Small Business Relationships: The Wrong One Can Ruin Your Status as a Small Business

Receiving a small business status can be valuable when it comes to federal contracts and other benefits. Make sure your small business status isn't in jeopardy as a result of your business relationships.

In federal government contracting, small businesses that have been awarded the status by the federal government as a “small” business are eligible to receive federal government contracts that are specifically “set-aside” for small businesses and other benefits designed to help them grow and prosper.

But, your status as a small business may be destroyed if your business “affiliates” with another business or even a person; and, that affiliation results in revenue and employees that exceed the small business size limits the government has set.

Regulations give some definition around when the federal government considers a small business to be affiliated with another business or person. The definitions are not clear or actionable; but, instead are flexible and depend on a number of factors. When partnering, forming joint ventures or even bringing on new owners and leaders, a small business needs to be sure it does not create an “affiliation” and by doing so destroy its status as a small business.

Generally, a small business is considered affiliated with another business when:

  • One of the businesses controls the other;
  • One of the businesses has the power to control the other; or
  • A third party controls or has the power to control the small business.

Whether control is actually exercised does not matter for the purpose of defining an affiliate. Instead, the government looks to determine whether a business or person has the power or authority to control the small business. Affiliation may occur when control is either direct or indirect and, it does not matter if the entities are organized for profit or not. 

The definition of control includes the traditional notion of managing or otherwise controlling a business but it also includes “negative” control, which is the ability of a person or entity to prevent or limit an organization’s actions. For example, when by-laws afford a minority shareholder the right to block action, the shareholder has “negative” control.

A small business will likely be considered an affiliate if one or more officers, directors, managing members, owners or partners of another business controls or manages the small business.

Similarly, if a small business has the identical or substantially identical interests to another person or another business, the federal government will likely consider the entities to be affiliated. The interests may be either business interests or economic interests. For example, family members or investors with common interests in the success of the small business are considered to have an identity of interest. Also, businesses with common investments, contractual relationships or that are economically dependent on one another are considered to have common interests and therefore may be considered affiliates.

The government may also determine a small business is affiliated with another business if another business or person owns or has the power to control 50% or more of a small business’ voting stock. Even if stock ownership is less than 50%, if a person or business owns or has the power to control a block of a small business’ voting stock, which is large compared to the control of other stock, the small business may be considered affiliated with those owning or controlling that block of stock.

However, these arrangements do not mean that a small business is definitively considered an affiliate of another business as long as the businesses can clearly demonstrate that the two are separate and do not control one another.

When a small business agrees to work with another business to pursue a defined venture by combining all or some of their effort, property, funds, skill, or knowledge they are considered a joint venture.

Depending on the circumstances, the government may determine that a small business is affiliated with the other business in a joint venture and, if so, the small business will lose its status. For example, if any member in the joint venture seeks SBA financial assistance in connection with the joint venture, the entities in the joint venture are considered affiliates; and the small business may lose its status as a small business. A small business that is part of a joint venture may be considered an affiliate of the other business in the venture if the joint venture pursues more than three federal government contracts over a two-year period.

On the other hand, joint venture members will generally not be considered affiliates if each member is a small business as defined by the size standard for the procurement the joint venture is pursuing. However, the government may look to the combined annual receipts or employees of small businesses that make up the joint venture to determine if the joint venture members meet the size standards for the procurement.

A joint venture between a small business protégé and their approved mentor business does not result an affiliate relationship if the government approves the joint venture agreement prior to contract award and the joint venture has not reached certain dollar limits.

As for merging with another company, the government, depending on the situation, may determine that the agreement to merge may establish affiliation.  However, agreements to negotiate the possibility of merger or an acquisition or stock sale that will occur at a later date are generally not considered affiliation.

In the prime-subcontractor context, if a subcontractor performs vital aspects of a contract or task order or, if the prime contractor is unusually reliant on a subcontractor then, the two businesses may be considered joint venture partners, not a prime-subcontractor; and as a result, they may be affiliates.

Since the federal government looks at the “totality of the circumstances” when determining whether two entities are affiliates, if you are a small business you should the circumstances of your relationships with other businesses, advisors and investors. Doing so, will help you assess whether the government will consider your business to be affiliated with another entity and thereby possibly destroying your small business status.

