0

Southern California Employers Beware – The City of Los Angeles Requires Employees Receive At Least 48 Hours of Paid Sick Leave

 

By Deborah Petito

Just when employers thought they had finalized their paid sick leave policies to conform to state law, a number of local communities (e.g., San Francisco, San Jose and Santa Monica) have passed their own sick leave laws which require more than three days of sick leave. The City of Los Angeles joined ranks and passed their own ordinance on June 1, 2016 (“City Ordinance”).  The effective date of the new sick leave (and minimum wage) ordinance is July 1, 2016, so the City of Los Angeles did not give employers much time to revise their policies to comply with the new sick leave requirements.  However, the City is allowing employers with less than 25 employees until July 1, 2017 to come into compliance.  The size of the employer’s workforce is determined by the average number of employees employed in the previous calendar year.  In addition, certain non-profit employers will be able to qualify for a deferral rate if they meet certain conditions.  The difficulty with complying with this City Ordinance, as detailed below, is that the City Ordinance can reach employers outside the City.

Sick Leave Frontloading and Carryover is Higher than State Law.

The City Ordinance requires that employers provide employees who work in the City of Los Angeles (even if the employer is not located in the City of Los Angeles) sick leave either by (1) providing at least forty-eight (48) hours of sick leave at the beginning of each calendar year, each year of employment, or selected twelve month period (frontload method); OR, by (2) allowing employees to accrue sick leave at the rate of one hour for every thirty hours worked with a cap of not less than 72 hours (accrual method).  This is an enhanced benefit when compared with the California sick leave law which requires only 24 hours to be frontloaded and allows an employer who uses the accrual method to cap the accrual at 6 days or 48 hours.

The Family Circle Has Widened.

The City Ordinance widens the family circle allowing employees to use sick leave for those individuals specified in the California sick leave law and to take care of “any individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship.”  The employer will be hard pressed not to accept the employee’s representation of individuals falling into these categories.

Employers Can Ask for Written Documentation

The City Ordinance also differs from the California sick leave law because it specifies that an employer may ask for reasonable documentation of an absence from work while the California sick leave law is silent on whether documentation can be requested, leading some to advise employers not to ask for documentation.

Employees Who Work For Employers Not Located Within The City Can Be Covered.

The most far reaching aspect of this City Ordinance is that it applies to any employee who performs at least two hours of work for any employer within the geographic boundaries of the City.  The definition of employer is not limited to an entity doing business in the City so all employers in Southern California can be affected, particularly those who employ sales or delivery employees who spend at least two hours a week in the City of Los Angeles.  In addition, the City Ordinance provides for individual liability because it defines “employer” to include “a corporate officer or executive, who directly or indirectly or through an agent or any other person, including through the services of a temporary service or staffing agency or similar entity, employs or exercises control over the wages, hours or working conditions” of employees.

Enforcement and Rule-Making Will Be Local.

The Office of Wage Standards of the Bureau of Contract Administration is the City agency designated to enforce and administer the City Ordinance. This agency is charged with promulgating guidelines and rules employers can rely upon and which will have the “force and effect” of law.  Hopefully, these new guidelines and rules will be promulgated in the near future to provide specific guidance to employers.  This is especially important because the City Ordinance is not clear on whether or not employees can carryover sick leave that has been frontloaded.

Action Needed

At this point, employers who have employees who work in the City of Los Angeles should revise their sick leave policies to provide the enhanced sick leave benefits.

Thank you for joining us on CIarkTalk! We look forward to seeing you again on this forum.  Please note that views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  If you have any questions about the new Los Angeles City Ordinance or sick leave in California, please feel free to contact Deborah Petito at mailto:dpetito@clarktrev.com or Leonard Brazil at lbrazil@clarktrev.com by email at or telephonically by calling the author at (213)629-5700.

 

0

START-UP CAPITAL: WHEN CONVERTIBLE DEBT MAKES SENSE!

By Rajnish Puri

Often, entrepreneurs are too eager to seek funds from relatives, friends and other investors in the hope of converting their business ideas into operating businesses in exchange for equity – an ownership interest – in the enterprise, without considering the consequences presented by this form of capital raise.  Start-ups rarely expand their business without selling equity in the company, but should this be the primary method of raising capital when attempting to get out of the gate?  Does borrowing, with certain limitations, make more sense?  This article examines some disadvantages of raising capital in exchange for equity during the early stages of a start-up and discusses the benefits of pursuing convertible debt as an alternative.

