Business and Legal Considerations Workshop...Business and Legal Considerations for Beggginning...

Business and Legal Considerations for Beginning Farmersg g

Nicole Cook, JD, LL.M.Environmental and Agricultural Faculty Legal Specialist

2018 UMES Small Farm ConferencePrincess Anne, MD

Nov. 3, 2018

Agriculture Law Education Initiative (ALEI)( )

The Agriculture Law Education Initiative is a collaboration betweenthe University of Maryland Francis King Carey School and College ofAgriculture & Natural Resources University of Maryland CollegeAgriculture & Natural Resources, University of Maryland, CollegePark. Through the University of Maryland Extension ‐ the statewide,non‐formal agriculture education system ‐ the collaboration partnerswith the School of Agricultural and Natural Sciences University ofwith the School of Agricultural and Natural Sciences, University ofMaryland Eastern Shore.

W b it lWebsite: www.umaglaw.orgTwitter: @MdAgLawFacebook: www.facebook.com/MdAgLaw/ gEmail: [email protected]

Infoline410‐706‐7377

We can’t provide legal advice, but if you need legal help we can direct

d il blyou towards available resources and attorneys in your area.

4th Annual Agricultural and Environmental Law Conference

Featured Panels Include:

• Maryland’s Aquaculture Industry – Legal Conflicts and Resolutions

• Chlorpyrifos and the Legal Landscape of Pesticide Regulation

• Developing Topics in Agricultural and Environmental Law

• Weeding Through the Future of Hemp Farming in Maryland

• Keynote Address by Maryland State Senator Thomas Mclain "Mac" Middleton

When: Thursday, November 8, 2018; 8:00 a.m. to 3:00 p.m.

(Breakfast and registration from 7:30 a.m. to 8:30 a.m.)

Where: The Crowne Plaza, 173 Jennifer Road, Annapolis, MD

To register: 301‐314‐0324, Monday‐Thursday between 9:00 a.m. ‐ 2:00 p.m.

More Information : www.umaglaw.org

Beginning Farmers may be eligible to save 50% on registration

Email [email protected] to apply for beginner farmer scholarship

University of Maryland MPower

The University of Maryland: MPowering the State brings togethertwo universities of distinction to form a new collaborativepartnership Harnessing the resources of each the University ofpartnership. Harnessing the resources of each, the University ofMaryland, College Park and the University of Maryland, Baltimore willfocus the collective expertise on critical statewide issues of publichealth biomedical informatics and bioengineering Thishealth, biomedical informatics, and bioengineering. Thiscollaboration will drive an even greater impact on the state, itseconomy, the job market, and the next generation ofinnovators The joint initiatives will have a profound effect oninnovators. The joint initiatives will have a profound effect onproductivity, the economy, and the very fabric of higher education.

http //www mpowermaryland comhttp://www.mpowermaryland.com

Disclaimer

This presentation is intended to providegeneral information and should not begeneral information and should not beconstrued as providing legal advice. Itshould not be cited or relied upon as legalauthority. State laws vary and anyy y yattempt made to discuss laws of statesother than Maryland is for generalinformation to help the viewer betterunderstand Maryland law. For adviceabout how these issues might apply toyour individual situation, consult anattorney.

2018 UMES Small Farm Conference: Business and Legal Considerations for Beginning Farmers

RISK MANAGEMENT

What is Risk Management?

“Risk Management involves choosing among various strategiesRisk Management involves choosing among various strategies and tools designed to reduce the financial effects of the uncertainties of weather, yields, prices, government policies, global economies, human factors, and other conditions that can cause dramatic fluctuations in farm income.”

Production Risk

Risk that is a result of uncertain natural growth processes of cropsnatural growth processes of crops and livestock. Weather, disease, pests, and other factors affect both the quantity and quality of commodities produced.

Price or Market Risk

Risk that is created by the variability of prices producersvariability of prices producers receive for their production, the access they have to markets for their products, and the prices and the availability of inputs.

Financial Risk

Risk that occurs due to the capital‐intensive nature of farming andintensive nature of farming and ranching businesses. Volatility of prices, yields and income impact the debt repayment ability and adebt‐repayment ability and a business’s cash liquidity. Changing interest rates, credit rules, and the

il bilit f dit l t favailability of credit are also aspects of financial risk. Financial risk is often intensified by the lack of detailed fi i l l i d l ifinancial analysis and planning.

Human Risk

Refers to human relationships that impact the viability of farm andimpact the viability of farm and ranch businesses including communication, labor management and supply, business succession and intergenerational transfer of assets and management, estate planning, g , p g,and human health and relationship issues including accidents, illness, disability death and divorcedisability, death and divorce.

Legal/Institutional Risk

Risk generated by uncertainties surrounding and resulting from government policies and regulations related to tax laws, food safety, labeling and marketing, protected species water use animal health andspecies, water use, animal health and welfare, chemical use, animal waste, other environmental issues such as clean air and water, government

dit d i tcommodity and income support programs, and the legal liabilities of a variety of litigious issues faced by farms and ranches.


BUSINESS AND LEGAL CONSIDERATIONS

Business and Legal Considerations for Farms

Considerations for all farmsFi i d L di A t

Additional special considerations for some farmsF d S f t *Financing and Lending Agreements

Labor and Employment (even “family farms”)Business Entity StructureTaxes

Food Safety*Crop InsurancePatent Protections on SeedsFencing Requirements for LivestockTaxes

Premises LiabilityLiability InsuranceEnvironmental Regulations

Fencing Requirements for LivestockProduction and Marketing ContractsMarketing laws (advertising laws, e‐commerce, intellectual property rights)Zoning and Land Use Regulations

Purchasing and/or Leasing AgreementsContractsFarm Succession Planning

commerce, intellectual property rights)AgritourismValue‐Added ProductsTrucking lawsFarm Succession Planning g


FOOD SAFETY

What Can I Do To Protect My Farm?

•Get liability insurance specific to your farm enterprise•Develop a food safety plan•Prepare a recall plan

Food Safety Modernization Act• The Food Safety Modernization Act of 2010 (FSMA) created new legal authority for FDA to regulate

farm products.

• The FSMA Produce Safety Rule applies to farms that grow, harvest, pack, or hold produce that is normally consumed raw and that have produce sales over $25,000 per year (over a 3‐year average). The food handling requirements depend on what you grow, whether it will be processed b f i d l lbefore consumption, and your total sales.

• The FSMA Preventative Controls Rule applies if you manufacture, process, pack, and/or hold any kind of food for human consumption The legal requirements for food handling differ depending onkind of food for human consumption. The legal requirements for food handling differ depending on whether the activities happen on‐ or off‐farm, the type of processing, the type of foods that you produce, and how much you sell.

• The law is complicated and the rules are new, so seek out technical assistance to determine if your farm is covered by the law and which requirements apply.

Food Safety Modernization Act

When: November 7, 2018

Where: Eastern Shore Hospital Center

Time: 8:00 a.m. to 4:30 p.m. (l h i l d d)(lunch included)

To Register:To Register:https://fst11718.eventbrite.com


BUYING AND SELLING FARMLAND

Buying/Selling Farmland

• Farmland transactions are different from residential transactions. How? – Soil health – Zoning –Water – Access Relationships ith neighbors– Relationships with neighbors

Buying and Selling Farmland

• Roles/responsibilities in purchase transactiontransaction

• Typical contract provisions• Understanding a deed, aUnderstanding a deed, a mortgage, title insurance, etc.

• Don’t sign documents you don’t d d!understand!

