Business and Employment Law FAQs - Blado Kiger Bolan, P.S.

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What is the difference between a corporation and a limited liability company (LLC)?

A corporation is an independent legal entity. It has shareholders, therefore personal control is limited. Generally, the owners (shareholders) of a corporation are not personally liable for debts of the corporation (limited liability). The structure of the company includes the shareholders (owners), Board of Directors, and Officers (i.e. President).

A limited liability company (LLC) also offers limited personal liability for the owners, but the structure and administration of an LLC is less complicated. It has only members or managers.

There are other differences related to taxation, liability and governance, which should be discussed with an attorney or CPA.

What is the difference between Manager and Member in an LLC?

Owners, or Members, of an LLC participate equally in the management of their LLC while a Manager might be a person that is specifically hired to manage the LLC. This could be a Member, an outsider, or an outsourced job.

What is a UBI number and where do I get it?

The Unified Business Identifier (UBI) number is a unique number that is assigned to your business when you register with the Washington Secretary of State to form a corporation, limited liability company, limited partnership, or other business entity. If your business is not a type required to be registered with the Secretary of State, your UBI number will be provided when you complete a Master Business Application with the Department of Revenue. The UBI number will be used with other state agencies for filing, taxes, and identification.

What is the difference between the UBI number and the Federal EIN number?

The UBI (Unified Business Identifier) is a state issued number and identifies your business for all Washington State agencies. The Federal Employer Identification Number (FEIN) is issued by the Internal Revenue Service and identifies your federal tax account. The FEIN is similar to a Social Security Number for your business and will be used for federal tax filings and to open business bank accounts.

What is a Registered Agent? Does my business need one?

All corporations, LLCs, and registered limited partnerships doing business in Washington must have a Registered Agent with a Washington State address. The Registered Agent must provide a physical address where the agent is available for service of legal process. The Registered Agent may be an individual or any other organization qualified to do business in Washington. The Registered Agent receives license renewals and other notices and also accepts legal papers served on the corporation.

I am closing my corporation. What are the steps?

You must first complete an “Application for Withdrawal or Dissolution of a Corporation” with the Department of Revenue. Once you receive a “Revenue Clearance Certificate”, that should be provided to the Secretary of State along with your Articles of Dissolution. Additional matters will include paying all creditors and employees, distributing any remaining assets, and winding up the business.

What are non-disclosure agreements and when should they be used?

A non-disclosure agreement is an agreement with a vendor, employee, independent contractor, or any other individual or entity, with the purpose of protecting a company’s confidential information. The agreement should specify the information being protected, and should provide that the employee, vendor, etc., will not disclose the protected information except as required in the usual course of business. A non-disclosure agreement is useful in many situations. One common use of a non-disclosure agreement is with an employee who will have access to compilations of customer data or unique and confidential business strategies and techniques. Non-disclosure agreements are also advisable when one company is seeking to purchase another company, and in the course of the transaction will be provided with financial or other confidential information. The agreement would prevent the company from disclosing that information if the transaction is not completed.

Can a husband and wife operate a business as a sole proprietorship or do they need to be a partnership?

A husband and wife may operate a business as a sole proprietorship. However, they may choose to operate as a general partnership if they prefer. With a partnership, the formal terms of the partnership are usually contained in a written partnership agreement. That is not typically the case with a sole proprietorship. You should contact an attorney, accountant or financial advisor to determine which form is most suitable for your business.

How often should a corporation hold meetings and update its minutes?

In Washington, a corporation should have annual shareholder meetings and annual director meetings. The shareholders will elect the members of the Board of Directors for the following year, and the Directors will elect the Officers for that year. The minutes should reflect those in attendance and the results of the elections. Additional meetings should be held in the event of an extraordinary transaction (such as the sale of the company), in the event of a vacancy on the Board of Directors, or when a major decision requires approval of the Board of Directors.

Do I incorporate first or file the Master Business Application first?

You should file with the Secretary of State to form your business before filing the Master Business Application with the Department of Revenue. However, if you are starting a general partnership or sole proprietorship, you do not have to file with the Secretary of State and may complete the Master Business Application with the Department of Revenue.

Do I have to file an Initial Annual Report with the Secretary of State?

If you filed for a profit corporation or a limited liability company, the Initial Annual Report is due within 120 days of your initial filing. Failure to file the Initial Annual Report might result in an administrative dissolution. Non-profit corporations, sole proprietorships, and general partnerships do not have to file an Initial Annual Report.

