The Business Counselor Blog™

Minimum Wage & Overtime Pay Policies

Companies need to exercise caution when dealing with the Fair Labor Standards Act and its rules regarding minimum wage and overtime pay.  Companies should develop and use one or more checklists that address key issues associated with wage and hour law compliance and should also create policies and procedures to be sure that FLSA requirements are satisfied.  This report includes a number of tools that companies can use include a sample overtime policy.

Employee Discipline Programs and Policies

When employees violate company rules, are dishonest or disloyal, or fail to perform satisfactorily, employers may wish to impose some type of punishment. Generally, employers are free to discipline employees for any reason employers consider legitimate, and are not required to prove that they had “good cause” to justify the discipline. But, employers may be liable for wrongful discipline if disciplinary action is contrary to state or federal laws, the terms of their employment contracts and/or company policies and practices. Accordingly, employers should proceed with caution in disciplining employees and make sure that certain steps are followed.  This month's report describes some of the key issues with employee discipline programs and policies and includes a model form of progressive discipline policy.

New Supply Chain Management Disclosure Requirements

This issue of Business Counselor Update includes new forms and commentary that will be incorporated into the Westlaw database Business Transactions Solutions (BTS) in December.  Access to further information requires a Westlaw subscription, which can be obtained by using the contact and ordering information included in the materials.  This issue highlights new supply chain management disclosure requirements adopted in California and include information on launching relationships with new vendors.  Protection of personal information is addressed by a social security number policy and counsel representing employers can take advantage of a template for disclosure of certain basic employment-related information to new employees.  Finally, the issue provides advice on creating a library of the forms needed to quickly and efficiently assist clients in forming and organizing a new corporation.

New Dodd-Frank Whistleblower Requirements Approved by SEC

A public company’s “whistleblower” policies and procedures must take into account the potential impact of Section 21F of the Securities Exchange Act of 1934 entitled “Securities Whistleblower Incentives and Protection.”, which was adopted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).  Among other things, Dodd-Frank established a whistleblower program that requires the Securities and Exchange Commission (“SEC”) to pay an award, under regulations prescribed by the SEC and subject to certain limitations, to eligible whistleblowers who voluntarily provide the SEC with “original information” derived from the independent knowledge or analysis of the whistleblower about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action.  Dodd-Frank provides for bounties of 10% to 30% of the monetary sanctions exceeding $1 million resulting from an SEC enforcement action, or several enforcement actions rising out of the same set of facts. Dodd-Frank also prohibits retaliation by employers against individuals who provide the SEC with information about possible securities violations.   On May 25, 2011, the SEC voted to approve the Final Rules implementing the whistleblower provisions of Dodd-Frank and this report summarizes some of the key issues that public companies must now take into account in designing their internal procedures relating to employee reporting.

Sales & Distribution - Contracting Requirements

In this report I discuss some of the contracting requirements associated with sales and distribution activities--direct sales contracts, employment agreements with sales employees and managers, commission plans and agreements and sales agency and distributorship agreements.

Electronic Mail Policies

This week I'm passing along an example of an electronic mail policy.  These policies govern the use of electronic mail (e-mail) service provided by companies to their employees.  It is essential for a company to have a clear e-mail policy that defines proper use and misuse of corporate e-mail services and informs all employees about their legal responsibilities with respect to sending and retaining e-mail messages.

California Affirms Narrow Enforceability of Noncompetition Agreements

The California Supreme Court has affirmed that noncompetition agreements, even if written narrowly enough not to deprive persons of their right to pursue their profession, are invalid under California law unless they fall within one of the few statutory exceptions.  See Edwards v. Arthur Andersen LLP, 189 P.3d 285 (Cal. 2008).