Roles in Farmland Purchase

• Seller’s/Listing agent• Buyer’s agentBuyer s agent• Dual Agency• Attorney (hire before you sign the

contract)contract)• Surveyor (reviews property

boundaries)• Title company (reviews chain of

title‐ seller has right to sell property)

• Appraiser‐ verifies value for lender

Realtors• Realtors can provide a lot of helpful

information. A ll ' t k f th l t t• A seller's agent works for the real estate company that lists and markets the property and exclusively represents the sellerssellers.

• A Seller’s agent may assist the buyer, but his or her duty of loyalty is only to the seller.

Realtors

• A buyer’s agent assists the buyer in evaluating properties and works in the b t i t t f th b

• Dual Agency– The seller’s agent and the buyer’s

best interest of the buyer. – The agent's fee is paid according to the written agreement between the broker and the buyer.

agent are affiliated with the same real estate broker (company) and

– the buyer is interested in property listed by the broker.y

– Don’t assume the realtor that answers the phone number on a sign and provides information is a buyer’s agent

y• Parties must agree to dual agency in

writing. • Dual agents do not act exclusively in

th i t t f ith th llbuyer s agent. – Get the loyalty in writing.

the interests of either the seller or buyer, and cannot give undivided loyalty to either party.

Lawyer

• Why hire a lawyer? – Negotiate contract terms, make sure g ,contract protects client.

– Verify zoning, read and interpret covenants and easements.covenants and easements.

– Explain exceptions to title insurance coverageProvide guidance on Right to Farm laws– Provide guidance on Right to Farm laws

– A lawyer gets paid whether or not a sale occurs!

Surveyor

• Why hire a surveyor? – No one in the transaction (not the (realtors, attorneys or title company) is going to ensure that you actually get the acreage the described in the deed.

– Surveyor is the only one who will walk the property and verify boundaries and acreage. g

– Discover discrepancies before you buy! Don’t assume a tree line is a boundary.

Contract Provisions

• The contract is not the offer, it is the agreement to buy & sell

• Who is buyer? (individual, couple, business entity)

• Payment terms: understand whatPayment terms: understand what happens to deposit if deal falls through& understand buyer’s obligation to pursue financingobligation to pursue financing.

• Settlement date: choose a settlement date that will allow for inspections to

d f foccur and for you to acquire financing.

Contract Provisions

• Environmental Inspection Provision: What do you need to know?

U d d t t k– Underground storage tanks– Soil analysis– Lead paint – Mold– Water Quality

• What happens if the buyer is pp ydispleased with results? – Can buyer back out of deal and get deposit back?

– Does seller have the right to remedy?

Contract Provisions

• Inclusion provision: what is included in the transaction needs to be detailed in the contract. co ac

• Examples:– Gates– Livestock panelsLivestock panels– Portable sheds– Fence posts– Feeders

• Existing leases(farming/hunting)? If the lease doesn’t terminate upon sale (typical), what are your obligations?what are your obligations?

Contract Provisions

• Sewage disposal provision: Do you need a percolation test?

• If so, is there a valid recorded percolation or will you have time to have a percolation test performed p p(seasonal).

• If you plan to renovate existing h ill t t b i d?house, will a new test be required?

Contract Provisions

• Condition of Property provision: “Except as otherwise specified in th t t th t i ld “the contract, the property is sold “as is.”

• What does this mean? • It means that the contract must specify the inspections the buyer wants and what the inspection a ts a d at t e spect oresults allow the buyer/seller do.

• In a residential situation‐ seller has to make disclosures of certain latentto make disclosures of certain latent defects in contract.

Contract Provisions

• Deed and Title provision: “Buyer assumes the risk that restrictive covenants, zoning or other recorded documents may restrict or prohibit the use of the propertyor prohibit the use of the property for the purpose intended by Buyer.”

• Regardless of anything said by the ll h ’seller or an agent‐ it is the Buyer’s

responsibility to do their homework.

Contract Provisions

• Farm/Crops/Timber Rights– Seller or tenant of seller shall be allowed to harvest, sell or assign anySeller or tenant of seller shall be allowed to harvest, sell or assign any annual crops which have been planted on the Property prior to the Date of the Contract Acceptance, even though the harvest time happens subsequent to the date of settlement unless agreedhappens subsequent to the date of settlement, unless agreed otherwise. • Suggestion‐ if no written lease get the arrangement details in writing signed by seller and tenant.

– If timber, neither Seller nor tenant of seller shall have any right to harvest the timber unless agreed in an addendum to the contract.harvest the timber unless agreed in an addendum to the contract.

Contract Provisions

• Conservation Easement: There should be an addendum and copy of easement if there is a conservation easement. py– Read it! Easements vary and it may preclude certain uses‐agritourism, alternative energy, etc.

• How to modify a standard realtor contract? – Strikethrough a provision and have both parties initial.

Ag Declaration of Intent

• Ag Declaration of Intent• A signer promises to keep land in ag use

for 5 years following the sale to avoid agfor 5 years following the sale to avoid ag transfer tax.

• Ag use designation significantly lowers the property tax assessment.

• Failure to maintain ag triggers requirement for owners to inform SDAT and will result in ag transfer tax and penaltypenalty

• More on this‐http://www.aglaw.umd.edu/blog/selling‐or‐buying‐farmland‐make‐sure‐you‐

d d h i l lunderstand‐the‐agricultural‐use‐assessment?rq=ag%20transfer%20tax

Financing Documents

• Promissory Note /Loan Agreement• Document in which borrower agrees to repay the debt.

• Payment terms are outlined. • Understand escalation/balloonUnderstand escalation/balloon clauses.

• There will be references in the document about how the debt isdocument about how the debt is secured.

Financing Documents

• Mortgage/Deed of Trust• Document in which the borrowerDocument in which the borrower transfers the title to a third party (trustee) to hold as security for the lender.

• When the loan is paid in full the trustee transfers the title back to the borrower.

• By signing this document, the borrower gives the lender the right to take back the property if borrower fails to repay your loan asborrower fails to repay your loan as agreed.

Financing Documents• Who is promising to make the

payments? – Who is named in the agreement and who isWho is named in the agreement and who is

being asked to sign? – Are you or someone else giving a personal

guarantee?Are you signing in your individual capacity– Are you signing in your individual capacityon behalf of the entity? • Example: Charlie Brown vs. Charlie Brown, Member, Peanuts, LLC

– If you are signing as an individual you are– If you are signing as an individual you are giving a personal guarantee for the loan (acting as a guarantor)

– A personal guarantee means if there is a default the lender can go after yourdefault the lender can go after your personal assets

Title Policy

• Title Policy/Insurance (2 part transaction)1. The company or attorney searches property records (60 years) to ensure that there haven't been any errors, y ) y ,omissions in deeds, unknown liens or fraud involving the deed. Verifies that the seller really owns the property and is free to sell it. 2. The entity doing the search contracts with an underwriting company to issue an insurance policy that will pay to defend the buyer/lender in court if anyone challenges the title and cover losseschallenges the title and cover losses.

‐Buyer/Lender policy?• Read the exceptions to the policy‐ understand what is

not covered!not covered!

Closing

• Buyer is responsible for all settlement/closing costs unlesssettlement/closing costs unless negotiated. Get an estimate and be prepared!

• Seller and Buyer split recordation tax and State or local transfer taxes unless negotiatedtaxes unless negotiated otherwise.


INSURING YOUR FARM


INSURANCE 101

How insurance worksIn general, insurance works by spreading the cost of unexpected risks among a large number of people in thesame region who share similar risks.

When you take out (buy) an insurance policy, you pay a monthly or annual premium. That money joins thepremiums of many other policyholders and goes into a big pool of funds from which the insurance companypays claims.

A premium is the amount you pay an insurer for insurance coverage.• It reflects what the insurer (the insurance company) believes is the likelihood you will experience a loss

and make a claim. So, any prior claims that made will probably increase the premium as might yourpersonal or business credit score.

