Letter of the Law: February 2011

IN THIS ISSUE

EMPLOYMENT LAW: Sexual Harassment Training Required in 2011

FAMILY LAW: Overview on Evaluating a Small Business in Divorce

CONSTRUCTION LAW: Changes to Mechanic's Lien Forms and Procedures Effective January 1, 2011

Sexual Harassment Training Required in 2011

By: Kyle D. Kring

Employers should be aware that 2011 is a training year for supervisors and managers. California Government Code § 12950.1 requires that employers with 50 or more employees provide sexual harassment prevention training at least every two years. In 2011, most employers with California offices will have to provide sexual harassment training to their supervisory employees. In addition, new supervisors and managers must receive the training within six months of assuming supervisory duties, even if it is not a training year.

The law allows employers to avoid individually tracking their employees' re-training dates if the employer designates a "training year." Using this method, an employer must train all of its supervisors regardless of when those employees were last trained. Given the significant burden of tracking the two-year period for each employee individually, the training year is most typically used by employers.

The state regulations implementing the sexual harassment prevention training law define "having 50 or more employees" as employing or engaging 50 or more employees or contractors for each working day in any 20 consecutive weeks in the current or preceding calendar year. The 50 employee or more threshold includes full-time, part-time, temporary workers and contractors, and even those that reside or work outside of California.

Kring and Chung, LLP has been providing cost-effective interactive Sexual Harassment Supervisor and Staff Training throughout California since this new law was enacted. Training can be conducted on site at your offices. Please call Kyle Kring or Allyson Thompson should you have any questions, or to schedule your training.

Kyle D. Kring is a Managing Partner with Kring & Chung, LLP. He can be contacted at (949) 261-7700 or kkring@kringandchung.com.

Overview on Evaluating a Small Business in Divorce

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A small business interest is a typical asset to be dealt with in a dissolution (divorce) proceeding, particularly in medium-to high-income-bracket divorces.

In almost every field of law, a person will encounter the "general law" on an issue or subject, which is typically what a lay-person will learn via ordinary channels (initial consultation, television, neighbors, etc.). But each "general law" will typically have "exceptions" and those exceptions (I call them red flags) are what lawyers are trained to look for and deal with as effectively as possible. That is where a lawyer's education, skills and experience will set him or her apart and justify the hourly rate that lawyers charge.

Generally speaking, a business interest that is owned by one spouse before marriage is that spouse's separate property. The exception to this general rule would be if the operating spouse's efforts, skills or talent expended during marriage caused the value of that business to increase. If that was the case, then the community (aka "the marriage") could acquire an interest in the business. Even though the business itself would most likely be assigned to the operating spouse, there might need to be a financial pay-out to the non-operating spouse for their share of the community interest. This is called an apportionment. Now, of course, an exception to this exception is if a prenuptial agreement or other contract exists that governs the issue. It is moderately difficult for an operating spouse to enter into an agreement with their business partners that seeks to limit a spouse's interest in case of divorce, absent a prenuptial agreement, marital agreement or other transmutation agreement, because of issues with spousal consent and the fiduciary duties that each spouse owes to the other.

There are three main approaches for determining the value of a business: 1) an income-based approach; 2) a market-based approach; and 3) an asset-based approach.

Speaking in the most general terms, the income-based approach seeks to determine the value of a business by assessing the present value of its expected future earnings. The market-based approach is what it sounds like - a business value is determined by comparing it to other similar businesses. (Think of "comps" in real estate). This is a typical approach when dealing with a closely held corporation. The last approach being discussed is the asset-based approach wherein the assets of a business are given a fair market value which is then off-set by liabilities.

Business appraisals must be conducted by a professional, usually a CPA or forensic accountant. For cost saving measures, the parties can select a joint appraiser, but usually each party will have their own appraiser, or the court will appoint a "court's expert." Business appraisals can be quite costly, typically running between $5,000-$20,000 or more, so the utilization of a joint expert or a court's expert can be financially prudent.

The expert will inspect financial documents, visit the business, and speak with key personnel. It is an intrusive, but necessary task, in order to determine the value that the community has in a business interest.

If you a have a business interest and are contemplating divorce, conducting preliminary "divorce planning" is a prudent and worthwhile investment. Divorce planning can allow you to make wise changes before divorce litigation is filed, or at the very least, enable you to be prepared mentally and financially for the anticipated process. Do not hesitate to contact Kring & Chung, LLP to set up a consultation to address your divorce plan.

Changes to Mechanic's Lien Forms and Procedures Effective January 1, 2011

By: Kyle D. Kring

To address concerns by owners regarding lack of notice of Mechanic's Liens, particularly in residential construction, California legislators enacted new forms and procedures which are now required beginning January 1, 2011. All contractors should be aware of the new forms and procedures. Assembly Bill 457 amends California Civil Code §§ 3084 and 3146 to reflect the new changes.

Prior to this legislation, there was no requirement that a contractor inform the property owner that it had recorded a Mechanic's Lien on the owner's property. Under the new law, a Mechanic's Lien and Notice of Mechanic's Lien must be served on the owner of the property, or on the construction lender or the original contractor if those parties cannot be served, at the time the lien is recorded. If they are not properly served, as provided by the amended statute, the lien is unenforceable as a matter of law.

Further, the new law also requires a "Proof of Service Affidavit" to be completed and signed by the person serving the Notice of Mechanic's Lien.

Lastly, after filing an action to foreclose on the Mechanic's Lien, a Notice of Pending Action (or "lis pendens") must be recorded no later than 20 days after the filing of the Complaint Foreclosing on the Mechanic's Lien. Recording of a Notice of Pending Action when the claimant files a complaint to foreclose on the Mechanic's Lien is now mandatory.

If you have any questions concerning the new Mechanic's Lien forms or procedures, please contact Kyle D. Kring or Timothy J. Broussard at Kring & Chung, LLP.

Kyle D. Kring is a Managing Partner with Kring & Chung, LLP. He can be contacted at (949) 261-7700 or kkring@kringandchung.com.

Attorneys in the Community

Kenneth W. Chung will be presenting a seminar to more than 50 real estate agents at Team Spirit Realty on legal issues arising out of the purchase and sale of business opportunities. Anna Greenstin also recently presented a seminar to Team Spirit Realty on short sales and foreclosure issues.

Kring & Chung Attorneys Named in Super Lawyers

Congratulations to Kyle D. Kring and Kenneth W. Chung for their selection and designation in 2011 Southern California Super Lawyers. The Super Lawyers selection process includes peer nominations, a blue ribbon panel review and independent research of candidates. The list of Super Lawyers is published by Southern California Super Lawyers magazine. The final published list represents no more than five percent of the lawyers in California.

Attorney Spotlight

Congratulations to Shane Singh of our Sacramento office for prevailing on a Federal Motion for Summary Judgment on behalf of Starbucks Coffee Company. Singh is a Partner in our Sacramento office and he specializes in defending business and landowners from disability access (ADA) claims. In this matter, Singh argued that the plaintiff did not encounter any illegal "barriers" to his access by matter of law. The court agreed and granted judgment in favor of Starbucks.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.