Litigation Archives - General Counsel Law.

Why Employers (and Employees) Need to Pay Attention to the Fair Labor Standards Act

This post was originally published in February, 2015. We’re re-posting in case you missed it.

Why Employers (and Employees) Need to Pay Attention to the Fair Labor Standards Act

Recently, General Counsel, P.C. is getting more (and more) calls for a business litigation attorney regarding alleged violations of the Fair Labor Standards Act (“FLSA”).

And, more often than not, the employer is in violation of the FLSA and subject to potential liability (to one or more employees).

Provided below is a quick overview from a business litigation attorney of the FLSA; a discussion of Why Employers Need to Ensure Compliance; and Top Four FLSA Liability Pitfalls.

FLSA (Brief) Overview

In other articles our business litigation attorney will discuss, in more detail, specific components of the FLSA. But, as a general matter, the FLSA establishes minimum wage, overtime pay, record keeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. Covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour effective July 24, 2009. Further, overtime pay at a rate not less than one and one-half times the regular rate of pay is required after an employee exceeds 40 hours of work in a workweek. The FLSA also provides that certain classifications of employees (executive, administrative, professional, outside sales or computer employees) are exempt from overtime requirements. Finally, the FLSA provides numerous intricate rules for different industries that are beyond the scope of this introduction. For additional information, contact a business litigation attorney for guidance on pursuing full FLSA compliance.

Why Employers Need to Ensure Compliance

Employers need to ensure compliance with the FLSA because if they don’t, it can be very expensive. Based on the experience of past cases, any business litigation attorney in our firm will tell you that this liability is not only for the company, but company owners and officials can be held personally liable in certain situations.

First, our business litigation attorney will warn you that FLSA cases can be very expensive for a variety of factors:

(a) rarely does a case involve just one employee;

(b) FLSA violations generally extend over a period of time;

(d) employees are generally owed not only unpaid wages in FLSA litigation, but also liquidated damages which equals the amount of unpaid wages – so, in other words, employees receive twice what they were owed;

(e) punitive damages can be awarded at the discretion of the court; and

(f) employers generally are required to reimburse employees for legal fees and costs that they incur bringing the FLSA lawsuit.

Second, business owners and/or managers can be personally liable for FLSA damages. This is why it is good to have a business litigation attorney and be familiar with the FLSA. Generally speaking, the FLSA broadly defines an “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” Such individuals may be liable under the FLSA if they exercise significant control over the company’s operations. To make this determination, courts consider whether the managers have the power to hire and fire employees, the power to determine salaries, the responsibility to maintain employment records and other signs of operational control over significant aspects of the corporation’s day-today functions. Furthermore, a supervisor found personally liable for a violation of the FMLA is liable to the same extent as is the employer.

Business Litigation Attorney: The Top Four FLSA Liability Pitfalls You Should Know About

Incorrect Classification of Employees as Exempt: The most common mistake made by employers is believing that because they pay an employee a salary, they are automatically an exempt employees. It does not! Employers should start with the proposition that all employees are entitled to overtime pay. If, and only if, the employee satisfies one of the tests for exemption should the employer categorize the employee as exempt from overtime.
Failure to Pay Employees for All Time Worked: The FLSA requires that all non-exempt employees be paid for all time that they are “suffered or permitted” to work.” When an employee is completely relieved of all work related duties (such as during a lunch break), the employee is not entitled to pay. This appears straight-forward, but employers can incur tremendous liability for mistakes. For example, if an employee sits at his/her desk during lunch and although is reading a personal book, they also answer the telephone once or twice (even if only voluntarily), that could be considering “working time” entitling the employee to pay. Or, if the employee is required to get to work every morning to make sure a truck is fueled before the work day starts – the time spent fueling truck is “working time.”
Misclassifying Employees as Independent Contractors: Far too often, employers misclassify someone who should be a W-2 Employee as a 1099 Independent Contractor. To determine whether someone is an employee or independent contractor, evidence of control and independence are considered.
The IRS Three Factor Test considers:
(a) Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?;
(b) Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.); and
(c) Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? If someone is misclassified as an independent contractor, the employer can be liable for all wages (and overtime and other FLSA damages) the individual should have received (and taxes owed to state and federal government).
Making Improper Deductions from Exempt Employees Pay: The FLSA has very specific rules on when deductions can be made from exempt employees’ pay.
Deductions from pay are permissible when an exempt employee:
(a) is absent from work for one or more full days for personal reasons other than sickness or disability; (b) for absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;
(c) to offset amounts employees receive as jury or witness fees, or for military pay; (d) for penalties imposed in good faith for infractions of safety rules of major significance; or (e) for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.

