Buyers Beware: AB5 May Add More Costs to Purchasing a Business

Posted by on Dec 2, 2019 in Newsflash | 0 comments

It is commonplace for the seller of a business to provide consulting services to the buyer after the sale. Typically, an owner will enter into a consulting agreement whereby the seller will provide transition services after the closing. These transition services include things such as introducing the buyer to vendors, answering questions about the business which may arise post-closing, and facilitating customer relationships. In almost all circumstances, the seller is paid as an independent contractor. This common practice may no longer be viable after the passage of AB5. The Dynamex holding and subsequent passing of AB5 – which is set to go into effect January 1, 2020 – may preclude sellers of companies from providing these services as independent contractors due to the widened definition of what constitutes an “employee.” As we have reported many times now, under Dynamex and AB5, a worker is presumed to be an employee unless the employer can prove (a) the worker is free of the employer’s control, (b) the worker is performing services outside the employer’s normal course of business, and (c) the worker is engaged in a separate business in which the worker provides the same services to others that he is providing to the employer. While there are many exceptions to this new test to classify workers as employees or independent contractors, none are likely to include a former business owner providing post-sale transitional services. Instead, these former owners are likely to fail the second and third prongs of the Dynamex test: (1) the former owners will perform services well within the company’s normal course of business (e.g. communicating with vendors and building customer relations); and (2) the former owners are unlikely to provide these same transitional services to others under the banner of a separate business altogether. Thus, these post-sale transitional services may very well necessitate the former owner to be classified as an employee. In this case, the company should ensure it is paying the former owner according to the Labor Code, including but not limited to paying the former owner at least minimum wage and for any and all overtime. Additionally, the former owner must be provided any and all necessary meal and rest breaks. If a company fails to provide these, the company may become liable for unpaid wages, waiting time penalties, and other fines. The company will also need to file and pay the appropriate taxes on any wages paid to the former owner. Failure to file and pay these taxes can result in steep fines, back taxes, and potential criminal liability. The best approach will depend on the situation. Some companies may decide to forego these post-sale services altogether to avoid any potential liability under AB5. Others may find it more palatable to impose a cap on the post-sale services to be provided. For example, the new and former owners may decide to cap the services at a certain dollar amount of wages, or a certain number of hours. This way, the buyers can weigh the benefit received by the former owners’ services against the cost of the same. (Keep in mind though, an agreement to cap the amount of hours and/or wages of the former owner will not alleviate the responsibility to comply with the Labor Code.) Regardless of which approach buyers take, one...

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Terminating a Lease or Raising the Rent? New Laws Landlords Must Know

Posted by on Dec 2, 2019 in Newsflash | 0 comments

As a residential landlord, there are already a plethora of laws you must know and abide by. On October 8, 2019, California added two more to be aware of. Assembly Bill 1482 (“AB 1482”) provides two new protections for residential tenants: first, landlords may no longer freely enforce “no fault” terminations of residential leases, and second, rent increases are now capped statewide. These laws were enacted to curb the statewide housing crisis which has seen an unprecedented number of Californians living on the streets partially due to unaffordable housing. In 2030, AB 1482 requires the Legislative Analysis Office to release a report on the efficacy of these new laws; this means that for at least ten years, landlords will need to abide by the new rules. Restrictions on “No Fault” Terminations AB 1482 provides protections against “no fault” terminations for those tenants who have lawfully occupied a residence for 12 months or more, with exceptions for certain types of property owners. Residents whose leases are terminated without “just cause” are now entitled to some benefit from the landlord. “Just cause” can be either “at fault” just cause, which revolves around the tenant’s use (or misuse) of the property, or “no fault” just cause. “At fault” just cause includes failure to pay rent, materially breaching the lease, committing waste, using the premises for an unlawful purpose, or perpetrating or allowing criminal activity on the premises. “No fault” just cause includes a landlord’s withdrawal of the property from the rental market (which requires certain conditions be fulfilled), or situations where the landlord’s family intends to or actually does begin occupying the property or the landlord intends to demolish the property. For an at fault termination, the landlord must provide the tenant an opportunity to cure the wrongdoing. In other words, the tenant must be given time to stop whatever actions gave rise to the just cause. For a no fault termination, the landlord, after giving the tenant notice of termination, must provide either relocation assistance or waive rent in the final month of tenancy. The landlord may choose which of these to provide to the tenant. Rent Increases Are Now Capped Beginning January 1, 2020, residential rental rates may not be increased by more than five percent plus the percentage change in cost of living or ten percent total per year, whichever is less. Increases may only be enacted twice in any twelve-month period, and must remain equal to or lesser than the increase cap. This new cap, however, only applies to rent increases for the same tenant – they do not apply when a new lease is signed with a new tenant. At that point, the landlord may raise the rent as he or she so chooses. For those landlords who foresaw the passage of AB 1482 and between March 15, 2019, and December 31, 2019, preemptively raised the rent more than the allowed amount, the tenant’s rent will be amended to the rent applicable as of March 15, 2019, plus the maximum permissible increase under AB 1482. Those landlords who attempted to get ahead of this rent increase cap will not be liable to their tenants for any rent overpayments. This rental cap does not apply to low-income housing, dormitories for higher education students, housing subject to rent control...

