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Tilting the Scales

Business Issues with a Legal Slant

“Best Interests” of Investors and Employees

Posted in Fiduciary Duty

Close-up Of Person Hand Inserting Coin In Pink Piggybank On TableIma Knowitall, owner of All My Business Ideas (AMBI), just read the Wall Street Journal article on new Department of Labor (DOL) regulations and called her financial advisor, Phillip Coffers. Mindful of last fall’s Tilting the Scales post that suggested she might owe her employees a fiduciary duty as the trustee of AMBI’s 401(k), Ima asked Coffers if the new DOL ruling affected either Ima as an investor with Coffers in her own retirement savings or as the owner and administrator of the AMBI 401(k) plan.

Does the ruling affect Ima as an investor? Yes. Because Coffers renders investment advice for a fee or other compensation, he is a fiduciary investment adviser and is subject to the new fiduciary standards of care under ERISA. Coffers will risk becoming personally liable for Ima’s losses resulting from recommendations given by the Coffers team—specifically, the investment losses plus related court costs and attorneys’ fees. Originally passed to require disclosure of hidden fees and allegedly under-performing investments promoted by financial advisers who persuaded customers to “rollover” their 401(k)’s into IRA’s, the new regulation moves the investment adviser’s standard of care from a “suitability” standard to a “best interests of the customer” or fiduciary duty standard.

What about Ima as administrator of the AMBI 401(k) plan? Yes, Ima continues to have at least the fiduciary responsibility to diligently monitor the company 401(k) expenses. Although not originally intended as such, it remains to be seen whether the new regulations might impose increased responsibilities on Ima similar to those of Coffers.

Tilting the Scales in Your Favor.

Whether it’s your broker acting in your best interests for your retirement investments or you as the company administrator acting in the best interest of your employees, both retirement investments represent, for most people, the second largest asset they own—their home being the largest. Every retirement account owner can expect to get new documents from their investment adviser asking them to sign agreements outlining your financial adviser’s disclosures to satisfy the new “Best Interest Contract Exemption” and the “Principled Transactions Exemptions.”

If you would like to learn more about the new DOL regulations, Jason Luter, a Gray Reed attorney and an ERISA adjunct professor at SMU teaching on qualified and non-qualified plans, and I are giving presentations on the new DOL regulations focused on this new directive to act in the “best interests of the clients”—a statutorily imposed fiduciary duty standard.

“What is, and What is Not, a Fiduciary Duty,” focuses on the DOL’s changes subjecting certified financial planners, financial advisers and brokers to an ERISA fiduciary duty standard. We discuss the differences between the DOL regulations, the self-imposed CFP “fiduciary duty” standard and “old-fashioned” common law fiduciary duty that will, almost certainly, impact many clients and client’s families of the financial advisers, including very dire penalties risked by unwitting directors / owners of closely held businesses, their trustees, executors and guardians. While all three may be called “fiduciary duty,” they are very different from each other. Confounded yet? Not surprising.

When the Company’s Joke Backfires

Posted in Company Management

april-fools-at-workHarvey Slapstick, CEO of Jokes-R-Us, decided an April Fool’s prank on his employees was just what the company needed to boost morale. So he hired two former soldiers to conduct a fake hostage situation at the company’s office. In an effort to ensure things wouldn’t get out of hand, Slapstick advised the police and 911 emergency system. When the hostage situation went down, Jimmy Wannabe, a weekend warrior, decided to play hero. Wannabe shot the “hostage takers”, but also injured Elizabeth Little, a Jokes-R-Us employee. When Little heard that Slapstick orchestrated the prank, she sued him and the company.

Liability for Office Pranks.

Previously, we’ve written about when a prank among friends goes too far. Many companies have gotten into the act in recent years and pulled their own April Fool’s prank on customers or employees. Some pranks go well, but some pranks come off poorly. If Slapstick knew, or had reason to know, that Wannabe might take the law into his own hands, Slapstick and Jokes-R-Us are likely liable. For example, if Slapstick knew that Wannabe carried a gun with him at the office, Slapstick and Jokes-R-Us are liable for creating a dangerous situation.

Tilting the Scales in Your Favor.

April Fool’s pranks can be lots of fun, but you have to think ahead. Is there any chance that people who aren’t in on the joke could be injured, or could injure someone else? If so, the prank’s probably not one you should move forward with. You should also run your proposed prank past some friends to see if they think it’s a good idea. Slapstick clearly didn’t think things through or seek advice.  In the end, the company will pay for the prank going wrong.