If improper deductions are made, the exemption can be lost and the employee would be entitled to overtime compensation.

The FLSA is a landmine of potential liability for employers especially if you are not guided by an experienced business litigation attorney.

If not recently done, an employer should conduct a workplace FLSA audit to ensure compliance.

For additional information on employment law issues, please do not hesitate to contact our business litigation attorney, Merritt Green, Chair of General Counsel, P.C.’s Employment Practice at mgreen@gcpc.com 703-556-6505.

Is Your Non-Compete Agreement Enforceable?

This post was originally published in July, 2012. We’re re-posting in case you missed it.

If your company’s non-compete agreement was not specifically tailored for business/employment relationship, it may be unenforceable

In a 2012 decision regarding the enforceability of non-compete agreements, the U.S. District Court for the Eastern District of Virginia sent a reminder to all employers that non-compete agreements must be specifically tailored to the unique employer-employee relationship to which the non-compete agreement is applies.

The court repeatedly emphasized that in examining non-compete agreements, “[t]he Virginia Supreme Court’s longstanding emphasis on deciding each non-compete agreement case on its own facts is particularly important.”

Ultimately, the Judge determined that the non-compete agreement which the employer was seeking to enforce was valid, and that its former employees would be restrained from competing with their former employer.

However, this decision was only reached after the court made a thorough review of the employer’s particular business needs and practices, as well as the former employees’ own circumstances. In analyzing the non-compete agreement, the court carefully scrutinized a number of factors that will be unique to every employer-employee relationship: (1) the relative levels of sophistication between the employer and the employees, (2) the amount of consideration received by the employees, and (3) the employees’ opportunity for earning a livelihood if the covenant not to compete remained in force.

Practical Counsel

Although the court found that the non-compete agreement was valid when applied to the specific factual situation of the parties’ to that case, under a slightly different set of facts the non-compete agreement would likely be found to be overbroad and unenforceable.

This is often the case where a company uses a non-compete agreement found on the internet, or from another state, employer or employment situation.

If your company’s non-compete agreement is not specifically tailored to your unique business and employment relationships, it is possible it is not enforceable.

Therefore, if your non-compete has not been reviewed by legal counsel within last year or two, it should be. GCPC’s lawyers are experienced with the evolving law on non-compete agreements, and can draft / review your agreements to help ensure they are enforceable. Contact General Counsel PC’s Merritt Green, or call 703.556.0411, for more information on employment law.

Employment Law Update: Supreme Court Says Arbitration Requirements in Employment Agreements are Enforceable

A recent U.S. Supreme Court case, Epic Systems Corporation v. Lewis upheld employers’ use of class-action waivers in arbitration agreements. No. 16-285, 2018 WL 2292444, at *1 (U.S. May 21, 2018). Based on this ruling, employees that have signed such agreements are no longer able to join together to sue employers and instead must use arbitration to individually resolve any issues. This decision will likely make it harder for employees to sue employers now that collective bargaining is off the table. Class actions offered employees a chance to seek damages from employers when individual lawsuits were too costly, potential damages were too low, or when employees feared retaliation if they sued employers individually.

