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business law

COVID-19 Impacts and a Potential Avenue for Contract Relief

pen on a contract documentAs the impacts of the COVID-19 virus spread and more businesses begin slowing or ceasing operations, some by government order, others voluntarily, many businesses are left wondering whether their contracts contain any avenue to excuse their non-performance during the emergency. Most turn immediately to the “force majeure” provisions, hoping to find relief. We have received numerous inquiries from our clients over the past days regarding force majeure clauses. The force majeure term generally lives among the boilerplate terms of a contract, and may not have been heavily reviewed or discussed (if at all) by the parties during contract negotiation. Accordingly, most force majeure provisions take a generalized catch-all approach, which could potentially benefit such an unusual situation as the COVID-19 pandemic.

From a general standpoint, the concept of force majeure is intended to excuse the performance of one or both parties to a contract when that performance is prevented or delayed by some event outside of the control of the performing party. The basic idea is that if a party cannot avoid, prevent, or overcome the occurrence of an event or circumstance that was not foreseen or foreseeable at the time of contracting, the affected party should be excused from any delay that is caused or, in some cases, the party may be excused from performing altogether. In practice, however, the exercise becomes more complicated. Force majeure provisions, like all other provisions in a contract, are subject to negotiation, and while the basic idea remains as described above, the application of this idea in each contract can vary widely. For instance, the term may only protect one party, it may have strict notice requirements, or it may be limited to a specific set of enumerated circumstances. The devil is truly in the details.

Unfortunately, the inquiry does not stop there. Assuming that the force majeure provision in your contract applies to your performance and encapsulates the effects of the COVID-19 virus, the critical question remaining is whether your performance is actually prevented by this emergency. Some cases may be clearer, such as when your business is ordered by a local, state or federal agency to cease operations. However, many businesses have not yet received such an order, meaning their cases for force majeure relief are murky.

In either case, the two key factors to consider are (1) what type of performance is required and (2) is the direct cause of non-performance outside of the party’s control? The answers to these questions are, unsurprisingly, dependent on the particular circumstances of each case. Some businesses may be directly prevented from performing under one or more contracts. Many businesses, however, may be left in a tough position where performance is possible, but is neither advisable nor profitable. While there may be other avenues for relief in certain circumstances, the best course of action in this situation may be to open a dialogue with your counterparty with the goal of clarifying (and properly documenting) that that anticipated impacts of the COVID-19 emergency will be treated as force majeure impacts.

As mentioned above, the impact, and potential avenues for contractual relief, arising from the COVID-19 emergency will depend greatly on the particular facts of each situation and, as is generally the case, there is no one-size-fits-all solution. In order to discuss the impacts of the COVID-19 emergency or the particular circumstances of your company’s situation, please contact one of the corporate and transactional attorneys at GreeneHurlocker.

Duties of Loyalty for Corporate Board Members versus LLC Managers

Limited Liability Companies (LLC’s) are functional and flexible forms of ownership for operating companies as well as investment vehicles. As common as LLC’s are today, we ought to remember that relative to other forms of legal entities, LLC’s are still very new. It was only as recently as 1996 that all fifty states had enacted limited liability company statutes, so in many states these forms of ownership are less than 30 years old. For instance, the Virginia Limited Liability Company Act (VLLCA) was only originally passed in 1991, making it only 29 years old. Thus, the body of law governing LLC’s is much less robust than that of corporations or partnerships.

Twice in the last few months, we have been asked by clients to look into issues regarding the duties of managers of a Virginia LLC, and it’s illustrative of a key difference of the two entity structures, and the much smaller body of case law regarding limited liability companies versus corporations. The key statutory provision outlining the duty a director owes a corporation is Virginia Stock Corporation Act (VSCA) Section 13.1-690, which states that “A director shall discharge his duties as a director, including his duties as a member of a committee, in accordance with his good faith business judgment of the best interests of the corporation.” The key statutory provision outlining the duty a manager owes a limited liability company is VSCA Section 13.1-1024.1, which states that “A manager shall discharge his or its duties as a manager in accordance with the manager’s good faith business judgment of the best interests of the limited liability company.”

