The Wonderfully Complicated and Confusing World of Non-Competes

November 11, 2010 by Kabani

Employers will often have non-compete clauses (also known as a “covenant not to compete”) as part of their employment agreements (for their employees), even if it’s “at-will” employment. At-will employment means that either party (employer or employee) has the right to terminate the employment agreement without reason at any time (subject to any notice or other requirements specified in the agreement).

What exactly is a “non-compete” though? A non-compete basically states that upon termination of the employment period, the former employee will not engage in activities that place him or her in competition with their former employer. In other words, a non-compete says that if I work for a company, learn everything about how the company works and what makes that company successful, then try to go out and start a competing business – that’s a no-no.

But for these clauses to be enforceable, there needs to be a “bargained-for-exchange;” that is, in exchange for the former employee giving up his right to compete, the employee should get something too (and getting the job isn’t enough because the employee is already getting compensation for that).

Though non-compete law varies from state to state, Texas requires:

  • the contract must contain reasonable restrictions on the geographical limits, restrictive time period, and scope of the former employee’s activities to be restrained.
  • the former employee’s promise not to compete must be “ancillary to or part of a related or underlying agreement” imposing binding obligations on the employer and employee.
  • the contract does not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promise.

Non-compete law is wrought with complex legal theory and nuance. Attorneys can be very helpful in guiding clients through the potential minefields involved in non-compete law. Employers interested in incorporating non-competes into their employment agreements, employees who are being asked to sign one, or even former employees who are trying to figure out whether their previous employer could enforce a non-compete provision against them – should all seek legal advice from a competent attorney. Kabani & Kabani would be glad to assist you.

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Er… Can My Boss Read My E-mail?

November 8, 2010 by Kabani

Research has found that technologically savvy people usually prefer to communicate through written texts rather than orally. This may be why many of us find ourselves shooting over an e-mail rather than picking up a phone. And why not? It’s easier, quicker, and more convenient. And you can avoid the awkward conversation about how your buddy’s girlfriend killed his cat.

But the next time you are about to hit the alluring “send” button, consider this —  who is reading your e-mails?

Regardless of how careful you are about e-mail privacy, your employer could be accessing your e-mails anytime. According to a survey conducted by the American Management Association, more than half of the corresponding companies admitted to monitoring employees email. This may sound wrong, unfair, and unethical to you, but employers have reasons for doing this. For example, because an e-mail can be considered an electronic document that employers may have to hand over if they’re sued, employers may monitor e-mails to basically protect themselves from liability.

Some instances that an employer can check an employee’s email are:

  • If a company has let the employee know that email is not private;
  • If your employer believes you are misusing (misusing can range from conducting illegal activities, violating company policy, or even using e-mail for personal use during company time) company email;
  • You use a company assigned e-mail address;
  • You send or receive any e-mail containing business transactions;

Don’t lose hope though, not all your privacy rights have been thrown out of the window just yet. Employers cannot check an employee’s e-mail if an employee had a private e-mail address that is not used on company time and not on company property.

Employees do have rights with regard to privacy; however, courts will often rule in favor of an employer when it comes to email privacy. To be on the safe side, you can (and probably should) inquire as to the company’s policy regarding e-mail privacy. This way, if you need to assert a right to privacy, at least you will be well-informed. In the end, it is important to remember that the simplest way to avoid any issues with your e-mail is to use company e-mail and company property (i.e. your work-PC) strictly for work transactions.

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Forum Selection Clauses in Online Contracts – “Accept”ing More than You Bargained for

October 15, 2010 by Kabani

Accept and Install

Scenario: While browsing the web, you run into a downloadable software that interests you. Without thinking twice, you “accept” the corresponding terms and conditions.  Only too late do you realize that the software you downloaded also installed a never-ending stream of pop-ups and cookies that have slowed your computer and infested your operating system. Irate, you decide to sue the site owner for damages.  After suit is filed, the company’s lawyer gives the petition a once over, twirls his overgrown mustache, which curls into an evil grin, and he prepares to type. With the chatter of the keys, he belts out an evil laugh while responding to the lawsuit. His response — “too bad, so sad. If you want to sue, you have to do it in our state. See you later, sucker.” Dumbfounded, you ask, “can they do that?!”

