Year: 2024

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Corporate Transparency Act - Reporting Deadlines

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Written by D. Clay McCollor
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We recently reported that on December 3, 2024, the U.S. District Court for the Eastern District of Texas (Sherman Division), issued a preliminary injunction (the “Preliminary Injunction”) in Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-478 (E.D. Tex.) which temporarily blocked enforcement of the Corporate Transparency Act (the “CTA”), the federal law that came into effect on January 1, 2024.  Background information on the CTA can be found in our previous letters to clients, available here and here. 

On December 23, 2024, the US Court of Appeals for the Fifth Circuit issued a stay order (the “Order”) pending appeal of the Preliminary Injunction. Following the Order from the appellate court, any entity that is not exempt from the reporting obligations under the CTA was required once again to file its BOI report before the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Pursuant to the Order, the reporting entities were to file their BOI report by certain extended reporting deadlines that had been published by FinCEN on a statement on its website, the earliest of which was a January 13, 2025 deadline.

While we were drafting the summary of this update for our clients, on December 26, 2024, three days after the issuance of the Order by the Court of Appeals for the Fifth Circuit, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the Court’s Order. Accordingly, as of December 26, 2024, the Preliminary Injunction is back in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN.

Please bear in mind that there is no definitive judgment yet on the constitutionality of the CTA from either the US District Court for the Eastern District of Texas or the Fifth Circuit. It is still possible that challenges to the CTA ultimately may change or invalidate all or part of the CTA’s reporting requirements. While reporting entities do not need to file their BOI reports with FinCEN at this time, they should be prepared to file their reports on a fairly short timeframe if such obligation is once again reinstated. We will continue to monitor the situation and keep you posted on additional developments on this matter.

Please note that this letter is sent for informational purposes only and does not constitute legal advice.

If you have any questions regarding the CTA or this letter, please don’t hesitate in contacting our office at (281) 367-2222 or acasas@stibbsco.com.

Topic: Contract Law
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Corporate Transparency Act - Preliminary Injunction

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Written by D. Clay McCollor
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On December 3, 2024, the U.S. District Court for the Eastern District of Texas (Sherman Division), issued a preliminary injunction (the “Preliminary Injunction”) in Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-478 (E.D. Tex.) enjoining the application of the Corporate Transparency Act (the “CTA”), the federal law that came into effect on January 1, 2024.  Background information on the CTA can be found in our previous letters to clients, available here and here.  We recently sent our clients a reminder of the deadline for any entity that was created or registered before January 1, 2024, and which is not exempt from the reporting obligations under the CTA, to file its BOI report before the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) not later than December 31, 2024.  We have also reminded our clients that entities formed in 2024 have a 90-day period from the date of registration to file the BOI report, which term is reduced to 30 days for entities formed from January 1, 2025 onwards.

The obligation to file a BOI report by the abovementioned deadlines is affected by the recent Preliminary Injunction. While the Court has not affirmatively found the CTA to be contrary to law or unconstitutional, it found the CTA to be likely unconstitutional and stated

[T]he CTA, 31 U.S.C. § 5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court (emphasis added).

Accordingly, FinCEN cannot enforce any penalties for failure to comply with the deadlines set forth in the CTA. In light of the Preliminary Injunction, entities may still opt to voluntarily file their BOI report or may refrain from filing such BOI report until there is further action from the courts or legislature.  We will continue to provide updates to our clients on any developments in connection with the applicability of the CTA.

Please note that this letter is sent for informational purposes only and does not constitute legal advice.

If you have any questions regarding the CTA or this letter, please don’t hesitate in contacting our office at (281) 367-2222 or acasas@stibbsco.com.

Topic: Contract Law
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Who is my landlord? (Residential Tenancies)

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Written by Travis Normand
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If you are a property manager, you have probably been sued by a tenant regarding an amount that was withheld or deducted from the tenant’s security deposit. The Texas legislature made security deposit lawsuits more beneficial to tenants when they included the following language in Texas Property Code section 92.109(a):

“A landlord who in bad faith retains a security deposit in violation of this subchapter is liable for an amount equal to the sum of $100, three times the portion of the deposit wrongfully withheld, and the tenant’s reasonable attorney’s fees in a suit to recover the deposit.”

