“Big” Bob Brothers is concerned that his company, Big Brothers Security Systems, is losing out on customers because his salesmen and installation teams are slacking when they are out of the office. Brothers reads a newspaper article about another company that is putting microchip implants containing radio-frequency identification tags (RFID) into his employees in order to make sure they aren’t doing “off the clock” stuff while on the clock. Brothers sends a memo to employees explaining that they will all be chipped the next month, and anyone refusing to chip will be terminated. Can Brothers “big brother” his employees like that?
Last week Emma Grant’s line cook and 25 other undocumented employees at her bar-b-que restaurant Emma Grant’s Bar-B-Que were working the lunch shift when it was raided by Immigration and Customs Enforcement personnel, apparently at least in partial response to a recent executive order. Can the President of the United States do that? Can this be a problem for Emma Grant and her bar-b-que restaurant?
Recognized since George Washington as being authorized by Article II, Section 1 of the Constitution that provides “the executive power shall be vested in a President of the United States of America,” there have been more than 13,000 issued, in one form or another, since 1789. Notable executive orders were Abraham Lincoln’s Emancipation Proclamation and Franklin Roosevelt’s mandatory registration of aliens from World War II enemy countries. FDR also holds the record, by far, of the most Executive Orders at 3,721; next closest is Woodrow Wilson at 1,803. To date, President Donald Trump has issued twelve executive orders. Suggested as undoing many of President Barack Obama’s policies, here’s a list and short summary of each. The Federal Register details the executive orders transcripts, numbers and disposition tables from Herbert Hoover to date.
The Legal Reality
But what about Emma’s exposure? Yes, as the employer of the undocumented workers, Emma Grant could have liability. Employers must verify the identity and employment authorization of each person hired after Nov. 6, 1986 and complete and retain Form I-9. Failure to do so can result in civil fines ($539 for each at the first offense and up to $21,563 for each after multiple offenses), criminal penalties (when there is a pattern or practice of violations), and debarment from government contracts.
Tilting the Scales in Your Favor
Get a completed I-9 for each employee. Undertake reasonable and diligent investigation, if appropriate. For key employees, consider undertaking steps to secure their legal residency in the United States.
Riding her beloved Packers late-game win against the Dallas Cowboys, Allfer Funn, owner of Con Genial, is polishing her cheese head hat and dusting off her Super Bowl Squares Pool from last year in anticipation of the Big Game in a couple of weeks. Electing not to “Reinvigorate [Her] Super Bowl Office Betting Pool” as some have suggested, she does, however, decide to up the ante from $10 a square on her 10 x 10 grid to $20 a square. Just good clean office fun to build morale, right? It’s not illegal… or is it?
The Legal Reality?
Yes, it’s illegal in any number of ways. It’s illegal gambling in Texas. And, for Allfer, organizing the Pool is likely “bookmaking” – receiving more than 5 bets in a 24 hour period. Under the gaming laws of all 50 states, it’s a bet with a prize that is won or lost solely by chance. Because squares pools involve randomly assigned numbers, the contest is entirely based on chance and thus illegal unless (in a state other than Texas) it falls within a state-specific “recreational gaming exception.”
And there’s more.
Beyond Texas, the federal Professional and Amateur Sports Protection Act of 1992 also prohibits gambling, specifically on professional and amateur games. Should Allfer Funn or her employees elect to bet online there’s always the federal Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) which Tilting commented upon in 2011 that prohibits nearly all types of online gambling.
Notably, the UIGEA exempts most fantasy sports competitions, classifying them as games of skill rather than games of chance – except for the Super Bowl. A fantasy football competition is based upon a single game with a limited number of outcomes as well as a limited number of players/teams from which participants can choose, whereas the Super Bowl is viewed as a game of chance rather than a game of skill.
The Practical Reality?
As reported in a Houston KTRH NewsRadio 740 interview last year by Tilting’s own Cleve Clinton, “It’s illegal. Now, realistically and practically, is anybody going to do anything about it? No.”
In the same interview, Clinton told KTRH that Texas law has such a broad definition of gambling, that technically any betting pool violates state law. Whether or not the state chooses to enforce that depends on a few factors.
