Legal FAQ Table of Contents

Chart: Ways to Organize Your Business

The pros and cons of corporations, LLCs, partnerships, sole proprietorships, and more.

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Are You Personally Liable for Your Business’s Debts?

Learn whether a business creditor can come after your house, bank account, or other personal property.

If your business is having trouble paying its bills, you may be worried about whether a creditor can come after your personal assets. Can a creditor raid your personal bank account? Garnish your wages? Foreclose on your house?

To answer these questions you need to understand whether you are personally liable for your business’s debts. If you aren’t personally liable for your business’s debts, you have a lot less to worry about: a creditor can only go after your business’s bank account and assets if your business doesn't pay its bills; creditors can't take your home or other personal property. But if you find out you are personally liable for your business’s debts, you have a lot more to lose.

Which debts are you personally liable for? First, know that every business owner who has employees, no matter whether the business is organized as a corporation, LLC, partnership, or sole proprietorship, is personally liable if the business doesn’t pay the taxes it withheld from employees’ paychecks. Second, for other types of business debts, your business structure as well as what kind of contract or purchase order you signed usually determines whether or not you’re personally liable for a business debt. Let’s take a look.

Sole Proprietorships and Partnerships

If you're operating your business as a sole proprietorship (or “DBA” or as an independent contractor), you and your business are legally the same, which is another way of saying that you personally owe every penny that your business can’t pay. So if your business doesn’t have enough cash or assets to pay its debts, creditors can, and sometimes will, take your personal assets – or at least the assets that aren’t protected by state exemption laws.

This is also generally true for general partnerships -- the partnership debt belongs to each partner personally -- with this added twist: Each partner is personally liable for 100% of the business’s debts. This means that if there aren’t enough business assets to pay the partnership’s debts, and your partners are broke, creditors can take your partner’s personal assets to pay all of the business’s debts, not just your pro rata share of the debts.

Corporations and LLCs

If your business is organized as a corporation or LLC, you and your business are separate legal entities. As such, in theory you could have no personal liability for the debts of your business, meaning that creditors can’t take your house or other personal assets to pay your business’s debts, even if your business can’t pay them.

However, there are many ways for a shareholder or LLC member to become personally liable for business debts; in fact, most owners of small businesses are personally liable for at least some business debts. Here are the most common ways the owner of a corporation or LLC can become personally liable.

Signing a Personal Guarantee

Because most suppliers, banks, and landlords know that shareholders or LLC members don’t have personal liability for the corporation or LLC’s debts, they often won’t extend credit or loan money to a small LLC or corporation without the owner’s personal guarantee. If you signed a personal guarantee for a particular loan, lease, or contract, you promised that you would pay it personally if your business did not. Put another way, every time you personally guaranteed that you would repay a debt, you deliberately gave up your limited liability for that debt. You volunteered to let the creditor sue you to take your personal assets if the business couldn’t pay the debt.

Check to see if you signed a personal guarantee on all of your business contracts; for example, a loan for a business vehicle or business equipment, trade terms with a supplier, a bank line of credit, or a commercial lease.

Offering Your Property as Collateral

Banks typically require the owners of small corporations or LLCs to put up their house or other real estate as security for a loan. If you secured a business loan or debt by pledging property such as a house, boat, or car, you are personally liable for the debt, and if your business defaults on the loan, the lender or creditor can sue you to foreclose on the property and use the proceeds to repay the debt.

Signing a Contract in Your Own Name

You may also have given up your limited liability if you were careless about signing purchase agreements and service contracts. Sometimes these agreements display the personal name of the business owner without the name of the corporation or LLC. If you signed an agreement in your personal name and not on behalf of the corporation or LLC, you’re personally liable for the underlying debt, even if it was the supplier’s mistake. If you’re not sure whether you have given a personal guarantee on an agreement or loan, check both the language of the agreement and the signature block to see whether you signed it in your name or in your capacity as an owner or officer.

Example: Talia signs a loan contract as Talia Smith, CEO of Book Nook, Inc., so only her business is liable to repay the loan. But she signs her commercial lease as just Talia Smith, so she will be personally liable to the landlord if her business can’t pay the rent.

Using Credit Cards or Personal Loans to Fund the Business

You may have used credit cards or home equity loans to obtain funds for your business, which definitely means you are personally liable for those debts. (You are almost always personally responsible for making payments on your credit cards, even if they have your business name on them, under the terms of the application you signed.)

Fraud, Misrepresentations, or Sloppy Recordkeeping

If you personally misrepresented or lied about any facts when you were applying for a loan or credit on behalf of your corporation or LLC, you could be held personally liable for the debt. Likewise, if you failed to maintain a formal legal separation between your business and your personal financial affairs, creditors could try to hold you personally responsible for the business’s debts under a theory known as “piercing the corporate veil.” This happens when a court finds that your corporation or LLC is really just a sham and that it is you personally operating the business. One way creditors try to pierce the corporate veil is by showing that you didn’t observe the formalities imposed on corporations and LLCs by state law. For instance, you may have made important corporate or LLC decisions without recording them in minutes of a meeting. Or you may have paid a number of the business’s bills out of your personal checkbook or with a personal credit card. Even corporations or LLCs owned by a single individual or a married couple have to obey these rules and formalities.

Next Steps

If you've determined you’re personally liable for all or some of your business’s debts, you risk being sued personally for the debt. If you think it’s likely you’ll be sued, you’ll want to make sure that your business pays the debts off, either in full or by negotiating a settlement for less than you owe. If that’s not possible, you may be able to file for Chapter 7 personal bankruptcy to wipe out your personal liability for your business debts. For more information on your options, see Save Your Small Business: 10 Crucial Strategies to Survive Hard Times or Close Down and Move On, by Ralph Warner and Bethany K. Laurence (Nolo), due out in August 2009.

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Contracts 101: Make a Legally Valid Contract

All you need is a clear agreement and mutual promises to exchange things of value.

Lots of contracts are filled with mind-bending legal gibberish, but there's no reason why this has to be true. For most contracts, legalese is not essential or even helpful. On the contrary, the agreements you'll want to put into a written contract are best expressed in simple, everyday English.

Most contracts only need to contain two elements to be legally valid:

• All parties must be in agreement (after an offer has been made by one party and accepted by the other).
• Something of value must be exchanged -- such as cash, services, or goods (or a promise to exchange such an item) -- for something else of value.

Does a contract have to be in writing? In a few situations, contracts must be in writing to be valid. State laws often require written contracts for real estate transactions or agreements that will last for more than one year. You'll need to check your state's laws to determine exactly which contracts must be in writing. But even if it's not legally required, it's always a good idea to put business agreements in writing, because oral contracts can be difficult or impossible to prove.

Let's take a closer look at the two required contract elements: agreement between the parties, and exchange of things of value.

Agreement Between the Parties

Although it may seem like stating the obvious, an essential element of a valid contract is that all parties must agree on all major issues. In real life, there are plenty of situations that blur the line between a full agreement and a preliminary discussion about the possibility of making an agreement. To help clarify these borderline cases, the law has developed some rules defining when an agreement legally exists.

Offer and Acceptance

The most basic rule of contract law is that a legal contract exists when one party makes an offer and the other party accepts it. For most types of contracts, this can be done either orally or in writing.

Let's say, for instance, you're shopping around for a print shop to produce brochures for your business. One printer says (or faxes, or emails) that he'll print 5,000 of your two-color flyers for $300. This constitutes his offer.

If you tell the printer to go ahead with the job, you've accepted his offer. In the eyes of the law, when you tell the printer to go ahead you create a contract, which means you're liable for your side of the bargain (in this case, the payment of $300). But if you tell the printer you're not sure and want to continue shopping around (or don't even respond, for that matter), you haven't accepted the offer, and no agreement has been reached.

But if you tell the printer the offer sounds great except that you want the printer to use three colors instead of two, no contract has been made. This is because you have not accepted all of the important terms of the offer. You have actually changed one term of the offer. (Depending on your wording, you have probably made a counteroffer, which is discussed below.)

When Acceptance Occurs

In day-to-day business, the seemingly simple steps of offer and acceptance can become quite convoluted. For instance, sometimes an offer isn't quickly and unequivocally accepted; the other party may want to think about it for a while, or try to get a better deal. And before the other party accepts your offer, you might change your mind and want to withdraw or amend it. Delaying acceptance of an offer and revoking an offer, as well as making a counteroffer, are common situations that may lead to confusion and conflict. To minimize the potential for a dispute, here are some general rules you should understand and follow.

How Long an Offer Stays Open

Unless an offer includes a stated expiration date, it remains open for a "reasonable" time. What's reasonable, of course, is open to interpretation and will vary depending on the type of business and the particular fact situation.

To leave no room for doubt as to when the other party must make a decision, the best way to make an offer is to include an expiration date.