For example, consider the following questions:

  • Do the owners of your small business also own or invest in other businesses?
  • Does your small business management team also manage other businesses?
  • Does your small business share key personnel or even employees with other businesses?
  • What is the nature of any contractual relationship your small business has with other entities or individuals: Joint venture? Subcontract? Advisors? Investors? Owners?
  • Does your small business share functions such as finance, contract management, HR, IT, or legal with another entity?
  • Does your small business share facilities or equipment with another entity?
  • If you are in a prime-subcontractor relationship, what is the percentage of work that each party is performing; how are administrative responsibilities like contract management and invoicing shared?
  • If pursuing an opportunity with a teaming partner or joint venture partner, what are the size standards for that particular pursuit?

It’s important for a small business federal government contractor to think through its business relationships and the implications of those relationships.

As the famous management consultant Peter Drucker once said: “[B]usinesses grow through alliances – all kinds of dangerous alliances. Joint ventures, and customer partnerings which, by the way, very few people understand.”  Peter Drucker, management consultant, author, educator. 

And remember, for a small federal government contractor, these alliances may be particularly dangerous because if your alliance results in what the government considers to be a misrepresentation of your status as a small business, the government proves Drucker’s statement on the dangers of alliances by pursuing:

  • Debarment and/or suspension of the business and individuals involved;
  • Civil False Claims Act violations, which include fines and penalties against the business and individuals involved; and
  • Criminal violations that include fines, penalties and incarceration.

Maragret Cassidy is principal at Cassidy Law. Learn more about the firm’s capabilities by clicking here.


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  • Next up: The Benefits and Costs of an Employee Wellness Program
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  • The Benefits and Costs of an Employee Wellness Program

    From reduced health care costs to increased employee morale, there are many benefits of a workplace wellness program. Learn more about the costs associated with employee wellness programs, the benefits of them and examples.

    In addition to health insurance, many companies offer wellness programs to their employees as an additional health benefit. Companies implement these programs as a way to attract top talent, keep their employees healthy and productive, and decrease employee turnover. This article will help you understand:

    • What constitutes an employee wellness program;
    • Examples of different types of employee wellness programs;
    • The benefits of offering an employee wellness program; and
    • The costs associated with implementing an employee wellness program.

    Employee Wellness Program Defined

    An employee wellness program can be defined as “an organized, employer-sponsored program that is designed to support employees (and, sometimes, their families) as they adopt and sustain behaviors that reduce health risks, improve quality of life, enhance personal effectiveness, and benefit the organization’s bottom line,” according to an article in Harvard Business Review. Some employers run their own employee wellness program, whereas other companies opt to contract with third-party companies to provide and run their employee wellness programs for them. Employers are neither required by law to provide employee wellness programs nor are there rules that employers must follow when implementing a wellness program.

    Examples of Wellness Programs

    Employee wellness programs come in all shapes and sizes. Employee wellness programs can be an ongoing schedule of activities or they can be one-time events. The following are some examples, but the possibilities for different wellness programs are limitless.