Epic Systems Corp. consolidated three separate cases involving three different employers: Epic Systems, Ernst & Young, and Murphy Oil. In each of these cases, an employer and employee entered into a contract providing for individualized arbitration proceedings to resolve employment disputes between the parties. However, each employee later sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court.

The Arbitration Act requires courts to enforce agreements to arbitrate, including the terms of arbitration agreed to by the parties. The Arbitration Act also includes a savings clause, which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.” The employees here argued that the savings clause applied to the waivers prohibiting class actions, creating a “ground” upon which the court may refuse to enforce the arbitration agreements. The employees relied on the National Labor Relations Board’s interpretation that the National Labor Relations Act overrides the Arbitration Act. However, the court found that the savings clause was not applicable to the employees’ arbitration agreements.

The Supreme Court noted where two acts discuss the same issue “Congress will specifically address preexisting law before suspending the law’s normal operations in a later statute.” The court stressed that “the absence of any specific statutory discussion of arbitration or class actions is an important and telling clue that Congress has not displaced the Arbitration Act.” The court summed up by stating: “Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA.”

The court’s finding that collective bargaining law does not supersede the federal law that established the arbitration process and that the class-action waivers in employment contracts are valid, may lead more employers to include such provisions in their employment agreements. Employers are likely to see the court’s decision as a big win, while employees may second-guess decisions to initiate actions against employers, knowing arbitration is the only option.

Call General Counsel PC Today

Whether you’re an employer or employee wondering how this decision might affect you, attorneys at General Counsel PC can help. Our attorneys are specialized in labor and employment law and have experience working with business owners and individuals across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Call General Counsel PC at 703-556-0411 today to see how we can help you.

What Should I Consider During a Business Divorce?

Business relationships fail for many different reasons: business partners may have long-term disagreements, a change in leadership, or simply a desire to go in different directions. Even successful businesses may have to deal with business divorce issues if business partners decide that the benefits of continuing their business relationship are outweighed by the costs accompanying their continued co-ownership of the business. Breakups are never easy, and business relationships are no different, but there are some things business owners can do to help prepare themselves for the eventual divorce.

Plan Ahead – Have a Written Agreement at Formation

Even if business partners don’t ultimately decide to part ways, some type of conflict is almost inevitable. For this reason, it is important to plan ahead and have some type of operating agreement or corporate shareholders agreement in place at the start of the business relationship to help guide the resolution of conflicts later on. A well-drafted agreement at the time of business formation can help to prevent a deadlock from occurring over disagreements about how to end the relationship.

Important provisions to consider including in these formation agreements include buy-sell agreements, provisions to forestall squeeze-outs, triggers for dividends, and non-compete agreements. A buy-sell agreement requires the company or remaining majority owners to purchase the minority’s stock in the case of agreed upon events. To ensure that a deadlock isn’t reached, an agreement can include a “shotgun” provision, requiring a mandatory sale in the case of disagreement and deadlock. While this ensures that the business isn’t left in limbo while business partners disagree, it also means that in the case of a disagreement over how to part ways, neither party is able to retain the business. Another option is including a provision that gives all shareholders the right to offer a specific price per share for the other shareholder’s shares. The other shareholder then has the option of accepting the offer or buying the offering shareholder’s shares at the agreed-upon price.

What Are My Options During a Business Divorce?

Many business disputes arise when there is a deadlock between the owners and the owners’ inability to agree results in the business being unable to make business decisions. There are a few different ways to deal with such deadlocks and a resulting business divorce. One option is to appoint a provisional director which serves on a corporation’s board of directors until a deadlock is broken. Another option is a buyout, where majority owners purchase minority owner’s remaining stock. Business owners can also consider complete dissolution of the company, selling all of the company’s assets and parting ways. Additionally, business partners may want to use mediation to allow a neutral third party to help resolve business disputes. If none of these alternatives are able to generate a resolution, parties can seek legal remedies in court, but that option is often costly, time-consuming, and not usually preferable.