• It also includes an insurer’s business costs, and may also reflect the benefits of any discounts or bonusesthe insurer may offer to you.

• The amount you have to pay is shown in the policy schedule which the insurer will send you when they• The amount you have to pay is shown in the policy schedule, which the insurer will send you when theyprovide you with a copy of your policy.

An insurance policy isa contract

The insurance company has agreed, through your contract, to cover certain types of risks should they materialize,up to a certain amount (the policy limit).

An insurance policy lays out all the terms of the coverage.• It often begins with covered risks—these are the events, if they materialize, for which the farmer is eligible forpayment. Look for language like "This insurance covers. . . " "We will pay for. . . " "Coverage is provided. . . "• Then is spells out all the things that the insurance company will not pay for (“exclusions”)Then is spells out all the things that the insurance company will not pay for ( exclusions ).• It includes detailed instructions for filing or reporting a claim, which must be followed in order to not breachthe terms of the agreement and forfeit coverage.

The insurance policy has monetary limits.• These limits come in different forms. Liability coverage will have “total liability” limits.• Umbrella policies might raise or distribute policy limits, but a limit remains.

An insurance policy isa contract

A full insurance policy is often between 30 and 50 pages long. Customers almost always receive a copy of this fullpolicy, but they often don’t read it or even know that they’ve received this important document in the first place. (Itmight be delivered by email or stored in the customer’s online profile.)

Often there is a “declarations page” at the front of the packet. The declarations page is not part of the contract. Itis primarily a listing of what coverages are included (usually listed by form number) and the limits of coverage foreach occurrence.

After the declarations page, there will be policy forms. An important first step is to make sure you have all of thecorrect forms. Do not trust the insurer or broker to have sent you the correct forms, or all of the forms. Make sureyou have the declarations page for the policy period in which the loss occurred. Check the declarations page, andyou a e t e dec a at o s page o t e po cy pe od c t e oss occu ed. C ec t e dec a at o s page, a dfind the list of forms and the code numbers. Most policy forms have their identifying code number in the header orfooter. You will save a lot of time, energy, aggravation and money by making sure you have all of the correct formsprior to reading them.


FARM LIABILITY INSURANCE

What liability insurance is not

Liability insurance is not:

Crop insurance ‐ Crop and livestock insurance cover the farm from significant loss caused by a naturalp p g ydisaster.

Property damage or loss insurance ‐ Property insurance generally covers damage to your propertyfrom weather events, fire, theft, or vandalism (damage due to a casualty occurring). Property

l l l f b kd l f l l hinsurance policies can also cover losses from equipment breakdown or loss of electrical power. Theproperty covered can include buildings, tools, equipment, machinery, seed stock, animal feed, and soon. Specific buildings or elements of buildings can be excluded from coverage such as roof damagefrom a hailstorm or an unused outbuilding.

Health insurance

Life insurance

What liability insurance is

• Liability insurance, sometimes called third party insurance, covers the policy holder's liability to otherpeople.

• Liability insurance policies normally protect a business in two ways: first, by paying the costs to defend thebusiness against accusations made by others for certain alleged injuries, and second, by paying legaljudgments or voluntary settlements to the accusing party.

• General liability insurance covers property damage to someone else’s property (e.g., your green housecomes loose and is blown into a customer’s car and causes damage) and personal injury claims (e.g., someoneslipping and falling at your farm).

• Product liability insurance protects against problems with the products a vendor is selling, like someonecontracting a foodborne illness from food grown or processed on your farm.

How can farm liability insurance help you?

Liability insurance provides financial protection when someone files a lawsuit against you or your business (whichever is insured underthe policy).

It typically pays for and/or provides you with a lawyer to defend you or your business against the lawsuit and will pay any damages It typically pays for and/or provides you with a lawyer to defend you or your business against the lawsuit, and will pay any damagesthat might be adjudged against you or your business.

Insurance can’t stop something from happening. But, if something unexpected does happen that is covered by your policy, it meansyou won’t have to pay the full cost of the loss.

That means that if something goes wrong, you’re much less likely to have to raid your savings or your investments, borrow money, askfamily or friends for financial help, or sell your assets to pay for repairs, building or outstanding debts.

Y 't h t l i t f t d it th t ll l h l i di t it ti lik fl d You won't have to rely on assistance from governments and community groups that usually only help in disaster situations like floodsor fire where the assistance might not reflect the extent of your loss and so may not help you to rebuild your farm, your life.

Remember: Anyone can sue you for anything. Even if the claim is frivolous and gets dismissed, you’ll still spend money on lawyers.

Your rights and obligations under a liability policy

Your Rights Indemnity pursuant to the terms of the insurance contract (to have your legal costs including your defense and expenses paid for for covered claims)

y p y

To settle a reasonably clear claim brought against you Notification if an insurer becomes insolvent Notification of termination of policy (and right to appeal/opportunity to cure any breach)

Your Obligations Pay the premiums Be honest in your application for coveragey pp g Keep the insurance company informed of any all changes to your business operation Cooperate with claims investigations and in any defense in litigation brought against you or your farm as the insured

The insurance company’s rights and obligations

Insurer’s RightsReceipt of premiums

g

Receipt of premiumsInsured’s cooperation in claims investigation and defense of lawsuit

Insurer’s ObligationsThe duty to defendThe duty to indemnifyThe duty to settle a reasonably clear claim


TYPES OF LIABILITY COVERAGES

Commercial General Liability Insurance

Commercial general liability insurance covers bodily injuries, property damage, and a handful of losses that could occur as a result of theoperation of your business. Commercial insurance extends the farm’s liability coverage to a broader set of circumstances including off‐farmsales and coverage for things like indemnification and recall costs, to name a few possibilities. The main purpose of this insurance is toprotect the organization that owns the policy from losing all of his/her assets if s/he is sued.p g p y g

General liability is also sometimes known as “slip and fall” insurance, and it is particularly important if you have a “premises,” like a farmers’market booth or shop, where the public will visit your business.

If you are leasing your space, it is likely the owner will require you to have this insurance, and may ask you to add him/her to your policy asan “additional insured.” You’ll need to check with your insurance provider to see how and if you can add another person or organization toyour policy.

Farms selling to grocery stores and wholesale distributors may wish (or be required by the buyer) to carry a commercial general liabilityFarms selling to grocery stores and wholesale distributors may wish (or be required by the buyer) to carry a commercial general liabilityinsurance policy.

Both non‐profit and for‐profit businesses should have general liability coverage to protect the assets of the organization or business fromlawsuit. This coverage will depend on your particular business structure and costs will depend on the specifics of your operation and yourl tilocation.

Commercial General Liability Insurance

How much does commercial general liability insurance cost?• The type of insurance typically depends on the type of business. Schools, for example, tend to require higher coverage thanmost other garden locations. Other variables to consider are size, the presence of animals, and if children are involved.

What are some options for nonprofit community gardens?• If your community garden project is a nonprofit, one economical approach is to find an existing nonprofit organization tofiscally sponsor your project and include you under the umbrella of their general liability insurance. Otherwise, insurancepurchased by a small organization can be much more expensive than asking a larger organization to sponsor your gardenpurchased by a small organization can be much more expensive than asking a larger organization to sponsor your garden,such as a local gardening association, church, or other community group.

• Another option is to contact a land trust in your state, or the Land Trust Alliance (LTA), as these organizations have adiscounted insurance package for members.p g

• If your organization is a 501(c)(3) nonprofit, you can also go through insurance companies that work exclusively withnonprofits.

Product Liability InsuranceProduct liability insurance protects you if a customer gets sick from your food product.