Tex. Prop. Code § 92.109(a).

Depending on the amount of money withheld, a security deposit lawsuit can be quite lucrative for the tenant (assuming they can show that the amount withheld was wrongful and that the landlord withheld it in bad faith). For example, if a tenant paid a security deposit of $2,000.00, and all of it is wrongfully withheld in bad faith, the tenant could obtain a judgment against their landlord for $6,100.00 plus attorney’s fees.

However, a common frustration for property managers is that while they are the ones most often sued, they are usually not the correct defendant.

So, who is the correct defendant? The answer is the landlord!

Under the Texas Property Code, the liability outlined in section 92.109(a) specifically provides that “A landlord … is liable ….”

In fact, liability under Texas Property Code Chapter 92, in relation to a security deposit and the accounting thereof, is limited to “landlords.” Texas Property Code sections 92.103, 92.107, and 92.109 all use the term “landlord;” specifically stating that the “landlord” is responsible, obligated, and/or liable. On the other hand, Chapter 92 of the Texas Property Code does not impose any automatic liability on a property manager.

To be sure, Texas Property Code section 92.001(2) defines a “landlord” as follows:

“‘Landlord’ means the owner, lessor, or sublessor of a dwelling, but does not include a manager or agent of the landlord unless the manager or agent purports to be the owner, lessor, or sublessor in an oral or written lease.”

Tex. Prop. Code § 92.001(2).

Based on the statutory definition found in 92.001(2), the “landlord” that is liable to the tenant under 92.109(a) is the property owner and not the property manager. That is, unless the property manager or agent purports to be the owner in a written lease.

How does an agent or property manager purport to be the owner in a written lease?

There are many ways that a property manager can unintentionally present themselves as the property owner. However, the most common way that I have seen is by filling out the lease agreement incorrectly.

As you can see from the Texas Association of Realtor’s “Residential Lease” form, the parties to the lease agreement are clearly the “owner of the Property, Landlord” and the “Tenant(s).”

Texas Association of Realtor’s “Residential Lease” form (TXR-2001) 07-08-22.

 

Therefore, if you are a property manager and you are using this form for your lease agreements, you should be writing the property owner’s name on the first line of the lease. I have seen many agents and/or property managers put their own name on this line when they are not the owner of the property. In instances such as this, the agent or property manager has arguably purported to be the owner of the property in a written lease (see Texas Property Code 92.001(2)), and in such an instance, the agent or property manager might arguably be the proper defendant in the tenant’s security deposit lawsuit.

Additionally, even if filling out the lease agreement incorrectly isn’t sufficient to hold a property manager liable under 92.109(a), the property manager could still potentially face liability under a breach of contract theory as they are arguably a party to the contract.

So, to answer the original question of “Who is my landlord?”  The landlord is the owner of the property that you are leasing; however, in some instances it might be the property manager (even if they don’t own the property).

Why does this matter?

It matters because you want to make sure you are suing the correct defendant. However, more specifically, for tenants, suing the wrong defendant could get your case dismissed or appealed (to County Court at law). In the event of an appeal, the property manager could end up with a judgment against you for the total amount of attorney’s fees they incurred while defending against your lawsuit as the wrong defendant.

For property managers, it is important that you fill out the lease correctly and avoid taking on unnecessary liability by purporting to be the property owner. However, in the event you are sued anyway, you need to make sure that you include a motion to dismiss as part of your defense to these lawsuits.

This information is made available by Stibbs & Co., P.C. for informational purposes only, does not constitute legal advice, and is not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described.  Your use of this information does not create an attorney-client relationship between you and Stibbs & Co., P.C.  This material may be considered attorney advertising in some jurisdictions. The facts and results of each case will vary, and no particular result can be guaranteed.

