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The Role Of Communication In Mediation

By William A. Ratliff

 

Whether it’s written or oral, communication is the legal profession equivalent of blocking & tackling — and it comes naturally to most attorneys. I suspect most of us would grade ourselves pretty highly on our communication skills.

That said, I have to wonder if we’re intentional enough about what we communicate, and the messages we send throughout the day.

Client Behavior In A Courtroom

When I was an active litigator myself, I always told my clients that, during trial, they needed to be careful to watch what they did, who they talked to, and what they said. I made sure they understood that, whenever they were in the courtroom, they were on stage — even when they weren’t testifying. Jurors could be watching them any time — observing their behavior, gauging their interest in the proceedings, and trying to figure out if they were likable, believable and trustworthy.

In other words, client behavior is a powerful communicator of messages to a jury during trial.

The Same Is True In Mediation

I recently conducted a mediation between two Korean parties. Most of the day was spent speaking through a translator. It was awkward and difficult. I found that I needed to pay more attention to what I was communicating. I also found that I chose my words more carefully, and paid more attention to my facial expressions.

It was a powerful learning experience for me personally. It also got me thinking about other lawyers I’ve observed, over the years, who weren’t as apparently conscious of what their own nonverbal cues and messages were communicating.

Don’t Tip Your Hand

In a mediation, as in a jury trial, every participant’s move is scrutinized. Messages sent through the mediator in a caucus, or delivered by an attorney in a joint session, are all noted and analyzed by the parties. Everyone’s looking for hidden messages they can glean from nonverbal communications. Poker players often call messages like that “The Tell” — behavior indicating what’s in another player’s hand.

All of this communication can be used by an attorney to his/her advantage in the negotiation process. Acting on The Tells they get from the other side’s messages, attorneys & clients to encourage, discourage, motivate, demotivate, excite or anger their opponents.

And Don’t Misinterpret

One of my roles as a mediator is to coach parties to send clear messages, and to make sure lawyers and clients don’t misinterpret messages communicated (intentionally or inadvertently) by the other parties. I spend a great deal of time discussing this with my clients — making sure that the messages they’re sending are the ones they want to send.

Attitudes Are Contagious

I’m always careful about what I communicate in mediations. I always try to be the positive individual in the room. I want the parties to see that I’m optimistic and confident about our chances of settlement — because optimism and confidence are every bit as contagious as negativity. On the other hand, it’s also my job to communicate to my clients when I sense the opportunity for settlement is slipping away.

Although a good mediator should strive to keep the tension level in a mediation low enough that everyone maintains their best professional decorum (and their best poker faces), it’s important to remember to be always intentional about what we want to communicate in the room. After all, people are literally “hanging on our every word.”

 

 

Need an experienced mediator or mediation advice for your situation? Contact William A. Ratliff or one of the other attorneys in our Arbitration and Mediation practice group today.  

For further reading on mediation, please see William’s blog Mediation Insights.

 




Wallace Jordan Remembers and Honors Sylvester Croom’s Historic Coaching Career

Excerpted from Previous Articles by Rick Bragg and Richard T. Davis

History really was made here, in the college town of Starkville, Mississippi, not far from the Alabama line. One of the last unwritten taboos in college sports really was busted here, amid the darkpine barrens and clear-cut timber and nowhere roads, when Sylvester Croom was hired as the first Black head football coach in the storied Southeastern Conference. Yet if you ask players, fans or university officials whether history has been made, they tend to say much the same thing, at first: Mississippi State hired a coach, not a color.

“We have never once mentioned in a press release that he is the first Black coach in the SEC,” said Mike Nemeth, the school’s associate director for media relations. People at the school said that Croom’s race had nothing to do with his hiring, where the respected longtime college and professional assistant coach was being asked to snatch up a sliding program and shake it into something people could be proud of again.

Attorney and friend, Rick Davis remembers it well. “The date was December 2, 2003. I was practicing law in West Palm Beach and had flown from my firm’s offices to Starkville, Mississippi for a press conference where Sylvester Croom was being introduced as the head football coach at Mississippi State University. Sly is a close friend.

“We both graduated from high school in 1971 and signed football scholarships to play for Coach Bryant at Alabama. We roomed across the hall from each other during our freshman year and we were elected co-captains following our senior season in 1974.

“I wasn’t attending the press conference just as a friend and former teammate: Sylvester was our client. History was being made that day in Starkville — until December 2, 2003, no Southeastern Conference football program had named an African-American as its head coach. Mississippi State President Dr. Charles Lee, Athletics Director Larry Templeton, and other leaders at Mississippi State changed all of that. Here’s how it happened.

“In mid-October 2003 Mississippi State head football coach Jackie Sherrill released a statement that he would be retiring at the end of the 2003 football season. Sherrill’s action was prompted by an NCAA investigation for violations of recruiting rules by boosters and members of the Bulldogs football staff. Just seven months earlier Sly and Mike Shula had been finalists to be the head football coach at the University of Alabama. Alabama made the decision to hire Shula, and Sly, while disappointed, continued to coach the running backs with the Green Bay Packers.

