Nashville Business Attorneys Blog

Questions About the Final Paycheck for Terminated Employees.

Thu, 12 Jan 2012 13:07:06 -0600

I recently had a business client call me with some questions about the final paycheck for an employee that he was terminating. These questions come up from time to time for our Tennessee business attorneys and every business that has employees in Tennessee should be familiar with Tennessee law in regard to handling final paychecks for employees who have either voluntarily quit or have been discharged.

Am I required to pay for unused vacation time when an employee quits or is discharged?

Tennessee wage regulations do not require that unused vacation pay or other compensatory time be paid to the employee in his or her final paycheck unless the company's policy or its labor agreement specifically requires payment of such compensation. Providing paid time off to employees is voluntary for employers and the employer may impose limitations and conditions on unused paid time off.

The company advanced funds to an employee and the employee has not repaid these funds. Can I deduct these funds from the employee's final paycheck?

Tennessee law provides that an employer may offset an employee's wages for an amount the employee owes the employer if the following conditions are met:

The employer agrees to advance the employee wages prior to the date the wages are due and owing, agrees to otherwise lend the employee money, or permits the employee to charge personal items on the business credit card issued to the employee; and

The employee has signed a written agreement prior to the employer advancing wages or lending money to the employee allowing the employer to offset the employee's wages for any amount the employee owes the employer, and the employer has in its possession at the time of the offset a copy of the signed agreement; and

The employer notifies the employee in writing fourteen (14) days prior to the payment of the wages that there is an amount the employee owes the employer and that the employee's wages may be offset if the amount is not paid prior to the payment of the wages, and that the employee may submit a sworn affidavit contesting the amount owed to the employer with a copy to the Tennessee Department of Labor and Workforce Development no later than seven (7) days after receiving the notification.

If these conditions have not been met, or if the employee submits a sworn affidavit contesting the amount owed the employer cannot offset the employee's wages for an amount the employee owes the employer. However, the employer may commence an appropriate civil action against the employee to recover the amount owed.

New Tennessee Employment Verification Law Takes Effect January 1, 2012

Mon, 02 Jan 2012 11:00:00 -0600

There are various new laws in the State of Tennessee taking effect January 1, 2012 and our Tennessee business attorneys have been reviewing them to determine their impact on our clients. One of these laws that will impact the hiring practices of most Tennessee businesses is the Tennessee Lawful Employment Act. This Act requires Tennessee employers verify the eligibility of all new employees to work in the United States prior to employment. The Act initially takes effect on January 1, 2012 and will be phased in over time according to the business size. Employers may comply with this Act by one of two methods.

Employers may enroll in the Federal government's E-Verify program and verify the eligibility of new employees prior to employment by using the E-Verify program. E-Verify is a free work authorization verification service provided by the Department of Homeland Security. The advantage to using the E-Verify program is that if an employer hires an employee who is not eligible to work in the United States but has been cleared by the E-Verify program, the employer will not be liable under the Act. Records from the E-Verify program must be maintained for 3 years after the hire date of the employee or for 1 year after the employee's employment is terminated, whichever is later. The E-Verify program can be found here.

As an alternative to the E-Verify program, employers may request and maintain any one of the following documents prior to the employee beginning work:

A valid Tennessee driver license or photo identification license issued by the Department of Safety;
A valid driver license or photo identification license issued by another state where the issuance requirements are at least as strict as those in Tennessee, as determined by the Department of Safety;
An official birth certificate issued by a United States state, jurisdiction or territory;
A United States government-issued certified birth certificate;
A valid, unexpired United States passport;
A United States certificate of birth abroad;
A report of birth abroad of a citizen of the United States;
A certificate of citizenship;
A certificate of naturalization;
A United States citizen identification card; or
Valid alien registration documentation or other proof of current immigration registration recognized by the United States Department of Homeland Security that contains the individual's complete legal name and current alien admission number or alien file number.

What happens if I forget to file my Annual Report with the Tennessee Secretary of State?

Thu, 29 Dec 2011 09:00:00 -0600

Many of our business clients have been calling our Tennessee business law firm because they are receiving a notice from the Tennessee Secretary of State that their Annual Reports are due. All business entities registered in Tennessee must file an Annual Report with the Secretary of State. The Annual Report provides the Secretary of State with updated information about the business, such as the mailing address, the principal office address, the registered agent and office, and the officers and directors or managers. The filing fee ranges from $20.00 for a corporation to $300.00 for a limited liability company with six or fewer members. There is an extra $20.00 charge for changes to the Registered Agent or office.

The Tennessee Secretary of State provides a web site where you can file the Annual Report electronically. You can also fill out and print the Annual Report in a paper form and mail it to the Secretary of State if you do not wish to file electronically.

If you do not receive a notice that your Annual Report is due, it may be that you have failed to file the Annual Report in the past. You can check to see the status of your business entity here.

