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Business Law Review: Employee or Independent Contractor?

Why is it critical that business owners correctly determine whether the individuals providing services are employees or independent contractors?

IRS says it is because you must withhold and deposit income taxes, social security taxes and Medicare taxes from the wages paid to an employee. Additionally, you must also pay the matching employer portion of social security and Medicare taxes as well as pay unemployment tax on wages paid to an employee. And generally, you do not have to withhold or pay any taxes on payments to independent contractors.

Department of Labor says Employees receive the protections of the FLSA. When an employer-employee relationship exists and the employee is performing work that is covered under the FLSA, the employee must be paid not less than the federal minimum wage ($7.25 per hour) and overtime pay that is not less than one and one-half the regular rate of pay for all hours worked over 40 per week unless a relevant exemption applies. Independent contractors are in business for themselves and therefore are not covered by the FLSA.

Both agencies provide guidelines for the determination. One thing worth noting is that a worker may be an employee under the FLSA or for tax purposes regardless of the title or label they are given in the employment agreement. 

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Lease to Own Agreement, is it a lease or a sales contract?

You have a “Contract for Sale and Purchase with Lease Provision”, sometimes common known for “lease to own”. Pursuant to  the contract, you take possession or have the right to do so,  pay a down payment and the balance is payable in a monthly payments. You also have the obligation to pay real estate taxes after the year of “sale”. You are entitled to a deed upon payment of all installments plus interest.

Unfortunately, after paying installments for a sinificant period of time, you defaulted. At certain point, you tendered to the seller the entire unpaid balance of the purchase price plus interest, and demanded a deed. The seller refused to accept payment or give a deed, and insisted that the buyer, because of his default, had forfeited further rights in the land.

The trial court in H & L LAND COMPANY, Inc. a case with the same fact pattern, agreed with the buyer’s position, and held that “the parties were in essentially the same position as if the seller held a purchase money mortgage to secure the buyer’s performance of the buyer’s contract obligations.”

The appellate court held that the vendor under a specifically enforceable installment land sale contract, who has received part of the purchase price and has given the vendee possession of the land and the benefits and burdens of ownership, is in essentially the same position as a vendor who has conveyed the legal title and taken back a purchase money mortgage, and he cannot unilaterally and summarily extinguish the vendee’s equitable title upon the vendee’s default.

What does this mean? It means if a land sale contract is specifically enforceable, and is free of equitable imperfections, the vendee becomes the equitable owner of the land and the vendor holds legal title as security for the vendee’s performance. The defaulting buyer is not a tenant who is subject to be evicted, is ordinarily entitled to an opportunity to redeem (sometimes inaccurately called an ‘equity of redemption’), subject to the protection of a court of equity.

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Is Your Prenuptial Agreement Enforceable?

Do you know your prenuptial agreement that you spend a lot of time and efforts before reaching may not be enforced by court, meaning the judge will not divide the property according to what is agreed-upon in the agreement?

How could that be? 

Florida Uniform Premarital Agreement Act provides the reasons for the court not to enforce a premarital agreements. It says, and I quote “a premarital agreement is not enforceable in an action proceeding under the Florida Family Law Rules of Procedure if the party against whom enforcement is sought proves that:

1. The party did not execute the agreement voluntarily;

2. The agreement was the product of fraud, duress, coercion, or overreaching; or

3. The agreement was unconscionable when it was executed and, before execution of the agreement, that party:

a. Was not provided a fair and reasonable disclosure of the property or financial obligations of the other party;

b. Did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; and

c. Did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party.”

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Is Your Prenuptial Agreement Enforceable?

Do you know your prenuptial agreement that you spend a lot of time and efforts before reaching may not be enforced by court, meaning the judge will not divide the property according to what is agreed-upon in the agreement?

How could that be? 

Florida Uniform Premarital Agreement Act provides the reasons for the court not to enforce a premarital agreements. It says, and I quote “a premarital agreement is not enforceable in an action proceeding under the Florida Family Law Rules of Procedure if the party against whom enforcement is sought proves that:

1. The party did not execute the agreement voluntarily;

2. The agreement was the product of fraud, duress, coercion, or overreaching; or

3. The agreement was unconscionable when it was executed and, before execution of the agreement, that party:

a. Was not provided a fair and reasonable disclosure of the property or financial obligations of the other party;

b. Did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; and

c. Did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party.”

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Lease to Own, Is it a good idea? 

You entered into a “Lease to Own contract”, agreeing to rent a home or commercial place with an obligation to buy at a certain point. It sounds like a great deal because you get to live on the property you fell in love with years before you could afford to buy and you can lock up a buying price in antipation of a dramstic increase of the market price.  Things look rosy from where you stand. 

The question is what will happen if you miss a month of rent or two. Can the owner evict you and retain every penny you have paid? 

As early as in 1972, In a case with similar facts as the one described above, Florida District Court of Appeals agreed with the trial court’s and the buyer’s position, holding that “the parties were in essentailly the same position as if the seller held a purchase money mortgae to secure the buyer’s performance of the buyer’s contract obligation. 

In plain English, it basically says that, in a lease to own contract, you are not really an tenant.  Accordingly, the seller cannot evict you if you miss your monthly payment. What they can do is to evict foreclosure proceeding, forcing you to either pay or move out. During that time, you can invoke your mandatory right of redemption, meaning offer the full payment and buy the property. 

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Small Business Owners: Arbitration vs. Litigation, Which One is Better?