Remember Your Fiduciary Duties

Even if it’s certain that a business will soon be dissolved, business owners must use caution to ensure they do not take any actions against the company in bad faith. Until the time when a dissolution is official, business owners may owe a fiduciary duty to the company, as well as to each other. If one co-owner plans on leaving the business to start his own competing business, he may be in violation of non-competition or non-solicitation agreements. The specific duties owed to the company and other business owners vary depending on the type of business entity involved.

For example, under the Virginia Uniform Partnership Act, partners owe the partnership and other partners a duty of loyalty and care. Under the Virginia Code, partners also must act in accordance with the obligation of good faith and fair dealing. These duties do not end until the partnership has dissolved, so partners must refrain from competing with the partnership and other partners before the dissolution is complete.

Additionally, business owners using company resources for their new businesses or asking clients to leave the business and instead go to the new business may face liability for tortious interference with contract expectancy, civil and statutory conspiracy, as well as other claims. A claim for statutory business conspiracy under the Virginia Code may be made if another owner suffers injury to his “reputation, trade, business or profession.” A claim for tortious interference with contract expectancy may be successful if a co-owner intentionally interferes with a business relationship or contract expectancy of the company’s and the interference results in a breach or termination of the relationship or expectancy.

Call General Counsel PC Today

Disengaging from a business relationship is a complicated matter. Having to decide what the best course of action is and not knowing what you can and can’t do just adds to an already stressful and difficult situation. Seeking help from experienced professionals who can help guide you throughout the process will help lessen the burden and make the process run more smoothly. Our attorneys are specialized in business law and have experience working with business owners across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William County. Call General Counsel P.C. at 703-556-0411 today to see how we can help you.

Personal Liability for Corporate Obligations – How to Avoid Piercing the Corporate Veil

When individuals form business entities, generally they choose entities that allow them to limit their personal liability, leaving only the entities’ assets vulnerable to lawsuits. For corporations and Limited Liability Companies (LLC), the business entities are separate from the corporate officers and shareholders (or LLC members), and these individuals are typically not liable for the entities’ debts. However, there are instances where individuals may be liable for corporate debts, even if the corporation, and not the individual, is the target of a lawsuit.

The recently decided case, Virginia Electric & Power Co. v. Peters, highlights the importance of taking steps to avoid the possibility of piercing the corporate veil and the resulting personal liability. In Virginia Electric & Power, Dominion Virginia Power (“Dominion”) sued Bransen Energy Inc. (“Bransen”) and obtained a $24.5 million judgment against Bransen. However, Dominion wasn’t able to collect on the judgment and brought another action to pierce Bransen’s corporate veil and impose liability on Michael Peters (“Peters”), Bransen’s owner and sole shareholder.

Peters was Bransen’s president, owner, and sole shareholder and used more than $2.66 million of Bransen’s funds for his personal benefit. Additionally, after Peters knew Bransen had breached its contract with Dominion, he and his family “used Bransen as a personal checking account,” writing checks from the account without any business connection to the company. Peters also created new companies and funded them with Bransen’s funds, even though the new companies had no connection to Bransen. The court found that Peters “used the corporate structure to avoid liability to Dominion by making corporate decisions that benefits him and not his corporation” and that Peters may be personally liable for Bransen’s debt to Dominion.

When trying to pierce the corporate veil, courts have personal jurisdiction over individuals if the individual is the “alter ego” of the corporation. When deciding whether an individual is an “alter ego” of the corporation, the court must determine whether the individual exercised “undue dominion and control over the corporation,” such that “the corporation was a device or sham used to disguise wrongs, obscure fraud, or conceal crime.” Perpetual Real Estate Servs., Inc. v. Michaelson Properties, Inc., 974 F.2d 545, 548 (4th Cir. 1992). When determining whether this undue dominion and control existed, the court may consider whether the individual observed corporate formalities, kept corporate records, paid dividends and whether there were officers and directors. Essentially, the court must determine whether the individual misused the corporate identity to disguise assets.

