First of all, we would like to wish you a happy, healthy, and productive new year.  As 2016 quickly gets underway, I’m sure you’ve been thinking of ways to become more efficient and successful this year. Yet, this year promises to be challenging in many respects.  Many consumers will continue to struggle to get their ends meet and turbulent markets will again test our confidence in our financial system.  We also don’t anticipate any significant changes in the country’s political or business environment that would promote legitimate business interests.  In times like this, it’s important to plan ahead and take the necessary action to mitigate significant legal risks associated with your business.

Legal Risks

As in the past, those businesses that take the necessary action to prepare for the challenging economic and business environment will use it as an opportunity to expand their market share.  So, to help you to start the new year with the right action plan, from the legal perspective, let me recommend you to take the following steps this year:
  • If you have business partners, review / create a buy-sell agreement and obtain an adequate life insurance policy to make sure that you have a written plan (and the necessary funds) to buy-out the ill/deceased business partner(s) in such an event.  Unfortunately, most of our clients don’t have buy-sell agreements and/or fail to maintain an active life insurance policies to fund the buy-out option in such agreements.
  • Review / create your employee handbook to make sure that it (i) accurately reflects your actual business practices and employee benefits and (ii) covers the new legal areas, such as data privacy, certain types of non-discrimination, and genetic testing, etc.
  • Review your relationship with independent contractors (“1099 employees”), as such relationships are frequently misclassified.  The misclassification of employees as independent contractors is prevalent in trucking, IT, consulting, and construction industries.  If your business is audited and any of your employees are misclassified as independent contractors, your business will be subject to devastating penalties, interest, overtime wages, and federal and state payroll taxes (including income taxes, workers compensation and unemployment insurance liabilities and penalties).  More importantly, employee misclassifiaction puts the business owners’ and officers’ personal assets at risk for their willful violation of the applicable laws.
How much resources should you invest on your risk mitigation planning.  Typically, we recommend to allocate about 5% of the business’ gross revenue each year.  Obviously, each industry has unique set of legal risks and business challenges, which will affect the amount of resources necessary to effectively mitigate those risks.  Regardless of the industry, however, each business should evaluate its legal risks on an annual basis and take the steps necessary to mitigate those risks.
Unfortunately, legal risks are frequently neglected by the business owners.  Such business owners fail to recognize that the legal risk management is an integral part of the business planning.  If not timely addressed, those risks can lead to devastating financial consequences.  Please don’t be one of those businesses this year!

This article is intended to serve as a general summary of the issues outlined therein.  While this article may include general guidance, it is not intended as, nor is it a substitute for, a qualified legal advice. Your receipt of this article from Lexern Law Group, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG.  The opinions expressed in this articles are those of the authors of the article and does not reflect the opinion of the LLG.