For over ten years Dudleydil E. Gent has been the purchasing manager for Effervescent Electronics, at one time supervising as many as ten purchasing agents. Due to the failing economy and lagging sales and in a desperate attempt to save his company, the Effervescent owner Julius C. Dithers directed four forced layoffs in the last eighteen months. To keep his own job, Dudleydil is now the only purchasing agent in his department. Moreover, after each layoff Julius gave Dudleydil more responsibilities and fewer employees to get the job done. Dudleydil is now acting manager of receiving, loading, inventory control, shipping, and the warehouse, in addition to all purchasing responsibilities which he formerly supervised. More than a supervisor, he is doing the “hands on” work for what was over twenty employees. Worse still, Dudleydil is working over eighty-five hours some weeks just to get the job done.

At his wit’s end, Dudleydil just went to see Mr. Dithers to let him know that he was burning out – at both ends! While he values his job, Dudleydil let Mr. Dithers know that he must have more help, and because his wife lost her job, he really needs to get paid more money than his current weekly salary or Mr. Dithers needs to pay Dudleydil for the overtime hours that he is working. Dudleydil could not help but mention that an attorney friend told him that he is legally entitled to be paid for his overtime hours. Do Mr. Dithers and Effervescent owe Dudleydil payment at time and a half for the additional 45 hours a week Dudleydil worked over the last five months?

Tilting the Scales in Your Favor:

There is a real possibility that Mr. Dithers owes Dudleydil overtime compensation. Dudleydil satisfied the statutory requirements as a supervisor before the layoffs, and was properly paid a weekly salary as an exempt employee, without regard to the number of hours he worked. If a salaried employee later fails to meet all the Federal Labor Standards Act requirements for exemption, then he must be paid for overtime hours worked. While Dudleydil was acting as purchasing manager for Effervescent Electronics he was exempt from overtime pay so long as his primary duty was supervisory. If and when Dudleydil performed so much “hands on” work that became his primary duty, then he lost his exempt status. Generally speaking, Effervescent Electronics and Mr. Dithers could continue to treat Dudleydil as exempt so long as he spent over 50% of his time performing supervisory work. When Mr. Dithers required Dudleydil to take on increasing “hands on” work for the departed Effervescent employees, the company risked being responsible to pay Dudleydil for his overtime hours worked at one and one-half times his salaried rate.

See Young v. Cooper Cameron Corp., 08-5847-cv (November 12, 2009)
Also, Coverage Under the FSLA – Exclusions from Coverage, Exempt or Nonexempt?

Rapper Chocolate Ice’s new release Golfin’ Wit My Glock is a smash hit with nearly 400,000 digital downloads in its first week.  The success of the song has not escaped the notice of recording artist Bill Board, who believes that Ice has ripped off five notes from his 1980’s country hit single, “Now That We’re Both Miserable, I Hope You’re Happy.”  When confronted about the obvious similarity between the two songs, Ice claims the bassline riff is “different” and, even if they are the same, there’s nothing illegal about copying five notes.  Board disagrees and files a lawsuit alleging a copyright violation.  Who wins?

“Sampling” is using portions of a prior recording and incorporating them into a new song.  The practice has become commonplace in the music industry.  While there is no set number of music notes that one can use without permission, it is believed that if a musician samples four notes or less, they may be protected under what’s known as the “fair use” doctrine.  This speculation is derived from a case in which the Beastie Boys sampled a 6 second segment of jazz flutist James Newton’s composition entitled, “Choir.”  In that case, the appellate court upheld the trial court’s dismissal of Newton’s infringement claim holding that the use of “three notes separated by a half-step over a background C note” was not enough to uphold Newton’s claim.  However, the same court noted that “one note is enough to land you in court where the true test of infringement is whether the sampled portion of the music is substantially similar to the original.  Fair use is merely a defense once you get there.”  Based on the facts above, Ice is likely going to have to share in the riches from his new hit single.

Tilting the Scales in Your Favor: 

Always obtain permission from the copyright owner.  In connection with a music copyright claim that will usually involve obtaining a license from the song writer/publisher as well as the record company/recording artist.  And, in case you’re curious, Vanilla Ice’s sampling of David Bowie and Queen’s song “Under Pressure” resulted in a large out of court settlement.