5 Reasons Why Incorporating Your Business is the Right Play

Posted in Company Management

Incorporating Your CompanyAgitated that the NBA is now prohibiting him from using Stickum during games (even though he’s been doing so for years), Dwight Howard wants to find a permissible product that he can use to grip the basketball.  Dwight thinks it could take the basketball world—not just the NBA—by storm.  Keeping all of this from the NBA, he convinces his teammate James Harden to go into business with him.  James wants to make sure that his agreement with Dwight on the business venture is air-tight and wonders if they should set up a corporation or limited liability company to protect themselves now and in the future.  Is James’ thinking an easy lay-up?

Here are five reasons why incorporating your business may be the right choice for you:

  1. Protecting Your Personal Assets: The debts of a corporation or limited liability company belong to the entity, and not to you personally (unless you personally guaranteed those debts).  Incorporating your business will typically protect your personal assets if your business can’t pay its bills—but you have to make sure you follow the appropriate corporate formalities.
  2. Potential Tax Advantages: Depending on what type of entity you set up, the income the entity earns may be taxed at a lower rate than your personal income tax.
  3. Bringing on Investors: You’ve got an opportunity to expand your business, but you don’t want to borrow money from a bank.  Having a corporation or limited liability company will let you bring investors into the mix—something you can’t do as a sole proprietor.
  4. Limiting the Potential for Litigation with other Founders: If you and a co-worker want to start a new business together, setting up a corporation will also mean that you’ll have a written company agreement that addresses issues such as the ownership split and how management decisions are made. This reduces the likelihood of the two of you being stuck in a “he said, he said” dispute later on about your agreement.
  5. Increase your Credibility: The public tends to feel more confident dealing with a corporation than with a sole proprietor. Being able to put “Inc.” at the end of your business’s name makes it look more professional and credible to potential customers.

Tilting the Scales in Your Favor.

When it comes to incorporating your business there’s no “one-size fits all” approach.  Whether incorporating is right for you depends on your individual circumstances, and you should consult with a lawyer and your tax advisor before making your decision.  If you do decide to incorporate, there are a few more issues to consider:

  • Insurance: Your homeowner’s policy may not cover your business, even if you only work out of your home.  Talk to your insurance agent and make sure you have the right policies for your needs.
  • Trusts: While incorporating will typically protect your personal assets from creditors of your business, you can add additional layers of protection with trusts to protect your most valuable personal assets.
  • Employee Issues: Regardless of whether you incorporate or not, if you have employees, you need an employee handbook that clearly sets forth company policies.  And, depending on the type of employee you hire—such as a sales person—you may want to consider having a non-competition agreement with your employee.  My partner Michael Kelsheimer offers a free “Employer Handbook” with easy to understand Texas-specific answers to frequent employment questions.
  • Contracts: If you have form customer contracts and you incorporate, they will need to be changed.  Get a contract checkup, because an attorney should also explain to you how the contract needs to be signed in order to protect you from being personally liable.

Moving Your Company to Texas or Just Across the Street? Top 5 Considerations

Posted in Legal Risk Management

Moving to TexasFleeing the California minimum wage increase, N. O. Smelz, owner of Smelz Carpet Cleaning calls his friend and fellow entrepreneur Billy Brazos to announce that he’s moving to Texas and to ask for any advice. Having just completed an end of year checkup on his own business, Brazos offers his top five tips for any company new to Texas, relocating within the state or that just hasn’t had a corporate checkup in a bit.

#1 Think About Your Company Entity

You have 3 options when moving your business:

  1. Continue – You can continue your company in the old state and register as a foreign entity doing business in the new state (undertake foreign qualification in the new state). However, there are a couple of things to note:
    1. Ongoing State Fees. If you keep both entities, you will pay duplicative annual report and/or franchise taxes, and sometimes complicated tax filings for the entity and its owners
    2. Delaware or Nevada. If you incorporated in Delaware or Nevada, you were probably foreign qualified in your current state. You can eliminate your current state and register as a foreign entity in your new state.
  2. Liquidate – You can liquidate your company in the old state and form a new entity in the new state.
    1. This may result in federal tax issues if you have a C corporation, but not likely if you have a limited liability company.
    2. For any company entity, there are state mandated formalities if you dissolve your business, depending upon the state, often at least requiring document preparation (dissolution papers), filing and paying any outstanding taxes and dissolution fees.
  3. Reorganization – You can undergo a reorganization, forming an entity in the new state and merging the old company into the new.
    1. This can be entirely tax-free for a C corporation.

