Your Employees Are Griping About You on Facebook: Can You Fire Them?

Have you ever caught your employees publicly griping about your company, or maybe even about you personally, on Facebook? If you have, your first instinct might have been to discipline or even fire them.

But according to several recent decisions from the National Labor Relations Board, if colleagues discuss compensation, working conditions or other issues related to their employment over Facebook, their conduct may be protected by the National Labor Relations Act (NLRA). Continue reading »

Employee Social Media Griping: Can An Employer Terminate Employees Because of Their Social Media Posts Without Violating Section 8(a)(1) of the National Labor Relations Act

Social Media is the new water cooler conversation. It enables and facilitates conversations that years ago would have taken places at the old-fashioned water cooler. In today’s world of Facebook and Twitter, employee complaining is instantly, electronically and permanently transmitted to the world. Social Media users think less about their posts and disclose more so that a simple gripe monologue is turned into dialogue – on steroids – with the world. Such platforms encourage employees to blur their personal and professional lines of behavior and blurt out what is bothering them without engaging their higher level thinking tools.

With seven hundred and fifty million people actively using Facebook, there is a significant chance that a post about working conditions, compensation or other issues related to their employment will spark a conversation with an employee’s colleagues, and such conversations may constitute concerted activity under the National Labor Relations Act.

The question remains, if your employees say something negative on Facebook about your company, their fellow employees or their supervisors, can you terminate without running afoul of the National Labor Relations Act?

The answer depends on the facts surrounding the post(s). The test is whether the employee is engaging in activity solely for himself or on behalf of other employees.

Continue reading »

It’s a Great Time to Become an Urban Business Dweller

With downtown St. Louis office vacancy now at 19%, landlords are being forced to compete aggressively and find creative ways to market their office properties.

Landlords have found they also have to create major incentives for tenants: everything from rent concessions to significant tenant improvement allowances.

If you are looking at moving your business, or if you are opening a new office, your best bet may be a move to downtown St. Louis.

Now may be a good time to be looking! Read more in this article from the St. Louis Business Journal.

Protecting Against Preference Demands in a Bankruptcy Case

I just came across an article on guarding against preferential transfers. If you own a business and one of your customers files bankruptcy, not only are you likely to lose the money the customer currently owes to you, but you might also have to give back some money you’ve recently collected! The bankruptcy laws may deem those payments to be “preferential payments” or “preferences,” which have to be returned to the bankrupt company or to its Trustee. The bankruptcy laws on preference recovery are some of the most unfair laws around because there is no “preferring” requirement to a preference. It’s all just a matter of timing.

If you receive a demand to return a preferential transfer, see a qualified business bankruptcy lawyer immediately. This is not a matter for a consumer bankruptcy lawyers who file cheap bankruptcies for people that have too many credit cards.

There are several defenses to a preference demand. The most common involve “new value” and the “ordinary course of business.”

The “new value” defense is pretty simple – if the debtor paid you an old $10,000 account receivable before it filed bankruptcy, the payment might be recoverable from you as a preference. If, after you receive the money, you extend $10,000 in additional credit, the “new value,” to the debtor, they cancel each other out. Obviously, that defense is a matter of luck, since you don’t know when or if the customer is going to file bankruptcy.

The “ordinary course” defense, however, is something you might be able to prepare for. The bankruptcy laws provide that payments in the ordinary course of business are not recoverable preferences. If you regularly bill your customers on thirty-day terms and it regularly pays according to terms, those payments are being made in the ordinary course of business, the payments you received before the bankruptcy filing generally are safe.

But suppose your customer starts to pay more slowly, or only makes partial payments. You, being a good business person, react to protect yourself. You put the customer on fifteen-day terms, or demand that it provide collateral for future shipments, or take some other action to insure collection. You’ve done the right thing, but future payments are no longer being made in the ordinary course of business! By taking responsible action, you’ve made yourself liable to a preference demand if your customer files bankruptcy.

So – what to do? You try to turn the “out of the ordinary” into the “ordinary”:

• First, make your best efforts to keep the customer as close to ordinary terms as possible for as long as possible.
• If these efforts are not successful, at least try to keep the customer within industry standards.
• If neither attempt works, institute the new terms at the first sign of trouble. If enough time passes before the bankruptcy filing, the new terms will have become the ordinary terms.

