​By Attorney Edward Jesson

You’ve spent weeks negotiating your scope of work with your client on a kitchen renovation, and everything is going smoothly. Then, one day out of the blue (likely after watching a little too much HGTV the night before), the homeowner decides that they would “just like you to take that wall out—it will feel so much more open!” 

This situation comes up all the time in construction projects, and, if you have a properly drafted construction contract, it should be covered by the “change order” section of that contract. At its most basic, a change order is exactly what it says: an order directing the contractor to change its work in some way. When a change order is entered into properly, it is a legally binding amendment to the original contract that changes the original scope of work or some other term in the contract. 

Most well drafted construction contracts will say that a change order has to be: (1) in writing; and, (2) signed by the parties to the construction contract (general contractor and homeowner in this example). It is certainly advisable to be as detailed as possible in the change order as to exactly what is being changed, the price of what is being changed (which could be an increase in the total contract price, or decrease, depending on the change), and the impact, if any, that the change will have on the project timeline.

We also believe that it is best practice to have the homeowner pay for 100% of the change order at the time the change order is executed, as opposed to tacking the price of the change onto the end of the contract. However, whether or not you are able to do that will depend on the language of your contract with the homeowner. 

Even if you don’t have a written change order signed as required by your contract, if the homeowner requested you do the work, and you did the work, it is likely that, under North Carolina law, you are still entitled to payment for that work. However, whether you are entitled to your usual profit markup on that change order depends on a lot of factors. Moreover, proving your entitlement to payment for an unwritten or unsigned change order can be costly if you have to go to court in an attempt to get payment at a later date.

When the relationship between contractor and homeowner deteriorates to the point that there are payment issues, all too often we see that the crux of those payment issues relates to change orders. It is far too easy (especially when the relationship is good and the project is running smoothly) to just say “yes” to a homeowner’s requested change and give them a rough cost, agreeing to settle up later. However, if the relationship sours, oftentimes people’s memories change with regards to the conversation regarding that change, and it becomes a “he said she said” argument.

Change orders do not have to be difficult, but managing them on a project with tight deadlines can be challenging—a well drafted construction contract can ease that administrative burden laying out, from the project’s start date, exactly what the contractor and the homeowner are responsible for. If you need assistance with your construction contract or need a new one drafted, the attorneys at Jesson & Rains are ready to help.  

By Attorney Edward Jesson

On January 5, 2023, the Federal Trade Commission (“FTC”) proposed a rule that would, with limited exceptions, bar employers from using non-compete agreement and would further require the rescission of existing non-compete agreements that were in place prior to the implementation of the FTC’s rule.

The FTC’s proposed ban is limited to “pure” non-compete agreements and would likely not apply to customer/employee non-solicitation agreements or others contained in non-employment contracts, such as business sale contracts. It appears as though, from the FTC’s language, that the rule would apply to all employees and all independent contractors.

While the FTC initially intended to make a final decision on the rule at some time in 2023, due to the overwhelming number of comments the agency received during the public comment period (nearly 27,000 comments) it appears as though the FTC will not be making a final decision until sometime in April 2024. Even if the rule is implemented, it is highly likely that the blanket ban on non-compete agreements would be challenged in courts throughout the country.

While North Carolina has not banned non-compete agreements, its courts strongly disfavor non-compete agreements unless they are narrowly tailored and the North Carolina Court system’s treatment of non-competes is constantly evolving. North Carolina’s treatment of non-compete agreements, as well as the FTC’s proposed ban, are both good indicators of how courts throughout the country are trending in their interpretation of such restrictive covenants.

If you think the FTC proposal may affect your business, or you have another non-compete related issue, the attorneys at Jesson & Rains stand ready to assist.

By Associate Attorney Danielle Nodar

May is Small Business Month in Charlotte! As a small business, safeguarding the confidential information that makes you stand out from the competition is important to the long-term success of the business. Non-compete agreements are common tools used by businesses to help protect this kind of confidential and proprietary business information and allow for business to hire talented employees without worrying that the employee will take your idea and implement it elsewhere. These agreements generally restrict an employee from working for a competitor until a certain period passes and protect confidential information from being used by an ex-employee. However, with companies transitioning to a remote working environment and widespread unemployment, more businesses and lawmakers are re-evaluating the scope and legality of non-compete provisions.

Non-compete agreements are controlled by state law, meaning that each state has unique provisions for what is permissible in these agreements. In North Carolina, a non-compete agreement must meet the following requirements:

• In writing, signed by the employee agreeing not to do business.
• Made for valuable consideration. This means that the employee agreeing not to compete must get something of value for their end of the agreement. For new employees, the employment itself is the valuable consideration, and a promotion or bonus is consideration for existing employees.
• Must be made to protect a company’s legitimate business interest. These agreements cannot just restrict the employee’s ability to work elsewhere, but protecting confidential business information that you would not want to fall into a competitor’s hands, such as secret recipes or formulas, processes for production, or client information, have all been upheld as legitimate business interests.
• Must be reasonable in terms of time, territory, and the scope of activity being limited.

