I admit, I am a huge fan of To Kill a Mo

I admit, I am a huge fan of To Kill a Mockingbird and have been since 11th grade when I read the book for the first time. Well, on Monday July 13, from 2 to 3 p.m., I will be at the Barnes & Noble in Frederick participating and reading for the Read-a-Thon of the book. Here are the details for those who want to come and read. http://ow.ly/Pm4vW

I am often asked by clients if I do work

I am often asked by clients if I do work in the family law arena. I have done so, often reluctantly. I am happy to help clients modify custody orders when there is a change in circumstances and the parents are reasonable (it happens). But when I see stories like this one (http://ow.ly/MnRiZ), I find my respect for my colleagues in the family law bar growing. The vitriol some parents have for their former partner can be shocking.

Business Owners and Service Animals

In Frederick, Maryland, where I live, there are a number of downtown shops that are dog friendly, assuming the animal is well behaved and leashed. Not all businesses are dog friendly, but many are. In fact, my office away from the office, Cowork Frederick, has two house dogs present.

However, service dogs are a whole other matter. But for business owners, particularly those who operate retail or restaurant establishments, there maybe questions as to whether the dog in question is a service animal or a pet.

Findlaw’s Free Enterprise Blog has a great piece about service animals and what business owners can do regarding these animals. Generally, pets can be barred, but service dogs cannot be barred from a public place.

A blanket “no dogs allowed” policy is likely to find a business owner in violation of the Americans with Disabilities Act. The Maryland law on Service Animals states that a person with a service animal cannot be barred from entering a public place with a service animal. A person with a service animal cannot be charged more, although the person may be held liable for damages to the premises if the animal misbehaves. Violation of this law is a misdemeanor and carries a fine of $500.

Similarly, a service animal trainer with an animal that is being trained cannot be denied access, unless the animal presents a danger to the public.

But, as Free Enterprise notes, how is a business owner supposed to know if the animal is a pet or a service dog? Well the best way is to follow the guidance of the ADA.gov, as Free Enterprise notes.

However, according to ADA.gov, a business owner may ask a service dog holder two questions:

1. Whether the service dog is necessary because of a disability, and

2. What work or task(s) the dog has been trained to perform.

That is it. A business owner may not even ask what kind of disability the person has.

What happens if the animal is unruly or unleashed? Well, the business owner does not have to allow the dog to remain. A dog that is unleashed, poses a threat to other patrons (growling or snapping at other patrons, or urinates/defecates in the establishment, may be ejected from the facility. However, the business owner should bear in mind, you can’t then bar the animal based on one ejection or even multiple ejections. Doing so here in Maryland puts you in jeopardy of both federal ADA suits and Maryland penalties.

Surprisingly, this is one area of the law where a little common sense, and healthy dose of common courtesy, will go a long way.

Maryland Legislation That May Affect Small Employers

The Maryland General Assembly is considering and may pass two laws that directly affect small businesses and their relationships with their employees. Two bill sin particular have a pretty good chance of making it to Governor O’Malley’s desk for signature at the end of the General Assembly session, a bill to increase the statewide minimum wage and a bill to required employers to provide sick leave.

The Maryland Minimum Wage Act of 2014 (HB 0295 and SB 0331) was introduced at the request of the Governor as one of the Governor’s legislative priorities for the year. The bill was heard in House Economic Matters Committee yesterday.  The bill will raise the Maryland minimum wage to $10.10 over the next three years. If enacted, the bill would raise the minimum wage to $8.20 per hour beginning July 1, 2014. The minimum wage will increase to $9.15 on July 1, 2015 and increase to $10.10 on July 1, 2016. The minimum wage is then linked to the Consumer Price Index for calculating increases after 2016.

Notably, for restaurants, the tip credit has been reduced from 50% to 30%. This of course will affect not only the servers at restaurants but the patrons as well.

The Maryland Earned Sick and Safe Leave Act (HB 0968 and SB 0753) provides that employers with 10 more employees must provide one paid sick hour for every 30 hours worked. For an full time employee working 2000 hours a year (that is a 40 hour work week and a 50 week work-year), the employee would earn 66.6  hours per year or 8.3 days per year. There is an option for employers to cap the earned sick leave at 56 hours or 7 days. This is paid time off.