As an additional option, you could enter into a new contract with the customer. The new contract could set out the new terms, and provide that you are not obligated to sell to the customer at all. If you choose to sell, however, these are the new ordinary terms of the arrangement.

Being forced to return substantial preferential payments can send your business into bankruptcy itself. Be sure that your accounts receivable staff is sensitive to customer behavior, to the industry’s rumor mill, and anything else that may suggest coming trouble. Review the situation with a bankruptcy attorney to discuss what strategies your company could take, and stay off the receiving end of preference demand letters.

The content of our blogs are never to be construed as specific legal advice and blog-related correspondence never implies the existence of an attorney-client relationship. Please refer to our Disclaimer for more information.

ROBS Transactions as a Financial Investment Tool: Legal Traps for the Unwary

Over the last few years, ROBS transactions have dramatically increased which means that the funds being used to capitalize these transactions has significantly increased too. I wrote about ROBS transactions last June in a post called “ROBS transactions: the Department of Labor and IRS Regulation.”

Recently, Mr. Alan Lavine interviewed me for an article in Financial Advisor Magazine about ROBS transactions with regard how they are being used as financial investment tools and whether investors should participate in this type of transaction. The article, “Rolling Over, Starting Up,” appears in the in the December 2010 issue. The article’s subtitle is: Clients can tap into retirement savings to start new businesses, but there are legal traps for the unwary.

It was an honor to be quoted by Mr. Lavine who is an accomplished author and syndicated columnist. Mr. Lavine and his wife, Gail Liberman, wrote Rags to Riches which was featured on Oprah and hit two best seller lists.

With U.S. Exports on the Rise, Distributor Terms Increase in Complexity: Some Things to Watch For

Part of a series on issues related to Manufacturers, Distributors and International Trade

Recent figures released by the U.S. Bureau of Economic Analysis show there was a 17% increase in U.S. exports of goods and services during the first ten months of 2010.

In an effort to increase their profitability and growth, many U.S. businesses are taking advantage of the export initiatives launched by the U.S. administration to achieve its goal to double U.S. exports by 2014—a goal that President Obama announced last year and reiterated in his State of the Union address last month.

There are numerous options for U.S. businesses to structure the export of their goods and services internationally.  One of them is the appointment of international distributors to market and sell their products.

 An essential ingredient for the successful distribution of U.S. products internationally is a well formulated distributor agreement that takes into account the laws of the country or region where the products are distributed.  Surprisingly, many businesses skip this step when appointing distributors to represent their products overseas.

 Some U.S. businesses choose to operate under oral agreements with their international distributors, mistakenly believing that termination of the distributor will be easier if the relationship does not work out or that they will not be subject to a foreign judgment. Other businesses, when entering into an international distributor agreement, use a standard distributor agreement that was written for their U.S. distributors. However, when establishing an international distributor agreement, U.S. businesses should be aware of foreign legislation that may protect distributors, competition laws of a country or region that may void standard distributor agreement provisions, and other foreign law and cross-border challenges.

 Below are a few of the key considerations and issues that apply to international distributor agreements.

Competition Laws and Regulations

U.S. businesses exporting their products overseas frequently want to limit an exclusive foreign distributor of their products from selling competing products.

 In drafting a provision restricting such competition, it is critical to establish whether and to what extent the laws of the country where the goods are being distributed limit or prevent such a restriction. For example, in the European Union, this type of non-competition clause violates European Commission (EC) competition laws and is void from the outset if the restriction from selling competing products is for an indefinite period or exceeds five years. A non-competition obligation that is tacitly renewable beyond a period of five years is considered of indefinite duration.

 Additionally, certain territorial restrictions contained in a distributor agreement that prevent a distributor from selling a supplier’s products outside of a territory may invalidate the entire agreement, if the restriction is not limited to active sales into territories appointed to other distributors or the territory reserved to the supplier. For example, EC regulations control the ability of a supplier to restrict a distributor from making passives sales of its goods to customers outside a distributor’s appointed territory.

Choice of Law

Some countries have mandatory provisions of law that govern distribution agreements.