If you want to accept someone else's offer, the best approach is to do it as soon as possible, while there's no doubt that the offer is still open. Keep in mind that until you accept, the person or company who made the offer -- called the offeror -- may revoke the offer.

Revoking an Offer

Whoever makes an offer can revoke it as long as it hasn't yet been accepted. This means that if you make an offer and the other party wants some time to think it through, or makes a counteroffer with changed terms, you can revoke your original offer. Once the other party accepts, however, you'll have a binding agreement. Revocation must happen before acceptance.

An exception to this rule occurs if the parties agree that the offer will remain open for a stated period of time.

Offers With Expiration Dates

An offer with an expiration date is called an option, and it usually doesn't come for free. Say someone offers to sell you a forklift for $10,000, and you want to think the offer over without worrying that the seller will withdraw the offer or sell to someone else. You and the seller could agree that the offer will stay open for a certain period of time -- say, 30 days. Often, however, the seller will ask you to pay for this 30-day option -- which is understandable, because during the 30-day option period, the seller can't sell to anyone else.

Payment or no payment, when an option agreement exists, the offeror cannot revoke the offer until the time period ends.

Counteroffers

Often, when an offer is made, the response will be to start bargaining. Of course, haggling over price is the most common type of negotiating that occurs in business situations. When one party responds to an offer by proposing something different, this proposal is called a "counteroffer." When a counteroffer is made, the legal responsibility to accept, decline or make another counteroffer shifts to the original offeror.

For instance, suppose your printer (here, the original offeror) offers to print 5,000 brochures for $300, and you respond by saying you'll pay $250 for the job. You have not accepted his offer (no contract has been formed) but instead have made a counteroffer. If your printer then agrees to do the job exactly as you have specified, for $250, he's accepted your counteroffer, and a legal agreement has been reached.

Even though a contract is formed only if the accepting party agrees to all substantial terms of an offer, this doesn't mean you can rely on inconsequential differences to void a contract later. For example, if you offer to buy 100 chicken sandwiches on one-inch-thick sourdough bread, there is no contract if the other party replies that she will provide 100 emu filets on rye bread. But if the other party agrees to provide the chicken sandwiches on one-inch-thick sourdough bread, a valid contract exists, and you can't later refuse to pay if the bread turns out to be a hair thicker or thinner than one inch.

Exchange of Things of Value

In addition to both parties' agreement to the terms, a contract isn't valid unless both parties exchange something of value in anticipation of the completion of the contract.

Consideration Defined

The "thing of value" being exchanged -- which every law student who ever lived has been taught to call "consideration" -- is most often a promise to do something in the future, such as a promise to perform a certain job, or a promise to pay a fee for a job. For instance, let's return to the example of the print job. Once you and the printer agree on terms, there is an exchange of things of value (consideration): The printer has promised to print the 5,000 brochures, and you have promised to pay $250 for them.

Gifts vs. Contracts

The main importance of requiring things of value to be exchanged is to differentiate a contract from a generous statement or a one-sided promise, neither of which are enforceable by law.

If a friend offers you a gift without asking anything in return -- for instance, offering to stop by to help you move a pile of rocks -- the arrangement wouldn't count as a contract because you didn't give or promise your friend anything of value. If your friend never followed through with her gift, you would not be able to enforce her promise.

However, if you promise your friend you'll help her weed her vegetable garden on Sunday in exchange for her helping you move rocks on Saturday, a contract exists.

Promises vs. Action

Although the exchange-of-value requirement is met in most business transactions by an exchange of promises ("I'll promise to pay money if you promise to paint my building next month"), actually doing the work can also satisfy the rule.

If, for instance, you leave your printer a voicemail message that you'll pay an extra $100 if your brochures are cut and stapled when you pick them up, the printer can create a binding contract by actually doing the cutting and stapling. And once he does so, you can't weasel out of the deal by claiming you changed your mind.

For over 140 contracts, forms, and worksheets that you'll use in starting and running your business, get Nolo's Quicken® Legal Business Pro. It also brings five Nolo best-selling business books together in one easy-to-use software package.

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When Do I Need an Employment Lawyer?

Sometimes it makes sense to hire an attorney to handle employment disputes.

Even the most conscientious employer occasionally needs help from a lawyer. Although you can handle many employment matters on your own, some issues are particularly tricky and will require some legal expertise.

Employment law can change rapidly. Courts and government agencies issue new opinions interpreting these laws every day, sometimes completely overturning what everyone thought the law meant. When you also factor in that lawsuits brought by former employees can end in huge damage awards against the employer, it's easy to see why you should seek legal advice when you get in over your head.

On the other hand, you don't need to talk to a lawyer every time you evaluate, discipline, or even fire a worker. After all, lawyers don't come cheap -- if you run to a lawyer every time you have to make an employment-related decision, you will quickly go broke.

The trick is to figure out which situations require some expert help and which you can handle on your own. Here are a few tasks and issues that you should consider bringing to a lawyer.

Advice on Employment Decisions

A lawyer can help you make difficult decisions about your employees.

Firing. Particularly if you are worried that an employee might sue, you should consider getting legal advice before firing an employee for misconduct, performance problems, or other bad behavior. A lawyer can tell you not only whether terminating the worker will be legal, but also what steps you can take to minimize the risk of a lawsuit.

Here are a few situations when you should consider asking a lawyer to review your decision to fire:

• The worker has a written or oral employment contract that limits your right to fire (for more on employment contracts, see Written Employment Contracts: Pros and Cons).
• The employee may believe that he or she has an implied employment contract limiting your right to fire.
• The employee has benefits, stock options, or retirement money that are due to vest shortly.
• The employee recently filed a complaint or claim with a government agency, or complained to you of illegal or unethical activity in the workplace.
• The employee recently filed a complaint of discrimination or harassment.
• Firing the employee would dramatically change your workplace demographics.
• The employee recently revealed that he or she is in a protected class -- for example, is pregnant, has a disability, or practices a particular religion.
• You are concerned about the worker's potential for violence, vandalism, or sabotage.
• The worker has access to your company's high-level trade secrets or competitive information.
• You are firing the worker for excessive absences, if you are concerned that the absences may be covered by the Family and Medical Leave Act or the Americans with Disabilities Act.
• The employee denies committing the acts for which you are firing him or her, even after an investigation.
• The employee has hired a lawyer to represent him or her in dealing with you.

Other decisions. You may also wish to have a lawyer review any employment decision that will affect a large number of employees. For example, if you are planning to lay off some workers, change your pension plan, or discontinue an employee benefit, it would be smart to run your plans by a lawyer before you take action. The lawyer can tell you about any potential legal pitfalls you might be facing -- and give you advice on avoiding them.

Representation in Legal or Administrative Proceedings

Lawsuits. If a current or former employee sues you, speak to a lawyer right away. Employment lawsuits can be very complex. You have to take certain actions immediately to make sure that your rights are protected -- and to preserve evidence that might be used in court. The time limits for taking action are very short -- many courts require you to file a formal, legal response to a lawsuit within just a few weeks. As soon as your receive notice of a lawsuit against you, begin looking for a lawyer.

Claims and complaints. Sometimes, a current or former employee initiates some kind of adversarial process short of a lawsuit. For example, an employee might file an administrative charge of discrimination, retaliation, or harassment with the U.S. Equal Employment Opportunity Commission or a similar state agency. Or, a former employee might appeal the denial of unemployment benefits, which in many states allows the employee to request a hearing.

In these situations, you should at least consult a lawyer, if not hire one. Although some employers can and do handle these administrative matters on their own, most could probably benefit from some legal advice on the strength of the employee's claim, how to prepare a response to the charge, how to handle an agency investigation, and how to present evidence at the hearing.

It might be worth hiring a lawyer to represent you if any of the following occur:

• The employee raises serious claims that could result in a large award of damages against you.
• Other employees or former employees have made similar allegations, either to the agency or within the workplace.
• The employee has indicated that he or she intends to file a lawsuit (in this situation, the employee may just be using the administrative proceeding to gather evidence to use against you in court).
• The employee has hired a lawyer.

Reviewing Documents

Contracts and agreements. A lawyer can quickly review and troubleshoot employment-related agreements you routinely use with your workers, such as employment contracts, severance agreements, or releases. A lawyer can check your contracts to make sure that they contain all the necessary legal terms and will be enforced by a court. If you have included any language that might cause problems later, or if you have gone beyond what the law requires of you, a lawyer can draw these issues to your attention. And a lawyer can give you advice about when to use these contracts -- for example, you may not want to give severance to every departing employee or enter into an employment contract with every new worker.

Policies and handbooks. You can also ask a lawyer to give your employee handbook or personnel policies a thorough legal review. First and foremost, a lawyer can make sure that your policies don't violate laws regarding overtime pay, family leave, final paychecks, or occupational safety and health, to name a few. A lawyer can also check for language that might create unintended obligations towards your employees. And a lawyer might advise you to consider additional policies. (For help creating an employee handbook -- including sample language you can modify to fit your workplace -- see Create Your Own Employee Handbook, by attorneys Lisa Guerin and Amy DelPo (Nolo).