Once the corporate veil is pierced, a business owner may be personally liable for debts of the corporation. The possibility of piercing the corporate veil is a particular concern for closely held businesses. Business owners should understand the concept of piercing the corporate veil to minimize their own risk by structuring and operating their business entities in an appropriate manner. Below are a few practical tips for business owners to utilize to create the best possibility of avoiding personal liability:

Observe Corporate Formalities – If your business has a board of directors (or managers) hold regular meetings and document and keep the minutes of those meetings. Additionally, business owners should have governing documents for their entities, such as operating agreements and bylaws.
Keep Separate Records and Bank Accounts – It is important that business owners treat the entities as truly separate, especially when it comes to the entities’ assets. Don’t commingle funds or borrow from the company to pay personal expenses. Contribute all business profits into and pay all business expenses from the entity’s bank account and keep business financial records separate from personal financial records.
Operate at Arms-Length – When engaging in transactions that may appear inappropriate to unrelated parties, take care to follow proper protocol. For example, if you plan to contribute personal assets to the entity as a capital contribution, document the transfer. If you own multiple entities that provide services to the other, have contracts in place governing those relationships. When in doubt about whether a transaction is appropriate, err on the side of caution.

A court’s decision to pierce the corporate veil is decided on a case-by-case basis and generally results from a combination of factors with an added element of injustice. Unfortunately, there is no guarantee that a business owner will avoid personal liability for business debts, but there are ways to conduct your business now to put yourself in the best position later, in the event a legal situation arises. The most important thing to remember when conducting a business is to maintain and document the level of separation between entity and owner and always treat the entity as distinct.

Call General Counsel PC Today

Attorneys at General Counsel PC are specialized in business law and have experience working with business owners across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. If you’re currently facing a legal issue that’s putting your business at risk or you’re looking for legal advice on the strength of your business protections, General Counsel PC has the expertise you need. For more information about how you can ensure your business is protected, call General Counsel PC at 703-556-0411 today.

General Counsel, P.C. attorneys win Virginia’s SECOND largest verdict of 2017

Originally posted on January 25, 2018.

Just days after being notified by Virginia Lawyers Weekly that General Counsel P.C.’s verdict for Heard Construction was the largest in Virginia in 2017, we learned that we were edged out of the title by a Fairfax County medical malpractice case. Managing Partner Merritt Green said that he was told by Virginia Lawyers Weekly that the mistake was pointed out to them by the firm that is now listed as number one. “While we have slipped in the polls, we are still extremely proud of the work that we did on behalf of our client,” Green said.

The firm was notified in late January of our short-lived first place finish. “We were even given the right to post a copy of Virginia Lawyers Weekly issue which stated we were number one on our website, but all is well and congratulations to the new title holder.”

While now “number 2,” the case was the only one of the top 5 verdicts related to a business matter. The other 4 were all medical malpractice matters.

In August of 2017, General Counsel, P.C. attorneys, Andrew Baxter and Christopher Davis, on behalf of GCPC client, obtained a $3.8M judgment for Heard Construction.

In this case, Heard Construction, took part in an invitation for sealed bidding to replace a pier at the Little Creek Naval Base in Norfolk. The defendant, Waterfront Marine, represented that it was a “small” business pursuant to SBA size standards. When Heard Construction discovered that the defendant was actually a “large” business, General Counsel, P.C. attorneys filed a size protest with the SBA. The SBA eventually, determined that the defendant was “other than small,” and, as such, should not have been awarded the government contract at issue.

Thereafter, GCPC attorneys filed a civil lawsuit against Waterfront Marine for tortious interference. After a long litigation process, and a four-day trial, the jury found the defendants liable and awarded the $3.8 Million in damages to Heard Construction.

