Lack of an Exit Plan Equals Dead Company Walking

By Ruth A. Binger

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

Ralph Waldo Emerson warns that “rest, conservatism, appropriation, inertia; not newness, not the way onward” are forms of old age which causes people (I submit companies also) to be dead while they are yet alive. Yet, your manufacturing company can grow young again, if you as the leader/owner pursue and embrace strategic planning, innovation, and sustainability.

The root cause hindering such onward movement is frequently caused by a lack of succession/exit strategies for business owners/leaders. The Small Business Administration estimates that at any given time, forty percent of businesses are facing transfer of ownership issues. Without arriving upon a succession plan/exit strategy for the owner/leader, onward is not possible.

Rather, the bitter truth of humanity is realized – we all die and many times we take our companies with us. The familiar aphorism “shirtsleeves to shirtsleeves in three generations” describes the propensity of family-owned businesses to fail by the third generation. In fact, it is estimated that less than one-third of family businesses survive the transition from first to second generation ownership, and only 10 percent remain active for the third generation to lead.

By creating an exit/succession plan, a business owner/leader is forced to consider not only what the business needs today but what is needed for the future. The owner will make hundreds of decisions differently such as: making an S Corporation election; entering into contracts with key employees, distributors, and suppliers; maintaining clean records; developing and incenting a good management team; and/or transferring stock to family members. Without a plan, the business will mostly die due to the lack of necessary investment in leadership and talent, business systems, and “state of the art” equipment.

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02/7/12 1:07 PM

Business Law, Manufacturing and Distribution | Comment (0) |

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Lack of an Exit Plan Equals Dead Company Walking

Terminate an Employee Returning from FMLA Leave and You Could Be Sued in Your “Individual Capacity”

By Ruth A. Binger

To add to the woes and stress of business owners, supervisors and managers, public and private decision makers who act directly or indirectly in the interest of the employer can be sued in their individual capacity under the Family and Medical Leave Act (“FMLA”).

Most of us forget it, but the same rules that apply to actions under the Fair Labor Standards Act also apply to actions brought under the FMLA (29 C.F.R. Section 825.104(d) (2009)). A July 11, 2011 decision by the Eastern District of Virginia Court, Eastern Division, titled Weth v. O’Leary (U.S. District Court of E.D. Virginia, Alexandria Division) provides important lessons regarding this issue with respect to terminating employees returning from Family Medical and Leave Act, especially if the decision makers are public officials and have sovereign immunity. 

In Weth, the Court refused to grant summary judgment and allowed a FMLA case to proceed to trial because of a highly suspicious timeline, prior raises and highly positive reviews, and the lack of write ups or written documentation bolstering the performance reason defense. 

Plaintiff Weth initially sued O’Leary, both individually and in his official capacity as Arlington County Treasurer. The Court granted Summary Judgment in favor of O’Leary with respect to the official capacity claim because as a state constitutional officer, O’Leary was entitled to sovereign immunity. The Court refused to dismiss the individual claim because sovereign immunity does not apply to individuals sued in their purely personal and individual capacity. The Court cited favorable decisions from various Circuit Courts (Darby v. Bratch, 287 F.3d 673, 681 (8^th Cir. 2002)) where courts found that there was no reason to distinguish liability between individual corporate officers and individual public officials.

Weth was employed as a Deputy Treasurer for Litigation for the Arlington County Treasurer for six years. As late as 2009, Weth had received highly positive reviews regarding her job performance and approved salary increases. 

Weth was diagnosed with cancer in September of 2009 and advised O’Leary. In December, Weth initially sent emails to O’Leary advising him that she would need surgery in January, but then advised that the surgery would be in December. Weth worked until the 21^st of December, underwent surgery on the 22^nd of December and returned to work on the 16^th of February.

On her return date O’Leary advised her that she needed to begin looking for a new job immediately, that she was being demoted and almost all of her job duties were being removed and that her sole responsibility was to find a job. One month later, O’Leary suspended her, sent her home with the directive that she was being relieved of all of her job duties and her sole responsibility was to find other employment. 