What happens if I fail to file my Annual Report? First you will receive a Notice of Determination stating that you have failed to file the Annual Report. You have two months from the date of the Notice to file the Annual Report or the business entity will be administratively dissolved (or the certificate of authority will be revoked if the business is a foreign entity).

How do I sign for my business entity to avoid personal liability?

Thu, 22 Dec 2011 11:15:00 -0600

Whenever I setup a new business entity for a client, whether a corporation or limited liability company, I always provide instructions on the proper way to sign contracts and other documents in a representative capacity for the business entity. The client has setup a legal entity to protect his personal assets and must be careful in signing such documents so as not to assume any personal liability. This legal entity is separate and independent from the client and the client must make sure that he maintains that distinction in all business transactions.

An example of the proper way to sign contracts and documents for the business entity would be:

MY NEW BUSINESS, LLC

__________________________
By: Client Name
Its: President

This puts everyone on notice that the business entity is entering into the contract and not the client individually. The client is signing for the business entity in a representative capacity as its authorized officer. If the contract is a pre-printed form, then the authorized representative should write in the full company name, and "By:" followed by the representative's signature and title in order to avoid personal liability.

This of course assumes that the contract or document has not provided any "personal guarantees" which could result in personal liability to the representative signer as was the case in a contract dispute recently decided by the Tennessee Supreme Court. The president of a limited liability company signed a commercial credit application with a vendor that stated "I do unconditionally ... personally guarantee this credit account and payments of any and all amounts due by the above business." Below this, the president signed his name as president of the company. The company defaulted on the balance of the account and the vendor filed suit against both the company and the president.

How can I make sure that my business continues after my death or retirement?

Thu, 15 Dec 2011 11:24:00 -0600

As a Nashville business attorney, I have recently been working with several clients in developing business perpetuation plans. These plans are designed to ensure that their business continues to grow and prosper by offering ownership interests in the business to a new generation of management who, as determined by the owners, will contribute to the continued success of the business. Business perpetuation plans also provide for what would happen at the occurrence of certain triggering events such as the death, disability, retirement, divorce, or bankruptcy of an owner.

A key component of a business perpetuation plan is a buy-sell agreement. The buy-sell agreement specifies who can purchase the ownership interest in the business at the occurrence of a triggering event, how such ownership interest would be valued, the terms of payment by the purchaser, and a definition of the triggering events.

There are three basic forms of buy-sell agreements and every business entity with more than one owner should have one in place. The cross purchase agreement provides for the withdrawing owner to sell his interest in the business to the remaining owners. The entity purchase agreement provides for the business entity to purchase the withdrawing owner's interest in the business. The hybrid agreement provides that the business entity has first right to purchase the withdrawing owner's interest in the business and if it does not then the remaining owners can purchase the withdrawing owner's interest.

The owners can specify in the buy-sell agreement how to determine a fair purchase price for the business interest. For example, the owners can agree on a fixed price and update that fixed price from time to time. They can set the purchase price as the book value of the business or some multiple of the book value as shown on its most recent year-end balance sheet. They can base the purchase price on the past profits of the business. Finally, the owners can specify that the purchase price will be determined by an appraisal performed by a professional appraiser familiar with the particular type of business.

Frequently life insurance on the lives of the owners is used to fund the purchase of the ownership interest. However, if the owners are uninsurable, then more innovative methods of funding may be needed, especially if the potential purchasers are younger individuals with limited resources to purchase the ownership interest.

Do I have to include Inc. or LLC in my Tennessee business name?

Wed, 07 Dec 2011 07:50:24 -0600

I recently received a telephone call from a client who wanted to consult a Nashville business attorney about setting up a new company in Nashville. After establishing that an S Corporation would be the best form of business entity for his new company we began discussing the business name. My client had already decided on a name which he wanted to transact his business as. I verified that the name was available with the Tennessee Secretary of State and it seemed we were ready to proceed. Then my client asked, "Do I have to include Inc. in my business name?"

Well, the short answer was "Yes." The Tennessee Business Corporation Act sets various requirements on a corporate name, one of which is the requirement that a corporation name must contain one of the corporate designations "corporation," "incorporated," "company," or the abbreviation "corp.," "inc.," "co." A similar requirement would apply if my client had opted for another business entity such as a Limited Liability Company, Limited Partnership, or Limited Liability Partnership.

But my client protested this requirement, stating that he wanted to set up an S Corporation, but he wanted to operate his business under the name he had selected which did not include "Inc." The solution I suggested to him was to select an appropriate name for his corporation which would include the required "Inc." and then file an application to register his preferred business name as an assumed corporate name. My client was happy! He could have the business entity he wanted and operate his business with the name he had selected.

An assumed corporate name can be any name used by the corporation other than its true corporate name. The assumed corporate name must comply with the requirements of the Tennessee Business Corporation Act except that it need not contain the corporate designations. Before transacting business under an assumed corporate name the corporation must file an application with the Secretary of State. The right to use the assumed corporate name is effective for five (5) years and can be renewed for additional five year periods.