General Counsel, P.C. attorneys were pleased and honored to obtain such a tremendous result for our client, Heard Construction.

Call General Counsel PC Today

If you are already, or just considering involvement in a lawsuit or government protest, attorneys at General Counsel PC can provide you with the knowledge and assistance necessary to determine the next steps. Call General Counsel PC at 703-436-9838 today to see how we can help you.

What To Do When Accused of Breach of Contract

If you’ve received a notice of breach of contract sometimes called a demand letter, it means someone believes you’re not living up to your end of a bargain. A breach of contract occurs when one party to a contract doesn’t fulfill any term of a contract, without a lawful excuse. Contract breaches can be troublesome for both small businesses and individuals. Receiving a notice of breach of contract opens up a legal battle that can be stressful, time-consuming, and costly.

Types of Breaches

Breach of contract disputes are very common because they can impact so many different aspects of businesses and there are multiple types of breaches. A breach can be minor or major depending on how crucial the provision that was breached was to the contract as a whole. A breach may also be anticipatory, which means that a party may not actually have breached a contract yet, but acts in such a way as to make the other party believe he intends to breach the contract. The defenses and remedies available for a breach of contract dispute depend on the type of breach that has occurred.

Common examples of breach of contract include a failure to provide goods or services on time or in full, non-payment for goods or services, providing defective goods or services, or breach of warranties of a contract.

How to Respond to a Demand Letter

The best course of action after receiving a notice of breach of contract, or a demand letter, is to contact an experienced attorney knowledgeable about contract disputes. Contract disputes can be complex and attempting to tackle such an endeavor on your own could result in serious negative results. Instead, seek out an attorney who knows the law, knows the local court rules, and knows the best way to respond to such letters to allow for the highest possibility of success.

It’s best to contact an attorney as soon as possible to ensure no deadlines are missed and to figure out what needs to be done right from the beginning. An attorney will need to review the contract itself, as well as other documentation and correspondence with the other parties. It’s important to provide as much truthful information as possible to ensure that the attorney is working with all of the facts when determining the best legal strategy.

Call General Counsel PC Today

If you have been accused of breach of contract and live or work in the Fairfax, Loudoun, Arlington, Prince William, or anywhere in Virginia, attorneys at General Counsel PC can provide you with the knowledge and assistance necessary to determine the next steps in preserving your legal rights. Our attorneys are specialized in labor and employment law, business law, and litigation and have the experience necessary to help you through these legal hurdles. Knowing your rights and options can help ease some of the burden of dealing with breach of contract disputes. Call General Counsel PC at 703-436-9838 today to see how we can help you.

What To Do If Your Business Has Been Sued

Regardless of the success of a business, business owners run the risk of being sued. Litigation and lawsuits can be stressful, costly, and time-consuming. However, there are steps business owners can take to help better protect their businesses and put them in the best position to navigate these legal hurdles.

Most Importantly, Do I Need a Lawyer?

Yes! Would you let someone who knows nothing about selling houses sell your home? Probably not, so why leave your business in the hands of someone not knowledgeable about business law? Business owners have worked too hard to get their businesses where they are to put those businesses in jeopardy by choosing to not seek out expert advice if they are sued. The costs of hiring an attorney may make some business owners hesitant, but the costs of the lawsuit could be even more severe in the event the business loses the lawsuit. Additionally, for a business entity to even assert its legal rights in court, it must be represented by a licensed attorney.

If a business owner does choose to hire an attorney to assist in a lawsuit, it’s important to make sure that the attorney selected has experience in the relevant area of law, as well as at the relevant court. For example, if you’re a business owner with a business in Fairfax, Virginia, it’s important to choose an attorney well versed in areas such as employment law who have experience litigating issues in Fairfax County Circuit Court or the Eastern District of Virginia. General Counsel PC has experience in these locations, as well as in Loudoun County, Arlington, Prince William, and most of the Commonwealth of Virginia.

