Monthly Archives: December 2014

Contracts

Do You Need to Update Your Vacation Time and Sick leave Policies?

Employers should be aware that wage and hour issues are often the basis of employee lawsuits. As a result, it is important for employers to ensure that their employee handbooks are updated, including policies regarding vacation time and sick leave.

Vacation Time

An employee is typically not entitled to paid vacation unless the employer has agreed to provide it. Although this seems like a simple rule, many disputes between employers and employees still arise.

An employer that provides vacation benefits to its employees must ensure that its policies comply with the law. For instance, an employer in California is not allowed to implement a “use it or lose it” policy. Once your employees have earned their vacation pay, you cannot take it away from them. However, employers are permitted to set a limitation on the amount of vacation pay that can accumulate. While you can set a maximum amount for the total amount of vacation pay that can accrue, you cannot require your employees to use the vacation time in the same year it is earned. It is important to have a knowledgeable attorney review your policies to verify they comply with the applicable state law.

What happens when an employee has accumulated vacation pay and is terminated? Under most circumstances, the employer must pay the terminated employee for the vacation pay that has accrued as wages at the employee’s last rate of pay.

The most crucial step in employer’s avoiding litigation over vacation pay is to draft a vacation policy in compliance with the applicable law. It should cover a variety of topics including eligibility requirements, rate paid, caps on accrual amount and whether approval must be obtained to use vacation time.

Sick Leave

In September of this year, California’s governor signed a new sick leave law which becomes effective in July. The new law requires the majority of California’s employers (public and private sectors) to provide their workers with at least three paid sick days per year. Employers can use the accrual method or give the sick days in a lump sum. Employers are allowed to limit the accrual of paid sick days to 48 hours (six days), as well as limit the use of paid sick days to three per year. Connecticut, the District of Columbia and 16 cities, including New York City and Philadelphia have enacted sick leave laws. It appears that new sick leave laws are on the horizon in other states as well. As a result, as the laws change in your state, it is important to have a lawyer review your policies to determine if they comply with the changes.

Sound confusing? It can be, so don’t procrastinate in getting help. Contact Leslie S. Marell for assistance in updating your employee handbooks as well as your employment agreements.

Business, Contracts

3 Types of Agreements that Protect Your Proprietary Information

Does your business have an intangible asset that you need to protect from competitors? It could be an idea, customer list, computer code or other comparable assets. It is essential that you take steps to safeguard the aspects of your business that sets it apart from others. If you don’t do it now, it could mean costly litigation for you in the years to come.

How do your protect your intangible assets? The answer depends upon the unique circumstances surrounding your business, but the following are a few types of contracts that generally can be beneficial:

  • Intellectual property (IP). You might be surprised at what types of assets you can protect. Most businesses understand that they need a patent to protect a new invention, but you can also use a trademark to protect the source of your goods or services. Creative works can be protected by a copyright. Don’t assume you cannot protect your intangible asset. Confer with us and determine the best strategy for safeguarding your IP.
  • Non-Disclosure agreement. It should be mandatory for anyone who has access to your confidential information to sign a non-disclosure agreement. This includes your employees, independent contractors, vendors and customers. This type of agreement can limit when and how your business’s sensitive information is shared. It can also set forth your company’s available legal remedies if the contract is breached.
  • Non-Solicitation agreement. All of your main employees should execute an agreement preventing them from soliciting your business’s customers for a set period of time after they leave your employment. This type of agreement should also include a provision that your business is the owner of any IP developed while the person is working for your entity. Be aware, however, that these agreements must be carefully crafted to be enforceable and in California, they are unenforceable.

It is additionally wise to require all of your employees to password-protect their company computers with passwords, which are updated regularly. You should limit access to your confidential data to only those workers who must have it to properly perform their job duties. Your business should also back-up its digital data routinely.

