In the current economic climate, many employers are no longer able to generate the same amount of income they did just a couple years ago. This has resulted in furloughs, pay cuts, and massive layoffs for employees. In addition to losing their main source of income – their paychecks – employees have had to suffer additional financial hits due to bad investments in real estate and stocks. These losses have forced many to file for bankruptcy or resort to other drastic means. It should come as no surprise that our law firm has seen an increase in the number of calls from employees requesting information on how to protect their assets from creditors trying to collect on debts.

Asset protection devices can provide effective protection against creditors for employees and their families who are facing bankruptcy, foreclosure, lawsuits, etc.

Tip 1: Professionals Watch Out

Those engaged in professional occupations in particular, such as doctors, lawyers, dentists, engineers, and accountants, should engage asset protection devices, as they are more vulnerable to being sued. In California, professionals are personally responsible for liability arising out of the practice of their professions.

Tip 2: Living Trusts Don’t Protect against Creditors

A common misconception is that a living trust will provide creditor protection. Living trusts do provide important benefits after the owner’s death, such as avoiding probate and reduction of estate taxes. However, living trusts do not provide creditor protection. If you are interested in asset protection, there are other trusts and methods available, considered to be “advanced” planning techniques, which will provide creditor protection if used and maintained properly.

Tip 3: A Qualified Personal Residence Trust Can Save Your Home

Some time ago, our law firm was contacted by a client who was a long-time employee at a successful retail business. Due to the financial crisis, however, the business lost money and was forced to close. Some of the suppliers who were owed money by the retail business sued the employee, arguing that he was personally liable for the contracts. The employee was aware that nothing could be done to avoid the lawsuit, so his main concern became protecting his home from the business creditors.

One option would have been to defend against the lawsuit and prevail. However, as any lawyer will tell you, victory in a lawsuit is never guaranteed, even when you are not at fault. A lawsuit can also be costly and could put you even further in debt.

A better option would have been to have set up a Qualified Personal Residence Trust (“QPRT”) to shield his home from creditors before the lawsuit was filed.

The QPRT is a trust technique that permanently transfers either a principal residence or a vacation home to your children while you are still living. Because you have already given your home to your children irrevocably in the trust, and it no longer belongs to you, your creditors cannot go after the house – technically you no longer own the house.

Caution: a QPRT is irrevocable and cannot be changed once it is set up. You cannot later choose to give your home to other people.

On the bright side, even after you set up a QPRT, you can sell your current home and replace it with a new home, and many of the tax advantages of home ownership remain available to you.

Another advantage is that, unlike an outright gift directly to your children, a QPRT gives you the legal right to continue living in the home. The QPRT will set a number of years for which you have the right to occupy the house and retain all income-tax benefits of home ownership (the “term”). After the term expires, you still have the right to continue occupying the house in exchange for rent paid to your children.

For example, you can set up the QPRT term for ten years. After ten years, if you want to continue to live in the house, you can pay reasonable rent to your children.

The QPRT is also one of the few methods available which can provide some protection for licensed professionals such as doctors, lawyers, dentists, architects, engineers, etc. This is important because professionals are normally unable to use most asset protection methods to avoid professional liability.

The QPRT also provides additional tax benefits. Transfers made during your lifetime are subject to gift taxes, and transfers made after you die are subject to estate taxes. With a QPRT, your children will be able to get a substantial discount on gift taxes owed. In addition, all future appreciation will be excluded from your estate, and it will not be subject to estate tax upon your passing.

Tip 4: Act Now BEFORE Problems Arise

A key point to remember is that most of these asset protection techniques must be put into place before the possibility of a creditor claim or lawsuit occurs. For example, the client mentioned above was already facing a lawsuit, and so it was too late for him to set up a QPRT. If he had set up the QPRT earlier, he could have protected his home. It is very important that the QPRT planning is done before problems arise.

Conclusion

There are many additional techniques that can provide creditor protection, as well as tax benefits. Please contact our offices if you wish to get a more detailed review of your assets and the techniques that would allow greater creditor protection for those assets. The QPRT is an advanced estate planning technique, and there are many other factors to consider before creating one. If you have questions about the QPRT or other techniques, please call our office.