“The first thing you really want to look at is how big of a pool are we talking about, the second thing is who’s running it, and the third, will someone (the organizer) profit by it,” says Clinton.
Allfer may want to reconsider and not increase the pool size from a total of $1,000 to $2,000.
Good Clean Fun?
Notwithstanding that gambling on the Super Bowl is illegal, Allfer Funn should be wary of potential retaliation and hostile work environment claims from employees either excluded from or uncomfortable with office gambling. What happens if an employee snitches? The Texas Penal Code seems to offer “testimonial immunity.”
Tilting the Scales in Your Favor
While Texas does have strong laws against gambling, most low-stakes office pools should be all right, as long as they are run by an individual and not the company, and nobody takes a profit or fee off the top for organizing or running the pool. “It risks becoming a problem when you get out of bounds on size or (scope),” says Clinton. It is best for Allfer Funn that she not manage the Super Bowl pool. And, she should check Con Genial’s employee manual to make sure that she is not stepping out of bounds of her own company policy. Finally, Allfer should be cognizant of the objection of any employee and respond accordingly. Go Packers!
Tilting the Scales articles: Internet Gambling in the U.S., March Madness Basketball Gambling, Wanna Bet? Betting About Baseball Returns to the News
Gunner Gunter employs dealership manager Sayles and computer technician H. Packard (“Pack”) at Falconaire’s Fine Ford and pays these “white collar” employees $40,000 per year. In busy sales months, each averages 50-60 hours a week without paid overtime. Do the new FLSA regulations affect Gunner?
Yes. Effective December 1st, Sayles and Pack must either be paid for their overtime hours or to avoid this mandate, their minimum annual salary must be $47,892 (up from the current $23,600 minimum per year) assuming they are Fair Labor Standards Act “white collar” employees (i.e., executive, administrative or professional) under the exemption, and not otherwise entitled to overtime pay.
The Labor Department estimates the new rules affect some 5 million exempt workers, predominantly in Texas, California, Florida, Illinois, New York and Pennsylvania, which have the largest number of newly eligible workers – 200,000 or more in each state. Of those numbers, hardest hit are lower-wage businesses and service industries like hospitality and retail, which identify the new rules as “Career Killers.” Rather than increasing salaries, many business may elect to reclassify professionals as hourly workers and reduce hours, adjust or remove existing benefits and flexibility (including loss of their more prestigious titles) or cut base salaries. “Comp time” (working overtime for future days off) is not an option for these newly eligible overtime workers. Even with labor reductions, the projected additional administrative costs to businesses to track hours of more employees and updating payroll systems are estimated to cost $745 million.
Employers who fail to comply after December 1st risk Department of Labor (DOL) investigation. More daunting, perhaps, is the threat of private litigation, including class action litigation – a risk with substantial downside potential.
Tilting the Scales in your Favor
Evaluate your current employees and salary levels to assess your company’s possible DOL exposure. If you elect to reclassify employees from “overtime exempt” to “overtime eligible”, develop comprehensive plans to (1) determine new hourly rates for impacted employees; (2) revise or update current timekeeping programs and policies to reflect the changes; and (3) implement training for both managers and employees addressing the changes. Congress may attempt to redirect these changes with legislation, but it’s more likely that the results of the November election will dictate whether that momentum is sustained. Consider using a Checklist.
For more insight on cutting edge employment issues, including federal changes to overtime exemptions, visit the Texas Employer Handbook blog, written by Gray Reed employment partner Michael Kelsheimer.
Having started as a bookkeeper and worked his way (fifteen years later) to become controller of the Bunz in the Oven family owned business, Swendoll Hugh felt underpaid and under-appreciated by Bertha Bunz and her highly successful business. When Swendoll’s grandmother passed away, he “borrowed” funds from Bunz in the Oven to cover funeral expenses. Easily repaying the money without detection, Swendoll “borrowed” again and again, and eventually quit repaying the “loans” amounting to hundreds of thousands of dollars. What’s the crime? How could that have happened? What might Bertha and Bunz in the Oven have done to discover Swendoll Hugh’s embezzlement earlier?