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Insurance May Cover Negligent Hiring Lawsuits

Posted by on Nov 1, 2019 in Newsflash | 0 comments

California businesses face enormous obstacles to profitability. One significant obstacle is the never ending threat of lawsuits by customers, employees, and others. A 2018 decision from the California Supreme Court has provided a ray of hope regarding certain types of lawsuits. In August 2018, the California Supreme Court ruled in Liberty Surplus Insurance Corp. et al. v. Ledesma & Meyer Construction Co. Inc., that lawsuits seeking to hold businesses liable for damage caused by its employees may be covered by insurance. The Supreme Court found that the insurance company must cover a lawsuit where there are allegations the business was guilty of negligent hiring. “This latest ruling is welcome news to California businesses. According to founding partner Dan Navigato,” Too often, insurance companies try to avoid paying for lawsuits and claims even when their customers have dutifully paid premiums for years. It is nice to hear the Supreme Court of California is holding insurance companies responsible for claims which businesses legitimately expect to be covered.” The Supreme Court’s ruling provides additional justification for the advice we provide to our clients every time they are the target of a lawsuit or a monetary demand. We tell our clients to notify all of their insurance companies. Some business owners mistakenly believe that notifying their insurance company of a claim (especially when there is a slim chance of coverage) will increase their insurance premiums. This is not typically the case. “Notifying your insurance company of a claim does not typically result in increased premiums. Rather, loss runs (money paid by the insurance company for covered claims) are the #1 reason for increased premiums. In fact, most insurance policies require a business owner to timely notify the insurance company upon receiving a claim.” There is little, to no downside in “tendering” a lawsuit and it is likely a contractual obligation of the policy owner. More importantly, if the lawsuit is covered, the insurance company will pay to defend the claim and any resulting judgment relating to a covered claim. Thus, be a smart business owner, protect your business by notifying all possible insurance companies of all legal demands you receive. If your business is subject to a claim that you believe should be tendered to your insurance company(ies), contact Navigato & Battin for...

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Exempt Employees May Need Raises to Remain Exempt in 2020