They seem almost identical, right? Perhaps, but a body of case law in Virginia has confirmed that corporate directors have a common law duty of care and a duty of loyalty to the corporation underpinning Section 13.1-690 (See Willard v. Moneta Bldg. Supply, 515 S.E.2d 277 (Va. 1999), Feddeman & Co. v. Langan Associates, 260 Va. 35, 530 S.E.2d 668 (2000), Simmons v. Miller, 261 Va. 561, 544 S.E.2d 666, (2001)). In contrast, there is no case law in Virginia establishing a common law duty of loyalty by managers to the LLC. To the contrary, limited case law applying Virginia law indicates that managers affirmatively do not have a duty of loyalty to their LLC. (See In re Virginia Broadband, LLC, 2014 BL 313170 (Bankr. W.D. Va. 2014)).

The VSCA also contains Section 13.1-691, titled “Director conflict of interests”. Section 13.1-691 defines certain transactions that would cause a conflict of interest with a director, and creates something akin to a safe harbor for a corporation’s board of directors engaging in such a transaction if certain information is disclosed and certain procedures are followed. While this statute does govern specific acts of potential self-dealing, the duty of loyalty of a director to their corporation is more generally governed by Section 13.1-690 and the common law described above. Stated differently, while Section 13.1-691 only covers transactions between a director and their corporation, the general duty of loyalty underpinning Section 13.1-690 covers a far broader set of possible actions by a director. (See Goolsby & Haas on Virginia Corporations, 6th Ed., Section 9.8, p. 247).

Despite this seemingly large gap of protection for limited liability companies, all is not lost. Another major difference between corporations and limited liability companies is the flexibility, as mentioned at the top of this post, that LLC members may contract, via an operating agreement, for a set of governance provisions customized to their specific needs, as long as those contracted provisions do not violate the Virginia Limited Liability Company Act. The members could agree that managers have a duty of loyalty to the LLC, and they could also define its parameters. They could choose to limit the duty of loyalty to the equivalent of Section 13.1-691 of the VSCA, or they could state that managers are subject to the same standards applicable to directors of a corporation.

It is very important to note that these comments are only applicable to Virginia LLC’s and the law applicable in other jurisdictions may be quite different. For instance, in Delaware, by far the most popular jurisdiction for forming LLC’s, the default rule is the complete opposite. In the absence of a provision in the operating agreement to the contrary, managers and controlling members of an LLC owe a duty of care and a duty of loyalty to the LLC. (Delaware Limited Liability Company Act, Sections 18-1104 and 18-1101(c)).

The examples described in this post is just one of a number of important considerations when forming a limited liability company. Do not rely on a form downloaded from the internet. The corporate attorneys at GreeneHurlocker commonly assist clients with the formation of corporations, limited liability companies and partnerships, so please contact me or one of the other members of our corporate team to discuss these issues if you are considering forming a new company.

Ideas Are Just That: Part 3

We’ve been sharing a series of blog posts and videos here and here about how an idea is just that: an idea, and how there are some basic, critical things a high-potential start-up technology company founder must do in order to make any idea worth having and building upon. As I said in my first post, the fact is, most ideas suck. So a founder needs to be sure this idea is worth making it the most important thing in her life for the next months or years.

My third suggestion for the immediate post-idea step is: Focus obsessively on creating a minimally viable product.

Don’t get caught up in the romance of the wonderfulness or inevitability of your idea, the greatness of your team, or the exuberant free feeling of having decided to jump in with both feet. The fact is, you haven’t yet accomplished the whole reason for doing this in the first place, which is selling something to people who want to buy what you have to sell. The excitement is going to wear off and then it’ll be time to get to work. If you don’t get to work immediately, you probably will have lost your opportunity.

It is all about speed.

Too many startups begin with an idea for a product that they think people want. When it isn’t resonating with customers, it is often because the founders never spoke to prospective customers and determined whether or not the product was interesting. When customers ultimately communicate, through their indifference, that they don’t care about the product, the startup fails.
The truly most important question you need to start asking yourself is the following. It’s the first thing you should ask yourself even before you swing your legs off the edge if the bed to get up on the first morning after to you come up with your great idea.

“Should this product be built?”

And then, soon thereafter, maybe before you brush your teeth, you need to ask “Can we build a sustainable business around your product?’
At this point it’s really only about two things: a first product that you know the world needs, and a plan for how first product can actually get customers. The team needs to be focused brutally on these things. Let the customers be your source of accountability.

