For ten Dollars ($10.00) and other good and valuable consideration…

Clients for whom I am drafting or reviewing contracts frequently ask about the phrase: “NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows.”

Most people know that even the most innocent looking terms in a contract can come back to bite them if they don’t fully understand the legal implications of such terms before signing, and this is why sensible parties have an experienced business attorney review every contract, whether it is a business contract or personal contract, and whether it is for goods or for services.

The good news is that the “NOW, THEREFORE, for and in consideration” clause is not one of these landmines.  To understand why it is there, you have to know a little legal theory and a little legal history.  To be valid and binding, a contract generally requires three things: offer by one party, acceptance of the offer by another party, and something the law calls “consideration,” essentially something given in exchange for the promise and which seals the deal.  Sometimes, there are reasons that even a contract that has these elements may not be enforced, but that is a different discussion.

“Consideration” can be either “good” or “valuable” (hence the language “other good and valuable considerationto cover all bases). A “good” consideration is founded on natural duty and affection or on a strong moral obligation. A “valuable” consideration is usually founded on money or something convertible into money… except marriage, which, interestingly, is a “valuable” consideration rather than a “good” consideration, legally speaking.  Again, a topic for another day!

Coming back to “value,” if you promise to do something that you don’t have to do and don’t receive anything in exchange, the promise is like a gratuitous promise to make a gift, and it is not (under most circumstances) binding.  For example, if I say I promise to come and see you today, and then I don’t do so, you can’t sue me for breach of contract.  However, if you say to me, “here is ten dollars in consideration of your promise to come and see me today,” and I accept, you have essentially paid me something of value for my promise, and if I break my promise, you have a right to recover your damages from me (which may be $10, or may be a lot more if you were reasonably relying on me to come and see you for some important reason and you were damaged as a result of my not showing up).

There has, historically, been some debate is to whether the exchange of promises alone can be enforced.  In Georgia, the law will often enforce promises that have induced people to act or refrain from acting in reliance on that promise if that action, inaction, or reliance was reasonable.  Because this is obviously a highly subjective determination, the safest way to make your contract enforceable is to throw in a little “real” value as consideration; hence, “in consideration of ten dollars and other valuable consideration….”  This is considered the “form” of the exchange of valuable consideration, and is supposed to make you realize that you are entering into a binding contract, not just a gratuitous promise, so you should be careful that you understand and agree to the terms.   Incidentally, it could be ten dollars, it could be one dollar… one famous judge has said that it can be something as small as a “peppercorn”… which is why this is often called “peppercorn consideration.”

The bottom line: Always ask a contact attorney or business attorney to draft or review your contracts.  Even apparently simple elements of a contract can be important in understanding the promises you are making or knowing that you can enforce the promises others make to you.


The Misclassification Initiative (part 2)

As I noted earlier this week, The Misclassification Initiative is, in fact, not an action movie, but a collaborative effort among federal agencies and state governments seeking to work closely together to address the problem of employee misclassification, including, among others, employees who have been misclassified as independent contractors or non-exempt employees misclassified as exempt employees.  In simple terms, federal agencies and certain state agencies have ramped up their collaboration and and information-sharing practices to encourage employers to comply with employment laws (including IRS rules, Fair Labors Standards Act, and others) and to punish them when they don’t.

Misclassifying an employee can be can be a costly decision for all parties involved.  Individuals classified as independent contractors by their employer do not have access to important benefits and other protections afforded employees under the law, such as family and medical leave, overtime for work in excess of 40 hours per week, minimum wage, and unemployment insurance.  Some of these protections–particularly the so-called “wage and hour” provisions–are also denied to employees when they are classified as exempt rather than non-exempt.   Meanwhile, employers who may believe they can trim as much as 30% from their payroll by hiring an independent contractor and avoiding payroll taxes or by classifying a non-exempt employee as exempt to avoid paying overtime are invariably faced with fines and forced to pay back-wages when the US Department of Labor discovers their attempt to skirt the law.

Fayetteville-based This Is It! BBQ & Seafood discovered this the hard way when DOL required the restaurant chain to pay $104,089 in back wages for 230 restaurant workers misclassified as exempt at five Georgia restaurants and fined the company an additional amount for child labor violations.  During its investigation, DOL discovered that workers younger than age 16 were allowed to work later than 9 p.m. between June 1 and Labor Day and later than 7 p.m. at other times of the year (in violation of the FLSA’s restrictions for young workers) and that the employer failed to maintain an accurate record of tips earned and hours worked (in violation of the Act’s record-keeping provisions).  Finally, DOL discovered that the restaurant company practice of deducting employee uniform expenses and lunch breaks that the employees did not take resulted in tipped employees making less than minimum wage.  (Read the DOL Press Release here).

