are, without question, designed to protect employers. Specifically, the statute precludes a court from considering any “individualized economic hardship that might be caused to the person against whom enforcement is sought.” Additionally, the statute precludes any contract provision that “requires the court to construe a restrictive covenant narrowly, against the restraint or the drafter of the contract.” Criticism of Florida’s Noncompete Statute by Other States While Florida is considered to be very “employer-friendly,” other states such as California, Illinois and New York are on the other side of the spectrum and are considered to be very “pro-employee.” In fact, noncompete agreements are actually precluded in California except when they are executed in connection with the sale of a business. Courts in these states, as well as Alabama and Georgia, have been especially critical of the more extreme provisions in Florida’s noncompete statute. Courts in these states have gone as far as refusing to enforce choice of law provisions in employment contracts that require the application of Florida law

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The Florida Durable Power of Attorney

At some point in our lives, most of us will rely upon on a third party to make a legal or financial decision on our behalf. For example, an elder individual may rely upon a trusted family member or friend to manage his or her checking account at a local credit union. However, how does that credit union know this trusted family member or friend is authorized to make such decisions on your behalf? What Is a Durable Power of Attorney and What Does it Do? A durable power of attorney (“DPOA”) is a legal document that authorizes a third party (the “agent” or “attorney-in-fact”) to act on your behalf in the event you (the “principal”) become incapacitated or unable to handle your legal or financial affairs. Third parties (i.e., financial institutions, courts, etc.) rely upon this legal document as evidence that the agent has the authority to make decisions on the principal’s behalf. A DPOA is similar to a power of attorney (“POA”) in that both are legal documents that authorize a third party to act on your behalf. However, there is a key difference. With a POA, the agent’s power to act your behalf automatically ends (is revoked) in the event you become incapacitated. With a DPOA, the agent’s powers remain in full force and effect in the event you become incapacitated or unable to make decisions yourself. How Do You Create a Durable Power of Attorney in Florida? In Florida, durable powers of attorney are governed by Chapter 709, Powers of Attorney and Similar Instruments. Pursuant to Chapter 709, the following are required to create a valid durable power of attorney in Florida: The durable power of attorney must be signed by the principal, the agent, and two witnesses in front of a public notary. Florida Statute

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Living Wills in Florida

Family members often struggle with end-of-life decisions regarding a loved one. The decision to take a family member off life support can haunt someone for the rest of his or her life. Fortunately, there is an estate planning tool that families can utilize to help obliviate some of the stress and uncertainty associated with making end-of-life decisions for a family member. What Is a Living Will and What Does It Do? A living will is a legal document that sets out one’s end-of-life wishes. Specifically, a living will addresses the use of life support and other treatments at the end of one’s life or in the event of a serious accident or debilitating medical condition. In Florida, living wills are governed by Chapter 765, Healthcare Directives, of the Florida Statutes. Florida Statute § 765.101 (13) defines a living will as follows: (13) “Living will” or “declaration” means: (a) A witnessed document in writing, voluntarily executed by the principal in accordance with s. 765.302; or (b) A witnessed oral statement made by the principal expressing the principal’s instructions concerning life-prolonging procedures. Pursuant to Florida Statute § 765.302 (3), once executed, a living will establishes a rebuttable presumption of clear and convincing evidence of one’s wishes regarding end-of-life medical treatment. When Does a Living Will Apply? Pursuant to Florida Statute § 765.306(2), before one’s directives in a living will are carried through, it must be determined that: (a) One does not have a reasonable medical probability of recovering capacity to a level that he or she can make medical decisions directly. (b) One has a terminal condition, has an end-stage condition, or is in a persistent vegetative state. (c) Any limitations or conditions expressed orally or in a written declaration have been carefully considered and satisfied. In determining whether one has a terminal medical condition, has an end-stage

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Non-Disclosure Agreements in Florida

Non-disclosure agreements (NDAs) allow businesses and individuals to protect trade secrets and other proprietary or confidential information from being shared with third-parties without their consent. It sounds simple enough, but in order to have a valid and effective NDA, it is important to understand how NDAs work and the potential risks associated with enforcing these agreements. What is a Non-Disclosure Agreement? An NDA is a legal contract between at least two parties where one party agrees not to disclose certain information that was provided by the other party. The whole purpose of an NDA is to ensure there is a confidential relationship between the party disclosing the confidential information, and the party with whom the confidential information is being shared. An NDA ensures that the person who is trusted with the confidential information has knowledge that the information is secret and that he or she must not share it with anyone else. There are typically two types of non-disclosure agreements: Unilateral – Where one party agrees not to reveal information provided by another party, such as agreements between employers and their employees or businesses and their vendors. Mutual – Where both parties share information with one another and agree not to disclose the information to any third-party. Typically used when individuals or businesses are exploring a potential relationship, such as a partnership, collaboration, merger, or purchase, and both sides need to share sensitive information with the other in order to make decisions about that relationship. When are Non-Disclosure Agreements Used? Almost every type of business in every industry uses NDAs. Many business owners use NDAs when developing a new product or contemplating a new business relationship with another party. Many find the only way they feel comfortable enough to talk freely and honestly during a meeting about a new product

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The Need for an Operating Agreement in a Florida LLC

Limited liability companies (LLCs) have become the most popular entity in the State of Florida. Since 2015, there have been more than twice as many LLCs created in Florida than the second most popular entity, corporations. An LLC is a statutorily created hybrid entity that has characteristics of a corporation and a partnership. See Florida Statutes, Chapter 605, Florida’s Revised Limited liability Act. Their popularity continues to grow because LLCs offer the benefits of both types of business entities without most of the drawbacks. Starting an LLC in Florida is a formal process. The owners of an LLC, called members, must file a document entitled Articles of Organization with the Florida Division of Corporations. While not required by law, it is advisable for any multiple member LLC to also execute an operating agreement during the organization process. What is an Operating Agreement? An operating agreement is a binding legal contract between the members of an LLC that sets forth the rights and obligations of each member. An operating agreement also outlines the fundamental functions of an LLC and how the entity will be managed. Florida law allows for a great deal of flexibility regarding the form and substance of operating agreements. Members of an LLC can adopt an operating agreement at any time before or after an LLC is created. Operating agreements can be in writing, verbal or a combination of both. However, if an operating agreement contains both written and verbal provisions, any inconsistency will be resolved in favor of the written provisions. To avoid any uncertainty between the members and hopefully reduce the likelihood of litigation, it is recommended that an operating agreement be in writing and address the following topics: The ownership interest of each member; A description of how the LLC will be managed (by its

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