Chicago Small Business Lawyer Blog

Contracts are everywhere!

Thu, 09 May 2013 13:58:52 -0500

By Poonam K. Lakhani

When you begin a small business, you will be inundated with contracts. You will likely have contracts related to all aspects of your business, everything from your lease, agreements with vendors, to even agreements with your customers. But do you know what you are signing?

Although business owners will often review contracts to make sure that they are accurate in relation to money, quantities, responsibilities, etc., but boilerplate language is often overlooked. Boilerplate clauses generally consist of clauses such as notice provisions, governing law, venue, attorneys' fees, arbitration, severability, and others. Although these clauses are fairly standard in all agreements, their substance can vary, which can result in serious consequences for your business.

Owning a business is exciting and a lot of work at the same time. It's important to thoroughly review each and every contract you sign, or consult an attorney, so that you can ensure that your business is protected.

That uncomfortable conversation...

Thu, 25 Apr 2013 15:41:40 -0500

By: Poonam K. Lakhani

So you have an employee whose performance is just not up to par anymore. What do you do? Disciplining an employee can be just as stressful for a business owner, as it is for the employee. Not only do you want to be careful that you don't irreparably harm the relationship but you also want to be sure that your message is heard clearly and that you don't inadvertently open yourself up to a lawsuit.

First, expectations should be clear from the start. It's important to make sure you communicate exactly what you expect from your employees when they begin their employment. Follow-up by conducting semi-annual performance reviews. This way, an employee won't be blindsided when they are disciplined.

Speak-up at the first instance the employee fails to meet expectations or violates a policy. Too often, employers ignore when an employee first fails to meet expectations or violates a policy. Unfortunately, this can lead to the employee repeating the conduct or issues getting out of hand.

It is also important for an employer to establish clear disciplinary guidelines. It is generally good to have progressive steps, such as a written warning, suspension, and then termination - but be careful not to lock yourself into this system in case you have to adapt to an unexpected situation.

As a business owner, you will likely have to have that uncomfortable conversation at least once. However, developing a plan beforehand will help protect your business - and when it does come time to have that conversation, it will be much easier for both you and your employee.

Top 10 Tips for Launching a Business in Illinois - Tip 6: Don't Hire Employees Until You are Prepared to Hire Employees

Tue, 23 Apr 2013 14:55:09 -0500

The caption may sound a bit obvious. Clearly you do not plan to hire employees until you really need to hire employees. However, there is more to this issue than what immediately may come to mind. Employees are a large expense, and most new businesses try to avoid incurring large expenses. However, employees are also valuable resources that are required for certain business launches.

When I say "don't hire until you are prepared to hire," I mean that you better make sure you have the systems in place to pay your employees and all required taxes and insurance (including unemployment insurance and workers' compensation). The penalties associated with failing to follow the rules can literally put a start-up out of business.

Saving a few dollars by hiring "independent contractors" that you know to truly be employees is definitely a penny wise approach. It's one of those areas that many new businesses try to skirt because it seems unlikely to be a problem. But, when it is a problem, it's a big problem. Doing things the right way might seem like a hassle, but, in reality, it's called "the right way" for a reason.

Top 10 Tips for Launching a Business in Illinois - Tip 5: Know Your Local Business Laws

Mon, 15 Apr 2013 14:28:45 -0500

Registered under the laws of a foreign state (such as Delaware for example), does not eliminate your obligation to register your business in Illinois if you plan to operate in Illinois. And, even within Illinois, cities and townships can have different regulations regarding business licensing and operations. Failing to follow your local rules could inadvertently cost your business its limited liability protections.

And the horror stories you may have heard about violating federal employment laws are exacerbated when you factor in local laws and regulations. Many state and local laws have broader application than their federal counterparts and some have stricter enforcement provisions. It doesn't give a business owner any solace to know he/she followed the federal rules when a state agency comes in and assesses penalties.

Rules of the Office

Mon, 01 Apr 2013 15:36:09 -0500

By: Poonam K. Lakhani

An employee handbook is one of those things that new and growing companies often forget. Even when companies do remember to create a handbook, they often let it sit at the bottom of their file cabinet collecting dust. As a result, employees are often confused about workplace policies and sometimes employers inadvertently open themselves up to liability.

A good handbook has a number of benefits which can help your business. Handbooks ensure that important information is communicated to each employee in the same manner. They also provide answers to many employee questions, particularly regarding holidays, leave, dress code, etc. More importantly, a handbook will communicate expectations and consequences to employees. If properly utilized and actually enforced, a handbook can provide you with some protection from legal disputes.

However, just creating a handbook is not enough. You must actually use and enforce the policies outlined in your handbook. A good handbook, will incorporate your business' culture and practices, and will prove to be an invaluable tool.