Whether you purchase this type of insurance probably depends on what type of food product you’re providing andy p yp p y p yp p y p gthe level of risk associated with that product.

Products liability in the realm of agriculture involves the liability for selling produce or value‐added products thatare unsafe for consumption For example if you’re selling bread or granola your risk may be low enough that youare unsafe for consumption. For example, if you re selling bread or granola, your risk may be low enough that youcan forego this type of insurance. If you’re selling animal products like cheese, products liability insurance is muchmore appropriate.

F ll h d t li bilit hil d ll d ’t i th t b fit ti d ’t k tFarms usually have products liability, while gardens usually don’t since the cost benefit ratio doesn’t work outfavorably for volunteer‐supported, non‐income generating endeavors. If you’re not selling produce, it’s notnecessary for a garden to worry about products liability.

Product Liability InsuranceWorkers comp and general liability are more often required in certain agriculture operations than products liability,although it is not advisable to go without this insurance if you are selling your processed or preserved food, orvalue‐added products.

If you’re selling produce, products liability insurance is recommended by most commercial farmers. If you’replanning a production agriculture program, you should also consider products liability insurance. If there’s minimalexposure from an organization with minimal assets, you might consider going without products liability unless thereis a requirement by a landlord or other party to have this insurance in place. At the very least, you should contactother agriculture operations in your area to see if they have obtained products liability.

Some commercial general liability policies provide some product liability coverage so any farmer with significantSo e co e c a ge e a ab ty po c es p o de so e p oduct ab ty co e age so a y a e t s g ca tsales may want to explore this option.

Commercial Automobile Insurance

• Commercial automobile coverage protects you from lossesincurred while employees and volunteers are using your vehiclesp y g yfor purposes of your farm business, and for damage done to thevehicles.

•Most policies address each individual vehicle separately, andcoverage and costs vary depending on factors such as vehicle sizeand intended use.

Workers’ Compensation InsuranceThe day‐to‐day tasks of farm employees provide many opportunities for accidents to happen, no matter how careful and skilled theemployees may be. Insurance can compensate an employee for an injury, whether through workers’ compensation or another policy.

W k i j iWorker injuries Farming is dangerous and worker injuries can and do happen no matter what precautions are taken. The most risk adverse approach is to carry workers’ compensation or other insurance to cover injuries for ALL of the farm’s workers— including employees, interns, and volunteers‐ whether required by law or not. If a farm does not carry workers’ compensation, the farm should explore other options as injured workers (or their health insurance companies) may sue the farm. A commercial policy may offer coverage for part‐time andinjured workers (or their health insurance companies) may sue the farm. A commercial policy may offer coverage for part time andseasonal workers. For year‐round employees, finding coverage other than workers’ compensation may be very difficult.

Volunteers: In general, if you are working with volunteers, it may be beneficial to cover volunteers in your workers comp plan to eliminatethe potential for tort claims by injured volunteers against employers. Workers comp for volunteers, however, is not mandatory in most states, and some states don’t even allow workers comp to cover volunteers. In Virginia, volunteers are not considered employees and thus are not covered under the Virginia Workers Compensation Act. Employers should look into how their state considers volunteers for the purpose of workers comp insurance.

Workers’ Compensation InsuranceCostsWorkers comp cost depends on what the employees do, their classification, and your local situation. Policy rates are based on the size of your payroll and the types of tasks your employees perform. If employees spend most of their time running tillers or power tools, or even just doing physical work, the price will be higher than if employees are working from an office. Costs can also depend on how your employees’ work is represented. If, for example, a gardener spends most of her time weeding, you wouldn’t want to classify her in such a way that it would seem she’s frequently using power equipment, as a landscaper might. Your agent can help you classify your employees. Be aware, however, that if you claim a worker never uses anything bigger than a shovel, and she gets hurt driving a tractor, you could be in trouble.

A word to the wise for urban farmsSome urban farms have found that their worker’s compensation policies are unusually expensive, in spite of the fact that there is a low risk of injury in urban farming. This is because insurers often liken an urban farm to a large commercial farm that involves trucks, tractors, chemicals, repetitive motion activities, or other activities with a higher risk of injury. It’s a good idea to call around until you find an insurer or broker that understands urban farms.

Other Considerations Even if workers’ compensation is not required, farmers still need to reckon with employee injuries. An employee not covered by workers’ compensation could sue the farmer for negligently causing the injury, just like a customer or guest could. If the employee used a private health insurance plan to pay for the injury, the decision to sue could be made by that company. Legal liability is not always clear cut and is often decided by a judge or jury. If you are sued and win the case, you will still have to pay the costs of going to court. If you lose, you will have to pay the judgment, which may force closure of your farm business.

If a farmer does not purchase workers’ compensation, he or she may have a couple of options for insuring employee injuries. Some insurance companies will offer limited employee coverage in their standard farm liability policies. More commonly, farmers may purchase a commercial line of insurance with coverage for seasonal and temporary farm employees. Insuring full‐time, permanent farm employees can be a challenge. The market for these policies is small, as farm businesses decline in numbers and fewer still have full‐time, year‐round help; some farmers will find that workers’ compensation is their only option.

Other Types of Liability Insurance

• Professional liability• Premise liabilityPremise liability• Directors and officers insurance if you have a board of directors• Personal injury liability (libel slander etc )• Personal injury liability (libel, slander, etc.)• Advertising injury liability• Coverage or a duty to defend a nuisance claim• Coverage or a duty to defend a nuisance claim• Coverage or a duty to defend an environmental violation claim

What kind of liability insurance do I need?

Before you decide what kind(s) of insurance to buy, you shouldidentify the risks associated with what you’re doing and how yourf lfarm operates. For example:

• Do you sell food at a farmer’s market? You might need “slipand fall” insurance to cover you for any accidents that occur inand fall insurance to cover you for any accidents that occur inyour booth or space.

• Do you use a delivery vehicle? You’ll need an automobilei liinsurance policy.

• Do you have employees? Then you’ll need workers’compensation insurance.p

How LAND affects your choiceThe type of land you’re using to grow food is also a factor to consider whendeciding what kind of insurance you might need.

For example:If gardening on someone’s private property, you could use the landowner’sg g p p p y, yhomeowners insurance to cover liability due to injury, to an extent.If you’re growing food on land leased from the city, then the city will likelyrequire you to obtain general liability insurance.require you to obtain general liability insurance.If gardening on a vacant lot, then general liability insurance could beimportant.

Farming on Government Property

If you are implementing an urban garden through local governmentproperty or programs, then it is possible that the government willprovide for liability insurance against personal injuryprovide for liability insurance against personal injury.

In turn, the gardeners might accept responsibility for gardenh d lmaintenance on the city‐owned lot.

Sometimes, use of public lands is conditioned on gardeners acquiringSometimes, use of public lands is conditioned on gardeners acquiringliability insurance, including insurance covering personal injury anddamages from gardening on the land.

But what about my homeowners insurance?

Basically, homeowners insurance includes personal liability for the homeowner on thepremises. Business operations are usually excluded, and coverage limits to personal propertyfor businesses are typical and may be only a couple thousand dollars.

Some homeowners policies have endorsements that can be added, which are modifications tothe general policy that add or remove provisions to serve particular needs. The sameendorsements are available in many states and can increase the price of the homeowners

li h l f d il bl dd “b i ” li bili dpolicy. There are only a few endorsements available to add “business” liability coverage, andtheir intent is to cover non‐professional employee operations with no customer traffic, andlimited equipment.

The applicability of endorsements can also depend on the size of your farm or garden, and theparticular insurance company’s classification scheme (and if the insurance underwriters arewilling to extend the coverage to include endorsements!)