“After Sherrill’s announcement in October, I called Sylvester and asked if he would be interested in the position in Starkville. He wasn’t sure, but we agreed that it wouldn’t hurt to reach out to Mississippi State to see what their thoughts were and learn more about their situation. I didn’t know Bulldogs’ Athletics Director Larry Templeton but I called a friend of Sly’s and mine who knew Templeton well and asked if he would call Larry. He said he would and ten minutes later our friend called back and said he had talked with Templeton and Templeton wanted me to call him.

“I called and during that first conversation in October Larry said he and Dr. Lee had followed the coaching search at Alabama and had been impressed with Sylvester. Templeton said Mississippi State would have to go through the process but they had done their due diligence and Sly was who they wanted to hire. A month and a half later Sylvester Croom was the head football coach at Mississippi State.

“Sly inherited a football program that had suffered through three straight losing seasons (total of 8 wins) and was going on NCAA probation. His first task was to clean things up and to do it the right way was going to take time. In 2007 (his fourth year as head coach in Starkville) the Bulldogs won 8 games, including the Liberty Bowl, and Sly was named the SEC Coach of the Year. The win total dropped to 4 in 2008, but with a new athletics director in place, Sly was forced out.

“Working with and assisting a coach as he and his family make career decisions has always been an exciting part of what I do but Sylvester and Jeri Croom’s move to Mississippi State stands out from all of the rest. My personal relationship with Sly and Jeri coupled with the historical significance of the hire made it very special! As Sly said in Starkville on December 2, 2003, ‘with interaction and communication, the walls can come tumbling down.’ That happened in Starkville — and it opened the door for Joker Phillips at Kentucky, Kevin Sumlin at Texas A&M and James Franklin and Derek Mason at Vanderbilt.”

As he was settling into his position at Mississippi State, Croom sat down to speak with Rick Bragg in a spacious office with still-bare shelves. He first swore that maroon and white, not black and white, were the colors of this football team, the only colors that concerned him. But something odd happens the more you let people talk, the more you ask them who they are, where they are from, what they remember about life before integration — or, if they’re very young, what they were told about that time – and it became clear, as a Mississippi writer once said, that the past is not dead there, nor even past. The then 49-year-old coach drifted back in his mind to the people who bled and died in a struggle he remembered mostly through the eyes of a child and teenage boy — people who absorbed genuine hatred, who changed his society and made it possible for him to play his way onto the Alabama football team in 1971, the second year that Paul (Bear) Bryant allowed Black players on his squad. And he began to cry.

His father, in the late 1940s, feared being lynched. Croom himself attended a newly integrated junior high school where students refused to talk to him or even look at him, where a spit-wad spattered on his face the first day of classes.

More than 50 years have passed since the first Black scholarship athlete took the field in the SEC. And a lifetime, it seems, has passed since Sylvester Croom kicked a field goal over the clothesline in his yard in Tuscaloosa and dreamed about being swept up into glory on the Crimson Tide. But even as he entered high school, the only players wearing Alabama jerseys were white.  “No way I should be sitting here,” he said once from his MSU office, his mind hung up — for just a moment — on that clothesline.

Then, that quickly, he was standing before a team of SEC athletes–his boys–in the Mississippi State field house. In 2003, he was one of only five Black head football coaches in Division I-A, five out of 117. His players sat straight and tense, and you got the feeling that if he told them to jump off a roof, they would balk only long enough to write notes to their mamas.

Croom knew how hard it is to keep believing when the things you want seem so far away. He was uncomfortable being a symbol. But there was no denying it, really.

Somewhere, in a backyard in Alabama or Mississippi, a boy is kicking field goals over the clothesline and throwing touchdown passes to himself, lobbing the ball so high that he can be quarterback and receiver all in one.

“He needs to know,” Croom said, “that things do change.”

 

If you work in athletics and have questions about contracts or would like advice on career moves, please contact Rick at rdavis@wallacejordan.com.




Revocable or Irrevocable: Which Living Trust is Right for Me?

By Robert L. Loftin

There are many options with estate planning, and people often ask about living trusts as an alternative to a will in order to avoid probate, avoid broad tax and creditor liability, high expense, or family feuding. (We’ll talk about avoiding probate another time.)

A living trust (some “high brow lawyers” like to call them inter vivos trusts) is created during your lifetime. You designate a trustee (often yourself, a spouse, partner, or trusted friend) with responsibility and fiduciary duty for managing the assets for your benefit; and upon your death later, for the benefit of your heirs or others (“beneficiaries”.) Because a living trust is designed while you are alive, it allows for the easy transfer of assets to beneficiaries in the manner outlined in the trust document, bypassing the process of probate.

There are two types of living trusts: revocable and irrevocable. There is also a testamentary trust option, but we will discuss that in a future article.

Revocable Trusts

A revocable trust can be changed or completely canceled by you during your lifetime. Income earned during your lifetime is distributed to you, and only after your death does the remainder of the trust property transfer to the beneficiaries. It’s important to recognize the benefits and disadvantages for this trust.

  Benefits of Revocable Trusts

  • A revocable trust provides flexibility and income to you.
  • You retain control over the trust and can change its provisions at any time.
  • If you have health concerns, the person you choose to be the trustee can manage your assets.
  • If you own real estate in a state other than the state you claim as your residence, and transfer the property to the trust, can can avoid additional probate in another state (that’s called “ancillary probate”)

  Disadvantages of Revocable Trusts

  • These trusts have higher upfront and ongoing costs. For example, any real estate to be put into the trust must be retitled to indicate that the trust is the owner. The same is true of any property such as cars and boats. (Some “trust mill” lawyers recommend putting everything you own into a living trust, including your clothes. I don’t recommend going to that extreme.)
  • Annual accountings are typically required, which increases the cost.
  • While the trust can be changed at any time, there are costs associated with this, including potential tax liabilities if assets are removed from the trust.
  • Creditors can still reach the assets in a revocable trust during your lifetime.