#2 Don’t Forget About Your  Legal Documents

  1. Contracts with Customers and Vendors – Obviously, your choice of law is now likely to be Texas, not California. It is also likely that Texas law will treat other contract provisions differently. Get a contract checkup.
  2. Employee Handbook – Even if you didn’t get your employee handbook off the internet, many aspects of the employment relationship are different in Texas from California. My partner Michael Kelsheimer offers free “Employer Handbook” with easy to understand Texas-specific answers to frequent employment questions.

#3 Update Your Address Change with the Government – Federal, State & Local Agencies

  1. The IRS requires no document change, like your employer ID number (EIN), but you must complete Form 8822-Change of Address (Part II) and designate if only changing mailing address or also changing notifications for business income, excise, employment, and other tax matters.
  2. The Texas Secretary of State requires company registration to do business in Texas perhaps necessitating amending organization documents (Articles of Incorporation for a corporation or Articles of Organization for a limited liability company) and notification of any address change. If you elect to be organized in one state and registered to do business in another, you must maintain registered agents in each state and complete each state’s filing and reporting requirements. California, for example, imposes a franchise tax on every corporation or LLC that is registered to do business there.

#4 Change Your Address Online

  1. Marketing Materials – You’ll want to update your website, email marketing templates, email signature, business cards and social media.
  2. Online – Make sure to your physical address on your website, Google Places, Yelp, Bing Places, Yahoo Local, Google Places, Google Map Maker tool, Bing Places, Yahoo Local, Mapquest, Apple Maps, OpenStreetMap tool, and any other search engines you’ve registered your business with.
  3. Automatic Payments  Any website that auto-charges your business credit card will not accept charges when your address changes at your credit card company or bank.

#5 Tips for Company Owners

  1. Wills and Estates
  2. Texas Driver’s License – You’ll want to update local address within 30 days of your move.
  3. Voter Registration –Whether you move into the state or into another Texas County, you should notify the county voter registrar.
  4. Texas Concealed Handgun License – If you move, you can change your address online.
  5. Insurance – Have you updated your insurance lately?
  6. Safety deposit box  Have you inventoried/ updated safety deposit documents lately?
  7. Personal Move List – This article gives you a pretty good start on a list of other personal items to be addressed in a move.

Tilting the Scales in Your Favor.

Whether your company is moving to Texas or just moving across the street, check out, among other things, your company structure, your contracts with your customers and your vendors, your internet presence and the last time you told your current and prospective customers and vendors who you are, where you are and what you do.

Loving Thy Neighbor & the Defamatory Flyer

Posted in Defamation

defamation-flyerPete Kusdel was walking his dog through his neighborhood one morning when he saw papers strewn all over one of the streets—it looked like a recycling truck had lost its load!  Mad as heck and ready to call the local garbage company, he soon realized that each piece of paper had a picture of his neighbor, Sally McFly, on it. Pete picked up one of the pieces of paper and was shocked by what he read: “Sally McFly, 4001 Polka Drive. You’re no Christian! Leave my husband alone!” He picked up another piece of paper and it was exactly the same. Pete thought to himself, “Man, I can’t wait for my wife to share more details on the neighborhood gossip. This is the biggest scandal in years!” Sure enough, rumors began spreading that Cynthia Senhan made the flyers because she thought Sally was sleeping with her husband. Now, Sally is furious because the rumor is false. Does she have a good defamation claim against Cynthia?

Defamation Primer. 

We’ve written a number of articles on defamation over the years. Basically, defamation involves a false statement of fact about a person that is published to a third party and tends to injure the person’s reputation. Assuming Sally is telling the truth, it’s pretty obvious that Cynthia’s fliers are defamatory.

But does Sally really have a good lawsuit?  Maybe. The law divides defamatory statements into two groups: (1) statements that are defamatory per se; and (2) statements that are defamatory per quod. Defamatory per se statements are typically statements that unambiguously charge someone with committing a crime, being dishonest, engaging in fraud, rascality or general depravity.  All other statements are defamatory per quod.  Some courts have recognized that statements claiming a person engaged in an extramarital affair are defamatory per se.