Valuation and Control of Business.  When considering sale of equity in a start-up, the primary question is one of valuation because, without having a firm idea of what the business is worth, founders might risk giving up too much for very little in return.  (Investors, too, especially those with little or no familiarity with assigning a value on businesses, face the risk of overpaying for the percentage and type of equity they would receive in exchange for their investment.)  Naturally, given the limited resources available to entrepreneurs at the early stages, obtaining an independent appraisal for the business is impractical and, therefore, not common. Such inequities are avoidable in a borrowing (see later) and diminish with time, as the business grows and brings a greater degree of certainty to the value and, thus, a fairness to the parties involved.  Another concept frequently overlooked by entrepreneurs is the loss of control associated with selling equity, which comes in the form of granting board seats and other contractual commitments to investors.  Under certain situations, the lack of control or a violation of such commitments may lead to the removal of the founders from the business – an outcome neither anticipated nor desired by an entrepreneur.

Debt versus Equity.  At the risk of oversimplifying, debt needs to be returned to a lender whereas equity typically stays with the business.  Actually, there’s a lot more to the distinction between the two forms of financing.  Debt does not appreciate in value (apart from the earnings through interest); equity increases with business growth and offers the potential of lucrative returns to the investor.  On the other hand, debt, like equity, may not be recoverable when a business fails.  For a business, the costs of borrowing money include the payment of interest, the limitation of time within which the loan is to be paid off or risk bankruptcy or foreclosure and the inability to borrow again – consequences generally not experienced when raising money through the sale of an ownership interest in the business.

Features of Convertible Debt; Things to Avoid.  Broadly speaking, a convertible debt is a promissory note accompanied with a special feature that allows conversion of the amount outstanding under the note into equity of the borrowing entity upon the occurrence of certain events. Similar to a promissory note, a convertible debt instrument describes the amount borrowed, term of the loan, interest rate and consequences of non-payment.  The convertibility aspect describes (1) the timing for conversion, which is typically a time in the foreseeable future when the business raises new capital, (2) the valuation to be used when computing the conversion of debt into equity, which is linked to the valuation deployed for the new capital raise, and (3) the conditions of conversion, which generally require a mutual agreement between borrower and lender and, occasionally, include a discount feature favoring the lender.  (Note that the discount feature, which allows the lender to convert debt into equity using a price lower than the price at which the business sells equity in the new financing round, raises tax issues that are not within the scope of this article.)  Borrowers should be careful and avoid giving assurances of repayment of debt (by issuing individual guarantees) or agreeing to controls imposed in the form of negative covenants that require lender’s permission for certain business activities.  Obviously, the size of the borrowing will impact the final terms, but, for capital raised through debt at early stages by start-ups, guarantees and the use of negative covenants are uncommon.  Using a convertible note to raise capital at an early stage avoids the perils associated with an unknown valuation of the start-up’s business (for both parties) and prevents giving up control (by founders) until the later stages of the business when the extent to which control might be conceded can be carefully measured.  In times when investors are looking to invest in businesses with promise and entrepreneurs are routinely conceiving promising ideas, raising capital through convertible debt provides a balanced alternative.

Hope you found the above discussion helpful.  In my upcoming posts, I plan to share with the readers practical knowledge and trends on a variety of corporate finance topics applicable to early stage and established businesses.  Stay tuned for another conversation on ClarkTalk!!

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.   If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Raj Puri by email at rpuri@clarktrev.com or telephonically by calling the author at (213) 341-1322.

 

 

 

 

 

 

 

0

“Don’t Do The Crime, If You Can’t Do The Time”: How Our Criminal Justice System Works

Eric Dobberteen and Alisa Edelson were invited to publish two chapters concerning the American criminal justice system as part of a third volume series on the Anglo-American Legal system published by LexisNexis and BDÜ Fachverlag Berlin.  This publication explores various fields of law from the American, British, German and Austrian perspectives.

The first of the two chapters discusses the American criminal justice system and how it begins with the commission of a crime.  In order to be convicted of a crime, the government must generally prove that a criminal act occurred and the accused acted with a “bad state of mind” in committing the crime.  For more information about the basic elements of a crime, specific types of crimes and legal defenses, please read the chapter entitled “Criminal Law In The United States”.  The second chapter discusses enforcement of the criminal laws.  For more information about how those criminal laws are enforced at various stages including the investigation, arrest, detention, prosecution, trial, post-conviction, sentencing, and appeal, please read the chapter entitled “Criminal Procedure In The United States”.

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  You should certainly consult legal counsel of your choice if you need assistance in any criminal law matter.  If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Eric Dobberteen edobberteen@clarktrev.com orAlisa Edelson aedelson@clarktrev.com by email at or telephonically by calling the author at (213) 629-5700.