Next Steps

If you have decided that it might be wise to speak to a lawyer, your next step is to find a good one. For tips and information on finding an attorney, read How to Find an Excellent Lawyer. For detailed advice on every stage of a civil lawsuit, from finding a lawyer to filing an appeal, see The Lawsuit Survival Guide, by attorney Joseph L. Matthews (Nolo).

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Nondisclosure Agreements

A nondisclosure agreement (NDA) helps a business protect its trade secrets.

Nondisclosure agreements are one of the best ways to protect trade secrets -- valuable confidential information that businesses want to keep under wraps. That information could be a sales plan, a list of customers, a manufacturing process or a formula for a soft drink. By using a nondisclosure agreement, you can ensure that your secrets stay secret -- or have legal recourse if they are misused or disclosed to the wrong parties.

A nondisclosure agreement -- also called an NDA or a confidentiality agreement -- is a contract in which the parties promise to protect the confidentiality of secret information that is disclosed during employment or another type of business transaction.

The use of nondisclosure agreements is widespread in the high-tech field, particularly for Internet and computer companies.

Example: Sabeer Bhatia, founder of Hotmail, collected over 400 NDAs from employees, friends and roommates. He believes that his secrecy efforts gave him a crucial six-month lead on the competition. He eventually sold Hotmail to Microsoft for a reported $400 million in stock.

If you have a nondisclosure agreement with someone who uses your secret without authorization, you can ask that a court order the violator from making any further disclosures. You can also sue for damages.

Create a Confidential Relationship

The purpose of an NDA is to create a confidential relationship between the person who has a trade secret and the person to whom the secret is disclosed. People who have such a confidential relationship are legally bound to keep the information a secret.

An NDA is not the only way to create a confidential relationship. You can create a confidential relationship with an oral agreement or it can be implied from the conduct of the parties. However, these relationships are much more difficult to prove than a relationship based on a written agreement.

NDAs are often categorized as either "mutual" or "one-way." A mutual NDA is one in which both parties are exchanging confidential information -- for example, you provide secret information for a company to evaluate and they provide you with secret information about their marketing strategy. A one-way agreement is used when only one party is making a disclosure -- for example, when you explain your secret to a contractor or investor.

Protect Trade Secrets

Use of a nondisclosure agreement is one of the best ways to protect trade secrets -- that is, any information that is not generally known and gives your business a competitive advantage in the marketplace. For example, through a nondisclosure agreement, you can prohibit someone from disclosing a secret invention design, an idea for a new website, or confidential material contained in a copyrighted software program.

Elements of a Nondisclosure Agreement

There are five important elements in a nondisclosure agreement:

• definition of confidential information
• exclusions from confidential information
• obligations of receiving party
• time periods, and
• miscellaneous provisions.

Definition of Confidential Information

Every nondisclosure agreement provides a list of the types or categories of confidential information to be protected in the agreement. The purpose is to establish the boundaries, or subject matter, of the disclosure, without actually disclosing the secrets. For example, an NDA may state: Confidential information includes programming code, financial information, related software materials and innovative processes.

Exclusions From Confidential Information

Every nondisclosure agreement excludes some information from protection, meaning that the party that receives the excluded information has no obligation to protect it. These exceptions are based on established principles of law -- the most important one being that information is not protected if it was created or discovered by the receiving party prior to (or independent of) any involvement with the disclosing party. For example, if another company develops an invention with similar trade secret information before being exposed to the disclosing party's secrets, then that company is still free to use its independently created invention.

Obligations of the Receiving Party

The nondisclosure agreement will generally state that the receiving party must hold and maintain the information in confidence and limit its use. Under most state laws, the receiving party cannot breach the confidential relationship, induce others to breach it, or induce others to acquire the secret by improper means. Most businesses will accept these contract obligations without discussion.

Time Periods

Some agreements require that the receiving party maintain the secret information for a limited period of years. This is often done with language such as: The receiving party shall not use or disclose the secret for a period of five years from the date of execution of the agreement.

Parties often negotiate over the time period. Five years is common in American nondisclosure agreements, although many companies insist on only two or three years. In European nondisclosure agreements, it is not unusual for the period to be as long as ten years. Ultimately, the length used will depend on the relative bargaining power of the parties.

Miscellaneous Provisions

Miscellaneous terms (sometimes known as "boilerplate") are included at the end of every agreement. They include such matters as:

• which state's law will apply in the event the agreement is breached
• whether arbitration will be used in the event of a dispute, or
• whether attorneys' fees will be awarded to the prevailing party in a dispute.

To protect the valuable trade secrets of your business, get Nolo's downloadable eForm, Confidentiality (Nondisclosure) Agreement. You can customize this agreement according to the detailed instructions that are included.

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Noncompete Agreements: How to Create an Agreement You Can Enforce

Use a noncompete agreement to prevent losing valuable trade secrets and employees.

After losing scores of valuable employees (and trade secrets) to competitors, a growing number of employers are asking, or requiring, employees to sign noncompete agreements. By signing a noncompete agreement, an employee promises not to work for a direct competitor for a specified period of time after he leaves the company. Here's the lowdown on whether it's worth asking your employees to sign one, and how to create an agreement that will pass muster with a judge.

How Noncompete Agreements Protect Your Business

Obviously, a noncompete agreement can keep your business from losing employees, but it can also protect your company's confidential information. If one of your employees has access to sensitive business information or trade secrets, you'll obviously want to prevent this employee from disclosing this information to your competitors.

A trade secret is information that gives your company a competitive advantage because it is not generally known and cannot be readily learned by other people who could benefit from it. It can be a formula, pattern, compilation, program, device, method, technique or process that you have made reasonable efforts to keep secret.

When an employee with access to trade secrets leaves -- either because the employee quit or has been fired -- he could take this information and use it to his personal advantage (and at your expense). For example, a former employee may open a competing business or may go to work for a competitor and unwittingly or deliberately divulge your hard-won keys to success. A properly drafted noncompete agreement can keep this from happening.

Note: Noncompete agreements are not enforceable against employees in California. Since a California statute invalidates noncompete agreements except in very limited circumstances, California judges won't enforce a noncompete agreement against an employee. However, California employers can use nonsolicitation agreements and nondisclosure agreements to protect their trade secrets, client lists and employees when an employee leaves.

Common Sense Considerations

While noncompete agreements are a very effective way to protect your business's trade secrets, you should know that the legal system puts a high value on a person's right to earn a living. If your noncompete agreement ends up under a legal microscope, it will have to pass some legal hurdles.

Have a Good Business Reason

First and foremost, you need a good business reason for asking an employee to sign the agreement -- the agreement shouldn't simply punish an employee for leaving your company. Usually, your business reason will be to protect your trade secrets or a customer base you've worked long and hard to develop.

If you're selective about the employees who sign noncompete agreements, you'll up your chances of success, because judges are much more likely to enforce noncompete agreements against employees who truly possess inside information.

Provide a Benefit to the Employee

Next, you must provide a benefit to the employee in exchange for his or her promise not to compete against you. Making a job offer contingent on signing a noncompete agreement probably satisfies this requirement, since the employee is receiving a benefit (a job) in exchange for the promise. It's more difficult to provide an existing employee with a benefit, but generally, coupling the agreement with a promotion or a raise will do the trick.

Noncompete Agreements Must Be Reasonable

A noncompete agreement must also be "reasonable." What's reasonable? One that can't:

• last too long
• cover too wide a geographic area, or
• prohibit a former employee from engaging in too many types of businesses.

Generally, the biggest issue with noncompete agreements is how long the noncompete agreement lasts. While there's no set rule, noncompetes ranging from six months to two years are generally considered "reasonable," while anything longer than that will receive closer scrutiny. Outside of the employment context, longer noncompete agreements will often be enforced, such as in connection with the sale of a business.

Creating a Noncompete Agreement

To sum up, when you're putting together your agreement, here are a few things to think about:

• When you're deciding whether to ask an employee to sign a noncompete agreement, think about your goals. Is the employee so valuable, and have you spent so much money training the employee, that losing him or her to a competitor would damage your business? Does the employee have access to important information you don't want revealed to a competitor? Make sure you can come up with a valid business reason for asking an employee to sign a noncompete agreement.
• As tempting as it might be to create a "tough" agreement, it doesn't pay to be overreaching; remember, most courts will not enforce an unreasonable noncompete agreement, and it won't be worth the paper it's written on. Instead, try to create an agreement that's meaningful to you, but doesn't simply punish the employee for leaving your company.

While these rules might seem discouraging, they exist for a reason -- to protect employees from unscrupulous employees. As long as you're reasonable, the law will be on your side. For a fill-in-the-blank agreement, you can download Nolo's Noncompete Agreement eForm, which includes instructions on completing the agreement.

