False Economy: Why Saving a Few Dollars on Legal Fees Now Can Cost You Big Later

• You’re about to sign a lease for your company’s new premises. Should you have a lawyer review it, or save the money?
• You’re about to sign an employment agreement with your new employer. Should you have a lawyer review it, or save the money?
• You and your best friend are going to start a new business. Should you have a lawyer advise you, or get the forms off the internet and save the money?

Both in jest and with some seriousness, business people, especially entrepreneurs, tend to view lawyers skeptically. Their perception is that lawyers run up fees, make simple transactions complicated, and sometimes cause deals to fall apart completely with all of their questions.

This is a short-sighted view of how attorneys can help you and your business. Experienced business minds understand that lawyers, when properly used at the beginning of a transaction rather than later after problems have developed, can be problem avoiders. And a problem avoided can be big money saved.

In the lease situation above, for example, your lawyer would be sure that you signed the lease in such a way that only your company, not you personally, would be liable. She might negotiate a provision that you don’t pay any rent while the space is being readied for your occupancy or for reduced rent if the landlord doesn’t provide promised services. An experienced attorney has seen a lot of leases, and knows the traps they often contain.

Lawyers aren’t deal breakers. Their job is to point out the potential risks in a transaction so you, the client, can decide whether those risks are worth the potential benefits of proceeding. If the risk/reward ratio isn’t to your liking, then YOU break the deal. If the risk is acceptable, then you proceed. In either event, you have made the decision in an informed and practical manner. You are in control; your lawyer, like all of your professional service providers, works for you. Your attorney’s role is to provide advice, share wisdom and insight, and help you make the business decisions. Continue reading »

Legislative Update: Missouri & Illinois Address Issue of Employer Requests for Employee/Job Applicant Social Media Account Information (Part 2 – Missouri)

Legislation addressing the question of the extent to which an employer may request an employee’s social media account information has been introduced or is pending in 36 states with seven already enacting legislation in 2013.

As a follow-up to the discussion of Illinois’ recent legislative efforts, let’s look at Missouri’s legislative efforts.

Unfortunately, at this time the Missouri Legislature has not enacted any legislation to clarify the question of whether an employer may lawfully request or require employees or job applicants provide that employer with their social media account login information. Although the 2013 legislation session recently ended without a bill being passed in both houses, one bill, Senate Committee Substitute / Senate Bill 164, which would have created “The Password Privacy Protection Act,” passed in the Senate and fell just one vote shy of passage in the House. This bill’s partial success likely indicates the direction Missouri will ultimately take.

Like the Illinois legislation, SCS/SB164 began with a general ban of the practice of requesting or requiring the disclosure of account information. Specifically, the bill read:

Subject to the exceptions provided in subsection 4 of this section, an employer shall not request or require an employee or applicant to disclose any user name, password, or other authentication means for accessing any personal online account or personal online service.

The exceptions include and relate to: Continue reading »

Legislative Update: Missouri & Illinois Address Issue of Employer Requests for Employee/Job Applicant Social Media Account Information (Part I – Illinois)

In the spring of 2012, national news media reported an increasing number of employers demanding employees and job applicants provide social media account login information (usernames and passwords) for searching and content monitoring purposes. In my blog post “The Facebook Folly” posted in April 2012, I noted at that time there was no explicit indication as to the legality of this practice.

Since early 2012, however, legislatures in both Missouri and Illinois have worked to clarify the issue in their respective states’ workplaces. We’ll focus on Illinois’ efforts first, and follow up with Missouri in Part 2.

Illinois was an early adopter of a policy prohibiting employers from asking employees or prospective employees for their social media account login information. On January 1, 2013, Illinois and California joined Michigan, New Jersey, Maryland and Delaware making such a practice illegal by enacting Public Act 97-0875, amending the Illinois Right to Privacy in the Work Place Act to read, in part:

It shall be unlawful for any employer to request or require an employee or prospective employee to provide any password or other related account information in order to gain access to the employee’s or prospective employee’s account or profile on a social networking website or to demand access in any manner to an employee’s or prospective employee’s account or profile on a social networking website. 820 ILCS 55/10(b)(1).

However, in an apparent attempt to balance the interests of both employees and employers, the Act further states and clarifies that it is not intended to limit the employer’s right to create and maintain lawful workplace policies governing Internet use, limit the employer’s ability to monitor usage of the employer’s electronic equipment or electronic mail (as long as the employer does not request or require the employee “provide any password or other related account information”), or limit the employer from obtaining information about its employees or prospective employees from the public domain. Continue reading »

Sometimes It’s Good to Have the DTs (Decision-Tree Analyses) in Mediation

In my Med-Arb Memo of August 2010, I pointed out that a formal mediation session actually should be considered as just one part of a possible multi-part process.