What’s the effect of a defamatory per se statement?  The law presumes a plaintiff, such as Sally, suffered loss of reputation damages without proof of actual injury. If the defamatory statement is not per se, the plaintiff must present proof that the statement caused a loss of reputation, and how those damages are calculated, to recover.

Are Cynthia’s fliers protected “free speech” communications?  Highly doubtful. We’ve  written about free speech and defamation on a couple of occasions, but it’s worth revisiting.  If Sally sues Cynthia, the Texas Citizens Participation Act probably won’t protect her fliers because they were not a matter of public concern—that is, until Cynthia decided to make it known to the public. Had Sally been a public official, it might be a different story.

Tilting the Scales in Your Favor.

Remember the Golden Rule: if you don’t have something nice to say about someone, don’t say it. But if that doesn’t stop you, (we’ve talked about this before) you better have evidence to back up your statement if you’re going to accuse someone of engaging in reprehensible conduct. Otherwise, it’s probably best to not make the statement, especially in today’s age where everything posted online is forever memorialized. If you’re sued for defamation, one of the first things you should do is contact your homeowner’s insurance company because you probably have coverage for those statements.

Defamation: Internet Crisis Control

Posted in Defamation

Internet DefamationArriving at his warehouse last week Knott Faire, owner of Faire Carpet Cleaning, discovered yet another complaining critique posted on WELP: “Lots of hype, a mediocre cleaning and a hassle at the end. Don’t get tied up with Knott!” In over 75 previous reviews only 3 were slightly negative. Since the “hype” complaint, another dozen scathing complaints were logged. Believing that the negative reviews are from a competitor, not his customers, Knott called his trusty lawyer Icahn Ficksit for help. Icahn issued WELP a subpoena demanding production of identifying information and ISP (Internet Service Provider) addresses for the dozen offenders. Can Ficksit successfully subpoena the documents? What should Knott Faire do about his on-line reputation?

Ficksit may well not get the documents he wants. In Texas, probably not. Texas courts require a defamation plaintiff to submit sufficient evidence of a prima facie case on each essential element of the claim (see Cahill and Dendrite) to subpoena the documents sought. Just saying the postings are tortious or illegal is not enough. Texas businesses seeking personal details about website users must lay out actual facts to support the subpoena. For example, if the reviewer was a customer and the posted review was based on personal experience, defamation is not likely. If the statement is false and the reviewer was never a customer, then the review is not an opinion and may well be based on a false, defamatory statement.

Internet Crisis Control for Knott Faire?

Faire probably should focus more carefully on fixing his internet reputation. How can Knott Faire best get this done?

Be Proactive.  “Nip it in the bud.” Release your side of negative information first, by putting your most favorable spin on the facts. If it is reasonable, it will be believed.

Be Upfront.  Consider contacting and offering to meet with the online poster if the negative comments have already been posted. Be conciliatory.

Apologize if Necessary.  Consider ‘fessing up to your mistakes. A quick apology is less painful and less costly than years of litigation, and is likely to put you in a better light rather than appearing to be clueless and defiant.

Negotiate to Get the Post Down.  Consider the cost to get it down. Words are forgotten. Even newsprint fades. The permanence of the web creates a major branding challenge.

Own Your SEO (Search Engine Optimization).  Consider creating your own content and drive the bad stuff down in search engine rankings. Only your worst enemy will look for dirt on you past the first Google search page. See Reputation Repair below.

And, know that there are those who believe that any company that sues over online reviews someone makes is clearly a company not worth doing business with, since they might, potentially, sue you over any bad review you write online about them.

Tilting the Scales in Your Favor.

Our advice on this subject of almost two years ago is the same today. Consider undertaking internet reputation repair. Managing your internet reputation is not a new idea. In fact, Gray Reed regularly works with some of our clients on crisis communications and dealing with damaging or misinformation on the internet. There are also internet service providers and websites like Reputation Changer, Reputation Management Consultants, Integrity Defenders,and Online Reputation Management that promote their ability to clear negative search results arising from an internet search engine. And by the way, consumer-review websites—whether Yelp, Angie’s List, Google + Local, Yahoo Local Listings, or Amazon.com—are shielded from liability for defamation claims stemming from user comments under the Communications Decency Act of 1996.

