SEC Adopts Rules to Allow Crowdfunding

Last Friday, the SEC adopted final rules to allow companies to offer and sell securities through crowdfunding.  These new rules are designed to give smaller companies access to additional investment options and, in addition, to provide investors with additional protections.

As I discussed in a prior blog post here, crowdfunding is a method of raising capital through the Internet.  However, crowdfunding has not generally been used to buy or sell securities because the offering of a share of profits from a business endeavor could trigger the application of federal securities laws, which requires the offeror to register the offering with the SEC or find an available exemption from registration.

The JOBS Act of 2012 included a new exemption to permit securities-based crowdfunding.  Ever since the passage of the JOBS Act, investors and startups have been waiting for the SEC to draft its final rules implementing this so-called “crowdfunding exemption.”  These final rules now allow startups to raise money through crowdfunding without having to go through the complicated and costly securities registration process.

The final rules include the following highlights:

  • A company may now raise an aggregate amount of $1,000,000 through crowdfunding offerings in a 12-month period.
  • Individual investors may now participate in crowdfunding offerings up to (a) 10% of the lesser of their annual income or net worth, for those investors with with an annual income and net worth equal to or greater than $100,000; or (b) $2,000 or 5% of the lesser of their annual income or net worth, for all other investors.
  • During any 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding activities cannot exceed $100,000.
  • A company that uses these rules to conduct a crowdfunding offering must file certain information with the SEC and make certain disclosures to investors.
  • Crowdfunding portals are required to register with the SEC, become a member of a national securities association, provide investors with “education materials” and other information about the offering, take measures to reduce the risk of fraud, provide “communication channels” to permit discussions about offerings on the platform, provide disclosure to investors about the compensation received by the portal,  among other things.

The final rules become effective 180 days after the date they are published in the Federal Register.  You can read more about them here.

Comments Off on SEC Adopts Rules to Allow Crowdfunding

Filed under General Business, Startups & Entrepreneurs

Governor Brown Signs SB 588, Adding Tough Enforcement Measures to California’s Wage Theft Law

Yesterday, California Governor Jerry Brown signed SB 588, known as the “California Fair Day’s Pay Act.”  This new law, which takes effect on January 1, 2106, aims to crack down on “wage theft” in California by giving the Labor Commissioner tough new enforcement rights against employers who steal employees’ wages.

What is Wage Theft?

Wage theft is the illegal withholding of wages by an employer that are lawfully owed to an employee.  An employer engage in wage theft in a variety of ways, such as failing to pay overtime owed to an employee, failing to pay the required minimum wage, making unlawful deductions in employee pay, forcing employee to work off the clock, or not paying an employees for all hours worked.  Wage theft disproportionately impacts low-wage and immigrant workers who may not be aware of their rights or who may be afraid to confront their employers.

To combat wage theft, Governor Brown signed California’s “Wage Theft Prevention Law” back in 2011.  That law, which went into effect on January 1, 2012 required private employers in California to provide written notice to all non-exempt new hires of critical employment information, including the employer’s legal name, physical address, payroll dates, and workers’ compensation carrier, as well the wage rate and basis of pay for the new employee.  I blogged about that new law, and its impact, here.

How SB 588 Changes Existing Law?

Even with this new law on the books, wage theft continues to be a problem in California.  One study has shown that California workers lose up to $1.5 billion each year due to wage theft.  Another study showed that, even when an employee prevails on a wage theft claim, only 13% of those successful employees ever recover any money from their employers.

SB 588 seeks to crack down on wage theft by giving the California Labor Commissioner the right to use any of the existing remedies available to a judgment creditor and to act as a levying officer when enforcing a judgment.  In other words, if an employee brings a successful wage claim against an employer, the Labor Commissioner can now place a lien on the employer’s property or levy on the business’ bank accounts and/or accounts receivable.  If the aggrieved employee incurred attorneys’ fees, then the Labor Commissioner can include those attorneys’ fees in the lien or levy.

In addition, SB 588 prevents an employer from closing down its business and re-opening under a new name in order to avoid their debts to workers.  Under SB 588, any new business that is “similar in operation and ownership” to the guilty employer is also liable for the wages owed.  SB 588 specifically states that a new business will be considered the “same employer” for purposes of liability if (1) the employees of the successor employer are engaged in “substantially the same work in substantially the same working conditions under substantially the same supervisors,”or (2) the new entity has “substantially the same production process or operations, produces substantially the same products or offers substantially the same services, and has substantially the same body of customers.”

Under SB 588, an aggrieved employee can now bring wage theft claims against the owners of the employing entity as well as anyone else who acts “on behalf of” the employer.  This, in effect, creates individual liability in California for wage and hour violations.  As a result of SB 588, the Labor Commissioner can now seize the personal property and bank accounts of individual owners and others who violate California wage and hour laws.

