It is always wise to have the terms governing the owners’ of a business’s relations and the management of the business spelled out in writing, whether this be a shareholder agreement for a corporation, a partnership agreement for a partnership, or an operating agreement for a limited liability company (“LLC”). Since limited liability companies offer both the shield from personal liability of a corporation and the single taxation structure of a partnership, these are often the preferred structure for small businesses.
A frequent problem in New Jersey employment law occurs when a business offers someone a job without a contract, that person then quits their current employment, the business rescinds the offer, and the employee is left without a job. There is no contract, so the employee cannot sue for breach of contract. What can she do? In an important New Jersey employment law decision, the State Supreme Court ruled in the case of Goldfarb v. Solimine that the employee has a viable claim for promissory estoppel and may recover “reliance damages” from the prospective employer based on what she would have made had she not quit in reliance on the promise and stayed at her prior job. Promissory estoppel is a legal doctrine which provides that a party should be responsible for the consequences when a promisee relied on its promise and suffers damages when the promisor fails to perform.
David Solimine offered Jed Goldfarb a job managing his family’s investment portfolio. Goldfarb would receive an annual salary of $250,000-$275,000, plus ten to twenty percent of profits made because of his efforts or advice. Neither the offer nor a contract were ever put in writing. However, Goldfarb left his current job as a financial analyst (where he had made between $308,000 and $466,000 per year) in reliance on Solomine’s promise of employment. After Goldfarb quit, Solimine withdrew the offer and Goldfarb found himself unemployed.
In New Jersey, sale of a business is governed by the contract negotiated by the parties. But what if the contract is unclear, or the parties don’t agree on what the terms of an oral contract are? In the case of Lee v. Lee, involving the sale of a restaurant and liquor license in Bergen County, the Appellate Division examined several bedrock principles of New Jersey business law, including oral contracts, the duty of good faith and fair dealing, and how parties are required to deal with each other. The opinion offers good guidance for the behavior of the parties in the sale of a business in New Jersey.
Mikyung Lee and Seoung Ju Bang orally agreed with Jung Lee to sell them a restaurant he owned in Fort Lee, together with its liquor license. The purchase price was $892,000, with a $50,000 initial deposit, and then another $50,000 when the contract was signed, with the remainder to be paid over time. The buyers paid the first deposit, but before a contact was signed, Jung Lee said he needed the second $50,000 deposit. Believing him to be acting in good faith, they gave him the second deposit. He promised to send a written contract with the terms they agreed on, which included having Lee’s company, Plan J. Inc., a part of the transfer because it held the liquor license.
It is interesting that the trend in New Jersey employment law is to enforce arbitration agreements in employment contracts, while at the same time finding them unenforceable in consumer and commercial contracts. However, the law is the same: whatever the area, arbitration agreements are interpreted and enforced – or not enforceable – under New Jersey contract law. It’s therefore worth looking at two recent opinions in these areas to see what can be learned.
The Knight Case: Consumer Contracts and Consumer Fraud
In the first, a published opinion in case of Knight v. Vivint Solar Developer, LLC, the Appellate Division of the Superior Court of New Jersey stuck down an arbitration agreement which the defendants tried to enforce in a consumer fraud lawsuit over the sale of solar panels. After Knight sued, Vivint filed a motion to dismiss her complaint and enforce an arbitration agreement which required the parties to arbitrate their disputes.
As a result of the Coronavirus (“COVID-19”) pandemic, the federal government has passed several pieces of legislation in an attempt to provide relief to struggling businesses. One of these Acts is the Coronavirus Aid, Relief, and Economic Security Act (also known as the “CARES Act”). However, since this legislation was signed into law, the CARES Act has been subject to various interpretations, pitfalls, and continuously-evolving government guidance.
The CARES Act created and allocated approximately $350 billion to the Paycheck Protection Program (“PPP). However, those funds were almost immediately depleted by millions of businesses seeking assistance and the government thereafter allocated an additional $175 billion to the PPP.
The PPP provides loans to struggling businesses in the amount of two and a half times the small business’s average monthly payroll costs. Thus, if the average monthly payroll is $50,000, the business might be eligible for up to $125,000 in PPP loans. While the PPP is considered a loan program, the funds may be largely (or entirely) forgiven as long as the business uses the funds for approved expenses which are appropriately documented. However, like most aspects of the CARES Act and the PPP, there has been a great deal of uncertainty surrounding the specific requirements for loan forgiveness. The SBA (the United States Small Business Administration) alone has posted supplemental rules and guidance on the matter more than ten times in two months. Thus, as a result, the Paycheck Protection Program Flexibility Act was passed on June 5, 2020 amending the CARES Act. This new law has important ramifications for New Jersey small businesses.