Topic: Real Estate
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CORPORATE TRANSPARENCY ACT-UPDATE

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Written by D. Clay McCollor
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Since earlier this year, we have been providing information to our clients regarding the Corporate Transparency Act (the “CTA”), the federal law that came into effect on January 1, 2024.  Please review our initial letter, which you can find here, for a detailed description of important reporting obligations that your company might be subject to. We are also including a link to the update that we sent out a few months ago, which can be found here. 

The purpose of this letter is to remind you of a fast-approaching filing deadline.   Any entity that was created or registered before January 1, 2024, and which is not exempt from the reporting obligations under the CTA, must file its BOI report before the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) not later than December 31, 2024.  As we stated in our previous letter, we are expecting a large number of online filings to occur closer to such date, and therefore encourage you to file your report soon, so as to avoid potential technical difficulties which may result in delays in your compliance with the filing obligation.  Please bear in mind that penalties for failure to timely report the information required by the CTA may result in substantial economic penalties and/or imprisonment.

The deadline for filing of the BOI report for entities formed during 2024 will continue to be ninety (90) days from the date of formation. Please note, however, that this time frame will be substantially reduced starting on January 1, 2025, after which date any new entity that is formed shall file its BOI report within 30 days from the formation date.

Please note that this letter is sent for informational purposes only and does not constitute legal advice

If you have any questions regarding the CTA, please don’t hesitate in contacting our office at (281) 367-2222 or acasas@stibbsco.com.

Topic: Contract Law
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Don’t Believe Your Eyes: Evidence in the World of AI

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Written by Adam R. Fracht
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A few years ago, I got the opportunity to visit the Pyramids of Giza, a truly impressive sight to behold in person. Here’s me in front of these ancient wonders:

When I think back, I’m reminded not only how incredible the Pyramids are, but also how incredible AI has become. Why AI? Oh, because I’ve never actually been to the Pyramids of Giza – never stood there in front of them, never worn that blue shirt or those khaki pants. None of the above picture is real (not even me).

Now before you accuse me of “orchestrating” that entire intro just to get your attention, let me assure you that my efforts to “conduct” this fabrication are purely professional:

Ok, that’s not real either. Sorry. If you think I’m “walking a fine line” in taking this too far, I tend to agree:

 

Alright, I’ll stop. If you’ve read this far, I suppose you deserve that courtesy.

My point in sending these believable—but entirely fake—photos is simply this: we are entering into a brave new world with AI. One in which you can no longer trust as real what you see in pictures. All it takes is a few photos of your face (perhaps found on social media, etc.), some skilled use at text prompts in an AI program, and suddenly “you” are in a picture doing something, somewhere that you never actually did.

Imagine the implications this will have on evidence used in court – for every picture that is considered crucial evidence of some pivotal fact, we’ll now have to first ask, “is this a real picture, or is it entirely fabricated?” That’s a radical departure from how most courts—and most people generally—treat photographic evidence.

And this is not just limited to photographs. Entire videos are now able to be generated from a few simple text prompts. If you have 10 minutes, watch this video posted by a popular YouTuber back some months ago (AI Generated Videos Just Changed Forever (youtube.com)). The rate at which this technology is improving is incredible, if not a bit scary.

Does that mean the technology is foolproof? No, in fact if you look carefully at my above photos, you’ll see some abnormalities. For instance, don’t ask orchestra-conductor-me to give you a “high five” with my left hand:

Also, in that same picture, I’m pretty sure that at least three of the other people in my orchestra are some variation of myself (I’m pretty good at recognizing the back of my own head):

But these abnormalities will be less and less as AI improves, likely to the point that it will become impossible to tell if a picture is real or fake. In that case, much like a questionable email or Word document, we’ll be left looking at things like the metadata and surrounding circumstances of the photo to see if can be trusted as genuine.

So, the moral of the story is this – savor your last remaining days of trusting what your eyes see in pictures and videos. Soon we’ll be questioning everything that we don’t witness in-person.

By the way, I have to give a big thanks to my brother, Jordan, for helping me create the above pictures using AI. If anyone is interested in how to do this, you’ll have to catch Jordan when he’s not fighting bulls in Spain:

Yeah, not real either…

This information is made available by Stibbs & Co., P.C. for informational purposes only, does not constitute legal advice, and is not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described.  Your use of this information does not create an attorney-client relationship between you and Stibbs & Co., P.C.  This material may be considered attorney advertising in some jurisdictions. The facts and results of each case will vary, and no particular result can be guaranteed.