Raymond Edwards II (“Edward”) was a CPA of Arthur Andersen LLP (“Andersen”). When he was hired by Andersen, he signed a noncompetition agreement which prohibited him from working far or soliciting certain Andersen clients for limited periods following his termination. In June 2002, Andersen went out of business and announced that HSBC USA, Inc. (“HSBC”) would acquire a part of Andersen’s business, including Edwards’ section. HSBC offered Edwards employment on condition that he sign a “Termination of Non-compete Agreement” (“TONC”). The TONC required Edwards to, among others, (1) voluntarily resign from Andersen, and (2) release Andersen from “any and all” claims, including claims that in any way arise from or out of, are based upon or relate to Edwards’ employment by, association with or compensation from Andersen. In exchange, Andersen would agree to accept Edwards’s resignation, agree to Edwards’ employment by HSBC, and release Edwards from the noncompetition agreement.

Edwards signed the HSBC offer letter, but refused to sign the TONC because he was afraid that he would lose his right to request Andersen to indemnify his cost that may arise from the government investigation and civil lawsuits against him in connection with Andersen’s involvement in the Enron scandal. Andersen terminated Edwards’ employment and withheld severance benefits. HSBC withdrew its job offer to Edwards.

Edwards sued Andersen and HSBC for intentional interference with prospective economic advantage under the California statute. Edwards alleged that the noncompetition agreement violated California Business and Professions Code § 16600’s prohibition on restraining a lawful profession, trade, or business, and it constitutes one of the elements of the cause of action, i.e., a wrongful and intentional act by the defendant, designed to disrupt the relationship. In addition, Edwards alleged that the TONC was designed to have Edwards waive his indemnity right protected by California Labor Code Section 2804 making all contracts that waive an employee’s right to indemnification invalid, and thus unlawful. The California Court of Appeals agreed with Edwards’ view regarding the both allegations.

The Supreme Court of California agreed with Edwards’ first allegation only. Business and Professions Code § 16600 prohibits noncompetition agreements except for those in the sale or dissolution of corporations, partnerships, and limited liability corporations. The noncompetition agreement in this case did not fall within this exception. Andersen argued that the Ninth Circuit once ruled that another exception is available when a noncompetition agreement is drafted narrowly enough not to deprive the employee’s right to pursue his or her profession, and this case would be covered under this exception. However, the Court held that the Ninth Circuit misunderstood California law and California's strong policy in favor of open competition and employee mobility, and thus did not constitute a precedence. For Edwards’ second allegation, the Court interpreted the TONC narrowly so that it would not violate Section 2804. Under the Court’s interpretation, the waiver required TONC would not encompass Edwards’ right to request indemnity against Andersen, and thus not unlawful.

As a conclusion, the Court held that Andersen’s noncompetition agreement was unlawful and invalid, but the TONC was not unlawful and thus would not support Edwards’ tort claim.

This material will appear in Alan Gutterman’s publication entitled “California Business Transactions” and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.  Alan Gutterman is the Founder/Principal of Gutterman Law & Business (www.alangutterman.com), which publishes the Emerging Companies Blog and the Business Counselor Blog, and a Partner of The General Counsel LLC (www.thegeneralcounsel.net).

 

Employee Contracts for Overseas Service

As the domestic economy continues to be challenged many firms are sending some of their best employees overseas to assist in launching or expanding branch offices in foreign countries where the market appears to be better for the company’s products and services.  The terms and conditions of services in a foreign country should be documented in a formal employment agreement.  Re-location is obviously an important decision for the employee, particularly when his or her family members will be impacted, and the agreement should carefully describe the things that the employer is willing to do to make the transition proceed smoothly and ensure that the employee and, if appropriate, his or her family can live comfortably in the foreign country.  In turn, the employer wants to be sure that its overseas employees understand their duties and responsibilities and comply with the rules and procedures established by the employers for all of its employees and any specific rules and procedures applicable to its employees in the particular foreign country.

The agreement should cover all the issues that are customarily negotiated in any employment contract including place of employment; scope of job duties, include days and hours of employment; compensation and benefits, including salary, bonuses, vacations and holidays and health insurance; ownership and protection of intellectual property rights; and term and termination of the employment arrangement.  Special issues for overseas assignments that should also be covered in this type of agreement include reimbursement for transportation expenses related to the employee and his or her family members; provision of living accommodations in the foreign country; payment of local income taxes; reimbursement of expenses incurred by the employee and his or her family members for language school; insurance coverage on the employee’s activities, including travel to and from the foreign location; medical examinations, medical and hospital care and vaccinations; and procedures for return passage of the employee and his/her family members upon termination of the assignment for any reason.

