Fall 2006 Edition

CONTRACT GOTCHAS

By M. Blen Gee, Jr.

BE ON GUARD FOR:

Contract provisions allowing for the award of attorneys fees, especially in contracts governed by the law of another state. In North Carolina, contract provisions allowing for the award of attorneys fees generally are limited to 15% of the outstanding balance owed (including accrued interest). Not so in other states. It is entirely possible to have an award of attorney's fees against you in another state which substantially exceeds the amount of money involved in the lawsuit.

Contract clause requiring a written objection within a specified number of days. The clause may say that you have waived any objections if you do not timely respond. Or, that you have accepted the goods, contract performance , etc. as is. A failure to timely respond can put you in a very difficult negotiating position or even result in an adverse judgment in a lawsuit.

Automatic renewals. Automatic renewals can be great if you are happy with your contractual relationship, costs and service. However, they can be awful if service has been poor and much too expensive and you have missed the deadline for giving a "notice of nonrenewal."

Indemnification provisions. Have you ever seen contract language that looks like this?

GOOD GUYS, LLC agrees to indemnify BAD GUYS INVESTMENT GROUP, INC. (the "BAD GUYS") and the BAD GUYS's directors, officers, and employees from any liability, claim of liability, expense, causes of action, loss, or damage whatsoever for any injury, including death, to any person or property in connection with GOOD GUYS, LLC's or the BAD GUYS's performance under this Agreement. The obligation undertaken above shall expressly include, without limitation, indemnification against injuries, sickness, disease (including occupational disease whenever occurring), or death of GOOD GUYS, LLC's employees in any way connected with or resulting from the sole, joint, or comparative negligence of the BAD GUYS, or of its directors, officers, agents, or employees, whether acting jointly or severally.

Would you understand that you are contractually committed to pay for the negligent acts of the BAD GUYS?! If you cannot get this provision removed or modified, check with your insurance broker - your commercial general liability policy may provide coverage for this "assumed liability." Or, coverage may be available for an additional premium.

A contract that incorporates another form by reference. Suppose the contract says "This Agreement shall be considered an addendum to form B1.3.1 Gobl D. G000k, which is incorporated herein by reference as though set out in full."What have you just agreed to? What have you given up? Unless you or your lawyer has read form B1.3.1 Gobl D. G000k, you do not know!

HELPFUL HINT: Ask early in the negotiating process to see the contract you will be expected to sign. Bank loan documents, construction contracts, real estate leases, equipment leases, and software licenses are some examples.

PATRIOT ACT AMENDMENT EXTENDS WIRETAPPING AUTHORITY TO ANTITRUST CRIMINAL INVESTIGATIONS

By M. Blen Gee, Jr.

A March 2006 amendment to the Patriot Act has extended wiretapping authority to antitrust criminal investigations, raising the possibility that corporate board rooms and trade association meetings are now subject to wiretaps and electronic eavesdropping to the same extent as mobsters and drug lords have been in the past.

Prior to the passage of S. 443, enacted as part of the USA Patriot Improvement and Reauthorization Act of 2005 (signed into law on March 9, 2006), antitrust investigators were typically allowed to conduct wiretaps or electronic eavesdropping only when one party in the conversation consented to being recorded. Under the amendment, a wiretap, electronic eavesdropping and similar surveillance can be conducted without the consent of any of the persons involved.

The procedures for obtaining a warrant will be identical to investigations of racketeering, narcotics and some 150 other criminal offenses. An application must he made under oath to a U.S. District Court setting out specific details of the need for the electronic surveillance, the nature of the suspected offense, and the identity of the persons to be monitored. The court 's order allowing electronic surveillance is valid for 30 days but can be extended.

Business Tax Law - TAX INCREASE PREVENTION AND RECONCILIATION

By F. Stephen Glass

The new Tax Increase Prevention and Reconciliation Act (TIPRA) includes both favorable and unfavorable provisions. Some of the important changes include:

Preferential Tax Rates on Capital Gains and Dividends Extended through 2010. For individual taxpayers, TIPRA extends through 2010 the preferential federal income tax rate structure for long-term capital gains and qualified dividends. The maximum rate on most long-term gains and dividends will remain at the current 15%.