Prior Tilting Articles.

Also check out: Defamation Law: The Basics

Avoid “Uh-Oh”-Pen Carry at the Airport

Posted in Legal Risk Management

open-carry-airportSince Texas’ open carry law went into effect at the beginning of the year, Pistol Pete has carried his Glock everywhere he can in his shoulder holster. In a rush to make his flight to Houston for a business meeting, Pete forgets to remove his holster and attempts to walk through TSA’s screening with his loaded Glock. Does he face big-time legal trouble when the TSA agent sees his gun?

Pete’s Not Alone.

Apparently, passengers attempt to bring guns through airport security several times a day, and TSA says the numbers keep rising each year.

It’s Okay in Texas—if Concealed.

Some Texas airports took a proactive approach to the new open carry laws by posting statements on where gun owners can carry their weapons on airport property. In addition to open carry, last year the Texas Legislature passed a law that gave concealed carry owners the opportunity to immediately leave the airport screening area when security notified him or her that their weapon was discovered. However, the law also seems to provide that it is not a defense if Pete openly carried the weapon, even though he has his CHL. So, Pete may still be in trouble for his open carry folly—although TSA will probably give him a free pass by allowing him to leave the security area and store the weapon in his truck.

Each State is Different.

Pistol Pete might be in some trouble, had this happened in another state.  Attempting to carry a gun through airport security is a state issue—not a federal issue—and thus the penalty, if any, is determined by the jurisdiction where the airport is located.

Tilting the Scales in Your Favor.

Accidents happen, especially when we’re distracted. If you inadvertently attempt to take a handgun through security (whether open or concealed carry) tell the TSA agents it was a mistake, you forgot you had it on you, and that you would like to go back to your vehicle.  Remember, staying calm is likely to get you the best result under the circumstances!

If you are traveling outside of Texas and plan to bring your gun with you, you should review the gun laws for the states you are traveling through.

Top 8 Pitfalls of Arbitration

Posted in Legal Risk Management

arbitration-pitfallsAfter months of arguing over defective solar panels with his supplier, California X-Tra Green Solar, Ed Ezeeout finally calls his favorite attorney at Fixx, Itt & Quick. Dutifully gathering all emails, invoices and transport documents with X-Tra Green, Ezeeout comes across the parties’ master sales agreement. Giving it another look, he discovers a “boiler plate clause” agreeing to mandatory arbitration. In the confidence of his favorite attorney, Ezeeout bemoans the time and cost of resolution and suggests, hopefully, “Well, at least the arbitration will be in Texas, will be confidential and will save me time and money. And, if we don’t like the way things are going, we can avoid arbitration and get a jury trial. Either way, we can appeal any unfavorable or wrong judgment, right?” Does Ezeeout risk even more frustrations?

Yes. Originally a viable alternative to the time and expense of a jury trial, the Federal Arbitration Act and the Texas Arbitration Act hoped to offer a confidential, final dispute resolution that would save litigants time and money. Many claim it now does neither.

