Small Business Insurance: A Necessity From the Start

Insurance
Insurance (Photo credit: Christopher S. Penn)

The “to do list” is long and daunting when you are start a new business. What entity to use ? What about office space ? What office furniture and equipment do I need ? All are good and necessary questions. Frequently missing from the list – what type of small business insurance will I need ? This question is one of the most important.

Insurance protects your business from losses due to fire, theft, yours and your employee’s negligence, and accidents that occur in your office. In its various forms, it provides peace of mind for you, protection for your business, its assets and your own personal assets.

While insurance needs depend on the business’ nature, almost all businesses should have a commercial general liability (CGL) policy. This policy protects the business from the costs of defense and settlements or judgments that result from bodily injury, property damage, libel, and slander claims. Depending on the policy and the nature of the claim, it may cover the costs of defense and a settlement or judgment for a breach of contract claim.

In addition to a CGL policy, if a business provides services, error and omissions (malpractice) insurance is a necessity. This policy provides protection for claims which allege negligence in the provision of services to customers and clients. A CGL policy does not cover these claims.

If the business owns the building or the business has business personal property, property insurance is a necessity. Property insurance protects the business property from fire, theft, vandalism and the like. If the business owns motor vehicles, then commercial auto insurance is necessary to protect the business from any claims arising from accidents in company owned vehicles. If employees drive their own cars for business purposes, then non-owned auto liability coverage is necessary in case the employee does not carry auto insurance or has inadequate coverage.

Depending on circumstances, other insurance policies that a small business should consider are: workers compensation insurance (required if the business has employees), business interruption insurance, disability insurance, data breach insurance, directors and officers insurance, and products’ liability insurance.

Many of the above coverages may be combined into a Business Owner’s Policy (BOP). A BOP is a package policy that combines the more common coverages, CGL, property, auto, business interruption, for example, into a single policy with premiums that are lower than if you purchased each policy separately.

To assess the types and amount of insurance that best suits your business, seek out an independent insurance agent who specializes in commercial lines insurance. Such an agent has the ability to shop the policy around for the best coverages and deductibles for the best premium. Since not all policies are created equal, the independent insurance agent is invaluable in comparing policies to ensure that you are buying the most appropriate insurance for your purposes. As 2012 comes to a close and 2013 dawns, it is a great time to assess or reassess your insurance needs. 

Law Office of Paula M. Potoczak
218 North Lee Street, Third Floor
Alexandria, Virginia 22314
(703) 519-3733 (Telephone)

Criminal Records Check in Employment for Small Business

Seal of the United States Equal Employment Opp...

In April 2012, the Equal Employment Opportunity Commission (EEOC) expanded its guidance, “Enforcement Guidance on the Consideration of Arrest & Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964,” and addressed in detail an employer’s use of criminal records checks information in employment decisions. While the EEOC always has cautioned employers not to use such records to preclude employment across the board, the expanded guidance provides insight on how to use criminal records check information in employment decisions without running afoul of Title VII.

The guidance, which applies to employers with 15 or more employees, warns employers that the use of criminal records checks information in hiring decisions may lead to discrimination claims. These claims will be based, most likely, in racial or national origin discrimination because statistics show that African Americans and Hispanics are arrested and convicted at a rate disproportionate to their numbers in society. Consequently, if an employer uses criminal records check information as a screening tool, eliminating all applicants with any criminal record, the employer will run afoul, more likely than not, of the guidance.

The guidance does not preclude the use of criminal records checks information in employment decisions. Rather, it requires that the employer use such information in a neutral manner so as not to screen out automatically applicants who are in “protected classes,” particularly race and national origin.

The guidance suggests a three pronged test as well as “best practices” to guide the employer in its use of criminal records checks. Under the test, the employer should ask three questions: what is the nature and gravity of the criminal offense; how long has it been since the applicant committed the offense; and, what is the relationship between the offense committed and the job’s requirements. In addition, the employer should determine if there are mitigating circumstances regarding the criminal records check information by giving the applicant an opportunity to explain and demonstrate why the information should not disqualify the applicant from the job. If there is a relationship between the position and the criminal record and a substantial amount of time has not passed between the offense and the application, then it may be appropriate to deny the applicant the position.