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Is a non-compete agreement enforceable?

There are many factors that go into determining whether a non-compete agreement is enforceable. First, the agreement must be supported by a promise by the employer other than just continued employment (i.e. a promotion, a raise, training) or it must be signed at the time employment commences. Second, the agreement must be reasonable in duration and in geographic scope. Finally, the agreement must be necessary to protect the employer and must be narrowly tailored to accomplish that goal.

What does it mean that Washington is an at-will employment state?

In general, an employee or an employer can terminate the employment relationship without notice, and without cause. There are some exceptions to this general rule, including that a covered employer cannot terminate an employee based on the individual’s race, color, religion, disability, age (if over 40), and certain other protected categories. This general rule does not apply if there is an employment contract or Collective Bargaining Agreement that provides otherwise.

What is Washington’s minimum wage?

The Washington minimum wage for 2012 is $9.04 per hour. In 2013 the minimum wage will be $9.19 per hour.

What is the rule on paying for overtime?

Most workers who are paid an hourly wage must be paid overtime if they work more than 40 hours in a 7-day work week. Overtime must be at least one and one-half times the worker’s regular hourly rate. There are exceptions to this rule. Employees categorized as “exempt” do not have to be paid overtime for hours worked in excess of 40 hours in a week.

Can an employer make overtime mandatory?

Yes, an employer may require employees to work overtime.

What rest breaks are required for employees?

An employee is entitled to a break of at least 10 minutes for every 4 hours of work. This break must be no later than the end of the third hour of the shift. If the employee works more than 5 hours in a shift, the employee must be allowed a 30 minute meal break. The meal break must start at least 2 hours into the shift but not more than 5 hours after the beginning of the shift.

Do employers have to pay an employee for a lunch break?

No, as long as the employee is free from any duties for the entire meal period. Employees must be paid for the lunch break if they are required to, or allowed to, remain on duty, they are required to be on-call at the business site or other designated worksite, or they are called back to duty during the meal period.

Can an employee use paid leave benefits to care for sick family members?

Yes. Under certain conditions, employees with paid leave may use earned paid time off to care for a sick family member under Washington’s Family Care Act. In general, if the employee is eligible to use the paid leave for his or her own illnesses, he or she must also be allowed to use it for a family member who is ill. A family member includes children, parents, spouses, registered domestic partners, parents-in-law, and grandparents. It does not include siblings, aunts and uncles, grandchildren, or grandparents-in-law.

When can an employee use paid leave to care for a child under 18?

An employee may use available paid leave when his or her child has a “health condition,” including: a medical condition requiring treatment or medication that the child cannot self-administer; a medical or mental-health condition that would endanger the child’s safety or recovery without the presence of a parent or guardian; and a condition warranting treatment or preventive health care such as physical, dental, optical or immunization services, when a parent must be present to authorize the treatment. For purposes of this law, a child includes a biological, adopted or foster child, a stepchild, and a legal ward.

Can an employee use sick leave to care for a pregnant spouse or child?

Yes. An employee may use available paid time off to care for a wife or daughter while she is incapacitated as a result of pregnancy or childbirth. This generally includes some prenatal and postpartum examinations, hospitalization, and during the immediate recovery period after childbirth.

When can an employee take time off to care for a spouse, parent, registered domestic partner, parent-in-law, or grandparent?

An employee may use available paid time off when a spouse, parent, registered domestic partner, parent-in-law, or grandparent has a serious or emergency health condition, which requires an overnight stay in a hospital or other medical-care facility; which results in a period of incapacity, treatment or recovery following inpatient care, or which requires continuing treatment under the care of a health care services provider that includes any period of incapacity to work or attend to regular daily activities.

Do I have to pay unemployment compensation for an independent contractor?

No. However, you should make certain that the worker is in fact an independent contractor. You may want to speak to an attorney to discuss this prior to filing a quarterly tax report with the Washington State Employment Security Department.

Do the rules on family leave require businesses to offer paid sick leave?

No. The rules on family leave under the Washington Family Care Act simply assure that employees who do have earned sick leave or other paid time off are able to use this leave to care for sick family members. It does not require employers to offer paid time off.

What factors are used to determine if a worker is an independent contractor instead of an employee?

