Important Legal Updates 2024: What They Mean for You & Your Business

Federal, state, and local laws are constantly shifting and changing. Which is why it’s important to have consistent communication with your legal counsel so that you are made aware of any new and changing regulations that may affect your business or affect you as the business owner. This year there are three significant changes to be aware of regarding ownership transparency and certain employment and contractor agreements.

If you are a small business, have any staff working in California, or have anyone on your team working under an independent contractor agreement, it is critical that you review the following regulatory changes and connect with your legal counsel to ensure you’re staying compliant.

Corporate Transparency Act

Starting January 1, 2024, setting up and running a business anywhere in the US comes with an additional administrative step. Final regulations have been passed to implement the Corporate Transparency Act of 2019, which requires owners of “small businesses” to provide some basic information regarding the individuals who own or have substantial control over those businesses. The process is not complicated, but it is mandatory for all businesses that meet the requirements, and is supported by criminal penalties for failing to comply. For entities established before 2024, you have until 1/1/2025 to complete the required filing, while entities created in calendar year 2024 will have 90 days from the date of inception of the entity to comply. Thereafter, any new entities or changes in the information with respect to existing entities will need to be completed within 30 days. The regulations include a significant number of exemptions, and we encourage you to work with your legal counsel to determine if compliance is required for your specific situation.

The link to complete this filing can be found here: https://fincenid.fincen.gov/landing

California Non-Compete Law

For businesses with current or former employees based in California, a recent update in the law appears to clarify the long-standing California rule that non-competition provisions in your employment agreements are void and unenforceable. The law requires employers (or former employers, if applicable) to notify employees who have non-competition provisions in their employment agreements regarding this change in law, and failing to do so can result in civil penalties. Because of the nuances involved in complying, we encourage you to work with your own legal counsel to determine the appropriate approach for your situation. For businesses without California employees, be aware that other jurisdictions, including New York, are considering similar restrictions on the deployment of non-compete agreements. 

Department of Labor Independent Contractor Classification

In January, 2024, the US Department of Labor (“DOL”) published its final rule changing the criteria used to determine whether an individual is an employee or an independent contractor. The rule, which took effect March 11, 2024, shifts the analysis to determine whether an individual is an independent contractor from focusing on the nature and degree of control that a company exerts over an individual and the opportunity for profit and loss depending on managerial skill that such individual has, to a structure that considers these existing factors equally with additional criteria. That additional criteria includes the degree of permanence of the work relationship, how integral the work performed by the individual is to the employer’s business, whether any specialized skills or initiative is involved, and the relative investment of capital or entrepreneurial effort by the worker when compared to that of the employer. The additional factors, and the fact that no single factor or factors are given greater weight, objectively reduces the number of situations where an individual can be called an independent contractor. While this new DOL rule is being challenged in court, we encourage you to work with your local counsel to determine the extent to which this change may impact your specific business structure.

Questions?

If you have even the slightest confusion about whether any of these regulations may apply to you, it is critical that you connect with your legal counsel soon to review and determine what steps - if any - you need to take to avoid leaving yourself open to any criminal or civil repercussions. Staying on top of ever- shifting regulations and understanding how they apply to you is a significant challenge of business ownership. Having a trusted legal consulting team you can reach out to and leveraging expert guidance for any new business moves or changes will help you stay ahead of the game and avoid any penalties by getting it right from square one.

Our integrated team of professionals are experts in entity structuring, establishing employment agreements as part of a sale or succession plan, and understanding how to protect the essential value of your business, all of which require compliance with the regulations discussed above. Ensuring proper communication, documentation, and reporting is an essential part of how we help business owners like you continue to grow.