If you need assistance creating any of the above contracts or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

Business, Contracts, Intellectual Property

5 Important Tips for Your New Business Venture

When you are starting a new business, it is easy to feel overwhelmed by all of the decisions you have to make. The decisions you make now can have lasting consequences, so it is important to get them right. Below are five important tips to help ensure that your new business gets off to a successful start:

Legal Structure

There are several different types of business entities to choose from, each with its advantages and disadvantages. To learn more, please read our blog titled “Which Legal Structure is Best for Your Start-Up?” It is important for you to confer with a business attorney to ensure you select the legal structure that is most beneficial for your business.

Written Contracts

New business owners often fall prey to relying on oral promises that aren’t fulfilled. Getting your agreements in writing is the best way to protect your interests. This includes creating a written agreement between the founders of the business which outlines each owner’s percentage of ownership and how the daily business decisions will be made.

Intellectual Property

Intellectual property can include anything from your company name, to its logo, to the type of products you sell. All business owners should take the initiative to legally protect their intellectual property. If your entity fails to obtain the proper patent, trademark or copyright, it could result in you have no legal recourse if another party infringes on your rights. One important step in protecting your private information is to require all employees to execute a non-disclosure agreement.

Employees

There are a wide variety of laws governing an employer’s relationship with its employees. It is imperative that you educate yourself regarding the laws, rules and regulations that apply to your industry and your specific business.

Get help

When your business is first starting out, you will likely be tempted to try to save money and handle things on your own. Unfortunately, this approach can end up costing you significantly more than the cost of retaining a professional. One mistake could be the end of your business before it even gets off the ground. Don’t let that happen – get the legal assistance you need.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

 

 

Business, Contracts

Does Your Employee Handbook Properly Cover Overtime Pay?

Employers are required to pay workers a minimum wage set by law for all hours worked. If an employee is non-exempt, they must be paid suitable overtime pay right for any additional time worked. Overtime pay may seem like a simple topic, but it can get more complex when applying it in real-life situations.

Initially, you must determine whether your employees are exempt, which means they are not entitled to receive overtime pay for extra hours worked. Examples of employees exempt from receiving overtime pay include:

  • White Collar. The term “white collar” has been used to describe certain professionals that are exempt from overtime pay. To qualify for the white collar exemption, an employee’s job responsibilities must meet certain conditions and they must receive a minimum weekly salary, as dictated by law.
  • Executives. Managers who supervise the work of a minimum of two other full-time employees fall within the executive exemption. An executive employee typically has the power to hire and fire other employees.
  • Administrators. If the employee’s primary job is to perform office work, the administrative exemption applies. This type of employee’s job relates to the supervision, management or operation of the company. An administrator often has decision-making authority on behalf of the business.
  • Professionals. A professional exemption applies if the employee has obtained an advanced degree or has acquired specialized knowledge by attending extended schooling.
  • Outside sales. Employees whose main job involves making sales calls which require the employee to routinely be away from the employer’s place of business may be exempt from receiving overtime pay.

The above list is not exhaustive and there may be other exemptions that apply, so employers should consult with an experienced employment attorney to verify that the appropriate exemptions are being applied and that your business is in compliance with the laws governing overtime payment.

If you need assistance creating or updating your employee handbook to deal with overtime pay or any other employment law matter, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

Contracts

PART TWO: INDEMNITY

BRIEF REVIEW

Indemnify is defined in Black’s Law Dictionary as follows:  “To make good; to compensate; to make reimbursement to one of a loss….”

In an indemnity clause, one party (the “indemnitor”) agrees to defend, pay all costs of the lawsuit and pay any judgment resulting from the lawsuit if the other (the “indemnitee”) is sued by a third party.

A key feature of an indemnity clause is that it creates an obligation that may not otherwise be imposed on a party by law.

For example, your contractor carelessly leaves some equipment lying around your facility.  A visitor trips over the equipment and injures herself. She sues you because the injury occurred on your property, even though it was the contractor’s act, not yours, which led to the injury. If there was an indemnity clause in the contract between you and your contractor, you could seek to have the contractor reimburse you for the costs of defending that lawsuit due to the contractor’s acts and for monies you might have to pay to the injured party.

Without an indemnity clause in your contract, you would be solely responsible to pay the costs to defend the lawsuit and the monies payable to the injured party.

