Comerford & Dougherty, LLP Blog

Many businesses have customer lists that they consider their own private property.  It is common, however, for sales representatives and other employees to regard customer lists as theirs too, something they can take to a new employer. Employment agreements, confidentiality agreements, non-competes, and non-solicitation agreements can all be used to eliminate confusion over whether a customer list is transferable or not. 

In the absence of clear contractual protections, however, case law and state trade secret laws may decide whether a list is the exclusive property of a business.  If the list is a "trade secret," a business owner may have an easier time protecting it and obtaining damages for its use by ex-employees and competitors. The Uniform Trade Secrets Act, that has been adopted by most states and the federal Defend Trade Secrets Act provide for penalties and remedies for the misappropriation of trade secrets.

When is a list a trade secret?

Generally, a list receives "trade secret" protection if, first, it contains information not readily ascertainable from public sources.  Merely listing customers and general contact information is usually not enough to elevate the information to trade secret status. Second, owners must usually take some measures to keep the information confidential.

What steps can a company take to ensure that a list is viewed as a trade secret?

The following are elements which, when present, can lead to a customer list being deemed a trade secret.

• The list contains unique, non-public information about each customer, such as ordering history, needs and preferences, and private phone numbers and e-mail addresses.  The more a customer list contains valuable details compiled about each customer, the less likely a court is to say that the list could have been readily assembled from public sources. 

•  The list is marked "private" or "confidential," and employees are informed that it the property of the company. 

• Electronic versions of the list are password-protected, and access is limited to certain users.

• Printed copies are kept under lock and key.

• When the list is shared with third parties, there is a confidentiality agreement.

• The owner can show that time and effort were invested in building and maintaining the list.

A recent case involving former employees of an insurance company shows how these factors can influence a court.  In that case, the customer list contained more than just customer names, birth dates and drivers' license numbers.  It also contained laboriously compiled information about the amounts and types of insurance each customer had bought, the location of insured property, the personal history of policyholders, policy termination and renewal dates, and other potentially valuable details.  The list conferred a powerful, competitive advantage and the court deemed it a "trade secret."

Meeting the criteria spelled out in that case and in the suggestions above does not guarantee that a customer list will be deemed a protected trade secret.  It could, nonetheless, increase the odds.

Employees do not always depart on the best of terms. When that is the case, what are your obligations in terms of disclosure when a prospective employer contacts you to check for references? Keeping negative opinions to yourself might seem like a surefire way to stay out of court. A bad reference might lead an employee to file a lawsuit, but that does not mean he or she would be successful. Theories of liability include defamation, negligent misrepresentation and negligent referral.

Particularly risk-averse employers follow a policy of only confirming employment when someone calls for a reference. This approach does not necessarily insulate you from liability, however. In workplace violence situations, for example, you might find yourself in litigation for simply providing dates of employment for an individual when you were aware of his or her tendency toward or history of violence or other misconduct.

When providing a reference, share only factual information. Hunches, gut feelings and bad vibes are not good topics for discussion. For example, if you suspected a former employee was stealing from you, but you never had conclusive proof, it is probably advisable not to mention your suspicion. The best course of action is usually providing complete and accurate information to anyone checking a reference. Some states have passed laws providing varying degrees of immunity to employers who provide honest references about former employees.

When you are asked for a reference, you should keep track of:

• which employees you were contacted about;
• who contacted you;
• the date of any conversations;
• the method of communication (phone, email, in person); and
• what you said, particularly if you provided anything more than confirmation of employment.

An experienced business law attorney can effectively advise you about providing employee references and other challenging issues you face in running your business.

The aim of non-compete agreements is to bar departing employees from working for your business competitors or from starting a competing business. These agreements used to be reserved for high-level employees or people working in certain fields who had access to sensitive information. While non-compete agreements are becoming more common, they are only enforceable to a limited degree and in some states not enforceable at all.

In considering whether a non-compete agreement can be enforced, courts generally examine whether there is a legitimate business interest at stake and whether the agreement is narrowly crafted to protect that interest. Courts tend to disfavor restrictive covenants such as non-compete agreements because it limits commerce and can prevent an individual from earning a livelihood. Here are a few factors to consider when looking to implement a non-compete:

• What is unique about my business? If there is something about your business that sets it apart from its competitors - a product, a process, a method of doing business - a non-compete agreement could protect your advantage. It might also be wise to consider other protections such as patents.
  
  
• Over what area would I need a non-compete to apply? Would employees be barred from working at a competing business across the street? In the same city? Within 50 miles? Within the same state? The larger the radius, the less likely a court is to enforce it.
  
