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Right now may seem like a tough time to start or own a small business. With concerns about the Affordable Care Act (Obamacare) and talk of raising the minimum wage, some people may wonder if this is the right time to venture out and live a life-long dream of owning their own company. However, so long as you seek out the advice of a knowledgeable and licensed attorney, now can be a great time to take that leap. And new surveys show that those who have done it are more optimistic than they have been in years.

Nationwide Small Business Owners Feel Circumstances Have Improved

The Central Valley Business Times reports that small business owners nationwide have an improved outlook according to the U.S. Bank Annual Small Business Survey. The survey measures the opinions of thousands of small business owners, and has done so for the past five years. Those surveyed are truly small business owners by any standard, as they all report less than $10 million in annual revenue. Half of the businesses have under $200,000 in annual revenue. This is the first time it has shown that the majority of small business owners are optimistic about the economy, saying it is in a state of recovery or expansion. This compares to the 2010 survey where nine out of ten small business owners classified the economy as being in a recession.

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In creating a start-up, it is important to form the business as the type of legal entity that best suits its needs and goals. Because there are numerous forms of entities to choose from, each with their advantages and disadvantages, choice of entity can be, absent expertise, a daunting task.

The three most common types of entities to choose from are Corporations, Limited Liability Companies, and General Partnerships. Often, the manner in which the start-up is to be funded is a primary factor in entity selection. For example, if you are seeking funding from family, friends, or angel investors, it makes sense to form as an LLC. This is because an LLC is a “pass-through” entity: it does not have entity-level taxation. In other words, it is the responsibility of the LLC’s shareholders and members to pay taxes on the entity profits relative to their respective ownerships portions. In addition to this single layer of taxation, LLCs are also an attractive choice because an LLC’s owners, or “members,” are not personally liable for the debts of the company.

Some of the most famous companies in the world began as start-up LLCs:

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A recent federal court ruling offers a good reminder of the many unique claims that may be made against employers by their unhappy employees. All Sacramento business owners–from established enterprises to start ups–should be familiar with their risks before trouble arises.

The Situation

Shaw Rahman was employed by Crystal Equation, a staffing company that assigned him to a job with AT&T. Rahman signed more than one document that specifically described his employment as “at-will,” and stated his employment could be terminated at any time.

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Many business owners, particularly start-ups, remain unaware of the complex legal issues involved in employer-employee relationships. It is critical to have guidance on these matters, to understand your risks, rights, and obligation as an employer. Consider employer duties to accommodate employees with disabilities.

For example, a case recently passed through the federal district court system regarding an employer’s failure to accommodate an employee with a disability. The Americans with Disabilities Act (ADA) states that an employer must make reasonable accommodations for an employee with a disability, if such accommodations are possible and do not cause undue hardship. Common accommodations include providing wheelchair accessible offices or meeting spaces, modifying work equipment or schedules, and adapting training procedures or specific job duties. Reasonable accommodation must be made to allow employees to complete the interview process, training programs, and regular job duties.

Gooden v. Consumers Energy Co.

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Landlords and business tenants entering into commercial leases in California should be aware of the legal issues surrounding lease renewal options. One of the best ways to do this it to examine two cases that have dealt with California commercial leases with options to extend.

In Ginsberg v. Gamson, 205 CA4th 873 (2012), the tenant and landlord executed a commercial retail lease in April 1996, for a five-year term, with an option to renew for additional five-year periods. After the first five-year term, the tenant renewed for a second term. During that term, a dispute arose over repairs and the tenant sued, alleging breach of the lease and intentional interference with use of the premises.

The landlord filed a cross claim, seeking a declaration that the lease allowed only one renewal. The trial court ruled that the lease gave the tenant the right to unlimited five-year extensions for 99 years. The jury subsequently found in favor of the tenant and awarded the tenant compensatory and punitive damages. The trial court struck the punitive damages award and the landlord appealed the remaining judgment. The court of appeals reversed the trial court’s interpretation of the lease renewal option, concluding that the trial court erred in construing the lease to give the tenant unlimited extensions; however, the court affirmed the order striking down the punitive damages award.