The new company should be focused on quickly developing a minimally viable product and then learning as much as possible about its weaknesses and opportunities for improvement. Iteration upon iterations, pulling your hair out from anxiety that you’ll never get it right, near-all-nighters and lost weekends — all of that fun stuff. The point is to do all of this on the front end, quickly, and always being in dialogue with the customer, not stuck in an echo chamber of a founder team that may be overly enamored with the original concept.

When a founder focuses on figuring out the right thing to build—the thing customers want and will pay for—she need not spend months developing a prototype or waiting for a beta launch to change the company’s direction. Instead, she can adapt her plan incrementally, inch by inch, minute by minute, moving fast, boxing out the competition.

A couple of years ago I spent three days in the James Madison University’s Icehouse facility with about 24 entrepreneurs who had agreed to lock themselves in and spend that whole weekend developing companies based on pitches that they made on the first night. These people , for the most part, had never met each other. Groups coalesced around about eight ideas big and small. Through the weekend there was a compressed process of honing the original idea and creating a business plan and readying the product or service for the launch. I remember several of the teams were stumped by this question: Will customers want this? Only one of the groups spent the first night doing customer demand research – one group had thought to do this out of eight. That may be somewhat reflective about what real companies do when they go out into the real world. I hope not.

The founding team members need to relish being sponges for crucial information gleaned from the only people that matter: potential customers. This is never more true than at inception and in the earliest weeks and months.

Watch for our next post on “Ideas are just that.” Meanwhile, if you have any questions about startup steps or business law, just reach out to me or any of our Virginia business lawyers.

Wow! Andy Brownstein Has Joined as A Partner!

Andy Brownstein, business lawyerAndy Brownstein joined us on January 1 as partner in the firm and focuses his law practice on business law, corporate finance, mergers and acquisitions, real estate and investment banking. He’s working in our Richmond office.

Andy counsels business clients and entrepreneurs in buy and sell-side mergers and acquisitions, strategic financing and capital investments, joint ventures, credit facilities, commercial real estate investments and contract matters.

“I’ve known Brian for many years, and I’ve watched as he and Eric Hurlocker developed a niche practice in the energy and regulatory arena into a strong multi-disciplinary firm with an intriguing and entrepreneurial client base, something that I’ve been interested in personally and professionally for most of my career,” Andy says.

He was a founder of and served as General Counsel of Global Realty Services Group for a decade, while also serving as its Chief Financial Officer (2009-2016) and President of its affiliated title company (2013-2017). Prior to GRSG, he was Senior Vice President-International Services for LandAmerica Financial Group after serving as SVP-Corporate Development. After law school, he served on the corporate finance team at McGuireWoods. Other career positions were with investment banking and private equity investment firms in both Richmond and New York.

Andy earned his J.D. and B.A. at the University of Virginia. At law school, he was the recipient of the S. Phillip Heiner Memorial Scholarship and was a William H. Echols Scholar in his undergraduate years.

Help us welcome Andy warmly. You can reach him at ABrownstein@greeneHurlocker.com or (804) 864-1100. If you want to know more about our business lawyers, just ask.

Ideas are Just That: Part 2

Jared Burden explains that the co-founders of a new tech business based on a great idea need to keep in mind several powerful elements of that relationship for it to have its best chance for growth and success.

Read his Ideas Are Just That: Part 1 post here. If you have comments or questions about this topic or any business law issue, please contact Jared or one of our Virginia business lawyers.

Client Conversations

Just prior to the holidays, we stopped by to see Randy Seitz, CEO of our long-term Harrisonburg client Blueline, to check in and get his opinion on what is important to his company in working with their law firm. This short video includes the things we talked about. Call or email me if you want more details.

Ideas are Just That: Part 1

That moment you realize you have an idea worth a business is a great moment. Sometimes it’s an epiphany on the road to Damascus. Sometimes it’s a slow dawning after a grind lasting several years. But however it happens, it’s time to sit back and go “huh.” It’s an achievement.

Most large corporations interested in continuing to exist generate ideas all of the time, as a matter of course. These ideas, generated by scientists or creatives, are noted, catalogued and vetted. With the promising ones, perhaps the inventor/employee fills out a patent disclosure form and a provisions patent application is filed.

But the rest of the ideas? They are just embodiments of the old adage that you have to kiss a lot of frogs before you find your prince or princess. You never get to the good ones unless you generate a lot of bad ones.