  
• To which companies would a non-compete need to apply? Are your employees going to be able to get jobs in your field if they leave your company, or would your agreement make them essentially unemployable? Courts typically frown on agreements that leave people completely out of work.
  
  
• How long would a non-compete need to last? The shorter the time an employee is restricted by the agreement, the more likely the court is to find the restriction reasonable.
  
  
• Under what circumstances would the non-compete kick in? If an employee is fired, are they going to face the same restrictions as an employee voluntarily leaving your employ?

When considering any agreement with your employees, including restrictive covenants such as non-compete agreements, it is important to consult an experienced business law or employment law attorney who can properly advise you and help you craft an agreement that is likely to be enforceable.

Sometimes a business grows more rapidly than expected and its leased space is no longer large enough. Other times a business finds itself losing money and unable to pay rent. In those instances, it is the commercial tenant that desires to break its lease. There are times, however, when a commercial landlord seeks to break a lease and even threatens eviction for reasons that may lack merit.

A commercial lease is basically a contract that establishes a relationship between the parties and outlines the respective rights and obligations of each. These documents can be confusing and complex. Resolving a commercial lease dispute often involves business, contract and real estate laws.

Unlike residential leases, where the law heavily favors tenants, in the commercial world, the law tends to be more even-handed. The terms of the lease (even if all you have is an oral agreement) are most often going to be what governs the outcome of the dispute. This reflects the view that both parties involved in commercial lease agreements are sophisticated business entities that can protect their interests.

Since the terms of the lease are most likely going to govern if you file a lawsuit and take your dispute to court, it is essential that anyone evaluating your case examines your lease in depth. Even if an out-of-court settlement is negotiated, familiarity with your particular lease agreement is crucial for anyone advising you. Many commercial leases contain a dispute resolution clause that might require mediation or arbitration. These options can often lead to a resolution in less time and with less expense than traditional litigation.

Assessing damages and amassing the means to prove those damages is another important component to handling a commercial lease dispute. Typically, monetary damages are sought. There might be a clause in the lease regarding attorneys' fees. Again, it is vital that a competent and informed review of your particular lease is made to properly guide your case.

Contact an experienced business law attorney today to discuss your commercial lease dispute and learn what legal options are available.

Many businesses have a sign hanging on the wall, often near the cash register, that says something like “We reserve the right to refuse service to anyone.” The reality is not as straightforward as the sign's message.

First, members of legally protected classes cannot ever be denied service based on their membership in their respective class.

• The Federal Civil Rights Act guarantees all people the right to “full and equal enjoyment of the goods, services, facilities, privileges, advantages, and accommodations of any place of public accommodation, without discrimination or segregation on the ground of race, color, religion, or national origin.”
• The right of public accommodation is also guaranteed to disabled citizens under the Americans with Disabilities Act, which precludes discrimination by businesses on the basis of disability.
• In addition to these federal protections, many states also protect people from discrimination based on gender, sexual orientation or other personal attributes.

Second, putting up a sign does not create the right to refuse service; the right exists, but you must be careful about when you exercise it. When a customer is not a member of a federally protected class, you can generally deny service so long as you have a legitimate business reason. Some reasons that have been found to be legitimate include:

• When a customer is not properly dressed. Hence the other common sign, “No shirt, no shoes, no service.”
• When a customer has poor hygiene, such as extreme body odor or being excessively dirty.
• When a customer is being disruptive. This includes customers that are intoxicated.
• When a customer harasses your employees or other customers.
• When there are safety concerns, such as when there are too many people to serve.
• If you are certain a customer cannot or will not pay.
• When a customer comes in just before closing time or when the kitchen is closed.
• Patrons accompanied by large groups of non-customers who wish to stay on premises.

Even the most compelling business reason cannot overcome obvious discrimination. Legitimate reasons for denying service cannot be used as a shield when the actual reason for the refusal of service is discrimination.

When creating policies and considering guidelines for your business, it is important to consult an experienced business law attorney for advice on how to comply with federal and state law.

Technology is a double-edged sword. It allows us to work remotely and to have greater flexibility as to where and when we work, but the freedom it affords can also be a burden. When you can work from anywhere, and at any time, it often feels like you should be doing so!

Studies suggest people are caving under the pressure - whether explicit or implicit - to work while technically off the clock. According to the Pew Research Center, approximately 44% of Internet users regularly perform some job tasks outside the workplace.

