Bottom Line Business Insights : Maryland Business Lawyer & Attorney : Wagonheim & Associates Law Firm : Mergers & Acquisitions & Contractual Negotiation

In my last post, I related the story of how Thomas’ English Muffins successfully sued to prevent one of its key executives from defecting to a competitor.  The rationale behind the court’s decision was that permitting the executive to join the competitor could cause irreparable harm to Thomas’ business, since the executive knew key information about Thomas’ products and its business.

As a business owner, you have a vested interest in preventing your company’s customers, processes, secrets, and the like from migrating out the front door with a departing employee. Although it worked out for Thomas’ English Muffins, you shouldn’t count on a judge’s or jury’s good graces. Plus, litigation is a very expensive way to protect your company’s vital assets. Better to take care of things up front and inexpensively, rather than from the inside of a courtroom.

So, what’s the best way to do that? Get your key employees to sign Non-Compete, Non-Solicitation, or Confidentiality Agreements as part of your corporate policy, and as a condition to their (continued) employment. 

There are primarily three types of legal documents you can use to protect your business. Each has a specialized function and may be more appropriate for your business than the others. In some instances, you may need two or even all three (they can usually be combined into one master agreement). Here are the basics:

• Non-Compete Agreements: These agreements prevent key employees from working in your industry within a specified geographic area and within a specified time of their departure from your company. For example, if you’re in the business of manufacturing windows and doors, you may want to sign a Non-Compete with your top producing sales person (or people) that prevents them from working for any other window and door manufacturer or distributor within a 50 mile radius of your headquarters for 12 months after they leave your company (the geographic and time limitations should be carefully tailored by your attorney to ensure that they are enforceable).
• Non-Solicitation Agreements: This agreement prevents departing employees from soliciting your customers and your other employees to leave your company. A Non-Solicitation Agreement doesn’t prevent the employee from being in the same business after her departure (as a Non-Compete Agreement does), but rather says to the departing employee, “You can be in this business, but you can’t steal my customers or my other employees.” It often makes sense to require more than just key employees to sign Non-Solicitation Agreements.
• Confidentiality Agreements: These agreements are used to protect trade secrets, processes, sensitive company information (such as customer identities, financial information, and the like), and company plans. For example, if your company is planning to expand into a new geographic market, then you probably don’t want that information getting out to your competitors. You would require your employees with access to such information to sign a Confidentiality Agreement.

I believe that virtually every company should have one or more of these agreements in place with certain of its employees. Unfortunately, with the exception of the largest corporate enterprises, very few businesses are aware of these issues, much less what to do about them. Until it’s too late, of course. With that in mind, feel free to give me a call or shoot me an email to discuss any concerns you may have related to these issues, or any other business or legal issue that’s on your mind. I’ll be happy to answer your questions and point you in the right direction. Free of charge. And with no obligation. 

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A week or so ago, I came across a story in the legal press that reminded me of something I wish more of my clients would focus on: Non-Compete Agreements. The story was about a lawsuit filed against Chris Botticella, a former Senior VP of the company that owns Thomas’ English Muffins. It seems that Mr. Botticella had accepted a new position as a senior executive at Hostess, one of Thomas’ competitors in the baked goods space. Thomas’ sued to prevent him from taking the job, and won.

Why? Well, it seems that Botticella is one of only 7 people on the planet – yes, the planet – who knows the secret to how Thomas’ English Muffins are made. And Thomas’ certainly didn’t want him taking that knowledge to one of its biggest competitors. As a result of the court’s decision, my guess is that Botticella is going to have a tough time finding work as counter help at the corner bakery, much less as a senior executive at a large, national baked goods company.

How does a lawsuit over English Muffins relate to YOUR business? Simple:  your people are your greatest asset, and, when they leave, potentially your greatest liability. They literally have the power to make or break your business. Every business guru will tell you this, but then you’re left to your own devices to figure out what it all means, and how to protect your business’ reliance on this sometimes unpredictable asset.

Perhaps the most important way you can protect your business’ customer accounts, secrets, processes, plans, and the like from traveling to a competitor after the defection of a key employee is to require key employees to sign a well-crafted Non-Compete or Non-Solicitation Agreement.

A Non-Compete or Non-Solicitation Agreement will prevent your best sales executive (you know, the one whose accounts resulted in 68% of your gross income last year) from leaving your company for a competitor, and taking her business with her to boot. Additionally, if you’ve got any proprietary systems or technologies, it’s imperative that you protect them. Your competitors will likely pay top dollar to lure away your key sales executive, information systems guy, CEO, or key manufacturing process employee. The loss of such an employee (and your competitor’s gain of that employee) will be felt where it hurts the most:  your bottom line.  Equally as important, they are enforceable.  As recently as 5 weeks ago, Judge Richard D. Bennett of the United States District Court for the District of Maryland reaffirmed in TEKSystems, Inc. v. Bolton not only that a Non-Compete is enforceable if reasonable in scope, but also that it will be automatically extended for the period the employee is found to have been in breach. 

