Rescinding Of A Determined Employment Contract

With the right to employment comes another essential related right which is the right to choice of one’s employment. The right to choice of one’s employment gives the freedom to people to undertake work of their own choice and not toil in the field in which they do not wish to put their labor. Laboring against the will of one’s self can be considered to be forced labor which is illegal in UAE and most of the other countries in the world. Employment contract is an agreement between the employer and the employee where the employee agrees to work for the employer for a fixed period of time and for a specific job – role. Employment contracts sometimes do not fix the duration of employment in which case the contract is known as an undetermined contract whereas determined employment contracts are contracts that bind the employee to the employer for a fixed period of time. Employment contracts are not considered as forms of forced labor as both the employee and employer willingly enter into it but in the long run it may be considered as forced labor as the main aim to fix a duration is to ensure that the employee does not leave the employment before that duration even if he wishes to and therefore once the employee signs an employment contract he has to work for the employer for the number of years fixed by the employment contract and the employee loses his right to leave quit the employment before that period. Though this is not considered forced labor it is in reality a different form of forced labor behind the veil of an enforceable contract.

In the United Arab Emirates the right to employment and all related rights enumerated in its rich constitution is only limited to the nationals of the United Arab Emirates whereas the rest of the people who live here as expatriates have to solely depend on employment contracts and therefore become the victims of the veiled forced labor. The present article discusses the regulations enumerated in the labor law1 for ending the employment and the consequences of breach of employment contracts of fixed duration.

According to the labor of the UAE the employer may on grounds enumerated in article 120 of the federal law no.8 of 1980, rescind the employment contract without giving notice. The grounds enumerated for rescinding of the employment without notice are as under:

1. In case the worker assumes a false identity or nationality, or submits false certificates or documents.

2. In case the worker had been appointed under probation, and the dismissal had taken place during or at the end of the probation period.

3. In case the worker commits an error resulting in colossal material losses to the employer. In such cases the Labor Department should be notified of the incident within 48 hours of the knowledge of the occurrence thereof.

4. In case the worker violates the instructions related to the safety at work or in the work place, provided that such instructions were written and posted in a prominent location, and that the said worker is notified thereof if he be an illiterate.

5. In case the worker fails to perform his main duties in accordance with the employment contract, and thereafter fails to remedy such failure despite a written investigation on the matter and a warning that he would be dismissed in case of recidivism.

6. In case the worker divulges any of the secret of the establishment where he works.

7. In case the worker convicted in a final manner by the competent court in a crime relating to honor, honesty or public ethics.

8. In case the worker is found in a state of drunkenness or under the influence of a narcotic during work hours.

9. In case the worker assaults the employer, responsible manager or co – worker during the work hours.

10. In case the worker remains absent without valid cause for more than twenty non – consecutive days in one year, or for more than seven consecutive days.

In case none of the above circumstances described applies to a case yet the employer terminates the employment of the worker without notice before the expiration of the determined employment contract, the employer has to provide compensation to the employee for the same. The compensation amount that is provided to the worker by the employer is in lieu of the damages suffered by the worker due to the premature termination of the employment. The law provides for a limitation to the amount of compensation which is limited to the total wage due for the period of three months or for the remaining period of the contract, whichever is shorter, unless otherwise stipulated in the contract. Therefore this provision is subject to the terms of the contract. Many times the contract has liquidated damages fixed for specific breaches; in such cases the damages awarded do not exceed nor are less than the liquidated amount.

Similar provisions are also provided in case the worker decides to leave the employment before the expiration of the employment contract. The worker may leave the employment before the expiration of the contract without notice if the following circumstances prevail:

1. In case the employer breaches his obligations towards the worker, as set forth in the contract or the law.

2. In case the employer or the legal representative thereof assaults the worker.

In case the two circumstances mentioned above do not prevail and yet the worker leave the employment prior to the expiry of the employment contract, the worker is be bound to compensate the employer for the loss incurred by him due to the rescission of the contract. The compensation amount is limited by the law to not exceed the wage of half a month for the period of three months, or for the remaining period of the contract, whichever is shorter, unless otherwise stipulated in the contract. Thus here too the terms of the contract if any regarding this matter shall be made applicable in a manner similar as it is explained above regarding termination of employment contract by employer.

