Rogers & Tartaro Business Litigation Blog : New York and Connecticut Business Litigation Lawyer & Attorney : Rogers & Tartaro Law Firm : Commercial Litigation : Westchester County NY, Fairfield County CT

A group of friends and I are considering going into business together. What kind of partnership agreements/incorporations would be best? What exactly is a “closely held business?”

We are often contacted by friends intending to go into business together. The first thing we tell them is that they are now negotiating among themselves so their interests are in conflict. They may each want to consult their own attorneys until the agreements that they need to form the business are put in place. They can waive the conflicts and consult an attorney together but should do so only if they fully understand the conflicts they are setting aside.

The term “closely held business” is generally used to distinguish the business from a publicly traded business. So, it is a business owned by a relatively small number of people. Obviously, there can be wide variations: from one owner to hundreds. And, in specific tax contexts, the definition can be more precise and technical. 

Entire books have been written on selection of a form of ownership: sole proprietorship, “S” corporation, “C” corporation, limited liability company (LLC), partnership, limited liability partnership and so on. One of the first considerations should be to effectively limit the liability of the owners. Then, there are many tax and business considerations. The selection has to be based on considerations specific to each business and its principals but here is a general point to remember: after the selection of form of ownership is made, it is important to observe the formalities so that you do not lose any of its benefits.

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Most employees in Connecticut and New York are not offered contracts and are hired as “employees at will.” That means their employment can be terminated at any time, for any reason, provided that antidiscrimination statutes are not violated. However, even if hired as an employee at will, a new hire may be offered agreements that are legally binding, such as, non-compete agreements, confidentiality agreements, agreements as to ownership of intellectual property rights.

And, some employees, primarily executive, managerial and professional employees, are offered comprehensive employment contracts. These contracts vary so much it is difficult to identify “what you should look for.” Typically, the contract will have a definite term, provisions for terminating the contract for cause or not for cause, compensation, duties and responsibilities (by incorporating a position description) and provisions governing confidentiality and intellectual property rights. You may be asked to give up the right to sue and to submit any disputes to arbitration. The contract could include many, many other provisions covering specific jobs in specific industries.

So, the short answer to your questions is: if you sign any type of agreement relating to your employment, you are always better off reviewing it first with an attorney of your choice.

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If you’ve been laid off and offered a severance package, you have probably also been given 21 or 45 days to consider the package. First, use the time well. Here are some general principles:

Severance packages are generally negotiable. But, the extent to which you can negotiate varies quite a bit. Employers are not required to offer the same package to everyone as long as they don’t violate federal, state or even local antidiscrimination laws. 

Many employers will negotiate because they want something before you leave. They want you to give up your right to sue them for anything in the past or present. They may also want non-compete and confidentiality agreements if you are not covered by similar agreements signed at hiring.     

If you ask for a better package, you are technically rejecting the offered package and the employer may withdraw it. Your severance package probably also advises that you have the option to review it with your own attorney. That’s good advice; take advantage of that option. If you try to improve on the package, you will probably be better off negotiating through an attorney who practices employment law.

Image: US Whig Poster showing unemployment during the Panic of 1837, Wikipedia Commons.

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A recent post on the Wall Street Journal Law Blog discussed a study that found that consumers come out better than expected when they go to arbitration to resolve disputes with businesses (“Consumers Rejoice: After All, Arbitration is Fair, Study Says”). 

The Law Blog tone tended to reflect a characteristic degree of skepticism about the study, as did a quoted comment from a public interest lawyer. As pointed out by the post, in some industries, the securities industry among them, arbitration is mandated. Often, the consumer doesn’t realize that arbitration is mandatory for disputes.

So, what’s the story with arbitration? There is no doubt that arbitration resolves disputes more quickly and less expensively as compared to going through the litigation process. That is a key consideration if the amount at issue is relatively small and would be eaten up by the expense of litigation. Also, the process is less formal and more straightforward and understandable.

 But, in general, arbitration decisions are almost impossible to appeal successfully, the arbitrator is not required to follow the letter of the law and the arbitrator is not required to give reasons to justify the decision. In other words, the decision is pretty much final and can appear (excuse the pun) arbitrary.

The biggest issue with arbitration is the perception that the arbitrators favor the business over the consumer. That is the issue discussed by the Law Blog post and addressed by the study. From the tone of the post, the writer does not find the study convincing. 

Preferably, there would be a set of tools for settling disputes, a set that includes arbitration as well as mediation. Simple disputes with relatively modest amounts at issue should never go to litigation. But, there has to be a reasonable level of confidence in the fairness of the processes. Apparently, the study says we’re getting there but the contrary view is still prevalent.

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