The Law Offices of Ernest J. Kim has offices in Irvine, San Francisco’s Financial District, and Los Angeles. The law firm focuses on estate planning law, including preparation of living trusts, powers of attorney, marital property declarations, wills, irrevocable life insurance trusts, family limited partnerships, charitable gifts, private foundations, and other irrevocable trusts. Tax analysis is also provided for those with estates in excess of the exemption limits. After-service includes trust administration services, estate tax returns, probate filings and probate administration. You can visit their law firm website or call them at 1-800-793-5633.

Related posts:

1. Senate Passes Legislation to Strengthen Whistleblower Protection Act
2. Is Arbitration Good or Bad for Employees?
3. Top 5 Tips: So you want to sue your boss?

Has FMLA/CFRA been good for the workplace?

Ever since FMLA went into effect in 1993, it has been a success. A U.S. Department of Labor report issued in June 2007 found employee reactions to FMLA to be uniformly positive. The report referenced a 2000 Westat Report which had found that “89% of employers reported that the FMLA has had either a positive or neutral effect on employee morale”. Numerous employees also commented that FMLA encouraged a “greater sense of loyalty to their employer”.

Nevertheless, some argue that FMLA/CFRA does not go far enough. I have already posted about how U.S. leave policies continue to lag far behind those of other countries around the world. See “U.S. FMLA/CFRA Leave Lags Far Behind Rest of World”. The AFL-CIO also cites a national survey conducted by the National Opinion Research Center of the University of Chicago which found:

1. the U.S. ranks at the bottom of 21 high-income nations in providing parental leave for workers
2. 1 in 6 workers were fired, disciplined or threatened by their employer for taking time off for illness or to care for a sick family member
3. Nearly 50 percent of private-sector workers and 76 percent of low-income workers have no paid sick days

It isn’t hard to understand why better leave policies would be better for everyone. According to Deborah Leff, president of the Public Welfare Foundation, paid sick leave is not only good workplace policy, but “good public health.”

The lack of paid sick days has real consequences for Americans forced to choose between losing a day’s pay or going to work sick. It’s difficult for employees to be productive when they are not well. They also expose co-workers and customers to illnesses.
“Sick and Fired: U.S. Workers Struggle Without Paid Sick, Parental Leave”

Employers complain that leave policies can be difficult to administer and that leave abuse is rampant.

Marc Freedman, director of labor law policy for U.S. Chamber of Commerce, had this to say:

It’s just too confusing and too vague. Right now, the system is such that it allows an employee who wishes to, to game the system.
“Do employees abuse the Family and Medical Leave Act?”

But employers should be asking themselves, is it really in their interests to have sick employees or employees with sick family members reporting to work for fear of losing pay or their jobs? Because the data suggests that that is exactly what is happening. The Institute for Women’s Policy Research conducted a study that concluded improved medical leave laws could save the U.S. economy $8.1 billion a year by preventing lost productivity due to sick workers, the spread of illness to co-workers and customers and worker turnover.

Besides, a suspicious employer can always ask the employee to undergo a second examination in order to get a second opinion whether medical leave is really justified. It is difficult to understand why more employers don’t take advantage of this little-used regulation.

If you believe your employer has interfered with or retaliated against your medical leave rights, contact a lawyer right away as strict filing deadlines may apply.

Related posts:

1. Leave Rights in California: Part 1
2. U.S. FMLA/CFRA Leave Lags Far Behind Rest of World
3. FMLA Medical Leave Expanded to Families of Military

Am I eligible?

Unfortunately, FMLA/CFRA does not protect all workers, only those who have:

• worked at least one year for their employer,
• have worked at least 1,250 hours in the past year, and
• whose employer has at least 50 employees working within 75 miles of the employee’s worksite.

According to U.S. Department of Labor June 2007 report, the eligibility requirements for FMLA/CFRA means that only 76.1 million workers out of 141.7 million total U.S. workers, or 53%, are eligible for FMLA protection (the other 47% have to rely on their employer’s leave policies).

How much medical leave is allowed under FMLA/CFRA?

Under FMLA/CFRA, employees are entitled to take a maximum of 12 weeks of unpaid medical leave to care for a newborn, newly adopted child, seriously ill family member or for their own serious illness (under FMLA but not CFRA, this includes incapacity due to pregnancy, childbirth or related medical conditions). You may be entitled to an extension of leave past the 12 week maximum if you have a mental or physical disability that requires a leave extension as an accommodation of that disability (this assumes the employer is aware or has been informed of your disability and/or associated work restrictions). It is illegal for an employer to treat you differently or punish you for taking medical leave. You also have a right to be reinstated to your position upon return from your medical leave unless you are a “key employee”.