As a result of the Novel Coronavirus (“COVID-19”), the federal government has passed significant legislation in an attempt to provide relief to businesses struggling with economic hardships as a result of widespread closures and stay-at-home orders. One major part of these governmental actions includes the passage of the Coronavirus Aid, Relief, and Economic Security Act (also known as the “CARES Act”) on April 2, 2020.
The CARES Act provides for approximately $2 trillion in aid through expanded unemployment assistance, individual relief checks, tax credits, loans, and grants to businesses which were closed or significantly effected by COVID-19, and funding to hospitals and health care facilities. Of this, approximately $350 billion was allocated to the CARES Act’s Paycheck Protection Program (“PPP). When that money was almost immediately sought by the millions of businesses seeking assistance, an additional $175 billion was additionally allocated.
The PPP limited its funding to each company to two and a half times the company’s average monthly payroll costs. While the PPP is considered a loan program, the funds may largely (or entirely) be forgiven as long as the company uses the funds for approved expenses. The details of exactly which expenses would be considered approved and how these funds could be used has been the subject of much uncertainty over the past several weeks. Indeed, the SBA (Small Business Administration) has posted additional rules and guidance on the matter more than 10 times in two months.
The Coronavirus (COV-19) has had a negative impact on everyone physically, mentally, and financially. Businesses are no different. Small and medium sized businesses are especially vulnerable in these troubled times. They are faced with difficult decisions such as whether to temporarily lay off their employees or which bills to pay when little or no revenue is being received.
At McLaughlin & Nardi, LLC, we focus a portion of our practice on advising small and medium sized businesses when faced with these difficult financial decisions. When a business becomes overwhelmed and unable to meet its financial obligations, filing a Chapter 11 bankruptcy may be a great means to get the business back on track.
As a result of the coronavirus (“COVID19”), the federal government has taken significant action to provide relief to individuals and business struggling with economic hardships as a result of lost business during widespread closures and stay-at-home orders. The first major legislation passed by the federal government was the Families First Coronavirus Response Act which provided job protection and paid leave provisions. Now, the government has recently passed the Coronavirus Aid, Relief, and Economic Security Act (also known as the “CARES Act”).
The CARES Act provides for approximately $2 trillion in relief aid through expanded unemployment assistance, individual relief checks, tax credits, loans, and grants to businesses which were closed or significantly effected by COVID-19, and funding to hospitals and health care facilities.
Small businesses in particular which are struggling with the current situation economically should look into applying for one or more of these relief options. For example, a business may apply for a $10,000 immediate advance to cover emergency costs that they are unable to pay because of the COVID-19 situation. Expenses covered would, of course, have to be legitimate business costs such as payroll and utilities.
The United States Third Circuit Court of Appeals (which hears appeals from the federal district courts in New Jersey, Delaware, Pennsylvania and the United States Virgin Islands) recently had the opportunity to address the state of New Jersey employment law on restrictive covenants in the case of ADP, LLC v. Rafferty.
In the Rafferty case, two ADP employees, Kristi Mork and Nicole Rafferty, agreed to restrictive covenants in exchange for an award of company stock. Because they were high performing employees, they agreed to restrictions in exchange for the stock award which were more onerous than lower performing employees were required to agree to. The restrictions applied whether they quit or were fired.
When a solid waste collection company enters into a contract to transfer ownership of assets, a petition for approval must be submitted the New Jersey Department of Environmental Protection. Assets may not be transferred until this approval is obtained. One area which the NJDEP evaluates prior to issuing such an approval is the impact of the transfer upon effective competition. This is a very detailed analysis which can be time consuming.
The solid waste industry serves a dynamic market and the NJDEP must continually evaluate the market to ensure that there are multiple companies serving the customers in each market. The controlling case law is found in United States v. Philadephia Nation Bank, 374 U.S. 321 (1963), in which the United States Supreme Court held that any sale which results in one company controlling thirty percent or more of the market and results in a significant increase in the concentration of companies in that market creates a lessening of effective competition. When that is found it creates a presumption which is rebutted if it is shown that the sale is not likely to have such anti-competitive effects.
When the NJDEP performs an analysis of effective competition, it will only prohibit asset transfers if the transfer increases the company’s level of concentration in the market to an extent that could facilitate collusion among a small number of remaining competitors. The NJDEP considers the following factors to determine effective competition: 1) the size of the company compared to the other companies providing the same service in the markets affected by the transfer; 2) the percentage of customers in the affected markets which will be served by the company after the transfer; and 3) this Herfindahl- Hirschman Index (HHI) of market concentration.