Archives for January 2019

No employer wants to find themselves competing with a former employee. Nor do you want valuable inside information, strategic plans or trade secrets shared with a rival company. So, how do you craft a non-compete agreement that’s both effective and enforceable?

It’s all about the word “reasonable”
Courts have long attempted to balance the interests of employers and departing employees in deciding whether a non-compete agreement should be upheld. There are commonly three factors a court will examine when hearing a non-compete case:

1) Time. You obviously can’t restrict a former employee from competing forever. The period considered reasonable typically ranges from one to three years, depending on the industry. For example, in high-tech businesses where information changes so quickly, the length of a non-compete contract is often on the shorter side.

Also consider how long the worker was employed by your organization. According to attorney Barry Kozyra of Kozyra & Hartz in Livingston, NJ, “It’s unreasonable to take somebody out of the workplace for one or two years if they only worked at your business for a month. You would have to demonstrate that you have very fragile intellectual property or confidential information that could be stolen.”

2) Geography. You can make restrictions where your company does business, but probably not nationwide or worldwide. One exception is internet or software companies that operate internationally, where courts have found broader geographical restrictions to be reasonable.

Explains Kozyra, “We routinely see situations where an employer wants to restrict someone from working anywhere on the planet because the company has such wide-ranging reach. While it’s not commonplace, it can hold up in a court if the company has very unusual intellectual property, or information that can be disseminated without recourse to another country or continent.”

3) Scope. No non-compete agreement can strip an employee of the right to earn a living. An agreement can restrict certain core functions, but it can’t prevent an employee from using skills they’ve acquired over the course of their career.
Restrictions must normally be limited to the job the employee performed for the employer. For example, a software engineer for one automaker can’t be restricted from taking a sales job at another manufacturer’s showroom.

Interestingly, non-competes are enforceable in NJ against all employees except attorneys. Adds Kozyra, “Some states also don’t allow non-competes for doctors, because there’s a shortage in many areas of the country, and the need for medical care and specialists can have a huge impact on public health and safety.”

Know your state’s requirements
Non-compete agreements are subject to the laws of the state in which they’re written. Some states don’t recognize them at all. Others stipulate timing, for example that employees must enter into an agreement upon hiring rather than after they give notice to quit a job.

If you’re a multi-state entity, be sure to choose your terms wisely and put them in writing, Kozyra advises. “If you do business in more than one state, you’re able to designate the law of one state and the jurisdiction of one court to apply to the contract.” Most organizations, he says, will choose the state with terms that favor the employer over the employee.

Remember — employees will come and go. But you can take steps now to prevent your valuable intellectual property or your clients from walking out the door with them. The information above should not be considered legal advice, so be sure to consult with your legal advisor for assistance in drafting a non-compete agreement, or if you feel a former employee’s conduct is in violation of your current agreement.

Check fraud costs individuals, businesses and financial institutions as much as $50 billion annually, according to one estimate.

Forged checks have always been a problem, but with inexpensive laser printers and easily accessible paper, check fraud is more prevalent than ever before. Victims include financial institutions, businesses that accept and issue checks, and of course consumers. In most cases, these crimes begin with the theft of a financial document — stealing a blank check from your business, home or vehicle during a burglary, searching for a canceled or old check in the trash, or removing a check from your mailbox.

If your business accepts checks, a little knowledge of the payment system and a good eye can help you distinguish bad from good.

Look for alterations

Checks contain a nine-digit routing number in the bottom left-hand corner. The first two digits indicate the Federal Reserve Bank that will handle the check. A favorite trick of forgers is to change the routing number.

By knowing the routing number of your closest Federal Reserve Bank, you can quickly tell if there’s a problem with the number on a “local” check. If the routing number appears to be altered, there’s a good chance the check is bad. A quick scan can also spot discoloration, which is an indication of check alteration.

Another sign of a potentially fraudulent check: No perforated edge on one side. Checks made on a home printer are typically smooth on all edges.

Sometimes the checks themselves are legitimate, but the person trying to use them isn’t. Payroll and other checks are routinely stolen. That’s one reason why the federal government started electronically depositing Social Security checks.

Inspect signatures

If you’re a retail-type business, consider implementing a policy of matching the check’s signature to a piece of ID like a driver’s license. Instruct employees to not to pay attention to the appearance of the check writer, but rather the appearance of the check itself.

Consider “checks and balances”

Companies issuing checks are at risk, as well. Company executives should examine check stock and account balances regularly to look for discrepancies. The right financial controls can also help deter internal fraud. For example, make sure the same person doesn’t write checks and reconcile bank accounts. Limiting the number of people authorized to write corporate checks reduces the chances of fraud.

Get professional help

An experienced accounting firm can perform an internal control study and recommend ways to minimize employee fraud and theft. In addition, your financial institution may offer fraud deterrent methods like watermarked check stock. Payroll cards, on which the company loads electronic payments, are also gaining in popularity.

Remember that the best defense against the danger of check fraud is a proactive approach that prevents — rather than detects — the crime.

Paying your company’s bills is just as important as collecting your own receivables — and they need just as much management. The good thing is, you have a surprising amount of control over how and when your company’s debts are paid and that provides several advantages.

Start inside the business…

First, adopt good internal controls for the payment of your bills. You need to reconcile both:

• Purchase orders with the invoices and statements your vendors send
• Accounts payable subsidiary ledgers with the general accounts payable ledger

Once you have those controls working, consider these ways to effectively manage your company’s debts and maximize your cash flow:

• Keep interest-earning cashin the bank for as long as possible, but not too long. If you don’t already have an interest-earning account, talk to your banker about a money market or some other interest-bearing vehicle. Consider using cash to pay down your lines of credit.
• Periodically provide your banker with updated cash-flow projections. An improved cash-flow picture might result in better terms on any open lines of credit. On the other hand, if the projection is less than robust, your banker might increase your line of credit with no bump in the interest rate, depending on your firm’s overall financial condition.
• Consider borrowing against the cash values of executive life insurance policies. This can reduce your net interest cost, because life insurance loan rates are generally lower than bank rates.

Then work your way out…

Of course, you should be using your suppliers to help finance purchases, as well as freeing up some operating capital, by taking advantage of favorable payment terms.

The more business you give to suppliers, the better the payment terms you should obtain. The goal is to widen the spread between sales revenue and payments, allowing you to maximize your cash balances at very low cost. To that end:

• Use every possible discount. Have your accounts payable department maintain a calendar-style schedule to ensure payments are made within discount periods.
• Stretch payments to their latest date.
• Negotiate extended terms when possible and appropriate.If you’ve been a good customer you might be surprised at what your vendors will agree to.

By implementing smart debt management practices, you’ll streamline your debt payment plan and gain more control over your bottom line.