It’s a crime to steal all or part of the money or property entrusted to you for management or monitoring. Beyond merely stealing, embezzlement is also a violation of a special position of trust. For embezzlement of money or property valued over $200,000, Texas penalties include a fine of up to $10,000, at least five (and up to 99) years in prison, or both.
Embezzlement often occurs when there is a lack of accounting controls. For smaller companies with minimum gross revenues, missing money is more obvious and the cost to implement necessary controls may be cost prohibitive. Yet, as the company and its gross revenues grow, so must accounting controls.
Embezzlement can be as simple as issuing and then voiding a check to a customary vendor at a time when the expense is expected, and then issuing a check for an identical amount to cover personal expenses. According to news accounts, that’s exactly what the controller of Collin Street Bakery did on his way to stealing nearly $17 million from the landmark Corsicana business.
Look for These 4 Warning Signs.
Beyond making prudent accounting changes to match your business success—and avoiding placing trusted employees into a predicament tempting their violation of company trust—these warning signs should alert you to be more vigilant:
- Significant Lifestyle Changes. Just like the Collin Street Bakery controller who spent millions on watches, cars and vacation homes, that were noticed and ignored for years, unexplained upgrades in automobiles, exotic vacations and expensive apparel merit close attention and perhaps investigation.
- Financial Difficulties. Employees with constant financial troubles have a greater incentive to steal and can generally rationalize almost any behavior when faced with enough pressure from friends, family and creditors. Often not intending to commit fraud, many act out of desperation.
- Never Wants to Take a Vacation. Certain types of fraud have to be monitored to maintain and remain undetected. The perpetrator will be unwilling to take a vacation and risk detection.
- Constantly Works Overtime and Wants to Take Work Home. Embezzlers often avoid the watchful eyes of co-workers. They need privacy and might work late or take work home to eliminate unannounced visits from fellow employees when dealing with incriminating evidence.
Tilting the Scales in Your Favor.
Trust but verify. Be vigilant. And, be careful. Your self-indulging employee may have won the lottery or inherited from a rich uncle. It might be prudent to offer aid to an employee with a sudden death in the family. Cross-train employees so that trusted, dedicated employees can confidently go on vacation knowing that a competent co-worker is filling in. Consider re-arranging the workloads of those constantly working overtime to improve their work-life balance. Explore the value of both a periodic financial audit by your outside accounting company and their examination of your appropriate financial safeguards.
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.
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!
Wanting 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:
- Plan early and well to identify and avoid potential issues and to encourage professional behavior.
- Make attendance optional, and don’t take roll.
- Invite Spouses and dates to discourage spontaneous interludes.
- 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
- Offer non-alcoholic beverages and plenty of food, especially if it’s sugary rather than salty.
- 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.
- Skip the mistletoe. It can lead to unwanted kissing or touching.
- Discourage overindulgence of alcohol, i.e., no “beer-drinking” contests.
- Discourage “after parties.”
- 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.
Past Related Articles.
Back in July, we discussed how Jed Clampett of Mama’s Fried Pies caused his VP of marketing Elly May to suffer exorbitant taxes due to a deferred bonus that he offered. This month, Jed finds himself again in the grease with his employees – this time with his 401(k) plan. Unfortunately Jed and his company’s plan administrators were not paying attention to 401(k) plan costs. Jed was told that the fees in the retirement plan made it extremely competitive. However, federal disclosure documents showed the fees are more than three times higher than other plans available to comparable companies. Is that a problem for Jed and his fellow Mama’s Fried Pies employees charged with administering the plan? If so, what’s the downside risk to Jed.
Yes. According to a Supreme Court of the Unites States opinion earlier this year, Mama’s Fried Pies, as the plan sponsor, owed a duty to conduct proper due diligence – a fiduciary duty – which would have revealed that they were paying too much in fees. Since they did not do the proper research, the plan administrators and Mama’s Fried Pies breached their fiduciary duty to their employees. Jed and his plan administrators were held responsible not only for repayment of the excessive fees to each employee’s plan account but also for interest, penalties and sizeable attorneys’ fees. Hiring someone else to do handle their 401k plan was not nearly enough.