There is an argument that misclassification of employees chills competition and gives an unfair advantage to companies that are willing to flout the law at the expense of their workers when such a company hires an independent contractor or classifies an employee as exempt rather than paying a non-exempt employee the legal wage.  Moreover, when independent contractors fail to pay as self-employment taxes those taxes that, for an employee, would be split between employee and employer and paid by the employer directly to the government, Social Security and Medicare funds as well as state unemployment insurance and workers compensation funds lose out, resulting in higher costs for everyone else.

Every state and federal law has different requirements for whether an individual qualifies as an “employee.”  If you are insecure about whether an independent contractor truly is an independent contractor or an employee you have classified as exempt is truly exempt, an employment lawyer at Briskin, Cross & Sanford would be happy to speak with you.

The Misclassification Initiative (part 1)

The title of this article may sound like a new Tom Cruise movie, perhaps with a borrowed storyline or two.  But it’s not.

The “Misclassification Initiative” is actually a federal project created by Vice President Biden’s Middle Class Task Force designed to find and correct employers’ misclassification of employees as independent contractors, to reduce fraudulent filings, to help reduce the employment tax portion of the tax gap (i.e., the amount of tax liability that is not paid on time), and to improve compliance with federal labor laws.

Multiple government agencies are working together to ensure that the Misclassification Initiative is implemented. In September 2011, Secretary of Labor Hilda L. Solis signed a Memorandum of Understanding between the U.S. Department of Labor (DOL) and the IRS, paving the way for the agencies to share information and coordinate law enforcement activities.  (You can read the DOL News Release here).

The Misclassification Initiative has wasted no time searching for and fining violations of federal wage and hour laws.  Between September 2011 and January 2013, the U. S. Department of Labor’s Wage and Hour Division collected $9.5 million in back wages for minimum wage and overtime violations under the Fair Labor Standards Act, and this activity continues.  These multimillion dollar violations primarily resulted from employers misclassifying employees as independent contractors. 

The initiative is spreading throughout the states as well; in fact, by January 17, 2013, fourteen (14) states had signed separate Memorandums of Understanding with DOL’s Wage and Hour Division.

While Georgia does not have a separate Memorandum of Understanding with the DOL, this does not mean that the DOL or the IRS is inactive in Georgia.  In March, 2013, for example, a Marietta, GA company was forced to pay more than $39,000 in back wages and penalties following a DOL investigation that found violations of the Family and Medical Leave Act and the Fair Labor Standards Act’s minimum wage, overtime and record-keeping provisions. The department also assessed $7,741 in civil money penalties for the company’s repeat violations of the FLSA.  (You can read the DOL News Release here).

Although Georgia has not entered a Memorandum of Understanding under the Misclassification Initiative with any specific agency, Georgia employers should be aware of this initiative and the fact that both federal and state agencies (i.e. the Georgia Department of Labor and the Georgia Department of Revenue) are paying closer attention than ever before to individuals classified as independent contractors.  Additionally, employers should know that Federal wage and hour laws, such as the Fair Labor Standards Act, do not take intent into consideration when determining liability: in other words, an innocent misclassification of an individual as an independent contractor instead of an employee may have equally expensive results for an employer.

The bottom line

This is a good opportunity for any employer to review the status of all individuals on the company payroll to ensure that those among its workforce whom it classifies as independent contractors truly are independent contractors according to both federal and state definitions.  If you have any doubt as to such classification, an employment lawyer at Briskin, Cross and Sanford would be happy to assist you.

Facebook Friend Seeks Funds: Title II of the JOBS Act (part 1)

Today is September 23, 2013, the day that the SEC rules flowing from Title II of the JOBS Act regarding general solicitation become effective.

The Old Rules

Until today, issuers of securities who claimed an exemption from registration under Rule 506 of Regulation D were prohibited from generally soliciting or advertising sales of their securities.  Since a Rule 506 offering is a “private” placement, it makes sense that general advertising or solicitation would negate the private nature of the offering and would therefore not be permitted.  However, in order to remove a potential barrier to investment, Title II of the Jobs Act has since amended Section 4 of the Securities Act of 1933 to state that offers and sales exempt under Rule 506 shall not be deemed public offerings as a result of general advertising or general solicitation. (You can read the Jumpstart Our Business Startups Act, or JOBS Act, in its original form here.)

