‘Zoom-equity’: Assessing devotion to business during and after pandemic | Opinion

A business partnership or company venture, like a marriage, often comes with the initial bliss of anticipated future success. Saying “I do” or agreeing to the “bonds” of business by executing a partnership, management, or operating agreement can bind one to perform with unfettered time and devotion. These seem like benign terms of no import as business growth is often attributed to “putting in the work.”

Many businesses require that certain partners, members, or owners devote the entirety of their time to the business, often coined “devotion of time” clauses in business agreements. Prime examples are sweat equity in a business, general partner in a partnership, or manager in a limited liability company. These roles are measured on the barometer of success by time or devotion to the venture.

I, the investor, provide the capital; you “put in the work” and be the boots on the ground. Voilà! We have a business.

But what happens when a pandemic hits? How does the working business partner fulfill time and devotion obligations to the business in the new Zoom world?

Pre-pandemic, it was standard to include devotion of time clauses in partnership, management, or operating agreements, such as:

You (i.e. sweat equity, general partner, or manager) shall devote the whole of your work time, attention and abilities to your duties and shall give the Company the full benefit of your knowledge, expertise, ingenuity and technical skills; or

You agree to devote your full business loyalty to the Company and not to engage in any other business which will adversely affect your ability to perform.

This boilerplate language was sparsely litigated before, seen as an example Endacott v. Int’l Hospitality, Inc., 910 So. 2d 915 (Fla. 3rd DCA 2005), in which a company brought a lawsuit against its CEO for breach of fiduciary duty based upon a “full time and attention” clause. The CEO was allegedly doing consulting work on the side. However, now in a pandemic or post-pandemic business environment, devotion of time clauses and productivity obligations in business agreements can foreseeably provide a nightmare of legal interpretation issues and litigation, especially among sour business partners.

The days of being able to be present physically and tangibly show “I’ve been working on the railroad, all the live long day” have in many instances been trumped by technological advancement, allowing business to be conducted virtually during the pandemic.

But that begs the questions — does a business partner need to be physically present in the field and “sweating” to be effective and contributing to the business, or will a 10 a.m. Zoom meeting and 11 a.m. Microsoft Teams meeting suffice to fulfill devotion of time clauses?

This issue is ripe for legal determination and will certainly be tested over the coming months. In order to avoid being on the other end of a claim for breach of fiduciary duty or breach of partnership agreement, savvy business persons faced with devotion of time clauses are likely at the outset to negotiate more fluid or generalized terms into their business agreements. These include “You may devote such portion of your business time and attention to the business and affairs of the Company as may be necessary for the proper performance of your duties.”

This type of forethought and change in the legal landscape of interpretation of devotion of time to the business clauses is likely to spill over into other legal business issues. These can include proper geographical scope of noncompete provisions, now that it is easier to have a virtual sales pitch meeting anywhere and anytime; or in employment contracts, the interpretation of payouts on contractual bonus structures based on productivity levels, and in-person face time and annual hourly requirements.

Ultimately, while 2020 allowed us to “Zoom” out of the physical office, it will require a host of legal issues to properly interpret how business agreements define devotion, time and productivity going forward.

Richard I. Segal is a founding shareholder of Segal Zuckerman in Miami. Segal practices complex commercial litigation and family law, assisting clients in a range of business and corporate litigation matters, and matrimonial disputes. For more information, visit segalzuckerman.com or call 305-503-5056.