Be Careful When Creating a Company Policy on Moonlighting

When addressing employee management issues like moonlighting, it’s often best to seek out a middle ground. If you’ll first establish clear work standards that fully protect your company’s intellectual property and ongoing research and development efforts, you should be able to accommodate those who can responsibly handle a second job outside their regular work hours.

Perhaps the best way to create a balanced moonlighting policy is to first review your main concerns about allowing employees to do any outside work. You should then try to objectively embrace your employees’ reasons for wanting to take on another job. Although you do have greater freedom to dictate when exempt workers put in their hours, that’s not always the case when interacting with at-will employees who are paid hourly.

Here’s a look at the competing interests involved when trying to design a moonlighting policy for your unique workplace. That information is followed by some general guidelines that you’ll want to review with your Houston employment law attorney. Employees do have certain privacy rights about how they conduct their lives outside of work and those must be respected.

Legitimate reasons why employers often want to limit moonlighting

  • To protect the company’s intellectual property. No employer wants to worry about employees knowingly (or accidentally) sharing confidential, proprietary information with another employer – or using such information while starting their own companies. Non-disclosure agreements are crucial to protecting these types of rights;
  • To maintain control over employee schedules for valid staffing purposes. Many companies require employee flexibility with work schedules in order to cover the ongoing, often unpredictable nature of their work volume. For example, customer “help” or call centers often experience times of peak calling. However, these fluctuations can change from week to week – or even day to day. People hired to work in these environments can be legitimately required to forfeit or greatly limit outside work – if those unique requirements were clearly stated in writing prior to their hiring;
  • A desire to have employees provide the company with their very best efforts. When employees take on “second” jobs – they’ll often be tempted to put in too many total work hours each week. It’s completely legitimate to want every worker to show up on time each day, fully rested and able to adequately focus on their assigned tasks;
  • Safety concerns. Moonlighting frequently causes many people to lose sleep. When they show up to your workplace greatly fatigued, they can pose a serious safety threat to their own health – and that of their coworkers;
  • Loyalty and commitment. While a moonlighting employee can provide you with these desirable attribues – you have every right to expect them to demonstrate respect for your company while interacting with others.

Although these aren’t the only reasons you may want to carefully limit employee moonlighting – they do touch upon common concerns. Keep in mind that it’s your right to carefully monitor the quality of work of your moonlighting employees to be sure it doesn’t start to decline.

Some of the valid reasons many workers want to do some moonlighting

  • Additional money to support themselves and other family members. Regardless of what you’re paying each worker, everyone periodically encounters unexpected medical bills and other crises that require extra income;
  • A desire to realize their own entrepreneurial dreams. Few people can afford to simply quit their “day jobs” while trying to launch new businesses. If employees pursue this type of goal while using their own resources outside of regular work hours, there may be few issues. However, if their companies will cause them to compete for clients with your business, restrictions are fully justified;
  • An interest in taking on paid union work to improve conditions for themselves and others in their industry. Employers must tread lightly when trying to restrict such activities. While company loyalty is a legitimate concern, this isn’t necessarily violated if the workers are openly addressing key safety and health issues that affect all employees.

These are just a few of the many reasons why some workers are strongly motivated to take on moonlighting jobs.

General guidelines for drafting a moonlighting policy

  • Companies should rarely try to completely forbid moonlighting. However, as your Houston employment law attorney will tell you, it’s best to inform all “new hires” if their jobs may require sudden changes in their weekly schedules or limited overtime hours on short notice. Whenever possible, try to remain flexible with workers – or your best and brightest ones may leave so they can pursue moonlighting and other privileges elsewhere;
  • Decide if you need to specifically address this topic in your employee handbook. If you don’t wish to create a “moonlighting” policy, you can ask your attorney to provide you with hiring contracts (and/or) non-disclosure agreements. These will clearly explain to all employees that they’re legally forbidden to share any company trade secrets, research and development data – or other proprietary information – with outside parties without first obtaining express, written permission from your company. It’s also wise to have all employees sign non-compete contracts with your company before they start to work;
  • Consider requiring employees to obtain your permission before taking on “second” jobs.  Should you decide that you want to expressly forbid an employee from taking on a specific “moonlighting” job, always immediately speak with your attorney – to be sure you’re within your legal rights to do so. You’ll need to carefully document all your reasons to protect yourself from any future litigation;
  • Try to be accommodating when an employee indicates that s/he will not be competing with your company in any way. After all, it’s entirely possible that you may one day become a client of your employee’s fledgling new company. Of course, you should still periodically touch base with all moonlighting employees to be sure no conflicts of interest have developed since they started their second jobs;
  • Use periodic job evaluations to your advantage. During these, be sure supervisors ask questions that can help determine if the employee’s outside job is starting to compromise his/her ability to provide you with top-quality work.