Do you have employees whose loss would or could have a devastating effect on your revenues or your business? If you do, or even if you’re not sure, feel free to give me a call or shoot me an email and we’ll discuss it. I’ll be happy to answer your questions and point you in the right direction. Free of charge. And with no obligation.  You can also read more about Non-Competition Agreements in our recently released Business Owner's Pocket Guide. 

In the next entry, I’ll be writing about some of the important provisions a Non-Compete or Non-Solicitation Agreement should contain, and the real effects of these agreements. Stay tuned.

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Yesterday, we received the catalog from Despair.com. One of their demotivators featured the legend: “Hard work often pays off after time, but laziness always pays off now.” I thought about this as I was working with a client on revamping her company’s employee handbook. We discussed everything from dress code to paid-time-off, to the point where she was so tired that she asked, “Do you think that all of these details really matter? Can’t we be a little more vague and worry about addressing some of these issues when they come up?” 

But the point is, you can't -- not if you want to avoid unwanted results from your employees or claims from DLLR.  As time-consuming as the redrafting effort was, we needed to get it right.  The devil is in the details.

It’s easy for this idea of the devil being in the details to be lost on some. In this economy, we are tempted to rush, rush, rush to get the end product completed. We’re stretched thin, and our only goal tends to be the almighty dollar. However, we have got to stop and be reminded that, in any endeavor, the devil – the difficult part – is getting those small details just right, so that the end result is excellence. 

When we neglect the details, people notice. For instance, in that employee handbook, if we failed to note that jeans were impermissible for office staff, you can bet that employees would notice and would expect that jeans were acceptable attire. What’s worse, the client who walks through the door to your business and sees the office staff wearing the jeans may be turned off by the lack of professionalism. And if you later tried to enforce a “no jeans” policy, or ultimately let an employee go as a result of the lack of professionalism, not having this detail documented in the handbook may allow that employee a legitimate claim for wrongful discharge and/or continued benefits.

Of course, the flip side is also true. Sometimes the more details you tend to, the less that people really notice. But this is a good thing. Allow me to explain:

You come home from work today, check your mail, and find an invitation to a party in a few weeks. The date comes along, and you go to said party, where you eat, drink, mix and mingle for a few hours, and then head home. Do you really think about all of the details that went into the party?

If I were your hostess, here’s what would have gone into that party (at a bare minimum!): 

• 2 hour to select the perfect theme (season, occasion, etc.), date (no Ravens home game, or other obvious conflict), time and location (backyard, fancy restaurant, art gallery, you name it!)
• 30 minutes forming a guest list (taking care to stay within proper friend and family circles and to be as inclusive as possible),
• 2-3 hours to select the perfect invitation (considering everything from the theme to the font, because the invitation sets the tone of the event),
• 30 minutes choosing stamps and timely mailing the invitations (there is such a great selection of stamps out there, you may as well find one that works well with your event!),
• 2 hours selecting decorations (even more if some decorations are homemade or require any kind of legwork)
• 3 hours selecting a menu
• 2 hours shopping for decorations and food (if you aren’t using a caterer)
• 4 hours preparing food (again, if you aren’t using a caterer)
• 5 hours cleaning and/or setting up the space (placecards or nametags… labels to identify food selections… fresh flowers on tables and in the powder room…)
• 2 hours assembling my own wardrobe for the event

And then, the guests arrive.

Paying attention to all of these details is exactly why the party will go off flawlessly. And exactly why not one guest will think twice about everything that went into making the party fabulous. But guess what? It’s exactly why every guest will remember the evening.

Both personally and professionally – whatever your business, give great care to those details! 

• Tuck in your shirt. Look the part.   
• Proofread. Yes, even emails.
• Avoid saying “um.”
• Remember people’s names.
• Make eye contact. Smile!
• Create an outline before your next presentation. Practice.
• Ditch the AOL, Yahoo, or Gmail account and get your business its own domain name! For $75, two guys in a pickup are transformed into a solid company you can trust.

If you take the time to battle those devilish details, they are sure to produce returns tenfold.

I wore maroon, patent leather, pointed-toe, crocodile-printed pumps to work today. They pick up the hint of burgundy in my brown checked suit and truly complete the outfit. They even make me feel more confident as I attend my morning, lunch, and dinner meetings today. 

As I said…the devil is in the details.

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Yesterday, I found myself at a traffic light behind a company truck.  The truck belonged to and advertised a dog waste removal company.  I pondered this.  For a while, I wondered what the job interview was like.  But as the light turned green and traffic started to move, I noticed something else.  The truck was sporting a bumper sticker that read:

Your Life is not My  Problem.

I turned my pondering up a notch.  "How is it," I wondered "that in this one moment, frozen in time, the dog poop guy seems to be looking down on my life?"  Now, don't get me wrong.  This guy, perhaps even the owner, had a company, did honest work, and maybe even made a killing performing a service hordes of people would pay to avoid having to do.  But why was his employee insulting me.  And did the company's owner know it?

And this led me to my question:

How many owners realize the hidden (and not-so-hidden) messages their employees are sending?

