Misclassifying Your Workforce Can Bite

A business owner and her lawyer are having lunch.  They were talking about Uber’s troubles.  Uber, the ride-share business, faced lawsuits over Uber classifying its drivers as independent contractors.  We now join the conversation in progress.

Business Owner:  Why does it matter whether someone is an employee versus an independent contractor?

       Lawyer:  Costs and liability are big reasons.  Whether a worker is an employee or independent contractor affects overtime entitlement, benefits, liability exposure, taxes, unemployment, worker’s comp, and which employment laws apply.  Making a mistake in classification can be costly.

Business Owner:  How so?

            Lawyer:  Take overtime for starters.  An employer is responsible for paying overtime if the worker is a non-exempt employee, even if the employer calls the worker an independent contractor.  A worker who successfully sues that he was an employee entitled to overtime that was not paid can get the unpaid wages, interest, liquidated damages, any penalties under state law, and his attorney’s fees and costs.  Then there are the attorney’s fees spent by the employer.

Business Owner:  That is not cheap.

            Lawyer:  That is not all.  There can be the audits, tax issues, etc.  The employee does not need to sue for that to happen.

Business Owner:  Oh, bother.  How do I properly classify someone?

           Lawyer:  There are several tests by the various governmental agencies and the courts.  You will have to pick the ones that apply to your business.  There are common themes between the tests, thankfully.

Business Owner:  Such as?

            Lawyer:  A written independent contract usually is important.  What has to be in the contract will depend on which test you need to satisfy.  Then there is control.  How much control the employer has over the who, what, when, where, and how of the job is considered.  Who provides the tools and materials also affects the outcome.  Then there is the risk of loss among other factors.

Business Owner: Any worker has a risk of loss.  The worker can be fired for doing a bad job.

            Lawyer:  There is more to the risk than that.  Who stands to lose money on a particular job is considered.  Here is an example that helps explain this.  Assume you and a painting company agree on a flat price of $3,000 for the company to paint your house.  You pick the paint, the finish, and agree on a schedule.  The painting company supplies the painters, the tools, and manages the painters and the pace of work.  The painting company, however, underestimated its costs and lost $200 because its total costs were $3,200.  The painting company’s employees are entitled to their wages regardless.

Business Owner:  What now?

            Lawyer:  Let me know if you want to go over how you classify your workers.  Any other questions?

Business Owner:  How come it seems like we are reading a script?

            Lawyer:  Because we are.

This post provides general information only.  This post is not intended to create an attorney-client relationship or to be legal advice about your situation.  Laws change and your situation may be different.  You should consult with a licensed attorney for legal advice specific to your circumstances.

© 2016 Matthew D. Macy

Watch Your Step With Your New Mark

You have a name, slogan, logo, or other mark for your new business or product.  Look first before spending time and money to identify your brand with that mark.  A search beforehand may warn you of another mark that could hinder your use of the new mark.  It is not fun to get a cease-and-desist letter or a lawsuit you could have avoided.

There are services available to conduct searches for you; the costs and efficacy varies.  There are do-it-yourself searches for little to no cost that you can do first.  Here is a sampling of DIY searches:

  • Google and other search engines:  Self-explanatory.
  • Federal Trademark Registrations:  The US Patent & Trademark Office (“USPTO”) handles the federal registration of trademarks under the Lanham Act.  The USPTO database has registered marks, marks that were registered but lost that status, and applications for registration, is available for free via the Web.  You can search the database here.  Try different variations on the name – spacing, punctuation, and non-letter characters can affect the search results.  There also is a way to search for logos and non-verbal marks using keywords and design codes.
  • State Trademarks and Trade Names:  States often have their own trademark registration and trade name databases.  You can search Georgia trademark registrations here and Colorado trademark registrations here.  The registration of a trademark or a trade name could be at the same place, or, like in Georgia, be in separate databases.  Georgia has trade name registrations take place at the county superior court, for example.
  • Records of incorporations, etc.:  A person forming an entity usually has to submit formation paperwork with the appropriate state agency, such as the state secretary of state.  The databases often are searchable online.  You should search the databases for the states where you want to do business.  Here are links to the sites for the Georgia’s Secretary of State’s website and the Colorado Secretary of State’s Web site.
  • Domain names:  A domain name register should give you the ability to conduct an online WHOIS search on a domain name.  A WHOIS search should tell you whether anyone has registered the domain name or whether it is available.
  • Social Media:  Examples of where to search are Facebook, Houzz, and LinkedIn.  There are many more social media sites; how far you should go will vary on the nature of your business.
  • Online phone book: Put in your intended name and something similar to see what pops up.

