With very few exceptions, your employer cannot tell you what to do and what not to do while you are not at work.  In an age where many of us respond to work-related emails around the clock, it is easy to feel like your work is controlling you even on your days off and that you are on duty every minute of every day.  Imagine if your former employer could control you even after you quit working for them.  Far from being a dystopian nightmare, that is the idea behind non-compete agreements.  A non-compete agreement, also known as a restrictive covenant, is a legally enforceable agreement specifying things that a former employee is not allowed to do for a set period of time after they stop working for the employer.  Just where is the line between fair business practices and unnecessary meddling in a former employee’s life, though?  If you are involved in a business dispute related to a non-compete agreement, contact an Alabama business law attorney.

The Theory Behind Non-Compete Agreements

In many professional fields, especially those related to the development and sale of high-tech products, employees may become party to highly specialized and privileged information regarding the products and the company’s plans to develop new technologies.  Think of how closely Kentucky Fried Chicken guards its recipe of “eleven secret herbs and spices;” a competitor could spend years experimenting with combinations of eleven seasonings that would taste good on fried chicken and eventually come up with something similar to KFC’s proprietary blend.  Now think of how much more closely you would guard your trade secrets if you were making life-saving medications.

Alabama case law has been clear, though, that non-compete agreements signed before the employee begins working for the company are not valid.  Employers should show employees a copy of the non-compete agreement they are expected to sign, but the employee should not sign the agreement before their first day of work.  If they do, and the company later sues the former employee for violating a non-compete agreement, the court will decide in favor of the former employee, on the grounds that the agreement is not valid.

Details of the Ameritox Case

Ameritox made medical products for urinalysis drug screenings.  Eric Dawson began working for Ameritox on April 11, 2011.  On April 7 of that year, the week before he started his job, he signed a non-compete agreement, saying he would not work for any other company that competed with Ameritox for a year after he stopped working for the company.  When Dawson and Ameritox went to court about a dispute over the non-compete agreement, the court ruled that the agreement was not valid, because Dawson had signed it before his first day of employment with Ameritox.

Let Us Help You Today

A business law attorney may be able to help you resolve disputes related to a non-compete agreement or other type of business agreement.  Contact the Alabama business & corporate law attorneys at Cloud Willis & Ellis for a consultation.

Resource:

casetext.com/case/dawson-v-ameritox-ltd

Even though TV shows that portray civil legal disputes, such as The People’s Court or Judge Judy, tend to oversimplify the legal issues, anyone who grew up watching those shows came away understanding the importance of written contracts.  Often, one of the parties would claim that the other had promised them something, but the judge would always say that, without a written agreement, there was insufficient evidence of this promise.  Even the simplest written contracts, even if they are just a few sentences, can be legally enforceable, but the more details you specify in the contract, the clearer it is whether the parties are abiding by the terms of the contract.  If you need to write a contract, or if a person with whom you made a contract has violated its terms, contact a Birmingham business law attorney.

What Is Breach of Contract?

“Breach” is just a legal term for “break.”  Breach of contract is when one party does not do what they formally promised to do when signing the contract.  For example, an employee can sue his employer for breach of contract if the employer pays the employee less than what it promised in the contract.  Likewise, an employer can sue an employee for breach of contract if the employee moves out of town in the middle of the contract period, when the contract requires her to work onsite in the city where she was hired.  You can also sue for breach of contract if, strictly speaking, you are the one failing to do what the contract indicates, but it is actually the other party’s actions that have made it impossible to fulfill your end of the agreement.  For example, if a client hired you to build an in-ground pool, but every time you show up to dig a space for the pool, you find that the client is using the designated land as a dog park.

An Alabama Breach of Contract Story

Vince Lennon has filed a lawsuit against his former employer, Alabama News Network, also known as WAKA, where Lennon worked as a sports newscaster, for breach of contract, among other claims.  Upon being hired, Lennon moved from Tennessee to Alabama at his own expense.  He claims that WAKA did not pay him the salary he was promised and did not reimburse him for relocation expenses, as specified in the contract.  He claims that it was impossible for him to do his job successfully, as his employer did not provide adequate cameras, nor did it make editing and production staff members available to him to produce his segments.  He quit working at WAKA, but the lawsuit is still pending.

Contact Us Today for Help

Before you sign a contract, even if you are the one who wrote it, it is best to have a lawyer review it to alert you to potential problems that could arise from it.  Contact the Alabama business and corporate litigation attorneys at Cloud Willis & Ellis for a consultation.

Resource:

al.com/news/montgomery/2019/04/former-sports-anchor-sues-alabama-tv-station-for-discrimination-fraud.html

Corporate Merger Freeze Outs

A corporate freeze out, or “squeeze out,” as it is often called, is every bit as catty as it sounds. In the most basic sense of the term, a freeze out occurs when the majority shareholders of an organization pressure the minority shareholders to sell their interests in the company. Typically, the minority shareholders do not want to sell, so the majority use a variety of tactics to get the minority to cave, such as terminating the minority’s employees or refusing to declare dividends. Many freeze outs are also often accomplished via mergers and acquisitions. If a freeze out is successful, it renders the minorities’ voting rights useless. Though some squeeze out tactics are permissible, others are illegal under Alabama law. If you suspect you are the victim of a squeeze out, consult with a Birmingham business litigation lawyer today.

