1

Wallace Jordan Attorneys Recognized by 2022 Best Lawyers in America

Several Wallace Jordan Ratliff & Brandt attorneys have been recognized in the 28th edition of the Best Lawyers in America 2022 in the practice areas of Corporate, Tax, Banking & Finance, Real Estate, Construction, Bankruptcy, Insolvency & Reorganization, Family, Health Care and Insurance Law; as well as Commercial, Bankruptcy & Construction Litigation, Criminal Defense, Mediation, DUI/DWI Defense and Creditor & Debtor Rights.

 

Birch Bowdre

Corporate Law

Tax Law

 

Michael J. Brandt

Banking and Finance Law

Real Estate Law

 

William N. Clark

Criminal Defense: General Practice

Criminal Defense: White-Collar

DUI / DWI Defense

Family Law

 

Jay H. Clark

Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

 

Glenn E. Estess, Jr.

Tax Law

 

Clark R. Hammond

Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law

Construction Law

Litigation – Bankruptcy

Litigation – Construction

 

Larry S. Logsdon

Construction Law

 

Cecil H. Macoy, Jr.

Commercial Litigation

Construction Law

Litigation – Construction

 

Oscar M. Price III

Construction Law

 

William A. Ratliff

Mediation

 

Stephen W. Shaw

Criminal Defense: General Practice

Criminal Defense: White-Collar

DUI / DWI Defense

Family Law

 

William B. Stewart

Health Care Law

 

Kimberly R. West

Health Care Law

Insurance Law

 

Inclusion in Best Lawyers is based on more than 10 million evaluations of peer recognition and a thorough verification process. Celebrating their 40th year landmark, Best Lawyers is considered one of the most reliable and unbiased sources of lawyer referrals in the US.




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.  




Ask Wallace Jordan: Construction Contracts—Payment and Non-Payment

By Clark R. Hammond

A clear, comprehensive, and unambiguous contract is vitally important for contractors and subcontractors engaged in the business of construction to negotiate and execute.

 

There is a lot on the line in large, expensive (and lucrative) projects. Schedules for completion of work, payment, licensing requirements, conditions related to potential delays, remedies for damages—it’s all in play, and critical to defining success.

 

How you negotiate your contracts now will determine how you resolve any legal issues that arise later.

 

Here, we answer some important questions related to setting final payment terms under your contracts, and how you can seek remedies for non-payment by the other party.

 

(This list is not exhaustive. For more information, reach out to one of our construction attorneys.)

 

PAYMENT                                        

QUESTION

How should “completion” be defined under the contract to trigger final payment?

ANSWER

This is a key one, as this language is often the subject of disputes litigated between the contracting parties.

Be sure the contract states precisely when payment comes due. Include all conditions precedent that will permit any non-payment or withholdings. Otherwise, Alabama law generally does not construe reasons for non-payment subject to provisions in the absence of explicit procedure under the contract, such as pay-if paid provisions.  Compare Federal Insurance Company, et al. v. I. Kruger, Inc., 829 So.2d 732 (Ala. 2002) (no condition predecent) with Lemoine Co. of Alabama L.L.C. v. HLH Constructors, Inc., 62 So. 3d 1020 (Ala. 2010) (explicit contractual provision).

QUESTION

As a subcontractor, I need to know: What condition, if any, dictates how and when I will be paid?

Answer

Contracts between contractors and subcontractors often include either a “paid when paid” clause or a “paid if paid” clause to govern the timing of payments made to the subcontractor. As the language suggests, these provisions allow for two possibilities— the timing of the payments from the owner , or no payment at all if the contractor never gets paid. Thus, in any negotiation, it is critical for the subcontractor to understand if the contractor has transferred the risk of non-payment by the owner to the subcontractor or merely agreed that the timing of the payment may be temporarily impacted.   

QUESTION

What is “prompt payment” under Alabama law?

While parties can set specific payment terms and deadlines, in the absence of specifics under the contract that transfers the risk of nonpayment by the owner to the subcontractor, Alabama mandates the following: for both private and public payors See, Ala Code 8-29-1 et al (1975) (private projects) and Ala. Code 41-16-3 (1975) (public projects):

  • Payment to contractors must be paid to a contractor within 30 days from a payment request
  • Payment to a subcontractor from a contractor must be paid within 7 days from when payment from an owner is received by the contractor

For private parties, retainage cannot exceed 10 percent, and after 50 percent of the work is completed, there can be no further retainage. If the payor is a governmental entity, then retainage cannot exceed the amount due to be paid, assuming no provision in the contract stating otherwise.

Contractors seeking to dispute prompt payment requests must provide written notice to the other party within 5 days of receiving the request. Owners have 15 days to dispute a request for payment from a contractor; that owner dispute must also be in writing.

Additionally, contractors seeking the recovery of delayed payments from private parties can recover 12 percent interest and attorney’s fees, but can only recover the legal amount of interest charged by the state under public prompt payment law, but not attorney’s fees under the statute.