Service performed by an individual is considered employment unless it is shown that:

The individual is free from direction and control over the performance of the service; and
The service is either performed: -Outside of the usual course of business for which the service is performed, or -Outside of all the places of business of the enterprise for which the service is performed; or -The individual has a principal place of business and is responsible for the costs; and
The individual: -Is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service contract, or  -Has a principal place of business that is eligible for a federal income tax business deduction; and
On the effective date of the contract of service, the individual is responsible for filing a schedule of expenses with the Internal Revenue Service; and
On the effective date of the contract or within a reasonable period after the effective date of the contract, the individual has an: -Active account with the Department of Revenue,  -Active account with any other state agencies, and -A Unified Business Identifier (UBI) number; and
On the effective date of contract of service, the individual is maintaining a separate set of books or records that reflect all items of income and expenses of the business that the individual is conducting; and
If the services are by an individual in the electrical or construction industries, it must also be shown that, on the effective date of the contract, the individual has a valid contractor registration under RCW 18.27 or an electrical contractor license under RCW 19.28 if the work requires a registration or license.

I was fired. Can I still get unemployment compensation?

As long as you were not fired as a result of misconduct or gross misconduct, you can still receive unemployment compensation if you were fired.

Misconduct
Under Washington law, misconduct includes, but is not limited to, the following conduct:

Willful or wanton disregard of the rights, title, and interests of the employer or a fellow employee, including:
- Insubordination showing a deliberate, willful, or purposeful refusal to follow the reasonable directions or instructions of the employer;
- Repeated inexcusable tardiness following warnings by the employer;
- Dishonesty related to employment, including but not limited to deliberate falsification of company records, theft, deliberate deception, or lying;
- Repeated and inexcusable absences, including absences for which the employee was able to give advance notice and failed to do so;
- Deliberate acts that are illegal, provoke violence or violation of laws, or violate the collective bargaining agreement. However, an employee who engages in lawful union activity may not be disqualified due to misconduct;
- Violation of a company rule if the rule is reasonable and if the claimant knew or should have known of the existence of the rule; or
- Violations of law by the claimant while acting within the scope of employment that substantially affect the claimant’s job performance or that substantially harm the employer’s ability to do business.
Deliberate violations or disregard of standards of behavior which the employer has the right to expect of an employee;
Carelessness or negligence that causes or would likely cause serious bodily harm to the employer or a fellow employee; or
Carelessness or negligence of such degree or recurrence to show an intentional or substantial disregard of the employer’s interest.

Gross Misconduct
Gross misconduct means a criminal act in connection with an individual’s work for which the individual has been convicted in a criminal court, or has admitted committing, or conduct connected with the individual’s work that demonstrates a flagrant and wanton disregard of and for the rights, title, or interest of the employer or a fellow employee.

Not Misconduct
The following acts do not constitute misconduct:

Inefficiency, unsatisfactory conduct, or failure to perform well as the result of inability or incapacity;
Inadvertence or ordinary negligence in isolated instances; or
Good faith errors in judgment or discretion.

Can an employee take unpaid leave to care for family members?

Under the federal Family and Medical Leave Act (FMLA), employees who work for covered companies may take up to 12 weeks of leave to care for a newborn or newly adopted or foster child, to recover from the employee’s own serious illness, or to care for a child, spouse, or parent with a serious health condition. A covered company is any public employer or a private employer with 50 or more employees that work within 75 miles of the employee’s worksite. To earn this benefit, the employee must have worked at least 12 months for the employer for a total of at least 1,250 hours. FMLA leave is typically unpaid leave, but an employer can choose to provide paid leave.

What happens if I misclassify an employee as an independent contractor?

A common mistake made by businesses when filing their quarterly unemployment insurance tax reports is misclassifying their employees as independent contractors. If the Washington State Employment Security Department discovers these mistakes, the business is responsible to pay back taxes for the misclassified workers, in addition to accrued penalties and interest.

What are non-disclosure agreements and when should they be used?

Can a husband and wife operate a business as a sole proprietorship or do they need to be a partnership?

How often should a corporation hold meetings and update its minutes?

I’ve been asked to sign a contract of employment. Should I sign it without an attorney looking at it?

It is always a good idea to have a contract reviewed by an attorney before you sign it. Often times employment contracts will have restrictions on your ability to work after your employment terminates, even if the employer is the one who decided to end the employment relationship. Employment contracts can also contain important provisions regarding the reasons you can be terminated, what pay you are entitled to receive upon termination of employment, and what benefits you will receive during or after the employment relationship. It is advisable to have the contract reviewed before you sign it, so you can make sure you understand and agree to all of its terms, along with all of the associated risks and benefits.