Posted by on Nov 1, 2019 in Newsflash | 0 comments

Many businesses elect to pay certain employees a salary which meets or exceeds the United States Department of Labor’s (DOL) minimum salary, allowing such employees to be exempt from overtime compensation under the Fair Labor Standards Act (FLSA) (assuming other applicable criteria are also met).  Effective January 1, 2020, that minimum salary will increase from $23,660 to $35,568 per year.  While this increase is significantly more modest than the increase proposed by the previous administration (which would have raised the minimum salary to $47,476), employers should still take note of the increased amount to ensure their employees are all properly classified as exempt or non-exempt. This exemption applies only to those employees who perform certain duties, e.g., professional, managerial, and/or administrative duties.  The FLSA provides specific tests for determining whether employees validly fall within these exempt statuses, as well as providing the other statuses which may allow an employee to be exempt.  The increased salary threshold does not change these tests, nor does it allow for more or less employees to qualify for the exemptions. While the duty tests are unchanged, the new administration has added two components which will likely prove helpful to employers.  First, where previously, discretionary bonuses and incentives could not be counted toward the employee’s minimum salary, these amounts can now account for up to ten percent of the minimum salary.  Thus, an employer who pays its salespeople certain bonuses upon reaching benchmarks in selling may count at least a portion of those bonuses towards the salespeople’s minimum salary. Second, in the event an employee’s total salary on the close of a 52 week period does not meet or exceed the new minimum salary amount, employers may make one additional payment within the following pay period (the first pay period of the following year) to make up for the shortcoming.  Importantly, this amount must be in conjunction with those wages actually due to the employee in the pay period, and this amount may not be counted as wages for the following year. While this increase in minimum salary is less than expected, the impact on California employers is likely quite small.  This is because California employers are bound to the minimum salary which is more favorable to employees for state exemption purposes – meaning the higher state minimum salary.  Perhaps not surprisingly, California’s state minimum salary is much higher than the FLSA prescribes, even after the increase noted above.  In California, the minimum salary required in order for employers with more than 25 employees to classify those employees as exempt is $49,920.  The minimum salary for employers with 1 to 25 employees to do the same is $45,760. Also unsurprisingly, the duties test which provides which employees qualify for the professional, managerial, and/or administrative exemptions is much more stringent at the state level than that included in the FLSA.  Also unlike the FLSA, California does not allow any non-discretionary bonuses or incentives to be counted toward the minimum salary. Employers would be well served to conduct an audit of their employees’ salaries (and job duties) to ensure employees are being properly classified as exempt or non-exempt. Some employers may choose to give raises to those employees who may no longer meet the minimum salary threshhold.  When in doubt, treating an employee as non-exempt is almost...

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Sexual harassment training deadline extended to January 1, 2021

Posted by on Oct 1, 2019 in Newsflash | 0 comments

A few months back, we reminded our employer clients that, for most employers, January 1, 2020 was a hard deadline to conduct sexual harassment training for all of their employees. (See article here). At the close of this legislative season, Governor Newsom signed into law a bill delaying that deadline to January 1, 2021, for employers who have between 5 and 50 employees (meaning those employers who were not already subject to the requirement). This means any employer who was previously required to complete sexual harassment training for its employees by the end of this calendar year now has one extra year to meet this requirement. Any trainings already completed in 2019 will satisfy the requirement for two years. The Department of Fair Employment and Housing (DFEH) is required to provide online training courses for employers which, if used by employers to conduct sexual harassment training for their employees, will satisfy this law. DFEH initially anticipated the online trainings being available by the end of 2019, however, these online trainings are not yet available. Instead, DFEH has offered a sample sexual harassment and abusive conduct prevention training, accessible here. Currently, employers with 50 or more employees must conduct this training for new supervisors within six months of their hire date. After the January 1, 2021 deadline passes, employers with more than 5 employees will be required to conduct this training with all new employees, supervisory and non-supervisory, within six months of their hire date. The training for new employees may coincide with training for all employees, or it may be conducted separately. If you believe you are an employer who is now required to conduct sexual harassment training, or if you are not sure whether you are such an employer, contact Navigato & Battin for...