NON-PAYMENT

QUESTION

How much time do I have to file a lawsuit for breach of contract if I don’t get paid?

ANSWER

The statute of limitations to bring suit for breach of contract generally under Alabama law is 6 years from the time the breach is identified. This would govern suits for non-payment.

QUESTION

What type of mechanic’s lien should I file in case I want to pursue that avenue?

ANSWER

This depends on the situation or nature of the relationship.

All contractors and subcontractors may pursue an “unpaid balance” lien to enforce collection from an owner on monies owed after successful completion of work. Alabama Code § 35-11-210. Although an unpaid balance lien is a possible remedy, payment is by no means guaranteed because the owner may have already paid the contractor in full or be claiming a problem excuses further payment to the contractor.

The same statute contemplates another type often, known as a “full price” lien. Under this option, if the person, firm or corporation, before furnishing any material, shall notify the owner or his agent in writing that certain specified material will be furnished by him to the contractor or subcontractor for use in the building or improvements on the land of the owner or proprietor at certain specified prices, unless the owner or proprietor or his agent objects thereto, the furnisher of such material shall have the lien for the full price thereof. . . .Two critical issues: (1) notice to the owner or its agent in writing BEFORE the materials are furnished and (2) no objection by the owner to the notice.

The “full price” lien is based on the existence of either an express or implied contract of the owner to pay for materials, Richard v. Little, 96 So. 114 (Ala. 1923). The contract need not be in writing. Sherrod v. Crane Co., 182 So. 48 (ala. 1938). The contract may be implied from the owner’s silence following receipt of notice from the materialman, Buettnerbros. v. Good Hope Missionary Church, 18 So.2d 75 (Ala. 1944). The statute appears to make the “full price” lien by advance notice available only to materialmen and not to those applying labor and services, Crane Co. v. Sheraton Apartments, Inc., 58 So.2d at 616 (Ala. 1952).

 

QUESTION

What is a surety bond, and how does it work?

A contractor may in some private projects and must in public works projects acquires a performance and/or payment bond prior to the performance work under a contract. In a surety arrangement, a contractor or subcontractor secures a bond from an issuer, known as a surety. If that contractor or subcontractor breaches the contract by failing to pay subcontractors or suppliers or fails to perform to specification, the surety may then be called on to compensates the other party for the loss by payment, or in the case of a performance bond, agree to  complete the unfinished work.

The aggrieved party must file a claim with the surety to begin the process of collecting on the applicable bond. These can become complicated disputes that take years to resolve, especially if the project owner is the State of Alabama or the federal government (see the federal Miller Act and Alabama’s “Little Miller Act”).

Be sure to research the law and procedures concerning performance and payment bonds should you be required to acquire such bonds or work on a project where bonds have been required.

QUESTION

What venue should I specify to resolve disputes under the contract in a court proceeding? Should I choose an alternative route such as arbitration or mediation?

ANSWER

This is a critical question to decide upon before you execute any contract. It is not an easy one to answer.

For instance, would it be cheaper, quicker or easier to seek a ruling from an arbitrator over a judge or jury, or is it advisable to seek to resolve issues through mediation before filing suit or demanding arbitration? Would it be wiser to seek arbitration with individuals who are familiar with construction?  What if the other party to the contract place of business is in the county where a dispute would be tried in court before local jurors or a local judge? Is there a concern about local bias? Can you expect legal  fees to be less under one scenario versus another?

As with most matters, the amount of legal fees and the outcome of a despite with by arbitration, or court proceeding will boil down to the facts of your case and the presentation to the persons deciding the issue; however, some contractors are not in favor of arbitration while others would not have any other method for deciding a dispute. This is an important topic to be discussed with your legal counsel when drafting the contract

Some court dockets have jammed up during the pandemic, meaning this could become an even more critical and complicated analysis.

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.

CTA: Have other questions related to your contracts? Contact Wallace Jordan today?




You Can’t Own an Idea: An Intellectual Property Primer

By William B. Stewart, Sally S. Reilly and Laura M. Jackman

Imagine this: You are walking down the street one day when a fit of genius comes to you. What if I create a 7-inch-long stick with a row of bristles attached to it that people can use to clean their teeth and freshen their breath? I will be rich.

 

Then you do a little digging, and it dawns on you, That’s a toothbrush.

 

This innovation train left that station a long time ago. Actually, it happened a very long time ago. In the U.S., the first patent on a toothbrush, filed by inventor H.N. Wadsworth, dates back to 1857.

 

Another question comes to you soon after you make this discovery: How does a patent work, and how can I get one on a toothbrush anyway?

 

Wadsworth himself had to work hard to put his own stamp on this simple, widespread idea for a product, which was already bristling its way through Europe. He had to convince the US Patent Office that his innovations made the commonplace item original.  So must you if you want to claim an idea for a product your own.

 

Patenting is not the only way to protect the intellectual property rights attainable for your own latest, greatest toothbrush, though. You can also earn rights to trade secret, trademark and copyright protection with enough hard work on designing, manufacturing, branding and distributing your creation.

