Legal Newsletter 2 – Recent California Legal Developments

By December 16th, 2016

Legal Newsletter No. 2
Recent California Legal Developments
Business, Contracts, and Real Property Law
“The 20-Minute Legal Developments Review”

The following is a summary of recent statutory enactments and judicial decisions affecting California or California-based businesses, contracts, and real property. Except in rare instances, the scope of my Newsletters is limited to transactional matters — business, contracts, and real property law, and only California laws and cases are referenced. However, legislation and rulings from other jurisdictions are sometimes noted if they may have immediate or future applicability to California businesses or if they may serve as useful reminders or cautions.

These enactments and decisions are only briefly summarized below. Since most of these enactments and decisions are both blessed and burdened with numerous exceptions and conditions, their applicability to any specific matter should be closely examined. The following matters are not presented in any order of priority, and please know that I always welcome your comments.

SEC Adoption of New Rules Relating to Intrastate and Small Offering Capital Raises

(Including Crowdfunding)

New SEC Rules have finally been adopted which expressly authorize capital raise solicitations (including Internet solicitations) of $5.0 million in any 12-month period (up from $1.0 million) so long as solicitations are limited to persons residing within the state where the issuer was formed or has its principal place of business. The new rules also repeal Rule 505 which had previously limited such offerings to accredited investors and only up to 35 other persons who do not meet the financial sophistication standards. The SEC adopted a troublingly-vague “reasonable belief” standard for determining remaining the residence of the purchaser/investor whereby the issuer may be able to rely upon a mere written representation from the prospective investor as to such investor’s residency. 

Employment Agreement – New Restrictions upon Choice of Law and Venue Requirements

With respect to all employment agreements (including those which are new, modified or extended on or after January 1, 2017), the employers’ right to designate a choice of law or venue other than California has been severely limited. With respect to any employee who primarily resides and works in California, employers shall be precluded from requiring that employment-based disputes be adjudicated in any jurisdiction or under any choice of law other than California. These California law and venue requirements apply to both litigation and arbitration, but they do not apply to independent contractor agreements.

— Certain Non-Compete Agreements Enforceable –

Continued Permissibility (and Advisability) of Trade Secrets Agreements

Unlike most other states, non-compete agreements with respect to employees and independent contractors are illegal in California. However, trade secrets agreements can sometimes protect an employer in similar ways, and trade secrets and confidentiality agreements are enforceable. In addition, non-compete agreements executed by owners of a business (corporations, LLC etc) are enforceable in the context of selling one’s interest in a business. As noted above, in the context of employee non-compete agreements, California’s rules are different than those of most states. In California they are not enforceable, and an employee cannot be terminated for refusing to sign such an agreement. 

Social Security – A Dangerous Alchemy of Math and Gambling

Most social security decisions rely upon a dangerous alchemy of math and gambling. None of us can see the future. None of us know our life expectancies. Nevertheless, the Social Security Administration mandates age-based, monetary decisions. This subject is complicated. There are many factors to consider, and there are exceptions. But one aspect of social security is here addressed because of the proliferation of poorly-considered, inadequately-detailed articles about when one should start drawing social security. Basically, the articles too often advise American’s not to take “early” age 62 social security – although appr. 73% of Americans still do. The articles recommend that social security be deferred until one’s full entitlement age which for most Baby Boomers is age 66. The most commonly cited reason for this recommended deferral is the roughly 8% per annum increase in social security payments if one waits until what is known as “Full Retirement Age.” However, this analysis is frequently too simplistic. Sometimes it is dead-wrong. Very summarily, the decision should depend largely upon whether or not one plans to continue working after age 62. If you do, then deferring social security normally would be advisable because payments will be decreased if your annual employment income is over a small annual income amount – about $16,920 as of 2017. However, if you don’t plan on working, then it may be advisable not to wait. Admittedly, a lower monthly amount will be paid (aggregately about 32% each month less than if you had waited until you were 66), but in those four years (from age 62 to 66) you will have received 48 months of checks. Thus, the cross-over age at which the age 66 aggregate monthly increases exceed your 48 months of received payments is about age 79! This is a complicated and important decision, but the math must be run. If you die before you’re 79, you may win. If you live past 79 you may lose, but – very bluntly, due to one’s life condition, the presence of long-term care insurance or annuity receipts – such monthly loss may be inconsequential. One other, little-known factor to consider is that if at age 62 you have a minor child living at home, you will; receive an additional, double-up check for the minor until the minor reaches age 18. If you delay payments until age 66, such payments are non-recoverable.

