Category: Contractor's Corner
Clear ResultsContractor's Corner
The Crucial Importance of Shareholder Agreements
When expanding your current FedEx business or embarking on a new business venture, individuals often join together to share resources instead of going at it alone. When forming a corporation that involves more than one shareholder or adding a shareholder to a single-shareholder entity, it is crucial to establish a shareholder agreement between all parties involved. Below are some reasons why creating a shareholder agreement is so important and why it’s especially essential when adding shareholders. Clarifying Roles and Responsibilities A shareholder agreement clarifies each shareholder’s roles, responsibilities, and expectations. It outlines the rights and obligations of each party, including how decisions will be made and how the company will be managed. Shareholder agreements also safeguard minority shareholders from being outvoted by the majority. Dispute Resolution Shareholder agreements make it easier to resolve potential disputes between shareholders. The agreement can establish a dispute resolution process, such as mediation or arbitration. The process will help ensure that any disagreements do not escalate into legal battles that could jeopardize the business. Protection for Minority Shareholders Minority shareholders need to protect themselves from being disadvantaged compared to the majority shareholders. Shareholder agreements can assist with this by establishing clear rules and outlining the rights of minority stakeholders. For example, it might ensure that no major decisions or changes can be made without the approval of all shareholders. Preparing for the Future Shareholder agreements can help prepare for the future. It can establish processes for adding new shareholders and outline the terms and conditions of any future sale of the company. Being prepared for future possibilities can provide a sense of control and stability that benefits everyone involved with the company. Compliance with State Laws In many states, shareholder agreements are legally required. But even in cases where it’s not required by law, it’s vital to have one in place. In some cases, not having a shareholder agreement could lead to significant disputes that could seriously impact the business. Conclusion: Shareholder agreements are intended to establish clear expectations, ensure fair treatment of minority shareholders, provide a roadmap for dispute resolution, and prepare for future possibilities. It is essential for business owners to create a well-thought-out shareholder agreement that is comprehensive, detailed, and legally binding. By doing so, business owners can protect their investments, minimize the risk of disputes, and help guarantee the company’s long-term health.
July 12, 2023
Contractor's Corner
Legalized Marijuana and DOT Regulations: What Contractors Need to Know
The legal status of marijuana in the United States has been changing rapidly over the last decade. This quick evolution has led to various questions and concerns for business owners, especially those who operate fleets of commercial trucks and employ truck drivers. Nowadays, marijuana is legalized for medical or recreational use in many states across the United States, which raises concerns about how this will impact the transportation industry. The legalization of marijuana for medical and recreational use in many states creates a bit of uncertainty for those that operate fleets of commercial trucks and employ truck drivers. The Department of Transportation (DOT) requires that drivers undergo regular drug testing, and marijuana use can cause a failed test, disqualification of a commercial driver’s license (CDL), and possible termination. Employers need to know the legal ramifications of marijuana use for commercial motor vehicle employees. It’s a good idea to review your company’s drug and alcohol policy to ensure that your policy is compliant with the DOT’s drug and alcohol testing regulations. If an employee tests positive for drug use, including marijuana, while on duty, the law stipulates that the employer must immediately remove the driver from duty. In this case, the DOT requires drivers to complete a Return-to-Duty process, including treatment plans and drug testing. After an employee meets all requirements, the DOT may allow the employee to return to work. When an employer is well informed regarding what is required under the law, they can act quickly to comply, which is crucial for safe operation and complying with timing requirements under the DOT, especially after an on-duty accident. It’s important to recognize and outline restrictions over the use of marijuana so that employees know their obligations. Employees cannot use marijuana on the job and must understand that using marijuana or CBD products is strictly prohibited under federal law for truck drivers. It’s critical to educate employees regarding the importance of abstaining from marijuana use while on duty and the potential consequences of failing a drug test. Often, employees operate under false assumptions about marijuana usage based on headlines around legalization and employee protections. While several states protect employees’ off-duty marijuana usage, they all have exemptions for federally mandated drug testing and sometimes for safety-sensitive positions. Although marijuana is legal in many states, it remains illegal under federal law, which could impact a driver’s ability to cross state lines with marijuana products. Ultimately, drug testing falls under the jurisdiction of the DOT and supersedes state laws on marijuana legalization. Therefore, business owners must follow DOT drug and alcohol testing regulations to avoid non-compliance issues and maintain a safe workplace. Conclusion: Contractors should prioritize compliance with DOT drug and alcohol testing regulations to maintain a safe workplace and avoid non-compliance issues. By ensuring your employees understand the importance of abstaining from marijuana use and educating them on the Return-to-Duty process, you can streamline your policies and minimize your legal exposure. Working with legal counsel and keeping abreast of the regulations will go a long way toward creating a safer, more informed workplace and preventing attrition based on misinformation.