All the work that is being done outside of work hours is creating a compliance problem for many businesses. The federal Fair Labor Standards Act (FLSA) requires employers to compensate employees that are not exempt from the law for all time worked. These non-exempt employees must all be paid time and a half for all hours worked over 40 per week. This means that employees need to be paid (at overtime rates if applicable) for time spent checking and responding to emails, calls, texts, etc. during non-work hours.

In order to remain FLSA compliant in this technology-driven age, we advise our clients to take the following steps.

Develop a Timekeeping Policy that is Compliant with the FLSA

Explicitly tell your non-exempt employees, preferably in writing, whether or not they are allowed or required to work during non-work hours.  Make it clear that “working” includes checking emails and taking phone calls.

Implement the Timekeeping Policy

A policy is not worth the paper it is printed on if it is not actually implemented. Make it easy for employees to report their off-the-clock work, and discipline employees who do not report their off-the-clock time.

Enforce the Timekeeping Policy

When off-the-clock time is reported, pay your employees for it. Be clear about how much, if any, off-the-clock time employees are expected to work, and do not be afraid to discipline employees who do not comply with expectations.

If you have any questions about paying employees for work done off-the-clock or any other business related issue, contact an experienced business law attorney today.

Have you ever watched the TV show Disaster DIY on HGTV? The premise of the show is that many people have no idea what they are doing when it comes to home remodeling, but they try the “do it yourself” (DIY) approach  anyway. The host of the show then comes in to save the day, repairing what the DIYers have messed up, and teaching them how to do perform certain tasks.

This show has many parallels to the world of business law. It is tempting to try and find a DIY solution to legal issues. Budgets are tight, and professional legal advice can seem like a luxury when you are first starting out or struggling to meet quarterly goals, so many businesses adopt a DIY solution when what they really need is a good lawyer.

The Internet also encourages many businesses to DIY their legal issues, whether its access to legal info or various forms. But the problem is that advice on the Internet is not always accurate, particularly since business law is different in every state.

After pursuing the DIY route and disaster ensues,  business owners are forced to call in the professionals to clean up the mess.  Unlike the TV show, where the show’s producers cover the DIYers costs, the costs of fixing a legal DIY disaster rest solely on the business or the business owner. It often costs businesses significantly more to rework a legal framework that wasn’t carefully thought through. There are two reasons for this. First, proactive legal help is always going to be more cost effective than legal triage; it’s infinitely more costly to actively fight a pending lawsuit than it does to carefully draft and implement needed policies. Second, the results that even the best attorney can salvage from an awful situation are not likely to be as as ideal or as cheap as it would have been to avoid the disaster altogether.

Perhaps math isn’t every lawyer’s strong suit; although some lawyers prefer to stay away from fractions and decimals, it doesn’t mean they aren’t able to do math when needed to help their clients.

When it comes to businesses, math is intertwined in so many issues from basic day-to-day operations to complex corporate mergers and acquisitions.  For example, legal issues and litigation related to buying and selling a business, bookkeeping for an existing business and profit and loss statements, among other things, need to be handled by an attorney who is comfortable with arithmetic. 

Business related classes like tax and finance are some of the only law school classes that require the students do math. So, in order to do well in these classes and become competent to handle a business or tax matter, a student must at least be able to do basic math.  A widely reported study by Harvard law professors found that business classes were the most highly recommend by alumni for current students take to better prepare themselves for practice.

The gap between what most lawyers know about business law and what their clients need them to know is a wide one.  This is why you need to look for an attorney who has demonstrated excellence this field.  Part of that excellence must be a comfort with arithmetic.  You want an attorney who is already excelling in the field and not one that has to educate him or herself about basic finance and bookkeeping in order to handle your particular matter.

The American Dream of starting your own business and pulling yourself up by your bootstraps is alive and well. In fact, it is the creation and growth of small businesses that is instrumental in helping America recover from the Great Recession. What many do not realize is that a significant percentage of new business ventures in this country are started by immigrants.  Despite their business startup prowess, Immigrants face a multitude of legal issues as they start new ventures in the United States.

If you are an immigrant and are considering starting a business in your new homeland, there may be a number obstacles ahead of you. At the top of that list is obviously obtaining legal status for yourself, your family, and your employees. America welcomes innovators and business creators, but obtaining legal status is never easy. Thankfully, there are several paths to legal status available to entrepreneurs. Working with an experienced immigration attorney is the best way to figure out which options will work for you.

Providing employment for family members and friends is one of the rewarding aspects of being a small business owner, but immigrants must strictly adhere to all laws governing the employment of non-citizens. If you are caught violating this law you could lose your business and put your legal status in jeopardy.