The Basics of a Merger Squeeze Out 

In a typical merger squeeze out, the majority shareholders may set up a new entity that they wish to own and control. This new entity would then offer the minority shareholders a tender offer to sell their shares in the new organization and therefore give up their decision making rights. If the new entity is successful in obtaining the minority shareholders’ rights, the acquiring company—which would be the new entity—would then assume the assets of the old entity and merge them into the new corporation.

Though, in this type of scenario, the minority shareholders did not sell their rights to the old organization, the fact that the old entity no longer exists essentially renders any shares they possess of the old organization useless.

Establishing the Validity of a Merger Squeeze Out 

Historically, courts are hesitant to intervene in corporate squeeze outs, as one of the perks of owning the majority share is the fact that you do have more control over the corporation. This includes more control over the company’s future. However, several cases have set precedence for freeze out cases.

For instance, in the 1952 case of Sterling v. Mayflower Hotel Corp., the Delaware Supreme Court established a “fairness” standard that other courts should apply to merger freeze outs. However, even this decision left it up to the court’s discretion to determine what is and is not fair.

Another court case established a “valid purpose” test, which is a more concrete method of determining the validity of a freeze out than the fairness test. Per the “valid purpose” test, the majority shareholders must prove that an economic purpose for the merger exists. If the only purpose of the merger is to squeeze out minority shareholders, the courts are likely to declare a freeze out unlawful and order the majority members to compensate the minority.

What to Do in the Event of a Merger Freeze Out 

Though many courts are hesitant to intervene in these types of situations, in cases in which majority shareholders show a blatant disregard for the majority’s rights, an Alabama court may decide that legal remedies are in order. If you are getting pushed out of your corporation, it does not hurt to discuss your rights and possible remedies with an experienced Alabama corporate litigation attorney. Contact Cloud Willis & Ellis today to learn more about how we can help you.

Resources:

investopedia.com/terms/f/freeze-out.asp

ir.lawnet.fordham.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=2337&context=flr

Why You Should Have an Operating Agreement With an LLC

It is entirely possible to run a business without an operating agreement, but will that business be successful? Probably not. Running a business without an operating agreement is a bit like a Birmingham visitor trying to make it from the Birmingham Zoo to Oak Mountain State Park without a GPS. That person is bound to make a lot of unnecessary stops, experience high levels of frustration, and expend more resources than had he or she just put forth the funds to buy a GPS in the first place. Yes, crafting an operating agreement can be a time-consuming process, but as you grow your business, it can save you a lot of headache, time, and money.

If you are a member of an LLC, and if you have yet to create an operating agreement, contact the Alabama corporate litigation attorneys at Cloud Willis & Ellis to get started on crafting this important contract today.

What is an Operating Agreement? 

In brief, your operating agreement is your how-to manual for running your business. It defines key aspects of your business such as member names, roles, and responsibilities. It should also state what percentage of the business each member owns and how profits and losses will be distributed to each party.

An operating agreement also outlines how you and other members of your LLC will make business decisions. For instance, the person who runs the hands-on part of the business may be responsible for directing day-to-day functions, while the person who takes care of the finances may oversee investments. Your operating agreement may state that all members should be involved when making major decisions, such as those regarding expansion, purchasing equipment or real estate, or changing locations.

Another important issue your operating agreement should address is the death or withdrawal of a member of the LLC. The agreement should outline to whom a member may sell his or her portion of a company should he or she wish to leave the company for whatever reason. It should also address to whom shares of the company will go upon the death of a member—to his or her family members or to other members of the LLC.

What Happens When You Do Not Have an Operating Agreement? 

If you do not have an operating agreement, you and other members of the LLC are bound to run into several pitfalls. Those pitfalls will likely occur in your day-to-day operations (for instance, if you do not have clearly defined roles, you may find you and your partners arguing amongst yourselves over who handles the finances/customer relations/labor), but they are sure to arise in long-term complications. Some common long-term issues LLCs run into when they operate without an operating agreement include the following:

• The LLC must cease operations because a member has passed away;
• A deceased member’s share of the company passes to the wrong person, such as a disgruntled ex-wife;
• The majority member sells out to a person who does not want to buy the minority member’s share, thereby leaving the minority member with a new partner;
• The majority member wants to sell out but the interested party only wants to buy if he or she can buy the remaining shares; the minority member does not wish to sell;
• The majority member sells out without first offering his or her shares to the minority member, which is legal because no right of first refusal clause exists; or
• One member strips the LLC’s bank account and puts the money into a new account solely in his or her name, thereby leaving the other member or members without funds.

Those are just a few of the most common issues LLCs face when they choose to operate without an operating agreement. You can prevent these issues by putting forth the time and effort into creating a sound contract that guides your business decisions.

Why Retain the Help of a Lawyer? 

At Cloud Willis & Ellis, we are well versed in contract law and can help you craft an operating agreement that includes all the necessary provisions. Though you can find sample agreements online, every business is unique and requires unique considerations. Our Alabama contract attorneys can help you evaluate your distinctive needs and draft an agreement designed to help you avoid those issues you are most likely to encounter. Contact our law firm today to discuss your needs more in depth.