How OPERATIONS affect your choice

If you’re involved with an urban farm or garden, insurance considerationsshould be based on how you operate.

For example, if your model is for personal use, you don’t employ anyone, andyou are donating all your food, your insurance needs will primarily involve ageneral liability policy.general liability policy.

On the other hand, if you have a commercial model where you are growingfood to sell, then you will need to consider a general liability policy, as well asfood to sell, then you will need to consider a general liability policy, as well asworkers compensation and products liability.

In most cases you should consider general liability insurance workers compIn most cases, you should consider general liability insurance, workers comp,and products liability.

How are farms similar to yours insured?

• Contact other farms in your area, or farms in existence that are similar in size (also consider land type and number of volunteers and employees) to see what they are doing to insure their operationsemployees) to see what they are doing to insure their operations.

• Ask them to steer you to a good insurance agent, or consider getting f f ’ kassistance from Farm Bureau, your farmers’ market association, or

Maryland’s Department of Agriculture.

• Specialized policies are often available, which cater to your specific program and are defined by your local situation.

How much liability insurance should I buy?

This is a business decision only you can make. There are a lot of types of insurance available and each comes withdifferent policy limits. There is no simple answer to which liability limit a farmer should choose. Think about therisk level associated with your particular farming operation, and talk to a good broker or agent who’s familiarfarming.

y

farming.

A good starting point is to ask yourself the following questions: • How high is the risk that such an incident will occur? • How devastating might a particular risk be if it materialized? • Are buyers, partners, or other entities expecting a specific level of coverage? • How much can the farm reasonably afford for insurance risk protection?

Consider more coverage for those items or aspects of your farm business where your discomfort with the risk ishighest. The goal is to strike the right balance of not paying too much in premiums but paying enough to be surethat adequate coverage is available if and when you need to file a claim. Each farmer has to balance his or herbudget risk tolerance and chance of injurybudget, risk tolerance, and chance of injury.

Is there anything else I should know?

Shop around for coverage. Find an insurance broker or agent who understands your farm business and the particular risks associatedwith what you’re doing. Rates can vary widely from one insurance company to another.

Ask lots of questions. Make sure your insurance provider understands what you’re doing, so that you get the coverage you need. Forexample a products liability policy might cover your sales of produce but not meat and dairy And your policy might not coverexample, a products liability policy might cover your sales of produce, but not meat and dairy. And your policy might not cover“temporary structures” like tents or tables used in your farmer’s market stall. You don’t want to find this out after you submit a claim.

Manage risk. Be safe. One of the best ways to manage risk is to adopt safety practices and policies – a little care goes a long way inpreventing injury and avoiding liability. For example:

Include liability waivers when working with volunteers or employeesInclude liability waivers when working with volunteers or employees Train people on safety, remove hazards, post warnings Adopt safety policies for your farm Test your soil to reduce risk of harm to consumers: If you happen to be planning for raised beds on a particularly polluted site, under

the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as “Superfund,” ap p , p , y ( ), y p ,purchaser of property with contamination on site can be an “owner” of contamination and responsibility to clean the site. To seekprotection from environmental liability, conduct a Phase I Environmental Site Assessment in accordance with ATSM 1527 (“AllAppropriate Inquiry” or the Due Diligence most lenders require) prior to acquisition or acceptance of a property. This assessmentprovides a defense against liability under CERCLA.

I i l t d i d t E h t t l t th i i th t d b i i th i t t Y h i ht t Insurance is a regulated industry. Each state regulates the insurance companies that do business in their state. You have a right to sueyour insurance company for breach of contract or unfair business practice/bad faith for mishandling claims and/or to sue your insuranceagent for negligence.

BUSINESS ORGANIZATION STRUCTURES AND HOW THEY WORK2018 UMES Small Farm Conference: Business and Legal Considerations for Beginning Farmers

BUSINESS ORGANIZATION STRUCTURES AND HOW THEY WORK WITH LIABILITY INSURANCE TO PROTECT YOU AND YOUR FARM

What is a business organization structure?

A business organization structure is the legal structure or form that outlines the

“Formal entities”• C corporationlegal structure or form that outlines the

legal parameters of a business operation. Many business organization structure options exist.

p• LLC• Limited Partnership• B corporationstructure options exist. B corporation• Cooperative• Nonprofit• S corporation which actually is a• S corporation, which actually is a federal tax status that can be applied to a C corporation, the LLC or the B corporation.


“Default entities” •Sole proprietorship

Default entities are still subject to laws that define business operations that Sole proprietorship

•General partnership•Unincorporated nonprofit association

phave not formally created an entity. For example, if a farmer is selling crops or livestock, they’ll be considered a

association sole proprietorship if they haven’t taken any other steps to define the business. If two friends come together

ll d i h illto sell a product or service, they will be recognized by the law as a general partnership–even if they don’t file any paperworkpaperwork.


Every business entity, including the default soleproprietorship and general partnership, carrieslegal implications. These implications help definetax treatment and answer the questions of whohas which rights and privileges, who has theauthority to make decisions, when and how

k d f d h ’ l blowners take a draw on profits, and who’s liablefor which decisions and actions.

What is the benefit of putting my farm into a business organization structure?

While forming a formal entity, such as a C corporation, LLC, cooperative, or nonprofit, or electing S corporation tax status can take time andmoney and require certain formalities, these efforts come with privileges.

Th i ifi b fi f f l b i i i h h ’ l d f h b i ’ li bili i ThiThe most significant benefit of a formal business entity is that the owners’ personal assets are protected from the business’s liabilities. Thismeans that if the business incurs debt and is not able to pay its bills, or if it is sued for some wrongdoing, the owners’ personal assets–such asvacation homes, land, boats, wages, individual bank accounts, etc.–cannot be touched by creditors or the courts to pay off the business’sdebts. Formal business entities offer business owners a sense of relief. Basically, their risk is limited to the amount that they invested in thecompany. No more, no less.

With that said, the business entity must abide by certain formalities to maintain this protection. This includes keeping the business’s financialaffairs separate from the owners’ individual affairs, namely by keeping separate bank accounts and accounting systems. In addition, theowners must ensure that the business is adequately capitalized, which means that the business can’t recklessly spend money and live

l d h h h ll b d h d d h f h b dextravagantly outside its means in hopes that the owners will be protected. Such conduct undermines the integrity of the business entity and,in effect, the courts could use the owners’ personal assets to cover the business’s liabilities.

Another benefit of having a formal business entity is that the formalities themselves actually promote good business practices. For example,by having separate bank accounts the business may maintain more accurate and diligent accounting which may save money and identifyby having separate bank accounts, the business may maintain more accurate and diligent accounting, which may save money and identifyopportunities for expansion. In addition, a well‐thought‐out organizing agreement will foster better communication and understanding aseveryone will share similar expectations even through challenging times.

What is the benefit of putting my farm into a business organization structure?

A formal business entity can help a business raise funds from outside investors. This includes obtaining loans from bankinginstitutions as well as seeking investments from wealthy individuals like venture capitalists and angel investors. Institutionsand investors often prefer a stable entity that carries legal protections. In addition, the formal business structure assuresh h h i h b i i h i i d h h i f di ill b k i l d ithem that the owners are operating the business with integrity, and thus their funding support will be taken seriously and isless likely to be frittered away. Farm owners who anticipate needing a significant amount of funding from the outside shouldconsider this factor when deciding which business entity is right for their goals.

On the other hand, traditional farm lenders such as the USDA Farm Service Agency may occasionally raise concerns aboutfarm businesses organized as LLCs or corporations. These concerns can usually be resolved by working with the lender toshow the entity reflects the same fundamental organization as the sole proprietorship or general partnership with theadditional benefits of a formal entity.