July 6, 2023
Contractor's Corner
Personal Guarantees of Seller Financing in FedEx Deals
Seller financing, where the company selling the business agrees to provide the funding to the buyer for a percentage of the deal, is commonplace in the buying and selling of FedEx businesses. Seller financing can help the parties where a cash buyer needs more capital or where obtaining bank financing is challenging or is slowing down the deal. However, given the risks associated with lending to the buyer, sellers will often ask for a personal guarantee from the buyer. Typically, the promissory note is between the buying and selling entities. Meaning the buying entity is liable to the selling entity for the amount of the note, but the individual shareholder or shareholders of the buying entity are not personally responsible for the debt. This leaves the seller with little recourse should a buying entity fail to pay and become inactive. To better insulate itself, a seller may ask the shareholders of the buying entity to personally guarantee the funds, allowing the seller access to the shareholders’ personal assets should the buying entity fail to repay the loan. While seller financing can be an excellent tool for parties, before engaging in the process, buyers should take stock of their personal assets and the implications of a personal guaranty on those assests, and sellers should consider how they plan to secure the debt in case the buying entity is unsuccessful and ceases to exist.
March 30, 2023
Contractor's Corner
The Utility of Non-Solicitation Agreements for FedEx Contractors
A restrictive covenant is an arrangement with employees that they will not engage in particular behavior after leaving your company. Non-competes[1], non-solicitations, and confidentiality provisions are all examples of restrictive covenants. Since these covenants restrict an employee's free movement in the marketplace, strict rules govern their enforceability. While determining the enforceability of these provisions is nuanced and can vary under state, federal, and local laws, a general rule of thumb is that the covenant should be no more restrictive than necessary to protect the interest of the employer's business interests. Given concerns around enforceability and whether an employee in a competitive labor market will agree to sign such restrictions, many contractors choose to refrain from utilizing restrictive covenants for employees. However, this is often a mistake and can lead to a fundamental member of a contractor's team leaving their employment with the company and taking several employees with them. A lack of understanding of the difference between a non-compete clause and a non-solicitation often results in contractors' failure to implement these safeguards. Non-compete clauses are more restrictive than non-solicitation clauses and generally prohibit employees from working with competing companies within a specific geographic area. In contrast, a non-solicitation provision provides that an employee who leaves their employment with their employer cannot encourage other employees to go with them or solicit the employees for a certain period after the employee leaves. Meaning a well-drafted non-solicitation provision does not restrict an employee from working for a competitor but prevents the employee from orchestrating a mass exodus or taking the employer's top talent. Given that non-solicitation provisions are far more limited in scope than non-competes, they are generally easier to enforce, and employers face fewer challenges when presenting them to employees. For contractors, non-solicitation agreements are vital to preventing an employee, especially a manager, from leaving to work for another contractor in the terminal and taking several of a contractor's best employees with them. Because of the challenges with finding and retaining qualified drivers, it is common for other contractors to hire another contractor's employee and encourage them to bring others along. It is also common for a manager to leave to work for another contractor or take on their own routes and attempt to take their critical drivers with them. Ultimately, a well-drafted non-solicitation agreement can be a helpful tool for contractors. However, the key to ensuring maximum benefit is to ensure that the non-solicitation provision is in a contract, not in your handbook, and drafted in an enforceable way. For more information, please feel free to contact me at sarah.sawyer@offitkurman.com. [1] The Federal Trade Commission has proposed a rule to ban all non-competes nationwide. The rule is pending, and employers should monitor the progress. [Nationwide Non-Compete Ban Makes Important Step Forward]