Irrevocable Trusts

With an irrevocable trust, you transfer ownership of your assets into the trust, so legally you no longer own them. Once you create an irrevocable trust, you typically cannot change its terms or terminate it without the permission of your named beneficiaries.

    Benefits of an Irrevocable Trust

  • If you wish, you can form the trust in a way that relieves you of the tax liability on the income generated by assets in the trust.
  • High-risk professionals, such as doctors, use irrevocable trusts as an asset-protection strategy to protect their assets from creditors and from legal judgments. (Not all states allow this, so you would have to form the trust in a state that does.)
  • Property transferred to an irrevocable trust often can avoid or minimize estate taxes.
  • Irrevocable trusts can be established to take care for a special needs child.

  Disadvantages of an Irrevocable Trust

  • While your assets can be well protected, you lose future control over them.
  • Irrevocable trusts are difficult to modify once created.

Summary

Understanding the differences and limitations between revocable and irrevocable living trusts are important in planning for your estate. Don’t wait — consult with a legal professional today to discuss the options that work best for you and your family.

Need an attorney to help you plan your estate? Contact Wallace Jordan today.




Contracts and Employment Agreements for Coaches and Sports Administrators

By Richard T. Davis

Some years ago, I was visiting with a retired coach who had been the head football coach at a major athletic program in the south. We were talking about the highs and lows of his career, as well as things he would do differently if he had it to do over. He mentioned that he’d never had an attorney review his employment agreements, maybe because he knew I was an attorney and represented coaches.

“I just didn’t think it was necessary,” he said with a laugh. “I just always thought the university and my friends around the program would take care of me and do the right thing.”

After he was fired, the coach realized that wasn’t the case. The coach told me that looking back, he had made a big mistake not having an attorney familiar with coaches’ contracts review his employment agreement; even if he wasn’t able to get the university to revise the agreement, he would have at least understood what obligations the university had toward him should they terminate his employment.

The university, in the coach’s mind, did not “take care of him” and “do the right thing,” and he quickly found out those “friends” around the program were more interested in developing a relationship with the new head coach than in helping him. Unfortunately, this isn’t the first time I’ve had a coach tell me a story similar to this. So, with that in mind let’s go over some things related to your employment agreement I think you should consider (whether you’re a head coach, assistant coach or administrator).

 

How the Off-Set Clause Can Affect Employment Agreements

 

Samuel Jackson is well known for his “WHAT’S IN YOUR WALLET?” Capital One credit card commercials, and when looking at specific provisions that are common in coaches’ employment agreements, attorneys will play off that and ask, “WHAT’S IN YOUR CONTRACT?”

 

Employment agreements can be terminated “with cause” (neglect of duties, violation of NCAA or conference rules, etc.) or “without cause” (primarily not winning enough games), and the main difference between the two is the employer doesn’t owe the coach anything when he is terminated “with cause.” But what happens in the event a coach is terminated “without cause?”

 

The language in the agreement dealing with termination “without cause” will vary from contract to contract, but a common provision which could come into play is the off-set clause. Here’s an example:

 

If the employment agreement is terminated “without cause” prior to its expiration, Employer shall be obligated to continue to pay Coach all monies due for the remaining term of the agreement. Coach shall have a duty to mitigate his contractual damages by seeking other employment and Employer’s obligation to Coach shall be reduced by any income earned by Coach between the date of termination and the end of the term of this agreement.

Note — some agreements say that if Coach takes any job (no matter how much it pays) Employer does not owe Coach anything for the remaining term of the agreement.

 

An Offset Clause Case Study

 

Let’s look at an example of how the reduction or off-set plays out in the real world.

 

  • You’re the head coach at State U, and you have a five-year contract paying you a total of $500,000 a year (and your contract includes the above-referenced “off-set” provision).

 

  • At the end of the second year of the contract, State U hires a new athletics director, and the new AD decides to make a coaching change and terminates your contract “without cause.” When that happens, State U still owes you $500,000 for the three years left on your contract.

 

  • Two weeks after you leave State U, you get a call from East College to be the offensive coordinator, and they sign you to a three-year contract paying $300,000 a year.

 

With the above-referenced “off-set” provision in your contract, State U gets to reduce what it owes you ($500,000/year) by what East College is paying you ($300,000/year) — so instead of having to pay you $500,000 a year for the next three years ($1,500,000), State U only owes you $200,000 a year for the next three years ($600,000). That’s a difference of $900,000!

 

Obviously, State U wants the “off-set” provision in your contract (or even better, the provision that says if you take another job, they don’t owe you anything), and more than likely, the term sheet or the initial draft of your employment agreement will have one of those provisions in it.

 

However, like anything else in a term sheet or contract, these are items you can attempt to get your employer to change. Will they? It depends – how much leverage do you have, how hard are you willing to push, or how badly do you want the job.