Many small business owners/managers ignore all clauses other than the description of products, shipping terms and payment terms. Many are shocked to be reminded that the dispute arising from the contract will be resolved throught arbitration at time of filing a lawsuit. Even if there is no arbitration clause in the contract, Florida Statutes provides that, “A court, pursuant to rules adopted by the Supreme Court, may refer any contested civil action filed in a circuit or county court to non-binding arbitration.” 

What does arbitration mean to small business owners/managers?  Arbitration is a type of alternative dispute resolution (ADR) where a neutral third party, called an arbitrator, listens to both sides of the argument and makes a binding or non-binding decision.

Speed of Resolution

Arbitration is known for quicker resolutions, often wrapping up within a few months. Litigation, on the other hand, can stretch over years due to court schedules and the multiple stages involved, including discovery and trial.

Cost

While arbitrator’s fees can be significant, the overall expenses are generally lower for two reasons. One is that arbitration provides limited discovery which generally is the most costly process in litigation. Another reason is that it takes less time on processes, such as back and forth motions and hearings,  settlements, which racks up cost.

Confidentiality

SinceLitigation is public record, confidential business information is exposed, whereas artibitratoni provides a confidnetial settings where details are not disclosed to the public.  Arbitration can be especially beneficial to companies where confidentiality of business information is crucial.

Simpler Procedures

In arbitration, the rules are less daunting because they are less stringent, not like litigation where strict procedural reles make the process more structured.

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Small business owners’ asset protection  

Avoid Estate Planning Tax?

Many think of trust as a vehicle to avoid estate planning tax. Well, does a Revocable Trust Save Estate Taxes? Despite the fact that revocable trusts are often credited for saving estate taxes, but it is not entirely accurate. Although the trust can be drafted to minimize the effect of estate taxes, but the effect is not that of a trust itself. What trust can do,will can do too. 

Avoid Elective Shares?

Others think trust can provide protection from the Elective Share.  Again, it is not absolute accurate. Florida law provides that a surviving spouse is entitled to a minimum portion of the decedent’s estate, called elective share. This elective share is equal to 30% of the estate, including certain assets passing outside of probate. Generally, assets held in a revocable trust will be subject to the elective share. There are some exceptions to the elective share, and the right to receive an elective share can be waived by the spouse.

Avoid Probate Process

It is common belief that revocable trust avoid probate. The first question you should ask is why do we need to avoid probate. Probate is a court-supervised process for identifying and gathering the assets of a deceased person (decedent), paying the decedent’s debts, and distributing the decedent’s assets to his or her beneficiaries.There are two types of probate administration under Florida law: formal administration and summary administration. Probate can become rather expensive and the main cost in a Florida probate is usually the fees of lawyers.And since, for most probate cases, Florida rules require a probate attorney, attorney fees are usually an inescapable part of the probate process. 

According to the law in Florida, when the compensable value of the estate exceeds $40,000 and is not eligible for summary administration, a formal administration of an estate must take place.

In comparison with the compensable value of an estate, the following examples are considered probably reasonable fees:

  • For estates of $40,000 or less: $1,500
  • For estates between $40,000 and $70,000: $2,250
  • For estates between $70,000 and $100,000: $3,000
  • For estates between $100,000 and $900,000: 3% of the estate’s value
  • For estates between $1 million and $3 million: 2.5%
  • For estates between $3 million and $5 million: 2%
  • For estates between $5 million and $10 million: 1.5%
  • For estates of $10 million and above: 1%
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Should I accept the Non-Compete Clause?

Question:

I want to be clear if the one year Non-compete clause could affect me in the future in taking on similar roles with other companies.   How broadly would they be able to claim competition to them?

Florida law provides that non-compete clause is valid if it is necessary to protect a business’s legitimate business interests and reasonable in time, geographic scope and line of business. 

Your clause shows 1 year and 50 miles radius from business, post your employment. It’s not unheard of. If you have reason to believe 50 miles is too much, you can make your argument that you won’t be able to make a living unless they change the geographic area to less than that. 

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Transfer Timeshare:  Right of first refusal

Most timeshare companies retain the right of first refusal for most of their properties. If that is a case, each owner is required to submit their purchase agreement contract to the developer and ask for a waiver. The developer may decide to exercise ROFR to purchase the subject property, thus refusing the sale to the original buyer.[citation needed] A transaction is typically exempted from ROFR if the purchaser is a direct family member.

Even though resales come at a fraction of original costs, developers are often reluctant to exercise the ROF.  Many sought-after deeds change hands uninterrupted. When a developer exercises the ROFR, they become the owner and must pay the same maintenance fees and property taxes to the resort’s HOA, so they must maintain a healthy balance between inventory ready for sale and maintenance costs.

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Transfer Your Timeshare

A resale value of a timeshare unit varies between the timeshare systems and properties. While it’s possible for certain units in certain timeshare systems to appreciate in value over time, this is a rather rare event. Most properties in most timeshare systems are worth a fraction of the original price after the purchase, and often carry no value at all.

Deeds with severe restrictions on resale are typically given out for free. For example, upon resale of most Holiday Inn Club Vacations properties, the new owner can no longer use the allotted point value to make reservations at any HICV resort. They are limited to their home resort only, and booking window is shorter.

Deeds with no resale restrictions may carry some resale value, depending on the location, season, unit size, or the allotted points value. For example, large units in mountain resorts during ski season and large penthouse units in popular destinations will have some resale value. Likewise, small units in destinations saturated by timeshares, or with expensive maintenance fees compared to the value of offered points in their respective system, will have no resale value at all.

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