The fact is, most ideas suck.

I’m not writing to talk about bad ideas, though. I want to write about what high-potential start-up technology companies should first do with their good ideas.

Joseph Lassiter of Harvard Business School says a high-potential technology startup is one that plans to hit the $50 million per year mark in new product/service sales within 5 years.”
A new one-off auto battery retail store down the road, no matter how impressive the owners are, is not a high potential technology startup. But, the company that holes up in a garage in an industrial park developing an electricity storage product that is based on an idea that came out of a major university technology transfer office and could disrupt the solar energy marketplace probably is one. It almost certainly wants to sell its products to every big or small solar energy producer anywhere in the world and will do whatever it takes to get there.

Ideas are just that: Ideas. Even the ones that are good are worthless – at least on the day they’re are created. You can’t patent an idea, you can’t trademark an idea, you can’t copyright an idea, and your idea by itself doesn’t make a very valuable trade secret.

We tend to focus on ideas, on genius and creativity, the light bulb, the “Eureka” moment. But let’s be honest. There’s very little more poignant than the unfulfilled “Idea Person,” the person who thinks she could have been a contender in business if she’d just had the time/just had the money/just had the team to fulfill all of the dreams in her head. You have to do something with an idea, and chances are our “Idea Person” just didn’t stick with it – if only to get to the liberating point of understanding that the idea was not, really, in fact a contender.

I’ll be posting a series of blogs laying out five top things a high potential technology founder needs to do immediately if she wants to deliver on all of the high potential her idea might possess. I’ll be addressing the founder as “you.”

Number 1: Decide if you want a co-founder.

The direction here may have something to do with just how big is your idea. If this is the big idea, and if your high potential idea means someone has to develop the app and someone has to sell the product and someone has to be able to do the magic that quants can do with Excel, and this is all starting from scratch, then maybe you don’t want to start off alone.
This very first decision – whether to go it alone or bring one or more trusted folks into the founder’s tent – ties in completely to what resources you have available to you.

When founding a company, there are three basic assets you can make use of: human capital, social capital, and financial capital.

  • Human capital means knowledge derived from formal education and the skills derived from prior experience. A founder with a great amount of human capital can reduce the chances he will get blindsided by something he really should have known could happen. Some call it “wisdom.” I believe you can have a lot of wisdom even when you’re 24 if you’ve studied a lot and worked a lot and kept your eyes open. And there are loads of people my age (which is older than that) who are don’t have wisdom. Point is, if you don’t have it, your human capital is less than optimal, and you may want access to it from someone else.
  • Social capital means the benefits that come from your place in information and communication networks. A startup must project itself outward, whether it’s to hire people, raise money, sell, or any number of other things. If you are an industry insider, or if you just know a lot of people, or you just love networking events, then you might have a lot of social capital. If you’re someone who just doesn’t get out much, then maybe your own social capital is, shall we say, lacking.
  • Financial capital means, well, I think we know what that means. For a founder, if you have “screw-you money,” if you can quit your job and pay for all of the costs of the new company until its projected time to become successful or not, then that’s a blessing. It’s a fairly rare blessing.

A major reason you co-found is to make up for the kind, or kinds, of capital you lack.

One researcher’s long-term study found that solo founders accounted for less than 20% percent of technology startups.
If you are a person with an idea, a sober-minded business plan might lead you to the conclusion that you need one or more cofounders if you are going to create a real business, and you might already know who they are. Or you might need to go looking. Either way, there’s someone close to coming up with the same idea in Portland, so best to get moving.

I’ll follow up soon with the 2nd action a founder needs to take after deciding to make a go of their great idea. Meanwhile, if you have any questions about the content of this article or on any business startup issue, please contact me or any of our business lawyers.

Classification of Employees under the IRS Guidelines

In our last post, we discussed analysis of the employer/independent contractor relationship through the lens of the Fair Labor Standards Act (“FLSA”). Employers who hire individuals as independent contractors – because it seems less often the case that an independent contractor is errantly classified as an employee – should keep in mind that the Internal Revenue Service (“IRS”) has its own set of standards for classifying employees for tax purposes. Thus, any analysis of employee classification under the FLSA should be, likewise, scrutinized through the lens of the IRS guidelines, of which there are many.