Employers with 9 or fewer employees must provide the time off but it is unpaid time off.

The law does not affect employees who work less than 8 hours per week. But while the employee is not eligible for the sick leave, that employee is counted in determining if the employer employs 9 or fewer employees. Thus, an employer who has 3 full time staffers supplemented by 9 workers who each only work 8 hours per week would be counted as employing 10 or more employees and would have to provide paid time off for those three full time workers, but not the 9 part time workers.

Employees would be given the time off to obtain medical care, mental health services, legal services related to domestic abuse or stalking, or other services related to domestic abuse for the employee themselves or their family (pretty broadly defined).

The Sick Leave Act also requires that employers maintain records of time accrued and used. One wrinkle that may cause employers additional recordkeeping is the rehire provisions. If an employee leaves a company, but is rehired within 12 months, any sick leave accrued must be carried over.

If enacted, all employers much start tracking sick leave beginning October 1, 2014.

There are other bills that could be enacted that may affect the labor costs and administrative burdens on small businsses, but the two bills above have more likelihood of enactment.

“Hourly lawyers are paid to be inefficient, slow, inexperienced, overstaffed, and risk averse, at all costs.”

And those costs are your costs.

John Toothman, one of my favorite thinkers and writers about law firm management and billing practices wrote that phrase here. Toothman was discussing this article from the Economist regarding how law firms are charging more per hour (as high as $1,800 an hour) but realizing far less of those bills. According to the Economist, law firms are only getting about 85% of their bills due to deep discounts given to ever more savvy customers. Just because your lawyer doesn’t charge $1,800 an hour doesn’t mean you are getting a good deal.

The idea that any lawyer is worth $1,800 an hour is absurd on its face. Even at a 15% discount, $1,530 per hour is just as absurd. Such hourly rates are more about vanity than about quality.

So the published “vanity” rates of lawyers are known by most sophisticated clients to be fictional — not to be taken seriously, let alone paid.  But when clients find out that the rates can be “discounted,” they just don’t know for sure whether they are ever getting a decent deal…  These fools might actually think the lawyer’s quoted rate is his or her actual, as paid, rate.

The greater joke is that even serving Fortune 500 companies, these Big Law firms can’t seem to formulate a budget, or if they can, they have a hard time living within that budget.

Who is more foolish, the fool who charges such a rate and then discounts so severely, or the fool who continues to consider a law firm who would even charge such rates, let alone haggle over such rates?

The real reason firms charge vanity rates is because they don’t want to deal with the “riffraff,” the unwashed masses of the small business and regular folk world, for whom $180 an hour is a steep price, let along $180 for a six minute phone call. But the greater travesty upon small business owners (who need legal advice as much as the Fortune 500), is that too many law firms, even the supposedly more economical regional or local firms, still charge by the hour! When a small business owner’s budget for legal service is measured in the 4 digit range per year, is a $500 an hour partner a “bargain?” What about a junior associate who bills $300 an hour but takes 10 hours to get anything done?

Clients should not pay attorneys for their time, but for their advice and/or work product. Scrutinize those bills and do your due diligence on who is doing work on your matter and whether they are really needed. Toothman’s advice is this:

Our message to all clients, great and small, is to shop for a firm that takes you seriously enough to charge you a reasonable rate and appreciate your business.  If you cannot trust your lawyer to treat you with honest respect about what they charge, how can you trust them to give you legal advice?

I would add something even more relevant for small businesses. If your lawyer can’t quote you a price or give you a budget for your legal matter, can you really trust them to take your money seriously?

 

 

Oral Promises and Contract Law

As a general rule, I tell all my clients that every business relationship they have should be documented in a contract. It is a simple rule and sounds as if it would be easy to follow. But it is not always so easy since in the real world, people talk. But talking can get business owners in trouble if they are not careful. One way I protect clients in contracts that I draft or review is to include a provision in the contract that says any amendments or changes to the contract have to be in writing.

But in the real world, as opposed to the utopia of written contracts, people make promises to do something all the time. I believe that people will make every effort to follow through on their promises. It might be something simple, such as promising to deliver an estimate for a project by the end of the week. A promise like that does not carry much risk if it is not met.

