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When a shareholder of a corporation believes that he or she has been wronged, the shareholder generally has two options to file a lawsuit.  The shareholder may either bring a direct action or a derivative action, depending on the facts of the case.  In many instances, it is only appropriate for the shareholder to bring one of these two types of actions against the company.   Below is a general explanation of how a corporation is set up, and a discussion of the differences between the two types of shareholder actions.

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Let’s say that you decide to open a lemonade stand by yourself as a simple business.  In a simple business, you would own the lemonade stand.  If the lemonade stand did well, you would make more money, and if it did badly, you would not.  In addition to being the owner, you would also run the lemonade stand.  You would make day-to-day decisions about the lemonade stand, like how where to order to the lemons from, what equipment to use, and how much customers should pay for the lemonade.  To sum up, you alone would both own and run everything.

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What is an Agency Relationship?

“Agency” is a term that defines a legal relationship between two parties: the principal and the agent.  An agency relationship is established once the agent has the legal authority to act as the legal representative on behalf of the principal, which may be an entity or a person. The agent will only have legal authority to act on behalf of the principal so long both parties are in agreement to create the agency relationship and the principal must have the necessary legal capacity (must be of legal age and of sound mind, etc.) to enter into a contract.

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How Do Agency Relationships Affect Workplace Settings?

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The United States Department of Labor recently announced a new rule on white collar overtime exemption regulations. This new rule will affect an estimated 4.2 million white collar workers who will no longer be exempt from Fair Standards Labor Act guidelines and must be paid for overtime work. The new rule will go into effect on December 1, 2016. The employment lawyers at Structure Law Group, LLP are experienced in ensuring that their clients follow all federal and California employment rules and regulations.

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Previously, qualifying employees with an annual salary of more than $23,660 (or $455 per week) were generally exempt from the federal requirement that employees are entitled to overtime if they work over forty hours in one week. Under the new law, the minimum salary threshold for exemption has been raised to $47,476 annually, or $913 per week. This amount will be automatically revised every three years by a formula that takes into account wages across the country.

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Owners of businesses with at least one employee should stay fully apprised of all federal and California state laws that relate to the treatment of employees. For example, there are various state and federal laws related to wage and hour matters, discrimination, and insurance and taxes. Laws can change and courts regularly issue new interpretations of existing laws.  Accordingly, it can be difficult for you to know whether you are truly in compliance with the most up-to-the-minute versions of employment laws. After all, your focus is on your business and not the latest court opinions. However, a skilled business attorney makes it their job to know new developments in any laws that would be applicable to your business and your employees.

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California Court Ruling on Employee Seating Requirements

Earlier this year, the California Supreme Court issued a decision on a class action case that involved an employer who forced its employees to stand during their work and subjected those employees to potential discipline for sitting down. This discipline occurred even though their job duties did not require standing. Even if some employees were not actually prohibited from sitting down during work hours, they were not provided with chairs, stools, or adequate seating by their employer. While employee seating may not seem like a hot-button issue to you, it is important to many employees who experience foot pain, back pain, or other ailments from standing for long hours unnecessarily.

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The State of California protects consumers of retail goods by limiting warranty disclaimers on products sold in the state. California’s warranty protection extends to manufacturers, distributors, and retailers alike.  The warranties apply to both the sale and lease of consumer goods. The seller can disclaim the warranties by following very specific and highly detailed statutory requirements. Failing which, the seller cannot disclaim the warranties implied in every consumer sale. The sale of a service contract at the time of or within 90 days of the sale of the goods adds another aspect to the seller’s ability to protect themselves after the sale. San Jose’s preeminent business attorneys at Structure Law Group, LLP possess a high level of experience and skill drafting warranty disclaimers for businesses.

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The implied warranty of merchantability protects consumers in every sale of goods in California. Specifically, the implied warranty of merchantability extends to the retailer, distributor, and manufacturer of goods. The retailer is indemnified by the manufacturer for the full amount of liability. Merchantable goods must either conform to the contract description or be of acceptable quality in the trade or business. In addition, the goods must be fit for their ordinary use, rather than for a specific purpose. The goods must also be identified, labeled and packaged appropriately. Lastly, the goods must conform to the promises made on the label or packaging. Goods are non-conforming if the goods fail to satisfy any one of the necessary requirements set forth above.

A second implied warranty arises in specific circumstances. This warranty is the implied warranty of fitness for a particular purpose.  The warranty of fitness for a particular purpose attaches to the sale of goods when the retailer, distributor or manufacturer knows or has reason to know that the consumer is relying on the goods to perform a very specific purpose. Additionally, the buyer is relying on the seller’s expertise and advice that the goods purchased are sufficient to satisfy the particular purpose.  Additionally, the seller must know or have reason to know that the buyer is relying on the seller’s expertise and judgment. The goods must conform to the seller’s expectations, i.e. the particular reason the consumer purchased the goods.

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Corporate officers, partners in a partnership, and members of a limited liability company owe a fiduciary duty to the principal, i.e., the business entity, to act in the best interest of the organization. Failure to act in the principal’s best interest or actively competing against the principal to which a fiduciary duty is owed exposes the fiduciary, the agent of the principal, to civil liability. Care must be taken by the fiduciary not to compete against the organization to which they owe their duty of loyalty. The Silicon Valley Business Attorneys’s at Structure Law Group, LLP are highly experienced in preventing and resolving corporate disputes that may arise from a breach of fiduciary duty.