These provisions mentioned above hold good only to the citizens of UAE, for the rest of 88% of the population the provision stipulated in article 128 of the law2 applies. Article 128 provides that in the event of a non – national worker to leave his work without a valid cause prior to the end of the contract with definite term, he may not get another employment even with the permission of the employer for a year from the date of abandonment of the work. It further provides for a warning for the employers that they may never knowingly recruit the worker or retain in his service during such period. The Non – national workers may be exempt from such penalties if they can secure an authorization of the original employer and after submitting such authorization in the ministry of labor and social affairs, attain the consent of the ministry for the new employment.

5 Tips For Employees Facing Security Clearance Issues

The following are 5 easy tips for federal employees and government contractors to consider when they face potential problem areas in the processing of their security clearances. Usually, an applicant first discovers a potential problem when they begin to review the principal form used to apply for such clearances, the SF-86 / e-QIP. Quite often the issue arises from a review of a question that cannot be answered with a clear “no.” (example: Have you been arrested in the past 7 years?).

Some quick tips for a clearance applicant include the following:

1. Be Honest: This is one of the most basic and important tips. It is often not the underlying issue that results in a security clearance denial (example: an arrest for driving under the influence), but rather when the clearance applicant is not truthful about the incident. It is a lot easier for an attorney to mitigate security clearance concerns involving an arrest, than it is to defend against an allegation that an individual was not honest in their initial application.

2. Advance Preparation for Security Clearance Problem Areas: If an individual is aware that there could potentially be a security clearance problem areas in their application they should plan in advance how they will respond to questions about the issue. This can even include obtaining documentation regarding a potential problem area in advance to mitigate the security concern early. The individual should be prepared, in advance, to address any problem areas instead of attempting to do so at the last minute.

3. Take Time to Properly Complete the Application: We often see a number of problems and even denials of security clearance applications where a federal employee or government contractor did not take enough time to read and answer all of the questions carefully. This is critical. In some cases, if an applicant does not take the time to read the question and answers “no” when they should answer “yes” the investigator could assume that individual was attempting to hide information from them. It pays to carefully complete the security clearance application.

4. Prepare for the Clearance Interview: If an individual knows that there is a good chance that problem areas exist in a security clearance application, the person should expect to be asked about the areas in advance by the investigator that is assigned. These interviews can vary from an hour to several hours depending on whether security concerns exist. Preparation (and practice) for the interview can help iron out any problem areas in advance and will provide confidence to the applicant when the time comes to meet with the investigator and to explain their responses to the problem areas.

5. Get Legal Advice Early: An individual has the best chance of resolving clearance problem areas when they get legal advice early when a suspected problem area exists, instead of waiting. Doing so also tends to cost less than trying to rectify a problem later in the process after a denial has been issued. It is our experience that some security clearance problems that we see which could have been resolved early (but were not) require significant efforts to reverse later in the process.

There are many considerations for a federal employee or government contractor when potential problems arise in the security clearance process, but I hope that these 5 tips are helpful. Each case varies so it is important to discuss any individual cases with a knowledgeable lawyer familiar with security clearance law. Please be advised that the information in this article is strictly for informational purposes only and does not constitute legal advice.

Starting a Business in Azerbaijan

Emil is a young computer programmer. His friend Ali is a web designer. They live in sunny Baku- the capital city of Azerbaijan. They have a dream – to establish an IT company and grow it into a large company. But they know that starting and doing business requires complying with laws. They also want to attract investments in the future.
Emin and Ali approached Remells Law Firm for a legal advice. Remells has advised them as follows:
Corporate Registration
Remells recommended Emil and Ali establish a limited liability company. Emil and Ali have established “XYZ” limited liability company (hereafter – XYZ LLC).
Sole Entrepreneur: There are several ways of conducting

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business in Azerbaijan. One can do business as a sole entrepreneur. A person needs to register with the Azerbaijani tax authorities to obtain the status of a sole entrepreneur. The tax authority issues the entrepreneur a tax ID (Azerbaijani: VOEN) and the person fulfills his/her tax obligations using that tax ID. However, there are certain risks of being a sole entrepreneur. Sole entrepreneur’s liability is not limited. For instance, assume Emil and Ali create a product and that product accidentally causes damage to third parties. As a result, Emil and Ali incur a financial liability in the amount of 100,000 manats. They can hardly avoid that liability and will most likely be forced to sell their property in order to pay the damages.