Evaluation of scenario: Most online Terms and Conditions (T&C) statements (to which most people usually agree by clicking “I accept”) contain what’s called a “Forum Selection Clause.” That is, if you are going to sue the company for any reason, it must be done in the company’s jurisdiction (“the forum state”). Generally, Forum Selection Clauses in online contracts are enforceable (assuming they are “fair and reasonable”). This is incredibly unfortunate if you “accepted” the T&C while sitting in your home office a thousand miles away. Let’s assume that the jurisdiction of the company is the State of California. In theory, no matter your location, you would have to bring the lawsuit in California.

However, different courts have reached different conclusions on this issue. For example, in America Online, Inc. v. Superior Court (2001), a California Court prevented a Forum Selection Clause (concerning jurisdiction in Virginia) from being enforced. The Plaintiff sued in California while the Defendant wanted jurisdiction in Virginia (as per the online contract). Ultimately, the California Court asserted that the clause was “unfair and unreasonable,” and the decision was upheld on appeal under the theory that Virginia law provided for less consumer protection than California (thus, it would be against California public policy to allow for the clause to be enforced).  The lesson here:  READ the Terms and Conditions before agreeing to them, if for no other reason than to be aware of what they say.

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How to Start a Business in Texas (Part 3)

September 10, 2010 by Kabani

Once the entrepreneur has decided what type of entity best suits the business’s needs, steps must be taken to form that type of entity. The steps can vary from state to state, but the steps are generally similar.

  • For a Sole Proprietorship or General Partnership (GP or Partnership):
    • The appropriate paperwork must be filed with the Internal Revenue Service for tax purposes. For example, a prudent entrepreneur would file for a FEIN (Federal Employment Identification Number — similar to a social security number for a business).
    • Local permits may be needed for the business’s specific services (or even perhaps for the property of the business).
    • If the entity is a partnership, then the partners will likely need a written partnership contract that dictates the agreed terms between the partners.
  • For a Limited Partnerships (LP), a Limited Liability Company (LLC), or a Corporation (Inc. or Corp.):
    • A Certificate of Formation needs to be filed with the Texas Secretary of State.
    • A LLC can (and should) also apply for a FEIN for tax purposes.
    • Local permits may be needed for the business’s specific services (or even perhaps for the property of the business).

Once the paperwork is processed and approved, you have your business entity!

Stay tuned for the next installment in our series on How to Form a Business in Texas.

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How To Form a Business in Texas (Part 2)

September 7, 2010 by Kabani

Now that you have your business plan written (see How to Form a Business in Texas (Part 1)), you should determine the most suitable type of business entity for your business needs. Factors like taxes and liability will likely play a big role in the type of entity you choose. The type of entity under which your business operates determines the structure and laws by your business are governed. Choosing the right entity for the business can be very challenging, but here is a general, brief summary of the most common business entities in Texas:

Sole proprietorship:

  • The business owner essentially is the business. So, any actions done by the business are treated as though they were done by the owner.
  • It’s the least complex of the business entities, and the owner has most control in a sole proprietorship.
  • Has the least amount of government interference.
  • Because the business and the owner are treated as a single person, the business’s income is taxed as the owner’s individual income; and
  • the owner has full liability for the business.

Partnership

  • Like a sole proprietorship, except that it’s made up of two or more business owners (“partners”).
  • The owners of the business are liable for the actions of the business (and the other partners).
  • Partners are typically taxed on the income received by the partnership.
  • Partnerships are often based on contracts or agreements between the partners (as to how the partnership will function and how the business will be run).