 

Here is a checklist to help you as an aspiring innovator to evaluate and determine your options for protecting your toothbrush, and to guide its creation:

 

Can your invention be patented?

 

Basic patent (and copyright) rights are granted explicitly in the U.S. Constitution.  Patents approved and published as a public record by the U.S. Patent and Trademark Office (USPTO) are protected for up to 20 years from the date for first file the patent. To meet the threshold for the issuance of a patent, you must demonstrate that your invention is:

 

  • Articulate how and why your toothbrush is different from all of the “prior art,” a term of art to describe all of the related patents that precede yours.
  • Is your spin on the toothbrush a solution to a distinct problem? What does it do and how does it work? You must lay this out in exacting detail in your patent filing.
  • Non-obvious. Is your particular combination of a toothbrush’s elements so unique that it would not occur to another, competing inventor? Then it would be “non-obvious.” Here is an example: You’ve probably toasted a marshmallow or two over a campfire a time or two in your life. Did you ever consider that the marshmallow could one day contain or a creamy or fruity filling? One inquiring mind did, and his method for getting that filling in there earned patent protection in 2004. The patent has since been abandoned, but that was quite a non-obvious twist on snack food.

 

Does a camelhair bristled brush head with 1.1 millimeters of space in between them with a handle with a very slight angle and newly created synthetic plastic an innovation that would meet the requirements for a patent? You must do your homework, as Wadsworth did in his explanation to the USPTO.

 

What are trade secrets? Can you invoke both patent and trade secret protection?

 

Unlike other forms of intellectual property, you do not need to file to protect your rights to them with the federal government. Trade secrets represent confidential, sensitive, vital processes, formulas, methods, and other work product that, if they became public knowledge or were misappropriated, would cause its possessor great harm financially

 

A trade secret can be protected indefinitely as long as the secret is commercially valuable, its value derives from the fact that it is secret, and the owner take reasonable precautions to maintain its secrecy. To protect a trade secret, businesses often use non-disclosure and other restrictive confidentiality agreements to bind their partners. Similar agreements with employees, contractors, vendors and consultants are also necessary to protect trade secrets as intellectual property.

 

It is possible to possess a publicly issued patent and maintain related trade secrets simultaneously. You may include a claim in the patent application that states the toothbrush’s handle is made of a sturdy, proprietary polymer, while not revealing the formula you use to manufacture the polymer, which is to be maintained as a trade secret.

 

You can also choose not to patent your invention at all, maintain it under tight security and keep it hidden from competitors. A patent, after all, is your exclusive right to employ the invention and to prevent others from appropriating it for themselves for 20 years. Yet your analysis may also show the trade secret affords you more leverage in the marketplace or another business advantage than a patent would particularly since trade secrets may enjoy perpetual protection. Coca-Cola, for instance, has never patented its formula and treats it as a heavily guarded trade secret. It is a secret that has become purposefully mythological, which add to the soft drink’s allure—and to its commercial viability since its secret formula has never been successfully replicated. Human nature is to want what we cannot have. By keeping its famous secret, Coca-Cola assures that we do not have it.

 

What can you trademark?

 

You are ready to start producing your angled camel-hair creation. You will now need to brand it, package it and make it attractive to your prospective customers. This means naming it, creating a logo or selecting a fancy font, choosing color schemes and perhaps securing it in a specially designed or unique container.

 

The law allows any or all of these receive trademark protection through registration issued by the USPTO. A trademark can be any word, phrase, symbol, design, a combination of these things, or any other distinguishing feature that identifies your goods or services.

 




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.




Understanding the Law of Construction Licensure in Alabama

By Larry S. Logsdon and Ben Robinson

An important and common issue for the construction clients our firm represents is the law of proper licensure for contractors and subcontractors. While all states have licensing requirements, Alabama’s are arguably among the nation’s strictest.

The state has very specific laws governing the licensure of general contractors and subcontractors. Anyone working on a construction project over a specific amount must be licensed. Otherwise, there can be virtually no collection on a mechanic’s lien or a civil judgment if the contracting client does not pay for services rendered.

What is a “contractor” in Alabama?

As an overview, “construction” is defined broadly in Alabama. To that end, per the licensing statute,  anyone working on a construction project under a contract with costs exceeding $50,000 (or $5,000 for a swimming pool project) needs to be licensed with the state’s Licensing Board for General Contractors. Not having a license while working on a successfully bid project is a complete defense to any claim to collect amounts owed for work completed.

Sometimes, this is not as straightforward as it seems. For instance, many subcontractors are not aware that if they use another company, including a labor broker, for a portion of their work, that company must also have a general contractor’s license. If not, then the portion claimed to be owed for that work does not have to be paid. For anyone conceiving strategies to get around the licensing statutes through license-sharing or other loopholes, cases in Alabama impose a catchall roadblock, disallowing “creative schemes designed to circumvent its requirements.”