But what if the promise is more specific and costly? What if the promise has to do with the payment of money or to purchase certain goods? Can an oral promise be considered a contract?

The answer to that question is yes, it can be considered a contract. Failure to perform a valid oral contract can be addressed by a lawsuit. Courts are regularly asked to determine if the parties to a lawsuit actually created a valid oral contract or at least enough of a contract that can be enforced by the court.

There are certain contract subjects which must have a writing (this is in Maryland):

1. Any contract that requires a person to pay the debt of another person.
2. Any contract made in consideration of a marriage (such as a prenuptial agreement)
3. Any contract that cannot be performed within one year of the contracts formation.
4. Generally any contract for the sale of goods whose price is greater than $500.
5. A lease contract whose payments are greater than $1,000, extend for more than one year, and a few other exceptional limitations.
6. Generally, any contract for the sale of real property.

These few subject matters leaves many other areas of business relations that can be accomplished by oral contracts, for example, an employment or independent contractor agreement.

Of course the best practice is to put contracts in writing, even it if is a simple piece of notebook paper with ballpoint pen. But if you do make an oral promise, the simpler the promise the better.

Commercial Lease Agreements Examined–Percentage Lease Provisions

For small business owners, particularly those involved in retail activities, the single most important document the owner may ever sign is their commercial lease agreement. But many commercial lease agreements, being assembled over time by the landlord’s lawyers, are replete with ambiguities, drafting errors, and clauses that may or may not apply. To be certain, most terms in a commercial lease agreement are fixed by the landlord and generally don’t get updated except when the law changes or the landlord is engaged in a lawsuit that necessitates a change in language. Those “necessary” changes often result in a less clear agreement.

Like most “modern” commercial contracts, the commercial lease is full of language that can be quite confusing. Often the overuse of words is unnecessary. Packing a commercial lease with words doesn’t make the lease better.

Over the course of a a few irregularly scheduled posts, I will examine some of the common terms of a commercial lease, attempt to parse the language a bit and then offer some suggestions that small business owners can suggest to their landlords to make everyone’s life a little easier.

Percentage Lease Terms

Many retail establishments have a percentage rent term, that is a type of rent where the tenants gross or net sales are used to determine a portion of the rent. The idea allows landlords to make a higher rental income for successful shops. The manner in which percentage lease terms are often drafted would make the Internal Revenue Service proud in their complexity.  Here is an example of a percentage rent term in need of some work.

5. Percentage Rent
Lessee shall pay, as additional rent, a percentage rent (“Percentage Rent”) calculated as set out below.
(a) Within 45 days following the end of each Lease Year (as hereinafter defined), Lessee shall provide Lessor with a written statement certified by Lessee setting out Lessee’s total gross sales for the preceding Lease Year, together with a check for a sum equal to five percent (5%) of such gross sales, less the Base Rent for such Lease Year (if previously paid), and copies of the monthly state sales tax returns.
(b) “Lease Year” shall mean each period of 12 consecutive calendar months during the term of the Lease, commencing on the Commencement Date, provided that if the term shall commence on a day between the 1st of the month and the 14th of the month, the Lease Year shall be deemed to start on the 1st of the then current month. If the term shall commence on a day between the 15th and the end of the month, the Lease Year shall be deemed to start on the 1st day of the following month. Gross sales for the period falling outside of that period shall be adjusted and calculated pro rata on a daily basis.
(c) The term “gross sales” as used herein shall mean the total amounts received, whether for cash or on credit, for sales and services of every kind made upon the Leased Premises, less the amount Lessee is obligated to pay on account of all retail sales taxes.
(d) Lessee shall keep complete and accurate books and accounts of its daily gross sales in every part of its business operating at any time during the currency of this Lease in any part of the Leased Premises. Lessor and its agents and employees shall have the right at any time during regular business hours to examine and inspect all the books and accounts of Lessee related to gross sales, including sales tax reports, tax returns, or other reports to any governmental agency, for the purpose of verifying the accuracy of any statement of gross sales provided under sub-clause (a) hereof. Lessor may, at its option and no more than once in any consecutive 12-month period, cause an audit of Lessee’s business to be performed by a certified public accountant of Lessor’s choice. If such audit shows that any statement of gross sales previously made by Lessee is more than ten percent (10%) less than the amount of gross sales determined by such audit, the cost of such audit shall be borne by Lessee; otherwise it shall be borne by Lessor.