Is the leave paid or unpaid?

FMLA/CFRA (and PDLL) leaves are unpaid. According to the AFL-CIO, the lack of paid leave ”presents a significant obstacle for those who cannot afford to take FMLA leave”. This claim is backed up by a 2000 Westat Report which found that the most commonly noted reason for not taking leave was inability to afford it.

Of course, if you’re lucky, your employer will choose to pay you during such leaves, or apply your paid sick leave/vacation time to your medical leave.

What if I’m pregnant?

If you are incapacitated due to pregnancy, childbirth or related medical conditions, you may qualify for 4 months of leave under the California Pregnancy Disability Leave Law (PDLL). You can then take an additional 12 weeks of CFRA (but not FMLA) leave “for reason of the birth of her child, if the child has been born by this date” and assuming you have enough time left in your CFRA bank. 2 Cal. Code of Regs. § 7291.13(c).

Note, the above eligibility requirements for FMLA/CFRA do not apply to PDLL. To qualify for PDLL, you need only work for an employer who has 5 or more employees.

Conclusion

In Part 2, I will discuss whether FMLA/CFRA has been good for the workplace and what further improvements can and should be made, if any.

If you believe your employer has interfered with or retaliated against your medical leave rights, contact a lawyer right away as strict filing deadlines may apply.

Related posts:

1. Leave Rights in California: Part 2
2. U.S. FMLA/CFRA Leave Lags Far Behind Rest of World
3. FMLA Medical Leave Expanded to Families of Military

* Your name, address, and telephone number

* The name, address and telephone number of the employer (or employment agency or union) you want to file your charge against

* The number of employees employed there (if known)

* A short description of the events you believe were discriminatory (for example, you were fired, demoted, harassed)

* When the events took place

* Why you believe you were discriminated against (for example, because of your race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information)

* Your signature

Typically, people file with the EEOC if they intend to pursue federal employment discrimination claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, etc. (No EEOC charge need be filed for medical leave claims under the Family and Medical Leave Act (FMLA) or gender pay discrimination claims under the Equal Pay Act). People file with the DFEH if they intend to pursue state employment discrimination claims under the Fair Employment and Housing Act (FEHA) and medical leave claims under the California Family Rights Act (CFRA).

EEOC v. DFEH

California employment laws tend to offer at least the same amount and types of protections as federal employment laws and, in many respects, more powerful protections for the employee. For instance, the California FEHA protect a wider class of disabled people than the Americans with Disabilities Act (ADA) and applies to a broader set of employers (employers with more than 5 employees for FEHA versus 15 employees for Title VII). Also, California employment claims are generally not subject to the special employer defenses that exist under federal law. See Price Waterhouse v. Hopkins (1989) 490 U.S. 228; Desert Palace, Inc. v. Costa (2003) 539 U.S. 90. A California court tried to introduce these federal employer defenses into California law recently in Harris v. City of Santa Monica but, thankfully, the court reversed itself after granting a petition for rehearing filed by my colleague, Michael Nourmand, a Los Angeles employment attorney.

So for now, California laws (and filing with the DFEH) are generally the better way to go for employees.

In any case, the EEOC and DFEH have a “work sharing agreement” under which a charge filed with one is deemed filed with the other.

Deadlines

There are aggressive filing deadlines (which is one reason why you shouldn’t wait too long before consulting with a lawyer). Employees must file with the EEOC no later than 180 days after the illegal action occurred. For the DFEH, the deadline is 1 year.

Agency Investigations v. Private Lawsuit

The EEOC/DFEH agency receiving your charge may investigate and prosecute your claims themselves. Unfortunately, due to limited resources and budgets, the process can be drawn out and frustrating, taking a year or more. Even if the agency makes a finding of discrimination, it may still choose not to prosecute the matter in court. In almost all cases, the process is not as effective or efficient as a private lawsuit. To see something analogous to what I’m talking about, read my post, Dept. of Labor Fails to Protect Workers: “We have a crisis in wage theft”.

Traps for the Unwary

It’s amazing how some judges decide to let the EEOC and DFEH charges into evidence against the employee and even throw cases out based on what is contained in (or missing from) the charges. Defense lawyers like to make a big deal in front of the jury out of inconsistencies or contradictions contained in the charges, even though employees often fill them out themselves without the help of a lawyer. This is why it is always better to contact a lawyer BEFORE filling out and filing the charge yourself. Do not underestimate how important the charge can be to your case and how it can be used against you.

