Off The Clock Time

By: Clark, Campbell, Lancaster & Munson, P.A.

Q: My employees complain that they should be paid for traveling to job sites, computer startup time, and other time when they are not actually doing work. Are they right?

A: With ongoing minimum wage discussions and a proposal to double the overtime eligibility threshold (thus increasing the number of workers who would be entitled to overtime pay, regardless of being classified as “salaried”), more employers are getting concerned about tracking hours accurately. You typically do not need to pay employees the moment they leave their house, but failing to pay them for downtime during their continuous workday can inadvertently create a basis to be sued for unpaid wages, minimum wage violations, or overtime violations.

The general rule is that employees should be paid from the time they start their first work activity until they finish their last work activity, with work activities including those steps other than normal commuting that are primarily for the benefit of the employer. Waiting, walking, and traveling between job sites in between the first and last work activity are part of the continuous workday and are typically compensable (except for meal breaks). But the commute at the beginning and end of the day, or arriving at a time of the employee’s discretion and waiting for a first work activity, is typically not compensable, even if employees are carpooling and discussing work-related issues, traveling in employer-supplied vehicles, or transporting work equipment from home. An exception can exist when an employee has an unusual assignment to travel to another city for work.

Time checking voicemails, reading emails, developing an employer-required plan or route for the day, completing required paperwork, or loading or stocking equipment is all compensable, along with the starting up of a computer. Some employees take advantage of the computer startup trigger by turning on their computer and spending several minutes getting coffee and socializing. Employers might eliminate these extra minutes of compensable time by requiring such personal activities to take place before the power button is pressed.

Employees who are required to arrive at a location at a specific time and then wait for assignments begin their work day at latest at the specific time the waiting begins, except that under some circumstances this time might not be compensable if the employee is free to use the time for personal purposes. Employees who are required as an integral and indispensable activity to put on specified protective clothes on the employer’s premises start their work day at latest when they start to put on those clothes.

The employer is also liable for off-the-clock work time if the employer knew or should have known that the employee was working. For this reason, employers are often best advised, where feasible, to have clear employee policies prohibiting work and access to work emails outside of normal hours.

To be sure, it is recommended that employers track the hours of any employee who either is paid hourly, does not clearly fall within one of the legal exceptions to overtime pay (not covered in this article), or could feasibly work enough hours that he falls below the minimum wage.

Clearly, there are pitfalls awaiting employers. A review of employee manuals and time tracking procedures with a qualified professional is wise.

 

The August 13th edition of “The Law” will discuss the importance of obtaining title insurance when buying a home.

Questions can be submitted online to thelaw@clarkcampbell-law.com.

Valuation at Buyout

By: Clark, Campbell, Lancaster & Munson, P.A.

Q: How do I address dissenting non-majority shareholders who disrupt operations and threaten litigation if I don’t buy them out at an inflated price?

A: When you hold shares in a publicly traded company, you are free to sell those shares on the open market, but that luxury is not available for “closely held” businesses, where disputes can more easily become detrimental to operations. Luckily for the majority (i.e. controlling) shareholder or shareholders, that dissent should not disrupt operations during the ordinary course of prudent business, because the minority is simply outvoted. But minority shareholders can shake things up when, for example, the company is going through a merger or sale of business assets, the controlling shareholders are acting illegally or wastefully, or a deadlock in voting occurs. The first of these three scenarios can give rise to the right to be bought out, whereas the remaining scenarios give rise to the more dangerous remedy of dissolving the corporation. In a dissenter seeks to dissolve, the lifeline for those who remain in control is to elect to purchase the shares of the dissenting shareholders at fair value.

With regard to the right to be bought out (“dissenters’ rights”), as to closely held corporations of 10 or fewer shareholders, the dissenter often obtains payment based on an appraisal and his share of the company. For example, a shareholder who owns 30% of the corporation or 30 of the 100 shares would be entitled to $30,000 if the appraised value of the business is $100,000. Generally, this would be the maximum the minority shareholder could receive absent a court determining that misconduct by the controlling shareholders would dictate greater compensation.

The reality is that 30% of the shares of a company are usually worth less than 30% of the appraised value of the company, at least to an outsider. If you were to buy into a company for 30%, you receive a right to profit distributions but no control over the direction of the business. Buying 51% is often substantially more valuable than buying 49% because of control. Also, shares in closely held corporations typically face a much more limited market of buyers than shares in publicly traded companies. That is why an argument should be considered as to whether the dissenters should suffer a discount for lack of control and marketability when being bought out. For the specific dissenters’ right scenario above (with 10 or fewer shareholders), a Florida statute prohibits such discounts, but the discounts are at least arguably available for corporations with more shareholders or in the dissolution context mentioned at the end of the first paragraph above.

There are a number of ways to value a business, including by looking at the total value of the assets of the business or by applying a multiplier to the earnings or earning potential of the business. The applicable method varies greatly depending on the circumstances. The tips above will assist in negotiating with dissenting shareholders and in determining the likely outcome of litigation. If negotiation is unsuccessful and your business faces uncontrolled disruption, taking control by pursuing remedies in court with the advice of counsel may be the next step.

 

The July 30th edition of “The Law” will discuss employee pay for breaks, travel, and other “off the clock” time.

Questions can be submitted online to thelaw@clarkcampbell-law.com.

Independent Contractors

By: Clark, Campbell, Lancaster & Munson, P.A.

Q: How is an independent contractor different from an employee, and why does it matter?

A: Businesses hire daily to promote profit and growth, often viewing these relationships as “employment”, but workers are not always employees under the law. When you hire lawn care or some other personal service, you usually do not concern these service providers as your “employee”, issue a W-2, or withhold taxes. Instead, these are typically independent contractor relationships.

Generally speaking, independent contractors provide goods or services but maintain control over how to provide such goods or services. While there is no single test for determining whether a worker is an employee or independent contractor, there are two concepts that are helpful to consider.  First, an employee is “economically dependent” on the employer, while the independent contractor is in business for himself.  Second, independent contractors maintain primary control over how to deliver their goods or services.  It is from these two primary concepts that one can derive the numerous factors used by the IRS and courts to analyze any given relationship.

The distinction between independent contractor and employee is important to businesses, because the distinction impacts how employers must treat those they hire. A business who hires employees must pay both state and federal employment taxes, but the business does not have to pay such taxes for independent contractors. Employees are protected by numerous federal and state laws, and those protections often do not extend to independent contractors. Finally, while businesses are held liable for the actions of their employees, the general rule in Florida (with many exceptions) is that businesses are not held liable for the actions of independent contractors.

As such, it is often advantageous for businesses to identify their workers as independent contractors instead of employees. However, businesses must be careful not to improperly characterize the relationship. Doing so may expose the business to significant liability. Businesses should always carefully review the factors set forth by both Florida and the federal government before characterizing a worker as an employee or independent contractor, and businesses should never base the decision solely on which characterization is most advantageous for the business.

 

The July 16th edition of “The Law” will discuss valuation of businesses and shareholder interests for buyouts.

 

Kyle Jensen is a litigation attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. and presented on this topic at the June 25 Central Florida SCORE Business Roundtable in Lakeland. Questions can be submitted online to thelaw@clarkcampbell-law.com.