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Living Together Contracts

Learn what a living together contract is and whether or not you need one.

A contract is no more than an agreement to do (or not to do) something. Marriage is a contractual relationship, even though the "terms" of the contract are rarely stated explicitly or even known by the marrying couple. Saying "I do" commits a couple to a well-established set of state laws and rules governing, among other things, the couple's property rights if they split up or when one of them dies.

Unmarried couples, on the other hand, do not automatically enter into a contract when they start a relationship. If you want to legally establish how you will own property during your relationship, as well as what will happen if you separate or if one of you dies, you must write out your own rules. (Married couples do something similar when they create a premarital agreement. Your agreement will be legally called a "nonmarital agreement," but we prefer the term "living together contract.")

Some couples find it unromantic or depressing to even think about making a contract governing mundane details like money and property, particularly if doing so involves thinking about what might happen in the event of separation. But preparing a sound living together agreement can help you in a whole host of ways. Practically speaking, your agreement will help you avoid trouble when you mix your money and property, and it will make clear your intentions and expectations regarding property ownership, household expenses and the like. It can also greatly ease the division or distribution of property after a breakup or death. On a more personal note, the process of negotiating and drafting your agreement may well strengthen your abilities to communicate with and understand each other.

That said, here's an overview of the legal rules and practical concerns you should think about before drafting a contract of your own.

Legal Rules Governing Living Together Contracts

For the most part, courts and judges -- not legislatures -- have made the legal rules governing living together contracts. The leading court case is the well-known Marvin v. Marvin, 557 P.2d 106, decided by the California Supreme Court in 1976. It involved the actor Lee Marvin and the woman he lived with, Michele Triola Marvin. (She used his last name even though they weren't married.) In its decision, the court announced what were to become the common legal principles governing the right of unmarried couples to make contracts. First, the court ruled that marital property laws do not apply to couples who are not legally married. Then, the court recognized that unmarried couples are here to stay. Finally, the court declared four contract principles:

• Unmarried couples may make written contracts.
• Unmarried couples may make oral contracts.
• If a couple hasn't made a written or oral contract, the court may examine the couple's actions to decide whether an "implied" contract exists.
• If a judge can't find an implied contract, she may presume that "the parties intend to deal fairly with each other" and find one partner indebted to the other by invoking well-established legal doctrines of equity and fairness.

Although Marvin directly applies only in California, other states have upheld the application of these principles to contracts made by unmarried partners -- both straight and gay. Depending on the state, however, a court may follow different legal rules. Almost all states now enforce contracts between unmarried partners, although in some states only written contracts will be enforced.

When You Need a Living Together Contract

Obviously, you don't need a contract if you are in a brief relationship. But in a long-term and serious partnership, whether you're basking in the glow of having just "joined forces" or you've been together 20 years, you should consider the legal consequences of dealing with money and property. If you are planning to mix assets or share expenses, you should most definitely put your agreement in writing, especially if a significant amount of money is involved. If you're both stone-broke, with no property and little prospect of getting any soon, you can still benefit by deciding how you will handle money and property if it ever arrives. Also, you can put more emphasis on the practical issues of day-to-day living together, such as how expenses will be paid.

What to Include in a Living Together Contract

A living together contract can be comprehensive, covering every aspect of your relationship, or it can be specific, covering only one transaction (such as a new house purchase). These contracts need not be like the fine-print monsters pushed at you when you buy insurance or a car. You can, and should, design your contract to say exactly what you both want, in words you both understand. A simple, comprehensible and functional document using common English is much better than one loaded with "heretofores" and "pursuants."

If you want your living together contract to include personal details about your relationship, make two agreements. The first one should pertain only to property and finances. Then, if the worst ever happens and you find yourselves in court, the property and finance terms will be the only ones a judge sees. Write up a second agreement, if you wish, about who will do the dishes, who will walk the dog, how many overnight guests you'll allow and whose art goes in the living room. A court won't -- and shouldn't be asked to -- enforce this kind of agreement. In fact, if you do make just one agreement that includes personal as well as financial clauses, you run the risk that a court will be distracted by the personal clauses and will declare the entire contract illegal or frivolous, thus negating the more important financial clauses.

Here are the issues that couples most often include in a living together contract:

Property and Finances Clauses

Your living together agreement should cover all of your property -- including the property you had before you began the relationship, as well as the property either or both of you accumulate during it.

Property owned before living together. You each probably had some property before you met. Making an agreement about this property may seem unnecessary, but it's not. Think about trying to sort things out ten years from now, when you've both been referring to everything around the house as "ours." You can agree to keep all of your previously owned property separate, or you might want to share some or all of it with each other. Do what suits you best.

Property inherited or received by gift during the relationship. Many people will want to keep separate the property they inherit or receive by gift. Others will want to "donate" the property to the relationship. Again, it's up to you. Remember that any property given to both of you is legally owned by both -- this includes gifts you receive at a commitment ceremony or anniversary party, even if given by a relative or friend of just one of you.

Property bought during the relationship. Many people make purchases item by item, understanding that whoever makes the purchase owns the property. Purchases can also be pooled. A consistent approach to property ownership may simplify things, but is required by neither law nor logic. Some items may be separately owned, some pooled 50-50, and some shared in proportion to how much money each contributed toward the purchase price or how much labor each put into upkeep.

Expenses

Your agreement should cover how you want to handle expenses during your relationship. For example, how will you divide the day-to-day costs for food, utilities, laundry, housing and the like, especially if expenses increase or decrease? Here are a few suggestions about how to share expenses:

• Share and share alike. Many couples have only one checking account. They both deposit their paychecks into it and pay all household bills out of it. They figure it all evens out in the end.
• Split 50-50. Some couples prefer this method. When one partner buys something for the house or pays a bill, he writes his name on the receipt and throws it into a jar. Every few months, they empty out the receipt jar and total up how much each has spent. One then writes the other a check to even things up.
• Each contributes in proportion to her income. This works especially well for people with large income discrepancies.

Separation or Death

It's wise to include at least brief provisions in your agreement stating what will happen if you split up or if one of you dies. You may simply want to say that if you separate, each of you will have the right to take immediate possession of your separate property and that all jointly owned property will be divided equally. If there is property that you own together -- but not in equal shares -- you'll want to specify a method for dividing it between you.

Though it may be difficult to think about it, it's especially important to consider what will happen if one of you dies. Without properly prepared documents, members of an unmarried couple have no right to inherit property from one another. You can use your living together agreement to specify how you want to provide for each other; it will serve as strong evidence of your intentions. Be aware, however, that writing out a plan in your agreement is not enough. You should also use a will, living trust or other estate planning documents to ensure that your plan is carried out as you wish. For more information about ways to leave your property at death, see the Wills and Estate Planning area of Nolo's website.

Dispute Resolution

We recommend that every couple who prepares a living together contract include a method for resolving any disagreements that later arise out of it. Traditionally, it this type of dispute was severe, a couple had to go to court to resolve it, but there are better alternatives now. You may want to make mediation your first-choice method for resolving disputes, stating in your agreement that you will choose a third party to help you resolve any disagreements about your living together contract. If mediation is unsuccessful, you might allow either partner to submit the dispute to formal and binding arbitration. This should be enough to avoid the complications and expenses of a lawsuit.

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Asserting Your Workplace Rights

Protect your rights in the workplace and get results.

Depending on the size of your employer, the state you live in, and your profession, you may be entitled to certain legal protections in the workplace, including:

• the right not to be discriminated against because of your race, national origin, skin color, gender, pregnancy, religious beliefs, disability, or age (and in some places, marital status, sexual orientation, gender identity, or other characteristics)
• the right to a workplace free of harassment
• the right to fair pay: to be paid at least the minimum wage, plus an overtime premium for any hours worked over forty in one week (or, in some places, over eight hours in one day)
• the right to a safe workplace
• the right to take leave to care for your own or a family member's serious health condition, or following the birth or adoption of a child, and
• the right to some privacy in personal matters.

Nolo's online articles on employee rights explain these rights in detail. However, once you have figured out that your legal rights may have been violated, what should you do about it? Here are several steps you can take to assert your legal rights.

1. Talk to Your Employer

In many cases, the first thing to do is talk to your employer. An intelligent discussion can resolve most wrongs, or at least get your differences out on the table. Most companies want to stay within the law and avoid legal tangles. Unless you work for a truly uncaring and antagonistic employer, chances are that your problem is the result of an oversight, a misunderstanding, or a lack of legal knowledge.