Newton v. Diamond, 349 F.3d 591 (9th Cir. 2003).

Corrie O. Graff and Dan Saul Knight are ice dancers competing at the 2010 Winter Games in Vancouver.  Graff and Knight have lived together for eight years in a North Dallas apartment adjacent to the Galleria, where they sneak onto the ice each night after the mall closes.   Besides competing together, the two have also been dating for almost 10 years.  After coming in a disappointing 22nd place (because Knight failed to properly execute a simple half twizzle), Graff said she is breaking up with Knight both professionally and personally and that she intends to find a new partner.  Knight is shocked by Graff’s statement and exclaims, “Break up?  I think you mean get divorced!”  Knight then tells Graff that since they have lived together for at least seven years in Texas, they have a common law marriage.  Is Knight correct?

Maybe.  Texas is one of a handful of states that recognize common law marriages.  A common law marriage makes you legally married the same as if you had been married in a church, had a wedding cake, exchanged rings and obtained a marriage license.  There is a common misperception that if a couple lives together for a certain length of time, they are common law married.  This is not true.  In order to have a common law marriage, three elements must be present.  First, you must agree to be married.  Second, you must hold yourselves out as husband and wife (e.g. represented to others that you were married to each other such as introducing your partner as “my husband” or filing joint income tax returns).  Finally, you must live together in Texas.  Depending on whether these elements are present will determine whether Graff and Knight can simply part ways or whether they need to get a divorce. 

Tilting the Scales in Your Favor:

If you become a male ice dancer, as hard as it may be, try to refrain from wearing a bedazzled outfit with pink tassles.  And, if you live in a state that recognizes common law marriages and you don’t want your relationship to become a common law marriage, you should be clear in your intention that you are not married and preferably sign an agreement to that effect.

Daneka Dodgy blamed a low-flying pelican and a dropped cell phone for her veering her sponsor’s million-dollar sports car into on-coming traffic near Galveston, crashing into Wilma Woondednee’s car and overturning it so that Wilma’s driver’s side hit and then slid along the roadway. The luxury French-built Bugatti Veyron provided to Daneka by her sponsor Blimpo Bakeries then sailed into a salt marsh. As a result of the accident, Wilma’s arm got trapped between the door and the asphalt, and complications led to the loss of her arm.

Wilma’s lawyer accused Daneka of DWT (Driving While Talking) and argued that the state cell phone statute prohibited Daneka from doing anything that was distracting. Despite the intervention of the pelican, Wilma contended that Daneka’s cell phone use was not reasonable as her cruise control was set at 77 miles per hour in a 70 mph speed zone. The lawsuit filed against Daneka and her sponsor Blimpo complained that Daneka’s negligence was intentional and sought punitive damages. Although Blimpo’s defense was that Daneka was not actually on the phone at the moment of the collision, Daneka admitted that she had used the cell phone just prior to getting on the interstate, and that a low-flying pelican caused her to drop her cell phone and swerve into Woondednee’s on-coming car. Snidely Snitch testified that he witnessed the accident and saw Daneka with the phone to her ear at the time of the collision. In a mediated settlement, Blimpo agreed to pay over $5 million to settle Wilma’s claims.

Tilting the Scales in Your Favor.

Not updating company policies can cost an arm and a leg, and cost your business a hefty settlement. More and more businesses are telling their employees, “Hang Up and Drive.” Normally a company would not be liable for damages and penalties related to an accident like this, but a critical fact crushed Blimpo: Dodgy was on her sponsor-issued cell phone at the time of the accident. Even though the company cell phone policy required the use of hands-free devices while in Blimpo vehicles, the business still risked being held accountable for Dodgy’s negligence. The Take-Away? Cell phone policies are a must for any company – especially one that puts its employees on the road, and more so if the company provides the cell phone. Having a cell phone policy, alone, may well not be enough. Managers and supervisors must both set limitations and provide training and guidance to show employees why such policies are in place and how failure to follow company guidelines can result in dire consequences.

In Texas, only hands free devices with cell phones may be used in school zones. And, Texas teenage drivers are prohibited from using cell phones, hands fee or otherwise, until they are 19 years of age.