 

A real-world example is Ellis Johnson, who was a client several years ago when he was named head coach at Southern Miss. We knew the contract of the previous head coach at Southern Miss contained an “off-set” provision, and from the very beginning we told Southern Miss we would not agree to any “off-set” in relation to termination “without cause.” Southern Miss agreed to remove that provision from Coach Johnson’s contract.

 

Unfortunately, Ellis was terminated “without cause” after his first year. While we were disappointed with the decision made by Southern Miss, Ellis was hired as the defensive coordinator at another program at a salary higher than what Southern Miss was paying him. Without the “off-set” provision, Southern Miss remained obligated to pay Coach Johnson the total amount owed for the final three years of his Southern Miss contract ($700,000 x 3 years = $2,100,000).

 

Contract Agreement Best Practices

 

Often, only head coaches will be able to get the “off-set” provision taken out of their contract, but I have seen situations when an assistant coach (coordinator) was able to have it removed as well. As I said earlier, it all depends on how much leverage you have, how hard are you willing to push, and how badly you want the job.

 

This is why getting an attorney involved at the beginning is important, preferably one who is familiar with coaches’ or administrators’ employment agreements. All doctors aren’t surgeons, and all attorneys aren’t experienced with sports-related employment agreements.

 

Ask for a letter of understanding up front. Many times, the employment agreement (all 15-20 pages of it) may not make it to your desk until several months after you’ve started. Which is where a letter of understanding comes in: a 1-2 page document listing the “basic” terms of your employment agreement (duties, salary, bonuses, years, and termination provisions including “for cause” and “without cause”).

 

If you work in athletics and have questions about employment contracts, please contact me at rdavis@wallacejordan.com.




Getting Your Mediation Off the Ground

By William  A. Ratliff

Have you ever been involved in a mediation that ended before it started? I have. I don’t mean literally, but I do mean one that never gets past the first round of demand and offer.

In one sense, conducting a mediation is like flying a plane: It’s not going anywhere if you can’t get it off the ground; and that means getting the case into the rhythm of exchanging offers.

As simple as that may sound, lawyers often make it difficult — and never find the rhythm.

I routinely conduct mediations in which the initial offer or demand is made is at the mediation. This is not uncommon in straightforward (IE: car accident) cases, and it rarely presents a problem. However, in larger and more serious cases, I’ve seen competing attorneys expend a lot time, energy and negative emotion trying to get into a rhythm where the parties can have a meaningful negotiation session.

I’ve found this kind of negativity often occurs when the defendant or plaintiff only hears a demand, or offer, for the first time, at the mediation. When that happens, a mediation may never get off the ground.

A well-respected lawyer once told me that his office will not agree to mediate a case without first making a demand and receiving an offer — which, in his experience, typically sets the stage for a productive session. Though this doesn’t ensure success, it does ensure awareness going into the process.

I’m guessing every experienced litigator has participated in one or more mediations that failed because of high demands (or low offers) being withheld until the first day of mediation.

I will concede that, by making an advance demand or offer, you run a risk of discouraging the other party from participating in mediation. At the same time, I would contend that, if this occurs, maybe your case isn’t ready for mediation in the first place. And wouldn’t you rather know that before you waste a day finding out?

Another decision that often impacts a negotiation process finding its rhythm is when lawyers back up from, or renege on, offers or demands made prior to mediation. I’m not necessarily suggesting that this tactic is improper, but I will say it’s one that never sits well with the opposition.

And yes, I understand that offers and demands change based on the posture of a case, and that no one has a right to assume an offer or demand will remain open indefinitely. However, I have found that, when one intends to withdraw a prior offer or demand, an explanation ahead of time is helpful — and often necessary. Otherwise, it will not be received well.

Before your next mediation, ask yourself “Is this case ready to mediate? Have I done everything needed to give the other side an opportunity to adequately assess the risk?” If the answer is no, you may want to save yourself (and your client) the money, time and energy — and explore the option of mediation at a later date.

Enjoy the journey.

Need an experienced mediator or mediation advice for your situation? Contact William A. Ratliff or one of the other attorneys in our Arbitration and Mediation practice group today.  




Mediation As A Tool For Minimizing Risk

By William  A. Ratliff

“You’ve got to know when to hold em, know when to fold em.” –Kenny Rogers

For most people, risk is a four-letter word. It’s something lawyers deal with every day. You’re paid to minimize, evaluate, and know when risk is worth taking. When you draft a contract, your client expects you to anticipate issues before they arise, and provide for the contingencies in the contract. The goal, of course, being to eliminate or minimize the risk of bad results. If you’re a litigator, your clients expect you to know and advise them on the risk of prosecuting or defending claims.

If you’d asked me “What is the main motivating factor for parties in a mediation?” before I began mediating cases, I might have answered “money.” Maximum money for plaintiffs, minimum money for defendants. Money is certainly a component of motivation, and a measurement of an outcome’s success or failure. But in my experience, the number one motivating factor in mediation is minimizing risk of loss.

A plaintiff’s attorney typically takes cases on a contingent fee basis — investing money in expenses, costs and time — with the expectation of a payoff, and a return on his/her investment through the recovery. A defendant, on the other hand, invests in attorneys’ fees and expenses, in hopes of minimizing what s/he might otherwise pay to resolve a case.

While money is ultimately the fuel that runs the litigation engine, it’s the risk of losing money that drives the desire to settle.