The guidance’s “best practices” recommend that employers eliminate policies that preclude employment based on any criminal record without context, train hiring managers about Title VII and how to apply it legally to a criminal records check policy, and develop a policy that matches the job requirements and the offenses that potentially disqualify an applicant from a job. The “best practices”also recommend that employers set a time limit for consideration of a criminal history and allow applicants to respond to it. Finally, the “best practices” recommend a written policy with its justifications, preservation of the research used to develop the policy, and appropriate confidentiality rules.

While using the three pronged test and the “best practices” in developing a criminal records check policy does not guarantee a claim free future, it enables the employer to provide a reasoned defense to discrimination claims filed against it. As always, before instituting any policy which has legal implications, it is advisable to seek the advice of legal counsel.

Law Office of Paula M. Potoczak
218 North Lee Street, Third Floor
Alexandria, Virginia   22314
(703) 519-3733 (Telephone)

Lead Paint Renovation, Repair and Painting Regulation: Contractors and Homeowners Be Aware, Part Two

 The impact of the Lead Paint Renovation, Repair and Painting Regulation on residential remodeling and related contractors is three-fold: training and certification for the contractor and employees, required work practices and required recordkeeping. First: the education requirement. The regulation requires that at least one person in the contractor’s firm be certified as a “certified renovator.” To achieve the certification, the employee must complete an 8-hour EPA approved certification class, two hours of which must be hands-on training. The certified employee or “certified renovator” then trains the other company employees. The “certified renovator” acts as a supervisor on the renovation jobs and ensures that the work performed conforms to the required work practices.

Which brings up the second requirement: the use of required work practices. Under the regulation, the contractor must distribute, before the job begins, the EPA pamphlet, “Renovate Right,” to the homeowners. The contractors must post warning signs outside of the work area, warning about the presence of lead paint and follow defined containment procedures to prevent the spread of lead paint dust. The regulation also prohibits certain work practices. The contractor cannot use open flame or torch burning to remove paint, heat guns that exceed 1100̊ F degrees, or high speed sanding or grinding, unless the sander or grinder has a HEPA exhaust control. The required work practices procedures apply to both interior and exterior renovations. At the end of the project, the “certified renovator” must supervise the explicit and detailed cleaning and waste removal requirements.

Finally, the third requirement: recordkeeping. Under the regulations, the contractor must maintain job related records for 3 years. Some records that contractors must maintain for 3 years include the homeowner’s signed receipt verifying that the homeowner received EPA’s booklet, documents that confirm that the contractor performed the project in accordance with the required work practices, the educational certifications of the “certified renovator” and the training records of other employees. Under certain circumstances, the contractor must show these records to the homeowner within 30 days of the job completion.

As always, the devil is in the details. Contractors should take care to keep the necessary records for the required period of time and do so meticulously. It is always easier to hand the EPA inspector the records requested, then to try to reconstruct the records, or worse yet, to explain to that inspector that the records were not kept at all. If there are no records or only incomplete records, it is difficult to prove that you performed your jobs in accordance with the regulations. Many times, no records, poorly kept records and incomplete records are an invitation to EPA inspectors to investigate further and possibly assess fines and penalties.

Law Office of Paula M. Potoczak
218 North Lee Street, Third Floor
Alexandria, Virginia   22314
(703) 519-3733 (Telephone)

Lead Paint Renovation, Repair and Painting Regulation: Contractors and Homeowners Be Aware

The White House renovation
The White House renovation (Photo credit: Wikipedia)

Prior to 1978, lead was an additive in paints used in the residential and commercial construction industry. Consequently, residential housing stock built prior to 1978 was painted with lead-containing paint. The ingestion of lead paint dust and chips is a known potential health hazard to adults and children, but particularly to children 6 years old and younger. Pregnant women are vulnerable as well because of the potential of harm to the fetus if lead dust or chips is ingested.