 What are the basic requirements for licensure?

 Licensure requirements are covered by Alabama Code § 34-8-2 and additional rules created by the Licensing Board for General Contractors. To briefly summarize, a general contractor must apply to the licensure board by completing the required forms and paying an application fee of $300 or a renewal fee of $200. Renewals are required annually. The forms must be accompanied by proof of liability insurance. General contractors are classified into categories based upon the most recent financial statement prepared by a certified public accountant, as well as previous experience and equipment. Contractors may not bid on a type of work not included in their request for a license. As part of the initial application process, an examination may be required by the licensure board to determine the contractor’s qualifications.

Once all of the requirements have been met, the board issues a certificate to engage in general contracting. The certificate stipulates the type or types of work the contractor is allowed to bid upon or perform and sets maximum bid limits for a single contract, which are set by the lesser of no more than ten times the net worth or ten times the working capital shown in the contractor’s latest financial statement. These types are defined this way:

 is not to exceed $100,000

B is not to exceed $250,000

C is not to exceed $500,000

D is not to exceed $1 million

E is not to exceed $3,000,000

U is for unlimited bids

Subcontractor licensure requirements also include an annual application with a $150 fee and a renewal fee of $100. However, instead of the other required documents, subcontractors are required to provide three references, which could come from general contractors, architects, or engineers.

 What are some of the possible fines, punishments and repercussions for non-compliance?

Anyone found to be engaging in contractor work without the proper license or who is using an expired or revoked license, is subject to criminal penalties in the form of a Class A misdemeanor, which can carry up to a year in prison and a fine up to $6,000. Anyone found to neglect to provide a licensure number to an awarding authority can be charged with and convicted of a Class B misdemeanor. There is also potential misdemeanor liability for an awarding authority who considers and accepts a bid from an unlicensed contractor.

Anyone found to be engaging in contractor work without the proper license or who is using an expired or revoked license may be found guilty of a Class A misdemeanor, which can carry up to a year in prison and a fine up to $6,000.00. It is a Class B misdemeanor to neglect to provide the licensure number to an awarding authority. There is likewise potential misdemeanor liability for an awarding authority who considers and accepts a bid from an unlicensed contractor.

Further, a subcontractor cannot recover any amounts if it was not properly licensed. Claims relying on work from an unlicensed sub-subcontractor, including labor brokers, are not collectable even if the work has been performed. Because of this, it is important to check whether any such company providing subcontractor work or labor has a proper State of Alabama general contractor’s license. In our collective experience, most labor brokers do not.

What do the courts say? What are some potential complications and caveats under the law?

 Alabama courts have routinely held that general contractors must have their license in place before bidding on a job. However, subcontractors may bid without a license if their license is current before their work on the project begins. Remember, a contractor or subcontractor’s failure to obtain proper licensing is a complete defense that ultimately leave you unpaid.

As mentioned earlier, a contractor or subcontractor’s failure to obtain proper licensing is a complete defense to any attempt he or she may make to collect a judgment or enforce a lien in a civil lawsuit for non-payment. With limited exception, it is a defense that is most often successful if raised.

Complicating matters are the rules that flow from the statute. These include Regulation 230-X-1-.26, commonly known as the “51% Rule”. The rule allows a general contractor to take a job as long as 51 percent or more of the work is in a classification in which the contractor is licensed. If no part of the work makes up 51 percent of the project, the contractor must be licensed in the type of work that comprises the largest percentage. The types of “Major Classifications” listed in Regulation 230-X-1-.27 include:

·       Building Construction

·       Building Construction under 4 stories

·       Highways and Streets

·       Municipal Utility

·       Heavy/Railroad

·       Specialty Construction

The Licensing Board advises that if an applicant is not qualified for a Major Classification, it should request to be classified under one of several Subclassifications or Specialty Classifications. It is important to note that a contractor can be licensed in one specialty and still be in violation of the licensure rules if that subcontractor additionally performs work for which it is not licensed. For example, a contractor licensed in the major classification of Building Construction with a specialty in sitework may not be able to also pour concrete foundations.

There are no court rulings at this time regarding general contractors who are licensed within a Major Classification but who start a project in a specialty under that classification for which they do not have the proper license. Unless the Rules are revised and clarified, the question could be eventually decided by the Alabama Supreme Court in a way that surprises general contractors who believed they were complying with the law.

Thus, the best practice is to ensure that the contractor is licensed for any specialties that may be included in its work.

Conclusion

 Alabama contractor licensure law can be a bit brutal, but it is generally fair and predictable. Knowledge of the legal requirements and preparation are key.

While compliance with Alabama’s laws requires an initial investment of money, time, and mental effort, proper licensure avoids far more expensive conflicts that could arise later, including a loss of remedies for breach of contract or specific performance. That is why regular, direct communication by contractors and subcontractors with the Licensing Board for General Contractors—and with seasoned construction attorneys—is strongly recommended.