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A typical commercial lease in California requires a commercial tenant to maintain and repair the leased property and not commit “waste.” For legal purposes, waste is defined as permanent harm done to real property by a person or persons in legal possession of that property, such that the property’s value is diminished. If the tenant breaches the maintenance requirement, the landlord may provide a notice of default. If the tenant does not cure the breach, the landlord may terminate the lease and sue to recover the cost of repairs for damage to the property. But, what happens if the tenant does not cure the breach, and the landlord does not terminate the lease or the lease has not expired? Can the landlord sue to collect the cost of repairs for damage to the property? A recent decision by the California Court of Appeals for the Fourth District answers this question.

In Avalon Pacific-Santa Ana v. HD Supply Repair & Remodel, 192 Cal. App. 4th 1183 (2011), the Appeals Court held that a commercial landlord could not recover from a tenant the cost of repairs for damages where the parties continued to perform under their lease agreement, which had neither expired nor been terminated. The facts of the case are instructive.

HD Supply Repair & Remodel leased vacant warehouse and office space from Avalon Pacific-Santa Ana, intending to convert the space into a retail facility. The 10-year lease was set to expire in 2017, but included an option to extend. After demolishing the office space, HD Supply stopped renovations because of the economic downturn. HD Supply unsuccessfully attempted to sublease the property. The property eventually fell into disrepair, was vandalized, burglarized, and became home to vagrants. Avalon sued HD Supply for breach of the maintenance and repair obligations of the lease and for waste; however, Avalon never terminated the lease and HD Supply continued to pay rent of $50,000 per month. The case proceeded to trial, where a jury found in favor of Avalon, awarding $677,000 in damages for breach of the lease and $561,000 in damages for waste.

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Section 1954, subdivision (b) of the California Civil Code allows a landlord or property owner to enter a leased or rented dwelling to “exhibit the dwelling unit to prospective or actual purchasers.” Such entry may not be made “during other than normal business hours” unless the tenant gives consent, and the tenant must be given proper notice. While 24 hours is presumed to be reasonable notice, what are “normal business hours?” A decision by the California Court of Appeals in August of last year has answered this question.

Dromy v. Lukovsky

In Dromy v. Lukovsky, 219 Cal. App. 4th 278 (2013), landlord/property owner Dromy leased a condominium to tenant Lukovsky in 1994. In 2010, Dromy wished to sell the property and entered into a listing agreement with real estate agent Milstein. Lukovsky permitted Milstein to show the property to prospective purchasers by appointment, but she refused to allow weekend open houses. Dromy filed a declaratory action against Lukovsky in the Superior Court, alleging that Lukovsky’s refusal to allow weekend open houses was frustrating his efforts to sell the property. While the Superior Court ultimately agreed with Dromy, concluding that section 1954 “permits landlords to hold open houses on weekends with reasonable notice,” it sought to establish a schedule reasonable for both parties. The judgment provided as follows: (1) Milstein shall be permitted to hold two open houses per month; (2) open houses may be held on weekend days between 1:00 p.m. and 4:30 p.m.; (3) Dromy’s designated agent shall be present and tenant may be present during any open houses; and (4) Dromy’s designated agent shall provide ten days advance email notice to tenant of proposed open house dates, and tenant shall have 48 hours to acknowledge those dates or provide alternative dates. Lukovsky appealed this judgment and the California Court of Appeals for the Second District affirmed.

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Gawker Media, LLC is an online media company and blog network based in New York City. Last summer, three former interns sued the online publisher in Manhattan federal court, alleging that it violated minimum-wage laws by requiring interns to work at least 15 hours per week without pay. The complaint, which was filed on behalf of all of the company’s unpaid interns and seeks unpaid wages and overtime under the federal Fair Labor Standards Act (FLSA), alleges that “Gawker employs numerous other ‘interns’ in the same way, paying them nothing or underpaying them and utilizing their services to publish its content on the Internet, an enterprise that generates significant amounts of revenue for Gawker.”