Also, keep in mind that different filing procedures and deadlines apply for government employees and for claims regarding whistleblower retaliation and wage and hour claims (overtime, breaks, minimum wage, etc.).

If you are facing legal issues in the workplace, contact a lawyer to discuss it and he can help you navigate the filing traps for the unwary.

Related posts:

1. And the Winner for Most Popular Discrimination Complaint in the US Is . . .
2. Discrimination Laws in California
3. Dukes v. Wal-Mart: 9th Circuit Upholds Class Certification in $11 Billion Sexual Discrimination Case

Under the law, there are two main types of sexual harassment:

“Sleep with me if you want to keep your job”

Quid pro quo sexual harassment is the type of harassment people are most familiar with. “Quid pro quo” is Latin for “this for that”. This form of sexual harassment involves a supervisor conditioning employee benefits, such as promotions, benefits or continuation of employment itself, on the employee’s acceptance of the supervisor’s harassing conduct, e.g., sexual advances.

There is probably not a more blatant form of employer exploitation of his superior position over a subordinate and the law is correspondingly harsh toward this type of harassment. Under California law, the employer is strictly liable for the sexual harassment of the supervisor and has no special legal defenses available to it. A successful plaintiff can recover lost wages and compensation of other economic losses, emotional distress damages, interest and attorney fees, and in cases where the employer’s officers, directors or managing agents knew of the harassment, punitive damages intended to punish or deter the employer.

Hostile work environment sexual harassment

Hostile work environment sexual harassment (HWE) consists of harassing conduct that is so severe or pervasive that it creates a hostile work environment for employees. Supervisors, co-workers, even subordinates can engage in conduct that gives rise to HWE. Harassing conduct includes slurs, taunts, intimidation, ridicule, groping, grabbing, etc.

Notice the requirement is not severe AND pervasive, but severe OR pervasive, meaning that a single instance of harassing conduct could create a hostile work environment if it is severe enough. Alternatively, a campaign of multiple acts of subtle harassment could collectively create a hostile work environment if it is pervasive enough.

The employee does not have to be the direct target of the harassing conduct in order to file a claim. For instance, a woman who witnesses her female co-workers being groped and propositioned can bring a claim for hostile work environment sexual harassment.

Recently, the California Supreme Court held that employer actions, such as termination, demotion, etc., could also constitute hostile work environment harassing conduct. See Roby v. McKesson HBOC (2009) 146 Cal.App.4th 63.

Harassment by supervisors and co-workers

If the harassment is by a supervisor, under California law, the employer will be on the hook under strict liability. If the harassment is by a co-worker, however, the employer will only be on the hook if a supervisor knew or should have known of the harassment and failed to take immediate and appropriate corrective action.

Federal law diverges from California law here in an unwelcome direction. Under Title VII of the Civil Rights Act of 1964, when a supervisor engages in hostile work environment harassment that does not involve tangible employer actions (e.g., termination, demotion), the employer can escape liability for HWE if the employer can show 1) employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior and 2) the employee unreasonably failed to take advantage of the preventive or corrective opportunities provided by the employer, or to avoid harm otherwise. See Burlington Industries, Inc. v. Ellerth (1998) 524 US 742, 764–765; Faragher v. City of Boca Raton (1998) 524 US 775, 806. This is unfortunate in that many victims of sexual harassment do not immediately report it to their employers for fear of retaliation. Under federal law, these employees may be out of luck. This is one of the reasons why filing a sexual harassment claim under California rather than Federal law is usually the better course.

Conclusion

Sexual harassment law offer strong protections in California and victims should not be afraid to fight back. As always, it is best to talk to a lawyer as soon as possible. This is particularly true given that strict filing deadlines apply (180 days to file a charge with the Equal Employment Opportunity Commission and 1 year to file a charge with the California Department of Fair Employment and Housing). Many lawyers offer free and confidential consultations, so don’t wait.

Related posts:

1. LAPD Hit with $2.3 Mil. Sexual Harassment Jury Verdict
2. Discrimination Laws in California
3. Dukes v. Wal-Mart: 9th Circuit Upholds Class Certification in $11 Billion Sexual Discrimination Case

Types of Discrimination

Discrimination comes in many flavors. There is “disparate treatment” and “disparate impact” discrimination – meaning an employee is treated differently because they are a member of a protected class.

