Archives for November 2014

Copyright 101: Use and Compliance in Your Workplace

stamp copyright with red text on whiteWhether you are aware of it, your business probably deals with copyright issues in one manner or another. Copyright is pervasive in business activities, but is your business properly protected? Proper protection entails securing your own copyrights and avoiding infringement upon others’ copyrights. Consider the following best practice suggestions:


  • Create a copyright use policy that explains how employees, independent contractors, and other related parties should use and protect your copyright.
  • Train your employees and independent contractors to recognize your protected copyrights and proper procedures to protect your copyrights.
  • Have all members sign the policy acknowledging your ownership of the copyright and their understanding of their responsibilities.
  • Create and implement a non-disclosure policy regarding all intellectual property, including copyrights.


You may well be held liable for any copyright infringement claims resulting from your employees’ actions. Such claims may cost you $250,000 and 5 years in prison. 18 USC 2319, 3571(b). You may be infringing upon another’s copyright if you play music at work or share online pictures or writings. Your ability to access these materials does not translate to your ability to use these works. Consider the following best practice suggestions:

  • Create and implement a copyright compliance policy that:
    • Explains the definition of a copyright and covered material.
    • Lists examples of common copyright infringement in the workplace.
    • States your policy of honoring copyright.
    • Details consequences of copyright infringement.
    • Details procedural steps to seek legal advice if your staff is uncertain about copyright compliance.
  • Train your staff members to understand their responsibility of avoiding copyright infringement.
  • Have all members sign the policy acknowledging their understanding of responsibilities.
  • Purchase a universal copyright license to prevent any accidental infringement.


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The protection of assets is generally one of the biggest reasons to form a legal entity. Specifically, the protection of business assets from an owner’s personal liabilities is critical to a business’ continuing success. In many states, a personal creditor may charge a stockholder’s stock with payment of a judgment. Such a remedy could result in the forced liquidation of a viable business to satisfy an owner’s personal debt to the detriment of other owners.


In Nevada, charging order protection is extended to partnerships, limited liability companies and corporations. What this means is that a personal creditor’s only remedy against an owner’s stock is a charging order and, as a result, that creditor must wait for distributions from that entity to satisfy any judgment. The creditor cannot force distributions from the entity, nor can the creditor exercise any control over the entity; thereby allowing the business to continue operations despite the creditor’s claim.


LLCs and Partnerships


Nevada has long recognized charging order protection for limited liability companies and partnerships, but there has always been a question as to whether that protection extended to single-member LLCs. The case law leaves some doubt and more recent decisions appeared to be chipping away at a member’s ability to protect its membership interest if the LLC was a single-member LLC.


To remedy this, in 2011 the Nevada legislature addressed this issue and provided that “the exclusive remedy by which the judgment creditor of a member or an assignee of a member may satisfy a judgment out of a member’s interest of the judgment debtor, whether the limited liability company has one member or more than one member.”




Nevada was the first state to provide charging order protection to certain corporations under NRS 78.746. This provision provides the exclusive remedy available to a judgment creditor from a stockholder’s stock. The judgment creditor is only provided the rights of an assignee of the stock and has no rights to management or control of the corporation, provided that the corporation meets the following requirements:


  • Has less than 100 stockholders of record, at any time;
  • Is not a subsidiary of a publicly traded corporation or subsidiary of the same; and
  • Is not a professional corporation


These restrictions closely mirror the IRS limitations for s-corporations and include most small businesses.




The expansion of these rights to these types of entities helps to continue Nevada’s business friendly reputation. However, it is unclear when and if other states will follow suit with similar legislation, which leaves the answer unclear as to whether this law will be respected outside of Nevada.

Risky Business: The Perils of Independent Contractor Misclassification

freelanceHiring independent contractors instead of employees often has a financial benefit for businesses due to savings in payroll taxes and employment benefits, and avoidance of wage and hour regulations. However, if a state or federal agency discovers that an independent contractor is misclassified, the business faces back pay, fines, interest, civil and criminal litigation costs, and business restructuring costs. All benefits gained from the misclassification are lost and more! If the business does not pay all associated fines and interest, the overflow debt may then be held against the owner’s personal accounts.

Several states and federal agencies monitor independent contractor misclassification; the misclassification identification in one agency often has a domino effect, brings all agencies and formerly misclassified employees pounding on your door, demanding money. The cost associated with this risky mistake can realistically drive you out of business. In case you are still unconvinced of the severity of the misclassification, the following article describes penalties associated with violations in Nevada.


The burden of proof rests upon the employer to determining whether an independent contractor relationship exists. The employer needs to demonstrate the existence of three factors.

  • The person has been and will continue to be free from control or direction from the employer regarding the performance of services;
  • The service is either outside the usual course of the business for which the service is performed or that the service is performed outside of all the places of business of the enterprise for which the service is performed; and
  • The service is performed in the course of an independently established trade, occupation, profession or business in which the person is customarily engaged, of the same nature as that involved in the contract of service.


They’re Watching You

The following Nevada agencies monitor independent contractor misclassifications:

  • Division of Industrial Relations, Nevada Department of Business and Industry
  • Employment Security Division (“ESD”)
  • Office of the Labor Commissioner
  • Nevada Department of Taxation
  • Department of Labor Standards Enforcement (“DLSE”)


The following federal agencies monitor independent contractor misclassifications:

  • Wage and Hour Division of the Department of Labor (“WHD”)
  • Equal Employment Opportunity Commission (“EEOC”)
  • Internal Revenue Service (“IRS”)


Agencies choose to investigate when…

  • Your “independent contractor” files an unemployment claim
  • Independent contractor complaints (e.g. By a competitor)
  • You independent contractor’s lawsuit against you
  • Random audits
  • Internet registration process


Heavy Consequences

  • Employment benefits including health insurance, retirement contribution, stock options, paid vacations, sick days, life insurance, disability insurance, etc.
  • Payroll taxes for each misclassification during each tax period including Social Security and Medicare taxes, federal unemployment insurance taxes, workers’ compensation insurance, etc.
  • Back wages, overtime pay, FMLA leave, and other employment law compliances fines
  • Interests and penalty on everything.
  • Gross misdemeanor criminal charges.
  • Civil action suits by the Nevada Attorney General and class action suits by misclassified workers.
  • Restructuring costs to ensure current and future workers will be properly classified.


Remember, these liabilities may pierce the corporate veil, becoming the liability of the owners and corporate officers, if not paid.


Learn from Microsoft’s Mistake

The IRS found Microsoft’s employment misclassification in the early 1990s and charged Microsoft millions in fees and penalties and caused Microsoft to restructure its human resources. After the federal government was finished with Microsoft, the company faced a civil suit for employment benefits from eight of the previously misclassified workers. Microsoft lost the suit in the circuit court and settled the case for $97 million.


Riskier than Ever!

Since 2011, the federal government has cracked down on employment classification, adding over a hundred monitoring agents and $25 million in funding to catch misclassifications. Specific task forces communicate between agencies to ensure that misclassifications are fully penalized by various agencies. This trend is not changing; in 2013, the federal government budgeted $14 million of grant money to assist states in identifying misclassifications. Now more than ever, business owners should be vigilant in employment classification.


Words Don’t Matter

Nevada has a counterintuitive definition for independent contractors. Designating the business relationship in an independent contractor agreement and actually perceiving your worker as an independent contractor is not enough. To proactively ensure that your workers are properly classified, call the lawyers at the Drinkwater Law Office.