Confused? This 434 word behemoth demonstrates how many commercial leases read. If it were possible to track the changes of this provision, the evolution of the provision would be generally the addition of each subparagraph as disputes over the provision escalated.

Examining each provision in turn, the drafting errors and confusion created by the language become a bit clearer.

Lessee shall pay, as additional rent, a percentage rent (“Percentage Rent”) calculated as set out below.

(a) Within 45 days following the end of each Lease Year (as hereinafter defined), Lessee shall provide Lessor with a written statement certified by Lessee setting out Lessee’s total gross sales for the preceding Lease Year, together with a check for a sum equal to five percent (5%) of such gross sales, less the Base Rent for such Lease Year (if previously paid), and copies of the monthly state sales tax returns.

Although not specific to this term, the Lessee/Lessor naming convention itself is confusing. In the age of modern word processing and document assembly software, there is no need to using such confusing labels. The contract drafter should use the actual names of the landlord and tenant. If using formal names is too difficult even the terms Landlord and Tenant avoid the confusing similarity of lessee/lessor.

Next, this provision uses several terms that are defined after this provision, namely “Lease Year” and “gross sales.” (Base rent is defined earlier in the document.) The addition of subparagrpahs (b) and (c) make it clear that the drafters initially did not include definitions for those two key terms.  If a provision is going to introduce and use defined terms, such definition should be either defined elsewhere in the document before the provision in question or defined first in the provision. Doing so eliminates that pesky parenthetical “(as hereinafter defined).” The term Lease Year is identified by the capitalization as an important term. But the single most important term here is gross sales and it is unclear how that term is defined until later in the provision. Even the importance of the term is hidden by not using the capitalization convention present elsewhere in the document.

What does “certified by Lessee” mean? Does it mean just a signature? Does it mean notarized? Does it mean certified by the Lessee’s bookkeeper or accountant? The contract should make it clear what certification means, otherwise parties are left to wonder or argue about the provision in a dispute.

Why does the landlord require all this extra paperwork? For example, the monthly sales tax forms submitted to the state (any state) includes the gross sales for the month. Why does Lessee need to supply a separate statement? Does gross sales include sales taxes? There is too much confusing information and questions here. Why not require either the monthly state sales tax returns or a “certified” statement.

(b) “Lease Year” shall mean each period of 12 consecutive calendar months during the term of the Lease, commencing on the Commencement Date, provided that if the term shall commence on a day between the 1st of the month and the 14th of the month, the Lease Year shall be deemed to start on the 1st of the then current month. If the term shall commence on a day between the 15th and the end of the month, the Lease Year shall be deemed to start on the 1st day of the following month. Gross sales for the period falling outside of that period shall be adjusted and calculated pro rata on a daily basis.

On the surface, this appears to be a reasonable term, until the last sentence. But the language of this subparagraph includes a fair number of “shall” statements, six of them to be exact. Shall is a term of obligation, not a term of definition. The attempt to deem a starting date is confusing at best. Even the smallest of businesses have available modern point of sale systems that track gross sales every day. Thus, it would be simpler to simply call a Lease Year a Lease Year and not try to move the commencement date around.

The final sentence is a mystery as to its purpose and as a result is probably extraneous. The ambiguity of “gross sales for the period falling outside that period” leaves the reader scratching their head. What period is being discussed? Simply due to its proximity to the rest of the paragraph, the sentence appears to require that gross sales in the “remainder” period after having a commencement date deemed are to be pro-rated. Yet, it is less than clear.

(c) The term “gross sales” as used herein shall mean the total amounts received, whether for cash or on credit, for sales and services of every kind made upon the Leased Premises, less the amount Lessee is obligated to pay on account of all retail sales taxes.

Finally, we get to the definition of gross sales that is so key to the entire provision. Note the lack of a defined term convention. Other defined terms, such as Lease Year, are capitalized, yet, this defined term is not. The phrase “as used herein shall mean” uses five words when the word “means” conveys the same meaning with far more economy. The odd language of “on account of all retail sales taxes” seems contrived and even colloquial.