U.S. News and World Report recently named Wallace Jordan’s construction law and construction practice to its list of Tier 1 firms in its region. Discover more about the firm’s consistent, excellent construction attorneys.

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.




Subchapter V: How This New Bankruptcy Option Protects Small Businesses

By Clark R. Hammond and Gary Lee

For some struggling small businesses, a new bankruptcy option offers a cheaper, easier and less cumbersome path to restoring financial health than a traditional reorganization plan under Chapter 11 of the U.S. Bankruptcy Code.

The timing is fortuitous. As an economy battered by the COVID-19 pandemic sputters its way further into 2021, facing business bankruptcy may increasingly be a necessary reality. This would be uncomfortable in normal times but seems outright brutal now.

Bankruptcy is often an arduous, contentious process that can take years and years to complete. Further, the complexities, and potentially explosive costs, of business reorganization plans governed by Chapter 11 threaten to squash a smaller debtor company out of existence rather than lead it back into daylight.

The difficulties of debtor life under Chapter 11 were on the minds of U.S. lawmakers before the pandemic took hold. The Small Business Reorganization Act of 2019 (SBRA) was signed into law in August 2019.

It took effect on February 19, 2020, just weeks before the World Health Organization declared the pandemic.

The law amended Chapter 11 to include a new Subchapter V, which governs a distinct bankruptcy framework for qualifying a “small business debtor.”

Which businesses qualify as a “small business debtor” eligible to choose this bankruptcy route under Subchapter V?  

“Debtor” under Subchapter V is defined specifically as a “small business debtor.” Well, then what does that mean?

The SBRA amended the existing definition of “small business debtor” in section 11 USC 101(51D)(A) to expand the debt threshold for eligibility. Now, that ceiling for eligibility, which includes both secured and unsecured debt, rests temporarily at $7.5 million. If and when COVID-19-related economic relief lapses, though, that maximum will reset to $2.725 million as set by the SBRA. That’s still up from the original $2 million prior to enactment.

The updated definition of “small business debtor” does exclude owners of “single-asset real estate,” making these property owners ineligible for Subchapter V. Section 101(51D)(B) also excludes “a group of affiliate debtors” with aggregate debt greater than the $2.725 million maximum.

What advantages does a Subchapter V bankruptcy proceeding provide vs. regular Chapter 11? 

Subchapter V is an option for these small business debtors, not a mandate. Yet the benefits are appealing enough that if your business find itself in the situation, choosing Subchapter V just makes infinite sense.

  1.  Only debtors can file a Subchapter V reorganization plan. A common fear that a barely-breathing small business might possess is that one of its creditors will beat it to federal bankruptcy court and file an “involuntary” Chapter 11 petition. Under Subchapter V, only the debtor can initiate the petition, giving it a dose of additional control under pressure. The debtor then has 90 days to file its reorganization plan to the court.
  2. Subchapter V debtors do not need to submit a full financial disclosure statement. One of the most grueling, intensive and expensive parts of a Chapter 11 reorganization is requirement of a disclosure statement that lays all of its financial wounds bare in painstaking detail. In contrast, Subchapter V dictates that only a “plan” that includes a “brief history” of business operations, a “liquidation analysis” and projections as to payment terms and amounts under the plan. The plan also needs to submit control of future earnings and income to the bankruptcy trustee. Here, the debtor saves time, money and stress.
  3. Subchapter V debtors do not need to pay quarterly fees to the U.S. Trustee’s office. Under most bankruptcies, The U.S. Trustee’s appointee is entitled to a quarterly fee for their work in advising the debtor and overseeing the reorganization plan. As a handbook published by the U.S. Department of Justice released soon after the passage of the SBRA makes clear, that is not the case under a Subchapter V proceeding. This is another expense the small business debtor avoids under the plan. Unlike a traditional Chapter 11, however, the Court will appoint a Subchapter V Bankruptcy Trustee, who will be entitled to a fee.
  4. Subchapter V promotes an accelerated timeframe for confirming and completing a reorganization plan. The new subsection requires the bankruptcy court to hold a status conference within 60 days after the petition is filed by the small business debtor and an order for relief is granted (See 11 USC 1188). The policy consideration is not ambiguous, as this statute tacks on the language, … “to further the expeditious and economical resolution of a case under this subchapter.” The confirmation of the Subchapter V also does not require the affirmative vote of any creditors, removing another Chapter 11 obstacle. Additionally, the subsection dictates that the reorganization plan be scheduled over a span of three years or, if that proves too ambitious, across five years.
  5. There is no requirement to form a creditors’ committee for oversight of unsecured debt. When we said a Chapter 11 saga can be arduous, we meant it. That process is subject to the mandatory consideration or use of a committee of the debtor’s unsecured creditors, which can weigh down the efficiency with which the debtor winds through and satisfy the details of the confirmed plan. Subchapter 5 does away with this mandate, through the appointed trustee retains the right to file a motion to form a committee if deemed necessary.
  6. Only the small business debtor can request a modification of the reorganization plan. This change affords extra protection to the debtor by putting the power to modify any plan that has been confirmed but has not yet been consummated solely in its hands. Unlike under Chapter 11, a trustee can not apply for modification. That matters because the debtor no longer has to worry about facing larger regular payments as their business conditions improve.
  7. Subchapter V debtors are not subject to the “absolute priority” rule and can retain equity in their companies. This may prove to be the greatest benefit the SBRA offers. Under Chapter 11, a debtor’s senior creditors are said to have “absolute priority” in recovering debts. They get the first dive in the pool, so to speak. As a result, debtors often find that that this burden is so great that they cannot maintain control of the company and have to cede their equity. Not so under Subchapter V. The new law explicitly disclaims the rule so long as the court finds that the plan is “fair and equitable” and doesn’t unfairly discriminate against any of the creditors. This provision clears the way for another, which requires that the debtor must pay amounts equal to its “disposable income” in a given time period. These two adjustments help prevent a loss of control or a total collapse.

