Changing The Terms of Compensation

Can an employer change the terms of compensation for an employee after the employee has completed his or her labors? It would seem obvious that this would be unfair, but there is no Indiana case on the issue. Other states have held that an employer cannot change the terms of compensation after an employee has performed labors on the employer’s behalf, and that any changes in compensation must be made only prospectively. Under this theory, the employee then has the right to decide whether or not to continue to work for the employer and continue to provide services under the new proposed terms. Changing terms of compensation retroactively, after the services have already been provided takes away the choice of the employee, and of course, the employee cannot take back their labor after it has been performed. We just obtained a summary judgment on this issue as it relates to customer accounts on which a salesman was paid commissions. The court ruled that for all accounts which existed at the time of the announced change, and for which the employee had completed all of his sales work, that the commission rates in existence at the time the work was performed must continue to be paid and could not be reduced after the salesman had completed his...

Non-Solicitation/Non-Compete Agreements – One Size Does Not Fit All

We recently were again approached by potential clients concerning a review of non- competition and non-solicitation covenants contained within employment agreements. We often receive these types of inquiries, both on behalf of employees and businesses. In fact, Tom Blackwell, a shareholder in Hopper Blackwell, P.C., handled one of the more well known non- compete cases in the State of Indiana. [Dicen v. New Sesco, 839 N.E.2d 684]. While any detailed analysis of the law surrounding non-compete and non-solicitation agreements is too broad of a topic for any one post, we have written about some of those issues before. However, what became apparent from the agreements that we were asked to look at last week is that certain employers are having all of their employees, regardless of the employee’s role at the business, sign the same form non-compete/non-solicitation agreement. The problem becomes that certain language that may be applicable to certain employees would not be applicable to others. For example, language that makes sense for a sales person may not make any sense for an engineer or executive. Indiana law is clear that non-compete and non-solicitation agreements are disfavored by the law, which means that courts will look for any opportunity to not enforce them. Furthermore, a court will not rewrite your agreement. With some simple editing, non-compete agreements can be drafted to fit the particular situation and individual, and thereby greatly increase the probability that the court will enforce that agreement and protect the employer’s interest. Conversely, if the employer chooses not to tailor the agreements to fit the particular individual situation, the employer must understand that courts will...

Mortgagee Beware

Most lenders who make real estate loans are well aware of the importance of obtaining a mortgage on any of the real estate that serves as collateral for the real estate loan. By properly recording a mortgage, the lender (mortgagee) has put the world on notice that it is asserting an interest in that real estate. Most lenders also are aware that in the event that the owner does not pay the real estate property taxes, the real estate to which those taxes apply can be sold by the county at a tax sale for purposes of satisfying those taxes. Under the Indiana law, anyone who is asserting an interest in the real estate must be provided notice of that tax sale. However, under the Indiana statutes, the county auditor is not required to send a notice to a mortgagee UNLESS the mortgagee requests that notice be sent to it of all tax sales. Otherwise, the auditor is only required to notify the mortgagee of its “redemption rights” months after the tax sale has already occurred. The Indiana Supreme Court has routinely upheld the constitutionality of the Indiana statutes. Certain banks have argued that the auditor should have to search the records of the county to find out who may be asserting an interest in any real estate that is going to tax sale. The Indiana Supreme Court has rejected that requirement, and has even noted that even requiring the auditor to do so may not accurately determine all of the parties that have an interest in the real estate. In its most recent case on the issue, the...

It Does Not Hurt to Try (to Settle)

Did you know that in the event a business dispute ends up in court, that any settlement discussions or negotiations that occurred before the case goes to trial are not admissible? In other words, the judge or jury will never hear how much one side was willing to pay, nor how much the other side was willing to take, to resolve the dispute. Many business people are reluctant to engage in active settlement discussions because they are concerned that they re setting a floor or ceiling for what they may ultimately have to pay or can receive. However, because both the Indiana Rules of Evidence and the Federal Rules of Evidence do not allow evidence to be presented concerning settlement negotiations or “offers to compromise”, the parties should feel free to actively negotiate to settle their differences without fear of those negotiations later being revealed to the court. It is a good practice to reference the fact that any offer or proposal being made is being made for purposes of discussions. If the proposals are in writing, then the writing should clearly state, preferably at the beginning, that the proposal is being made for purposes of settlement discussions and is not admissible as evidence. Do keep in mind that if the negotiations are verbal as opposed to in writing, if an agreement is reached, an oral contract likely has been created, and oral contracts are enforceable as a general rule. Therefore, it does not hurt anything from a legal perspective to make a concerted effort to settle your dispute because of the financial and emotional expense of...

Understanding The First Breach Doctrine

Businesses deal with contracts on a daily basis. While it is always preferable to have your contracts in writing, oral contracts are enforceable, with certain limited exceptions. This is not news to most of you in the business world. A lesser known tenet of contract law is the first breach doctrine. This doctrine stands for the rather common sense notion that when a party to a contract does not live up to his own obligations owed under the contract, he may not sue to enforce the contract against the other party. Stated another way, if a party has committed the “first breach”, it cannot thereafter sue to enforce provisions of the contract that are favorable to that party, even if there is a subsequent “breach” by the other party. For this doctrine to apply, the first breach must be “material” to the agreement between the parties. A common example would be if an employer fails to pay an employee all that is owed pursuant to an employment contract, that employer will not be allowed to enforce non-competition and non-solicitation covenants contained in that same contract. It is also well established that a failure to pay an amount owed under a contract is a “material breach.” In the case of Licocci v. Cardinal Associates, the Indiana Court of Appeals succinctly stated this principle, which has been consistently enforced since the time of the Licocci decision: “As a rule, a party first guilty of a substantial or material breach of contract cannot complain if the other party thereafter refuses to perform … where a contract is not performed the party is...

No personal liability is the goal

When individuals set up corporations and limited liability companies, one of the driving concerns is to prevent any personal liability for that individual for the debts of the business. Furthermore, when someone “buys a business”, the buyer needs to limit or eliminate the risk that the buyer will be responsible for the business debts of the selling business. This is why so many transactions involving the “sale of a business” are in fact the sales of certain assets of a business. In order to prevent this type of personal liability for the corporate debts, or successor liability for the debts of a selling entity, certain formalities need to be followed and the transactions structured appropriately so as to fit into the guidelines of Indiana law. The Indiana Court of Appeals recently decided a case in which a party that was owed debts by one corporation sued that corporation and another corporation seeking to collect on the debt. In Ziese & Sons Excavating v. Boyer Construction Corporation, et al., decided by the Indiana Court of Appeals on March 29, 2012, Ziese sued Boyer Construction Group (“Group”) and Boyer Construction Corporation (“Corporation”) under various theories of liability, including piercing the corporate veil and successor liability. The short version of the facts is that Ziese had performed work for Corporation, but was never paid. One of the principals of Corporation later formed Group, and “bought” certain of the assets from Corporation. However, the evidence showed that Group was using all of the assets of Corporation, even those that were not purchased under the purchase agreement between Construction and Group. The website for...
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