I just read an interesting article suggesting that disputing parties each hire a (separate) consultant to perform decision-tree (DT) analyses when entering into negotiation or mediation.[1] The article argues, and cites instances in which, the hiring of neutral consultants by both parties to the dispute to perform DT analyses led to a greater number of resolutions of those disputes.[2] For many disputes, particularly high-dollar disputes, this is an excellent idea.

But use of DT and other risk analyses and probability assessments in mediation should not be restricted to use of expensive analytic consultants. The parties and the mediator should consider using them without consultants, with much less expense.

DT analysis in litigation is not rocket science. It simply calls on each party (or counsel) to (honestly) analyze and decide the following: the ultimate issues (those whose outcomes individually or in combination would be dispositive of the case with respect to liability, plus those comprising the major components of damages) on issues which each party must prevail in the case in its entirety; and finally, to assess (again, honestly) the percentage likelihood of prevailing on each such issue. At each step in the analyses, of course, the likelihood of success on each issue being less than 100%, the likelihood of total success is discounted. Continue reading »

U.S. Supreme Court Backs Resellers in Physical Goods Copyright Case

Suppose you plan to buy a large supply of Disney books from an overstocked Barnes & Noble retailer in Taiwan, and then offer your employees the opportunity to purchase the books at a deep discount as gifts for Christmas.  You reason that if the employees don’t buy up all of the books, you can always sell the remainder to a discount book chain or on the Internet.

You are approached by the human resources department manager and advised that Disney is very litigious about protecting its copyrights. Because your company is not an authorized seller for Disney products, the manager fears losing an infringement lawsuit.

Fortunately, your legal counsel is familiar with this issue. Upon learning that you intend to make the initial purchase from an authorized Disney retailer in Taiwan, counsel advises that your company is protected by the “First Sale” Doctrine of the Copyright Act.

And the U.S. Supreme Court agrees. In Kirtsaeng v. John Wiley & Sons, the Court held that a legally obtained copyrighted work can be imported into the U.S. and resold without permission from the copyright owner even if it was manufactured and sold overseas. The ruling applies to sale of physical, tangible works and not digital works that are licensed and not easily resold because of license agreements. The Court explained that in a complex and interconnected world, buyers, sellers, and retailers should be able to import and sell products without having to search out the copyright owner to determine if the U.S. copyright owner approves of the sale.

The facts are simple.  Kirtsaeng, a Thailand citizen, moved to the U.S. to study mathematics at Cornell University, and entered a Ph.D. program in mathematics at the University of Southern California. Continue reading »

Common Sense Road Map to Employee Discipline and Termination

Owners and managers frequently face the difficult process of terminating an employee for a reason other than lack of work. The reasons are many and varied, ranging from being placed in the “wrong seat on the bus” to poor cultural fit to “good cause” reasons, such as performance or behavior. Although employment at will is the rule of law, laws exist that undercut the employer’s absolute power to terminate for any reason whatsoever. Many of these laws are just plain common sense and can be compared to administering discipline with your own children.

Decisions made in haste or poorly executed have a very long damage tail including lawsuits, reduced morale, and loss of business momentum. By looking through the lens of both human nature and law, managers and owners can learn to make and execute decisions that are generally defensible both inside and outside the company culture. Knowing what could be coming and where it’s coming from will create a wiser decision process, a more legally defensible position, and buy-in from your watchful employees.

Practicing the following 10 rules will put you on a road map of common sense when dealing with issues related to employee discipline or termination:

1. Investigate. Investigating the facts protects the integrity of the process and lessens the ability of an employee to establish an unlawful motive. Poking in the weeds also provides feedback to you on what is working, what is not working, and what should be changed. Look for facts – not hearsay and speculation. Determining credibility is your job. Companies are human collaborative efforts containing many actors with varying motives and agendas that can be constructive, bad, opportunistic or even crooked. Consider plausibility, demeanor, motive to lie, corroboration, and past record when making judgment calls.
2. Interview witnesses and the employee in question. Ask the employee in question to explain what happened in front of two management witnesses. Write down exactly what the employee states and ask him/her to sign it.  Ask the employee for objective facts or witnesses to support his/her position. Your aim is to pin down the employee to “one recollection.” Interview complainants and witnesses by asking who, what, where, when and how questions. Let them know that you will try to keep the investigation as confidential as possible under the circumstances and in compliance with the law. This arduous process prevents tears at the fabric of your culture. Continue reading »

New Family and Medical Leave Act Guidance for Families of Adult Children with Disabilities

Families now have clarification on when parents may use leave to care for an adult child with a mental or physical disability.

On January 14, 2013, the Wage and Hour Division of the Department of Labor issued additional guidance to help employers determine eligibility of employees to take leave under the Family and Medical Leave Act (FMLA) when the employee has an adult child with a mental or physical disability incapable of self-care due to a serious health condition.