LLC: Limited liability company (LLC) is one form of legal entity. In many cases LLC is the most optimal form of company for joint business activity in Azerbaijan. Emil and Ali are members of XYZ LLC. As opposed to being sole entrepreneurs, Emil and Ali’s liabilities are limited as members (shareholders) of the LLC. If the product created by Emil and Ali causes XYZ LLC to incur 100,000 manats liability, the worst that may happen is XYZ LLC may be forced to bankruptcy for not being able to pay its debts. Emil and Ali’s personal property will not be affected.
Another reason why in most cases start-ups may prefer doing business through a legal entity is that it is generally easier to attract investment to a legal entity. Sophisticated investors prefer to make investments into legal entities. There are some tax advantages of operating as a sole entrepreneur. We’ve discussed them below.
As of 2008 Azerbaijan has established a single window system for corporate registrations.
Emil and Ali’s partnership
Emil and Ali are partners (even if they do business within one legal entity). To avoid any disputes between them in the future they should regulate their relationships. One way to do it would be through regulating governance in XYZ LLC in the entity’s corporate charter. There are issues, however, which cannot be regulated by the corporate charter. Those issues are generally regulated by agreement between parties. They may be called shareholders agreement, or partnership agreement or some other similar agreement.
Intellectual Property
Most products created by IT companies are protected (may be protected) as intellectual property (IP) rights. Computer software including websites, programs in source codes and object codes, and other similar products are protected as copyrights. A person, who invents a product, must obtain a patent for the invention.
Remells advised XYZ LLC to enter into a relevant agreement when providing services or products to their clients. Those agreements are important in that, on one hand, they regulate XYZ LLC’s relations with its clients (and create more certainty), and on the other hand, they confirm XYZ LLC’s intellectual property rights to its products and services.
These agreements and confirmations of IP rights are also important in terms of attracting investment to the business. When deciding to invest funds into a company, investors look at a company’s assets (valuable assets and rights) very carefully. If Emil and Ali are not able to show investors that the products or rights, which they claim belong to XYZ LLC, does legally belong to XYZ LLC, an investor will not be willing to invest into the company.
Remells also recommends XYZ LLC to properly register its intellectual property rights at relevant state bodies. Trademarks and patents must be registered.
Profit (Income) Tax
In so far as during the consecutive 12 months period (from the date the person is registered) XYZ LLC’s taxable income does not exceed 120,000 manats, XYZ LLC can be a simplified taxpayer. The rate of simplified tax for Baku city is 4%. This tax will be calculated and deducted from a total income (without deduction of expenses) of the company.
For instance, assume XYZ LLC creates a website for its client and receives 1000 manats payments for its work. XYZ LLC will pay 1000*0,04= 40 manats on that income. If XYZ LLC incurred 200 manat costs while working on the website, as a simplified taxpayer XYZ LLC will not be able to deduct those 200 manats from 1000 manats.
Emil asked Remells whether it is always better to start off as a simplified taxpayer?
In its response Remells told that it is up to a taxpayer whether it wants to start off as a simplified taxpayer or a regular taxpayer. Remells further noted that: “being a simplified taxpayer is generally reasonable for IT start-ups, because it minimizes taxpayer’s administrative burdens and expenses. But if you anticipate that you will have large expenses at the beginning, then you should probably choose to be taxed as a regular taxpayer. This is because a simplified taxpayer is not able to take into account its expenses when calculating its tax liabilities”. For instance, if Emil and Ali expect that during the next 1 year their monthly expenses will be 1000 manat and monthly income 500 manat, then, depending on the circumstances, it may be reasonable for them to be taxed as regular taxpayers.
The rate of regular business tax 20%, but this tax is paid from a profit after deducting the relevant expenses.
Legal Entity and Sole Entrepreneur Taxes
A sole entrepreneur’s income is taxed only once. For instance, Emil and Ali together earned 200 manats. Each has 50% of share in that income and each receives 100 manats. After 4% tax payment each of them will have 96 manats. They can freely use that money.