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10/27/11 2:40 PM

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Terminate an Employee Returning from FMLA Leave and You Could Be Sued in Your “Individual Capacity”

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

By Ruth A. Binger

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).

A conversation that either plans for group action or brings group complaints to management’s attention is considered “concerted activity” under Section 8(a)(1) of the Act.

So if you see negative posts about your company on Facebook, think carefully before you react.

For a more in-depth look at Employee Social Media Griping read my recent article on social media posts and see what may and may not be protected by the NLRA.

Posted by Attorney Ruth A. Binger. Binger serves both emerging and mature businesses concentrating in corporate law, intellectual property and technology law, and labor and employment law. Her commitment to the success of small to medium-sized businesses, and her understanding of multi-faceted issues inherent in operations, are what distinguish Binger’s practice.

09/2/11 1:12 PM

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

Beware the Trojan Horse that is Social Media

By Ruth A. Binger

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.

However, discrimination laws prohibit employers from making direct inquiries regarding gender, race and other protected factors in their hiring process. If a candidate is not hired, the employer could be subject to discrimination claims alleging that the decision was illegal and based on a protected characteristic. Some online companies, in fact, claim that the social media profiles they will sell you comply with discrimination laws. Similarly, doing social media checks on some employees but not others could also lead to issues. Unregulated monitoring of an employee’s online presence could also lead to privacy related claims. Finally, going to the other extreme, a manager providing a favorable recommendation for a terminated employee could wreck havoc on an employer’s defense in a discrimination suit.

Scrapers & Listening Companies

The information that online users share is not just among their friends but is unknowingly shared with Web tracking companies and advertisers as well. In fact, Facebook acknowledged that its popular application, FarmVille, had improperly shared identifying information about users and, in some cases, their friends with advertisers and Web tracking companies. Social networks are becoming the new public records. Scrapers and listening companies argue they are just being entrepreneurial in that they are only gathering information that is available online anyway- in effect USER BEWARE! U.S. Court rulings are contradictory with respect to scraping, the practice of retrieving data from output from other programs.

People search websites, including Intelius, Inc., offer services that include criminal background checks. “Date Check” promises details about prospective dates for $14.95. Bringing it back to your business, some outfits such as 80Legs.com will scrape a million Web pages for $101. In fact, one Utah company, Screen-scrapers.com, offers scraping software for free. Beware:  if your competitors are not buying your business, they may be stealing it from you by scraping your company.

Bottom Line:  Companies & Users Beware

What is even more disturbing, is that the cyber-criminals who invade social networks to infiltrate your private computer are now invading your work and corporate computers as well. In short, Companies and Users Beware: Social Media can be a Trojan Horse.

11/10/10 1:00 PM

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Beware the Trojan Horse that is Social Media

Mergers and Sales – Trade Secrets & Confidential Information

By Ruth A. Binger

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?

With the complete transparency, and to some degree, anonymity of the internet, the owner’s duty to protect the intellectual property of his or her business becomes even more heightened.

Contrary to the new oracles, there is no such thing as free – everything that is created takes energy. Salespeople can be slowed down by nonsoliciations/noncompetes.

Companies can insist on owning the cell phones and smart phones. However, companies need to think about protecting the data that its employees develop on its time or downloaded from company data networks into LinkedIn, smart phones, emails, etc. This can be done by adding language protecting trade secrets and confidential information in data networks to employment manuals and employment agreements.

Today, businesses are bombarded with messages exhorting the establishment and maintenance of an organizational presence on popular Social Media sites and blogs. The members of Facebook, the largest social-networking site, with nearly 500 million members, or 22 percent of all Internet users, spend more than 700 billion minutes a month on the site. LinkedIn has over 75 million members in 200 countries and a new member joins LinkedIn approximately every seconds.

Your employees and your customers are becoming interdependent, sharing your trade secrets and confidential information at times when they are not careful. In short, your customers and employees are quickly and forcibly dictating your business operations and professional exchanges by becoming purchasing agents, spies, scouts, product reviewers and technical consultants for each other.

In every LinkedIn account that is established at the urging of the Company for the purpose of employment, there resides a goldmine of names, email addresses and other valuable contacts and professional information.