Generally,  entitlement to FMLA leave ends when a child is 18 years old. “Incapable of self-care” means that the individual requires active assistance or supervision to provide daily self-care in three or more of the “activities of daily living” or “instrumental activities of daily living.” Continue reading »

Missouri Court Holds Great Recession Not Sufficient Basis for Commercial Frustration Defense

Parties to contracts, such as banks or contractors, have often been covered by what is known as the “commercial frustration doctrine.”  The doctrine can excuse a party to a contract from his or her performance when a happening, unforeseen by the contracting parties, destroys or nearly destroys the contract’s purpose or the value of such performance – provided the parties did not cause the happening and were unable to avoid its consequences.

However, as seen in a recent Missouri case in which a party attempted to assert the doctrine and avoid payment on a promissory note by claiming the “Great Recession” was an “unforeseen happening,” the doctrine may not be applicable to merely encountering financial difficulties (even if significant).

In Carpenters’ District Council of Greater St. Louis and Vicinity v. Commercial Woodworking & Contracting, Inc., et al, the United States District Court for the Eastern District of Missouri held that the recession was not the type of unanticipated, unforeseen event which qualified for a commercial frustration defense. 2012 WL 1025203 (E.D. Mo. Mar. 26, 2012).

Between April 26, 2004 and May 21, 2007, the Carpenters’ District Council of Greater St. Louis and Vicinity (“Carpenters Union”) made three loans to Commercial Woodworking & Contracting, Inc. and several individuals related to the corporation (“Commercial Woodworking”). The terms of the loan and its repayment were set forth in three promissory notes. Commercial Woodworking failed to repay upon the promissory notes. The Carpenters Union brought suit against Commercial Woodworking for repayment of the amounts remaining on the notes. Continue reading »

Employers and the Health Reform Law

On June 28, 2012, the Supreme Court, in a 5-4 decision, upheld the Patient Protection and Affordable Care Act (the “Act”), more commonly known as the health reform law, including the highly controversial individual mandate. While the Court limited the Act’s planned expansion of Medicaid, the decision was overwhelmingly a “win” for President Obama.

Now that President Obama has been elected to a second term, those who resisted implementing the first set of provisions (waiting for the Court to rule) will have to begin earnestly working to comply with both provisions already in effect and forthcoming provisions, including key provisions which require compliance in 2014: the individual mandate and the employer mandate.

Provisions currently in effect include:

• No lifetime limits on coverage.
• Restrictions on annual limits.
• No “rescissions,” meaning health plans cannot cancel coverage once you are sick unless you committed fraud when you applied for coverage.
• Dependent care coverage is provided up to age 26 for adult children without employer-sponsored coverage.
• Federal small business tax credits have also been available for employers who provide coverage, with credits differing depending on the size of the company and increasing to 50 percent in 2014.
•  Many consumer employees have already experienced not having to pay out-of-pocket costs for certain preventative services, such as breast cancer screenings and cholesterol tests, and the disqualification of over-the-counter drugs as medical expenses for Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs).
• Insurers will have to provide rebates to consumers if they spend less than 80 to 85 percent of premium dollars on medical care.

The impact of both the individual mandate and the employer mandate will not be fully known until closer to 2014; however, there has been great speculation about who will be most impacted. Continue reading »

Two-year, Non-solicitation Activity Covenant Upheld in Illinois for Seasonal Tax Employee

An Illinois appellate court recently upheld a two-year, non-solicitation activity covenant and one-year anti-raiding covenant between a tax preparation service and its employee, despite the employee’s seasonal employment of just three months. Zabaneh Franchises, LLC v. Walker, 972 N.E. 2d 344 (Ill. App. 2012).

In July of 2010, Zabaneh Franchises, LLC, an income tax preparation service based in Quincy, Ill., purchased an existing H&R Block, Inc. franchise. The sale included an assignment of employment agreements with H&R Block’s employees, including that with Terri Walker. Walker had signed an employment agreement in November 2009, as she did annually beginning in 2003. Pursuant to this agreement, Walker agreed to work during the 2010 “tax season,” from January 2 through April 15, 2010. Walker completed this tax season employment without incident.

In February 2011, Zabaneh filed suit against Walker alleging that within a few months of leaving Zabaneh in April 2010, Walker started her own tax preparation business, solicited clients, and hired employees of H&R Block in violation of her employment agreement. Zabaneh’s complaint sought a temporary restraining order against Walker to bar her from engaging further in such activities. The trial court found Walker’s employment agreement to constitute a “contract of adhesion” (a “take it or leave it” imbalanced agreement favoring one party) and denied Zabaneh’s request for a temporary restraining order. The case was subsequently dismissed with prejudice.

On appeal, the appellate court was asked to consider whether Walker’s employment agreement was reasonable and enforceable. In doing so, the court noted that the Illinois Supreme Court had recently addressed the proper standard for analyzing the enforceability of restricted covenants in an employment agreement in Reliable Fire Equipment Co. v. Arredondo, 965 N.E.2d 393 (Ill. 2012). Continue reading »