“Disparate treatment” involves employer actions, e.g., promotion and termination, that single an employee because of a protected characteristic, e.g., only older workers are laid off or only males are promoted.

“Disparate impact” involves employer policies that have a disproportionate adverse effect on a protected characteristic group, e.g., a company policy of counting all absences and leaves against seniority that has a disproportionate adverse impact on women who have to take time off for pregnancy.

Then there is “harassment”, meaning harassing conduct such as slurs, touching, unwanted advances, intimidation, etc., because of the employee’s protected characteristic.

Harassment can be “hostile work environment” harassment, meaning harassing conduct that is so severe or pervasive that it creates a work environment that is hostile or abusive.

And in the case of sexual harassment, harassment can be “quid pro quo” (Latin for “this in exchange for that”), which refers to a situation where the employee’s supervisor has conditioned job benefits, such as a promotion or continuation of employment, on the employee’s accepting the supervisor’s sexual advances or conduct, e.g., a supervisor forcing a subordinate to sleep with him to keep her job or get a promotion.

If the harasser is the employee’s supervisor, the employer will be held strictly liable for the supervisor’s misconduct. If the harasser is the employee’s co-worker, however, the employer will be held liable only if a supervisor knew or should have known of the harassment and failed to take immediate and appropriate corrective action.

Federal versus State laws

Federal law, which includes the Age Discrimination in Employment Act, Equal Pay Act of 1963, Title VII of the Civil Rights Act of 1964, and the Americans with Disabilities Act, is generally less favorable to employees than California’s Fair Employment and Housing Act, which doesn’t have damage caps, limited attorney fee provisions, restrictive legal burdens of proof or special employer defenses.

Also, federal law typically requires the employee to file an administrative charge with the Equal Employment Opportunity Commission (EEOC) within a mere 180 days from the date of the discriminatory violation whereas California’s Fair Employment and Housing Act gives the employee 1 year to file such a charge with the California Department of Fair Employment & Housing (DFEH).

Damage Awards

An employee who wins a discrimination lawsuit is entitled to recover several types of compensation, such as lost wages, emotional distress, litigation costs and statutory attorney fees. An employee could also recover punitive damages which are designed not to compensate the employee but to deter and punish the employer.

Conclusion

Discrimination laws, especially in California, offer powerful and effective protections for employees. However, discrimination laws are changing constantly, sometimes day-by-day, and can be difficult to navigate. If you think you have a discrimination case, do not wait. Strict time limits may apply. Contact a lawyer right away.

Related posts:

1. Filing a Discrimination Complaint in California
2. Sexual Harassment in California
3. And the Winner for Most Popular Discrimination Complaint in the US Is . . .

According to the Whittier Daily News article, “Our View: Court budget woes will slow wheels of justice”, Los Angeles County has the biggest court system in the U.S., handling roughly 9.5 million cases filed in 2006 to 2007 alone. The article reports that the local courts in Alhambra, Downey, El Monte, Glendale, West Covina and Whittier are on the chopping block.

So what does this mean?

At present, civil cases take 1 to 1.5 years on average to get to trial under the California “Fast Track” Rules (“Trial Court Delay Reduction Act”), which were enacted on a pilot basis in 1987 and formally instituted in the early 1990s. Court closures would likely mean a return to the bad old days before the “Trial Court Delay Reduction Act”, when cases typically took 5 years to get to trial and many courts had large backlogs of civil cases.

The closures won’t be good for anyone.

Plaintiffs will suffer because they will have to wait that much longer for resolution of their claims and to collect their judgments. So the claimant who was defrauded out of their life savings by a guilty-as-sin defendant will have to wait 5 years or more instead of 1 year to get his money back. The employee who was sexually harassed or wrongfully terminated will have to live without closure and have to relive painful experiences for 5 years instead of 1 year. Meanwhile, memories will fade, documents will disappear, witnesses will move residences or change their minds about testifying, etc., making it harder to get and keep the evidence needed to prove her case.

Defendants will suffer because they will have litigation hanging over them for that much longer. If a frivolous or baseless lawsuit is filed, they will have to wait longer to clear their names. The lawsuit will remain a distraction from doing business for a longer period of time. The number of lawsuits will pile up for larger corporate defendants and public entities, making harder the tasks of managing them and of forecasting how much money will be needed in their litigation funds to make any potential payouts. Businesses looking for financing or strategic partners will need to disclose a growing list of unresolved and unwelcome pending or threatened litigation to potential investors and partners. In short, the uncertainty introduced by a growing list of lawsuits will mean the business environment itself will become more uncertain.