Here are a few tips on how to present your concerns to your employer:

• Know your rights. The more you know about your legal rights in the workplace, the more confident you will be in presenting your problem.
• Stick to the facts. Before meeting with your employer, write a brief summary of what has gone wrong and your recommendation for resolving the problem. It might help to have someone more objective, such as a friend or family member, review the facts and brainstorm with you about possible resolutions. Make sure not to leave any important facts out.
• Don't be overly emotional. Dealing with a workplace problem can be stressful, but unfounded accusations and emotional outbursts won't help you get your point across. Practice your presentation ahead of time to make sure you can remain professional and calm.
• Decide the next steps. Before finishing your discussion with your employer, come to some agreement about what will happen next. Will the company investigate the problem? Will your boss talk to your coworkers or supervisor? Will evaluations, job responsibilities, or reporting relationships be changed?
• Follow up with your employer. Once you have spoken to your employer, make sure to follow up on the meeting. If your employer promised to investigate the matter or talk to other employees, check back to find out the status of those actions. After a few weeks have passed, schedule another meeting with your employer to discuss what progress has been made in resolving your problem.

2. Document the Problem

In addition to talking things through with your employer, protect yourself by gathering documentation. Take notes of key conversations and events, including the time, date, and names of others who were present. Gather documents that might support your side of the story, such as company policies, offer letters, performance reviews, memoranda, emails and other correspondence, or employee handbooks.

Be careful, however, to collect only those documents you have legitimate access to. Taking or copying confidential documents -- even if they are related to your dispute -- could get you fired and could compromise your legal claims.

If your coworkers saw or heard any of the incidents that contributed to the problem (such as a verbal performance review, a harassing comment, or a search of your workspace), ask them to write down what they saw and heard in signed, dated statements.

3. Don't Miss Legal Deadlines

If your employer doesn't seem to be taking your complaint seriously, or you are demoted or fired, consider whether to take legal action. The law sets deadlines (often called "statutes of limitations") for filing certain types of claims or lawsuits, ranging from several weeks to several years. If one of these deadlines applies to your case, you will have to think sooner rather than later about whether to go to court. You might want to consult with a lawyer about your problem to figure out how strong your claims are, whether any filing deadlines apply to your dispute, and what you might expect to gain or lose if you file a lawsuit.

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Taking Family and Medical Leave

Get information about all of the benefits you may be entitled to before taking a family or medical leave.

Surveys prove it time and again: We all want more balance between the demands of our jobs and our personal and family needs. The Family and Medical Leave Act, or FMLA, provides some important -- but limited -- help. This law, passed by Congress in 1993, requires certain employers to give their workers up to 12 weeks off per year to care for a seriously ill family member, recuperate from a serious illness, or take care of a newborn or newly adopted or foster child. When they return from leave, these workers have the right to be reinstated to the same or an equivalent position. But FMLA leave is unpaid -- and that's where, critics say, the law falls woefully short of its goals.

In addition to the federal FMLA, many states have enacted their own family and medical leave laws, some of which cover more workers or provide greater benefits than the federal law. And many employers are picking up where federal and state law leaves off. Because of this often complicated maze of laws, it's important that you gather information on all of the benefits and legal protections that apply to your situation before you take a leave from work.

Federal Law: The FMLA

An employee is entitled to FMLA leave if all three of the following conditions are met:

• Number of employees. The employer has 50 or more employees who work within a 75-mile radius. All employees on the payroll -- including part-time workers and workers out on leave -- count toward the total.
• Length of time employed. The employee has worked for the employer for at least 12 months.
• Hours worked. The employee has worked at least 1,250 hours (about 25 hours a week) during the 12 months immediately preceding the leave.

Even if you meet all three of these requirements, you can take FMLA leave only for specified reasons. Not every personal or family emergency qualifies for FMLA leave. You must be seeking leave for:

• Birth, adoption, or foster care. If you become a new parent or foster parent, you may take FMLA leave within one year after the child is born or placed in your home. You can start your leave before the child arrives, if necessary, for prenatal care or preparations for the child's arrival. If both parents work for the same employer, they may be entitled to less leave.
• The employee's serious health condition. The idea is straightforward: You can take leave to deal with your own serious health problem. However, the law defines a "serious health condition" in a specific way. Generally, an employee who requires inpatient treatment, has a chronic serious health problem, or is unable to perform normal activities for three days while under the care of a doctor has a serious health condition.
• A family member's serious health condition. You are entitled to take leave to care for a seriously ill family member. However, only certain family members are covered. Parents, spouses, and children are included; but grandparents, domestic partners (of the same or opposite sex), in-laws, and siblings are not.

Employers who are subject to the FMLA have certain responsibilities to employees who take FMLA leave. Employers must reinstate most employees to the same or equivalent positions as they held before going on leave, provide employees with continued health insurance while on leave, and allow employees to take paid time off (such as vacation and sick time) during unpaid FMLA leave under certain circumstances.

Reinstatement to Your Position

Under the FMLA, you can take up to 12 weeks of unpaid leave in any 12-month period for the reasons listed above. When your leave ends, your employer must reinstate you to the same position you held when you went out on leave or a position equivalent in pay, benefits, and other working conditions, subject to the following:

• You have no greater right to reinstatement than you would have had if you had not taken leave. In other words, if your position is legitimately eliminated while you are out on leave, you don't have the right to be reinstated. However, this is true only if the elimination of your job is unrelated to your leave. For example, if you work in the accounting department and your employer decides, while you are on leave, to lay off the entire department and outsource the company's bookkeeping needs, you are not entitled to reinstatement. But your employer cannot eliminate just your position because you were out on leave -- that would be retaliation against you for taking leave.
• Employers can refuse to reinstate certain highly paid, “key” employees. If (1) you are among the 10% most highly paid of the employer's salaried workforce within a 75-mile radius of your workplace and (2) reinstating you would cause "substantial and grievous economic injury" to the company, your employer can refuse to give you your job back. However, your employer must warn you ahead of time that you are considered a key employee and may not be entitled to return.

Continued Health Insurance

If your employer provides a group health plan, you are entitled to continued health insurance coverage while you are on leave. However, if you decide voluntarily not to return to work when your leave ends, your employer can require you to reimburse it for the health care premiums it paid on your behalf during your leave. (Your employer cannot require this if you cannot return to work after 12 weeks because the serious health condition continued or recurred or because of other circumstances beyond your control.)

Use of Paid Time Off

Although FMLA leave is unpaid, you are entitled to use your accrued paid leave during FMLA leave in certain circumstances. You can always use accrued paid leave that is characterized as vacation or personal leave. And, in certain circumstances, you may substitute accrued sick or family leave for FMLA leave. You can use this type of accrued leave only if the reasons for the leave are covered by your employer's leave policy or state law. For example, you cannot use paid sick leave during FMLA leave to care for an ill family member unless your employer's policy or state law allows employees to take sick leave to care for others who are ill.

In addition, your employer can require you to use accrued vacation days during FMLA leave and accrued sick days if the reasons for the leave are covered by your employer's sick leave policy. For instance, if you take time off to care for a sick family member, your employer can force you to use your accrued sick leave if its leave policy allows you to use sick leave to care for ill family members.

Scheduling and Notice Requirements

The FMLA requires you to give 30 days' notice of the need for leave if it is foreseeable. This is most often the case if you plan to take leave for the birth or adoption of a child or to care for a family member recovering from surgery or other planned medical treatment.

If your need for leave is not foreseeable, you are required to give as much notice as is both possible and practical under the circumstances. If you have a medical emergency, for example, it might not be possible for you to give any advance notice at all, but you should notify your employer as soon as you are able to do so.

Some employees may want to take leave intermittently rather than all at once. If you need physical therapy for a serious injury, for example, or you need to care for a spouse receiving periodic medical treatments such as chemotherapy, you might want to take a few hours off per week rather than 12 weeks at a clip. You may take FMLA leave intermittently for your own serious health condition or that of your child, parent, or spouse when medically necessary. Employers are not required to allow intermittent leave for the birth or adoption of a new child, but they may agree to do so.

State Law and Benefits

Many states have their own family and medical leave laws in addition to the federal FMLA. Sometimes, the law parallels the protections provided by the FMLA. Other times, however, the law provides greater benefits or protections than the federal FMLA. For example, state law may cover smaller employers not covered by the FMLA or employees who have worked for an employer for less time than the FMLA requires, or may provide greater total job-protected time off than the 12 weeks the FMLA provides -- especially for women giving birth to newborns, who may be entitled to time off for their own pregnancy disabilities, plus time off to care for their newborn after the birth.

In addition, a handful of states provide some form of wage-replacement benefits for which you can apply while you are on an unpaid family or medical leave from work. Five states (California, Hawaii, New Jersey, New York, and Rhode Island) and Puerto Rico provide temporary disability benefits to workers who are temporarily unable to work due to their own medical conditions, including pregnancy and birth.

California is the first state in the nation to provide comprehensive paid leave benefits -- the Paid Family Leave Insurance program, which provides an additional six weeks of partial wage benefits during a worker’s unpaid time off to bond with a newborn, newly adopted, or new foster child, or to care for an ill parent, child, spouse, or domestic partner. Other states are currently considering similar programs.