The COVID-19 debt ceiling of $7.5 million has been extended through March 27 2022, and will sunset back to the specified $2.725 million absent an extension. Even so, Subchapter V looks to have lasting impact in any case. It is an avenue to endure business hardship with greater success.

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 an attorney to help you best plan a bankruptcy? Contact Wallace Jordan today.




COVID-19 Vaccination Guidelines for Your Employees: No Shortage of Questions

By Michael L. Jackson

After more than a year of living with the COVID-19 pandemic, we are finally seeing light as the end of the tunnel approaches. COVID-19 vaccines are rolling out. By almost all accounts, the vaccines are safe and very effective at preventing those who are vaccinated from being infected with COVID-19. Early studies are showing they also prevent the spread of the virus.

While distribution has been slower than most hoped, availability should improve, and the general population will gain greater access to vaccination appointments. Employers need to decide: Will you implement COVID vaccination-related guidelines for your personnel and workplace? If so, will they involve requirements or recommendations? What will those guidelines look like? And then a major functional question: How will you pull it all off?

Requirement or Encouragement?

The decision to require or, instead, to encourage employee compliance will affect the content of your guidelines, so employers should consider that issue first. Factors to consider in deciding to make vaccination mandatory or voluntary include: How necessary it is for employees to work with each other, or with customers or clients, in situations where the virus is easily transmitted and it is difficult to mitigate the risk? How about in situations where there is frequent contact with people at a high risk?

For example, those working with patients in a dentist’s office must work closely with unmasked patients holding their mouths open for extended periods. Another example may be employees who work in nursing homes. An employer should consider whether it can conduct its business in a manner that is safe for employees and the customers, clients, or patients the employees come in contact with.

Many businesses have figured out how to conduct their businesses in a safer manner, but are those changes things that can be maintained? Would having all employees vaccinated help get the business going more productively? Or have changes such as the installation of transparent barriers allowed your business to continue working as usual and sufficiently mitigated risk?

You likely have heard about instances of employee exposure in shared workspaces where distancing recommendations cannot be implemented or are difficult to implement. Do your employees work together in large open spaces with few if any barriers? Meat processing plants, call centers, cubical farms, and warehouses are a few examples of the types of work environments in which physical safety protocols might be difficult, or impossible, to implement.

To address these issues with these shared workspaces, many employers have implemented work-from-home practices. For some companies, employee productivity and the customer experience have not been adversely affected, so that option might be open to employees long-term. Other companies are anticipating bringing their employees back in-house, either to improve outcomes or simply because office culture is integral to their businesses. If the work-from-home option is available to non-vaccinated employees, there may be little reason to require vaccination. The need for employees to travel using public transportation may also be a factor for an employer to consider.

Another issue to consider: Requiring employees to be vaccinated could increase risk of exposure to liability. If you require vaccinations, you will need to carefully evaluate requests for disability exceptions or accommodations to avoid potential issues with the Americans with Disabilities Act (ADA). Employees with religious objections to the vaccine also are entitled to reasonable accommodations under Title VII.

Yet another factor is how to address employee noncompliance if vaccination is required. How will you handle a situation in which employees refuse vaccination for non-disability or non-religious reasons? Termination is an option. But how will you handle a situation in which you feel the need to make an exception for one employee? Treating employees differently could subject you to discrimination claims.

There are also financial considerations. How might the loss of an employee or multiple employees affect your business? Are you willing to lose a good employee who has concerns about the vaccine and refuses to be vaccinated? What will be the cost of hiring and training someone new for that role? Are you willing to jeopardize the business in this way?

Finally, do you accurately grasp how employees will feel about mandating vaccinations or how they will react? Are you willing to be considered the bad guy? How will it affect the culture of your company or the morale of your employees?

We think most employers are likely to determine that the drawbacks of a mandate outweigh the benefits and will instead encourage employees to be vaccinated or provide some incentive for them to be vaccinated.