The dilemma is that Jed and his fellow employees at Mama’s Fried Pies are not in the business of setting up or maintaining 401k plans. They don’t know much about saving and investing. They relied upon someone else – their expert. Although Jed’s expertise is not setting up 401k plans for his workers, Jed and his plan administrators still have a fiduciary duty to investigate and to examine the 401k – to carefully shop around and to check it regularly. What about the outside financial adviser upon whom the company relied? That expert may be responsible, particularly if the plan was marketed as being “extremely competitive.”
What does “fiduciary duty” mean?
While a fiduciary duty may be created by statute, as in the case of the employee benefit plans mentioned above (ERISA, etc.), it is often best described by trust law. Who is NOT a fiduciary (but may think or say that they are)? Generally speaking, bankers, accountants, insurance and real estate brokers, architects, engineers, doctors, dentists, teachers and certified financial planners (at least so far… stay tuned) do not owe their customers a fiduciary duty. While they may owe their customers a duty, none of these owe the highest duty in law, being a fiduciary duty. Any damages caused by these relationships are tied to very different duties, often looking more like garden variety negligence.
Saying that a fiduciary owes the highest duty known to the law is perhaps better understood in the context of relationships such as husband-wife, general partners, executors and trustees. More than caring for the assets as if owned by the fiduciary, the fiduciary must care for them in the manner best suited for the beneficiary. The penalty for not acting in the beneficiary’s best interest … The fiduciary loses and must pay to the beneficiary: any increase in value that was reasonably expected and any decrease in value, whether expected or not. Additionally, the fiduciary must reimburse the beneficiary for interest, penalties, fees and, frequently, punitive or exemplary damages.
Tilting the Scales in Your Favor
How do you prove that your company undertook proper due diligence? Whether it be a 401k compliance committee or a bonus plan, ask plenty of questions, ask them on a regular basis and get expert advice from someone other than who is selling you the product. Give both the proper attention. For example, if your 401k compliance committee and executive committee or board of directors often meet on the same day, with the board meeting getting all of the time, plan the 401k compliance committee meeting for a separate day. Allow plenty of time, ask questions and insist on detailed reporting. If your employee bonus plan extends beyond your current fiscal year, insist on an expert opinion ensuring the plan will pass IRS muster. Only your tax attorney or tax accountant knows for sure!
Past Related Articles
Breathing a sigh of relief that he neither works for U.S. agencies requiring security clearances nor do his hiring policies require the details of mental illnesses, drug and alcohol use, past arrests, bankruptcies, Joe Hyre was oblivious to the ranting of Dez Grunteld, a whining employee who he fired last week. Over the weekend Dez hacked into the Ten U Us Employment records and downloaded personnel files containing social security numbers, dates of birth and credit histories of Ten U Us Employment’s people. Not satisfied, Dez deliberately crashed five of the company’s eight network servers as further retribution, permanently erasing all of the information, and forcing Ten U Us to shut down operations in its headquarters for two days sustaining losses in excess of $100,000. Can Joe Hyre instruct his Ten U Us employees to access Dez Grunteld’s old email account to investigate the damage Dez caused? Is Ten U Us responsible to the employees whose information was stolen?
Hack Grunteld Back?
Maybe Hyre can access Dez’s old email account to investigate the damage he caused. Among other things, the Electronic Communications Privacy Act (ECPA) regulates private individuals and businesses, arguably giving employees of private entities a right to privacy in their e-mail. While there are equally good arguments that employers who own the computer system used by their employees have the right to monitor employees’ e-mail, the simplest solution is for Ten U Us to follow the terms to which Dez Grunteld agreed in his employee handbook.
Responsible for Employee Files?
Yes, Ten U Us is almost certainly responsible to its employees for the loss of their sensitive personal information. The Texas Business & Commerce Code obligates businesses to implement reasonable procedures, including taking any appropriate corrective action, to protect the unlawful use or disclosure of any sensitive personal information collected or maintained by a company in the regular course of business, both for customers and employees. Moreover, Texas law imposes notification requirements for the breach and disclosure of sensitive personal information, even if only potentially exposed, for employees and customers alike.