Also, many states have laws that allow at least some workers to use their own accrued sick days to care for an ill family member.

Employer Policies and Benefits

Lastly, many employers are now choosing to provide family and medical leave benefits above and beyond what state and federal law requires of them. For example, smaller employers that are not covered by state or federal family and medical leave laws may choose to provide unpaid, job-protected leave anyway, or employers who are required to provide only unpaid leave may choose to provide a certain amount of paid leave for their employees. Be sure not to miss out on any additional benefits your employer provides.

Do Your Homework

Because family and medical leave laws and benefit programs are so varied and complex, it’s important that you get complete information about all of the laws and benefits that apply to your situation, including the following:

• Federal law. Find out if your employer is covered by, and if you are eligible to receive leave under, the federal Family and Medical Leave Act. For more information on the FMLA, visit the U.S. Department of Labor's website, at www.dol.gov. You can also find helpful information on the FMLA at the website of the National Partnership for Women and Families, at www.nationalpartnership.org.
• State law and benefits. Find out about any additional protections and benefits your state provides. For more information, contact your state labor department, state fair employment department, and the state agency that administers temporary disability benefits if your state has them (for example, California’s State Disability Insurance and Paid Family Leave Insurance programs are administered by the state Employment Development Department, which you can visit at www.edd.ca.gov). The website of the National Partnership for Women and Families at www.nationalpartnership.org also provides state-by-state information on state unpaid leave laws, state paid leave laws, and state paid sick leave laws, including legislative efforts to expand such laws in each state.
• Your employer’s policies and benefits. Find out about any benefits or policies your employer provides. Look in your employee handbook or manual, read any informational posters posted in your workplace, and/or ask your HR department for any information related to taking a family and medical leave.

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How Your Lawyer Can Help With Mediation

Even if you're represented by a lawyer, you can still mediate your dispute. Here are some ways your lawyer can help out.

Even if you are involved in a lawsuit and represented by a lawyer, you can still mediate your dispute. In fact, sometimes mediation is the only way to get out of a lawsuit that's become a bitter and hostile affair.

What role can lawyers play in mediation? As long as your lawyer isn't hostile to the idea of mediation, he or she can be a tremendous help. Here are some things your lawyer can do to help make mediation a success:

• Propose mediation to the other side. Even if you want to try mediation, you might not be ready to swallow your pride and ask the other side to come to the bargaining table -- especially if your lawsuit has gotten nasty. This is where your lawyer can help out by proposing mediation to your opponent's lawyer.
• Help find a mediator. These days, many lawyers routinely try to resolve at least some of their cases through mediation. Because of mediation's growing popularity, chances are good that your lawyer has worked with several different mediators and can propose one who will do an excellent job for you.
• Explain and complete mediation paperwork. Some mediators ask participants, especially if they are represented by lawyers, to submit a written statement describing the dispute and explaining how they would like to resolve it. Your lawyer can write this statement, with your help. Your lawyer can also explain any other mediation documents that come your way, such as a confidentiality agreement.
• Prepare you for the mediation. Because your lawyer has probably participated in other mediations, he or she can help you get ready to put your best foot forward. Your lawyer can explain how the process works, help you organize your thoughts into a coherent story for the mediator and make suggestions of things you might want to tell your opponent -- and things you might want to keep to yourself.
• Evaluate settlement options. Ultimately, you are the only one who can decide whether to settle your lawsuit, and on what terms. But your lawyer can help you evaluate whether a settlement is a good one, based on your chances of succeeding in court, the value of your claims and the legal arguments for and against your position. Your lawyer can also alert you to potential problems with a proposed settlement.
• Write a binding agreement. If you and your opponent reach an agreement in mediation, your lawyer can help put it in writing. Your lawyer can make sure that the written agreement reflects the settlement you reached during the mediation and make sure that the agreement can be enforced if your opponent doesn't honor its terms.

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Chart: Statutes of Limitations in All 50 States

Know the time limits for filing a lawsuit (statutes of limitations) in your state.

The chart below contains common statutes of limitations for all 50 states, expressed in years.

We provide this chart as a rough guide. Check your state’s actual statutes of limitation for the time limit for your specific claim, which may be different than what you read here. For example, time limits for filing a lawsuit to recover on a bad debt are often shorter than the time limits for filing a lawsuit for breaches of other types of contracts.

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Preventing Employment Discrimination FAQ

Common questions about workplace discrimination and harassment laws.

What's Below:

What forms of discrimination are illegal in the workplace?

Do antidiscrimination laws apply to small businesses?

What should I do if an employee complains about discrimination?

Are English-only rules legal?

Do I have to give an employee time off for religious observances?

What forms of discrimination are illegal in the workplace?

Only if a characteristic is specifically listed in an antidiscrimination law is it illegal to discriminate against someone on the basis of that characteristic.

Federal laws. Federal law prohibits discrimination on the basis of race, gender, pregnancy, national origin (including affiliation with a Native American tribe), religion, disability, citizenship status, and age (if the person is at least 40 years old).

Note: You will not see sexual harassment mentioned under a federal antidiscrimination law because it is a type of gender discrimination. It is any offensive conduct related to an employee's gender that a reasonable woman or man should not have to endure (specifically, an unwelcome sexual advance or conduct on the job that creates an intimidating, hostile, or offensive working environment).

State and local laws. State and local laws often prohibit additional types of discrimination, including discrimination on the basis of marriage, sexual orientation, and weight. (For example, fifteen states prohibit private employers from making employment decisions based on sexual orientation, as do many county and municipal governments. For more information, see Sexual Orientation Discrimination in the Workplace.) To learn more about your state and local laws, contact your state fair employment office.

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Do antidiscrimination laws apply to small businesses?

If you have a really small business -- with only one to three employees -- you do not have to worry about the vast majority of antidiscrimination laws. The major exception to this general rule is the federal Equal Pay Act, which applies to virtually all employers, regardless of size.

In addition, there might be a local ordinance or state law that does apply to you (although the majority of these laws applies only to employers with five or more employees). To investigate your state laws, contact your state fair employment practices agency; ask your local government for information on municipal or county ordinances.

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What should I do if an employee complains about discrimination?

The most important thing to do is to take the complaint seriously, no matter how angry it makes you or how fictional you think the complaint is. Investigate the complaint thoroughly and, if you find any merit to the complaint, remedy the situation as quickly as possible. For practical strategies to avoid workplace discrimination complaints, get The Essential Guide to Handling Workplace Harassment & Discrimination, by Deborah C. England (Nolo), available October 2009. 

Do not discipline or demote the employee who complains. Most antidiscrimination laws contain a provision that forbids employers to retaliate against employees who assert their rights to a workplace free of discrimination. Both firing and discipline constitute retaliation, as do lesser actions.

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Are English-only rules legal?

It depends on the purpose and scope of the rule. An employer may be able to prohibit on-duty employees from speaking any language other than English if it can show that the rule is necessary for business reasons. If your company has an English-only rule, you must tell employees when they have to speak English (for example, whenever customers are present) and the consequences of breaking the rule.

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Do I have to give an employee time off for religious observances?

It depends on how easy or difficult it would be for you to do so. You are legally required to work with your employees to make it possible for them to practice their religion. This might include not scheduling an employee to work on an important religious holiday. However, you are not required to offer this accommodation if it would cause a hardship on your business or other workers -- for example, if it would upset your seniority system.

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Trade Secret Basics FAQ

What every business owner should know about trade secret law.

What's Below:

What is a trade secret?

What types of information can trade secrets protect?

What rights does the owner of a trade secret have?

How can a business protect its trade secrets?

How can a business enforce its rights if someone steals or improperly discloses confidential information?

Is stealing trade secrets a crime?

What is a trade secret?

In most states, a trade secret may consist of any formula, pattern, physical device, idea, process or compilation of information that both:

• provides the owner of the information with a competitive advantage in the marketplace, and
• is treated in a way that can reasonably be expected to prevent the public or competitors from learning about it, absent improper acquisition or theft.

Some examples of potential trade secrets are:

• a formula for a sports drink
• survey methods used by professional pollsters
• recipes
• a new invention for which a patent application has not yet been filed
• marketing strategies
• manufacturing techniques, and
• computer algorithms.

Unlike other forms of intellectual property such as patents, copyrights and trademarks, trade secrecy is basically a do-it-yourself form of protection. You don't register with the government to secure your trade secret; you simply keep the information confidential. Trade secret protection lasts for as long as the secret is kept confidential. Once a trade secret is made available to the public, trade secret protection ends.

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What types of information can trade secrets protect?