Several years ago, Walgreens faced a lawsuit over just this issue -- only in more extreme form.  It seems that Walgreens pharmacy employees entered their thoughts on various customers in the comments field of the company's perscription software.  There, stapled right to a perscription for a customer's anti-anxiety medication, was a print out featuring some anonymous employee's assessment "She's CRAZY." 

Now maybe she is, and maybe she isn't.  But one thing we know for sure.  Walgreens has spent millions of dollars on a campaign to convince the public that it is a friendly neighborhood pharmacy.  How much money, then, did this one errant employee flush down the drain with one careless, or in this case, incredibly stupid example of personal expression?

Appearances matter.  If your employees have customer contact, check every aspect of the interaction.

• What do the outgoing voice mail messages say?
• Look for bumper stickers on vehicles used for delivery -- political, religious, or even humorous.  What's funny to one is insulting to another.
• Listen to how your employees express themselves.  Do they have a penchant for telling ethnic jokes or making sexist comments in an attempt to be funny?  Some people do  these things so often they don't even notice them anymore.

Can you see your company through your prospective customer's eyes?  If the dog waste company could, they might have taken the time to ponder that bumper sticker.

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Employees are expensive.  Misclassifying them as independent contractors is more so.

Most state laws require employers to pay for their employees' workers' compensation coverage and unemployment insurance...at a minimum.  The Federal government imposes additional (and very expensive) requirements.  Specifically, employers must:

• Pay Social Security contributions of 6.2% of salary up to $106,800 (in 2009),
• Withhold 1.45% of all earnings for Medicare,
• Pay overtime to eligible employees
• Provide unpaid leave under the Family and Medical Leave Act for those companies to which the Act applies.

Independent contractors, on the other hand, receive 1099 forms at the end of the year and are responsible for their own taxes.  Employers contribute nothing.

It is tempting, therefore -- particularly in difficult economic times -- for employers to classify people as independent contractors and save both the money and the headache of withholding taxes insurance payments, and contributions.  But it's not that easy.  The IRS looks very carefully at each situation to determine the exact nature of the relationship between the company and the individual.  For the most part, it comes down to a question of control. 

The IRS and most states examine the following factors to determine the nature of the relationship:

1. The company's right to direct or control how the work is being performed
2. Who establishes training programs and whether they are mandatory
3. The source of the tools (including computers and software) used to perform the work
4. The location where the work is performed
5. Whether the company has the right to assign additional projects
6. Whether the hired party hires and pays his or her assistants or support staff
7. THe company's right to determine when the work is performed and/or set certain hours

Bottom line, if your company has the right to control or direct what is being done, how it is being done, and when it is being done, your company is most likely and employer.  

Most importantly, a wrong answer can be extremely expensive.  Companies which misclassify employees and independent contractors can be subject to huge tax bills for unpaid taxes as well as penalties for failure to file required tax forms and, in certain circumstances, failure to adhere to Federal and State statutes such as the Family and Medical Leave Act and Title VII of the Civil Rights Act of 1964, as amended (applicable to employers who have 15 or more employees).  In addition, misclassified employees can pursue their own claims against the company for any losses they may have sustained.

Both companies and individuals can ask the IRS to make a determination of employment status by filing with the IRS Form SS-8:  Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.  

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Businesses are running scared. 

Twitter is driving the NFL to distraction.  According to the New York Times, the Green Bay Packers have announced that players using Twitter during games, practices, or to report on team activities will be assessed heavy  fines. The Miami Dolphins have all but outlawed Twitter.  Who knew a tweet could do what a 290 pound lineman couldn't?

And the NFL is not alone.  Consider...

• On January 21, 2009, the Associated Press reported that officials in Paramus, NJ  suspended without pay an employee for posting allegedly racist comments on his Facebook page.  He used his own computer and made the entry on his own time. 
   
• In March, a Philadelphia Eagles employee lost his job over Facebook postings critical of the teams trade decisions.
   
• July saw the requested and accepted resignation of a NY government employee for some strongly worded postings critical of both President Obama and Professor Henry Louis Gates

Lest you think that social networking sites inspire fear in only the weak of heart, consider this:  CNN reports that the United States Marine Corps have launched a full, frontal assault on social networking sites.  According to a Marine Corps spokesman:

"These internet sites in general are a proven haven for malicious actors and content and are particularly high risk due to information exposure, user generated content and targeting by adversaries."

Businesses throughout the country and around the world are struggling to harness the marketing power...and contain the potential HR fallout...of social networking sites.   As this plays out, and in view of the incredible and virtually untapped marketing potetion of these sites, I have a few recommendations:

• Develop written social networking site guidelines for your employees;
• Talk to your employees about your company's presentation to the outside world in the hope that you can make them part of the solution, rather than the problem;
• Review all employment contracts to ensure that your company can take proper disciplinary action against those who's postings cast you or your company in a negative light; and
• Make sure any Personnel Manuals or handbooks include both the Company's social networking site rules and a discussion of the possible ramifications of violating company guidelines.

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