January 23, 2023
Contractor's Corner
Legal Considerations When Running a FedEx Business Webinar
Sarah Sawyer hosted a webinar to discuss the Legal Considerations When Running a FedEx Business. A few aspects that were covered during the webinar are: Legal issues related to pay structures and incentives Wage deductions, the do and don’ts Business formation and structure concerns Asset protection considerations The webinar can be found here. Passcode: G17$0WjE
September 26, 2022
Contractor's Corner
Potential Changes to Federal Overtime Pay Laws Loom
Currently, under the Fair Labor Standards Act (FLSA) Motor Carrier Exemption, FedEx contractors do not have to pay drivers overtime when driving trucks over 10,000 pounds. That could change. The Guaranteeing Overtime for Truckers Act, introduced in the U.S. House of Representatives on April 14, 2022, and in the Senate on September 12, 2022, would repeal the FLSA Motor Carrier Exemption. The legislation will significantly change how contractors schedule employees and manage their fleet if passed. The U.S. Department of Transportation recently recommended eliminating the exemption to improve the supply chain, and the bipartisan bill has a coalition of support from the Owner-Operator Independent Drivers Association, the International Brotherhood of Teamsters, the Institute for Safer Trucking, the Truck Safety Coalition, Citizens for Reliable and Safe Highways and Parents Against Tired Truckers. The introduction by Senator Markey and Padilla of the Senate version of the Guaranteeing Overtime for Truckers Act gives this bill new life and continues to move the efforts of these groups forward. While these developments in no way guarantee the elimination of the Motor Carrier Exemption, it is a significant development that contractors need to be aware of and prepared to address. We will continue to provide you with updates as we receive them.
September 20, 2022
Contractor's Corner
Wage Deductions: When Can You Make Them?
While wage deductions can effectively recoup costs and losses from an employee, deductions from wages are heavily regulated, and contractors should proceed with caution when making these deductions. Under the Fair Labor Standards Act, a federal law governing most contractors nationwide, wage deductions for items considered primarily for the benefit or convenience of the employer may not reduce an employee’s pay rate below minimum wage. For example, if an employer has an agreement with an employee to deduct from the employee’s wages costs to cover any damage to an employer’s property or lost equipment, the employer’s deductions cannot bring the employee’s pay below minimum wage. Alternatively, wage deductions for items considered for the employee’s benefit and do not benefit the employer, such as a personal loan to the employee, the wage deduction can reduce the employee’s effective rate of pay below minimum wage. The same general rule applies to wage deductions and overtime compensation, not bringing the employee’s wage below time and a half. In addition to federal laws regulating wage deductions, many states have stricter rules governing what, when, and how employers may make deductions from employees’ wages. For instance, in New Jersey, employers may not require an employee to pay for their uniforms or deduct the cost of uniforms from an employee’s paycheck, and in California, employers are generally prohibited from making deductions from an employee’s wages for vehicle damage caused by an employee’s negligence. As a general rule of thumb, contractors should always get express permission from employees to make any deductions from their wages and pay close attention to their state’s laws on deductions to ensure they are not running afoul of these regulations. To merely include a deduction policy in the employee handbook without seeking permission and vetting what deductions are allowable in your state and the laws governing those deductions is wholly insufficient. Out of all of the many areas of employment law that employers must comply with, wage and hour laws have some of the steepest consequences for noncompliance. Contractors who fail to comply with wage and hour laws, such as wage deduction regulations, may have to pay double to treble damages, the employee’s attorney’s fees, and individual penalties for noncompliance. Accordingly, contractors must pay special attention to these laws before implementing any policies or procedures related to payroll deductions.