Trade secrets often protect valuable technical information that cannot be sheltered under other forms of intellectual property law, such as the formula for Coca-Cola. Trade secrets may also:

• protect ideas that offer a business a competitive advantage, thereby enabling a company or individual to get a head start on the competition -- for example, an idea for a new type of product or a new website
• keep competitors from learning that a product or service is under development and from discovering its functional or technical attributes -- for example, how a new software program works
• protect valuable business information such as marketing plans, cost and price information and customer lists -- for example, a company's plans to launch a new product line
• protect "negative know-how" -- that is, information you've learned during the course of research and development on what not to do or what does not work optimally -- for example, research revealing that a new type of drug is ineffective, or
• protect any other information that has some value and is not generally known by your competitors -- for example, a list of customers ranked by how profitable their business is.

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What rights does the owner of a trade secret have?

A trade secret owner can prevent the following groups of people from copying, using, or benefiting from its trade secrets or disclosing them to others without permission:

• people who are automatically bound by a duty of confidentiality not to disclose or use trade secret information, including any employee who routinely comes into contact with the employer's trade secrets as part of the employee's job
• people who acquire a trade secret through improper means such as theft, industrial espionage or bribery
• people who knowingly obtain trade secrets from people who have no right to disclose them
• people who learn about a trade secret by accident or mistake, but had reason to know that the information was a protected trade secret, and
• people who sign nondisclosure agreements (also known as "confidentiality agreements") promising not to disclose trade secrets without authorization from the owner. This may be the best way for a trade secret owner to establish a duty of confidentiality.

There is one group of people that cannot be stopped from using information protected under trade secret law. These are people who discover the secret independently, that is, without using illegal means or violating agreements or state laws. For example, it is not a violation of trade secret law to analyze (or "reverse engineer") any lawfully obtained product and determine its trade secret.

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How can a business protect its trade secrets?

Simply calling information a trade secret will not make it so. A business must affirmatively behave in a way that proves its desire to keep the information secret. Some companies go to extreme lengths.

Example: The formula for Coca-Cola (perhaps the world's most famous trade secret) is kept locked in a bank vault that can be opened only by a resolution of the Coca-Cola Company's board of directors. Only two Coca-Cola employees ever know the formula at the same time; their identities are never disclosed to the public and they are not allowed to fly on the same airplane.

Fortunately, extraordinary trade secrecy protection measures are seldom necessary. Although you should take reasonable precautions to protect any information you regard as a trade secret, you don't have to turn your office into an armed camp to do so. Sensible precautions include marking documents containing trade secrets "Confidential," locking trade secret materials away after business hours, maintaining computer security and only providing access to secret information to people with a reasonable need to know.

But the very best way to protect trade secrets is through use of nondisclosure agreements. Courts have repeatedly reiterated that the use of nondisclosure agreements is the most important way to maintain the secrecy of confidential information.

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How can a business enforce its rights if someone steals or improperly discloses confidential information?

Every state has a law prohibiting theft or disclosure of trade secrets. Most of these laws are derived from the Uniform Trade Secrets Act (UTSA), a model law drafted by legal scholars. A listing of states that have adopted some version of the UTSA is provided at the end of this FAQ.

A trade secret owner can enforce rights against someone who steals confidential information by asking a court to issue an order (an injunction) preventing further disclosure or use of the secrets. A trade secret owner can also collect damages for any economic injury suffered as a result of the trade secret's improper acquisition and use. Here are some examples of incidents that can lead to trade secret lawsuits:

• Sarah, a former employee of C-com, discloses C-com trade secrets to her new employer.
• Mary hacks her way into the network for a computer company and downloads the specs for a new silicon chip. She sells the information to a third party -- a rival computer company.
• Sheldon is a software programmer who works as an independent contractor for Diskco. Sheldon signed a nondisclosure agreement with Diskco, but later discloses Diskco secrets to a rival.

To prevail in a trade secret infringement suit, a trade secret owner must show (1) that the information alleged to be confidential provides a competitive advantage and (2) the information really is maintained in secrecy. In addition, the trade secret owner must show that the information was either improperly acquired by the defendant (if the defendant is accused of making commercial use of the secret) or improperly disclosed by the defendant (if the defendant is accused of leaking the information).

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Is stealing trade secrets a crime?

Intentional theft of trade secrets can constitute a crime under both federal and state laws. The most significant federal law dealing with trade secret theft is the Economic Espionage Act of 1996 (EEA) (18 U.S.C., Sections 1831 to 1839). The EEA gives the U.S. Attorney General sweeping powers to prosecute any person or company involved in trade secret misappropriation and punishes intentional stealing, copying or receiving of trade secrets. Penalties for violations are severe: Individuals may be fined up to $500,000 and corporations up to $5 million. A violator may also be sent to prison for up to ten years. All property used and proceeds derived from the theft can be seized and sold by the government.

The EEA applies not only to thefts that occur within the United States, but also to thefts outside the U.S. if the thief is a U.S. citizen or corporation, or if any act in furtherance of the offense occurred in the U.S. If the theft is performed on behalf of a foreign government or agent, the corporate fines can double and jail time may increase to 15 years.

Several states have also enacted laws making trade secret infringement a crime. For example, in California it is a crime to acquire, disclose or use trade secrets without authorization. Violators may be fined up to $5,000, sentenced to up to one year in jail, or both. (Cal. Penal Code Section 499c.)

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Property Rights of Unmarried Couples FAQ

From property agreements to palimony -- property right information for unmarried couples.

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When is it important for an unmarried couple to make a written property agreement?

What should a property agreement include?

My partner and I are buying a house together. How should we cover that in our property agreement?

My partner makes a lot more money than I do. Should our property agreement cover who is entitled to her income and the items we purchase with it?

What is palimony? And should we make any agreements about it?

Am I liable for the debts of my partner?

If one of us dies, how much property will the survivor inherit?

When is it important for an unmarried couple to make a written property agreement?

If you haven't been together long and don't own much, it's really not necessary to make a written agreement. But the longer you live together, the more important it is to prepare a written contract making it clear who owns what -- especially if you begin to accumulate a lot of property. And, if you buy a house together, it's a good idea to create a property agreement.

If you don't create a property agreement, you might face a serious (and potentially expensive) battle if you split up and can't agree on how to divide what you've acquired. And, when things are good, taking the time to draft a well-thought-out contract helps you clarify your intentions.

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What should a property agreement include?

You can tailor your property agreement to meet the needs of your relationship. The major areas of concern for most unmarried couples are:

• how property and assets are owned, and
• whether or not income and expenses are shared.

Some couples choose to keep all property owned -- a car, a house, furniture, and the like -- completely separate, while others choose to share some or all of their property by transferring part ownership to each other. You can also specify how you will own property that you acquire during your relationship. (If you decide not to prepare a comprehensive property agreement that covers this issue for all of your property, you can use a "joint purchase agreement" for major items as you buy them.)

Similarly, you may use your agreement to share or divide income and expenses in any number of ways. You can keep separate bank and checking accounts, credit cards, and insurance, or you can agree to handle some or all of these things jointly.

In your agreement, you may also want to decide in advance who gets what should you separate, or agree to a process for resolving any property disputes that arise if you part ways.

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My partner and I are buying a house together. How should we cover that in our property agreement?

It's particularly important to make a written property agreement if you buy a house together; the large financial and emotional commitments involved are good reasons to take extra care with your plans. Your contract should cover at least four major areas:

• How much of the house does each of you own? If it's not 50-50, is there a way for the person who owns less than half to get an increased share -- for example, by fixing up the house or making a larger share of the mortgage payment?
• How is title (ownership) to be listed on the deed? One choice is as "joint tenants with rights of survivorship," meaning that when one of you dies, the other automatically inherits the whole house. Another option is "tenants in common," meaning that, when one of you dies, that person's share of the house goes to whoever is named in a will or trust, or goes to blood relatives if the deceased partner left no estate plan.
• What happens to the house if you break up? Will one of you have the first right to stay in the house (perhaps to care for a young child) and buy the other out, or will the house be sold and the proceeds divided?
• If one of you has a buyout right, how will the house be appraised and how long will the buyout take? Most people agree to have the realtor that helped with the purchase appraise the house and then give the buying partner one to five years to pay off the other.

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My partner makes a lot more money than I do. Should our property agreement cover who is entitled to her income and the items we purchase with it?

Absolutely. Although each person starts out owning all of his or her job-related income, many states allow this to be changed by an oral contract or even by a contract implied from the circumstances of how you live. These types of contracts often lead to misunderstandings during a breakup. For example, if there's no written agreement stating whether income will be shared or kept separate, one partner might falsely claim the other promised to split income 50-50. Although this can be tough to prove in court, the very fact that a lawsuit can be brought creates a huge problem. For obvious reasons, it's an especially good idea to make a written agreement if a person with a big income is living with and supporting someone with little or no income.