Moreover, once an employer is found to have engaged in wage theft, SB 588 allows the Labor Commissioner to require that employer to post a bond in order to continue to do business in the state.  The bond amount ranges from $50,000 to $150,000 depending on the amount of wages found owing.  Employers who fail to post the required bond can have their business license revoked by the Labor Commissioner.

Finally, SB 588 authorizes civil penalties for wage theft violations.  These are owed in addition to any wages and attorneys’ fees owed to the employee.  Under SB 588, the penalty is $2,500 for the first offense and $100 for each calendar day the employer continues to do business in violation of the law (up to $100,000).

You can read the full text of SB 588 here.

What Should California Employers Do?

Starting in 2016, SB 588 adds serious and costly new liabilities for employers — and business owners — who fail to follow California’s complicated wage and hour laws.  All employers should re-familiarize themselves with California’s existing wage theft law, a summary of which can be found here as well as in my prior blog post.  In addition, employers should consult all applicable Wage Orders that apply to their industry and/or to specific occupations within their industry.  Those Wage Orders, which can be found here, recite the basic wage and hour laws with which an employer must comply.  Other governing wage and hour laws can be found in the California Labor Code, which is here.  Employers who have questions or need further guidance should consult competent employment counsel.

Comments Off on Governor Brown Signs SB 588, Adding Tough Enforcement Measures to California’s Wage Theft Law

Filed under Employment & HR

Governor Brown Signs SB 358, the “California Fair Pay Act”

Earlier today Governor Brown signed SB 358 known as the “California Fair Pay Act.”  This new law, which takes effect on January 1, 2016, gives California the strongest equal pay law in the nation.

SB 358 amends California Labor Code §1197.5 to “close the gaps” in the state’s existing equal pay law.  Specifically, SB 358:

1.  Requires equal pay in California for “substantially similar work.”  The previous version of Labor Code 1197.5 only required equal pay for the “same” job.

2.  Allows differences in pay based on seniority or skill level or other bona fide criteria “consistent with business necessity.”  However, under the new law, employers are required to prove that any pay difference between substantially similar workers is the result of a bona fide criteria and not gender.

3.  Prohibits retaliation and discrimination against employees who inquire about other employees’ wages and/or discuss their own or other employees’ wages.

4.  Increases the record-keeping requirement from 2 years to 3 years.

You can read the text of SB 358 here.

Comments Off on Governor Brown Signs SB 358, the “California Fair Pay Act”

Filed under Employment & HR

Governor Brown Signs AB 1506, Giving Employers an Opportunity to Cure Certain PAGA Violations

On October 2, 2015, Governor Brown signed AB 1506 which amends California’s Private Attorney General Act (“PAGA”) to allow employers the cure certain pay stub violations which otherwise could have triggered PAGA liability.

Under existing California law, an employer must present each employee with an itemized pay stub that includes all the required information — like the employer’s name and address, the pay period, the pay rate, the total hours worked, all deductions, the net wages earned, and accrued and used sick leave.  If an employer violates this law by failing or refusing to provide a stub with all of this required information, California’s PAGA law gives that employee the right to sue the employer for the violation and collect penalties on behalf of all affected employees.

With the passage of AB 1506, an employer is now given the opportunity to cure its failure to include the pay period and the employer’s proper name and address on the pay stub.  Now, before an employee can sue under PAGA for the violation, that employee has to give the employer notice of the violation.  The employer would then have 33 days to cure the violation by providing corrected wage statements to all employees for each pay period in the prior 3 years.

Importantly, the new law limits an employer’s cure rights to only once in any 12-month period for the same violation.

AB 1506 was signed as “urgency” legislation, which means that it takes effect immediately.

You can read AB 1506 here.

Comments Off on Governor Brown Signs AB 1506, Giving Employers an Opportunity to Cure Certain PAGA Violations

Filed under Employment & HR

How to Terminate a Struggling Employee

In today’s Harvard Business Review, I came across a good article that discusses practical tips for how to professionally and respectfully terminate a struggling employee.  The employee is a good person, and was at one time a productive and positive team member, but things have changed and you now need to part ways.  In this situation, according to this HBR author, an employer should take the following steps:

1.  Don’t wait until the end to say what’s been working and what hasn’t.

2.  If an employee continues to struggle, ask him/her how he/she feels about his/her progress.

3.  Once you’ve decided that someone isn’t the right fit for the long term, tell him/her.

4.  Allow the struggling employee to exit with grace.

5.  Communicate with the employees that remain.

You can read the full article here.


Comments Off on How to Terminate a Struggling Employee

Filed under Employment & HR