Monday, September 29, 2008

Arbitration Clauses: An Insurance Policy Against Emotional Adversaries

We regularly advise our corporate clients to avoid litigation at all costs. A trial requires an immense amount of management’s time, it is a big distraction from operations, and business frequently suffers. Add in the additional cost for litigation attorneys, it’s no secret that the lawyers are often the prevailing parties.

Sometimes legal disputes are unavoidable and in these situations we advise our clients to reach a settlement as quickly as possible, even if it means walking away from some money or taking a hit to their ego. It enables management to move on to positive endeavors and, in the long run, is better for business.

Occasionally, however, you’ll have an adversary who refuses to negotiate a reasonable settlement despite the financial burden on them to continue with a lawsuit. These litigants are often very emotional about a claim, or are foolishly clinging to “principal” to make a point. Litigation attorneys love clients like this, especially if they have deep pockets to continue paying the firm’s bills. We frequently see this situation in partnership disputes where there’s been an emotional falling out between partners.

By adding arbitration clauses in all your contracts, you have an insurance policy against the emotional adversary. In an arbitration clause, both parties agree to submit any claim that cannot be settled to an arbitration panel in lieu of going to court. Courts strictly enforce contracting parties’ agreement to arbitrate claims and will hardly ever permit a claim to proceed in court where both parties have agreed to arbitrate in a contract. An arbitration panel’s decision after a hearing is then final and binding on both parties.

Unlike litigation that can drag on for years, arbitration is much less formal than a trial and takes significantly less time to reach a final resolution. In the end, litigation costs are significantly less burdensome. Some critics of arbitration claim that panels’ decisions can be unpredictable, which can be true. Further, often in contract disputes there are no clear winners or losers—the panel seeks a remedy that is most fair to both parties. Notwithstanding, for most businesses, arbitrating disputes that can’t be settled makes the most sense.

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Tuesday, September 16, 2008

Paying Overtime Correctly

Failure to pay overtime to certain employees is an issue that can get you entangled in expensive litigation. Under state law, employers are required to pay certain employees overtime wages of one and one-half of each employee's regular hourly wages.

There have been overtime abuse class action law suits filed against some very high profile employers recently. Here are just a few:

Home Depot. Managers-who are generally exempt from state overtime pay requirements-were asked to regularly perform the same tasks as hourly co-workers who were eligible for overtime pay. A class of 2,000 employees sued for estimated total damages of $100 million.

J.P. Morgan Chase & Co. Employees in a New York call center filed a class action for unpaid overtime wages. Plaintiffs alleged that Chase promoted employees to re-titled "management" positions, even though the employees’ job functions remained the same.

Allstate. Employees filed a class action against the home and auto insurer for allegedly refusing to pay overtime to its adjusters. It routinely assigned them so many claims that they had to work nights and weekends. Approximately 3,000 employees were eligible to receive payments.
Allstate could pay as much as $120 million to settle these unpaid overtime claims.

Similar lawsuits have been filed against RadioShack, Starbucks and Lowes.

Certain kinds of employees are exempt from the payment of overtime. For example, administrative staff, professionals and executives. However, you must have clear understanding of which employees fit within these exempt classes.

Penalties for non-compliance can be high, including paying all back wages, plus unpaid taxes and penalties, penalties up to the amount of the unpaid wages, plus your employees' attorney fees.

The US Department of Labor has an excellent FAQ covering this issue:

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Tuesday, September 09, 2008

Avoid Litigation at All Costs

It may seem counter-intuitive that a lawyer is telling you not to get involved in litigation. However, my job as a corporate attorney is to make sure that my clients do everything they can to minimize the risks within their control and to avoid conflicts that can land them in litigation, or worse.

In comparison to the cost of making sure your business is on solid legal footing at all times, the cost of litigation is astronomical. And I'm not just talking about cash. The drain of valuable managerial time and energy resources required during litigation is often too much for a growing company to handle.

For young companies, in most cases, winning in litigation is less often about who is right and who is wrong, but about who has the deepest pockets to engage in a protracted battle.

Sometimes litigation is unavoidable. Consider alternative means of dispute resolution, such as mediation or arbitration, and where possible, include in all of your contracts clauses for mandatory mediation or arbitration to settle disputes. Also, if a reasonable settlement offer is available, think seriously about taking it instead of spending more time in court.

Better yet, invest time and money on proper contract drafting, by competent corporate counsel, prior to any major transaction to limit your exposure to litigation down the road.

Keep in mind that, in business, it's always much less costly to make sure the basic legal foundation of your company is right from the beginning -usually by a multiple greater than 20!
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Tuesday, September 02, 2008

Ignorant of the Law?

As a fellow entrepreneur, I understand that we as a breed are self-sufficient go-getters. That attitude is what helps us gets through the tough start-up years. However, at times, the "I-can-do-it-myself syndrome" can get us in over our heads. With respect to legal matters, I never advocate doing it yourself. It's a sure-fire way to get you, and your business, in trouble.

That said, hiring a lawyer does not give you license to be completely ignorant about the laws that affect your business. In most businesses, you do not need to be an expert about the law to keep yourself out of trouble. You merely need to know a little bit so when you spot an issue that may land you in trouble, you can find the help you need to resolve the problem before it becomes a big one.

Generally, learning a little about the following basic areas of the law can help keep you out of legal hot water:

* Basic contractual rules
* How to protect your ideas and inventions (copyright, patent, trade secrets)
* Major employer-employee laws
* Securities laws affecting how you can raise capital for your business
* Governmental regulation of your industry, including licensing requirements.

A special note about using contracts in your business. All of your important business agreements must be in writing. Oral agreements, particularly with respect to the sale or purchase of goods valued over $500.00, are usually not enforceable and leave you with no recourse for compensation or legal action. Make sure your contracts are well thought out, drafted in your favor and give you flexibility and protection.

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