Arbitration Pitfalls

  1. Arbitration agreements are valid. Resistance is futile. Texas courts almost always enforce them. Unless both parties agree not to enforce an arbitration clause, either party may send their dispute to arbitration. Ezeeout is not likely to get a jury trial.
  2. Arbitration may not be in Texas. X-Tra Green’s “boiler plate language” will likely require arbitration in California and applying California law, increasing Ezeeout’s cost and uncertainty.
  3. Arbitration isn’t always cheaper. It can be, but only if the arbitration clause is tightly drafted or the clients force a budgeting process. Litigants pay for either one or three arbitrators; even one costs more than a Texas court judge. Litigants often pay administrative services which can be prohibitive for small disputes. Depending upon the agreement, all of the costs of the judge and of administration are imposed either equally or against the losing party. Discovery can be just as expensive, if not more, depending upon the involvement of the arbitrator(s) and the permitted scope of discovery fights.
  4. Arbitrators aren’t always qualified. Selecting the best arbitrator for your circumstances requires careful consideration of cost, demeanor, conflicts of interest with the other attorney and their client, usefulness of fact-specific experience, and, perhaps, predilection to one kind of claim or the other. Depending upon complexity, specific field or industry knowledge may be helpful. Avoiding conflicts and knowing who your adversary knows may be even more critical. Finally, investigate whether your arbitrator is both capable and willing to rule decisively, and to not just “split the baby.”
  5. Arbitration might not be faster. It should be, but that’s not always the case. While intentionally not duplicating all of the rules of civil procedure and evidence, some arbitration service rules risk creating unfamiliarity. And, unfamiliarity affects timeliness. Properly managed, arbitration can provide flexibility to fashion the procedure and discovery to the circumstances. It hinges on the arbitrator(s) pushing to resolution rather than permitting the parities and their counsel to fight over irrelevant discovery and procedural matters. As the saying goes, time is money.
  6. Arbitration isn’t necessarily confidential. This is only true if the arbitration agreement specifically says so. Even then, it should include appropriate confidentiality language to suit the circumstances.
  7. Arbitration isn’t usually appealable. Unless the arbitration agreement provides otherwise (and even if it does, appellate courts disagree on application), an arbitration award is final and not appealable. The only “cure” is to insure that the arbitrator is diligent, qualified and fair.
  8. Arbitration isn’t enforceable unless written. The arbitration award is enforceable only by a written judgment or opinion. Absent the losing party voluntarily fulfilling the award, the arbitration award must be returned to a state or federal court for enforcement. If the trial court vacates the arbitration award, that’s appealable by the winning party in arbitration by court ordered mandamus as fellow blogger Drew York accomplished.

Tilting the Scales in Your Favor.

Properly drafted and implemented, an arbitration clause in your company agreement can permit you to keep dispute resolution in Texas, before an arbitrator of your selection, with narrowly crafted, appropriate discovery. It could even include a limited resolution process permitting an accelerated timetable to reduce expenses, and perhaps even position the resolution to minimize damages to the business relationship between litigants. The starting point?

For example, quality control can be aided by: asking your counsel to prepare a budget and calibrate it to the amount and importance of the case; setting limitations on discovery to avoid discovery overkill by broadly preserving every back-up tape, hard drive and document, and focusing on the specific subject matter, evidence and likely witnesses by promptly investigating to find out what is likely discoverable, where it is stored and who the likely witnesses are; mutually agreeing to exchange access to inspect and copy documents at the expense of the inspecting party; limiting email production, if any, by custodians, search terms and date range; stipulating to facts not in issue; and agreeing to use affidavit and deposition testimony for noncontroversial testimony.

If you are still reading this and you are an in-house counsel or business owner looking to make your arbitration options more cost and time efficient, retired Justice Jim Moseley of my firm and I would like to buy you a cup of coffee. We have some ideas about a streamlined process for arbitration that we would like to poll. No obligations and no warranties, express or implied!

Dashing Through Non-Competes Christmas Style

Posted in Employment & Labor, Non-Competes

Wanting to expand out of North Dakota before the Christmas season, Homer’s Christmas Tree Farm picked Bubba’s Christmas Farm in the Texas Panhandle. Knowing that Bubba’s employee, Skeeter Jones, was critical to Bubba’s continuing success, Homer required Skeeter to sign a new employment contract complete with non-competition and non-solicitation provisions under North Dakota law. When Skeeter decided to quit and open his own Christmas tree farm several months later, Homer called his lawyer Haven O’Sham in a fit of fury demanding that the non-compete be enforced against Skeeter in Texas. But which law applies, North Dakota or Texas? Homer’s lawyer insists Texas; Skeeter’s lawyer argues North Dakota law which would make the non-compete unenforceable. Who’s right?   Which state law applies? Hang on, this one is a little complicated and a departure from the customary short answer.

Texas Non-Compete Law.

Non-compete agreements are generally enforceable in Texas, so long as they are reasonable geographically, in length of time and in their scope, and so long as the employer gives up something of value such as confidential information about pricing, customers, marketing or the like.

North Dakota Non-Compete Law.

Unfortunately for Homer, North Dakota law prohibits any non-competition agreement except when: (1) you sell the goodwill of a business and limit the non-compete to a city or county; or (2) partners in a partnership agree not to carry on a similar business in the same city as the partnership.

The Winner?