See: Ford v. McGrogan, GA Superior Court, Dec. 14, 2007 and Cell Phone Driving Laws by State – Governors’ Highway Safety Association

New Year’s Resolutions. Like the rest of the country did you personally resolve to get fit, lose weight, drink less, manage your debt better or get organized? What about your business life? In a slight departure from our usual monthly banter, Tilting the Scales offers 6 business resolutions (we resolved to come up with 10 but, like our other personal resolutions, fell short) to promote the productive life of your business in these tumultuous times, and to suggest ways that you can start the year on a positive note by knowing that you are managing your legal risk. With all deference to the usual “Top Ten,” we offer only our “Top Six.” Like resolutions, less may be better.

  1. Trim Your Employee Handbook to Fit. Certainly company policies are intended to protect you and your company from legal liability. Yet, it may be one of the few tools you have to market your company and its culture to your employees. Stuffing it with page after page of legalese can be counterproductive and of little help to you legally, particularly if your wonderful employee manual, stitched from internet documents, was originally intended to satisfy the laws of Bali-Bali. Even if once tailored to laws affecting you, it may no longer reflect current changes in the marketplace or the law, such as recent changes to COBRA insurance and the ADA.  The start of a new year may also be a good time to implement new HR policies including revisiting the use of non-competition agreements which now more than ever can be enforceable under Texas law. See Convenants Not to Compete: Still Enforceable!; Non-Compete Repeats in Texas.
  2. Manage Evolving Cell Phone Risks. Nearly 80% of vehicle accidents are the result of driver distraction.  Phone calls and text messaging are increasingly the most common of these distractions. Use of a cell phone immediately before and even during an accident is easily provable. Governments, victims, their lawyers and juries are becoming less and less tolerant of “distracted” drivers.  More and more juries are hearing about studies which suggest that driver distraction from cell phone use impairs your ability to operate a vehicle much like driving while impaired by alcohol.  Some states have gone so far as to ban all cell phone use while driving.  While Texas does not prohibit cell phone use for most drivers  (other than in school zones), Texas does place restrictions on cell phone use by drivers under the age of 19.  Your company may well be responsible for an employee who operates a company vehicle during business hours. Consider a company policy prohibiting employees from texting or talking on the cell phone while driving on company time.  See  Distracted Driving – US Dpt of Transportation;  New Texas Laws to Know.
  3. Crises Happen – “Be Prepared”.  Your mission statement directs your business culture and mental well being. Your business plan sets the intended course and measuring points of your fiscal health and goals. Like New Year’s Resolutions, both are appropriate planning. But, what about planning for emergencies? Just as a fire drill sets in place a routine to avoid panic, your crisis management strategy should establish a routine – a checklist of necessary steps – to avoid conduct that, in a panic, might make matters worse. Crises are inevitable. Even the most courageous and clear thinking management team is likely to overlook critical steps that might reduce the negative impact or even end the emergency sooner. Having a crisis management strategy is as important as a mission statement and a business plan so that you can rapidly restore normality and confidence for both your employees and clients.    “Be Prepared.” See “No Comment” and Another Comment about “No Comment”.
  4. Know Your Banker.  Myth: Banks don’t want to make loans. Truth: The current economic and Congressional climate radically changes the way banks can profit from making loans. For starters, establish a good working relationship with your banker.  Communicate with your banker– the good and the bad. The key to excellent relations with your banker is having excellent communications. What are the strengths and limitations of your banker and your bank? Find out about their business and tell them regularly about yours. No one likes surprises, particularly your banker in this economy. The better you are able accurately to project the course of your company’s finances, the more confidence your banker will have in you. Your goal is to reach the point when you can tell your banker what is happening in your world before it happens. If your relationship looks shaky, either because of your company or your banker’s bank, make new banker friends. See No Good Deed Goes Unpunished; Pitfalls of the Cascading Credit Crunch.
  5. Manage Your Litigation. No business problem is solved by consciously ignoring it. Inattention almost certainly makes things worse. The same can be said for lawsuits. Establish personnel responsibilities and internal controls to manage all disputes, and certainly litigation. What actions should be taken if your company is sued?  Once you receive a lawsuit, is there a company plan for what to do with it? There is a limited time in which you must answer – sometimes as short as 10 days. If you snooze, you lose – really. Consider implementing procedures which clearly detail which employee does what in the event of a lawsuit, and which employee has primary responsibility for managing the flow of ongoing communications with outside counsel.  See He Who Hesitates is Lost – Letting the Chickens Come Home to Roost; The Costly Case of the Gyrating Granny.
  6. Give your Corporate Documents a Checkup. No one likes their annual physicals. Often they happen only because of relentless nagging. We can’t help you there – although we can nag you about your business documents if you would like! While corporate documents generally do not require an annual checkup, like physical exams if your business has changed or if it’s been a long time, then it’s about time. Have you moved? Changed or added owners/partners? Changed services or product mixes that affect your corporate structure? Changes in tax laws? Perhaps it’s time for a checkup!