LinkedIn’s position is that the account constitutes a contract between the employee and LinkedIn. There are no cases in the United States regarding this issue.

Employees proffer free speech arguments and contend that employee owns the LinkedIn account because it is part of their knowledge base and they are entitled to take those contacts with them throughout their career. Employers, in turn, argue that they paid the employee to develop the data, or paid more to hire a person with extensive data, and therefore anything developed on its time with its money is its property. English courts have ruled that Outlook address books amount to employer proprietary databases and belong to the employer.

So, what does a prudent owner do?

Create a policy that is placed in the employment manual or noncompete agreement that makes it clear that the Company makes a significant investment in establishing or increasing the employee’s network of business contacts, that such information is protected confidential information or trade secrets and it is not to be disclosed. State affirmatively that direct dial telephone numbers, email addresses and other contact details that are generated on Company time or are provided by the Company are Company property and must be returned to the Company and deleted at the conclusion of the employment relationship.

New Hires can bargain with respect to who is exempted from the noncompete/nonsoliciation agreement and what information is exempt from the confidentiality/trade secret policy. This is in accord with Missouri and most states’ trade secrets laws. This policy would also accord with a 2001 Australian case where the Court held in a nonsocial media context that when an employee copies a significant number of client contact details into a personal address book used in the course of her job, such confidential list belongs to the employer, and must be returned at the conclusion of employment.

Today, noncompete and nonsolicitation clauses are invaluable, but they are not enough. Owners and employers must exercise more self help methods and stay ahead of the game.

Just as it is critical for the owner/employer to own the cell phone/smart phone number, and not the employee, it is also critical to own the employer’s confidential data infrastructure built on the employer’s time. If and when you, the owner, sell the business, you want something to sell that is protectable. You do not want to become another version of Wall Street giant Merrill Lynch that purchased AXA’s Advest Brokerage unit for $400 million in 2005 and by 2006 found that 417 of its 505 brokers had jumped ship with its customers and contacts.

Social media continues to rewrite the value of your business and you need to effectively manage and direct it or you will give it all away.

09/1/10 6:00 AM

Business Law, Employment Law, Intellectual Property | Comments Off |

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Mergers and Sales – Trade Secrets & Confidential Information

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

By Ruth A. Binger

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.

07/31/10 6:00 AM

Banking and Finance, Business Law, Emerging Business | Comments Off |

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

Raiding Your Competitors’ Salespeople in Missouri: What are Owners’ Key Questions?

By Ruth A. Binger

Your competition is hurt and bleeding and your industry is down. You own a business and you are in the enviable position of having extra cash. However, barriers to entry are low in your industry and buying your competition’s business may not be a good investment.

An easier strategy, a bit predatory of course, is to hire the salesperson from the failing businesses.

You have searched the internet as to the wisdom of the idea, and you are a bit confused. As fate would have it, the decision is made somewhat easy for you and you are approached by the salesperson in question who lets you know he can bring a substantial book of business given that he is fairly sure his employer’s ship is sinking.

You are aware of the duties that an employee owes an employer, and you intend to stay squarely within the law. The competitor is savvy and you know there has to be a non-competition/non solicitation agreement. You quickly arrange a meeting with the salesperson and you ask her to bring a copy of her non compete/non solicitation for legal review.

So, what are the key questions you should be asking in Missouri during these hard economic times:

1. Has your compensation arrangement been recently unilaterally changed?
2. Has the business changed hands (Roeder v. Ferrell-Duncan, Clinic, Inc.)?
3. Is the employer in the process of being downsized and will you be asked to sign a severance agreement (Carboline v. Lebeck and PPG Industries)?
4. What are the events leading up to the decision to seek new employment-material breach issues (McKnight v. Midwest Eye Institute of Kansas City, Inc.)?

The answers to these questions will help you and your counsel determine whether you need to buy the business, hire the employee or pursue other strategies.

05/19/10 6:15 AM

Business Law, Employment Law | Comments Off |

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Raiding Your Competitors’ Salespeople in Missouri: What are Owners’ Key Questions?