Favorable "Section 179" Deductions Extended Through 2009. The so-called Section 179 rules allow many small businesses to deduct the full cost of most equipment and software additions (whether new or used) in the first year they are put to use . For tax years beginning in 2006, the maximum Section 179 write-off is a generous $108,000. However, the: maximum Section 179 deduction was scheduled to decrease to only $25,000 for tax years beginning in 2008 and beyond. Thankfully, TIPRA extends the current taxpayer-friendly Section 179 rules by two years, through tax years beginning in 2009.

REDUCE THE RISK OF DISCRIMINATION AND HARASSMENT CLAIMS

By F. Stephen Glass

Discrimination and harassment claims may go almost completely unnoticed by top management until an administrative discrimination or harassment charge is received from the EEOC or the employee's attorney. Proactive employers can reduce the risk of this happening. The following are some steps an employer should take to reduce the risk of discrimination and harassment claims:

Keep up-to-date your policies against harassment and discrimination. Review with your attorney at least annually your company's policies to assure that your policies ale current and adequate. Be aware that it might be prudent for your policies to be in a second language.

Don't post anti-harassment and discrimination policies. A prudent employer posts state and federal rules regarding harassment and discrimination in the places most likely to be seen by employees, namely break rooms, kitchens, employee restrooms. The company's anti-harassment and discrimination policy should also be distributed on a regular basis along with paychecks. Describe clearly the procedure that employees should follow if they believe themselves to have been targeted, and reiterate that your company does not tolerate retaliation against a person who complains about harassment or discrimination.

Create a written record of how you informed employees about your antiharassment and discrimination policies. An employer should consider requiring all employees annually to sign off on having received and read harassment and discrimination polices.

Train supervisors to identify harassment or a harassment complaint. Make sure that supervisors know what constitutes harassment and discrimination, and how to respond when they receive a complaint. Supervisors should be trained to ask enough questions to elicit factual information about the substance of the complaint, or if they do not feel comfortable doing so. to immediately refer the complaining party to someone who is competent to handle the situation.

Make the complaint process easy to use. A prudent complaint procedure offers at least two or preferably more routes through which an employee may register a complaint. Once an employer is on notice or reasonably should be on notice for potential harassment or discrimination in the workplace, the employer has a legal obligation to conduct a prompt, reasonable investigation and to fix the problem. The process can be very technical for the employer, but must be made simple for the employee.

Make the complaint and investigation process non-threatening. Neither the employee making a complaint nor the accused should be threatened, intimidated, coerced or punished in any way unless the employer is confident that such action can be justified during subsequent litigation.

Don't set the complaining employee up for termination. Setting the complaining employee for termination can occur when the employer starts documenting the complaining employee, but not anyone else; giving performance reviews only to the complaining employee; 01 targeting the complaining employee for infractions of company policy that nobody else is counseled about. If you have never put anyone else in the company on target for progressive discipline, now is not the time to start discipline for only the complaining employee.

Move the complaining employee, not the perpetrator. Moving a complaining party could be treated as retaliation if the move or change in circumstance causes a significant, negative change to the employee's working conditions.

 

About our authors:

M. Blen Gee, Jr. is an honors graduate of the University of North Carolina School of Law. His areas of concentration include business and corporate law, including sales of businesses; business litigation, including arbitration and mediation; franchise law; automobile dealer law; and insurance company insolvency. Mr. Gee has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell.

 

F. Stephen Glass is the author of numerous publications on business and business entities as well as estate planning. He is a frequent presenter for the National Business Institute. His practice is concentrated in the areas of business and corporate law, business succession planning and estate planning. He serves on the Cary board of Capital Bank. Mr. Glass has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell. He serves on the American Bar Association Business Law Committee on Corporate Governance.

P. Devan Culbreth is an associate with JHVGG. She is a graduate of Wake Forest University, cum laude , and of its law school. She also has a Masters Degree (Psychology) from UNC Wilmington. Her practice concentrates on elder law, estate planning, business and corporate law, and automobile dealer legal transactions.

 

DISCLAIMER: Johnson, Hearn, Vinegar, Gee & Glass, PLLC, provides this newsletter for general information only. The materials contained herein may not reflect the most current legal developments. Such material does not constitute legal advice, and no person should act or refrain from acting on the basis of any information contained In this newsletter without seeking appropriate legal or other professional advice on their particular circumstances. Johnson, Hearn, Vinegar, Gee & Glass, PLLC and all contributing authors expressly disclaim all liability to any person with respect to the contents of this newsletter, and with respect to any act or failure to act made in reliance on any material contained herein. Distribution of this newsletter does not create or constitute an attorney-client relationship between the firm and any reader or user of such information.