Topic: Commercial Litigation
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Corporate Transparency Act and Trusts

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Written by Maggie Book
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The Corporate Transparency Act (CTA) became effective January 1, 2024 and requires a “Reporting Company” to disclose the “Beneficial Owners” to the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN). That means every LLC, Corporation, and Partnership must report their Beneficial Owners to FinCEN. If the entity was formed prior to January 1, 2024, then the Beneficial Owners must be reported by January 1, 2025. If the entity was formed this year, the Beneficial Owners must be reported within 90 days of formation. Failure to timely report Beneficial Owners to FinCEN is subject to a fine of $500 per day not to exceed $10,000 per violation.

While most trusts will not qualify as a Reporting Company, all trusts holding an interest in an entity will qualify as a Beneficial Owner of a Reporting Company. When a trust is a beneficial owner, the trustee holding the authority to control or dispose of trust assets should provide the following to the Reporting Company:

  • Full Legal Name
  • Date of Birth
  • Address
  • ID Number: Driver’s License or Passport with image supporting the unique ID Number

If the trustee prefers to not provide their personal information to the Reporting Company, the ownership can be reported using the contact information for the Beneficiary or the Settlor as follows:

  • Irrevocable Trusts:
    • A beneficiary (or their Guardian) who is the sole recipient of income and principal of a trust.
    • A beneficiary (or their Guardian) who has the right to demand distributions or withdraw substantially all trust assets per IRC § 675(4).
    • A Settlor of an irrevocable trust that is considered defective for income tax purposes by holding the power to substitute assets per IRC § 675(4)(c).
  • Revocable Trusts:
    • The Trust’s Settlor if the Settlor retains the right to revoke the trust or withdraw the assets of the trust.

Stibbs and Co. is a law firm dedicated to helping small businesses succeed. If you need assistance with the new reporting requirements under the Corporate Transparency Act, an attorney in our office would be happy to assist you.

This information is made available by Stibbs & Co., P.C. for informational purposes only, does not constitute legal advice, and is not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described.  Your use of this information does not create an attorney-client relationship between you and Stibbs & Co., P.C.  This material may be considered attorney advertising in some jurisdictions. The facts and results of each case will vary, and no particular result can be guaranteed.

Topic: Probate and Estate Planning
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CORPORATE TRANSPARENCY ACT

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Written by D. Clay McCollor
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In our mission to provide clients with timely and relevant information that may affect them, I am providing you with an update on information regarding the Corporate Transparency Act (the “CTA”) that may affect you before the end of the year. The main purpose of this letter is to serve as a reminder of, and to provide a brief update to, the initial letter sent last December regarding the CTA, the federal law that was enacted on January 1, 2021 by Congress, and which came into effect on January 1, 2024. (If for some reason you did not receive that letter or need to review it, you can find it here). Please refer to our initial letter for defined terms not defined in this letter and for detailed information regarding which entities must file and what information needs to be filed.

Here is a brief recap on the CTA – all domestic or foreign entities, including corporations, limited liability companies and other entities (a) formed under the laws of a state or Indian Tribe in the United States or (b) formed under the law of a foreign country and registered to do business in one or more states or Indian Tribes in the United States (each a “Reporting Company”), and which do not fall under any of the exemptions set forth in the CTA’s Final Rule have to file a report before the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), with information regarding beneficial ownership in the Reporting Company. For entities formed in 2024 and after, required information regarding Company Applicants must also be reported.

In early July, FinCEN clarified that a company that ceased to exist as a legal entity, meaning that it entirely completed the process of formally and irrevocably dissolving, before January 1, 2024, does not have the obligation to report its beneficial ownership information. However, if a Reporting Company continued to exist as a legal entity on or after January 1, 2024, meaning that it did not entirely complete the process of formally and irrevocably dissolving before January 1, 2024, then it is required to report its beneficial ownership information to FinCEN.  In addition, if a Reporting Company created or registered in 2024 or later subsequently ceases to exist -whether or not its BOI report was due at such time- it is still required to submit its initial report to FinCEN.