Remember GIGO (garbage-in-garbage-out) when searching.  The more varied are your searches, the more reliable are your results.  Examples of variation include spelling the mark correctly and incorrectly, spelling out non-word elements and visa versa (e.g., “plus” and “+”), using different phonics (e.g., “phone” and “fone”), altering the spacing between words, and so on.

Each database has its limitations.  Georgia’s trademark registration database, for example, will not show any pending applications.  It can take a week or so for new federal trademark applications to show on the USPTO database.  Even with that in mind, the search results can guide on whether a more in-depth search makes sense, where you can proceed with peace of mind, whether you should proceed with caution, or whether you should change your mark.

Stay tuned for a discussion of options if you get a “hit” on any of your searches.

This post provides general information only.  This post is not intended to create an attorney-client relationship or to be legal advice about your situation.  Laws change and your situation may be different.  You should consult with a licensed attorney for legal advice specific to your circumstances.

This article has links to websites owned and operated by third parties.  Use those links at your own risk.  The author including those links is not an endorsement by the author or the author’s firm of those third parties, of the content of those sites, or of the security of those sites.

© 2016 Matthew D. Macy

Maximize Your Options under the Defend Trade Secrets Act of 2016

Trade secrets are valuable. The owner of a trade secret must take reasonable measures to protect the trade secret. The reason measures can include limiting access on a need-to-know basis and the agreements put in place. For example, when an employer sues an employee for stealing a trade secret, the court will ask whether the employee signed a trade secret or confidentiality agreement. Not having an agreement would be a serious setback for the employer.

A well-drafted trade secrets agreement is useful, while a poorly drafted agreement can backfire. Anyone using those agreements should regularly review the agreements for updates. For example, in May 2016, the federal Defend Trade Secrets Act of 2016 (“DTSA”) became law. The DTSA opens the federal courts to more civil cases over trade secret misappropriation. The DTSA also imposes a notice requirement on employers. An employer that fails to comply with the notice requirement, when required, will limit what the employer could recover under the DTSA.

Employers that use trade secrets or confidentiality agreements need to have a notice of the whistleblower protections in the DTSA. The requirement applies to contracts entered into or renewed on or after when the law came into effect.  The employer also can comply by having the agreement cross-reference a policy document that has the required notice.  What is unclear is whether the notice can be a summary of the whistleblower rights, a repeat of the statute, or something else.

An employer that does not include the notice when required will not be able to get punitive/exemplary damages or an attorney’s fee award on a DTSA claim in a lawsuit against an employee. Regardless of whether state law or the contract covers that “gap,” it makes sense for an employer to include the notice when required to preserve as many options as possible.

It pays for an employer to review its agreements going forward for DTSA compliance, and to make sure the agreements still meets the employer’s needs. The recent DTSA gives employers and others an excuse to review their agreements.

We are happy to assist employers and others with their policies, procedures, and agreements. Feel free to give us a call.

This post provides general information only. This post is not intended to create an attorney-client relationship or to be legal advice about your situation. Laws change and your situation may be different. You should consult with a licensed attorney for legal advice specific to your circumstances.

© 2016 Matthew D. Macy

An Overtime Bedtime Story

Wynken, Blynken, and Nod formed the Wooden Shoe Company to build custom fishing boats.  They are both owners and employees of the company.  A debate erupted between them whether they would be exempt from overtime as business owners.  The boys called the lawyers at Goldnet, Silvernet & Moon to answer the question.  This is what they learned.