    • Offer to pay for, or subsidize, gym or exercise class memberships. This is a common first program for many companies to encourage employees to get active and healthy.
    • Offer standing desks to employees. Standing desks have numerous health benefits including, but not limited to, lowering weight gain and reducing back pain.
    • Provide employees with healthy snacks. Offering healthy snacks is an easy program to implement and may boost energy, aid in weight control, and improve mood.
    • Organize a company sports team. Joining a sports league, such as softball or volleyball, will not only result in exercise, but may also create an opportunity for co-workers to bond and form friendships.
    • Post signs encouraging employees to take the stairs instead of the elevator. A simple “burn calories, not electricity – take the stairs” sign is all it takes to encourage this healthier behavior.
    • Create a fitness challenge with prizes. Examples of challenges include drinking eights glasses of water per day or walking at least one mile per day.
    • Host an employee field trip with team building exercises. Team building exercises can help increase employee morale and nurture a successful company culture. These exercises can create momentum and makes employees feel good about themselves, increase their confidence, and it also shows employees that the company is willing to invest in them.
    • Host a healthy cooking contest. A simple, fun, and hopefully delicious option.
    • Place plants around the office. Another simple, yet effective program. Real plants freshen air, provide décor, and may increase employee productivity.
    • Allow pets in the office. For example, having dogs around the office may decrease stress and the owners typically have to take multiple walks per day.
    • Build a recreation/game room. If you have an extra room, building a recreation/game room can be a create way to foster relationships and create a fun work atmosphere.
    • Designate a person as the employee wellness director. Your company may have someone perfect to manage wellness programs. Designating a person will drastically increase the chances that your company follows through on its wellness initiative.
    • Encourage ride sharing, using public transportation, biking, and walking.
    • Host a health fair. Invite local companies and vendors to visit your workplace and present their products or services to your employees. Try to focus on companies that provide health-conscience products and services.
    • Host a workshop focusing on how stress affects mental health.
    • Provide ergonomic office furniture and equipment. Examples include chairs designed to minimize back pain, computer screens that minimize eye strain, and keyboards designed to minimize the risk of carpal tunnel.
    • Install massage chairs. The use of massage chairs is known to reduce stress and anxiety.

    As you can see, the possibilities are endless. Of course, cost of the program will be a consideration, but be creative and tailor the program with your employees’ and your company’s core values in mind.

    Benefits of an Employee Wellness Program

    Maintaining an employee wellness program benefits both the employee and the employer.  Examples of the benefits of an employee wellness program are as follows:

    • Participation by the employee encourages healthier behavior, reduces elevated health risks, and improves productivity. Exercise is known to release chemicals (i.e. endorphins) in your brain that help improve your mood. Happier employees generally translate to more energetic and productive workers. Participating in non-work activities together also strengthens employee relationships. Healthier employees may also curb absenteeism.
    • Reduced employer’s health care costs. Studies of employee wellness programs have shown that for every dollar spent on wellness activities and programs, employers saved an average of $3.27 in health care costs.
    • Improved employee recruitment and increased retention of quality employees. Employees feel valued when their companies invest in their well-being by offer a wellness program. Maintaining a wellness program may be the differentiator between your company and a competing employer.

    The Costs of an Employee Wellness Program

    The costs of providing an employee wellness program is going to depend on how much your company wants to offer your employees. To give some perspective, surveys have found an annual cost for companies of $150 to $2,000 per employee.

    A cost-effective option may be paying for a wellness platform. Wellness platforms will provide materials that will allow your company to create a wellness program and typically have monthly costs of $3 to $10 per employee.  Wellness platforms generally include access to a mobile app and website that offer incentive management, a health risk appraisal, and wellness program materials.

    If you decide you want to outsource the responsibilities, hiring a wellness vendor to manage a wellness program for your company may be your best option.  The cost of hiring a wellness vendor is generally going to be more expensive than buying wellness platform.  Monthly costs per employee may range from $30 to $150 or more. 

    Whichever option you decide, be sure you know what you are getting. If you are purchasing materials from a website, confirm whether it is a one-time download or if it includes updates. If you decide to hire a wellness vendor, require a proposal detailing the program before contracting with them.

    This article is meant to be utilized as a general guideline for employee wellness programs. Nothing in this blog is intended to create an attorney-client relationship or to provide legal advice on which you should rely without talking to your own retained attorney first.  If you have questions about your particular legal situation, you should contact a legal professional.

    Chris Zirke of The Gertsburg Law Firm can be reached at cz@gertsburglaw.com or by phone at (216) 409-9590.

    An audit of your policies can help you avoid the pain of lawsuits. The Gertsburg Law Firm now offers CoverMySix, a one-stop legal audit for your business, led by award-winning litigators and in-house counsel. CM6 minimizes your exposure to lawsuits, investigations, disgruntled employees and customers, and all the damage that comes with them. Schedule a confidential, no-cost CM6 Vulnerability Check with Gertsburg Law Firm’s CEO, who will walk you through the minefields in your documents and key processes and tell you how to fix them yourself. Call 440-571-7774 or e-mail mc@gertsburglaw.com to schedule your CM6 Vulnerability Check today. Newer or smaller companies will want to take advantage of CoverMySix for Small Companies and Startups complete legal documentation portfolio. Check out covermysix.com to learn about the full CM6 audit suite.