Know Your Law Suit Deadlines

Missing a deadline can have serious negative consequences for a business owner, possibly causing a business owner to lose a lawsuit even with a winnable defense. It’s important to seek out an attorney as soon as possible so they are able to evaluate the situation and determine all applicable deadlines early on so valuable time is not missed. Trying to piece together different laws, statues, and local court rules can be tricky, and it’s best to have the assistance of someone already knowledgeable in those rules to ensure nothing important is overlooked.

Time is of the Essence

In addition to assessing applicable deadlines, contacting an attorney as soon as possible has other benefits. When you hire an attorney, you establish attorney-client privilege, which will help protect any internal investigations being done. However, once this privilege has been established, be sure to avoid discussing the lawsuit with anyone other than your attorney or you risk breaking the privilege. Additionally, once hired, an attorney is able to begin preparing for a lawsuit, including placing a “litigation hold” on information relevant to the matter. This hold prevents other parties from destroying pertinent documents, which may make the difference in favor of your business.

Know Your Options

Just because your business is sued, doesn’t mean you don’t have any options. A knowledgeable attorney will be able to help figure out what options are available. It may be possible for a case to be dismissed or resolved outside of court through a settlement or mediation. One of these options would significantly cut down on the costs as well as the time it takes to resolve the matter.

Call General Counsel PC Today

If your business has been served in a lawsuit, attorneys at General Counsel PC can provide you with the knowledge and assistance necessary to determine the next steps in preserving your legal rights and defending your business. Our attorneys are specialized in labor and employment law, business law, and litigation and have the experience necessary to help you through these legal hurdles. Call General Counsel PC at 703-436-9838 today to see how we can help you help your business.

Small Business Lawyer: Converting Your Partnership to a Limited Liability Company

Prior to the wide-scale acceptance of limited liability companies (“LLC”), many business owners who wished to avoid a “double tax” on the income from their business turned to general partnerships. While that form of entity did generally avoid the double taxation of business income inherent in a corporation, the cost of doing so was to expose each partner to unlimited personal liability for the partnership’s debts, liabilities and obligations to the full extent of his personal assets.

While limited liability companies are not subject to double taxation of their income because of “pass through” tax treatment, unlike partners, the owners of a limited liability company—its members- are not personally liable for the LLC’s debts, liabilities or obligations solely by reason of their status as a member—so-called, vicarious liability. A member’s vicarious liability is typically limited to his contribution to the LLC, like a shareholder of a corporation.

Small Business Lawyer on Limited Liability Protection
This limited liability protection does not, however, protect a member from liabilities resulting from his own misconduct. Such a member will remain personally liable for any obligations and liabilities which result from his own wrongful conduct.

Because of the liability advantages of a limited liability company, many partners—troubled by the prospect of having their personal assets at risk for the obligations of their business– began to consider whether and how they could convert their partnerships into limited liability companies so as to avoid continued personal liability for the debts and obligations of their business.

At first, the conversion process in most states was nonexistent and/or cumbersome and few partnerships sought to restructure themselves as limited liability companies. However, as states began to recognize the need to allow partnerships to convert to limited liability companies in a simple and inexpensive way, they enacted legislation that facilitated and streamlined that process. In many states now, a general partnership can be restructured as an LLC by a simple filing with the state and payment of a filing fee. Following the conversion the former partners of the pre-conversion general partnership will not be personally liable for any debts and other obligations taken on by the entity after it becomes an LLC. However, they will still be personally liable for obligations incurred by the partnership prior to its conversion to an LLC.