Although the cyberbreach of more than 14 million U.S. government personnel records detailing, among other things, military records, job and pay histories and life insurance and pension information was the clever work of Chinese hackers, most business cyber breaches are inside jobs. Speaking of China, did you know that, over the centuries of repelling Mongolian invaders, the only time that the Great Wall of China was breached was in 1644? The gates at Shanhaiguan were opened by Wu Sangui, a Ming border general who disliked the activities of rulers of the Shun Dynasty. Whether in 1644 or 2015, the most likely breaches of your secure walls – whether they be fortifications or computers – is a dissatisfied employee like Wu Sangui or Dez Grunteld.
Tilting the Scales in Your Favor
Ideally? Immediately address resentful or disgruntled employees in a fair and benevolent way. For double coverage, however, plan for a possible separation or firing by implementing the following recommendations:
- Cyber Insurance. The detailed insurance company evaluation of your company’s IT department should become the blueprint for internal company protection of sensitive information. Premium costs, depending upon coverage and current IT protection systems can vary dramatically.
- IT Policy. Create and enforce an acceptable use policy for your Internet, Email and Computer systems.
- Content Filtering. With a content filtering device, monitor internet usage to restrict websites accessible to employees. Consider restricting access to personal emails – a common vehicle for “stealing” company files.
- Social Networking Sites. Deny, or at least limit, free access to social networking sites like, Facebook, Twitter and the like, as they invite inappropriate content, viruses, and theft.
- Password Integrity. Require separate and regular changed passwords for each employee who accesses a company computer and server. The password should not be known by anyone else.
- Regular Audits. Audit computer files for user access and deletion.
- Monitor server event logs.
- Use Terminal Servers if possible.
- Back up at least once a month. Test your backup because restoration data is frequently corrupted, or worse was never backed up at all.
Past Related Articles: Cyber Security: Forewarned is Fair-Warned
Sony vs. N. Korea – Let Capitalism Fight Totalitarianism!
Knowing that his old high school friend Iman Dedbeet had just been taken to the cleaners by his ex-wife Goldilocks in a nasty divorce, Johnny Clueless decided to help Iman out by hiring him as his general sales manager at Clueless Automotive. Johnny knew that Goldilocks got full custody of Dedbeet’s kids and that Dedbeet owes Goldilocks back child support. Nevertheless, when Clueless handed Dedbeet the IRS Form W-4 to complete, Dedbeet urged Clueless to make him an independent contractor and pleaded, “You know what I need Johnny. Goldi doesn’t deserve another penny.” Relenting, Clueless classifies Dedbeet as a 1099 independent contractor. Is Clueless getting taken for a ride?
Employers Must Report New Hires. Within 20 days of hiring a new employee Employers must report the new hires to the Texas Attorney General’s Child Support Division. However, this requirement is limited to new personnel classified as employees. An employer is not required to report new hire independent contractors, allowing new hires to avoid having child support withheld from their paycheck.
Employers Are Liable for Falsely Reporting a New Hire’s Status. Johnny Clueless should know, however, that Texas law subjects employers to a $500 fine for conspiring with a new hire to fail to submit a new hire report, or submit a false report. By agreeing to Dedbeet’s pleas Clueless risks sharing Iman Dedbeet’s responsibilities because he knew that his new hire wants to avoid the possibility of having child support withheld.
Proposed Legislation Would Remove Loophole Senate Bill 1727 currently before the Texas Legislature would add “independent contractor” to the definition of “employee” in Texas and close the loophole used by some to avoid child support withholding.
Tax Issues Both Clueless and Dedbeet also create tax issues by misclassifying Dedbeet as an independent contractor. Clueless will not pay FICA. Instead, Dedbeet will have to pay the Self Employment tax on a quarterly basis.
Tilting the Scales in Your Favor Although misclassifying employees may not look overly penal, it will cause a substantial disruption in your business when you have to deal with the Attorney General’s investigation and, is it worth it? It’s easier (and the law) to classify the employee correctly before the hire for any number of reasons. If a new hire asks to be classified as an independent contractor, and particularly if you know the hire owes child support, make sure that the hire is truly serving as an independent contractor – which means the hire provides all of their own tools and equipment, and has complete control over the manner in which it performs tasks.