Since our first letter, FinCEN has extended the time period for Reporting Companies that are created or registered on or after January 1, 2024 to file their report, giving them 90 days from the date of formation of the entity to comply with their reporting obligation instead of the original 30 days. Reporting Companies formed prior to 2024 will still have to file before December 31, 2024, and those formed in 2025 and after will have to file within 30 days from formation. Please bear in mind that a very large number of entities are expected to file BOI reports before the end of the year, and we recommend filing well prior to the end of the year so that you can avoid potential technical issues caused by congestion.

From our discussions with clients and colleagues, we discovered that there is some confusion as a result of the holding of a District Court in Alabama which stated the CTA is unconstitutional. News related to this decision lead some to believe that the BOI reporting obligation no longer exists. Unfortunately, this is not correct for the vast majority of entities. The National Small Business Association (NSBA) and one of its members brought a suit in the US District Court of the Northern District of Alabama challenging the CTA and FinCEN’s implementing rules (National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.). On March 1, 2024, the District Court ruled for the plaintiffs, holding that the CTA is unconstitutional because it “exceeds the Constitution’s limits on the legislative branch.” Slip Op. 3. While it is true that the District Court held that the CTA is unconstitutional, the issued injunction against enforcement applies only to the plaintiffs in that particular case, including the NSBA members. Since the ruling, a notice of appeal has been filed. FinCEN published a statement which was updated in March 2024 to acknowledge the filing of the appeal. (See link to statement here). In such statement, FinCEN acknowledges that it will comply with the ruling for as long as it remains in effect and, as a result, will not enforce the CTA with respect to the plaintiffs in the action only. FinCEN’s statement explains that the plaintiffs include all entities that were members of the NSBA at the time of the District Court’s March 1, 2024 ruling. Accordingly, so long as the District Court’s injunction remains in effect, any entity that was an NSBA member as of March 1 is shielded from enforcement for non-compliance. This means that for now, all other Reporting Companies are still bound by the CTA and should continue to comply with the statute’s reporting requirements unless exempt.

Please note that this letter is sent for informational purposes only and does not constitute legal advice.

If you have any questions regarding the CTA, please don’t hesitate in contacting our office at (281) 367-2222 or acasas@stibbsco.com.

Topic: Contract Law
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Department of Labor Increases Salary Threshold for "White Collar" Exempt Employees

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Written by Joseph G. "Chip" Galagaza
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On April 23, 2024, the U.S. Department of Labor (“DOL”) announced significant changes to the Fair Labor Standards Act (“FLSA”) increasing the salary threshold requirements for overtime exemptions applicable to executive, administrative, professional and highly compensated employees. Effective July 1, 2024, salary-based executive, administrative and professional employees must receive an annual salary of $43,888 ($844/per week) to qualify as exempt from FLSA overtime pay mandates, a whopping increase of about 23% over the current minimum salary of $35,568 ($684/wk.) currently required.  Similarly, effective July 1, 2024, salary-based highly compensated employees must receive an annual salary of $132,964 to qualify as exempt from FLSA overtime pay mandates, almost a 24% increase over the amount currently mandated. 

If that wasn’t enough, the DOL’s announcement also provides that the July 2024 adjusted salary requirements will further increase effective January 1, 2025.  Specifically, salary-based executive, administrative and professional employees must receive an annual salary of $58,656 ($1,128/per week) in 2025 to qualify as exempt from FLSA overtime pay mandates – another salary bump of a little over 33% in just six months.  Similarly, highly compensated employees must begin receiving annual compensation of $151,164 in 2025 to qualify as exempt from FLSA overtime pay requirements – roughly another 14% only six months later. 

And there’s more . . . under the DOL’s revisions, the salary thresholds will automatically adjust every three years going forward.  Accordingly, the salary thresholds will next adjust in July 2027. 