Both parties will also suffer because they will have to travel to more distant courthouses and, after having trekked there, will more frequently be told to come back again later due to delays caused by a reduced court staff dealing with increased case backlogs. They will also probably have to wait longer for courts to issue decisions.

On the bright side, parties and their lawyers will have less aggressive trial schedules and more relaxed deadlines to deal with (though that is really just another way of saying “being more inefficient”). And perhaps more cases will settle instead of going to trial (although, at present, only 3.5% of cases nationwide actually go to trial anyway).

In the end, the economy will suffer as disputes go unresolved for longer periods of time. Perhaps Judge McCoy sums it up best:

Contracts will go unenforced, vital capital will be tied up in interminable judicial limbo, and cases of every kind will stagnate for years. In the current economic environment, when so much effort is being put into stimulus, and uncertainty plagues the economy, the state cannot afford for court delays to become a brake on economic recovery.
Whittier Daily News

Of course, nothing is definite just yet.

According to an LA Times article, “Schwarzenegger to seek federal help for California budget”, California’s governor is expected to ask Washington for $8 billion in federal help to deal with California’s $20 billion budget deficit. If the federal government comes to the rescue, that could impact planned court closures. Likewise, if the economic recovery starts generating jobs and income soon enough, that could put tax dollars back into the state’s coffers and ease the budget crisis.

In any case, there should be no understating the seriousness of court closures on California. Peaceful and efficient resolution of disputes is an essential requirement of any well-functioning economy in the 21^st century. If we are to return to economic prosperity, we cannot afford to weaken the legal infrastructure that enables that to happen.

Related posts:

1. Plaintiff Gets $30,300, His Lawyers Get $1.1 mil.
2. ‘If you’ve got a job, hang on to it’

And remember Hope. Hope that things will only get better. That humanity, such as it is, will rise to the occasion and find decency and kindness at its core, undimmed by brand name materialism, overseas wars and runaway debts.

Let’s raise a cup of cheer as 2009 retreats into the night, making way for a 2010 that promises to better. We’re all in this together, and together, we’re going to get through this.

Happy Holidays!

Related posts:

1. The Real Meaning of the Holidays

The good news is that almost all employment contracts require you to answer the same few basic questions.

Is the Contract the Final Word?

Look for a sentence at the end of the contract that says something like the following: “This Agreement contains the entire agreement between the parties with respect to the subject matter hereof. Each party acknowledges that it has not relied on any representations or promises except as set forth herein. Any and all prior negotiations, discussions, agreements, or understandings, whether written or oral, are merged into and are superseded and displaced by this Agreement.” The contract might also have a section called “Merger” or “Integration” or “Prior Understandings Superseded”.

This means that everything you were told and thought when you signed the contract is irrelevant. The only thing that matters is what’s contained in the four corners of the paper on which the contract is written.

Of course, the opposite is true too. If the contract does not contain the above, then all the emails and conversations you had with your employer when you signed the contract would be considered by a judge in interpreting the contract’s terms.

What Happens if Someone Violates the Contract?

The contract may have a section called “Breach”, but more often, the contract will build in the consequences of contractual violations into the “Termination” section, since termination of employment is the usual response to a violation. There may be other consequences too. You may be required to re-pay the employer for any training they have invested in you. Or you might be on the hook for a monetary sum called “liquidated damages”.

You will also want to look for a section called “Dispute Resolution” or “Arbitration”. Or it might be in a section called “Miscellaneous”. In any case, the relevant language will likely be near the end of the contract. This section sets out the procedures the parties have to follow if the contract is violated or a dispute otherwise arises under the contract. Sometimes the contract will require the parties to engage in a multi-step process of first trying to work things out themselves, and failing that, hiring a mediator or arbitrator. Other times the contract will require the parties simply to file any lawsuit in a certain jurisdiction.

This can a real trap for employees if they’re living and working in one state but the contract requires them to file a lawsuit all the way on the other side of the country. I’ve also discussed the downsides of arbitration for employees several times in other posts: “Is Arbitration Good or Bad for Employees?” and “Arbitration Works Better than Lawsuits . . . But for Whom?”