Incentives can take several forms. Because some employees may not want to lose wages or use their paid time off for leaving work to get vaccinated, participation is likely to be higher if the employer pays employees for the time taken to get the vaccine (as some large retail companies like Dollar General and Target are doing). According to this IRS notice, employers are entitled to tax credits for providing paid leave to employees who take time off related to COVID-19 vaccinations. Companies could also offer additional paid sick time or other paid time off. Some employers are offering or considering offering gift cards or a payment of a set amount to each employee who gets vaccinated (for example, Petco is paying $75 and Kroger is paying $100 to each vaccinated employee).

There is a slight risk of legal issues for offering more than small financial payments or gift cards, because the EEOC has not provided clear guidance on what incentives are allowed without violating the ADA or other laws, but many employers are concluding the benefit of incentivizing employees outweighs that risk. Also, while at this time having an on-site vaccination clinic at your workplace is probably not possible or feasible, that could become an option at some point for some employers.

Any vaccination-incentive program must also include maintaining mandated safety measures in the workplace. With a partially vaccinated workforce, continuing to practice social distancing, wearing masks, adhering to hygiene protocols, and staying home if sick or quarantining if exposed will be imperative. Employers will still be subject to any state and local health mandates.

Developing a COVID-19 Vaccination Policy

Once you decide to either require or encourage vaccination, you should prepare a written policy. The CDC provides some tools for employers in fashioning and implementing a vaccination policy.

Implementation timing should take into consideration state and local rollout schedules and the various CDC- and state-defined priority tiers. You will also need to take into account the types of vaccines available. The first two approved for distribution (Moderna and Pfizer) require two shots spaced apart by several weeks, but other vaccines expected to be approved may only require a single shot (for example, Johnson & Johnson). These issues will need to be considered if allowing for time off or, if requiring vaccination, setting deadlines.

As your company develops your policy, consider the impact on your organization. Do you have the staffing required for oversight including records-gathering, recordkeeping, and compliance verification? Is your human resources department equipped to securely store medical records that must be kept confidential? If you outsource HR functions, consult with your HR services provider in developing your policy.

It is currently unclear for how long the vaccination will be effective, so consider when developing a policy that booster shots may be necessary in the future. Build in flexibility for changing circumstances and guidance from public health officials.

For a final thought, some employers are considering designing a policy that is broader to cover other vaccinations (for example, seasonal flu vaccinations) or future outbreaks and pandemics. Your policy can always be amended, though, so the better approach may be to focus on the immediate issue of the COVID-19 vaccine but with a plan to revisit it and consider expansion later.

Employment law doesn’t need to be overwhelming.

Need more expert guidance? Let’s start advising you today. Email me at mjackson@wallacejordan.com or call me at (205) 874-0315.

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.




Joining a Medical Practice: 8 Factors to Guide Your Decision

By William B. Stewart

As a doctor, your choice of where to practice and who to affiliate with can be career-defining. Before you have completed your residency or fellowship, you will need to be deliberate and thoughtful in selecting a practice group to associate yourself with.

In weighing your options for this next stage of your medical career, there are key points to keep in mind.

1. Start with how well you expect to fit in with your peers and partners in the group. 

How compatible are you, both professionally and personally? Consider your own professional goals. Do they align with the goals of the practice?

What about practice styles, schools of thought, training or competency issues – might the differences frustrate you professionally?

You also want to ensure that there is a current need for your services within the group. Referrals will be your lifeblood as you begin your practice; if you are filling a void, it may be more likely that the referrals will come your way rather than going to a veteran member of the practice. If you are to be the first member of a group to offer your specialty services, you must ascertain whether sufficient patient volume exists to support a practice.

Importantly, ask yourself: Can you trust the other physicians and support staff who you have met? Trust is central to a happy and successful partnership.

2. Factor in where you will live. 

Remember that your choice of medical practice will affect your family (if you have one). Can you see yourself and your family thriving as part of this community?

Take a close look at the schools, churches, and social groups you might join. What kinds of activities are available in the area? Do you enjoy hiking and skiing, or are you a philharmonic aficionado? Will this location support your interests?

Consider housing: types, location, and prices. Would you prefer to live close to where you work, or are you okay with a commute? Do you want a single-family home, or would you prefer an apartment or condominium with fewer upkeep requirements?

Don’t let an unusually high salary fool you into moving to a community that will not support your lifestyle and your happiness.

3. Evaluate the environment and culture of the affiliated hospital.

Is there a need for your specialty or subspecialty? Much like a driven professional athlete, you want to come in as a first-string player rather than filling a spot on the bench.

Once you determine that there is, indeed, a need for your services, consider whether the infrastructure is there at the hospital to support your practice. Will your practice be adequately promoted? Have the leaders made a commitment to acquiring needed equipment, technology and other resources? Will you have resources to stay abreast of technological needs as treatment options expand? And, with lifestyle again in mind, ask about ER on-call and other coverage requirements of the hospital. Will they fit into your day-to-day life? Also, ask whether you could maintain that on-call coverage if you switch to another practice group in your region in the future.