What Does the FLSA Provide: The FLSA requires, unless an exemption applies, that employees be paid overtime at the rate of time and a-half for any hours worked in excess of 40 hours in a week. One of the most prevalent exemptions to the FLSA overtime requirements are what are commonly called the “white collar” exemptions which apply to employees working in executive, administrative and professional positions.  As mentioned above, the current minimum salary threshold for such employees is $35,568.  However, paying the requisite minimum salary isn’t all there is to worry about.  To qualify for any of the “white collar” exemptions, employees must not only be paid at least the minimum salary required, but also: (i) be paid on a salary basis (without considering the quality or quantity of work performed); and (ii) primarily perform exempt job duties.   Failure to meet any of the job duties test, the salary basis test, or the minimum salary threshold entitles an employee to overtime for all hours worked in excess of 40 hours in a work week.   

The FLSA also contains special regulations for “highly compensated employees” and exempts such employees from overtime pay mandates if the employee: (i) earns a minimum salary threshold; (ii) primarily performs office or non-manual work: and (iii) customarily and regularly performs at least one of the statutorily defined exempt job duties.  The current minimum salary threshold to exempt highly compensated employees is $107,432. 

But I’m Ok If My Workers Are 1099’d, Right:  Classifying a worker as a 1099 independent contractor is a risky proposition.  The DOL also put into effect its new test – which is really just the old test it had before the last administration – to determine who is actually an independent contractor this past March.  So, calling someone an independent contractor won’t be an easy “fix”.

How Does the Increased Salary Threshold for “White Collar” Employees Affect Businesses: If a business’ executive, administrative and professional employees currently earn an annual salary exceeding $43,888, DOL’s new rule does not affect those employees’ status.  However, if a business’ salaries for some executive, administrative and professional employees do not exceed $43,888 annually, DOL’s new rule will require businesses to adjust salaries or reclassify employees as non-exempt. As noted above, effective July 1, 2024, highly compensated employees may maintain their exempt classification if they receive an annual salary of $132,964. A business employing a highly compensated employee who does not meet the annual salary threshold should adjust the salary or reclassify the employee as non-exempt.  As an additional note, DOL’s published guidance on the amendments to the FLSA does specifically note that the minimum salary threshold requirements do not apply to certain categories of employees, such as lawyers, doctors, teachers and outside sales employees. 

Key Takeaways: As with any major policy change, it is anticipated that the announced changes to the DOL’s new minimum salary requirements may face legal challenges, even though as recently as last year, a federal district court in Texas held that the DOL could set a minimum salary as part of the test of who is exempt under one of the “white collar” exemptions from overtime.  Notwithstanding the expected legal challenges, businesses would be wise to review how its executive, administrative and professional employees are currently classified as well as its current salary structure to be ahead of the looming July 1st changes. 

This information is made available by Stibbs & Co., P.C. for informational purposes only, does not constitute legal advice, and is not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described.  Your use of this information does not create an attorney-client relationship between you and Stibbs & Co., P.C.  This material may be considered attorney advertising in some jurisdictions. The facts and results of each case will vary, and no particular result can be guaranteed.

_________________________

Stibbs & Co., P.C. attorneys are available to discuss the increased salary threshold and the Fair Labor Standards Act. You may contact Stibbs & Co., P.C. at 281-367-2222 or via email to info@stibbsco.com.

 

Topic: Employment Law
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FTC Announces Issuance of Final Rule

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Written by Stuart W. Lapp
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04/26/2024

The Future of Non-Compete Restrictions
On April 23, 2024 the Federal Trade Commission (FTC) announced the issuance of a Final Rule banning non-compete restrictions in employment agreements with the recognition of limited exceptions. Although many news outlets have announced the FTC’s Final Rule as an effective new ban on non-compete restrictions, employers and employees must be mindful that the FTC’s Final Rule is not effective until 120 days after the Rule is published in the Federal Register. Additionally, it must be noted that presently at least two challenges are pending in federal courts contesting the Final Rule.