 If a choice of law clause in a distribution agreement states that U.S. law (or a particular U.S. state’s law) exclusively applies to the agreement, a U.S. jurisdiction clause in the agreement may not be respected if an action is brought by the distributor in the foreign country where the product was distributed. In order to avoid this unwanted consequence, a better alternative is to draft the choice of law clause to state that U.S. law exclusively governs the agreement, except with respect to any issue involving application of such mandatory foreign law.

Termination Compensation

Some countries have protective legislation or principles established through case law that may make termination of the distributor relationship difficult and costly if the agreement is not structured properly.

 Upon termination or expiration of an exclusive distributor agreement, it is not uncommon for distributors outside of North America to make a claim for termination or goodwill compensation. The requirements for termination or goodwill compensation are country specific, as is the ability to contract out of this type of compensation through choice of law and other contract provisions.

Fixed Term Agreements

In most cases, agreements of fixed duration terminate automatically at the end of the period specified in the agreement. However, some countries have laws that protect distributors, and unless the agreement has been terminated with a requisite period of notice before the expiration of the agreed contract term, the agreement is automatically renewed. 

 Under Belgian law, this requisite period of notice is between three and six months. Additionally, Belgian distributor legislation provides that an agreement that is renewed more than twice becomes a contract of indefinite duration. A distributor agreement of indefinite duration may only be terminated with reasonable notice or payment of an indemnity in lieu of notice.  What constitutes reasonable notice may not be determined by the parties in the distributor agreement, but must be agreed upon by the parties after the agreement is terminated.

These are a few of the additional considerations for U.S. businesses seeking to export their goods through international distributors. One-size-fits-all distributor agreements simply won’t work.

Beware the Trojan Horse that is Social Media

While establishing and maintaining an organizational presence on popular media websites and blogs (Facebook, LinkedIn, etc.), businesses need to be aware of the legend of Troy and its supposed downfall due to a Trojan Horse. Greek mythology states that Greek warriors concocted a scheme whereby they built a wooden horse and offered it as a gift to the Trojans. The Trojans, in their greed and arrogance, accepted the gift and brought it within their gates. Then, at night as the Trojans slept, the Greek warriors emerged from the belly of the Trojan horse and defeated the Trojans changing the course of a ten-year siege.

Today, a Trojan Horse is more often thought of as a destructive software program that disguises itself as a helpful application. Similarly, although social media may be helpful for your business, be aware what could be lying in the belly of that Trojan Horse.

Line Between Private vs. Public Blurred

According to the Socialnomics web site, Generation Y will outnumber baby boomers sometime this year and 90% of them have already joined an online social network. For many young people, and even 50 year-olds, the line between private and public has disappeared as they tweet, blog, text and share the minutiae of both their personal lives and everyone around them – including their employer. Social media users are under the mistaken assumption that they own the web content they are generating and can retrieve it and delete it if needed.

They are also under the mistaken impression that what they say is protected by some cocoon and that the content they generate is private. This is not true, as evidenced by a Detroit hospital worker who was terminated after she posted a comment on Facebook about a man she treated who was accused of killing a police officer. She was fired for violating strict patient privacy rules under the federal HIPAA law. A Massachusetts 54 year old high school teacher also learned this lesson when posting negative comments about her school community, students, and parents even though she had set the privacy setting on her Facebook account. Moreover, cases are clear that locking a profile from public access does not prevent discovery in litigation either.

Disclosure of Company Information at Risk

Given the fact that technology is moving so fast and disclosure is instantaneous, worldwide and permanent, companies need to train their employees on the dangers of purposeful or inadvertent disclosure of company information. What is at stake for the employer is the loss of confidential information and trade secrets, disclosure of protectable third party information or medical information, suits from other companies for disclosure of secrets, and discrimination suits. For instance, companies recruiting and hiring managers often use social media in order to obtain more information on a candidate than they otherwise could. Continue reading »

Mergers and Sales – Trade Secrets & Confidential Information

Who Owns the Salesperson’s LinkedIn Account?

Owners/shareholders own businesses for many reasons, including selling the business at a value higher than the investment cost. However, when a business owner goes to sell his or her business and attempts to obtain the highest price available, it is important to understand where the value of that business lies and how to maximize that value to any potential buyer.

