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Fall 2014

Achieving Success Together

The Firm would like to announce the addition of a new office in Covina, to better serve our clients.  Effective January 1, 2015, the Firm will open another office at 1041 West Badillo St., Suite 107, Covina, California 91722-4194. This office was previously operated by Steven J. Hamilton, Esq. who will be retiring effective December 31, 2014.  The Firm hopes to continue to provide its clients in the San Gabriel Valley with the high quality of legal services which Steve has provided to his clients for over 35 years.

Succession Planning
By: Richard E. Blasco, Esq

Business owners and corporate executives often are afraid to tackle the subject of succession planning because it forces them to confront their own mortality. However, succession planning is not just to address the issues of death or early retirement because of a disability, but as occurs more often to address the issue of anticipated retirement. Beyond the unpleasant consideration of mortality and the need for estate planning, there are many issues involved with succession planning for small and medium sized companies ranging from family and other owner dynamics, to key employee retention. While the apparent complexity makes the task seem daunting, it is not insurmountable with the proper guidance.

Why do business owners struggle to create good succession plans? It can be overwhelming for owners to know where to start when making decisions about complex subjects such as wealth, power, change of control and responsibility, especially when there are multiple invested parties that must be considered, including family, employees, clients, vendors, customers, and other owners. Due to the seemingly convoluted task of developing an effective succession plan, many business owners postpone dealing with the subject or simply give up on the idea.

In the most simplistic example, if a small or mid-sized company loses a key executive, the continuing operations of the company may be jeopardized. If a succession plan is not in place to ensure continuity and financial stability, what the owner or owners have worked so hard to create can be lost in just a few years. When ownership of a business changes hands, there are several factors that could affect the value of the business as well as the company's ability to profitably continue its operations.

One common issue that needs to be addressed in succession planning is what happens in the event of a death where the company has more than one owner.  To address this issue, many owners have a buy-sell agreement to address the buyout of the deceased owner, and the means for financing such an unforeseen event.  As part of the buy-sell agreement, most companies maintain life insurance policies on the owners’ lives, as well as on the lives of key personnel.

To ensure that all of the bases are covered when developing a succession plan, counsel can make sure that the owner(s) have gone through several steps, including:

          (i)      The owner(s) should definitely know what he or she wants to do with the company now and in the event of his or her death or retirement, or the death or retirement of key personnel.

          (ii)     Rather than developing a plan alone in a vacuum, the owner(s) should seek advice from many different constituents, including peers at other companies, family, attorneys and other trusted advisers.

          (iii)    Once embarking on the process, the owner(s) must commit to the development of a succession plan and follow through on implementing any necessary steps.

          (iv)    It is also important that the owner(s) feel that the plan was well prepared, believe in its outcomes, and not come away feeling as if it were recklessly thrown together.

          (v)     All parties involved with the implementation of the succession plan must understand that it is a dynamic and evolving document that should be reviewed and altered as key factors (e.g., management, family, business size, etc.) change.

How can lawyers help develop a viable succession plan? The mistake some advisers make when helping potential owner(s) develop a succession plan is that they employ too narrow a focus. Some issues, such as estate planning in the event of a death, are obvious for business owners, but they are rarely the only issue that merits consideration.

Broad succession planning is the perfect example of legal counsel focusing on unanticipated business results, and not just a specific legal question arising from an unforeseen event.  Owners are well advised to be proactive in the area of succession planning, and not allow the occurrence of unforeseen events dictate how their estates or businesses will be managed in the event of a death, early retirement because of a disability, or anticipated retirement.

New Limited Liability Company Rules
By: Robert S. Hawekotte, Esq.

The California Revised Uniform Limited Liability Company Act “RULLCA” recently went into effect.   There’s no “opt-in” or “opt-out” procedure. RULLCA applies automatically to all existing California LLCs as well as all foreign LLCs previously registered with the Secretary of State as of that date. Of course, it also applies to all LLCs to be formed in California and all foreign LLCs doing business in California after January 1, 2014.

RULLCA clarifies many issues and includes a more robust set of default rules on many topics, which apply if the LLC operating agreement is silent on an issue. As a result, it is a good time for all LLCs to have a turn-up performed on their operating agreements, to assure that the rules governing its operations result in the outcome which the owners desire, and not allow the  LLC to be governed by the default rules.

California’s Whistleblower Law is Expanded
By: Richard E. Blasco, Esq.

The Firm would like to call your attention to a significant change to the whistleblower statute in California that recently went into effect. California Labor Code section 1102.5 has been substantially expanded beyond its prior form to include the reporting of violations internally and not just a governmental agency, the addition of local laws, as well as to now protect employees from retaliation for making internal complaints, or even from complaints which have not been made as of the employees termination, about suspected violations of federal, state or local law.

California previously protected employees from retaliation for reporting reasonably suspected violations of state or federal laws to a government agency. The new law also extends whistleblower protections to employees who report behavior that they reasonably believe to be illegal to a supervisor or other employee with authority to “investigate, discover or correct,” or to a “public body conducting an investigation, hearing or inquiry.”   The new law also expands these protections to cover complaints about local laws.  Thus, it is possible that a complaint relating to the purported violation of an obscure ordinance could give rise to protection under the amended statute.  This is of particular concern to the building industry, where violations of local building codes are subject to whistleblower protection.

Under the new law any complaint made to human resources, a supervisor, manager or an officer of the company that relates to purportedly unlawful conduct may result in the protection of California’s whistleblower statute.  Moreover, these protections will apply regardless of whether the employee is required as a function of his or her job to disclose purported illegal activity.

There is also a retaliation prohibition in the statute. Under the revised provisions of Labor Code section 1102.5, it is unlawful for any person acting on behalf of the employer to retaliate against an employee based on a belief “the employee disclosed or may disclose” the alleged violation, either internally or to a government agency.  In effect, the revamped law protects employees who have not yet even complained about a violation internally or to a government agency.  This new legal theory is known as “anticipatory retaliation.”

Due to the expansive scope of the new provisions, these new changes in the law will lead to an increase in whistleblower claims as well as claims under the Private Attorney General Act brought on behalf of the public welfare.  There are many attorneys out there with potential clients who have been terminated by an employer, just looking to create wrongful termination claims based upon the expanded coverage of this statute.

As violations of Labor Code section 1102.5 may subject an employer to a variety of damages, including civil penalties of up to $10,000 per violation, California employers should consider training their managers, supervisors, officers and human resources personnel on the expansion of the new law in order to attempt to avoid violations or becoming a test case on the scope of these new provisions. Particularly, managers, supervisors and officers should be reminded to always document employee performance issues as they occur in order to maintain the employer’s defense to such wrongful termination claims. 

© Blasco & Hawekotte General Counsel Services LLP 2014. All rights reserved.
No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the Blasco & Hawekotte General Counsel Services LLP.

This article is not legal advice and is not intended as legal advice. This article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic addressed. The specific facts that apply to your matter may make the outcome different. This article is based on United States and California law. You should consult with an attorney familiar with the issues and the laws of your state. This article does not create any attorney client relationship.