September 8, 2022
Contractor's Corner
Workplace Compliance: Avoiding Costly Mistakes
When you get down to brass tax, the fundamentals of running a successful FedEx operation are having operational trucks and employees to run the routes. Like most other businesses, employees are the organization’s lifeblood but can also be the most troublesome from a compliance perspective. This is especially true for FedEx contractors who, in managing their workforce, must work to remain in compliance with state, federal, and local laws and with FedEx requirements. One of the main struggles with maintaining workplace compliance is that there is a federal baseline related to wage and hour, discrimination, and leave laws, but states and local governments are free to require employers to provide additional benefits beyond the federal system offers. This means that states and local governments all over the country have different laws that employers must follow regarding employees. Generally speaking, the east coast states, California, and major cities have the most favorable laws and protections for employees, and southern and mid-west states have minor employee regulations and benefits. Sometimes, whether a state or local law is applicable is based on the size of the employer, meaning that small businesses, like a small FedEx contractor, would be exempt from compliance, while other state and local laws apply no matter the size of the company. Often, through speaking with other contractors and because they are on good terms with FedEx, contractors wrongly assume that they are following all relevant employment laws. However, given the patchwork of federal, state, and local laws, it is easy for contractors to overlook what they may see as nominal wage and hour violations or fail to provide employees with required federal, state, and local notices or protections. These oversights can be costly, both from a retention and an economic standpoint. For instance, many wage and hour laws, including the Fair Labor Standards Act, have expensive penalties for non-compliance, including double or treble damages and paying the employee’s attorney’s fees. Ultimately, different states have different employment laws, and compliance with these laws is an integral part of running a FedEx business. Contractors should ensure their policies and procedures meet all state, federal, and local legal requirements and that their practices align with what is required of them under their FedEx contract.
August 1, 2022
Contractor's Corner
FedEx Purchase Agreements-More Than Just Legal Mumbo-jumbo
Often, when I first speak with prospective FedEx contractors, they are chomping at the bit to get started. They have learned about the industry and are excited about the opportunity to own a part of the booming logistics industry. This excitement often causes them to gloss over the purchase agreement in favor of moving forward quickly, viewing the purchase agreement as merely an obstacle to moving forward with the deal. However, failure to give the purchase agreement the attention it is due can yield complicated and expensive outcomes. The purchase agreement is more than just legal jargon and is the pivotal document dictating any verbal agreement the parties have reached and governs when the parties can terminate the deal, when the buyer gets their deposit back, and what the obligations of the seller between the execution of the purchase agreement and closing and after the sale. Outside the FedEx industry, businesses will often sign the purchase agreement and close on the same day. However, in the FedEx industry, because the sale depends on FedEx approval, the parties sign the purchase agreement and close weeks, if not months, later. This process, which is colloquially referred to as a “sign and delayed close,” leaves a lot of room for issues to arise between the time the parties sign the purchase agreement and closing, including, among other things: Seller failing to keep up the business in the ordinary course, leading to the buyer not getting what they were expecting on the closing date; A buyer failing to obtain or maintain financing; Physical assets falling into disrepair or becoming nonoperational; Employees leaving and the seller failing to hire new ones; and Seller improperly disposing of assets. Additionally, given the need to move forward quickly to start the process of getting FedEx approval, buyers are typically performing due diligence between signing the purchase agreement and closing, which can lead to buyers discovering unsavory details about the seller’s business that make them want to terminate the contract. While these are all real risks of “sign and delayed close” deals, they are palatable risks as long as the parties have a firm understanding of the risk they are each taking on, and the seller’s obligations between signing and close and the purchase agreement contains contingencies and reasonable outs for the buyer. Without proper protections in the purchase agreement, a buyer may have no choice but to move forward with an unexpectedly unsavory deal or risk losing their deposit. The moral of the story is: Don’t gloss over the purchase agreement! It governs the entire transaction, including what the buyer is entitled to between signing and closing and when the parties will go their separate ways.
July 10, 2022