In its purest form, indemnity is a means of shifting the ultimate responsibility for payment to the party who caused the injury.

 

ARE YOU OVER-REACHING?

Why are indemnity clauses the source of so much contention?

I believe the main reason is that an ever increasing number of customer proposed indemnity clauses go well beyond requiring the Seller to be responsible for its (the Seller’s) negligence and wrongdoing. They require that the Seller be responsible for not only the Seller’s acts and negligence but for its Customer’s and any third party’s negligence and wrongdoing as well.

The following is a typical example of such a clause:

Seller shall defend, indemnify and hold harmless Customer, its officers, directors, agents and representatives from and against any and all claims, suits, losses, penalties, damages and associated costs and expenses (including attorney’s fees, expert’s fees, and costs of investigation) that are caused in whole or in part by: (a) any breach by Seller of this Agreement or (b) any negligent, or intentional act, or omission by Seller, its employees, officers, or agents in the performance of this Agreement.

(NOTE:  Underlined and bolded language are provided for emphasis).

The Seller’s major objection to this clause is found in the words “caused in whole or in part by” on line 4. This language means that the Seller will be financially responsible notonly for claims resulting from the seller’s breach or negligence; the provision is so broadly written that the Seller will also be responsible for claims attributable to the breach or negligence of the Customer and anyone else.

In other words, a frequent source of contention is an over-reaching clause that makes the Seller responsible not only for it’s negligence and wrongdoing but everyone else’s as well.

 

A SIMPLE LANGUAGE CHANGE

A “fair” indemnity clause does not seek to avoid a party’s responsibility for its negligence or actions. Instead, it seeks to limit the extent of liability to that which may be attributable to its negligence or wrongdoing.

A Seller will want to limit its indemnity obligations to behavior over which it has control. Failing that, a Seller will want to limit it obligations to behavior about which it can conduct adequate due diligence.

A narrower version of above clause might say:

Seller shall defend, indemnify and hold harmless Customer, its officers, directors, agents and representatives from and against any and all claims, suits, losses, penalties, damages and associated costs and expenses (including attorney’s fees, expert’s fees, and costs of investigation), but only to the extent caused by :  (a) any breach by Seller of this Agreement or (b) any negligent, or intentional act, or omission by Seller, its employees, officers, or agents in the performance of this Agreement.

Note the addition on line 4 of the language but only to the extent caused by. These words change the meaning of the clause to apportion the Seller’s responsibility in relation to its negligence or wrongdoing.

Interestingly, the words “to the extent caused by” will frequently resolve the problem of overly broad indemnity clauses.

 

 IS YOUR INDEMNITY CLAUSE ENFORCEABLE? 

Many states have statutes or case law prohibiting agreements that indemnify someone for his own negligence when the negligence is in connection with construction contracts or contracts that affect the public. Other states have laws that prohibit these agreements in connection with residential leases.

In contracts where a party can be indemnified for its own negligence, the indemnity clause must state so in clear and unequivocal language. For example, a clause stating that the Seller will be responsible for all damages arising directly or indirectly out of the performance of the contract may likely not be considered clear enough to cover the negligence of the Buyer.

 

 ANOTHER (FAMILIAR) PROBLEM

There is yet another problem a Seller will have with the above clause even after adding the qualifying language “but only to the extent caused by.”

The clause goes well beyond making the Seller responsible for third party claims against the Customer. It gives the Customer the right to recover from the Seller any consequential damages the Customer incurs, such as loss of business, profits, reputation, and the like.

In other words, we’re back to the issue of how to fairly allocate liabilities.

The Seller will want a limitation of its liabilities such as the following:

In no event will Seller be liable for any lost profits, loss of business, or other consequential damages arising out of any breach of its obligations under this Agreement. Seller’s maximum liability hereunder shall not exceed the amount paid to Seller.

The Customer will object to the limitation of liabilities in the second sentence, particularly as it applies to damages for personal injury, death or property loss/ destruction caused by Seller’s negligence or wrongdoing.