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The foundational tenet of agency law is the duty of loyalty owed by the agent, or fiduciary, to the principal or business entity. The duty of loyalty obligates the fiduciary to act in the best interests of the principal. The duty of loyalty extends to “all matters connected with the fiduciary relationship.”  Thus, the duty of loyalty prohibits fiduciaries from obtaining a benefit from others as a result of the fiduciary relationship. This prohibition extends to all dealings in which the fiduciary is involved on behalf of the principal. The duty to act with loyalty is not limited to financial matters.

The fiduciary’s duty of loyalty encompasses situations involving parties adverse to the principal. The fiduciary has an absolute duty not to act on behalf of a third party whose interests are adverse to those of the principal.  The fiduciary is duty-bound not to compete, either personally or on behalf of, another entity. The agent’s obligations last for the entire duration, and in some instances depending on contract language, last beyond the termination of the fiduciary’s relationship with the principal. However, agency law does provide for the fiduciary to plan and prepare to leave the principal, even to then compete with the principal.  Notwithstanding, the action taken by the fiduciary must not violate any other duty owed to the principal.

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California’s Worker Adjustment and Retraining Notification Act, “WARN” for short, obligates employers of 75 or more employees to follow certain procedures when downsizing the workforce.   The WARN Act does not apply to a few layoffs. Rather, the WARN Act applies to what is known as a “mass layoff,” in which the business lays off 50 or more employees during a 30-day period.  Businesses considering downsizing their workforce must be wary of the consequences of failing to comply with the WARN Act. Failure could cost the employer a significant amount of money in back pay and other compensation. Consulting with an experienced Silicon Valley Employment Lawyer at Structure Law Group, LLP will help you avoid the pitfalls associated with downsizing your workforce.

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Owners of “covered establishments,” that is, businesses employing 75 or more employees in a 12-month period, must give proper notice of a mass layoff. The employer must give notice to its employees 60 days in advance of the layoff order. “Layoff” means cessation of employment because of insufficient money or an insufficient amount of work. The term “layoff” does not apply to seasonal employment or employees in certain industries including logging and motion pictures. The WARN Act also applies to mass relocations and when an employer’s business closes down. To qualify for the WARN Act’s protection, an employee must be employed by the company for 6 of the preceding 12 months.

In addition to giving notice to the affected employees, the employer must also give written notice to several state and local agencies.  These notices must include the following:

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Public policy in California dictates that businesses should be free to compete against each other in the marketplace. Competition among businesses greatly benefits consumers. At the same time, competition engenders higher quality goods and higher service quality at price points advantageous to the consumer. Toward that end, California’s antitrust law, known as the “Cartwright Act,” prohibits a wide variety of conduct designed to restrain competition in the marketplace.

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The San Jose business lawyers at Structure Law Group, LLP dedicate their practice to helping business owners grow their company while insulating them from harm.  Unfair competition has a negative effect on consumers and businesses. Business entities should avoid structuring agreements which arguably cause unfair competition. Failure to do so could subject those businesses to lengthy and costly litigation and expose them to potential damages.

According to California business, trusts are unlawful and against public policy. California law defines a trust as a “combination of capital, skills, or acts by two or more persons” to:

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The exchange of cash for payment for a goods or services is rare these days. We have certainly become a digital society. Business make advances daily to make transactions more efficient and convenient. However, businesses engaging in e-commerce must not compromise security for expediency. Additionally, businesses store infinite amounts of personal data about their customers. These businesses, such as health care providers and health insurance companies, not only must safeguard their electronic transactions but must also secure sensitive information and proactively combat data breaches. Failure to do so can lead to a huge economic loss for the customers and the company. The savvy business attorneys at Structure Law Group, LLP advise businesses on the best practices to prevent data breaches and counsel them on the necessary steps to take if such an unfortunate event occurs.

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In California, people have a constitutional right to the safety and integrity of their personal information. California’s information security act defines personal information as any information that could identify or describe a person. Personal information is also an individual’s name, address, social security number, license number, medical information, and the like. A business in possession of such information must take reasonable steps to prevent disclosure of private information. California law obligates businesses to implement security measures reasonably designed to protect the integrity of the private information. Every business entity, from a sole proprietorship to a multi-national corporation is subject to the information security act.

California law broadly defines “data breach.” Data breach includes any “unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information maintained by the person or business.” The information may be used in good faith for the benefit of the person whose information is disclosed, provided that such disclosure is authorized.

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A “fraudulent,” or more accurately “voidable” transfer, is a transfer by a party (the “debtor”) of some interest in property with the goal or effect of preventing a creditor or creditors from reaching the transferred interest to satisfy their claim or claims.

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What Law Governs “Fraudulent” or “Voidable” Conveyances/Transfers?

Fraudulent conveyances are governed primarily by the Uniform Voidable Transactions Act (UVTA), which replaced the Uniform Fraudulent Transfer Act (UFTA) in California as of January 1, 2016.  The UVTA applies to transfers made or obligations incurred after January 1, 2016.  The UFTA will continue to apply to transfers made or obligations incurred prior to January 1, 2016.  One of the most noticeable changes made in the UVTA is the removal of the word “fraudulent” from the title and body of the act. This change emphasizes that a transfer may be, and often is, voidable even in the absence of any sort of improper intent by the debtor or the transferees.

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