Top 10 Tips for Launching a Business in Illinois - Tip 4: Pick an entity that works for you

Thu, 28 Mar 2013 11:26:00 -0500

With all the time and money that is invested in a new business it seems like it should go without saying that entrepreneurs should put some thought into their entity formation before going on line and setting up a corporation or partnership. However, the fearlessness that can make for a great entrepreneur can easily morph into impulsiveness in decision making.

There are tax and legal implications associated with each business entity type. Make sure that you choose an entity that accommodates your business operations. If you know you want to distribute profits based on factors other than ownership or you know you will struggle with keeping up with corporate formalities, you may want to consider an LLC over a corporation. If you plan to have fast growth and require significant outside investment, you may want to consider a C-corporation. Cookie cutter answers are only good for cookie cutter businesses.

Navigating Background Checks

Wed, 27 Mar 2013 13:53:34 -0500

By: Poonam K. Lakhani

Background checks can be a smart idea when screening potential employees. A simple background check can save your business thousands of dollars by ensuring that your employees are honest in their representations and to protect against any potential negligent hiring law suits. For some positions, such as those involving financial information or providing care to other individuals, businesses may be required by law to conduct background checks.

However, conducting background checks in an improper manner can also open an employer up to liability. There are certain federal, state, and local laws associated with conducting background checks that employers must follow. These laws and regulations generally specify:
• How notice is to be given to the applicant;
• How written permission is to be obtained from the applicant;
• How any information obtained and used must be relevant to the job both as to how old the information is and how the specifics relate to job performance; and
• How the confidential information is to be handled and disposed of.

Depending on the nature of your business and the position, the rules regarding background checks may be different. An attorney can review your background check process to ensure that you are following the law while obtaining the most through information possible.

The Value of Performance Reviews

Wed, 20 Mar 2013 13:25:20 -0500

By: Amit Bindra

Across the U.S., employment related lawsuits rose during 2012. Illinois is an at-will state, so an employer can terminate an employee for any reason, as long as the reason is not illegal. However, Illinois businesses still face lawsuits regarding discrimination. Litigation can be expensive for a business, so certain policies can help minimize legal risks.

We have already covered the benefits of a severance agreement, and factors businesses should consider when drafting employee handbooks.

Another way a business can avoid costly litigation is to start a practice of annual performance reviews. Performance reviews can prevent an employee from being surprised when he or she is terminated. Annual reviews also ensure that a company has a documented performance related issues.

An effective performance review should be direct and clear. A business should communicate to an employee the specific job duties, and how the employee can be successful. It is important that reviews maintain a level of objectivity. Reviews cannot be based upon an individual's gender or race, but instead should be based on job-related matters. Someone with distinct knowledge of the position should conduct the review.

While performance reviews can be awkward or increase short term costs for a business, reviews can be helpful in the long run by managing an employee's expectations and documenting specific work-related problems.

Do you have a license for that?

Wed, 13 Mar 2013 10:15:47 -0500

By: Poonam K. Lakhani

There is a lot to think about when you start a new business. One major issue which new business owners often overlook are business license requirements. Whether you are selling goods or providing a service, chances are you will be required to obtain one or more business licenses to operate.

Business license requirements can differ based on state and municipal area. Not obtaining the necessary licenses can have serious consequences, including expensive fines and even suspension of business operations. Business owners often make the mistake of thinking that they have obtained all necessary licenses, or that their business does not require a license. In order to determine which licenses you need it is best to consult an experienced attorney. An attorney can also provide assistance and guidance with the process of obtaining licenses

Top 10 Tips for Launching a Business in Illinois - Tip 3: Plan Your Business Development

Tue, 12 Mar 2013 17:21:19 -0500

Before quitting my stable firm job, I sought advice from lawyers I respected, business owners I saw as successful, and my accountant. They all emphasized relationship marketing. But it was my accountant who told me that I needed to know where I would get business before making the leap.

He didn't tell me to write up a business plan or create a marketing road map. Instead, he simply advised that I put together a quick spreadsheet detailing where I expected to get clients, how much revenue I considered "for sure" and how much more I thought I could get.

Having revenue goals pushed me to create a marketing plan that could meet those goals. Knowing that you have business in the pipeline allows you to have an air of confidence. And, no matter what anyone else tells you, no one likes to do business with desperation. Business is just like dating, everyone wants the seemingly unattainable.

Top 10 Tips for Launching a Business in Illinois - Tip 2: Plan Your Money

Mon, 04 Mar 2013 13:13:50 -0500

Most businesses fail within the first year, but it's not usually because of a lack of good ideas. The fact is that most entrepreneurs overvalue their ideas. They underestimate the time and finances required to get the business off the ground and they overestimate potential revenue.

One of the biggest financial issues associated with starting your business will be how you survive without any income. Before you launch your business, plan for the following:

A capital investment. The old adage that "it takes money to make money" is not just a cliché. Rarely can an individual launch a business without putting up any money. Plan out your initial expenses and then double the amount. Everything always costs more than you think; and
A year without income. Even if your business starts generating revenue quickly, revenue does not always equate to profits. There are unforeseen costs associated with every business and to cover those costs you may need to go without income.