One approach to resolving this issue would be to narrow the Seller’s responsibility to claims relating to personal injury, death and property loss/ damage due to the Seller’s negligence or wrongdoing and doing so without a maximum cap on the dollar amount. A revised clause using this approach would read as follows (see bolded, underlined language):

Seller shall defend, indemnify and hold harmless Customer, its officers, directors, agents and representatives from and against any and all claims, suits, losses, penalties, damages and associated costs and expenses (including attorney’s fees, expert’s fees, and costs of investigation) for personal injury, death or property damages but only to the extent caused by :  (a) any breach by Seller of this Agreement or (b) any negligent, or intentional act, or omission by Seller, its employees, officers, or agents in the performance of this Agreement.

 
Contracts

THE CONTENTIOUS WARRANTY CLAUSE

Ask any experienced contracting professional to name one of the most contentious clauses in a negotiation and the answer usually includes the warranty provision.

(The other contentious clauses are Limitation of Liabilities and Indemnity, followed closely by who owns the IP).

Many business people assume these clauses are strictly “legal” issues. If you’ve ever attended my seminars, you know my opinion:  Even the most highly “legal” clause – such as the indemnity clause – boils down to who’s going to pay the money. In my seminars, I break down the issues and language and educate people how to make sense of and negotiate these clauses.

 

WHAT’S THE PROBLEM?

I think business people frequently view the warranty clause as a “legal” issue primarily because:

  1. i) the clause is typically written in long, difficult to read, run-on sentences, and
  2. ii) suppliers ask for warranty disclaimers similar to the following:

THE FOREGOING WARRANTY IS THE SOLE AND EXCLUSIVE WARRANTY MADE BY SUPPLIER.  SUPPLIER DISCLAIMS ALL OTHER WARRANTIES, EXPRESS AND IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

Business people tell me that while they’re not entirely sure what the above clause means, they know it doesn’t sound good for them. As a result, what do many people do?  They turn the entire clause/ contract over to the legal department.

What if I were to tell you that most Buyers’ lawyers will actually agree to the Seller’s inclusion of this disclaimer language?

Most lawyers will tell you that as long as you insert into your contract:

  1. i) all the Supplier’s promises about the Product/ Service and
  1. ii) all Supplier actions/ responsibilities to correct a defective Product/ Service,

then you can agree to the above disclaimer.

This Supplier disclaimer language is negating highly legal UCC warranties that may prove helpful to the Buyer if you go to court, but will be of limited value otherwise.

 

RESOLVING THE ISSUES

I have concluded that what lawyers refer to as “Warranty” are the issues that business people refer to as “Quality”.

In plain English, warranties are promises made by the Supplier about its products/ services.

More specifically, warranties deal with the following issues:

  • How specific/ detailed/ unambiguous are your specifications/ requirements/ statement of work?
  • What will the supplier do if the product/ service doesn’t meet these requirements?
  • How quickly will the corrections be made?
  • What if the supplier doesn’t make those corrections within the defined time period?
  • What if the defective product is in the field?
  • What if buyer has to recall the product?
  • Who will pay for labor charges, parts replacement, tear down?
  • What if buyer performs the warranty repair?
  • How much and when will supplier reimburse buyer?

Approaches to the limitations of liabilities issue:

  • Limitations of Liabilities is an integral issue to warranties:
    • It’s not unreasonable to agree that the Supplier will be responsible for some costs, but not for others or for all costs not to exceed a specified dollar amount.
  • One effective approach to negotiating Limitaitons of Liabilities with respect to the Warranty is to permit the supplier to limit its liabilities for certain damages (such as loss of business, profits that you’re unlikely to pursue) in exchange for the Supplier’s agreement to  make certain fixes/ do certain things.

IMPORTANT NOTES:

Your warranty will only be as good as your specs/ requirements/ SOW

  • It’s not unreasonable for the Supplier to limit its liabilities. In this litigious society, the prudent business person does so. (In fact, take a look at your company’s terms of sale.  There’s probably a limitation of monetary responsibility in there as well).
  • The goal in the warranty provision is to identify your requirements; outline the steps if the product/service doesn’t meet these requirements; and create a guideline for what happens in the “real world, worst case” scenario (In other words, what are the Buyer’s rights if the Supplier doesn’t do what they promised to do?)