Another thing to watch out for: the contract may require the party who loses the dispute to pay for the costs and attorney fees of the prevailing party. Given attorneys can charge anywhere from $200 to $1,000 per hour, this can add up fast for the losing party.

What Obligations Continue after the Contract Ends?

After the contract expires or is early terminated, you may not be completely off the hook. The contract may have a “noncompete” clause that prohibits you from working for another employer in the same industry within a certain geographic region and/or for a certain period of time. Noncompete clauses are generally unenforceable in California but that doesn’t stop employer from including them in contracts so you should keep an eye out for them.

The contract could also have continuing confidentiality obligations that require you to preserve and protect from disclosure any confidential information and/or trade secrets you acquired during your employment. If you fail to comply, the contract may require you to pay a certain amount of money to the employer, so-called “liquidated damages”.

Final Words of Advice

This post contains a lot of information but, remember, it’s no substitute for a trained lawyer. There’s a reason “Contracts” was a year-long course in law school and why contract breach lawsuits constituted a third of all civil trials according to the U.S. Bureau of Justice Statistics‘ 2005 national survey of trials conducted in general jurisdiction courts across the country. If you have a question about a contract, need help negotiating one, or are faced with a contract breach, either by you or your employer, talk to a lawyer.

Related posts:

1. How to Read an Employment Contract: Part 1
2. Can My Employer Break My Employment Contract? Can I?
3. Free Pamphlets on Labor and Employment Laws

The good news is that almost all employment contracts require you to answer the same few basic questions.

When Will the Contract End? Can It Be Renewed?

Sometimes the contract will make it easy for you to find the answer to this question by having a section called “Term”, “Duration” or “Renewal”. Other times, you will have to hunt around a little. If the contract doesn’t have an expiration date, that could be cause for concern. Slavery and forced labor is, of course, not permitted in the U.S. Still, it’s generally a good idea for a contract to have an expiration date so that there is no confusion.

If the contract has one, you will want to know what the procedure for renewal will be. Sometimes the contract has an “evergreen” provision that makes renewals automatic. Other times, the contract will require one or both of parties to agree to it or negotiate a new contract.

Can the Contract Be Terminated Early and by Whom?

Look for a section called “Termination”. Most contracts will have one. If the contract is drafted by the employer, as is nearly always the case, then the contract will probably permit the employer to early terminate the contract 1) for or with “cause”, which means a “good reason” such as poor performance, fraud, disloyalty or misconduct by the employee, 2) “without cause”, which means the employer doesn’t need a reason to terminate you (in California, employment is presumed to be “at will” unless proven otherwise), 3) due to economic conditions, i.e., a “layoff”, etc. Sometimes the contract will require the employer to give you a certain amount of advance notice of the decision to terminate, say 30 days.

The contract may also give you the employee the power to early terminate the contract, although advance notice will usually be required.

Can the Contract Be Amended or Modified and by Whom?

The contract may have a section called “Amendment” or “Modification”. Or the answer might be at the end of the contract in a section called “Miscellaneous”. You might have to hunt around a little.

Contracts typically state that any changes to the contract, i.e., “amendments” or “modifications”, have to be in writing and have to be agreed to by all the parties. This means that a casual oral statement by your boss that “you’ll have a job for life” or “we’d never fire you without a good reason” may not add up to much unless your boss is willing to put it in writing. Likewise, if your boss suddenly decides to reduce your compensation, he may be breaching your contract if you didn’t agree to a written amendment.

Which State’s Laws Govern the Contract?

Look for a section called “Governing Law” or “Miscellaneous”. In any case, this provision will usually be somewhere at the end of the contract.

Basically, this provision tells you which state’s laws control the contract. This is the case regardless of where you work, where the contract was signed, where the employer is headquartered, etc. So even if you work in New York for a company based in Delaware and you signed the contract while on vacation in Hawaii, the contract will be governed by California law if that’s what the contract says. And if a problem or dispute arises under the contract, you will then need to retain a California lawyer to assist you. Do not assume that contract laws are the same under all 50 states – they are not.

Part 2

Next, in Part 2, I will discuss what happens if someone violates the contract, what obligations continue after the contract ends, whether the contract is the final word or whether emails and conversations with your boss can be considered. Stay tuned.

Related posts:

1. How to Read an Employment Contract: Part 2
2. Can My Employer Break My Employment Contract? Can I?
3. Can My Boss Fire Me at Any Time for Any Reason? What is “at will”?