Under the federal Fair Labor Standards Act (“FLSA”), a business owner qualifies for the “white collar” exemption to overtime as an executive employee, regardless of the amount of salary, if: (1) the employee owns at least a 20% bona fide equity interest in the business; and (2) the employee is actively engaged in the management of the business.  “Actively involved in management” is considered on a case-by-case basis.

Wynken, Blynken, and Nod applied the test to their situation.  All three boys had bona fide equity interests in the company, and they all met the requirement to be actively involved in the management of the company.  Wynken owned 50% of the company, Blynken owned 40%, and Nod owned 10%.  Wynken and Blynken qualified for the business owner exemption.  Nod, however, did not qualify for the business owner exemption because he owned less than 20% of the company.  The boys then checked whether another exemption applied to Nod.

What is the takeaway?  Just owning any percentage of the business will not automatically exempt the employee from overtime.  There is an ownership minimum and a requirement to be involved in management.  All may not be lost if the owner-employee does not qualify for the business owner exemption.  Another exemption could apply; otherwise, the owner-employee is eligible for overtime.

Employers also should remember that state laws could expand eligibility for overtime beyond the rules under the FLSA.   Please contact us if we can be of assistance.

This post provides general information only.  This post is not intended to create an attorney-client relationship or to be legal advice about your situation.  Laws change and your situation may be different.  You should consult with a licensed attorney for legal advice specific to your circumstances.

© 2016 Matthew D. Macy

Changes Are Afoot For Who Gets Overtime Pay

Under federal law, employees are entitled to overtime pay for work done in excess of 40 hours in a workweek, unless the employee fits within one of the exemptions.  The US Department of Labor (“DOL”) issued a major change to the “white collar” exemption.  The current “white collar” exemption applies when the employee performs executive, administrative, professional, and computer-related work, and receives a salary of at least the rate of $455 per week.  The changes by the DOL will increase the weekly salary from $455 to $913.  Converting the numbers to an annual salary, $455/week equates to $23,660/year and $913/week equates to $47,476/year.  The DOL estimated that the change could affect five million employees across the nation.

There also is the “highly compensated employee” version of the “white collar” exemption if the employee receives an annual salary of at least $100,000.  The DOL changes will increase this minimum to $134,004.

The changes will take effect on December 1, 2016.  What this means for employers is that employees currently exempt under the “white collar” exemption may no longer qualify if their salary is below the new minimum.  Those employees will become nonexempt unless another exemption applies, or unless the employer adjusts the employee’s pay to meet the salary requirements.  There could be lawsuits and challenges in Congress aimed at the DOL’s new regulations, but an employer should be prepared in case those challenges fail.

An employer should start now by reviewing its workforce for any employees who could be affected by the change in regulations.  Employers who have affected employees have choices to make.  Those employers need to decide whether it makes sense to change the employee’s salary or job duties, see if another exemption applies, or if the employee is to be nonexempt, making sure the employer complies with the overtime laws.  For example, the employer should consider what the employee will do for the employer “after hours,” if anything.  The time an employee spends checking work email outside of ordinary business hours could count as time worked.

Getting it wrong can be costly.  The federal Fair Labor Standards Act allows the employee who wins in court to recover 100% to 200% of the unpaid overtime pay, attorney’s fees, and costs.  State laws often allow employees who win the lawsuit to get damages and penalties on top of the unpaid wages and attorney’s fees.

There is more to the new regulations, and to the law on overtime pay, than what this article covers.  An employer should work with qualified and knowledgeable professionals when evaluating whether an employee is exempt and how to structure compensation plans to comply with the applicable laws and regulations.  The cost of getting it wrong can be far more than getting it right from the start.

This post provides general information only.  This post is not intended as legal advice or to create an attorney-client relationship.  Do not rely on this post as legal advice.  Laws change and your situation may be different.  You should consult with a licensed attorney for legal advice specific to your circumstances.

© 2016 Matthew D. Macy