Finally, a formal business entity can ease the transition process of the farm operation. Succession planning is a huge issuethat farmers face. Having a formal business entity provides the opportunity to set clear ground rules and processes for howthe transition will take place. A formal entity creates a useful way to transfer the business as a whole rather than individualassets. It can also provide more favorable tax benefits. For example, if the farmland is placed in ownership of a formalbusiness entity such as an LLC or a C corporation, it may be insulated from higher estate taxes if the heirs are properly namedas owners of the entity itself.


YOUR FARM’S BUSINESS ORGANIZATION STRUCTURE

TYPES OF BUSINESS ORGANIZATION STRUCTURES2018 UMES Small Farm Conference: Business and Legal Considerations for Beginning Farmers

TYPES OF BUSINESS ORGANIZATION STRUCTURES

Sole ProprietorshipAdvantages• No filing is required by the state

Disadvantages• The business ends upon the death of the owner• Limited to two sources of business funds:

Personal assets Borrowed capital Borrowed capital

• All income earned in a sole proprietorship is taxed as personal income (owner pays self‐employment taxes)

• Doesn’t shield personal assets from liabilities incurred by the business and vice versa• Doesn t shield personal assets from liabilities incurred by the business, and vice versa* Liability insurance is really the only protection available

Partnership

A partnership is a separate legal entity created by two or moreindividuals who each contribute capital, equipment, and skills,p , q p , ,and share in the profits and losses

Partnerships come in two forms:1) General Partnership) p2) Limited Partnership

General PartnershipAdvantages• Simplest form (no formalities)

Disadvantages• Partners are taxed on profits• Partnership dissolves upon the death or incapacitation of one partner, or any one partner justdeciding to walk awaydeciding to walk away• Capital for the business is limited to what can be borrowed or personal assets of the partners• Liability is not limited to just business assets. Personal assets are potentially liable for legalclaims against the business or other partners.

*If the partnership has liability coverage, that coverage(s) may be deemed to be primary, thushelping to shield partners from the full financial impact*Individual partners may also benefit from obtaining liability coverage for their actions asIndividual partners may also benefit from obtaining liability coverage for their actions aspartners, which may help further shield their personal assets

Limited PartnershipHas “general” partners and “limited” partners

Advantagesg• Sources of capital can expand beyond personal contributions and borrowed capital; the

partners can invest in the business and will only be liable for the amount of their investment(not full liability)

Disadvantages• Formation requires general partners to file a certificate of limited partnership with the State• Limited partners are taxed similar to a general partnership

*If the partnership has liability coverage, that coverage(s) may be deemed to be primary, thushelping to shield partners from the full financial impact*Individual partners may also benefit from obtaining liability coverage for their actions asIndividual partners may also benefit from obtaining liability coverage for their actions aspartners, which may help further shield their personal assets

CorporationA corporation is owned by its shareholders (individuals and/or other businesses)

Advantages• Can raise funds through sales of stock shares• Can raise funds through sales of stock shares• Can loan and borrow money• Can own assets• Owners only pay taxes on the corporate profits paid to them either in salary or dividends while any other

additional profits are taxed at the lower corporate tax ratep p• Shareholder’s personal assets are protected from any debts stemming from actions taken by the company

and can only be held accountable up to their investment in the company (purchase of stock)

Disadvantages• Formalities of setting up and maintaining business entity structure• Double taxation on dividends paid to shareholders

*The corporation is going to have liability coverages to protect the company’s assets*B d b ffi ti b d i di id ll d li i i th i ti t k i*Board members, officers, executives may be covered individually under policies covering their actions taken intheir respective roles within the company

Limited Liability CompanyAdvantages• Any entity (individuals, partnerships, trusts, estates, corporations or other LLCs) can beowners• Less formalities than forming a corporation (but still some requirements)•Members decide how they want to be taxed (spelled out in the operating agreement)• Forming an LLC for your business can limit your liability and provides an extra layer ofprotection on top of insurance which the LLC is going to have for itself and which you mayprotection on top of insurance, which the LLC is going to have for itself and which you mayhave individually to cover your actions in your role as an owner

If you are sued, the claim will be limited to the assets owned by the company. Your personalassets such as your home car and personal bank accounts are protectedassets – such as your home, car, and personal bank accounts – are protected.

Remember: this “shield” over your personal assets is not absolute. For example, you wouldn’tbe protected if you commit intentional fraud, and you can destroy the limited liability

i if h LLC b k l S f i l dprotection if you treat the LLC bank account as your own personal account. So act fairly andlegally, fund your LLC adequately, and keep LLC and personal business separate.

CooperativeA cooperative is a farm, business or other organization owned and run jointlyby its members, who have a common goal and who share in the profits

The cooperative does have to register as a legal structure (LLC, corporation,etc.). This is an advantage in terms of limiting members’ liability. Dependingon the structure, the cooperative will have liability insurance, and member’son the structure, the cooperative will have liability insurance, and member smay seek coverage(s) depending on their responsibilities within the structure.

Cooperatives offer tax advantages similar to an LLC. They’re not usually taxedCooperatives offer tax advantages similar to an LLC. They re not usually taxedon dividends paid to members so members are only taxed once on theirincome from the cooperative and not both individually and as thecooperative.


BUILDING GOOD CONTRACTS AND SALES AGREEMENTS

I have a large buyer who wants me to sign a boilerplate agreement. What should I do?

• If you need the sales offered by the large buyer, and are given no choice but to sign the agreement, you may not be able to negotiate its terms. Still, there are things you can do to respond to the long‐term issue of dealing with large buyers on undesirable terms. Above all, the more you know, the better off you’ll be.

• Although you can often work out agreements with smaller wholesale buyers, with larger entities your hands are often tied, and you’ll need to make personal decisions about whether their terms are reasonable and what you and your business can live with. Knowing your own boundaries, values, and objectives can help you have appropriate expectations so you don’t feel like the buyer is taking advantage of you.

• If you don’t like the terms and the vendor won’t change them, you can also talk to other farmers who do business with the vendor. How do they feel? Would they be open to joining you in negotiating with that vendor or possibly switching to a better one? That might be difficult if there aren’t other big vendors to choose from, but it doesn’t hurt to communicate with other producers. Knowing about other farmers’ experiences is always helpful.

• Even if you don’t have a lot of power to negotiate with large distributors, you should at least know the terms of the boilerplate agreement, read it carefully and even run it by an attorney if you have questions. It’s better to ask an attorney those questions than it is to ask the large distributor, who just wants you to quickly sign the agreement. Start with our resources below to learn more about what boilerplate provisions mean and how they are enforced.

Some of my retail and restaurant customers don't pay on time or have last‐minute cancellations. Is there anything I can do

about this that isn't costly or drastic?

• Communicate clearly and often, and then memorialize your understanding as a written agreement. Sometimes it seems like every small retail and restaurant business has its own unique way of handling payments scheduling cancellation policies and so on Itown unique way of handling payments, scheduling, cancellation policies, and so on. It can be challenging, but building solid relationships starts with a long conversation about these issues. Once the farmer and the buyer are on the same page, it is pretty easy to document that understanding. Writing it down helps both parties remember the g g p pdetails. (It also makes it easier to enforce the agreement, although farmers and their buyers are unlikely to choose such a strategy.)

• Clear communication also includes ongoing conversations, which may be in the form of g g , yemails, texts, and phone calls, as appropriate to the business and situation. Many farmers regularly review the main points of the agreement and ask if any questions or concerns have arisen. Clear invoicing is also helpful in getting paid in a timely manner. The things on the invoice ought to be “old news” by the time the buyer receives it, which can be helpful as no one likes surprises on an invoice.