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  • Next up: The Blurred Lines Between Professional and Private Social Media
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  • The Blurred Lines Between Professional and Private Social Media

    Here's how to protect your brand's image when everyone has a stage.

    President Trump tweets a controversial message, launching a key employee into an unbridled rage. The person returns fire on social media with a barrage of emotionally charged remarks. In the process, the tirade is played out before a select audience that includes your most valued customers, partners and prospects.

    The social platform the employee used as a political megaphone was personal and technically private. But over time the employee had socially connected to many of your company’s key influencers. What do you do? What can you do?

    Some businesses have begun reprimanding, and in rare instances, firing employees who don’t appropriately represent their company online. In an age of social media, employees are never really off the clock—especially when they’re socially linked to critical stakeholders.

    As a preventative step, many businesses are adopting social media policies that reach well beyond the company’s own platforms and restrict employees from posting “inappropriate” content on their personal pages. This can include subjects such as political and religious views that might be considered offensive.

    The NFL this year surprised many people when it took a similar stance by prohibiting players from protesting during the National Anthem. The decision made headlines, but it fell in line with how many employers now view personal conduct, regardless of place or time.

    Putting a policy in place sends a clear message that employees represent their company’s brand 24/7. Their conduct, words and actions are expected to uphold the values of the organization. And while legally defining what is “offensive” is a task worse than herding cats, a written policy causes many employees to think twice before raging online.

    The policy should include guidance about how the company’s own social channels are managed. This includes details about the logo and messaging, down to specific colors, design styles and imagery. It can include post frequency, relevance and objectives.

    The policy should be clear about who has authority to make posts, comment and respond, especially to controversial remarks. When United Airlines discovers a negative tweet about its brand, the company has very specific protocols about how a complaint is managed.

    When a customer complains online, the first step should be to take the conversation offline and resolve the issue away from a large viewing audience. Then, handle the customer as if they called. The policy should prohibit employees who are not involved with this process to abstain from any engagement, so the professionals can handle it.

    Many consumers today have become empowered through social media to expose businesses for their bad behavior. In many ways, the new environment has forced companies to improve their service, while some consumers have found ways to take unfair advantage.    

      

    Your company’s social media policy should be all-inclusive, with consideration to any influence, inside or outside of the organization. It should address how employees can interact with the brand online and how they conduct themselves on their “own time.”

    The policy should address how social media is managed during a crisis, who is in charge and how the social managers interact with communications teams and senior management.

    No company policy is ironclad in the eyes of the law, but many can prevent mistakes and clear confusion among employees. Attorneys and public relations firms can help draft social media policies to fit your organizational needs. When a policy is finalized, it should be presented effectively throughout the entire organization.     

    A strong brand can take decades to build, but even the best brands can come undone in a single day. Don’t let a loose social media policy unravel years of hard work.      

    Jamie Pingor is a partner and intellectual property chair at the Cleveland law firm, Walter ǀ Haverfield. He is focused on intellectual property with a specialty on domestic and foreign patent and trademark preparation, prosecution, procurement and litigation.

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  • Next up: The Importance of Knowing Your Business Partners
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  • The Importance of Knowing Your Business Partners

    Going global can be a great thing for your small business, but it doesn’t come without pitfalls—specifically, working with outside partners. Read on for a list of things you should know before you take your company beyond U.S. borders.

    Working with outside suppliers, sales agents, joint venture partners and subsidiaries can serve to expand and grow your business but, when working internationally, they might also expose your organization to civil or criminal violations. When doing business globally, it is important to know your business partners and put processes in place to avoid running afoul of certain U.S. laws surrounding trade sanctions, export compliance and ethical supply chain requirements like human trafficking. 