What does “employment at will” mean?

Employment at will means that, in general, a Washington employer can terminate an employee at any time, with or without cause. However, there are exceptions to this rule. A Washington employer may not terminate an employee based on his or her religion, race, sex, disability, age (if over 40), or certain other protected categories. Also, an employer cannot terminate an employee “at will” if there is an employment agreement, Collective Bargaining Agreement, or other contract that provides otherwise.

Can an employer fire an employee in Washington without cause?

If the employment relationship is “at will,” then yes, the employer can fire an employee without cause. For more information on “at will employment,” see (link to article on at will employment”). Employment agreements, Collective Bargaining Agreements, or specific employer policies may provide that the employment relationship can only be terminated “for cause,” or for certain specified reasons. If no such contract or policy exists, then in general, the employee can be terminated without cause.

I’ve been asked to sign a contract of employment. Should I sign it without an attorney looking at it?

What does “employment at will” mean?

Can an employer fire an employee in Washington without cause?

Can an employee receive unemployment compensation if he or she voluntarily quits?

In general, no. However, there is an exception to this general rule if the employee quit for “good cause.” Good cause is limited to the following reasons:

The employee took another job;
The employee became sick or disabled, or a member of his or her family became sick, disabled, or died, AND it was necessary for the employee to quit as a result;
The employee quit so he or she could move with a spouse whose job is outside the employee’s labor market area;
The employee quit to protect him or herself of immediate family members from domestic violence or stalking;
The employee’s usual pay or hours of work were decreased by 25% or more;
The employer changed the job location so the employee’s commute is longer or harder than it was previously;
The employee reported a safety problem to the employer and the employer did not quickly fix the problem;
The employee reported an illegal activity to the employer and the employer did not quickly stop the activity;
The employer changed the employee’s usual work and it now goes against the employee’s religious or moral beliefs;
The employee entered an approved apprenticeship training;
The employee started approved training under the Trade Act;
The employee worked a full-time and part-time job at the same time, quit the part-time job and was then laid off from the full-time job.

Will I be denied unemployment compensation if I do not accept any job that is offered?

Not necessarily. You are only required to look for or accept “suitable work.” Work is not suitable if:

It is not consistent with your training and experience. However, after a period of time, any job you are qualified to do may become “suitable.”
The job requires you to join or leave a labor union.
The location of the work is further away than the typical commuting distance in your area for people in your occupation.
You are physically unable to perform the work or the work is unreasonably dangerous.
The hours or working conditions of the job are less favorable than most other jobs in your occupation in your area.
The wages offered for the job are lower than the typical wages for that occupation in your area.
The work offends your religious or moral beliefs.

I plan to cut back the hours available to my employees. Will they be able to collect unemployment benefits?

Yes, under certain circumstances. If the employee continues working after the cut in hours, he or she may qualify for partial unemployment benefits. The Employment Security Department will reduce the amount payable to the employee based on the amount the employee is still earning at work. The more the employee earns at work, the higher the reduction in unemployment benefits.

An eligible employer may participate in a program offered by the Washington Employment Security Department called Shared Work. The Shared Work program is available to provide an alternative to layoffs by allowing eligible employers to reduce the work hours of their full-time employees, while the workers collect partial unemployment benefits to replace a portion of their lost wages.

If the employee’s hours or pay is being cut by 25% or more, then the employee can voluntarily quit for that reason and he or she will still be entitled to unemployment benefits.

Now that marijuana use is legal in Washington, do I need to change drug testing policies for my employees?

No. Even though marijuana use is legal, employers are still entitled to have policies restricting drug use and requiring drug testing. If you have a policy to conduct drug tests, you need to make sure the policy is applied consistently to all employees. For example, if you require drug testing upon hire, make sure all employees are tested before they are hired. If you conduct random drug testing, make sure you have measures in place to ensure the testing is in fact random. If you conduct drug testing after an accident or incident at work, your policies should be clear as to what incident will result in a drug test. Your policies should also clearly state the discipline that will be imposed in the event of a positive drug test. Failure to apply the testing and discipline in a consistent manner could raise issues as to potential discrimination.

Do you have more questions about business or employment laws in Washington? The experienced business law attorneys at Blado Kiger Bolan, P.S. are available to discuss matters with you. Contact our offices to speak with an experienced business lawyer today.