By Ira Rosenblatt Guest Columnist Question: I own a successful printing company. One of my managers asked to take certain members of his sales department on an all expense paid white water rafting trip. The trip is to reward them for a record first quarter. I am concerned about the liability this trip might create. What can I do as an owner to eliminate or reduce risk to my company? Answer: Congratulations on your first quarter sales numbers! As your instincts are telling you, in addition to being a ton of fun, white water rafting is an inherently dangerous activity. Your concern presumes that your company would be liable should someone be injured on the trip, which, I am not willing to concede as this topic requires analysis far beyond the scope of this cursory response. Presuming that injury to one of your employees on the trip does create liability for your company, unfortunately, the only way to “eliminate” the risk causing you concern is to disapprove the trip. If you’re inclined to authorize the trip, there are a couple of steps you can take in advance to reduce or manage the risk to your company. First, I would check with my commercial insurance broker and ensure that my comprehensive general liability policy or worker’s compensation policy covers such claims. Second, I would require that each employee (including your manager) execute a release and waiver agreement prior to departing on the trip. This document is likely similar in nature to the release and waiver agreement the white water rafting company will require your employees to sign. The legal import of signing a properly drafted release and waiver agreement in this context is that the defendant (here, your company) will be found to have no legal duty to the plaintiff (here, your employees). Absent owing a duty, a party cannot be found to have acted negligently. To be enforceable, the release must be clear, unambiguous, contain a clear and comprehensive outline of the kinds of harm that may occur, and be explicit in expressing the intent of the parties. It is generally good practice to use at least 10 point font size or larger. Q: What is a Subchapter “S” Corporation? A: A Subchapter-S corporation is a corporation which has filed a certain election with the Internal Revenue Service. Although subchapter-S corporations and garden-variety corporations (sometimes referred to as “C-corps”) are both considered separate legal entities in the eyes of the law, only the latter is recognized as such for tax purposes. Consequently, C-corps’ profits are taxed twice once at the corporate level and again at the individual shareholder level if and when those profits are distributed as dividends. Selecting subchapter-S status alleviates the risk of double taxation. That is because subchapter-S corporations are taxed as partnerships, not as corporations. The result is that all profits (and losses) are passed through to the shareholders (each of whom is taxed at the individual level) in proportion to his/her stock ownership. There is no tax at the corporate level. That is why subchapter-S corporations are commonly referred to as “pass through” entities. Subchapter-S corporations still enjoy the same benefits of a C-corporation (i.e., limited liability). Although subchapter-S status may sound like it is a win-win, it is not appropriate in all circumstances. It is also subject to certain limitations, such as the number of shareholders allowed (no more than 100), single class of stock (except as to voting rights), election requires consent of all shareholders, and kind/type of shareholder (e.g., non-resident aliens may not own stock). Before electing or choosing not to elect subchapter-S status, I suggest you contact your corporate attorney or CPA. Q: We recently hired a reputable moving and storage company to move our manufacturing business from Nevada to California. Some inventory and machinery was damaged in the move. Our moving carrier has offered us pennies per pound for the damage, which falls tens of thousands of dollars short of making us whole. Can they do this? What options do we have? A: This area of the law is governed by a federal statute known as the Carmack Amendment. Under the Carmack Amendment, a motor carrier may limit its liability (so long as it is reasonable in light of the circumstances surrounding the transportation) by entering into a contract with its customer provided the carrier (1) secures a written contract with the shipper (you) providing you a choice of liability; (2) provides the shipper with a reasonable opportunity to choose between the levels of liability; and (3) issues a bill of lading prior to shipment. In this case, since you contracted with a “reputable” mover, I suspect they complied with each of these requirements. If they did, there is a good chance that unless you secured transit insurance, you will be limited to the damages set forth in your contract (e.g., $.60 a pound). I suggest you carefully review your contract documents, including your bill of lading, and if you are left with any doubts or concerns, consult with a lawyer experienced in transportation law. Q: I run a retail sales business. My manager has been calculating overtime for our sales people and some questions have arisen. Can you explain when overtime is triggered and how one calculates a regular hourly rate for an employee who earns both an hourly rate and commissions? A: We’ll presume that California labor laws (as opposed to federal laws) apply. A non-exempt employee (such as the ones you describe in your question) are entitled to an overtime rate of time-and-a-half for work performed in excess of 8 hours in any one day, or 40 hours in any one work week. A “workday” is any consecutive 24-hour period. A “workweek” is any 7 consecutive days starting with the same calendar day each week (e.g. Sunday through Saturday). An employee is entitled to overtime rate of double-time for work performed in excess of 12 hours in any one day, or any work in excess of 8 hours on any 7th day of a workweek. Meaning, if an employee works 7 days in a workweek (Sunday through Saturday in our example), the first 8 hours worked on Saturday are paid at a rate of time-and-a-half. Anything over the 8 hours on the 7th day (Saturday), is paid double-time. Notwithstanding the foregoing, there are wage orders that mandate different maximum hour standards for certain industries such as motion picture, live-in household, personal ambulance drivers, and agricultural occupations to name a few. Under California law, sales commissions are included in determining an employee’s “regular rate” of pay; it is not simply his/her hourly rate. If a sales person is paid a weekly commission, the commission is added to the total amount of hourly weekly pay then divided by the number of hours worked that week (up to a maximum of 50 hours). For example, say a commissioned employee is paid $10/hour, works 50 hours one week, and earns a one-week commission of $500. $10 x 50 hours = $500 + $500 commission = $1,000 total compensation & #247; 50 hours worked = $20 regular rate for that week. Which means the sales person is entitled to 10 hours of overtime at a rate of $30.00 per hour for that week. As sales commissions fluctuate, the sales person’s “regular rate” would need to be calculated each week. “This column contains general information and under no circumstances constitutes legal advice. This information is not provided in the context of an attorney-client relationship and nothing herein creates an attorney-client relationship. Readers should not act upon this general information without first seeking professional advice.” Ira Rosenblatt is a business and corporate lawyer and a co-founder and Director of Stone, Rosenblatt & Cha, a business law firm in Warner Center. Rosenblatt has earned Martindale-Hubbell’s highest rating (“AV”) for legal ability and ethics and is listed in Martindale-Hubbell’s National Bar Register of Preeminent Lawyers. He can be reached at [email protected].