    The U.S. federal government restricts doing business or engaging in financial transactions with certain countries, organizations and individuals. Given the changing geopolitical environment, the list of sanctioned countries, organizations and individuals is constantly changing. The federal government also regulates the export of certain products and services that have a military use or may be used for military purposes. The U.S. and other countries also prohibit doing work with organizations that engage in human trafficking or buy minerals from regions where regimes engage in inhumane treatment of workers. Businesses that operate internationally and that have products or services that are regulated must have controls in place to assure compliance with these trade regulations. 

    These laws and regulations are challenging and the repercussions of non-compliance could result in civil or criminal sanctions. Ignorance of the law is no legal defense—a business or individual does not have to plan or intend to violate these requirements to be held liable. A business must understand how it delivers its products and services to market, how it gets paid and with whom it does business. 

    Some things a legal professional can assist you with when you go global include:

    • developing and implementing compliance and risk management programs; 

    • counsel on prohibited activities (e.g., business with Syria, selling certain services or goods to prohibited parties, purchasing supplies from prohibited parties);

    • government investigation and enforcement;

    • internal investigations; 

    • establishing a risk based third party due diligence program;

    • enhancing contracts to direct your business partners to engage in legal and ethical operations;

    • identifying and mitigating red flags that may indicate illegal behavior;

    • developing policies and procedures to mitigate the risks of trade or export violations as well as to comply with ethical supply chain mandates like anti-human trafficking laws.

    Failing to know your business partners might expose a legitimate and reputable business to accusations of doing business with terrorist organizations, sanctioned countries or human traffickers. Cassidy Law has experience helping clients avoid these common pitfalls.

    Maragret Cassidy is principal at Cassidy Law. Learn more about the firm’s capabilities by clicking here.


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  • Next up: The Top 10 Workplace Etiquette Rules
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  • The Top 10 Workplace Etiquette Rules

    Here are 10 things you should do (or stop doing) to stay on the good side of your coworkers.

    Workplace etiquette is defined by dictionary.com as the code of ethical behavior regarding professional practice or action among the members of a profession in their dealings with each other.

    In other words, it’s acting like you were born with, or taught, common sense.

    Read on below for the 10 things you should do (or start doing) to avoid raising the ire of your colleagues and show that you do have some common sense as it relates to workplace etiquette.

    No. 10: Don’t come to work sick. If you have a communicable illness, you shouldn’t be at the office! Stay home!

    No 9:  At all costs, avoid being late. If you happen to have a delay, communicate with your supervisor ahead of time. For every minute you think you’ll be late, give two minutes warning.

     No. 8: Pay attention in meetings. If you are in training or a meeting please pay attention to the speaker. Put your phones away and don’t have side conversations with your neighbor.

    No. 7.: Remember your boundaries while at work. Developing friendships at work is expected but remember you are at work and you should be careful about sharing personal information.

    No. 6.: Watch what you put on social media. Depending on your company’s policy, you should be careful about the things you post on social media. The thinking that, “This is my page and I can do what I want,” is, in most cases, not true and you could be disciplined for your actions.

    No. 5. Emails can be misconstrued. When responding to an e-mail, be careful of your “tone.” It is easy to offend someone without meaning to. Also, be careful that you are not “replying to all” and sharing something with someone you shouldn’t. 

    No. 4: Please clean up after yourself! Most people spend just as much time at work as they do home, so it is everyone’s job to make sure that the office is not nasty. If you are lucky enough to have a kitchen, please make sure that you clean your dishes and wipe out the microwave after you use it.

    No. 3: Be courteous. If you pour the last cup of coffee, you should make a fresh pot. Enough said!

    No. 2.: Respect your co-worker’s privacy. You should always knock before entering a co-worker’s office or work area. Never read an e-mail, note, or fax that is not addressed to you.

    No. 1.: Freedom of Speech … just watch what you say.  Although we all have the right to our opinions, we need to be wary about the things we say while at work.  Don’t use profanity and always be careful when speaking about religious beliefs and political views.

    Rico Perez is a partner and VP of Training & Development at BIG-HR. He has over 8 years of experience in HR-related training & management.


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  • Next up: This is What Sets COSE's New Health Benefit Option Apart
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  • This is What Sets COSE's New Health Benefit Option Apart

    Learn how the COSE Health and Wellness Trust is different from COSE's current health benefit option.


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