I go into much more detail about warranty and many other clauses in my Legal Aspects of Purchasing and Contracts: Reading, Writing & Negotiating” seminars.

Please contact me if you have any questions.

 

Business, Intellectual Property

Cybersecurity & the Need for Vendor Agreements

If you own or manage a business, you should be concerned regarding your entity’s cybersecurity. With all the recent news regarding hackers obtaining confidential information, you can bet that your customers and clients are worried about how you are protecting their private information.

Protecting digital data became a “hot topic” when the Target breach occurred. Hackers obtained thousands of Target’s customer’s private financial information. Since then, the topic of cybersecurity has gained momentum as numerous other digital data breaches have been revealed. In fact, according to the New York Times, numerous businesses have started asking confirmation from their attorneys and other professionals that cybersecurity protections have been implemented to safeguard their confidential and sensitive information.

Business owners should not only examine their current security measures, but also the security procedures being used by your vendors. Vendors should not be surprised at your request and should be willing to provide evidence of its cybersecurity measures. By obtaining this information, you can reduce your liability and potentially hold your vendor accountable for any breaches. This knowledge will encourage your vendor to stay current on the tools available to protect your business’s private data.

Factors you should consider addressing with your vendors include:

  • Distribution. It is important to educate yourself about how the vendor distributes private information. For instance, private files should never be emailed to unsecure devices.
  • Networks. Ask your vendor to explain if their computers are linked to shared networks. This could make private data susceptible to hackers.
  • Access. Ask your vendor to provide a list of all employees or other personnel who will be given access to your company’s (and your customer’s) confidential information.
  • Protection. Request proof of the digital security tools that will be implemented by your vendor to protect your business’s private data.

Contact Leslie S. Marell for assistance in creating vendor agreements that will help ensure the safety of your confidential information, as well as lessen your liability if a breach should occur.

 

 

Business

Which Legal Structure is Best for Your Start-Up?

When you are starting a new business, it is normal to be eager to get the doors open and see your ideas put into action. However, don’t skip over one of the most crucial steps in ensuring the success of your entity, which is choosing the most advantageous legal structure for your business. Each type of legal entity has its advantages and disadvantages, so it is important to confer with a knowledgeable business attorney to determine which type will benefit your company the most. Below are the three most common forms of legal entities:

  • Limited Liability Company. Many new businesses select the limited liability company (LLC) structure for their new entity.The LLC offers similar protections as does a corporation, but one distinct advantage is that the LLC does not require the same formalities as does a corporation. The LLC permits the members to own and manage the company jointly, while also sharing in the profits and losses. Additionally, the members of the LLC can take advantage of pass-through tax treatment. It should be noted that every business situation is different, so you should confer with a lawyer or other tax advisor regarding the tax treatment in your individual circumstances, but the LLC typically offers several benefits. Lastly, and importantly, the LLC provides the business owners protection from personal liability. In other words, the owners’ personal assets are usually protected from debt collection efforts and judgments against the LLC, except where fraud, misrepresentation or other egregious situations occur.
  • C-Corporation. The C-corporation (C-Corp) is a complex and expensive legal structure to create, but it can provide a wide variety of benefits. A C-Corp is taxed as a separate entity and the owners are only obligated to pay taxes on the profits received from the business. Also, a C-Corp usually falls in a tax-bracket that is lower than individual tax rates. A C-Corp is often used if the company expects to be acquired and can be a beneficial structure for fundraising purposes. You can sell shares in the entity and also create different classes of stock.
  • S-Corporation. The S-corporation (S-Corp) has some important similarities to the C-Corp, but most business owners select it for the tax treatment it receives. The S-Corp is a pass-through entity, which permits the profits and losses from the entity to flow directly to the shareholders. You can only have 100 investors in a S-Corp, and they must all be individuals who are legal residents of the United States.

The above is a very brief summary of three of the business structures available for new entities. There are many other factors that should be considered as well as the other business formations available. Contact Leslie S. Marell to determine which type of entity is the most beneficial for your new business.