(d) Lessee shall keep complete and accurate books and accounts of its daily gross sales in every part of its business operating at any time during the currency of this Lease in any part of the Leased Premises. Lessor and its agents and employees shall have the right at any time during regular business hours to examine and inspect all the books and accounts of Lessee related to gross sales, including sales tax reports, tax returns, or other reports to any governmental agency, for the purpose of verifying the accuracy of any statement of gross sales provided under sub-clause (a) hereof. Lessor may, at its option and no more than once in any consecutive 12-month period, cause an audit of Lessee’s business to be performed by a certified public accountant of Lessor’s choice. If such audit shows that any statement of gross sales previously made by Lessee is more than ten percent (10%) less than the amount of gross sales determined by such audit, the cost of such audit shall be borne by Lessee; otherwise it shall be borne by Lessor.

This subsection is longer than it needs to be, contains a number of redundant phrases and ambiguities. Some redundancies:

• “complete and accurate books and accounts”– it would be simpler to say “complete records”
• “Lessor and its agents and employees”– cleaner language would be simply “Lessor”
• “examine and inspect”– again, using one word would suffice, “inspect”
• “related to gross sales, including sales tax reports, tax returns, or other reports to any governmental agency”–it would be much simpler to say “any report to a governmental agency”
• “Lessor may, at its option”–this is a classic redundancy, the word may indicates optional behavior, so the better language would be “Lessor may”

The language in the last sentence “is more than ten percent (10%) less than the amount of gross sales determined by such audit” is confusing on its face. “More than ten percent less” invites confusion. The purpose of this clause is to ensure that the tenant is not cheating the landlord by paying less percentage rent that the Tenant is obligated to pay. A much clearer approach would be to say that “any deviation greater than ten percent” and then follow with the consequences.

Percentage Rent Term-Rewritten

The 434 word tangled morass of language above can be presented in a much more succinct manner and still convey the purpose of the Percentage Rent provision.

5. Percentage Rent

(a) For the purposes of this section, (1)”Gross Sales” means the result of all monies or credits received for all sales of goods or services made upon the Leased Premises minus all sales or use taxes paid by Tenant. (2)  “Lease Year” means each period of 12 consecutive calendar months during the term of the Lease, starting on the Commencement Date.

(b) Percentage Rent is the result of 5% of Gross Sales for the each Lease Year minus Base Rent paid by Tenant during the Lease Year.

(c) No later than 45 days after the end of the Lease Year, Tenant shall pay Landlord the Percentage Rent and provide either (1) copies of all monthly sales tax returns for the Lease Year or (2) a statement of all gross sales for the Lease Year signed by both Tenant and Tenant’s bookkeeper or accountant.

(d) Tenant shall maintain complete records of its gross sales during the Lease Period. In order to verify any statement made pursuant to subsection 5(c)(2), Tenant shall allow Landlord to inspect during normal business hours all the records of Tenant’s gross sales, including any reports to any governmental agency. No more frequently than once per Lease Year, Landlord may retain an independent certified public accountant to conduct an audit of Tenant’s business records. If such audit results in a deviation in the gross sales amounts greater than 10% of Tenant’s statements to Landlord, Tenant shall pay the cost of the audit, otherwise, Landlord shall pay the cost of the audit.

The original of this provision is 434 words long. The rewritten provision is 260 words long, yet conveys the same ideas. The ordering of the provisions makes sense by defining important terms first, setting out the calculation, and then the obligations and conditions of the percentage rent.

Less Creepy Networking?

I have a confession to make–I hate networking events. I attend them because I need to, but I don’t like them. I am not a person who does well in crowds (unless it is a soccer game or concert-but then I don’t have to talk to people to enjoy those). It is not that I am not socially inept, I think I can handle myself without embarrassing myself too much or too often. But I never know what to say or do or how to act.

If you are like me, you might want some tips, and this post by Jessica Hische may be of use. I think one of the most important factors to realize is the type of person you are: an introvert or an extrovert. It does affect how you go about networking events. Hische makes a solid point on this matter before getting to a healthy list of 10 tips:

Extroverts, with their endless energy for meeting people, excel in party environments but may have issues making a lasting impression or remembering the names of the people they meet. When you spend an entire night in a flurry of social pollination, you have few meaningful interactions. This isn’t a terrible thing as long as you treat parties as a form of social reconnaissance—many brief superficial meetings may lead to a few significant friendships / partnerships later.