What Businesses and Employees are Subject to the Final Rule: As the FTC notes in its Guide for Businesses and Small Entities Compliance Guide, its final rule banning non-compete agreements “applies to non competes with all workers, whether full-time or part-time, including employees, independent contractors, interns, externs, volunteers, apprentices, and others – but there are different requirements for senior executives as defined by the Rule.” In its present form, the Final Rule does not ban non-compete restrictions currently in place in relation to senior executives. Additionally, the FTC does not have jurisdiction over banks, savings and loan institutions, federal credit unions, common carriers, air carriers and certain non-profits. So, the Final Rule does not apply to such businesses.

What is a Non-Compete Clause: The Final Rule defines a “non-compete clause” to include any term or condition of employment that (i) prohibits a worker from; (ii) penalizes a worker for; or (iii) functions to prevent a worker from: (a) seeking or accepting work in the United States with a different person/company; or (b) operating a business in the United States after the conclusion of the employment under which a term and condition of employment included a non-compete restriction.

What does the Final Rule Ban: The Final Rule declares it to be an “unfair method of competition” for a person to: (i) enter into or attempt to enter into a non-compete clause; (ii) enforce or attempt to enforce a non-compete clause; or (iii) represent that a worker is subject to a non-compete clause. Accordingly, the Final Rule generally prohibits non-compete restrictions. Once effective, the Final Rule will even prohibit employers from entering or attempting to enter non-compete restrictions with senior executives.

What does the Final Rule Allow: The Final Rule specifically does not apply to senior executives which are defined to be workers holding a policy-making position who received total annual compensation of at least $151,164 in the preceding year. To the extent that a senior executive’s current employment terms contain non-compete restrictions, such restrictions remain enforceable under the Final Rule. However, as noted above, once effective, the Final Rule will prohibit businesses from entering or attempting to enter into non-compete restrictions with senior executives.

Additionally, the Final Rule permits non-compete restrictions to be established with the seller of a business entity if (i) the sale divests the individual’s ownership interest in the business entity or (ii) all or substantially all of the business entity’s operating assets.

The Final Rule’s ban of non-compete restrictions specifically does not apply to non-compete claims that are accrued or pending prior to the effective date.

Is Immediate Action Needed: Of importance for businesses, once effective, the Final Rule will require all employers to provide written notice to all non-senior executive employees and former employees subject to non-compete restrictions that enforcement of the non-compete restrictions is unlawful and affirmatively advise such employees that the company will not enforce any existing non-compete restrictions against employees.

This information is made available by Stibbs & Co., P.C. for informational purposes only, does not constitute legal advice, and is not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described. Your use of this information does not create an attorney-client relationship between you and Stibbs & Co., P.C. This material may be considered attorney advertising in some jurisdictions. The facts and results of each case will vary, and no particular result can be guaranteed.

Stibbs & Co., P.C. attorneys are available to discuss the rule and assist with reviewing restrictive covenant agreements. You may contact Stibbs & Co., P.C. at 281-367-2222 or via email to info@stibbsco.com.

Topic: Contract Law
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Confidential Conversations: Protecting Attorney-Client Privilege

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Written by Lindsey Karm
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Filing or defending a lawsuit is a major life event, a life event most people do not want to experience. It’s also one of the few major life events that you cannot fully share with your friends and family, at least while the lawsuit is going on. Why? Because of that pesky (but very helpful) thing known as the attorney-client privilege.  

Everyone has heard of the attorney-client privilege, but what is the privilege exactly? First, it is not the end all, be all protection for any and all communications with an attorney. What many people don’t know is that the attorney-client privilege can be broken. The attorney-client privilege protects confidential communications between clients and attorneys. The key is that communications between CLIENTS and attorneys are protected–not communications that include third parties.  

The attorney-client privilege allows for and encourages open and honest communications between clients and attorneys. With the privilege, clients can share sensitive information with their attorney without the fear that the attorney will later disclose that sensitive information to others. The privilege also protects communications from being compelled as evidence in court. The general rule is that attorneys cannot be compelled to disclose confidential client communications during legal proceedings. 