In Azerbaijan a legal entity’s income (profit) in subject to “double taxation”. A legal entity income is taxed twice: when it earns the income and when it distributes the income to its shareholders as a dividend. In Azerbaijan, the dividend tax rate is 10 percent. For instance, if XYZ LLC earns 200 manats it pays 4% tax from its corporate income and 192 manats remains in company’s account. But Emil and Ali can’t use those funds for personal purposes, as those funds are XYZ LLC’s property, not its shareholders’.
XYZ LLC can distribute those funds to Emil and Ali as a dividend. Upon distribution 10% dividend tax will be applied on that distributed income: 196-(196*0.1) = 176.4 manats. Assuming Emil and Ali hold equal shares (50×50) in the company, each will receive after tax income of 88.2 manat. This amount is 7.8 manats lesser than those they can receive if they were sole entrepreneurs (96-88.2=7.8).
However this distinction doesn’t decrease the importance of conducting business through a legal entity. There is a risk of unlimited liability when doing business as a sole entrepreneur. Additionally, even though XYZ LLC’s income doesn’t belong directly to Emin and Ali, they are the actual owners of that money. Given they are likely to reinvest those funds into the business, dividend distribution is not an important issue at that stage.
Social Security Payments
If XYZ LLC has an employee – person who works based on employment contract – XYZ LLC must pay social security payments. Generally, social security payments consist of 2 parts: (1) 22% percent of the employment salary fund and (2) 3% of each employee’s salary. “Employment salary fund” means the total of all salaries. For instance, XYZ LLC has two employees – Emil and Ali. Emil’s salary is 200 manats and Ali’s is 100 manats. XYZ LLC’s employment salary fund will be 200 + 100 = 300 manats. Every month XYZ LLC will need to pay 22% of 300 manats (300*0.22=66 manat) to the Social Security Fund. Unlike the 3% social security payment, 66 manats (22%) cannot be deducted from 300 manats. Formally employer uses its own funds to pay that amount (i.e., does not deduct from employee’s wage).
The second part of social security (insurance) payment is 3%, which is deducted from the salary and paid to the Social Security Fund, i.e. 3% will be deducted from, let’s say, Emil’s 200 manats salary (200*0.06=6 manat) and remaining 194 manats will be paid to Emil.
Tax Benefits
Azerbaijani tax laws provide for tax benefits for the businesses operating in high technology parks. Income (profit) of businesses registered in high tech parks are exempt from income (profit) tax for the consecutive 7 years from the date the business registers in the high tech park. In order to benefit from this tax exemption the person should be resident of a high tech park created according to an order of the Azerbaijani President. Residency can be obtained through registration at those parks.
Employment Agreement:
XYZ LLC should enter into an employment agreement with its employees. Employee is the person, who on a continuous basis performs employment duties, is typically present at work during standard work hours, has a workplace in the employer’s premises etc. XYZ LLC must pay salary to an employee. The amount of salary should not be lower than the statutory minimum salary, which currently is set at 105 manats. If XYZ LLC’s income is unstable, the part of wage can be paid as bonus in order to minimize the risks caused by that instability.
If there is no consistency in XYZ LLC’s income and activities, and if, for instance, a person performs works based on specific projects, the person can perform his work anywhere or anytime he/she pleases, instead of an employment agreement, XYZ LLC may enter into service or other similar agreement with that person. In this case it is important to make sure that the person who provides services holds a tax ID. The service provider can be registered as simplified taxpayer and pay just 4% of the service fee. Social security payments also should be paid by the service provider. If there is no tax ID, XYZ LLC must withhold taxes from the source, i.e., from the service fee. Subject to certain tax exemptions for very minimal payments, in the absence of tax ID, XYZ LLC will need to withhold at least 39% (14% income tax + 25% social security payments) from the service fee.
ABOUT THE AUTHOR: Rashid Aliyev
Rashid Aliyev, Partner, Remells Law Firm. Rashid holds LL.M degrees from University of Pennsylvania Law School (2010) and Central European University, Hungary (2005). Prior to joining Remells Rashid worked in international law firm and international financial institution, where he handled cross-border financial, corporate and oil and gas transactions.