Probably Homer and Texas law. Most courts if given the opportunity will enforce their own state law against their own residents. Recently the United States Court of Appeals for the Fifth Circuit addressed an argument similar to Homer’s that Texas law should apply. In Cardoni v. Prosperity Bank, Prosperity Bank acquired F&M Bank and Trust out of Oklahoma. As part of the deal Prosperity required F&M’s employees in Tulsa to sign new employment contracts that contained non-compete agreements. The contracts were governed by Texas law. The employees quit and went to work for a competitor in Tulsa. Prosperity tried to obtain an injunction to enforce the non-competes, but the employees said Oklahoma law governed, and that Oklahoma law prohibited the non-competes. The court of appeals agreed, holding that Oklahoma had a materially greater interest than Texas in determining the issue because the bankers performed most of their work in Oklahoma, and Tulsa was identified as the place of performance in their contracts. Because Oklahoma prohibits non-compete agreements, those provisions in the bankers’ contracts were invalid.

Tilting the Scales in Your Favor.

Because each state’s laws differ widely, to successfully enforce important provisions such as non-compete agreements, carefully review your options with your attorney. Properly done, Homer almost certainly would have crafted a Texas employment agreement and successfully enforced the non-compete against Skeeter without having to argue about whether Texas or North Dakota law applied. Yet, final results do depend on the circumstances. There is no “one size fits all.” Enforcement of non-compete agreements are becoming more common place.

What about Generic Non-Compete Forms from the Internet?

Generic internet non-compete and employment agreements are just that – generic – and sometimes more expensive to try to enforce than they are worth. As a general rule you should always avoid generic forms from the internet for almost any legal issues. They usually cause more harm than good.

Merry Christmas and Happy New Year to all!

Holiday Parties – Top 10 Tips to Avoid Holiday Hangups

Posted in Around the Holidays, Employment & Labor, Legal Risk Management

iStock_000080152415_MediumWanting to avoid hang-ups at its annual firm holiday party, the law firm of Dewey Cheatham and Howe invited its employees, their spouses and dates, and offered everyone a complimentary Uber ride home. For those living too far away, they were offered an overnight hotel stay.

Assuming that the free ride home was a license to drink without restraint and choosing not to take his wife, Schleeze Bagg did not work the day of the party, had a couple of drinks before and imbibed to his heart’s content all evening. Rather than Uber home, Schleeze and his assistant Ladda Climbar accepted the free overnight stay. Later that night Schleeze decided to drive Ladda home. The ensuing car wreck sent them both to the hospital and the teenage couple in the other car to the morgue. Problems for DC&H?

Maybe and no. Setting aside the possible sexual harassment exposure, under Texas law DC&H owes no legal duty to prevent someone from drinking and driving … even if they are minors… or even guests… and even if the social host knows the guest is intoxicated. The offer of free lodging or a free ride home was just that, a complimentary offer to employees with no strings attached, unless the employer somehow “took responsibility” for the employee, which could have a different ending.

While DC&H may have dodged legal liability to non-employees for Schleeze Bagg’s alcohol related accident, the relaxed environment and alcohol, and allegations of sexual harassment have possible repercussions beyond legal liability – affecting PR and public perceptions of DC& H and employee morale.

Tilting the Scales in Your Favor.

Even if the company has limited or no legal exposure, actions speak louder than words when it comes to taking care of your employees and your company. Ten tips for planning and safely enjoying your company-sponsored event:

  1. Plan early and well to identify and avoid potential issues and to encourage professional behavior.
  2. Make attendance optional, and don’t take roll.
  3. Invite Spouses and dates to discourage spontaneous interludes.
  4. Celebrate after working hours with a professional bartender or servers trained to manage party goers and their intoxication, maybe even at a restaurant or bar
  5. Offer non-alcoholic beverages and plenty of food, especially if it’s sugary rather than salty.
  6. Consider offering free Uber rides home, being careful that doing so does not promote unrestrained drinking. Encourage the professional servers to assist in their use.
  7. Skip the mistletoe. It can lead to unwanted kissing or touching.
  1. Discourage overindulgence of alcohol, i.e., no “beer-drinking” contests.
  1. Discourage “after parties.”
  2. Post-Party touch base with key players to identify any potential issues and follow up.

After noting the number of alcohol related tips, you may want to ask yourself if alcohol is worth having.

Check out Gray Reed’s own Michael Kelsheimer who writes an employment blog and has tips and tricks described at Employment Law 101: Holiday Parties.

Past Related Articles.

Will Over-Serving Your Guests Ruin Your Holiday (Legally Speaking)?