Do I need insurance for wholesaling?

• Yes, you do. Typically, wholesale distributors and grocery stores require farmers to carry commercial liability insurance covering anywhere from $1 million to $5 million dollars. You will want to talk to your insurance agent to confirm what your policy provides

g

You will want to talk to your insurance agent to confirm what your policy provides. • Most sales agreements also include what’s called a “Risk of Loss” provision. This

specifies when each party bears the risk if the product is damaged or lost. It’s important for both parties to know—and for your agreement to specify—when the risk shifts fromfor both parties to know and for your agreement to specify when the risk shifts from the farmer to the buyer. For example, who is responsible for the product between the time it leaves the farm and the time it arrives at the buyer’s door? Does the third‐party delivery service (if you use one) have its own insurance to cover loss while in transit? y ( y )

• Additionally, most sales agreements include an “indemnification” clause, a promise by the other party to cover losses if they do something that causes you harm or causes a third party to sue you. A commercial liability policy may cover you for incidents arising p y y y p y y y gunder indemnification clauses, but be sure to review your policy or ask your agent to confirm that such coverage exists.

I've heard contracting ahead of production is a good idea. How can I be sure my customer understands and

shares the risks?• Use clear communication when constructing a production contract—and throughout your entire

relationship with your customer. Production contracts can work well for some farmers. But if the risks of something going wrong, from failed crops to liability for foodborne illnesses, fall entirely on the farmer, it’s not a good or profitable venture.farmer, it s not a good or profitable venture.

• Discussing and agreeing on shared risks means both you and the customer understand the “what ifs” and the possibilities that things could go wrong and the harvest may not be what everyone wants it to be. Communication happens at many points along the process of coming to an agreement and going forward with providing a service. Each point of contact is an opportunity for farmers to build a

l i hi h l l blstrong relationship that never encounters legal trouble. • Your production agreement will have a lot of details. You’ll need to agree on methods of planting and

production, quality standards, harvest, transportation, and payment, plus a few other things. In each instance, you need to be aware of your own expectations and those of your customer, and discuss whether each provision fulfills everyone’s expectations—or where compromises need to be madewhether each provision fulfills everyone s expectations or where compromises need to be made.

• You can also take additional risk‐mitigation measures, like obtaining crop insurance for bad weather or infestations, or liability insurance for foodborne illnesses. When working with large buyers, be aware of the Perishable Agricultural Commodities Act (PACA), a law designed to protect farmers from unfair business practices. There may be PACA provisions that protect you if you feel like your large buyer customer isn’t living up to their end of the deal.


MARKETING YOUR FARM

Farm Marketing

Off‐Farm Directto Consumer Marketing

• Road‐Side StandsC t /St t F i

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• County/State Fairs• Internet Sales• Buyers’ Groups• Buyers Groups• CSAs• Farmers Markets


Most Common Legal Issues: Liability Insurance Federal Assistance Programs (Food Stamps and WIC)

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Federal Assistance Programs (Food Stamps and WIC) Potential Food Safety Liability Collection of state and local taxes Producer/Market Operator Contractual Relations Geographical Restrictions Produce Restrictions Production Restrictions Certification Requirements Inspection and Labeling Requirements Food Handling Rules Food Handling Rules Producer Participation FeesWho handles getting the necessary permits and licenses? Is it the market operator or the producer? Contractual Legal Dispute Resolution Mechanisms

“Locally Grown”

When the terms local or locally grown or regional are used to promote an agricultural product, the name of the state from which each product was originally grown or raised must be immediately adjacent to the wordsimmediately adjacent to the words (local or locally grown or regional.)

This Buy Local regulation applies toThis Buy Local regulation applies to wholesale, retail stores, farmers markets and restaurants, among others.


Common Legal Issues With Farmers Markets:

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•Proof of product liability insurance or general liability insurance

•Cover the market as an additional insuredCover the market as an additional insured

•Indemnify the market

•Proof of appropriate local or state licenses for handling food sold

•Private contractual relationship between thePrivate contractual relationship between the vendor and the market


Your Community Supported Agriculture (CSA) Member Agreement Should Include:

g

• Number of weeks the CSA agreement covers • Products available: Give sample expected harvests throughout the

growing season, as they will change. • How much product to expect (such as a percent of the harvest) • Member’s risk. A statement such as: “Although the farmer agrees to use

good production practices to ensure a good harvest, the member accepts the risk of crop failure due to natural conditions that may decrease the harvest.”

• Amount and terms of payment p y• Delivery options, timeframe for pick up, or additional delivery fees • Forfeited product if the member does not pick up his or her share within

agreed timeframe, and what happens to the product • How to get in touch if either the farmer or subscriber needs to make

other arrangements for a scheduled deliveryother arrangements for a scheduled delivery

On‐Farm Directto Consumer Marketing

• U Pick OperationsO th F P d St d

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• On‐the‐Farm Produce Stands• Farm Tours or On‐the‐Farm EventsEvents


An Invitee Is a Person Invited Onto Your Property for Your Economic Benefit

g

•If you invite customers onto your property, your customers are invitees.

•Invitees are owed the highest duty of care•Invitees are owed the highest duty of care.

•Your duty is to protect them from unreasonable risks and keep the property reasonably safe.

•You should inspect the property for dangerous conditions, warn of these hazards, and remedy these unsafe situations.


INSURANCE

Insurance policies that cover normal farming activities or basic property insurance may not cover other direct‐marketing activities.

g

You may also need a comprehensive business policy or commercial business policy.

If customers are coming to your property to buy products or if you are doing value‐added food processing, you will need insurance that covers those kinds of risks.covers those kinds of risks.

It is important to tell your insurance agent exactly what you are doing in your business to get the right insurance coverage. If your policy excludes the types of activities you are doing and someone is hurt, then you rather than the insurance will have to pay.

Some farm‐direct marketing venues require you to carry a minimum level of insurance (for example, farmers markets and institutional buyers such as hospitals or universities). Some retailers or restaurants may also require proof of liability insurance, particularly if farm‐direct marketing continues to grow and become an established practice for those buyers.

Farm direct marketers also need insurance on vehicles for farm operations and deliveries and Workers’ Compensation insurance to coverFarm‐direct marketers also need insurance on vehicles for farm operations and deliveries and Workers Compensation insurance to cover injuries to employees in the course of doing business. Your insurance agent can ensure that you have all the insurance coverage you need to cover any injuries caused to others in the course of carrying out your farm‐direct business.


Eight Common Mistakes:

1. Selling more products at roadside stands that are produced

Five Key Phone Calls:

1. Local land use planning authorities

g

by others

2. Not carrying sufficient liability insurance

3. Failing to comply with labor laws

2. Insurance agent

3. State food inspection and licensing officials

4. Zoning violations

5. Allowing unsafe conditions to exist when inviting customers onto the farm

4. State department of agriculture’s marketing office

5. Attorney

And if you need help figuring out how to get a hold of the right

6. *Selling processed foods prepared at an unlicensed facility

7. Failing to abide by farmer’s markets’ rules

8 N t l i ith dk i d k l f

people, that’s what your Extension agents or ALEI’s Legal Specialists can help you figure out.

8. Not complying with recordkeeping and paperwork rules for tax or labor laws

On‐Farm Directto Consumer MarketingMaryland’s Processing and Selling Value Added Food Products Law Maryland’s Cottage Food Business Law

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On‐Farm Directto Consumer Marketingg

Off‐Farm Directto Retailers Marketing

Selling to: Most Common Legal Issues:P t ti l f d li i t

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• Grocers–Potential food processor license requirements–Payment issues–Certification of foodstuffs

• Restaurants

S h l

–Certification of foodstuffs*Transportation:

• Vehicle registration in all states where you • Schools

• Hospitals

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• Properly trained and licensed employeesp• Adequate insurance coverage

Marketing Help


YOUR FARM AND LABOR

Labor Law Mistake No. 1

• Interfering With At‐Will Employment– What?