The content in this post has been adapted from material that will appear in Going Global: A Guide to Building an International Business (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

Independent Services Agreement for Youth Sports Coach

More and more youth sports organizations are turning from the traditional practice of having parents coach their teams to relying on professional coaches who can provide independent assessment of players and more experience in teaching players the subtleties of their chosen sports.  The relationship between the organization and these coaches should be formally outlined in an independent services agreement.  Such an agreement serves several purposes—defining the activities that the coach will engage in, including coaching teams and providing clinics and training to participants in the sports programs conducted by the organization; memorializing the mutual understanding of the parties that the coach is a contractor and not an employee of the organization; securing an acknowledgment from the coach of his/her understanding of the goals and mission and operating rules of the organization; and setting forth the obligation of the coach to indemnify the organization against damages suffered by the organization as a result of the coach’s criminal or tortuous conduct while performing activities on behalf of the organization.

The content in this post has been adaptedfrom material that will appear in Business Transactions Solutions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

Guidelines for Hiring Salespersons Who Have Worked for Competitors

Salespersons who have worked for competitors are obviously very attractive candidates when companies are looking to add new skills and experience to their sales group.  Since they already are active in the relevant industry and markets it typically does not take long to bring them up to speed and they also should have a good familiarity with how business done and the products and services that are available from all of the companies approaching the specific customer base.  However, salespersons who have worked for other companies may have obligations to their prior employers not to use trade secrets or confidential information learned or acquired at their prior employment, and may have personally signed contracts so promising.  In addition, such persons may have explicitly agreed not to solicit former customers, even if trade secrets or confidential information of the prior employer are not being used.  Accordingly, when hiring salespersons who have worked for competitors companies must be mindful of potential liability it is found that they or their employees knowingly used confidential information of their competitors or engaged in other activities that might be prohibited under contracts between the new employees and their former employers. 

State laws regarding trade secrets and enforceability of non-solicitation agreements differ and the applicable law should be closely reviewed; however, the following general guidelines should be given to new salespersons before they begin contacting any customers or sharing information with colleagues at their new company:

• They are allowed to use their general knowledge, skill and experience acquired in their former employment; however, they may not use the confidential information or trade secrets of the former employer in so competing (including information that is not in tangible form and is simply in the memory of the new salesperson).
• Trade secrets or confidential information of a former employer should not be disclosed anyone at the new company and they certain should not bring any confidential or proprietary information of any kind from their former employer to the new company.  For example, they should not transfer to the computer network of the new company, via e-mail, CD, thumb or flash drive, or other removable storage device, any confidential information or trade secrets from their former employer, including personal contacts. 
• They should not solicit former customers of their former employer; however, if former customers do contact them and ask to do business with you they may send them information about the new company, open an account, and sell to them.  It is important to carefully document how former customers first made contact.
• If former co-workers of the new salesperson contact them and ask about employment opportunities at the new company they should be given the phone number of the human resources department of the new company and the new salesperson should refrain from any further conversations with former co-workers regarding prospective employment.

It is important to emphasize how important these rules are by making sure that new salespersons understand that the use of confidential information from competitors of the company is grounds for discipline up to and including termination of employment.  All of these points should be covered in the initial entrance interview with new salespersons.  Given the sensitivity of the issues and high likelihood of possible litigation with competitors it is recommended that legal counsel join the initial entrance interview to be sure that the new salesperson understands his or her obligations.  In addition, the guidelines described above should be given to the new salesperson in writing and he or she should be asked to acknowledge receipt of the guidelines and the fact that they have been reviewed and discussed with the company before the salesperson began engaging in sales activities.

The content in this post has been adapted from material that appeared in Business Counsel Update (April 2007) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.