The Risks of Mistakenly Treating “Employees” As Independent Contractors

Small businesses often prefer to treat workers as independent contractors for any number of reasons: avoiding the bother of calculating and paying employee withholdings; escaping the employer’s required expenses for unemployment insurance, workers’ compensation, and other costs; and, freedom from overtime and other wage and hour regulations. In short, treating employees as “independent contractors” can exert a strong attraction on a small business.

Like many other strong temptations, treating an employee as an independent contractor can also lead directly to hell if the employee is not one. The litany of hellish consequences, both for an employer and for its responsible officers and equity owners, is sobering.

First there are the unpaid withholdings for which not only the employer but also its responsible officers and directors may have joint and several personal liability. Officers, directors, members, managers, partners and limited liability partners are also personally liable, jointly and severally, with their business entity and each other for all claims’ costs, civil penalties and attorney fees if it’s determined that the ” independent contractor” was really an “employee” when they were injured while working. ORS 656.735.

When a misclassified employee is injured on the job, they are not only free to bring a personal injury action against their employer but the employer loses the benefit of any defense based on the employee’s own contributory negligence. ORS 656.020.

Likewise, individuals responsible for compliance with an employer’s unemployment insurance may be held personally liable, jointly and severally with each other and with their employer, for unemployment benefits and claim costs for an employee misclassified as an independent contractor. ORS 657.516.

Accordingly, whether to treat any individual providing services to a business as an independent contractor is a decision which should be made with caution. A mistake could not only damage your business but drain your personal finances as well.

© 12/12/2013 Lawrence B. Hunt of Hunt & Associates, P.C. All rights reserved.

Larry Hunt is a Shareholder and Lead Attorney with the law firm Hunt & Associates, PC in Portland, Oregon. He is licensed in Oregon and Washington and maintains a general practice including estate planning, business law, real estate law, family law, misdemeanor criminal defense and personal injury.

Pre-existing Injuries and New York State Workers’ Comp Fraud

When most people think of workers’ compensation fraud, they envision the supposedly injured worker caught on video putting a new roof on his home. However, New York State workers’ comp fraud can take on many forms, and the results can be unanticipated and potentially devastating.

New York Comp Law section 114(a)(1) provides for various penalties if a claimant “knowingly makes a false statement or representation as to a material fact…” The penalty is mandatory forfeiture of any compensation directly attributable to the false statement, with an additional discretionary penalty of a permanent disqualification. Of note is the fact that this applies only to weekly payments and permanency awards as medical benefits are not subject to a fraud finding.

Of course, the easy cases are those where the allegedly disabled worker is either caught in the act of working or is seen engaged in activities entirely inconsistent with the medical reports. If the claimant denies work activities or exaggerates his symptoms, subsequent contrary evidence in the form of surveillance reports and video virtually assures a fraud finding.

However, what happens when a claimant has a prior injury to the same part of the body? In the Matter of Losurdo v. Asbestos Free, Inc., 1 N.Y.3d 258 (2003), the New York Court of Appeals addresses penalties imposed when the claimant failed to disclose a pre-existing injury to the same body part.

After the Losurdo case, it has became a very common tactic for insurance carrier attorneys to issue subpoenas for prior medical records in the hopes of pursuing a fraud claim. A skilled compensation practitioner will scrutinize the current medical records from the injury to see if a claimant either denies or fails to mention a prior injury to the same body part. If the prior medical records are inconsistent, the insurance carrier will immediately raise fraud as a bar to indemnity benefits.

The employee claim form (known as a C-3) is prescribed the the New York State Workers’ Compensation board, and contains a requirement that a claimant disclose the existence of a prior injury, and whether the prior condition was work related. The form was only modified in recent years to include this requirement, and clearly is a reaction to Losurdo and its’ progeny.

I have personally seen many situations where a claimant either unintentionally denies a prior injury or appears to minimize the pre-existing condition, only to have the law judge impose a permanent ban on indemnity benefits. An injured worker should be aware of this area of the law, and must take great care in disclosing any prior condition or condition to the same body part. The disclosure should be made on the employee claim form (the C-3), as well as to any of his or her medical providers, to the insurance carrier’s physician (IME), and during any testimony, whether it be in court or by deposition.

Failure to disclose the pre-existing condition can have drastic consequences, and carries the exact same penalties as the allegedly disabled worker who is caught on tape.

ABOUT THE AUTHOR: Tracy A. Brune
Tracy A. Brune is a New York State attorney specializing in workers’ compensation matters. Mr. Brune has served the Upstate New York community for 20 years and represents the rights of injured workers.