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AB5 Broadens and Creates Carve Outs to Dynamex

Posted by on Oct 1, 2019 in Newsflash | 0 comments

For companies that rely on independent contractors to make up or supplement their workforce, January 1, 2020, will no doubt present a challenge. In previous newsletters, we have discussed California Assembly Bill 5 (“AB5”) and the California Supreme Court decision in Dynamex Operations West v. Superior Court, No. S222732 (“Dynamex”) which AB5 sought to codify. (See here and here). In short, AB5 will codify the Dynamex test for determining which workers are employees and which are independent contractors. It is expected that many workers who were or are classified as independent contractors will now need to be reclassified as employees – triggering the newly classified employees’ rights to wage and labor law protections, and costing employers who will now owe higher taxes (and likely higher wages) following the reclassification. AB5 will become effective on January 1, 2020, giving employers about three months to ensure they are classifying their workers correctly. Last year, the California Supreme Court decided in Dynamex that a new “ABC” test was the appropriate test to determine whether a worker is an independent contractor or an employee. The test is as follows: to prove a worker is an independent contractor, the employer must show: (A) the employer has limited control over the worker, (B) the worker is not performing tasks which are within the employer’s normal course of business, and (C) the worker has his or her own business under which he or she completes those tasks. Although prongs A and C likely do not pose significant hurdles for employers to clear, prong B certainly does. It is unclear exactly how narrowly employers will be allowed to define their normal course of business in arguing certain workers are not performing tasks within that course of business. (Think of Uber classifying itself as a “technology company” in an attempt to show its drivers are not performing tasks within the normal course of business of such a company.) AB5, in certain respects, both broadens and tightens the effect of the Dynamex decision. Originally, the Dynamex decision only applied to classification of workers in relation to Wage Orders – meaning not all labor laws would be scrutinized under the ABC test. AB5 changes that. Now, workers must be classified correctly under the ABC test for all labor laws, including unemployment insurance, worker’s compensation, and wage and hour laws. This expansion is sure to be felt by employers who are being sued for a variety of wage and labor violations, employers challenging unemployment decisions, and employers facing EDD audits. On the other hand, AB5 also includes a number of carve-outs for certain industries. Where previously there were no exceptions to workers who would be subject to the Dynamex decision, AB5 provides carve-outs for the insurance industry, physicians, surgeons, dentists, podiatrists, psychologists, and veterinarians operating under a properly issued license; properly licensed lawyers, architects, engineers, private investigators, and accountants; securities broker-dealers, investment advisers, and their agents registered with either the relevant federal or state agency; and certain commercial fishermen. The above will be governed by the existing Borello test. Real estate licensees and repossession agency workers will be governed by a combination of the Business and Professions Code and the Borello test. If your company uses independent contractors and you have not scrutinized that practice under the Dynamex ABC test, the...

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New Rule Mandating Female Director Quotas Challenged

Posted by on Sep 3, 2019 in Newsflash | 0 comments

We discussed a new California law which requires certain California corporations to include a certain number of women on their boards of directors here. In short, this rule requires those publicly traded corporations which are based in California to have at least one female director on their boards by the end of 2019. In the following years, additional females will be required for some corporations based on the size of their boards. As we also discussed in our previous article that an equal protection challenge to this new law seemed inevitable. On August 6, 2019, this inevitable challenge was filed in the County of Los Angeles. The lawsuit challenges the female quota rule on the basis that it violates the California constitutional provision providing for equal protection. Under this provision, all persons must be treated equally, regardless of any classifications (such as gender). The lawsuit argues that by calling for a mandatory quota of women on the corporations’ boards, the genders are not being treated equally. Opponents of this requirement argued during the previous legislative session that potential board members would be assessed and chosen not on their merits, but instead on the basis of their gender. This, according to the lawsuit, is the type of treatment the equal protection clause seeks to protect against. The complaint further states that because the rule classifies persons on the basis of their gender, it must be subject to strict scrutiny – the highest level of review in these types of challenges. In order to defeat this lawsuit and continue implementing the new rule, California will need to show that the rule is justified by a compelling government interest, and that the rule’s use of gender classifications is narrowly tailored to serve that compelling interest. When this rule was signed into law almost one year ago, then-Governor Brown stated “serious legal concerns have been raised” regarding the rule, and the potential that it was not compliant with the California Constitution. These legal concerns are now being brought to light as the rule is challenged in a court of law. Because this rule provides looming deadlines for those corporations subject to the rule, this case will likely be watched by...