In practice, this means that, prior to today, an issuer of securities under a Rule 506 exemption could only solicit accredited investors with whom it had a preexisting relationship.  Alternatively, the issuer could engage a broker-dealer, thereby opening the pool to those accredited investors in the broker’s circle.  So take, for example, equity crowdfunding websites (here, we are talking about sites that offer a real investment stake in a business in exchange for a capital contribution rather than companies that might give “investors” a free t-shirt or similar reward in exchange for a smaller contribution).  Up until today, these sites have only permitted an issuer’s detailed business plan or “pitch” to sell securities to be seen by accredited investors, who must must first register and log in to the website to gain this level of access.  This way, the website could not be accused of making a “general solicitation,” as it surely would be if it advertised the sale of securities on the internet to the general public.  Here are examples of these websites’ policies:; and by the time you click these links general solicitation will be permitted, and these sites may have changed their policy, so here are some screen shots from pre-September 23, 2013, to give you an idea what kind of advertising restrictions were in place (click on each one for a larger view):




The New Rules

The newly-effective SEC final rules now permit an issuer to engage in general solicitation or advertising in offering securities pursuant to Rule 506, provided that (i) the issuer is not abad actor” who has had previous ‘troubles’ with securities laws, (ii) all purchasers of the security are accredited investors, and (iii) the issuer takes reasonable steps to verify that such purchasers are accredited investors.  (You can read a summary of the rule here, and the full rule here).  This means that Pat’s Pizza, a hypothetical small business with a fledgling 3 stores looking to grow can let the world know on its Facebook page, “Pat’s is growing and looking for investors!!”  The catch, however, is that Pat’s still can only accept investments from accredited investors.  Moreover, Pat’s must now take additional steps to verify that an investor is in fact accredited, whereas formerly accredited investors were self-identified.

The means of verifying accredited investor status was one of the main tasks for the SEC in issuing rules pursuant to Title II of the Jobs Act.  The newly-effective rules are codified in Rule 506(c).  There is no mandatory or exclusive method of verifying accredited investor status, but the issuer is required to consider the facts and circumstances of each purchaser.  Although there is no exclusive list of verification methods, the SEC has identified a couple of ways an issuer may comply; for example, by reviewing copies of the investor’s tax returns and having the investor verify his/her income in the coming year, or by receiving a written confirmation from a registered broker-dealer, attorney, or CPA stating that such person has taken reasonable steps to verify the purchaser’s accredited status.

As a note, if an issuer wishes to solicit or advertise only to accredited investors and chooses not to generally advertise, the issuer is not then required to verify accredited investor status, and accredited investors can be self-identifying, the rules essentially operating just as they did prior to Title II.

To add just one more layer, on the same date the SEC issued final rules regarding general solicitation, it issued proposed rules that would require the issuer to disclose information about itself prior to general solicitation (currently, issuers claiming exemption under Rule 506 of Regulation D must file a fairly simple form with the SEC, called Form D, within 15 calendar days after the first sale of securities in the offering). In addition, the proposed rules would require the filing of a closing amendment to Form D after the termination of a Rule 506 offering, would require general solicitation materials to include certain legends and other disclosures, and would require submission of general solicitation materials to the SEC.  Many people have submitted comments to the SEC requesting that no new rules be enacted to make the process overly cumbersome. How this next round will play out remains to be seen.

In practice, even though issuers relying on a 506 exemption can now advertise (subject to the restrictions outlined above), even to include social networking sites, such promotion must still lead back to a platform where the issuer can verify accredited investors prior to sale.  Arguably, then, an issuer should still advertise where it is likely to find accredited investors, because ultimately it cannot sell to non-accredited investors, at least for now.  Title III of the Jobs Act does permit crowdfunding from non-accredited investors, however, unlike Title II, the new SEC rules have not yet been enacted (see PayPal and crowdfunding: fools rush in… but the rest of us are still waiting).  More on crowdfunding in a forthcoming post.

This is, of course, a complex area of law, and the above summary does no more than introduce the general concepts and developments involved in a small part of it.  If you are contemplating any sort of private placement, speak to a securities lawyer at Briskin Cross & Sanford before you do anything… and certainly before you post your offering on Facebook!

Labor Department announces new overtime rule for home-health workers

The Wall Street Journal reports this morning that, as of Jan. 1, 2015, home-health workers (sometimes called personal care aides or certified nursing assistants) will no longer be exempt from the minimum-wage and overtime provisions of the Fair Labor Standards Act of 1938.  Labor Department Adds Protections for Home-Health-Care Workers –

In 1974, Congress extended FLSA protections to many domestic workers; however, aides providing “companionship services” for the elderly, sick, or disabled were, like teenage babysitters, specifically exempted from the protections provided by the law until now.  Even though such workers help to feed, dress, bathe, and provide essential care and services for their clients, often enabling those receiving such care to remain in their own homes rather than move into an institutional setting, because the workers provide those services in private homes and not, for example, in a hospital or nursing home, regulations before the current did change did not allow these workers to qualify for overtime pay.  In fact, in 2002, When Evelyn Coke sued her employer for overtime wages after working long hours, round the clock, and argued that the law was not intended to discriminate against her profession in this manner, the United States Supreme Court, on June 11, 2007, disagreed and said that, in fact, this was exactly what the law provided… although adding that the Department of Labor (DOL) could revisit the matter to bring home-care workers under the protections of the FLSA if it wished to do so. (Read the Court’s full opinion at Long Island Home Care v. Evelyn Coke.)