Please feel free to schedule an appointment with one of our Murray Lobb attorneys so we can help you draft the various contracts you need to protect your company’s proprietary interests. We can also help guide you as you create (or update) your current employee handbook on this and other topics.

Basic Requirements for Creating a Trust in Texas

Before meeting with your lawyer to create a trust, it should prove helpful to first review the following general legal terms and requirements that govern this effort. Once you understand your duties and the different parties you’ll need to name in the trust, you’ll be better prepared to begin listing the property you wish to transfer through your trust.

Key terms such as grantor, trustee, beneficiary and trust agreement

If you’re the party seeking to create a trust, you may be referenced in the trust document as the grantor, settlor or trustor. In order to create a valid trust in Texas, you must have the present intent or goal to create this type of document that allows you to protect property in a trust during your lifetime. Depending on the exact type of trust you create, you may also retain the right to fully control the property during your lifetime – which may include moving specific bits of property it in and out of the trust according to your needs.

Among your various duties as the grantor, you’ll need to decide who you want to name as the trustee – or controlling party – of your trust. If you choose to create the type of trust that must be managed and controlled by another party, you’ll have to decide if this should be your lawyer, a family member or another party with strong financial management skills.

As the creator of the trust, it will also be up to you to carefully describe all the duties you want your trustee to handle and how you prefer that those duties be carried out. And if you’ve chosen to act as the trustee, you should also name a potential “successor trustee” who can step in and take over if (or when) you become incapacitated — or pass away.

Additional requirements that must be met when creating your trust

You’ll need to be of sound mind, fully capable of understanding all that you’re trying to do with your property and have a proper legal purpose for the trust. In other words, you’ll just need your lawyer to state the specific type of lawful trust that you’re creating – such as a revocable, irrevocable or spendthrift trust – and which parties will receive the benefit of the properties held within the trust.

Texas law also mandates that your trust fully complies with all the requirements of the Statute of Frauds. This basically means that the trust is set forth in writing and is properly executed in full keeping with that statute so that it’s legally enforceable in a court of law. Your Houston estate planning attorney can also explain to you why certain gifts must become vested within set time periods so that they’re not in violation of the Rule Against Perpetuities.

Why you may need more than one trust

In addition to creating a trust that provides all your property with certain tax advantages during your lifetime, you may also wish to create an educational trust that will benefit your grandchildren or even one to cover the needs of a beloved pet after you pass away.

A simultaneous review of your entire estate plan will also benefit you

Whether you’re married or single, it’s always wise to carefully review all your assets with your attorney when creating a trust. In some cases, you may even want to go ahead and change how certain property is currently titled and change some investment accounts so that they’ll pay out directly to specific beneficiaries at the time you pass away – thereby lessening the duties of any party you’ve named as your trustee.

Please feel free to contact one of our Murray Lobb attorneys so we can create the type of trust you currently need. We’ll also help you review your overall estate plan and provide you with legal advice about the right way to properly manage any property or business interests not currently covered by a trust.

“Series, LLC” -The Next Generation of Asset Protection for Investors

A series limited liability company allows a traditional limited liability company to separate into an unlimited number of multiple parts or “cells” with the establishment of one or more series of members, membership interests, managers, or assets – each a series – and each series is essentially treated like its own limited liability company (“LLC”). Currently, only the following states have statutes authorizing some form of series LLCs: Alabama, Delaware, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nevada, North Dakota, Oklahoma, Tennessee, Utah, Wisconsin and Texas. Texas enacted its statue in 2009 and it can be found in the Texas Business Organizations Code (“TBOC”), title 3, subchapter M, sections 101.601 – 101.621.

Typically, each series (i) owns its own assets and has its own liabilities; (ii) has the availability to have different members, managers and types of membership interests; (iii) has the ability to sue and be sued; (iv) can have its own business purpose; (v) has the ability to contract in its own name; and (vi) can grant a security interest in its own name.