Most states now provide that a pre-conversion partnership and post-conversion LLC will be regarded as the same legal entity for all purposes, and treat the LLC as an uninterrupted continuation of the pre-conversion partnership. Therefore, the conversion will not be treated as a transfer of assets and obligations by the partnership to the LLC, and the partnership’s assets and liabilities will automatically become the assets and obligations of the limited liability company. Since the conversion is not treated as a transfer, no third party consents will generally be necessary, nor in most instances will any transfer or recordation taxes be due on the conversion. Also, the LLC does not need to obtain a new Employer Identification Number (“EIN”). It can continue to use the EIN originally issued to the pre –conversion partnership. And for income tax purposes, as long as nothing changes in regard to the ownership percentages in the LLC of the former partners/members, the conversion to an LLC will generally not be treated as a taxable event; and, in most cases, no federal or state income taxes will be due from any of the partners of the pre- conversion partnership.

If you are currently a partner in a partnership, you should consider whether a conversion might be beneficial for you and your partners. For a no obligation consultation on converting your partnership contact small business attorney Norman L. Eule, Esq. at 703-556-0411 or neule@gcpc.com.

See your future. Plan your future. Control your business destiny.

Contact: Norman Eule, neule@gcpc.com
General Counsel, P.C. Corporate and Tax Practice Group
Telephone: 703-556-0411

Out-of-State Business Sued in Virginia

The Litigation Counselor is an e-newsletter provided by a litigation lawyer providing updates and counsel to business owners, executives and managers based on recent court decisions or litigation-related matters impacting local organizations. In each issue, a litigation lawyer will highlight practical advice to help identify, avoid, or resolve such potential problems.

If you would like any further information/assistance on the topics discussed herein, please contact Andy Baxter, litigation lawyer and the Chair of General Counsel’s Litigation Department at 703-556-0411 or abaxter@gcpc.com.

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When a non-Virginia business is sued in Virginia, it can be difficult and expensive to litigate far away. When the business wants to get the lawsuit dismissed or moved to their home state, there are usually two options. If the lawsuit was filed in a Virginia federal court (either the Eastern or Western District of Virginia), the business can file a motion to transfer under 28 U.S.C. § 1404(a) or 28 U.S.C. § 1406(a). If the case was filed in a Virginia state court, in some cases the case can be removed to federal court under 28 U.S.C. § 1446 (if jurisdictional requirements are met), and then a motion to transfer can be filed.

Although the Eastern and Western Districts of Virginia give considerable deference to the plaintiff’s choice of forum, that deference is not without exceptions. When a business has a mandatory forum selection clause, or when the facts and matters in controversy have little or no connection to Virginia, a dismissal or transfer can sometimes be easily obtained. In the absence of the above factors, obtaining a transfer requires that the out-of-state business show significant inconvenience and burden to witnesses or parties if the case remained in Virginia, along with other factors.

Another situation non-Virginia businesses sometimes encounter is a party improperly filing a lawsuit in Virginia as a tactic or ploy, sometimes called “forum shopping.” Such practices are disfavored, especially when a parallel related matter is pending in a state court in the defendant business’s home forum. In these cases, the federal court may stay the Virginia case under the Colorado River doctrine. See Colorado River v. United States, 424 U.S. 800 (1976). Link http://caselaw.findlaw.com/us-supreme-court/424/800.html

Contact a litigation lawyer at General Counsel, P.C., we have extensive experience with venue transfer motions in Virginia. When appropriate, our litigation lawyer works with non-Virginia businesses to efficiently and effectively get cases dismissed or transferred out of Virginia.

Contact a litigation lawyer today.

Christopher Davis, cdavis@gcpc.com

General Counsel, P.C. Litigation Group

Telephone: 703-556-0411

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About General Counsel, P.C. – Every Business Needs a General Counsel — Founded in 2004 by Merritt Green, General Counsel, P.C. represents businesses, not-for-profit organizations, and individuals throughout the DC Metropolitan Area and across the nation and globe. The firm has eight (8) practice areas and a litigation lawyer to fully serve our clients in: (1) Corporate/Business Law; (2) Government Contracts; (3) State/Federal Litigation/Dispute Resolution; (4) Employment Law; (5) Immigration; (6) Intellectual Property; (7) Franchising; and (8) Not for Profits.