At last, this is what the DOL has done.

While the new ruling means that the two million or so home-health workers, a large number of whom are women and minorities, will now be paid time-and-a-half for time worked over 40 hours per week, the effect of the nominal pay raise will almost certainly have a broader impact on the home-care industry, projected to rise to 3.2 million workers by 2020: home-care companies, many of which run on slender profit margins, may cut hours and hire more aides to avoid paying overtime (and perhaps benefits) to remain competitive; base pay in the industry may fall to minimum wage in order to cut costs so that employees’ net wages do not increase when overtime is factored in; more and more workers may choose to become independent (and therefore unsupervised and difficult to regulate) agents so that they can work longer for less money; or the cost to the elderly, sick, and disabled may simply rise.

In light of the foregoing, there is a real question as to whether this fundamentally fair policy change will end up helping or hurting those it is intended to assist.  The Wall Street Journal quotes both Sen. Tom Harkin (D., Iowa), Chair of the Senate Health, Education, Labor and Pensions Committee and Rep. John Kline (R., Minn.), Chair of the House Education and the Workforce Committee to sum up the divide in Congress over the rule.  It may be, however, that both are right, and the policy shift is at the same time “a long overdue step to provide basic fairness for those who support and care for some of our most vulnerable citizens,” while at the same time it “will raise costs and limit access to in-home care for vulnerable Americans.”

It is a truism that the only constant in business is change itself.  If you are facing regulatory changes and need advice, the employment lawyers at Briskin, Cross & Sanford advise privately held companies, including home healthcare companies, on all aspects of their business.  Whether you are an established company dealing with the impact of new regulations or an entrepreneur starting out on your own, we will be happy to discuss solutions to the legal challenges your business faces.

Allnex moves regional HQ and tech center to Alpharetta

A global supplier of resins and special-purpose coating solutions with $1.5 billion in sales, Alnex, assisted by tenant representative firm Cresa, has made the decision to consolidate several small research laboratories and establish a 50,000 square foot headquarters and technology center in Alpharetta, Georgia.

Alnex is the new name for the coating resins business of Cytec Industries recently purchased by global private equity firm Advent International.

Allnex Invests in its Americas Business with Creation of New Regional Headquarters | Allnex – All About Resins.

PayPal and crowdfunding: fools rush in… but the rest of us are still waiting

Further to our earlier discussion of crowdfunding in Georgia, PayPal recently announced on its blog that it is overhauling its policies with regard to the use of the PayPal gateway by crowdfunders in light of “unique regulatory and risk aspects inherent to this new way to raise money from supporters around the world.”

PayPal’s VP of Risk Management, Tom Barel, does not call out crowdfunding sites by name but seems to want to suggest that fools rush in where angels fear to tread, warning that the crowdfunding model is it is “potentially open to abuse” and that PayPal does not want to have to explain to customers where their money went if someone soliciting funds from the “crowd” does not fulfill its promises, at least while the regulatory waters are still murky,

Barel, while describing crowdfunding as on the one hand “pretty complicated” and inherently risky, at the same time acknowledges that the widespread public ability to invest in startups may be a “powerful catalyst for innovation.”  As a risk manager, perhaps his job is to let PayPal have it both ways, though some have seen the announcement as damage control following PayPal’s recent about-face when it froze and then just as quickly released  Nyu Media’s funds for the video game Yatagarasu Attack on CataclysmHat Tip to Eric Johnson of AllThingsD.

While crowdfunding by the general public is quite legal in certain other advanced economies (e.g., the UK and Australia), the Securities and Exchange Commission has been slow to permit US businesses to move from currently permitted reward/donation crowdfunding (where “investors” get a t-shirt or the warm fuzzy feeling of having supported a worthy cause, a scientific experiment, or a local band’s new album) to true equity funding (where investors actually own a stake in the startup venture and gain or lose cold hard cash depending on how well the business does).

So what’s the holdup?  Equity crowdfunding rules that the SEC was required to finalize by December 31, 2012 have still to go into effect.  These rules would permit an exemption to the 1933 Securities Act that is necessary to open the way for public advertisement and sale of certain securities to non-accredited investors (basically those of us who make $200,000 or less per year and have less than $1M in net worth).  Such sales, of course, would be subject to certain oversight and restrictions… and there’s the rub.

Nonetheless, SEC Chair Mary Jo White has promised that the rules are on the front burner, and says, “I define the front burner to be sometime into the fall.”  Well, fall is less than a week away now, so watch this space… or just listen for the whoosh as the many small-budget angels finally enter the market.