If you’re an introvert, industry parties are not exactly your favorite places to be. It’s difficult to have in-depth one-on-one conversations (an area in which introverts often excel) in loud and crowded environments. I’m married to an introvert, so have come to understand their modus operandi quite well. Introverts aren’t anti-social, they just recharge their batteries through quiet contemplative activities. For introverts, parties, while fun, are exhausting and must be followed by decompression time. For extroverts, parties are decompression time….

Understanding yourself and your specific social needs is the first key to bettering your networking skills. If you’re an extrovert, use your skills to bumble-bee around parties, but when you meet someone that you have real friend-chemistry with, take time to get to know them and set up a one-on-one coffee date in the near future. Without these more personal and intimate exchanges later, the connections you make won’t take hold. If you’re an introvert, embrace your solo zen power sessions and know that crazy frenetic party environments can and do lead to hangouts that are more your speed.

Hische describes networking events as parties, perhaps that mindset might make the events less dreadful.

If you are in the Maryland area and see me at a networking event, please say hi. You might just save the event for us both.

It’s the Least Wonderful Time of the Year–Tax Time

Tax season is upon us my friends and that means your accountant is about to get truly stressed. You might be getting stressed too, but I hope not–that is why you pay accountants.

If you are anything like me, you hate giving Uncle Sam too much of your money.  But if you are small business owner working for yourself, you may not have withholding tax taken from your pay (I don’t). So what to do to make Uncle Sam happ(ier)? Quarterly estimated taxes.

Here is a post from Timesheets.com that has a couple of really good hints:

Create A Separate Bank Account For Tax Payments

Create a separate bank account for payments. Then, move about 30 percent of your gross income into that account. Why 30 percent? This will keep you from spending money that the IRS might decide to steal – err, “collect.”

The 30 percent is there as a buffer, just in case you make a mistake about how much you owe. Keeping separate accounts also prevents you from accidentally floating checks or spending the money that you need for taxes.

Look To The Previous Year’s 1040

If you did your taxes with someone like Liberty Tax, H&R Block, or TurboTax, getting previous 1040s will be easy. If you used an accountant, it also should be fairly easy to get copies of previous returns. The only time you might have a problem, ironically, is if you did the taxes yourself and didn’t keep good records.

If your company’s adjusted gross income last year was $150,000 or less, look at your previous year’s 1040 “total tax” entry form. Now, subtract any expected withholding for wages. Divide that number by four, and then send in a check for that amount each quarter. Even if you end up earning more than you did in a previous year, you won’t be penalized by the IRS because this is considered a “safe harbor” payment.

If you are married, your spouse might hate you for taking nearly a third of your income and putting in a savings account, but this time next year, she/he may be loving you for being smart about tax payments.

Matt Johnston–A Judge?

Well, maybe not a REAL judge. But I played one yesterday and it was fun.

The Maryland State Bar Association’s Citizenship Law Related Education Program administers a High School Mock Trial Competition each year.  This is the second time I have served as a judge in this competition for the local Frederick County High Schools.

I had the pleasure  of judging the competition between the team from Governor Thomas Johnson High School of Frederick city and Brunswick High School from Brunswick Maryland.  The 12 young men and women acted as advocates and witnesses did well in their first of six competitions in this round.  The students, their teacher coaches and volunteer attorney coaches did themselves and their schools proud.

This year in Frederick County all ten traditional public high schools in the county, the Career & Tech Center of the public schools, and one private school are fielding (courtrooming?) a team. Good luck to:

Brunswick High School
Career & Tech Center
Catoctin High School
Frederick High School
Governor Thomas Johnson
Linganore High School
Middletown High School
Oakdale High School
St. John’s Catholic Prep
Tuscarora High School
Urbana High School
Walkersville High School

It is a sad state of affairs when competitions like this are not covered in the press, even the local press.  This competition means as much to these students as does any sport, band or choral competition and should received the same kind of coverage.

 

Follow CLREP on Facebook here:  https://www.facebook.com/CLREP?fref=ts

Follow the Maryland Mock Trial Program on Facebook here:  https://www.facebook.com/MDMockTrial?fref=ts