I always tell parties in mediation that my job, as a neutral third party, is to help identify and discuss the risks — and thereby enable parties to make the best decision regarding whether or not to accept a settlement.

Lawyers carry a heavy burden (one that certainly used to keep me up at night), serving as “risk advisers.” The right advice can lead your client to a wise decision, and the incorrect advice can result in serious loss (either Opportunity or Actual loss). Therein lies the beauty of mediation. When attorneys do their jobs well, in assessing both risk and their client’s ability to take risks, it’s reflected in the negotiating process. Most of the time, both parties eliminate risk through a negotiated settlement.

I have a lot of respect for the lawyers I’ve served as a mediator. Most of them enter mediations having done the hard work needed to advise their clients wisely — and when this happens, the process usually results in a settlement.

When settlements cannot be achieved, the attorneys and their clients have made the decision that the risk of a good (or bad) result is worth taking. Either way, the process has worked. It’s helped show them that they’re BATNA (Best Alternative To Negotiated Agreement) is to “Hold em, not fold em.”

Enjoy the journey.

If you have any questions about how this or other related mandates may affect you or your business, please contact one of our attorneys at Wallace Jordan.




Competitive Advantage? “Professional Exemptions” to Non-Compete Agreements in Alabama

By William Stewart & Tom McKnight

“There are multitudes of businesses, but few professions.” So declared the Alabama Civil Court of Appeals in a decision from 1980.

Generally speaking, professionals are exempt from the acceptable restraints of non-compete agreements as governed by Alabama’s restrictive covenant law. Yet who counts as a professional in the state?

The restrictive covenant law was significantly amended in 2016 to codify years of case law that interpreted what once was a broad, loosely defined and rather ambiguous statute. The statutory scheme is based on a legal presumption that an employer has a “protectable interest” in governing how and whether a former employee can work for competing businesses or perform work of the same character. Alabama Code § 8-1-191 lists protectable interests such as trade secrets, confidential information, existing customer relationships, good will “and specialized and unique training involving substantial business expenditure specifically directed” toward the former employee.

However, Alabama Code § 8-1-196 reads: “Nothing in this article shall be construed to eliminate any professional exemption recognized by Alabama law.” That begs the question: What professional exemptions are actually recognized by the courts in Alabama? How exactly is this determined?

The amended statute does not enumerate any specific professional categories for the exemption, therefore defining a professional exemption is one major gray area remaining five years after the recent restrictive covenant statutory revisions.

 

Who are some of the “professionals” the Alabama courts have recognized to date?

Alabama courts have found the following occupations to be “professionals”:

 

How do the courts analyze whether an occupation should be deemed a “profession?”

A recent Alabama court case discusses in depth the modern “professional exemption.” In Benchmark, the Federal District Court, applying Alabama law, considered whether physical therapists should be found to be professionals.

An earlier case cited by the Benchmark Court, the Friddle ruling on veterinarians, set forth three prongs for distinguishing a professional from a non-professional:

  1. Professional training, skill and experience required to perform certain services
  2. The delicate nature of the services offered
  3. The ability of the employee and need to make instantaneous decisions

Additional case law cited in Benchmark points to client relationships dependent on “personal confidence,” something that separates a “client” from a “customer.”

Drawing from precedent, the Benchmark Court did indeed declare that physical therapists qualified as professionals who claim an exemption from non-compete agreements. The Court also reasoned that physical therapists must be registered and licensed within the state in order to practice legally. To attain licensure, physical therapists are also subject to written examination, and to maintain licensure, physical therapists must satisfy continuing education requirements.

Much like attorneys and doctors, the Benchmark court noted that physical therapists also face discipline for any demonstrated incompetence, gross negligence, unethical or criminal behavior, and other potential offenses.

Finally, the Court pointed out that physical therapists make independent judgments and determine the course of care based on their evaluations of their patients’ condition.

These factors guided the Benchmark in ruling that physical therapists are to be considered professionals.

Are there protectable interests other than non-competition agreements that can still be enforceable against a professional?

The Benchmark Court also ruled there can be a boundary to how freely a professional may practice after termination of employment if a business interest of the employer outweighs the public interest of the physical therapist in treating and rehabilitating patients in need.

The Court included investment in a competing physical therapy practice and business consulting on behalf of other physical therapy practices of examples of activities that could still be restricted if the therapist does not treat patients at those facilities.

 

What occupations should be deemed professions?

Our firm takes no position on which occupations not yet deemed professionals by the courts should be declared professionals using the three-prong test from Benchmark.

It is important to note, however, that as the Benchmark case suggests, licensure in a particular discipline alone is likely not enough to demonstrate whether one may be a “professional” in the eyes of the law. The other two prongs matter as well.

We can also point to instances where the court has ruled that a particular job category or occupation could not be deemed a “profession” under the law. These include:

It must be noted the court’s decision in Rogers regarding securities brokers, the most recent decision we cite in this article, hinged on a lack of sufficient evidence presented by the plaintiff. The Alabama Civil Court of Appeals affirmed that it is the plaintiff who carries the evidentiary burden of proving he or she should be seen as a professional under the law. This is something to remember if you are in a similar situation and must fight for or against a “professional exemption” from a non-compete provision.

If one believes that a particular occupation should or should not be covered under the “professional exemption” exception for the purposes of nullifying a non-compete agreement, seek the advice of an attorney.