This last factor is oftentimes where a non-compete is deemed overly broad and overly restrictive of a former employee’s ability to find comparable work elsewhere. A court considers all these factors together when interpreting a non-compete provision and looks at the employee’s position along with the skills and knowledge obtained on the job in order to ensure that the company’s restriction is not wider than necessary to protect its legitimate business interest. Oftentimes, higher level employees with more access to trade secrets or confidential business information are more likely to be subject to a non-compete, so long as it is reasonable in time and geographic scope. If a court finds that a particular provision of a non-compete agreement is unreasonable, the court will strike that portion from the contract but enforce the rest.

With the changes in the employment landscape in the last year, there has been a growing movement to limit or even abolish the use of non-compete agreements. As more workers are forced to find new jobs, have moved to remote working environments, or move to a state outside of their employer’s home base, the question of how and when to enforce non-competes has been more present with business owners and lawmakers. As non-competes are governed by state law, it also makes it difficult for employers with employees residing in multiple states to be able to maintain enforceable agreements without careful planning. For example, some states have limited noncompete agreements to apply only to employees making over $100,000 a year, or to be valid only when a business interest is being sold.

There is also a push for the federal government to step in and put some overarching limitations on non-compete agreements that limit these agreements in cases where a narrow group of defined trade secrets are trying to be protected by a business. While it is too soon to tell if federal laws impacting non-compete provisions are on the horizon, it is important for employers to be mindful of the importance of crafting a narrowly tailored non-compete provision that works to protect their business while still allowing for fair treatment of former employees. Exploring other legal options that could be used to protect confidential business information is also crucial. If you have questions about how to best protect your business’ proprietary and confidential information, please call Jesson & Rains!

Our clients are busy and they sometimes forget to keep their information updated with the Secretary of State’s Office or file their annual reports; they pay for a registered agent who does nothing more than forward their mail; and they sometimes fall victim to scams like this and this. 

We’re offering a yearly plan that includes serving as our client’s registered agent and filing their annual report, among other things.  A description of the plan is attached to this email.  This plan helps to ensure your privacy (if your business is ever sued, the lawsuit will be delivered to our office’s address); you will be less likely to fall victim to a scam (we will sort through and destroy junk mail); you will be more organized and have less paper (we will scan and forward your mail immediately to your attention after sorting); and we will ensure that corporate records and Secretary of State records are kept up to date.
 
We’re also offering an upgraded yearly plan that includes unlimited access to attorneys throughout the year.  No more billing for .1 emails or .2 telephone calls.  We want to encourage people to contact us anytime they need us instead of being afraid to get a bill from us. 
 
This is a continued effort from us to offer flat fees instead of hourly billing.  Annual reports are due April 15, and they can be filed now, so this is a great time to switch over to having Jesson & Rains handle it.  Please contact us if you’re interested, and please forward to any busy business owners you think may need our help!

By Attorney Edward Jesson

It is often assumed when talking about purchasing a business that your only option is to purchase the business outright. However, there is a different solution which, depending on the circumstances, could have some benefits: purchasing the target business’s assets instead of the whole company.

When you purchase a business outright, be it all of the stock of a corporation or all of the membership interest in an LLC, you are buying everything. That includes all of the business’s assets but also includes all of the business’s liabilities, some of which could be unknown at the time of the purchase. In any business purchase agreement, there should be a “due diligence” period which will allow you to uncover as many of those hidden risks as possible, but it is nearly impossible to uncover every possible risk that exists.

Most purchase agreements will contain some form of indemnification clause providing that the seller will defend and insure the buyer from various liabilities. However, negotiating an indemnification provision that adequately protects the buyer can potentially increase the purchase price requested by the seller and can also be difficult and expensive to enforce if an issue does arise in the future.

However, when you purchase only the assets of a company you are buying the possessions of the business and putting them into a new business name. The buyer can (at least to a certain extent) dictate what liabilities of the selling business are being purchased which can assist in limiting the buyer’s liability and risk in moving forwards with the transaction. Another benefit of buying a business’s assets is that the buyer can also elect to purchase some, but not all, of the target business’s assets. For example, if you were buying a trucking company you may elect not to buy the old trucks that don’t have any useful life left.

There are downsides to an asset purchase. For example, contracts between the old business and its customers/vendors may need to be renegotiated in the new business’s name. There could also be similar implications with key employees depending on the terms of any employment agreements that were in place with the old business.

Whichever route you choose, it is important to work with a team of advisors who can assist you in the process. While not discussed in detail here, there are different tax implications depending on whether you purchase the business or just the assets, about which a CPA would need to advise.
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If you’re thinking of purchasing a business, or a business’s assets, the attorneys at Jesson & Rains are ready to help you through the process.