Limited Liability Company (“LLC”)

  • Entity is separate from its owners (looked at as two separate individuals).
  • The owners of the LLC are called “members.”
  • The default rule for LLC’s is that they are taxed just like a partnership (or in the case of a single-member LLC, like a sole proprietorship) However, the LLC can elect to the taxed as a corporation.
  • The company is liable for third-party liability while its members are shielded.
  • LLC’s are seen as more informal than corporations.

Corporation (Corp. or Inc.)

  • Entity is separate from its owners (looked at as two separate individuals).
  • The owners of the corporation are called “shareholders.”
  • A corporation’s income is taxed, and shareholders (and directors and officers) are also separately taxed on their income. Similar to an LLC, this type of “double taxation” can be avoided if it files for a Subchapter S election.
  • The company is liable for third-party liability while its members are shielded by the “corporate veil.”
  • Corporations are quite complex and require a lot of formal procedures to remain protected.

These may not be the only factors involved in your decisions. So, it’s vastly important you conduct a thorough analysis of your business’s needs. It’s important to note that we recommend you consult with an attorney to get a specific, in-depth analysis of the type of business entity that may be most suitable for your business, but hopefully, this post has introduced you to some of the business entities and has given you some background information. We recommend that you use this post as a simple guide before you speak with an attorney about the details and factors related to your business.

Stay tuned for the next installment in our series on How to Form a Business in Texas!

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How To Form a Business in Texas (Part 1)

September 1, 2010 by Kabani

Businesses; there are a growing number of businesses in the economy. Whether yours is an online business or a brick-and-mortar shop, new businesses are on the rise. Of course, businesses do not just start on their own. A potential business owner must go through many steps to start his/her new venture. The first step is creating one’s business plan. But how do you create one? Well, in this blog post, we’ll seek to help point the reader in a general direction.

Obviously, a starting place is deciding the kind of product or service you would like to offer. Once you have decided what type of product or service you would like to offer, there is the requisite research that an entrepreneur needs to conduct. Some of the issues one may want to research are similar products/services (your competition) existing in the marketplace, the demand for your good/service, and any restrictions that may be out there (e.g. you wouldn’t want to offer an illegal product/service). Once the basic market research is done, then you, as the entrepreneur, should plan out the goals for the business. Without goals, the business owner will not be able to determine to what end the business is striving.

The idea around the business then becomes “how will I achieve my goals?” This necessitates one to compile a “to do” list that focuses on what one needs “to do” to meet his/her goals. For example, a common place to start is to create a budget. Start with an initial, short-term budget, and later, come up with the long term budgeting strategy. Having a good budget planned out adds a lot of structure to your business and helps you to set up goals for your business.

Aside from the budget, planning for your business also includes arranging for other internal aspects of the business that will help you achieve the business goals (e.g. how many employees are needed, how big will the business become, finding a location and renting space, create a marketing plan, applying for a loan or other financing, and finding the basic resources you need for your actual product/service). Once you have done this, you have completed the first step to starting your very own business. You have a plan, the next stage is to begin working on it.

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Welcome to the Blog for Kabani & Kabani, PLLC!

August 30, 2010 by admin

08/30/2010

Hello! Welcome to our blog page. Here, at Kabani & Kabani, PLLC, we would like to provide you with a valuable tool that you can use to keep you up-to-date regarding our Firm and various areas of law and find information on common legal topics. It is our sincere hope that this resource will be informative and educational for you. While we strive to make sure that the information on our website is accurate, these blog posts serve as educational reading only and should NOT be regarded in any way whatsoever as legal advice. Any scenarios provided are general and not suited to all situations. If you are in need of legal advice, please feel free to call our office and schedule a courtesy 30-minute initial interview. To learn more about our Firm, services, and attorneys, please click on the appropriate tabs above. Once again, we would like to welcome you to our website. We look forward to your feedback and comments.

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