By Joseph M. Kanfer, Esquire; Woolford Kanfer Law, P.C.
Small businesses usually do not have the benefit of their own in-house legal counsel. As a result, many subcontractors and other small business owners wait until a problem comes up before they talk to a lawyer. However, many legal problems could be avoided if small businesses had regular legal checkups. A legal checkup works like a medical checkup. Regular medical checkups allow you to talk to your doctor about any health concerns you might have and for your doctor to try to catch any issues before they become serious. Legal checkups work much the same way, allowing small business owners to identify changes in the law and potential legal issues before they become major problems. Legal checkups are especially important for subcontractors and others in the construction industry given that there are many laws and rules applicable to contractors that do not apply to other industries. Here are some questions that you might ask your lawyer at a legal checkup.
- Do my contracts need to be updated?
Many subcontractors have form contracts they use for their projects. It is important to have your legal counsel review these contracts periodically so that they can recommend changes as the law evolves. For example, many states in recent years have enacted so-called workplace misclassification or workplace fraud laws. These laws often target the construction industry and impose significant penalties for employers who “misclassify” workers who should be employees as independent contractors. Some of these laws require specific provisions to be included in (or omitted from) subcontracts to avoid claims of misclassification. The consequences for violating these laws can be severe and may include fines, debarment from working on public jobs, and even criminal penalties in extreme cases. A legal checkup can help you avoid running afoul of these laws.
It is particularly important for contractors who work on residential projects to have legal counsel review their contracts regularly. In many states, contractors working on home improvement projects are subject to enhanced regulation, and the contracts for these projects are often strictly regulated by special consumer protection laws and must meet specific, detailed requirements. Failure to comply with these laws can result in serious consequences that can be avoided by checking with your lawyer to ensure that your contract strictly complies with the laws in each state where you do business.
- Am I following all of the legal requirements for my business structure?
Small businesses can use any one of a number of different legal structures, including sole proprietorship, partnership, business corporation, limited liability company (LLC), or several others. Each of these types of entities has different legal requirements that must be met to remain in good standing and full compliance with the law. For example, in many states corporations are required to conduct annual meetings and keep minutes of these meetings in their corporate record books. While LLCs are usually not required by law to have annual meetings, regular meetings are sometimes required in an LLC’s operating agreement. Many states also require that some or all corporations and LLCs file annual reports to maintain their status as active entities. And, depending on the form of your business, you may be required to have formal votes or resolutions for certain major decisions. The failure to adhere to these and other requirements can have serious consequences and possibly even put the owners of the business at risk of being held personally liable for the business’s debts. At your legal checkup, you should discuss whether your business is meeting all the ongoing requirements for your specific legal entity type and consider whether a different type of entity might work better for you.
- Do any changes in my business require me to do anything differently?
Even seemingly minor changes in your business may have significant legal effects that require action on your part. For example, many employment laws are based upon the number of employees you have. If you have added employees recently, you may find that your business is now subject to additional anti-discrimination laws, family and medical leave laws, or reporting requirements. Your state may also have adopted new employment laws that you now need to comply with. At your legal checkup, your lawyer can help you determine whether there are any new employment laws that your business is now subject to.
If you have started doing business in a new state, you should check in with your legal counsel to make sure you have all of the required licenses and authorizations. Most states require out-of-state businesses to register with the state’s corporations office and tax-collecting agency before conducting business in that state. Many states also have special licensing requirements for different types of contractors at the state level, the local level, or both. And, depending on the type of work you do, you may need to review and update your contracts to comply with the laws in the state where you intend to do work. A legal checkup can help make sure you are complying with all of these requirements.
- Do I need to update my employee handbook?
Employee handbooks are an important tool for small businesses to communicate their workplace rules and expectations for employees. However, many employers make the mistake of creating an employee handbook from a form and then never reviewing or updating it. Employment law is a rapidly changing area of law and employee handbooks should be updated regularly. For example, many states have legalized the use of marijuana for either recreational or medical purposes. Some of these states have also limited an employer’s ability to fire an employee for using marijuana, creating complicated questions for employers with federal contracts or employees subject to USDOT regulation. Employers in states with marijuana laws should carefully review their existing drug testing policies to make sure that they comply with state law as well as any applicable federal regulations.
Many employers do not realize that employee handbooks are regulated by the National Labor Relations Board (NLRB), the government agency responsible for administering federal labor laws. The NLRB prohibits employers from maintaining policies that prevent employees from exercising their rights to discuss workplace conditions and to unionize. If an employer maintains a policy that the NLRB believes would interfere with these rights, the NLRB may charge the employer with an unfair labor practice. The NLRB just adopted a new standard for employee handbook policies at the beginning of August 2023 in a decision known as the Stericycle case that may require significant revisions to your employee handbook. While this decision will undoubtedly be appealed, every small business should have its legal counsel review its employee handbook to determine whether any changes should be made in light of this major decision from the NLRB.
5. Should I update my plan for collecting past-due balances?
Every small business should have a plan for collecting past due balances from its customers, and subcontractors in particular should discuss their plan with legal counsel. Subcontractors have powerful tools they can use to get paid, but many of these tools require them to act quickly For example, subcontractors may be able to assert a mechanics’ lien against the property where they performed work if they are not paid in full. The rules for filing liens are complex and very different from state to state, but the requirements are often strict. Some states may require a preliminary notice before work is commenced. Other states may require a notice of intent to file a lien after work is completed but before the lien can be filed. The timeline for filing a lien is usually very short, and a subcontractor often must begin the process within a matter of weeks after the completion of its work or some other event. Mechanics’ liens are such a powerful tool that every subcontractor should know the requirements and deadlines for liens in the states where they operate and should ensure that their collections process takes these deadlines into account.
Subcontractors may have other valuable remedies available to them. For example, subcontractors working on public projects (and some private projects) may be able to make a payment bond claim. Payment bonds sometimes have specific requirements and short timelines for sending notices or claims, so it is important to know these deadlines as well. Subcontractors should also know the timing and procedures for filing a lawsuit or other claim in the states where they operate. Every subcontractor should have a plan for collecting past due balances that takes all of these deadlines into consideration, and you should discuss this plan with your lawyer at your legal checkup.
Conclusion
The law governing small businesses, and subcontractors especially, is complex and ever-changing. Having regular legal checkups with your legal counsel can save you time, money, and aggravation in the long run by helping prevent legal problems before they ever happen and allowing you to focus on running your business.
About the Author
Joseph M. Kanfer is a partner at Woolford Law, P.C., with experience litigating a wide range of complex business, construction, and other disputes in both state and federal courts. He has also argued cases before the Superior Court of Pennsylvania, the Commonwealth Court of Pennsylvania, and the United States Court of Appeals for the Third Circuit. Woolford Law provides a wide range of legal services to its diverse client-base, which includes general contractors, subcontractors, homebuilders, real estate developers, municipalities, design professionals, health care professionals, manufacturers, distribution companies, professional services firms, retailers, and communications firms. Click here for more information on Woolford Kanfer Law PC.