Great success is often preceded by repeated failure.

Top 10 Tips for Launching a Business in Illinois - Tip 1: Is Your Idea Feasible?

Mon, 25 Feb 2013 17:03:23 -0500

People come up with great business ideas every day. And, some of them even decide to take the risk and start their own business. But, the biggest misconception out there is that great ideas make great businesses. Coming up with a great idea is the easy part. Launching a business requires a whole lot more.

1. Is your idea really feasible?

Your idea might be great, but before you start investing substantial dollars or time into it, map out whether it's really feasible. Identify the following:

Your audience/market place and a need of theirs that your business will fulfill.
The up-front costs of launching the business.
The amount of time it will take for the business to generate revenue, a revenue estimate for the first 3 years and the likely sources of such revenue.
Whether the business can launch with a skeletal crew (i.e. just you) or other team members are necessary.

Ideas are exciting but without a framework for action steps, they are just concepts. If you cannot identify one or more of the above bullet points, you need to rethink your idea before moving forward with your business.

Are Severance Agreements Good for Business?

Fri, 22 Feb 2013 17:00:46 -0500

Illinois is an employment at-will state, which means an employer can terminate an employee for any reason, or no reason, at any time, so long as it is not for an illegal reason. However, even when you have a good business reason to terminate an employee it can be a good idea to get a release of claims signed by the employee.

A good business reason is not the same as cause. Cause for termination is usually when an employee violates crucial policies or repeatedly violates less crucial policies. Terminated employees who lose their job through no explicit fault of their own (company finances, bad fit, personality differences, etc.) do not usually understand the good business reasons behind the decision. Their perspective is usually vastly different from yours. This difference in perspective brings with it a big risk of dispute. Getting a release of claims greatly diminishes that risk.

Getting a release of claims though comes at a price, typically severance. The amount of severance that you offer usually depends on the employee's rank and tenure, but severance can be any amount beyond required final pay (including accrued but unused vacation). Offering a terminated employee a Severance Agreement (with a full release of claims) is a form of insurance. You get the assurance that you are really done with the employee. The employee will still have access to unemployment benefits, but he/she won't be filing unfounded claims with state or federal agencies or courts.

Small Business and Employment Policies Overload

Mon, 11 Feb 2013 11:23:23 -0500

Employment law is a scary term for a start-up or new small business owner. Everyone has heard horror stories about law suits. Even employers with the best of intentions can easily end up in trouble when it comes to following the rules. Many employers rush to create Employee Policies or purchase form Employee Handbooks with the hopes that having policies is enough to ward off the law. However, an employer who is not even sure about what rules might apply to the company should be very careful about defining workplace policies. Before running out and getting a comprehensive Employee Handbook that tries to cover every potential issue, keep some of the following thoughts in mind:

First, it is never good to put a policy in writing that you don't ever intend to follow. Even though most employers retain the right to amend policies at any time, employees look to your company's policies to determine expectations. If you are not sure which holidays will be paid, don't make promises.

Second, if you are not sure what the law is regarding a particular issue (such as overtime, vacation, and/or pay deductions), do you really want a detailed policy covering that issue? Sometimes no policy is better than a wring policy. Putting a non-compliant policy in writing could be a pretty big admission if a lawsuit arises.

Third, companies evolve and so should their policies. Having a huge book of policies that is signed and then filed away, never to be seen or heard from again seems pretty pointless. Make sure that changes to your company's culture can be reflected in your company's handbook.

Finally, there is such thing as too many details. An Employee Handbook should not be a reference of potential employment law claims for an employee to look up. I've seen handbooks that seem to be giving legal advice to employees. Does that sound like something you want to do? Your handbook should be a reflection of your business and the general expectations between the company and the employees.

Review Your Payroll Practices, or it Could Cost Your Business License.

Tue, 05 Feb 2013 16:02:30 -0500

By: Poonam K. Lakhani

Chicago is now the largest city in the nation with anti-wage theft legislation. On January 17, 2013, the City of Chicago passed an ordinance stating that should a business owner be found guilty of wage theft, the business owner's business license could be revoked. The new ordinance was championed by Alderman Ameya Pawar(47th Ward) and Arise Chicago Worker Center.

Under both federal and state law, it is currently illegal to withhold an employee's wages, fail to pay overtime, or pay below minimum wage. Employees are entitled to recover their wages, statutory damages and attorneys' fees. Now, employers can also lose their business license for violating wage laws.

Often, employers inadvertently violate wage laws because they do not adequately understand what they can and can't do. Most often, employers are guilty of delaying payments, failing to pay owed overtime, or misclassifying workers. In order to protect your business, it is a good idea to consult an attorney and review your payroll practices every year or so to ensure that your business is following the law.