• Employees can be terminated for any non‐discriminatory reason

– How?• Promises of continued employment• Employment Contracts/Offer Letters• Handbooks• Improper Job Descriptions• Improper Terminations

Labor Law Mistake No. 2• Neglecting the I‐9 Process

– What?• The I‐9 aims to verify the identify and status of workers.

• Requires employers to physically examine identifying documents within 3 days ofidentifying documents within 3 days of hiring.


– Why Important?• The form is the employer’s defenseThe form is the employer s defense against a potential claim of knowingly employing an unauthorized worker.

• As long as the documents reasonably i d b l happear genuine and belong to the

worker presenting them and the employer has recorded this inspection properly on the I‐9 form, the employer has the basis of a valid defense.

Labor Law Mistake No. 3• Failing to Pay Minimum Wage/Overtime– Understand and apply the exemptions correctly

– Make sure the work meets the definition of agriculture

Exemptions to Minimum Wage

• Agricultural employees who are an immediate family member of their employer

• Those principally engaged on the range in the production of livestock• Local hand harvest laborers who commute daily from their permanent residence are paid on a piece rate basis in traditionallypermanent residence, are paid on a piece rate basis in traditionally piece‐rated occupations, and were engaged in agriculture less than thirteen weeks during the preceding calendar year

• Minors, 17 years of age or under, who are hand harvesters, paid on a piece rate basis in traditionally piece‐rated occupations, employed on the same farm as their parent, and paid the same piece rate as those p , p pover 17

Exemptions to Minimum Wage

• Maryland excludes employees engaged in canning, freezing, packing or first processing of perishable or seasonal fresh fruits, vegetables or horticultural commodities, poultry or seafood from the State minimum wage requirements. Unless these types of employees are excluded for another reason they would stillof employees are excluded for another reason, they would still need to be paid minimum wage under federal law.

• Additionally, if the employee is under 20 years of age, the State of Maryland permits an employer to pay the employee, for the first six months, a wage equal to 85% of the State minimum wagewage.

500 Man Day Exemption

• The 500 Man‐Day Exemption allows smaller scale farm operations to pay employees less than minimum wage if, p p y p y g ,during each quarter of the preceding calendar, the farm employer used no more than 500 agricultural‐worker days.

• A man day is defined as any day during which an employee performs agricultural work for at least one hour.

• 7 workers x 5 days/week x 13 weeks= 455 man days

Overtime

• In Maryland, agricultural employers must pay an employeeovertime pay for all hours over 60 hours a week.

Agricultural Labor Exemptions

• The work done by the farm employees must meet the definition of agricultural work outlined in the law.

• Primary agricultural work is related to planting, maintaining, and harvesting crops, as well as raising animals.

• Secondary agricultural work is done by a farmer or on a farm and is• Secondary agricultural work is done by a farmer or on a farm and is incidental to and in conjunction with (subordinate) the primary farming operation includes preparation for market, delivery to storage, delivery to

k t d li t i f t t ti t k tmarket, or delivery to carriers for transportation to market. • If an employee in the same workweek performs work that is exempt (fits the

definition of agricultural work described above) and work that is non‐exempt g ) pbut covered by the FLSA, the employee is not exempt for the entire week and the minimum wage & overtime requirements of the law apply.

Labor Law Mistake No. 4• Misclassifying Independent Contractors–Why?

• Reduce labor costs by not paying unemploymentpaying unemployment insurance taxes and other payroll taxes, as well as Workers’ Compensation Insurance premiums and providing benefits. p g

• Unintentional misclassification


– How to know• A contract doesn’t do it. Reality rules. • ABC Test, an employee unless:• The individual is free from direction and control;

• The individual is customarily engaged in an• The individual is customarily engaged in an independent business of the same nature as that involved in the work; and

• The work is outside the usual course of business of the person for whom it is performed OR the work is performed outside any place of business of the person for whom it is performed.for whom it is performed.

Labor Law Mistake No. 5• Improper Employment of Minors

– As long as labor is outside of school hours and non‐hazardous, State law for employment of minors does not cover “farm work that is performed on a f ” d/ ki ffarm” and/or working for a parent.

– Fair Labor Standards Act applies


• Minors working in agriculture on a farm owned or operated by his or her parent is exempted from Federal agricultural child labor provisions.

• Minors who are not the children of• Minors who are not the children of the farmer employing them are subject to Federal child labor provisions that differ by age:

• Minors are no longer subject to the Federal agricultural child labor provisions when they reach 16 years of ageyears of age.

Labor Law Mistake No. 5• Minors aged 14 or 15 may perform

any nonhazardous farm jobs outside of school hours and with proper

• Children under 12 may be employed outside of school hours in nonhazardous jobs on of school hours, and with proper

training and certification, they also may perform certain hazardous duties.

jfarms not subject to the Fair Labor Standards Act (FLSA) minimum wage if their parent is also employed on that farm or

• Minors aged 12 or 13 may be employed outside of school hours in

also employed on that farm or has given consent.

• Children aged 10 or 11 may benonhazardous jobs, but only on the farm on which their parent works or with the written consent of a parent.

• Children aged 10 or 11 may be employed to hand‐harvest short‐ season crops outside of school hours under special sc oo ou s u de spec awaivers granted by the U.S. Department of Labor.

Hazardous Duties

• Operating tractors of over 20 PTO horsepower; • Operating or assisting to operate corn pickers, grain combines, hay movers, potato diggers, trenchers or earthmoving equipment, or power‐driven circular, hand or chain saws;

• Working in a yard pen or stall occupied by a stud animal or a sow• Working in a yard, pen or stall occupied by a stud animal or a sow with suckling pigs;

• Working inside a silo or manure pit; • Handling or applying certain agricultural chemicals (pesticides, anhydrous ammonia).

Other ResourcesRisk Management:Extension Risk Management Educationhttp://extensionrme.org

Financing a Farm Loan:Small Farm Program(http://sfp.ucdavis.edu/pubs/Family_Farm_Series/Farmmanage/finance)

Northeast Extension Risk Management Education Center(http://www.nerme.org)

Ag Risk + Farm Management Library (https://agrisk umn edu)

Understanding The Basics Of Commercial Loan Documentation(https://csbcorrespondent.com/blog/understanding‐basics‐commercial‐loan‐documentation)

Ag Risk + Farm Management Library (https://agrisk.umn.edu)

Government Supports:USDA New Farmers (https://newfarmers.usda.gov/risk‐management)

Farm Taxes:University of Minnesota Extension (https://extension.umn.edu/business/ag‐taxes#tax‐considerations‐1349719)

Farm Services Agency (FSA) Farm Loan Programs(https://www.fsa.usda.gov/programs‐and‐services/farm‐loan‐programs)

Farm Legal Series (https://conservancy.umn.edu/handle/11299/199846)

Your Guide to FSA Farm Loans (https://www.fsa.usda.gov/Assets/USDA‐FSA‐Public/usdafiles/Farm‐Loan‐Programs/pdfs/fsa_br_01_web_booklet.pdf)

An Attorney Can Help

Have questions?T lk t ttTalk to an attorney.

You can find a list of Maryland attorneys specializing in agricultural, business or commercial law, or any other area of law, at www.umaglaw.orgwww.umaglaw.org

QUESTIONS?

Thanks for all you do!Tel.: 410‐651‐6182Email: [email protected]

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Business and Legal Considerations Workshop...Business and Legal Considerations for Beggginning...

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