To remedy a perceived problem, U.S. E.P.A. promulgated the Lead Paint Renovation, Repair and Painting Regulation. Effective in its amended form on April 22, 2010, the regulation requires contractors working on pre-1978 housing stock (single family homes as well as multiple unit housing) and child occupied facilities to be a “certified renovator,” engage in work practices that contain the spread of lead dust and chips during renovation, and educate clients by providing a pre-renovation pamphlet. The lead paint renovation repair and painting regulation applies to contractors of all types whose work disturbs lead based paint and who are compensated for their work. It applies not only to renovation contractors and painters, but to window and door installation contractors, electricians and plumbers and any contractor whose work disturbs painted surfaces.

The regulation applies to work which disturbs more than 6 square feet indoors and 20 square feet outdoors. There are no opt-out provisions. Even if the residence undergoing renovation does not house the targeted population, the regulations apply and the contractors must observe the work rules.

The new regulation increases the costs of renovation projects and exposes non-compliant contractors to legal liability. The increased costs range from EPA’s estimates of $8.00 to $167.00 per project to a private estimate of $500.00 to $1,000 for the remodeling of a kitchen, painting a couple of rooms or replacing several windows. While it is unclear what the full economic impact of the regulation will be, EPA’s Inspector General criticized its cost analysis in a July 25, 2012 report. The report noted that EPA’s cost analysis failed to use a statistically valid sample and failed to consider certain necssary costs which a contractor would incur. Thus, appears that the increased costs are closer to the private estimates than to EPA’s estimate.

Finally, the contractor who violates the regulations faces potential civil and criminal penalties, with fines up to $37,500 per violation. EPA is actively enforcing the regulation. It has fined, this year, a Maine rental property owner $10,000 for using power equipment improperly to remove paint from exterior surfaces of an 1850’s building, failing to train its workers properly and failing to apply for the proper certification. In another case, EPA fined a New Jersey window and siding company $1,500 for failure to follow the dust containment, waste disposal and training regulations. Likewise, it fined a Nebraska home repair company over $5,000 for failure to provide the homeowners with EPA’s approved lead hazard information booklet and to obtain the appropriate acknowledgment regarding the renovations.

So, if you are a contractor be certain that your employees are properly trained and that you are complying with the regulations. If you are a homeowner be prepared for higher renovation costs and longer renovation times.

Law Office of Paula Potoczak

218 N. Lee St., 3rd Floor

Alexandria, VA 22314

703-519-3733

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Protecting Yourself as You Do Good for Others

insurance
insurance (Photo credit: Alan Cleaver)

You are a member of a non-profit board of directors.  The organization works with at risk youth.  An employee engages in conduct that brings the non-profit negative publicity and the inevitable lawsuits.  Or, the organization fires an employee and the former employee files a employment discrimination complaint.   In both cases, the complaints name individual members of the board of directors as well as the organization, its officers and certain employees as defendants.  What happens now ?  Who hires and, perhaps more importantly, pays for defense counsel ?  Is it you ? Who pays for any settlement or judgment ?  Does your homeowners insurance step in ?  If you are a professional who carries professional liability insurance, will it step in ?  Does the non-profit have directors & officers liability insurance (D&O) and does it cover this type of matter?

Giving back to the community by lending time and talent to non-profit boards of directors is a rewarding experience;  you, the non-profit and the community enjoy great benefits.  Lawsuits never materialize.  However, when someone files a lawsuit and names the board members, the lawsuit exposes the individual board member to potential liability, to the expense of retaining defense counsel and the possibility of funding, at least a portion, of a settlement or judgment.  Without some sort of insurance to pay the bills, the individual board member is responsible for his counsel fees and any settlement or judgment share.