 

Alabama Rules of Professional Conduct require that the following language accompany any communication concerning a lawyer’s services: “No representation is made that the quality of the legal services to be performed is greater than the quality of legal services to be performed by other lawyers.”

 

Need advice on a non-compete provision of an employment agreement? Contact a Wallace Jordan attorney today. William Stewart and Tom McKnight can assist you on these matters.




Getting a Lease on Things? Considerations Before You Sell Commercial Real Estate Holdings in 2021

By Matthew S. Hale

 

Who loves paying taxes?  Not you? We don’t either.

 

Yet President Joe Biden has proposed a top federal tax rate of 39.6 percent on long-term capital gains and qualified dividends. Factor in average state taxes and a 3.8 percent federal surtax, and the wealthiest Americans could face a tax bill as high as 49 percent in 2022.

 

This potential change in policy, assuming a successful passage through Congress, would affect owners of commercial real estate with long term capital gains that they expect to realize in the next few years. Much like other classes of investors, real estate owners desire the highest possible return on investment, and a part of that return includes how much Uncle Sam requires in his tax bill.

 

As a result, many real estate owners are looking to sell as much of their holdings as is practical by the end of 2021. Often, selling and reconfiguring portfolios is done on a biannual or more infrequent basis. Yet some of these companies that completed such a cycle in 2020 are choosing not to wait the extra year.

 

If you or your company are considering such a selloff, you must plan strategically before you ever close on—or even market—your buildings with the goal to close by New Year’s Eve in case that capital-gains tax hit blasts its way into 2022. Here are two leasing considerations to be keenly aware of as you prepare for a sale.

 

  1. Revisiting and shoring up all existing leases

 

You need to ensure that everything aligns with the expectations of your prospective buyer. That said, you may not want to push a sale if a building’s largest or most important tenant has few years remaining on its lease term. If possible, you will be better off selling after you have renegotiated and extended the term.

 

How this goes depends on the nature of a building you intend to sell. For instance:

  • Is it space in a retail “shadow center” location like a strip mall? Generally, if that space rests next to a Walmart, a Kroger, or another big-box retail operation, the return will be higher, and thus the stakes will be higher, too. Retail leases are typically short and might run five to seven years. As we all know, retail was significantly hampered by Covid, but well-placed centers can still bring a good return.
  • Or is the space in or around a medical center? Leases with medical tenants tend to be longer (sometimes 12 to 15 years), more secure, and have higher values as a result.

 

  1. Focus on what you can pay upfront in lease negotiations with your tenants

You should focus acutely on your buildings’ net operating income (NOI) and how it is listed or presented when you get ready to approach the market with a sales listing. Simply stated, NOI is just the amount of cash flow the building provides after the expenses are paid. It is also how the sales price of a commercial building is typically calculated.

 

Tenants, in a quick-turnaround context like a this one, where they know you want to sell portfolio assets by the end of the year, will likely require some kind of tangible benefit to them before they will renegotiate their terms.

 

In the course of these negotiations, you will likely face a decision on whether to offer an abatement of monthly rent for a specified period of time during the extended term or provide an improvement allowance in cash once the new lease is executed. Expect a tenant to put both of these asks on the table. You will push back against one or the other.

 

Remember, then, that a rent abatement will reduce your NOI during the period in which the abatement is granted, but offering the tenant improvement allowance will not affect your NOI. Thus, you may increase your return on investment by providing the upfront allowance rather than weighing down your NOI with rent abatements.

 

Here is a concrete example: If you grant a three-month rent abatement in the new lease terms at $10,000 per month, you will lose $30,000 in NOI from your balance sheet. However, if you pay the tenant a lump sum of $30,000 toward an allowance as essentially an “extension bonus,” it helps to better define the sale assets. 

 

If you decide to sell some of your holdings, it may seem like five months is a long time between now and the end of the year. When you factor in all you must address to properly set up a sale, that cushion will evaporate quickly.

 

So now is the time to accelerate your planning and due diligence if yours has yet to begin in earnest. For the considerations mentioned here and others, draw on a network of professionals to guide the process ably. Consult with all accountants, attorneys, appraisers, brokers, managers and other would-be teammates accordingly.

 

Alabama Rules of Professional Conduct require that the following language accompany any communication concerning a lawyer’s services: “No representation is made that the quality of the legal services to be performed is greater than the quality of legal services to be performed by other lawyers.” 

 

Considering a sale of commercial real estate assets? Contact our expert attorneys today.  




Clearing Smoke: What Employers Need to Know About Alabama’s Medical Marijuana Law

By Michael L. Jackson

Many employers in Alabama have experience with testing for employee use of marijuana. Yet there is now a new wrinkle to address: What about medical marijuana? 

Fortunately for employers, Alabama’s new medical marijuana law is accommodating to employers and leaves employers with mostly the same discretion as to their treatment of marijuana use—including medical use—as they had before the law.

Alabama Governor Kay Ivey signed the Darren Wesley “Ato” Hall Compassion Act into law on May 17, 2021. This Act creates a narrowly tailored system allowing for and regulating the use of cannabis to treat specified medical conditions. Although it became effective immediately when signed, medical cannabis may not become available for patients in Alabama until September 1, 2022, which is the deadline for the newly created Alabama Medical Cannabis Commission to create a system that allows people to apply for licenses to produce, transport and sell cannabis for medical use. 

