Why Your Georgia LLC Needs A Written Operating Agreement

We regularly encounter the following situation: two 50/50 partners conduct their business through a limited liability company with no written operating agreement, i.e., a written contract that governs the LLC’s affairs. Oral operating agreements for LLC’s are permitted under Georgia law, and most agreements are legally binding whether reduced to writing or not.

Here’s the problem, however.

Under Georgia law, unless the LLC’s written articles of organization or written operating agreement provide otherwise, no member has an obligation to contribute capital to the LLC, even if there is an oral agreement to do so. See O.C.G.A. § 14-11-402(a). As a result, when there is no written operating agreement, if one member contributes operating capital, the other member does not have to match that contribution. Furthermore, while one might expect the non-contributing member’s equity would be diluted, the default rule is that profits are allocated, and distributions are shared, equally. See O.C.G.A. § 14-11 -403, 14-11-404. Without a written operating agreement providing otherwise, a member may contribute 100% of the LLC’s operating capital but only be entitled to 50% of the LLC’s profits.

Ichter Davis LLC litigates business disputes, including those between limited liability company members facing thorny finance issues like this. If we can assist you, please contact attorney Dan Davis at (404) 869-5621 or ddavis@ichterdavis.com.

National Labor Relations Board Restricts Non-Disparagement and Confidentiality Provisions in Severance Agreements

The National Labor Relations Board (the “NLRB”) has statutory jurisdiction over private sector employers whose activity in interstate commerce exceeds a minimal level. As a practical matter, the NLRB’s jurisdiction is very broad and covers the great majority of non-government employers, whether those employers’ workforce is unionized or not. In a recent decision, the NLRB found non-disparagement and confidentiality provisions in severance agreements were unlawful and that even proposing the same to employees violated federal labor law. It is imperative that employers engage counsel to carefully review their severance agreements, as well as any other documents that may contain similar provisions.

In McLaren Macomb, the NLRB considered the severance agreements that a Michigan hospital presented to a group of laid off employees and determined that the employer’s act of offering severance agreements with non-disparagement and confidentiality provisions interfered with, restrained, or coerced employees’ exercise of their rights under the National Labor Relations Act (“NLRA”). The non-disparagement and confidentiality clauses at issue were as follows:

Non-disparagement:

“At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.”

Confidentiality:

“The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.”

The McLaren Macomb decision does not outright ban all non-disparagement and confidentiality provisions in severance agreements. Rather, the NLRB was concerned about broad waivers of employee rights under Section 7 of the NLRA. If your severance agreements contain similarly broad confidentiality and/or non-disparagement provisions, you would be well-advised to consult with employment counsel to evaluate any necessary revisions. Furthermore, while the NLRB’s decision in McLaren Macomb focused on severance agreements specifically, the NLRB could apply the same principles to other types of employment-related documents, including, for example, employee handbooks. Again, employers should engage counsel to review potential updates to their entire portfolio of employment agreements and policies in light of this decision.

Ichter Davis, LLC is well-versed in this area of the law and employment law generally. If you would like a free consultation, please contact Dan Davis at (404) 869-5261.