Generally, the debts, liabilities, losses, obligations, and expenses of one series will not be enforceable against another series’ assets or the assets of the “parent” limited liability company. This makes it a viable option for any business where it is desirable to separate assets or business lines into distinct entities, such as investment companies, real estate development companies, oil and gas companies and licensing or regulatory companies. The TBOC provides that in order for the liability shield to exist three requirements must be satisfied: (i) the certificate of formation of the main LLC must contain a “notice provision”, which references the liability protection provided for by TBOC section 101.602(a); (ii) the company agreement of the main LLC must contain a statement setting forth the liability protection provided for by TBOC section 101.602(a); and (iii) records must be maintained for each series that “account for the assets associated with that series separately from the other assets of the [parent LLC] or any other series”.

One of the great benefits of series LLCs are the cost savings related to organizational filing fees. In Texas, the filing fee to create a series LLC is the same as an individual LLC; $300.00 (non-expedited). Thus, to create six LLCs would be a minimum cost of $1,800.00 versus the cost of creating a series LLC of $300.00. Oftentimes, series LLCs may also result in lower legal costs as it reduces the need for separate operating agreements and some document preparation.

While there are still issues to be considered when determining whether a series LLC might be right for a particular business, series LLCs are growing in popularity and are an additional tool in any investor’s or businesses’ proverbial toolkit.

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The Texas Margin Tax – H.B. 500

In 2013 the Texas Legislature enacted H.B. 500 which provided for a temporary margin tax rate reduction, a new minimum deduction, expanded deductions, new credits for certain taxpayers, and customer-based sourcing for Internet hosting receipts. The law went into effect January 1, 2014.

A franchise tax (or margin tax) is imposed on all taxable entities. Under H.B. 500 a “taxable entity” means a partnership, limited liability partnership, corporation, banking corporation, savings and loan association, limited liability company, business trust, professional association, business association, joint venture, joint stock company, holding company, or other legal entity. The term includes a combined group. A joint venture does not include joint operating or co-ownership arrangements meeting the requirements of Treasury Regulation Section 1.761-2(a)(3) that elect out of federal partnership treatment as provided by Section 761(a), Internal Revenue Code.

For all taxable entities under this legislation, the revised tax base is the taxable entity’s margin defined as the lowest of the following:

  1. Total revenue less cost of goods sold;
  2. Total revenue less compensation; or
  3. Total revenue times 70%.

The margin tax is imposed at 0.5% on retail and wholesale trade businesses and 1% on all other taxpayers. The rate could be reduced provided the probable revenue estimates as certified by the Comptroller are calculated to offset any revenue lost by the rate reduction. In that event, H.B. 500 establishes temporary rate reductions as follows:

  1. 2014 – 0.4875% for retailers or wholesalers, and 0.975% for other taxpayers.
  2. 2015 – 0.4750% for retailers or wholesalers, and 0.950% for other taxpayers.

The rate for reports due in 2014 was actually reduced as indicated above. It is estimated by the Comptroller that probable revenue for the fiscal period applicable to 2015 will be sufficient to also allow for the rate reduction for 2015.

A taxable entity is primarily engaged in retail or wholesale trade if: (1) the total revenue from its activities in retail or wholesale trade is greater than the total revenue from its activities in trades other than the retail and wholesale trade; and (2) less than 50% of the total revenue from activities in retail or wholesale trade comes from the sale of products it produces or products produced by an entity that is part of an affiliated group to which the taxable entity also belongs, except for those businesses under Major Group 58 (eating and drinking establishments); and (3) the taxable entity does not provide retail or wholesale utilities, including telecommunication services, electricity, or gas.

Under H.B. 500, the retail or wholesale trade definition was expanded to include automotive repair shops, equipment rent-to-own transactions, and rental or leasing of tools, party and event supplies, furniture, or heavy construction equipment.

H.B. 500 adds certain deductions from margin tax apportioned to operations in Texas, including deductions for cost of solar energy devices, cost of clean coal projects, and relocation costs by certain taxable entities. H.B. 500 also provides for certain exclusions from revenue and amends the calculation of cost of goods as it applies to pipeline companies under certain circumstances, and as it applies to movie theaters. There is also a $1 million deduction from total revenue for small businesses.

The new sales sourcing rule for internet hosting companies provides that, for reports due on or after January 1, 2014, receipts are considered derived in Texas only if the consumer of the service is located in Texas.

The enactment of H.B. 500 created many changes to the margin tax and cost of goods rule, most of which are favorable to certain businesses. As a result of the more complicated margin tax and cost of goods sold calculations under this legislation, affected taxpayers should review these matters for previously filed returns, audits and future returns for potential refund claims and/or tax savings.