4. Gauge the outlook for your professional growth and market-value based on historical precedent.

Assuming you are joining an established practice, consider how the group has fared over time. Just as an unusually high salary might suggest that the group has had difficulty finding and retaining physicians and staff, the turnover rate is an even more indicative metric.

Ask questions in the community. What is the group’s standing in the local hospitals and its reputation in the broader community?

Ask questions in-house. Have there been any splits or disagreements in the group? What were the circumstances that contributed to other physicians leaving the group?

Look at the legal history. Have there been lawsuits or disputes that affected the group? If you can, get a feel for the level of communication between doctors and staff. A positive, healthy working environment requires esprit de corp within the group.

5. Conduct extensive research on the group’s history and reputation.

When you join a medical practice, the reputations of the individual members of the group will affect how patients, hospital colleagues, and the community at large perceive you. Do some digging. Find any skeletons.

Have any members of the group been suspended from medical practice, had hospital privileges limited, or been sued for malpractice? Are any of them “rated” by the insurance carrier? If so, what is the history of malpractice claims, judgments, and settlements?

Have these actions affected the insurability of the group? Has the group changed carriers: why and when? Is their malpractice coverage with a mainstream carrier, or have they had to look further afield to “high risk” carriers for coverage?

You might consider having an attorney review the group’s insurance policy to ensure that you will be sufficiently covered if you ever need it.

6. Examine the financial health of the group, and probe compensation structure.

Arrange to speak with the group’s office manager and/or accountant and ask lots of questions.

How much practice debt exists and who is responsible for guarantying this? Are there tax liens? As with a marriage, you don’t want to be surprised that you are acquiring large debt responsibilities.

Ensure that bills are paid promptly and that staff members are adequately rewarded. Remember that support staff can make or break your experience and your practice.

Ask about the solvency of the group members, realizing that the group’s accountant might not have the answer to this inquiry. Turn to your own expert, too, to verify what you are told. Your accountant should review the group’s balance sheets and year-to-date income statements.

Also, ask the office manager or accountant about the group’s compensation schema. How is compensation determined for you and the other physicians in the group? Find out which parts of your generated income will go into the pool and which you will be able to keep.

More crucial compensation questions to ask: Must your “moonlighting” earnings be given to the group? What about drug studies and honoraria? Does the group pay productivity bonuses; if so, how are they determined? If you affiliate with a hospital are there economic opportunities available, such as the ability to secure a separate contract to be a medical director of a unit or oversee a clinical area?

From the group’s pooled funds, how are the revenues of “designated health services” and “ancillary services” divided or credited to the physicians? How is overhead allocated in determining compensation?

Look at the current range of compensation of physicians within the group to try to estimate your income potential in the future. Will that compensation be sustainable for you and your family? Just as you want your accountant to review the books before your join the group, get assurances that your financial professional will be able to verify compensation due by accessing the books and records on an ongoing basis.

Then comes the fun part: What are the fringe benefits? Financial compensation should be augmented with perks that improve your life and long-term security. You want to look at current benefits: automobile allowance, club dues, society dues and memberships, books and subscription reimbursements, CME allowance, even a cafeteria plan.

You’ll also need to review benefits that will support your lifestyle long-term: Is there a tax-qualified pension or retirement plan? What about deferred compensation plans? Will the group supply life, health, and disability coverage? Your largest financial burden to date is likely your student loans. Is there a provision for repayment or your student loans? Ask about the tax ramification of these benefits as well.

 7. Beyond compensation and fringe benefits, review other key terms in the employment contract.

Understand the buy-in provisions for “partnership” and when this is typically offered. Do you feel comfortable with the duration of the agreement and the cancellation terms?

Is there adequate time off? Does the contract lay out pro-rata call and clinic coverage obligations? Do these assignments and the time-off fit into your vision of your professional and personal life? Consider the assignment of new patients to practitioners. Will you have a fair chance to see patients with the pathology matching your training and interests? Are patients assigned to physicians based on their insurance or pay classification? Does the scheme seem equitable?

Assuming that you are likely to make a change in the future, be sure you understand your rights if you leave the group. Become familiar with the financial arrangements in case of separation. Who pays the malpractice insurance tail premium? Is any compensation or interest in accounts receivable “earned” under a production formula payable after termination?

If you stay in the geographic area, some patients might choose to follow you. Will you have access to them and their medical records?

A non-competition agreement might be in play; understand it before you sign on the dotted line. You never want to entertain the possibility of a dispute, but you do need to be prepared. Alternative dispute resolution will likely control these talks.

 8. Before making a final decision, turn to the people in your life who you trust. 

What do your spouse, friends, colleagues, advisors and/or mentors think about the opportunity? What did your accountant report? Have you consulted an attorney? The contract is likely long and cumbersome. An attorney familiar with medical group contracts can provide assurance that you aren’t missing anything.

Ultimately, this decision is one of the most impactful choices of your life. Don’t make it alone.

Proposed CTA: Need More Expert Guidance? Let’s Start Advising You Today.