Immigrant entrepreneurs may also face discrimination. If you think that a lender, supplier, or other business-related contact has treated you unfairly because of your nationality, and your business suffered, you should contact an attorney. An attorney can help you seek compensation if appropriate, and can help you negotiate and enforce future contracts.

There are also unique opportunities in the business creation world for immigrants.  As newcomers to an area, immigrants have the ability to see gaps in the market that others may not notice. A business attorney can help you take your vision and make it a reality by helping you through the formation and permitting processes.  The government also has several special programs that are designed to help minority and woman-owned businesses flourish. Many immigrant business owners are able to take advantage of these programs.

Starting a business is challenging regardless of whether you’re an immigrant.  The pride of owning your own business, seeing it succeed and living the American Dream more than makes up for the trials and tribulations that founders encounter.

Employee Rights in the Workplace 

Relationships between employers and employees are regulated under various federal laws. It is essential to be aware of these regulations. Those who violate their provisions risk lawsuits and penalties for failure to comply.

Family Medical Leave Act 

Under the Family Medical Leave Act, or FMLA, an employee is afforded up to 12 weeks of unpaid leave to recover from pregnancy, serious illness, or to aid a sick family member.  No adverse employment actions are permitted upon return.  That means after 12 weeks of such leave, an employee must be permitted to return to their previous position with no reduction of hours or pay.

Federal Minimum Wage

The federal minimum wage is presently $7.25 an hour. Some local governments have increased the minimum wage above the federal level. For non-salaried, non-commissioned employees, an employer is required to pay one and a half times the normal hourly wage for any hours worked in excess of 40 hours a week.

Harassment and Discrimination

An employee has the right to work in a place free from harassment and discrimination.  Sexual harassment can take the form of unwelcome sexual advances or a hostile work environment. Adverse employment actions taken for the reason of race, religion, gender, and in some states, sexual orientation, may result in a lawsuit. It is also against the law for an employee who files a lawsuit for workplace discrimination, sexual harassment or another wrong doing to face retaliation for whistleblowing.

Federal Occupational Safety and Health Administration

Under Federal Occupational Safety and Health Administration (OSHA) regulations, an employee has the right to work in an environment free of dangerous conditions, safety hazards and toxic substances. Employees dealing with potentially dangerous equipment must be trained to use it safely, and all employees should undergo training on workplace safety. The OSHA handbook has 19 subsections, each dealing with a specific topic such as fire prevention, heavy machinery, hazardous materials and walking/working surfaces.

National Labor Rights Act

The National Labor Rights Act, or NLRA, allows employees to organize a union to negotiate working conditions and compensation through collective bargaining and the use of strikes.  The NLRA does not apply to public employees, domestic employees, agricultural employees, railroad employees, airline employees, supervisors, management, independent contractors or close relatives of the owners of the company that employs them.  

An Overview of the Family Medical Leave Act (FMLA)

The Family Medical Leave Act is a federal law that allows employees to take significant time off from work to take care of a loved one with an illness, medical problem or condition. The law does not require an employer to pay the employee for the time missed, but allows the employer to substitute accrued paid vacation/sick time for unpaid leave taken during the FMLA, meaning that the employee’s leave cannot be extended beyond the statutory period by using his or her vacation time. The FMLA prohibits employers from enforcing any negative consequences against the employee for exercising his or her rights under the FMLA. These would include termination, cutting back on hours, reducing pay, or diminishing the employee’s title or responsibilities.

The FMLA applies to businesses with more than 50 employees. To qualify, an employee must have worked for the employer for at least one year and must have worked at least 1250 hours in that year. The law allows the employee to take up to 12 non-consecutive weeks of unpaid leave a year to care for a spouse, parent or child who has a serious medical condition. There is special consideration given to family members caring for ill military service members. The parents, spouses, and children of these individuals are permitted to take up to 26 weeks off each year to care for their loved one. 

The most common use of the law is to allow an employee to take time off work after a child is born, even though most would not call pregnancy a “serious medical condition.” This is commonly referred to as maternity leave. Although it is not customarily exercised, fathers have an equal right to take time off to bond with their children after birth. The FMLA also allows new parents to take time off work immediately after an adoption. Some people use the Family Medical Leave Act to care for family members dealing with mental health issues, including dementia, addiction, or schizophrenia. The law covers any medical condition which require an overnight stay in the hospital, chronic conditions that require treatment at least twice a year, and conditions that incapacitate the affected person for more than three consecutive days.