Last week, PandoDaily reported that Gawker has begun filing documents in response to the lawsuit, many of which paint the company in a very hypocritical light. In several affidavits, Gawker employees, including managing editors, avert that the interns were rewarded with valuable experience that was all part of an informal training process: “Simply observing what it is like to work at a place like Gawker is valuable, and internships at Gawker sites are good for a person’s resume.” The hypocrisy: Last August, Gawker castigated Facebook COO Sheryl Sandberg for having one of her employees advertise for an unpaid assistant to help Sandberg on her book tour.

The case against Gawker was filed shortly after a federal judge ruled in favor of plaintiffs in a class-action lawsuit filed against Fox Searchlight Pictures in federal court in New York. In that case, two former interns who worked on the film “Black Swan,” claimed that Fox violated federal and state minimum wage and overtime laws. The plaintiffs alleged that they had the duties and responsibilities of regular employees, but did not receive adequate training and supervision, as required by the FSLA (an employer using unpaid interns must provide training and gain “no immediate advantage” from the interns, such as displacing a regular employee by performing his/her duties).

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The startup community has been hearing a lot lately about net neutrality. What is net neutrality? Why is it making headlines? Why should should startups be worried? In the following paragraphs, we will address these questions.

Net neutrality, also known as network neutrality or Internet neutrality, is the principle claiming that Internet service providers (ISPs) and government should treat all data on the Internet equally, meaning that Internet users should be able to access any web content they choose and use any applications they want, without their ISP imposing limitations or restrictions. Net neutrality regulations were first approved by the U.S. Federal Communications Commission (FCC) in December 2010. In January 2011, telecommunications giant Verizon filed suit against the FCC, challenging the net neutrality rules. In particular, Verizon argued that the FCC does not have enforcement authority.

Net neutrality is making headlines because, last month, in Verizon v. FCC, No. 11-1355 (D.C. Cir.), the U.S. Court of Appeals for the District of Columbia Circuit finally issued a ruling in the case, striking down the FCC’s net neutrality rules. The court ruled that because ISPs are not classified as traditional telecommunications services, or “common carriers,” the FCC cannot impose on them its anti-discriminatory regulations. The FCC has decided not to appeal the ruling; instead, the agency will examine the possibility of drafting new net neutrality rules. Yesterday, The New York Times reported that the FCC already has unveiled a new proposal that would “discourage Internet service providers from charging companies to stream their movies, music and other content through a faster express lane.” Although the FCC has not written the formal rules, it has begun accepting public comments on its newest proposal.

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This year, California small businesses and the legal community will be keeping a close eye on how the State Supreme Court rules on major disputes over arbitration agreements. An arbitration agreement is a written agreement between two parties, designating an arbitrator — instead of a court of law — to resolve any disputes that may arise out of their business relationship. Companies often require employees to sign arbitration agreements as a means of limiting the costs associated with any disputes that may arise out of the employment relationship.

Legality and History of Arbitration Agreements

As far as the legality of arbitration agreements, the Federal Arbitration Act of 1925 (FAA) provides that arbitration agreements are “valid, irrevocable and enforceable, and entitled to the same respect as other contracts.” Despite this, several years ago, the California Supreme Court struck down an arbitration clause in a consumer agreement because the arbitration agreement did not permit the consumer to bring a class action arbitration. In a 5-4 decision, the United States Supreme Court reversed that ruling, holding that state law cannot interfere with an arbitration agreement’s elimination of the class action mechanism to resolve disputes. In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Court held that, “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration…. We find it hard to believe that defendants would bet the company with no effective means of review, and even harder to believe Congress would have intended to allow courts to force such a decision.” Accordingly, the Court found that the FAA preempts California state law and ruled that states may not enact special rules that disfavor arbitration, even in the interest of public policy. The decision effectively made it much more difficult for employees to file employment-related class actions, and led to California courts issuing very conflicting and often confusing decisions in employment cases involving arbitration agreements.