This delay gives employers ample opportunity to understand the Act and revise their employment policies as needed.   

What specifically does the Compassion Act do?

The Compassion Act legalizes medical cannabis in limited forms such as tablets, oils, or lozenges to treat a long but closed list of medical conditions (there is no catch-all here). These conditions include: 

  • Cancer pain and related nausea
  • Crohn’s disease
  • Depression
  • Parkinson’s disease
  • Post-traumatic stress disorder
  • Chronic pain which has not responded to traditional treatment

For a patient to be authorized for cannabis use, the patient must have a “physician certification” from a medical doctor who is a “registered certifying physician” authorized by the Alabama State Board of Medical Examiners to certify patients for use of medical cannabis. The Board of Medical Examiners will be issuing rules soon for the issuance of certifications to patients. The patient must then be listed in the state’s controlled-substance database.  

The physician certification (which “does not constitute a prescription for medical cannabis,” though it seems to function like a prescription) may be valid for up to 12 months. The patient may possess no more than 70 doses at a time. If a person is found in possession of too many doses, or any cannabis without a prescription, he or she could be charged with a Class B felony. The Act prohibits recreational marijuana use and prohibits smoking or vaping marijuana.

What does this new legal framework and its regulations this mean for employers?

The Compassion Act is favorable to employers. 

  • An employer may continue to have the same drug policies it had before the law with no consequences.  
  • Employers are not required to accommodate the use of medical cannabis or to modify the job requirements of any employee who uses medical cannabis.  
  • Employers are not prohibited from refusing to hire, discipline, or terminate any employee as a result of that employee’s use of medical cannabis. 
  • Employers are allowed to establish and enforce a drug-testing policy that prohibits the use of marijuana or cannabis, including medical cannabis.  
  • An employer may adopt a policy requiring an employee to notify it if the employee possesses a medical cannabis card.

How does the law address employee relations?

The Compassion Act does not interfere with any federal restrictions on employment. It also does not grant an employee the right to pursue legal action against an employer for an adverse action related to the use of medical cannabis. Additionally, employers do not have to provide health insurance to reimburse an individual for costs associated with the use of medical cannabis.

As for workers’ compensation, the Compassion Act will not influence the discount available to employers who have a certified drug-free workplace policy. The Act will also not affect an employer’s ability to assert the statutory conclusive presumption of impairment in a denial of workers’ compensation benefits to an employee who tested positive for marijuana or refused to take a drug test after an on-the-job accident. 

If an employee is discharged from employment for a positive drug test from the use of medical cannabis and the employer had a policy warning the employee that a positive drug test could result in a dismissal, the employee will be considered to have been discharged for misconduct and ineligible for unemployment benefits.

All told, the new law makes it clear that it is up to the employer, and not the state, to determine whether and how it will monitor, allow, or punish the use of medical cannabis by its workers. An employer may keep the same policies it currently has about marijuana use and apply it to medical marijuana. 

An employer also may exempt medical marijuana from its drug policy unless it is subject to federal requirements, such as with truck drivers, enforced by the Department of Transportation. 

What does my business need to do to prepare?

While these provisions of the Compassion Act may, on the surface, suggest that little change is necessary in policies and procedures, in a tight labor market, it may be beneficial to employers to accommodate employees who may benefit from the use of medical cannabis. Even if an employer intends to prohibit all marijuana use, including medical marijuana, it would be best to make that clear in the employer’s policies and communicate it to employees. Otherwise, a good employee may erroneously assume that medical cannabis is exempt from the employer’s prohibition of marijuana use. That employee can then make an informed decision about whether to choose using medical cannabis for treatment or risk losing his or her employment.    

And though the authorized use of medical cannabis in Alabama is months off, before use begins, employers should also: 

  • Make an informed decision about how they want to address use of medical cannabis by their employees
  • Analyze how comfortable they are accommodating employees who could legally use the drug
  • Make appropriate changes to their handbooks or drug policies
  • Effectively communicate to employees how medical cannabis will be treated under the employer’s policies. 

Some employers may need to consider separate policies for safety-sensitive employees (like heavy equipment operators) and non-safety-sensitive employees (like office workers). 

One final note: Despite its name, Alabama’s Compassion Act does not require an employer to be compassionate and accommodate an employee with a disability whose doctor recommends use of medical cannabis. Also be mindful that federal law also does not currently require an employer to accommodate use of the drug because it is still illegal under federal law. But with many states now permitting medical use of marijuana and some states even permitting recreational use, some are questioning the reasoning for the existing federal prohibition (including U.S. Supreme Court Justice Clarence Thomas), and there are efforts in Congress and the courts to remove the federal prohibition. 

Given the trend toward more permissiveness for marijuana use, it would not be surprising for there to soon be a requirement under federal law to accommodate use of medical cannabis. For now, if you like your zero-tolerance policy, then you can keep your zero-tolerance policy.

 

Alabama Rules of Professional Conduct require that the following language accompany any communication concerning a lawyer’s services: “No representation is made that the quality of the legal services to be performed is greater than the quality of legal services to be performed by other lawyers.”  

 

Need advice on employment law? Contact Wallace Jordan today. 