Commercial Leases – New Disability Access Obligations for Commercial Landlords

Previously, a commercial landlord was required to advise a prospective tenant (a) whether or not the subject premises has been inspected by a Certified Access Specialist (“CASp”) and (b) if so, whether the premises had been determined to meet all construction-related accessibility standards. These obligations have now been expanded with respect to all commercial leases entered into on or after January 1, 2017. If a CASp report exists, but no modifications or alterations have been completed, the landlord must deliver a copy of the report to the prospective tenant prior to the execution of the lease. Otherwise, the tenant has a right (albeit a short 72-hour right) to rescind the lease. If corrective modifications had been noted in the report, then there also now exists a presumption that such modifications are the responsibility of the Landlord unless the parties otherwise agree. Lastly, if the premises have not been issued a disability access inspection certificate, then the tenant must be advised (a) that it can request such inspection and (b) that the cost and resulting repairs, if any, shall be borne as agreed between the tenant and the landlord. From a tenant’s perspective, it should be noted that the tenant’s “as-is” acceptance of the premises may result in the tenant later being responsible for post-lease commencement CASp inspection-mandated corrections.

Fact of the Day 

Median Age — U.S. and Comparisons with Other Selected Countries and World Regions.

The U.S. median age is 36.8 years old (compared with the global median age of appr. 28 years and the U.S. median age of 35.3 years just 12 years ago in 2000). The nations with the highest median ages are Monaco (50.5) and Japan (45.9). A total of 27 countries (nearly all European countries) have median ages above 40 years. Conversely, 21 countries (nearly all in Africa or the Middle East) have a median age of less than 18.5 years!! U.S. Census Bureau and The Economist, Pocket World in Figures—2016. See also, The Economist, December 22, 2012 — January 4, 2013, p. 102, citing Pew Research Center. Excerpted from Mack W. Borgen’s forthcoming 2017 Edition of his award-winning book The Relevance of Reason – The Hard Facts and Real Data about the State of Current America (Vol. 1 – Business and Politics).  

Summary of Prior Topics

November 15, 2016 Newsletter

Corporate “Veil-Piercing” May Not Be Limited to Shareholders or Other Owners of Entity

Employment Law and Pay Inequality – New Legislation

Prop 13 Tax Reassessments

Barring of Certain Non-Disparagement Agreements – California’s New “Yelp Bill”

Uber-Drivers Are “Employees” — Not “Independent Contactors”

Facts of the Day

U.S. Exports as Percentage of World Exports and As Percentage of U.S. GDP (Trade Dependency)

Legal Practice Blog – December, 2016 Legal Newsletter – Recent California Legal Developments – Business, Contracts and Real Property Law

Blog No. 68

December 15, 2016

By Mack W. Borgen
Santa Barbara, California
Copyright © 2016. Mack W. Borgen. All rights reserved. University of California at Berkeley (Honors, Economics); Harvard Law School; Author, The Relevance of Reason – Business Politics (Volume 1) and —  Society and Cultue (Volume 2) – As Advertised in The New York Review of Books andRecipient of Four National Book Awards
FORTHCOMING BOOKS: Dead Serious and Light-Hearted – The Memorable Words of Modern America (Volume I (1957-1976); Volume II (1977-1993), and Volume III (1994-2015)
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