In many instances, a significant part of the business’s value is found in the intellectual property possessed by the employees.

Part of that intellectual property is found in the trade secrets and confidential information that the company develops to provide its services and products faster, cheaper, and better over time. A very critical component is the customer networks that its sales/marketing people developed over time.

Who owns those networks, especially LinkedIn, and the data associated with them? Continue reading »

Stepping Back. US MicroLending with Kiva: Raising Capital + Raising You

When the usual suspects are rounded up to determine the reason for the decrease in start-ups and/or business failures in 2009/2010, in this author’s view, some blame must be placed on the business owner’s own failure to have introduced himself to his “better self” in the words of Napoleon Hill.

Bob Calcaterra recently noted this problem in the August 2010 Missouri Venture Forum Newsletter.

In Ralph Waldo Emerson’s essay “Experience,” he posits that all of us have an iron wire which he calls “Temperament” upon which the seeds of the individual are strung. He further argues in his essay “Compensation” that “strength grows out of our weakness and that indignation which arms itself with secret forces does not awaken until we are pricked and stung and sorely assailed.”

This veto or limitation power of adversity is the theme in the Summer 2010 Wilson Quarterly article “What Next for the Start- Up Nation” where the author speculates as to what attributes Israel start-up founders have that create so many successful start ups (persistence, mission critical focus, etc.) .

In twenty-seven years of counseling small businesses, I have found that the business owners who are the most successful are self disciplined, incredibly focused, hungry and have an iron will.

When one reviews the evidence of successful start-ups, one sees so many first and second generation Americans who will not give up. So, for those of you with the iron will or who want to develop that iron will by apprenticing at the bottom or “start where you are and build”, please check out the Microlending article in the New York Times. You will be introduced to Kiva.org, who has just started a pilot program lending to business owners in the United States. Remember, Microsoft was created in 1975, at the end of the first great recession since the Depression.

Who knows what will happen, you may become a Bill Gates.

There are Fewer Accredited Investors Now: “Dodd-Frank Act”

Wednesday, July 21, 2010, the number of investors available to entrepreneurs dropped significantly. On that date, President Obama signed the Dodd-Frank Wall Street Reform and Consumer and Consumer Protection Act (the “Dodd-Frank Act”) into law.

As we pointed out in the February 2010 Enterprise (Missouri Venture Forum), the legal requirements for raising capital from investors requires that either the offering of the investments be registered with the Securities and Exchange Commission, or that an exemption be available for the offering. The exemption which has become far and away the most used, and the most useful, to entrepreneurs is that for “accredited” investors under Regulation D.

Regulation D allows an investor to be “accredited” by having a net worth of only $1,000,000, or have an individual annual income exceeding $200,000 or $300,000 if investing with one’s spouse. Most users of this exemption qualified for it simply by assuring that all investors met the net worth requirement of $1,000,000.

And in calculating that net worth, until last Wednesday, essentially all of the investor’s assets could be included, including the investor’s primary residence. This is important because many, if not most, such investors’ $1,000,000 net worth consisted primarily of his or her primary residence.

But the Dodd-Frank Act excludes the value of an investor=s primary residence from the calculation of net worth for determining the accredited investors status (Section 412(a)).

Some persons in the entrepreneurial community predict that this will significantly reduce the number of persons who can qualify as “accredited.” (Other proposals were made in the legislative process leading to the Act which arguably would have effectively eliminated the usefulness of the exemption completely, but they were not adopted.)

Entrepreneurs seeking to raise capital, or in the process of doing so, must now use the new standard in determining compliance with the accredited investor status.

The changes emanating from the Act will eventually likely not be restricted to this one adjustment. The Act authorizes the Securities and Exchange Commission within one year to review and promulgate rules amending the definition of “accredited investor” (which amendment will likely require some showing of experience in “angel” investing). Within three years, the Government Accountability Office is required to submit a report to Congress regarding income, net worth and other criteria for accredited investor status, and within four years the SEC must review the accredited investor exemption in its entirety.

Released by permission of the Missouri Venture Forum newsletter ENTERPRISE (August 2010).