Most insurance coverage that individuals carry do not cover such lawsuits.  Homeowners insurance and their umbrella policies are unlikely to pay for the costs of defense or a settlement or judgment in these cases.  Automobile policies likewise will not cover these lawsuits. If you are a professional who carries professional liability insurance, it is also unlikely to cover these lawsuits.

To protect itself and its board of directors, non-profits should carry D&O insurance.  Such insurance protects individual members of the board, the organization itself and, depending on the policy, volunteers of the organization.  Depending on the terms of the D&O policy, it will pay for the costs of defending a lawsuit, which maybe more expensive than any settlement, pay the settlement or judgment (assuming the policy covers the underlying acts) and provide peace of mind to all involved.  Remember that you do not have to be negligent or engage in an act of malfeasance to be sued; the lawsuit need not be meritorious for the board member to be forced to retain counsel to defend a meritless suit.

Although some states, including Virginia, have statutes that limit the amount for which a member of a non-profit board is ultimately responsible, the statutes have limitations and do not compensate the members for the costs of defending the lawsuit.  Before volunteering for a board of directors position, ask the organization about its insurance coverage.  If it does not have D&O insurance, suggest that it obtain it.  If purchasing such insurance requires board approval, make acquiring it one of your first goals.  If you are already a board member, examine the organizations insurance coverage.  If the organization does not have proper coverage, work with the organization to obtain it.  It will protect not only you but the organization and its assets as well.

 

Non-Competition Agreements for Small Business: Not Too Broad or Too Narrow, But Just Right

The Supreme Court of Virginia Building, adjace...

Non-competition agreements, or non-solicitation agreements, are generally clauses within employment agreements which limit employees’ ability to enter into employment or to start a business which competes with a former employer.  Under Virginia law, non-competes (sometimes called or written plainly “noncompetes”), though viewed as a restraint of trade, are enforceable if the three prongs of the non-compete–time, geography and function–are properly limited.  The non-compete terms should be broad enough to protect the employer’s business interests, but not so broad as to prevent the employee from earning a living and should not violate public policy.

 

Many times the focus on non-compete agreement terms fall on the time and geography prong.  In November, the Virginia Supreme Court squarely refocused the discussion on the function prong of the non-compete.  In Home Paramount Pest Control v. Shaffer, the Court reviewed a non-compete agreement that it had approved 22 years ago in Paramount Termite Control v. Rector.  This time the Court declared that the function provision, which the company had not changed in the ensuing time, as overly broad and the entire agreement as unenforceable.

 

The Court held that the language which stated that the former employee could not engage “directly or indirectly. . . in any manner whatsoever in the carrying on or conducting the business of exterminating, pest control, termite control and/or fumigation services as an owner, agent, servant, representative, or employee, and/or as a member of a partnership and/or as an officer, director or stockholder or any corporation or in any manner whatsoever . . .” was not reasonable because the clause effectively prohibited the employee from holding any type of job in the industry.  The reasonableness of the time and geography prongs were insufficient to save the agreement.  Under the Home Paramount, if a business wants to preclude an employee from performing any work for a competitor, then it must be ready, willing and able to prove a “legitimate business interest” to do so. That’s not necessarily an easy task.

 

So, to ease the process for small businesses, now is the time to review any non-compete clauses used in your business.  Be wary of non-competition agreement forms or templates.  What terms are permissible in a non-compete clause in Virginia may not work at all in California – and vice versa. Terms permissible 20 years ago or even 6 months ago  in Virginia are no longer workable.  Court decisions over time can and do change the law.  The laws of individual states evolve over time and the laws of each state differ.

 

All three prongs of the non-compete must be appropriately limited, reasonable and related to the position in question.  The function prong cannot be so broad that it effectively precludes the employee from performing any job in the industry from CEO to janitor or even from owning stock passively in a multinational, publicly held corporation.

 

 

Law Office of Paula Potoczak

218 N. Lee St., 3rd Floor

Alexandria, VA 22314

703-519-3733