As a general rule, an individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done: think of relationships with vendors and others who are retained for services but perform work without input from the payer. Whether a worker is an independent contractor or employee depends upon the circumstances of the parties’ relationship, with particular focus upon behavioral, financial, and other relationship-based factors (i.e. Are there written contracts or benefits? Does the relationship have a set term/duration?)

Businesses must evaluate the above factors when analyzing whether a worker is an employee or independent contractor. Many employers find especially challenging the common situation where some factors indicate that an individual is an employee, while other factors indicate that the individual is an independent contractor. Further complicating the issue, IRS guidelines make clear that there is not one factor in particular that unequivocally dictates the outcome of such analysis. Factors that are of great interest in one relationship may have no relevance to other employer/employee or payer/independent contractor relationships.

Fortunately, the IRS’s website provides additional guidance concerning the three largest categories of classification factors. To better determine how to properly classify a worker, consider these three categories – Behavioral Control, Financial Control and Relationship of the Parties.

  • Behavioral Control: A worker is an employee when the business has the right to direct and control the work performed by the worker, even if that right is not exercised. Behavioral control categories are:
    • Type of instructions given, such as when and where to work, what tools to use or where to purchase supplies and services. Receiving instructions in these examples may indicate a worker is an employee.
    • More detailed instructions may indicate that the worker is an employee. Less detailed instructions demonstrate less control, making it more likely that the individual is an independent contractor.
    • Evaluation systems to measure the details of how the work is done suggests that a worker is an employee. However, evaluation systems measuring just the end result point to either an independent contractor or an employee.
    • Training a worker on how to perform a job — or periodic or on-going training about procedures and methods — is viable evidence that the worker is an employee. Independent contractors ordinarily implement their own methods of performing work. (More detail is available here).
  • Financial Control: Does the business have a right to direct or control the financial and business aspects of the worker’s job? Consider:
    • The employer’s (or putative employer) investment in the equipment the worker uses in working for someone else. This can lead to an inference that a worker is an employee.
    • Independent contractors more often incur unreimbursed expenses than employees.
    • If there exists an opportunity for profit or loss, it can be indicative of an independent contractor relationship.
    • Independent contractors are generally free to seek out business opportunities, whereas employees may be restrained in some way from working simultaneously to provide the same services for other clients/employers.
    • An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time even when supplemented by a commission. However, independent contractors are most often paid for the job by a flat fee. (More detail available here)
  • Relationship: The type of relationship depends upon how the worker and business perceive their interaction with one another. This includes:
    • Written contracts can cut both ways in an employee/independent contractor analysis under IRS guidelines. However, the most critical point for any employer to understand is that a contract stating a worker is an employee or an independent contractor is not dispositive on the issue of worker classification. If a relationship appears to be employer/employee driven (more control and direction over areas beyond the results of the work) despite being categorized on paper as an independent contractor relationship, the facts will rule the day.
    • Businesses generally do not grant benefits such as vacation, health insurance, sick pay, pensions, etc., to independent contractors. Therefore, the presence of such benefits militates strongly for a conclusion that an employer/employee relationship exists.
    • The longevity of the relationship is also a crucial factor. A relationship that is somehow limited in duration may contribute to a conclusion that a worker is an independent contractor. However, if the relationship’s temporal scope is not defined, it is more likely suggestive of an employer/employee relationship. Other facts that suggest the intent of the parties in the initial phases of the relationship may influence analysis of this factor.
    • If the worker performs services that are vital to the regular function of the business or a critical component of its work, this factor may lead to a conclusion that a worker is an employee of the business. (More detail available here).

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

In addition, the IRS also applies a 20-factor-test that can be utilized to aid in the differentiation of employees from independent contractors. The factors include:

  1. the employer’s right to require the worker’s compliance with instructions;
  2. the employer’s training requirements;
  3. the integration of the worker’s services into the employer’s business;
  4. the worker’s personal rendering of services;
  5. the employer’s hiring, supervision, and payment of assistants;
  6. a continuing relationship between the employer and the worker;
  7. the employer’s setting of hours;
  8. the employer’s requirement of full-time service;
  9. performance of work on the employer’s premises;
  10. the worker’s performance of services in a sequence set by the employer;
  11. the employer’s requirement that the worker submit oral or written reports;
  12. payments on an hourly, weekly, or monthly basis;
  13. the employer’s payment of business or travel expenses;
  14. the employer’s furnishing of materials or tools;
  15. lack of significant investment in the facilities by the worker;
  16. lack of realization of loss or profit by the worker;
  17. lack of work for multiple firms by the worker;
  18. lack of availability of the worker’s services to the general public;
  19. the employer’s right to discharge the worker; and
  20. the worker’s right to terminate her or his services.