Selling a Family-Owned or Other Closely Held Business: A Buyer’s Market at the Crossroads

By Michael J. Brandt and Matthew S. Hale

 

In January 2020, the first COVID-19 case was confirmed in the United States, changing the direction of the U.S. economy and bringing many businesses to, or even past, their breaking point.

 

According to Fortune Magazine, as of September 28, 2020, almost 100,000 small businesses in the United States had closed permanently after closing temporarily in April. This number will surely continue to grow, and will do so for the foreseeable future.

 

Small businesses, including family-owned businesses, which have survived until now, may be at a difficult crossroads.

 

Should they:

  • Try to survive?
  • Declare bankruptcy?
  • Dissolve and liquidate?
  • Sell the business to a new owner?

 

The struggle for these businesses coincides with one of the hottest buyers’ markets in recent memory. Strategic acquisitions (buy rather than build) are in vogue, and there is a significant amount of private-equity cash in the coffers, partly as a result of governmental pandemic assistance and low interest rates but also due to the increased  desire for private investment. These trends are expected to continue through the rest of 2021.

 

Based on the current market, this is an ideal time for small business owners to consider an exit strategy rather than a distressed sale. Business owners who decide to pursue a sale should keep in mind all of the following due diligence considerations when structuring their transactions.

 

  1. Consider the obligations owed to other owners before moving forward

 

Many companies’ internal organizational documents, such as an agreement among shareholders or members, will contain provisions restricting or otherwise affecting the ability to sell an owner’s interest. In the event a majority owner wishes to sell such owner’s interest, these restrictive agreements need to be considered.

 

Even if there is no agreement containing so-called “tag-along” rights (which permit minority owners to participate) or “drag-along” rights (which permit the majority to require the minority owners to participate), it may be beneficial to consult with other owners and negotiate with the proposed purchaser to see if a transaction can be accomplished that would be beneficial to everyone. Additionally, regardless of legal and contractual requirements affecting owner’s rights, the more input received, and the more discussions had, the better the outcome may be for all involved. This will make the final process significantly less challenging in the long run.

 

  1. Focus on stock rather than assets

 

Sellers of businesses are frequently better off focusing on stock during a sale. Historical performance and the one-time position of strength help support a better valuation. Liability transfers with the stock from the seller to the buyer (absent an agreement otherwise), leaving the seller to walk away with less liability than an asset sale. Conversely, buyers typically prefer an asset sale because they can pick and choose the assets and liabilities that they take on.

 

  1. Be sure to value your assets and assess tax issues appropriately

 

It is helpful for any business considering selling to get an appraisal of all assets, including facilities, equipment, and intangible property such as patents, trademarks, copyrights, and trade secrets. Not only does this help the seller in obtaining the best price for the business, but it also provides necessary inputs when considering tax implications of the sale.

 

The intangible property is especially crucial in calculating the value of the business, as it is the hardest to assess but potentially the most lucrative aspect of the business. Additionally, the seller needs to be aware of the tax implications of the sale while negotiating asset value. It is possible that the highest-valued offer may in fact not be the most profitable for the seller due to tax considerations.

 

  1. Prepare for non-competes and ongoing post-sale transition

 

A non-compete clause from key members of the seller has been a common request from buyers, even pre-Covid. In Alabama, these clauses are considered reasonable with a limit of one or two years depending on the type of sale. However, frequently the buyer is willing to keep the selling owner on staff to aid in the transition after the sale is complete. The selling owner has much more institutional knowledge, better client relationships, and familiarity with brand positioning than the new owner.

 

It may be in everyone’s best interest for the transition period after the sale to include both the buyer and the seller in an effort to keep the business running smoothly.

 

  1. Anticipate potential post-Covid contractual provisions

 

In today’s fading Covid world, there are additional factors to take into consideration during the sale of a business. The buyer may require a “material adverse effect” clause as a kind of insurance if the business is unable to recover from Covid-fueled economic crises. This will allow the seller to cancel the sale if it is determined that the business’s value has change significantly and to the buyer’s detriment during the pendency of the sale transaction.

 

Material adverse effect clauses can become even more significant when they are paired with a longer-than-normal due diligence process. The due diligence period will include examination of health and retirement benefits, the financials of the company, and analysis of important contractual relationships. The buyer likely will request a covenant that the seller continue to “operate in the ordinary course of business” during the due diligence period and closing process.

 

Buyers in this Covid-defined world also tend to request more warranties, as well as having extended closing deadlines due to business disruption and remote negotiations, all of which put a higher risk on the seller.

 

Lastly, if the seller or buyer took out a PPP loan, an analysis of the effect on the company’s income and expenses should be undertaken, and the SBA must be notified of the sale. Sellers should expect buyers to want to exclude the PPP funds from calculations that affect the purchase price.

 

Letting go of a family-owned business is never easy, even in the best of times. The present market provides an opportunity to sellers to recover the value (or even more) of the work put into building and operating the family business.

 

Buyers are looking, and are ready and able, to purchase businesses. If your business is in a difficult financial position, selling may be your best option.  Begin assembling your team of accountants, attorneys, and other professionals today to guide you through the process.

 

Alabama Rules of Professional Conduct require that the following language accompany any communication concerning a lawyer’s services: “No representation is made that the quality of the legal services to be performed is greater than the quality of legal services to be performed by other lawyers.” 

 

Deciding whether to sell your business? Wallace Jordan can help. Contact us today.