Example: Jon and Rose plan to buy a fixer-upper house and move in together. Jon is a carpenter; Rose is a university professor who makes nearly twice as much as Jon. Jon and Rose plan to own their home equally, so they agree in writing as follows: Rose will pay two-thirds of the mortgage, and Jon will pay one-third. Rose and Jon will equally pay for the materials to fix up the house, and Jon will contribute all the labor. Rose and Jon also agree to equally own all the property, furniture, and fixtures they buy once they move in together.

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What is palimony? And should we make any agreements about it?

Palimony is a phrase coined by journalists -- not a legal concept -- to describe the division of property or alimony-like support paid to one partner in an unmarried couple by the other after a breakup. Members of unmarried couples are not legally entitled to such payments unless they've made an agreement about it.

In the famous case of Marvin v. Marvin, the California Supreme Court ruled that a person who lived with a partner and later sued for support could argue that an implied contract existed between the partners. To avoid a battle over palimony, it's wise to create a written agreement that speaks to whether or not one partner will make payments to the other in case of a break-up.

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Am I liable for the debts of my partner?

Not unless you have specifically undertaken responsibility to pay a particular debt -- for example, you cosigned a promissory note or the debt is charged to a joint account. By contrast, married spouses are generally liable for all debts incurred during marriage, even those incurred by the other person. The one exception for unmarried couples applies if you have registered as domestic partners in a location where the domestic partner law states that you agree to pay for each other's basic living expenses -- that is, food, shelter, and clothing.

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If one of us dies, how much property will the survivor inherit?

Usually nothing, unless the deceased partner made a will or used another estate planning device, such as a living trust or joint tenancy agreement. In a few states, same-sex partners who are registered as domestic partners or have entered into a civil union relationship may automatically inherit a portion of a deceased partner's property, but these laws are by no means the safest or easiest way to plan for inheritance. The bottom line is simple: To protect the person you live with, you should specifically leave property using a will, living trust, or other legal document. 

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Mediation FAQ

Find out what mediation is, how the process works, and how to find a good mediator.

What's Below:

What kinds of cases can be mediated?

How long does mediation take?

How is mediation different from arbitration?

What are the stages of mediation?

How can I be sure mediation will produce a fair result?

How can I find a good mediator?

Are there some cases that should not be mediated?

If I choose mediation, will I still need a lawyer?

What kinds of cases can be mediated?

Most civil (noncriminal) disputes can be mediated, including those involving contracts, leases, small business ownership, employment, and divorce. For example, a divorcing couple might mediate to work out a mutually agreeable child custody agreement, or estranged business partners might choose mediation to work out an agreement to divide their business. Nonviolent criminal matters, such as claims of verbal or other personal harassment, can also be successfully mediated.

Finally, you may want to consider mediation if you get into a scrape with a neighbor, roommate, spouse, partner, or co-worker. Mediation can be particularly useful in these areas because it is designed to identify and cope with divisive interpersonal issues not originally thought to be part of the dispute. For example, if one neighbor sues another for making outrageous amounts of noise, the court will usually deal with only that issue. If the court declares one neighbor a winner and the other a loser, it may worsen long-term tensions. In mediation, however, each neighbor will be invited to present all issues in dispute. It may turn out that the overly loud neighbor was being obnoxious in part because his neighbor's dog constantly pooped on his lawn or his neighbor's pickup blocked a shared driveway. Because mediation is designed to look at and fix the bigger picture, it's a far better way to restore long-term peace to the neighborhood, home, or workplace than going to court.

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How long does mediation take?

Typical mediation cases, such as consumer claims, small business disputes, or auto accident claims, are usually resolved after a half day or, at most, a full day of mediation. Cases with multiple parties often last longer: Add at least an hour of mediation time for each additional party. Major business disputes -- those involving lots of money, complex contracts, or ending a partnership -- may last several days or more.

Private divorce mediation, where a couple aims to settle all the issues in their divorce -- property division, alimony, child custody, visitation, and support -- generally requires half a dozen or more mediation sessions spread over several weeks or months.

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How is mediation different from arbitration?

A mediator normally has no authority to render a decision. It's up to the parties themselves -- with the mediator's help -- to work informally toward their own agreement. An arbitrator, on the other hand, conducts a contested hearing between the parties and then, acting as a judge, rends a legally binding decision. Arbitration resembles a court proceeding: Each side calls witnesses, presents evidence, and makes arguments. Although arbitration has traditionally been used to resolve labor and commercial disputes, it is growing in popularity as a quicker and less expensive alternative to going to court.

Arbitration has its critics, however. There has been a lot of controversy lately about big businesses requiring their customers or employees to arbitrate disputes with them, rather than taking those disputes to court. Often, these arbitrations are conducted under rules that favor businesses -- for example, damages are limited, time limits for filing a claim are shortened, or information sharing is cut off. Some courts have ruled that businesses can't require consumers and employees to participate in these one-sided proceedings, although others have ruled differently.

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What are the stages of mediation?

While mediation is not as formal as going to court, the process is more structured than many people imagine. A typical mediation involves six distinct stages.

Mediator's Opening Statement: After the disputants are seated at a table, the mediator introduces everyone, explains the goals and rules of the mediation, and encourages each side to work cooperatively toward a settlement.

Disputants' Opening Statements: Each party is invited to describe, in his or her own words, what the dispute is about and how he or she has been affected by it, and to present some general ideas about resolving it. While one person is speaking, the other is not allowed to interrupt.

Joint Discussion: The mediator may try to get the parties talking directly about what was said in the opening statements. This is the time to determine what issues need to be addressed.

Private Caucuses: The private caucus is a chance for each party to meet privately with the mediator (usually in a nearby room) to discuss the strengths and weaknesses of his or her position, and new ideas for settlement. The mediator may caucus with each side just once or many times, as needed. These meetings are considered the guts of mediation.

Joint Negotiation: After caucuses, the mediator may bring the parties back together to negotiate directly.

Closing: This is the end of the mediation. If an agreement has been reached, the mediator may put its main provisions in writing as the parties listen. The mediator may ask each side to sign the written summary of agreement or suggest they take it to lawyers for review. If the parties want to, they can write up and sign a legally binding contract. If no agreement was reached, the mediator will review whatever progress has been made and advise everyone of their options, such as meeting again later, going to arbitration, or going to court.

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How can I be sure mediation will produce a fair result?

In mediation, you and the opposing parties will work out a solution to your own dispute. Unless you freely agree, there will be no final resolution. This approach has several advantages over going to court:

• Legal precedents or the whim of a judge will not dictate the solution.
• If your dispute has undiscovered or undisclosed issues, mediation -- unlike a structured court battle -- gives you the opportunity and the flexibility to ferret them out.
• Because mediation doesn't force disputants to undergo the fear and sometimes paranoia of the courtroom -- where a judge or jury can stun either party with a big loss -- people who choose mediation tend to be more relaxed and open to compromise.

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How can I find a good mediator?

Much depends on the type of dispute you're involved in. Many cities have community mediation centers that do an excellent job of handling most types of routine disputes (consumer problems, neighbor disputes, landlord-tenant fights). For more complicated disputes (business termination, personal injury, breach of contract) it is often better to turn to a private mediation center. Some organizations, like JAMS/ENDISPUTE, the American Arbitration Association, and Judicate, offer mediation services nationwide, while a number of regional groups do a good job. Private divorce mediations are usually handled by sole practitioners or small local mediation groups.

You can use a lawyer directory like Nolo's at lawyers.nolo.com, which provides extensive information about lawyer/mediators who advertise there. The profiles tell you about the lawyer/mediators's experience, education, and fees, and general philosophy. Or you can get a list from the phone book, but if all you have is a phone number, make sure to check the mediator's references carefully.

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Are there some cases that should not be mediated?

All parties to a dispute must agree to mediate, so if one party refuses or isn't competent to participate, the case cannot be mediated. Mediation may also not be the best choice if:

• One of the parties wants to set a legal precedent that interprets or defines the law according to its own point of view. Legal precedents cannot be set in mediation because mediation agreements do not establish who is "right" or "wrong," and mediation decisions apply only to the parties involved in that particular mediation.
• A person believes he or she can win a huge verdict against a big company (or even a small company with a big bank account or plenty of insurance). Because of the tendency toward compromise in mediation, hitting a legal "jackpot" is more likely in a jury trial.
• One person feels intimidated or intellectually overwhelmed by the other, in which case it's hard to arrive at a true meeting of the minds. It's often possible, however, to remedy a "power imbalance" by arranging for the more vulnerable person to participate with an adviser -- perhaps a lawyer.

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If I choose mediation, will I still need a lawyer?

In most mediations, you won't need a lawyer right there with you. This is because the parties are trying to work together to solve their problem -- not trying to convince a judge or arbitrator of their point of view -- and because mediation rules are few and straightforward. If your case involves substantial property or legal rights, however, you may want to consult with a lawyer before the mediation to discuss the legal consequences of possible settlement terms. You may also want to make a lawyer's approval a condition of any agreement you reach. 

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