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California Employers Have New Duty to Protect Employees from Wildfire Smoke

Posted by on Sep 3, 2019 in Newsflash | 0 comments

As California continues through this wildfire season, employers should be aware of a new rule imposed by the California Occupational Safety and Health Standards Board (Cal-OSHA). Beginning on July 29, 2019, employers generally must monitor the Air Quality Index (AQI) at the employers’ worksites, and ensure that certain steps are taken when the AQI indicates certain levels of smoke in the air. Exempted from this new rule are those employers whose employees work indoors where there is an air filtration system, firefighters who are engaged in firefighting, and employers whose employees are only exposed to smoke for less than one hour. Industries which should be especially aware of this new rule to ensure they are compliant are construction, agriculture, landscaping, maintenance, and other primarily outdoor industries. To be compliant, employers who are not exempt must monitor the AQI for fine particulate matter (PM 2.5). If the AQI for PM 2.5 is more than 150, and the employer has a reasonable expectation that its employees will be exposed to smoke from a wildfire, the employer must take steps to reduce exposure. This is possible by relocating the employees to an indoor facility or to another location altogether where air quality is improved. In some cases, employers must provide respirators for its employees. For example, if the AQI for PM 2.5 is greater than 150, but less than 500, employers must provide respirators to its employees and encourage their use. The employees will not be required to use the respirators at this level. If the AQI for PM 2.5 exceeds 500, however, employees not only will be required to use the respirators, employers must also conduct fit testing and medical evaluations of the employees. Aside from these direct smoke-related duties of employers, employers must also provide certain trainings to its employees with relation to wildfire smoke. Primarily, employers must create a communication system whereby employees can inform employers the air quality at a location has worsened and precautions should be taken. Employers also must provide training to their employees on this new rule itself, thus making employees aware of the steps to be taken when the air quality declines to certain standards. As the 2019 fire season continues, employers should be careful to observe this new Cal-OSHA rule both to keep their employees healthy and protected from smoke, and to avoid any smoke-related litigation down the road. If you have any questions about this new rule, contact the attorneys at Navigato &...

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Navigato & Battin Partner Appointed USD Law Adjunct Professor

Posted by on Aug 1, 2019 in Newsflash | 0 comments

Navigato & Battin, LLP is pleased to announce that partner Michael Battin has been appointed as an Adjunct Professor at the University of San Diego School of Law.  Mr. Battin will be teaching in the Experiential Advocacy Practicum in Fall, 2019.  This unique course – a requirement for all first year law students at USD — entails a combination of large lectures and small-section classes. In the small sections, which Mr. Battin will be teaching, the students will get an opportunity to practice the litigation skills they are being taught.  These critical litigation skills will include: conducting a client interview, preparing and conducting (or defending) a deposition, and preparing and conducting a closing argument. “I am excited to bring what I’ve learned over the years – sometimes the hard way – to a new generation of lawyers.” Mr. Battin noted.  “I think the EAP course, with its emphasis on practical skills and active student participation, is an excellent introduction to litigation and a great bridge from the theoretical to the actual practice of law.”  Mr. Battin has also taught Secured Transactions at California Western School of Law and, previously, taught several courses in the Paralegal Program at University of California, San Diego.  Mr. Battin looks forward to continuing his mentorship of law students and younger lawyers for many years to...

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Navigato & Battin Hosts Client Appreciation Event

Posted by on Aug 1, 2019 in Newsflash | 0 comments

Navigato & Battin thanks its clients and friends who attended Opening Day at the Del Mar Thoroughbred Club on July 17, 2019. Between mingling with old friends and new, enjoying the food, and wagering on the races, fun was had by all. “Every year, we get to show our gratitude to our clients by putting on this event at a beloved San Diego tradition. This event also lets us have face-to-face time with our clients and interact outside of the projects we’re working on for them,” says partner Dan Navigato of the day. For over 20 years, Navigato & Battin has hosted its client appreciation event at Opening Day. We enjoyed catching up, reminiscing, and showing our appreciation to each and every client who has put their trust in us for over two decades. Whether you were able to attend this year or not, we look forward to seeing you there in...

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