Legal Newsletter 1 – Recent California Legal Developments
Blog No. 67
November 12, 2016
Legal Newsletter
Recent California Legal Developments
Business, Contracts, and Real Property Law
“The 20-Minute Legal Developments Review”
By Mack W. Borgen
Santa Barbara, California
Copyright (c) Mack W. Borgen. All rights reserved.
University of California at Berkeley (Honors, Economics); Harvard Law School;
Author, The Relevance of Reason – Business Politics (Vol 1) and — Society and Cultue (Vol 2)
As Advertised in The New York Review of Books and Recipient of Four National Book Awards
Forthcoming Books
Dead Serious and Light-Hearted – The Memorable Words of Modern America (Vols I and II) –
Direct Order Today: c/o Brody & Schmitt Publishers at mwborgen@live.com
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 are 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.
Corporate “Veil-Piercing” May Not Be Limited to Shareholders or Other Owners of Entity
In certain circumstances a claimant seeking redress from a corporation or other business entity may try to “pierce the corporate veil.” This concern is normally limited to the corporate shareholders or other entity owners. However, in some instances courts may allow claims to be made against non-owners (e.g. officer or employee of the entity) if the claimant can show that such non-owner exerted requisite control and dominance of the entity and misused the entity structure.
Employment Law and Pay Inequality – New Legislation
New legislation (enacted Sept., 2016 and effective Jan., 2017) amends the California Fair Pay Act and prohibits an employer from relying upon an employee’s prior salary to justify a disparity in salaries between similarly-situated employees. In other words, the common practice of using a job applicant’s salary history as a basis for current salary may now be unacceptable. Instead, if there are employees within the company performing similar services (even if they have different job titles), then the salaries must be comparable. In addition, the employer cannot rely upon the “same establishment” standard, and intra-company salary comparisons must be made with respect to all of the employer’s offices and facilities.
Prop 13 Tax Reassessments
For nearly 40 years California’s Proposition 13 has limited the annual increase in a property’s assessed value to a maximum 2% annual inflation factor. Because real property is re-assessed to current fair market value upon a change of ownership, extreme caution should be used with respect to all potentially triggering change-of-ownership transactions. While double-checking with tax counsel is nearly always advisable — the following are a few reminders:
- Upon the recordation of a deed, a Preliminary Change of Ownership Report must be filed. On this form the exclusion from the change-of-ownership valuation must be noted. If the report is not filed or if no exclusion is checked on the form, then the property will be re-assessed.
- Upon the death of any owner of California real property (whether the deceased was a California resident or non-resident and regardless of whether or not the property was held in trust), the county assessor office must be notified within 150 days. Substantial penalties can be imposed if such notification is not timely made.
C . If the property is transferred to an entity, a change of ownership will occur thereafter only if there is a change of control – i.e. a new party acquires more than 50% interest in the entity.
D . If the property is co-owned by persons, the property can be transferred to an entity so long as the percentage ownership does not change. Under this proportionality rule, even if a change of ownership reassessment is not triggered upon the initial transferring of the property to an entity, a re-assessment can be triggered if cumulatively more than 50% interest in the entity is transferred over time.
Barring of Certain Non-Disparagement Agreements – California’s New “Yelp Bill”
In a clumsy attempt to deal with modern marketing practices and customer-comment postings on websites such as Yelp, in September, 2016 California enacted what has been referred to as the “Yelp Law.”
This new law is in response to the fact that over the last several years more and more businesses have been requiring customers to sign non-disparagement agreements. Under such agreements the business purports to reserve the right to sue any customer who writes a negative review about their business. While non-disparagement provisions are common in many other types of business contracts (e.g. sale-of-business agreements and most forms of settlement, compromise, and mutual release agreements), their use in the business-customer context is relatively new.
Under the new act, business contracts cannot limit customer’s right to make statements about the business and may not require customers to waive their rights to make such customer opinion statements. The act provides for civil penalties ranging from $2,500 to $10,000. It is this author’s opinion that this matter is far from being resolved since, at a minimum, it is difficult to fully reconcile this type of legislative prohibition with business’ long-standing rights to seek damages for defamation and, arguably for the more creative, interference with contractual relations or other business tort claims.
NOTE: Adding insult to injury, the Ninth Circuit also recently held that Yelp could coercively require businesses to help pay for Yelp-provided marketing or suffer the consequences of its hiding positive reviews.
Uber-Drivers Are “Employees” — Not “Independent Contactors”
(Out-of-Jurisdiction Case)
The New York State Department of Labor recently concluded that two former Uber drivers were employees for purposes of the state’s unemployment insurance plan. This is another example of the constant, dangerous, and costly risks of mischaracterizing employees as independent contractors. Such mischaracterization of workers as independent contractors is going to continue to be challenged by governmental agencies seeking additional tax revenues and by plaintiff’s lawyers seeking to retrieve wrongfully denied minimum wage and overtime pay for such misclassified employees.
Facts of the Day
U.S. Exports as Percentage of World Exports
and
As Percentage of U.S. GDP (Trade Dependency)
The U.S. exports 11.4% of the total world exports of goods, services, and income. It is second only to the Euro Area (14.5%) and followed closely by third-place China (10.4%), then Germany (7.2%) and Japan (4.0%). The U.S. is the 4th least trade dependent nation with foreign trade constituting only 11.6% of its GDP. 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) citing The Economist: Pocket World in Figures, 2016 Edition.
Credits and Acknowledgements. My appreciation is expressed to Thompson Coburn LLP; Mintz Levin Cohn Ferris Glovksy and Popeo PC; Jackson Lewis PC; Mr. Mark Wilson; and Constangy Brooks Smith & Prophete LLP for their respective summaries of some of the above-described legal developments.