Contracts, Intellectual Property

The Value of Non-Disclosure Agreements/Why you should Protect your Trade Secrets

Many times the most valuable asset a business has is its “idea.” That idea is the basis upon which your product/ service is successful. Whether that is an innovative product or a specialized service, it can be worth a substantial amount of money, especially if it meets needs that are not being met by others. It is essential that your company take the necessary precautions to safeguard your idea.

One effective means for protecting confidential information and trade secrets is to require employees, independent contractors, business partners and any other third-parties to sign a non-disclosure agreement. Also commonly referred to as a “confidentiality agreement,” this type of contract binds the third-party to keep your non-public data protected. It can limit the allowed uses of the protected information. Importantly, if the third-party breaches a non-disclosure agreement, your business is entitled to recover damages and other remedies at law.

What should a non-disclosure agreement include? Below are a few of the key provisions to include in a confidentiality agreement:

  • Identify protected information. The agreement should clearly set forth the data that is private and protected from being disclosed.
  • Permitted disclosures. The contract should specify the situations where the confidential information is allowed to be shared with others. It should identify the circumstances and the parties with whom disclosures are permitted. Common examples include allowing the protected information to be shared with attorneys, accountants, insurers, and other professionals deemed appropriate.
  • Legal remedies. In the event of a breach, any remedies available to the non-breaching party should be detailed in the contract.
  • Other terms. A non-disclosure agreement is similar to other types of contracts and should contain provisions setting forth the applicable law that governs, whether the contract is assignable, the requirement of mediation or arbitration to resolve disputes and other similar stipulations. You may also want to consider including language saying that a performance bond is not required. A bond is often used as a guaranty of a party’s reimbursement of costs incurred in case a default occurs. Waiving the requirement of a bond can save you a significant amount of money and time.

Failure to have non-disclosure agreements signed by third-parties can put your business in jeopardy. It is important to protect the special concept or trade secret that sets you apart from the competition.

To learn more about non-disclosure agreements or how we can assist you with other business-related matters, contact Leslie S. Marell today.

Contracts

Four Agreements Your Business Should Have

Every business is unique and has its own legal needs. However, in my experience, four important contracts which are needed to safeguard an entity’s interests include:

Non-Disclosure Agreement

A non-disclosure agreement (also called a “confidentiality agreement”) is important to every company in every industry. This type of contract obligates third-parties to keep your private information confidential and limits the use of it to only permitted purposes set forth in the agreement. Without such a document, there are no restrictions on how or what the third party does with your confidential information. If the third-party breaches a non-disclosure agreement, it entitles you to recover remedies such as an injunction to stop the unlawful disclosure and/or damages. Even if the non-disclosure agreement is never used in litigation, it has a powerful effect by informing the third-party that they are privy to non-public information and there will be legal consequences if they violate the trust you are putting in them to safeguard it.

Purchase Order

When a transaction involves a buyer and a seller of goods or services, the purchase order (PO) becomes part of a contract between them. The PO should set forth the description, quantity, price, applicable discounts, payment terms, date of shipment, authorized signature, and any other important information relevant to the purchase. A buyer can implement PO tracking to manage inventory, improve clear communication, and create a sales history.

Sales Terms & Conditions

Outlining the sale terms is vital to protecting your business. It is a necessary document when you are doing business with your customers who issue you a PO. The terms and conditions of a transaction include topics such as exclusion of warranties, limiting remedies and narrow indemnification language. It is important to work with your legal counsel to identify issues that could have a detrimental impact on your business and properly address them in the sale terms of your contracts.

Intellectual Property Assignment Agreement

An Intellectual Property Assignment Agreement should be signed by all applicable independent contractors and vendors that work for your company when they are hired. Don’t make the mistake of believing that your business automatically owns the work produced by an independent contractor simply because you are paying them for it. An independent contractor is treated differently under the law than one of your full-time employees. To ensure that your entity owns the independent contractor’s contributions, you must have a written agreement that transfers the copyright to your company.

If you need assistance creating any of the above contracts or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.