Consequences of Treating an Employee as an Independent Contractor

Misclassification of employees can have serious consequences. If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker, as applicable relief provisions, generally, do not apply to “unreasonable” misclassification.

With the assistance of legal counsel and their tax or accounting professionals, employers should, periodically, examine employees’ classifications and duties to determine whether employees and independent contractors are properly classified. If you have questions about the content of this article or wish to discuss any employment law issue, please contact Laura Musick or any of our employment lawyers.

Employer Basics: FLSA Classification of Employees

There is seldom a bad time for employers to reevaluate employee classifications. While some occasions are less optimal than others, for example, reevaluation upon an employer’s receipt of a complaint from the United States Department of Labor (“DOL”), employers should carve out time each year to scrutinize changes in employee assignments and relationships, along with other factors that impact classification.

The Fair Labor Standards Act (“FLSA”) offers minimum wage and overtime pay protections to almost all workers in the United States. Assuming for the purposes of our discussion that an employer is subject to the FLSA, there are certain factors that necessarily impact the independent contractor versus employee-employer analysis. At base, “In the application of the FLSA an employee, as distinguished from a person who is engaged in a business of his or her own, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business which he or she serves.”1

The critical determination is, perhaps based upon the most nebulous standards – as the U.S. Supreme Court has, time and again, indicated that no single rule, test or standard, alone, dictates classification. Rather, the current standard applied by the Court looks, on the whole, at the “total activity or situation.”2 Factors included in this analysis are:

    • The extent to which the services rendered are an integral part of the principal’s business.
    • The permanency of the relationship.
    • The amount of the alleged contractor’s investment in facilities and equipment.
    • The nature and degree of control by the principal.
    • The alleged contractor’s opportunities for profit and loss.
    • The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
    • The degree of independent business organization and operation.3

The Court adds clarity by highlighting certain factors which are immaterial in determining whether there is an employment relationship.4 For example, the place where work is performed, the absence of a formal employment agreement, or whether an alleged independent contractor is licensed by State/local government are not considered to have a bearing on determinations as to whether there is an employment relationship.5 Additionally, the Supreme Court has held that the time or mode of pay does not control the determination of employee status.6 What happens next in the analysis is (typically) an evaluation of the relationship in which courts will consider the above-factors, while taking into account the industry, the nature of the work, and other situation-based considerations. Because these situations are routinely fact-intensive, it is worthwhile for employers to revisit classifications when making changes in their workforce.

Despite the oft-repeated refrain, “everyone in our industry classifies workers this way”, common industry practice is insufficient to excuse employer misclassification of employees – whether or not willful. Employers should be especially careful about taking cues from their competition. Simply because other employers in your industry classify employees as independent contractors, does not make it accurate. Equally unpersuasive in misclassification cases is an employee’s “agreement” to be misclassified, whether informally or via written employment agreement – even if the employment contract specifically defines an employee’s relationship to the employer as that of an independent contractor. Employers should also be aware that while an employee may be an independent contractor pursuant to state law or Internal Revenue Service standards, the FLSA may still create an employer/employee relationship where, for tax purposes or under state law, the analysis produces a different result.

What do you risk by failing to properly classify your employees? Employees may file complaints with the Wage and Hour Division of the DOL. Employees may also file private lawsuits to recover back pay, and liquidated damages, in addition to court and attorneys’ fees. The Wage and Hour Division of the DOL is also empowered bring its own enforcement actions. A two-year statute of limitations applies to actions to recover back pay. However, if a violation is “willful”, a three-year statute of limitations may apply.

The takeaway: Employers should make time before the end of the year to reevaluate their employee relationships and policies. Should you have any questions about this article or labor and employment law, please contact one of our employment lawyers.


1 “Fact Sheet 13: Employment Relationship Under the Fair Labor Standards Act (FLSA)”, https://www.dol.gov/whd/regs/compliance/whdfs13.htm (last accessed 9/12/2019).
2 Id.
3 Id.
4 Id.
5 Id.
6 Id.