Specifically, the privilege shields the disclosure of communications that are made for the purpose of seeking and receiving legal advice. Communications – both verbal and in writing – about legal rights, case strategies, and matters related to the representation of a client are all protected under the attorney-client privilege. The privilege is not absolute, however. The privilege does not apply to any communications made for the purpose of committing a crime or fraud, and it may not apply if the attorney-client communication is made in the presence of a third party who is not essential to the attorney’s legal representation of the client.  

The client holds the attorney-client privilege, which means the client can also waive the attorney-client privilege. Unfortunately, this sometimes happens without the client ever meaning to waive the privilege. If a client voluntarily discloses privileged information to a third party, the privilege is waived. This waiver can be something as simple as a client sharing their attorney’s legal advice or case strategy with a close friend or relative. In our digital world, texting, emails, and social media, make it easy to unintentionally make this disclosure without even thinking about it. The waiver can be completely innocent, but it can’t be undone. The best practice is always to keep conversations between the attorney and client and to otherwise wait until the lawsuit is over.  

Not being able to talk through a lawsuit with a friend or family member can be incredibly frustrating. A lawsuit is stressful, but that’s why it’s even more important to trust your attorney, to talk to your attorney, and to keep the lines of communication open with your attorney. An attorney and client are a team. Trust and candor are key to making the attorney-client relationship work, and the attorney-client privilege is critical to fostering an open and honest relationship.  

These materials are made available by Stibbs & Co., P.C. for informational purposes only, do not constitute legal or tax advice, and are not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described. Your use of these materials does not create an attorney-client relationship between you and Stibbs & Co., P.C. The facts and results of each case will vary, and no particular result can be guaranteed. The facts and results of each case will vary, and no particular result can be guaranteed.

 

Topic: Commercial Litigation
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Say “Yes” To The Trade Dress

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Written by Michael D. Ellis
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Recently, I spoke with a client who asked about obtaining trade dress protection for a line of innovative and fashionable dresses she had designed and developed for girls and women. Despite its name, however, trade dress has nothing to do with latest fashion trends, runway collections, or dresses in the traditional sense.

Trade dress is a type of trademark that covers the aesthetic or visual elements that create the overall commercial look and feel of a product or service and that distinguishes it from others in the market. Trade dress can include packaging, color schemes, and even the design of the product itself. As with any trademark, trade dress protection—when appropriate—serves to ensure that consumers can identify and associate a particular product or service with a specific source. This is because trade dress protection prevents or limits others from using the same or confusingly similar elements in competing goods or services.

To obtain trade dress protection, the aspiring trademark owner must show that the trade dress is distinctive and nonfunctional. Distinctive means that it readily identifies you as the source of the good or service, generally because it is memorable and notable. It can be inherently distinctive or have acquired distinctiveness through consumer recognition over time. Nonfunctional means that it is not essential to the purpose or use of the good or service.

Some well-known examples of trade dress include the shape of Coca-Cola bottles, the red soles of Christian Louboutin shoes, the color of the wrapper for Reese’s Peanut Butter Cups, and the color, décor and design of Taco Cabana restaurants. Regarding the Chistian Louboutin shoes, the trade dress protection only covers the red soles and does not protect the design, shape, or functionality of the shoe itself.

While trade dress does not cover new designs of actual dresses, other forms of intellectual property, including utility or design patents, could provide protection against potential theft and infringement. For the client mentioned above, we filed several design patent applications that cover various ornamental features of the dresses. To learn more about the different types of patents, please see Stibbs & Co. attorney Jeff Wendt’s blog: https://www.stibbsco.com/can-i-patent-that/ 

Trade dress is an important, but often overlooked, type of trademark protection. If your product or service has unique aesthetic or visual elements, contact our office to schedule an appointment to discuss registration of that trade dress for increased legal protection.

These materials are made available by Stibbs & Co., P.C. for informational purposes only, do not constitute legal or tax advice, and are not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described. Your use of these materials does not create an attorney-client relationship between you and Stibbs & Co., P.C. The facts and results of each case will vary, and no particular result can be guaranteed. The facts and results of each case will vary, and no particular result can be guaranteed.

 

Topic: IP