New Year’s Resolutions, personal or business, are our way of recognizing that there is or may be something “wrong” that needs attention. One way or the other, it seems, we are ultimately forced to make necessary changes in our lives. Personal resolutions are intended for us to make those changes on our own time and in our own way without being forced to deal with the consequences of our inaction. Similarly, inaction to business matters can have long term, undesirable repercussions. Make an effort to set business goals and resolutions just as you do for yourself and your family. Both help to bring about that Happy and Prosperous New Year that we seek.

May your New Year be just that, Happy and Prosperous!

Jamie and Cleve

Gurglin’ Guideon Cavatelli is upset with his boss Shank Brisket. Cavatelli and his fellow believers at the Church of the Flying Spaghetti Monster celebrate the third Wednesday in December by taking a pilgrimage to the Great Pasta Patch to try to catch the Flying Spaghetti Monster rising up to spread carbohydrate girth and mirth to all worthy adults. Cavatelli doesn’t have the dough to go. Worse, Shank won’t let him take time off because Black Friday was not black enough. Mr. Brisket tells Cavatellihe can take off the day before Christmas just like everyone else. Cavatelli demands double pay from Shank if he has to work his Church holiday. Otherwise, Cavatelli tells Shank, he will throw Shank into the sous sauce.

No Federal law requires Shank to provide time off, paid or otherwise (much less premium pay) to Cavatelli even if the Flying Spaghetti Monster Pilgrimage is a nationally recognized holiday. Nor is Mr. Brisket required to pay holiday time off to Cavatelli who is an hourly employee – only time actually worked. If Mr. Brisket does provide a paid holiday, the paid hours do not count as hours worked for purposes of determining whether Cavatelli is entitled to overtime pay. To be eligible for overtime, Cavatelli must actually work 40 hours in a week.

Tilting the Scales in Your Favor

One of the easiest and non-political ways to eliminate this type of conflict is to offer a “floating holiday” in addition to regularly scheduled holidays. This allows employees to take time off for religious observances not covered by the employer’s holiday schedule. Courts addressing the issue of religious accommodation generally agree that unpaid time off can be a reasonable accommodation, as can allowing an employee to use a vacation day to observe a religious holiday.
Amazingly, you can learn more about the Church of the Flying Spaghetti Monster at Wikipedia, http://en.wikipedia.org/wiki/Flying_Spaghetti_Monster (and you thought we made this up).

Johnny Tightlips, a local mobster, is facing time behind bars for various racketeering offenses. During the trial, the New York Daily Planet reported that Tightlips was a “key lieutenant” of Jimmy “The Squid” Calamari, an organized crime figure, and that Tightlips planned to reduce his jail time by cooperating with prosecutors to testify against The Squid. Attacking the article, Tightlips sued the Daily Planet complaining that he was defamed and that the information intentionally inflicted emotional distress upon him and his family. Why? Tightlips was not upset that the Daily Planet called him a “key lieutenant” or even an organized crime figure. He frets that he was defamed because reporting his cooperation with prosecutors, exposed Tightlips as a snitch or “mob rat.” The result? He claims the newspaper report will subject him to threats, scorn and ridicule among the prison population and his peers. Can a mobster be defamed by being called a rat?

What a twist! An alleged mobster complains that a newspaper article reporting his snitching is damaging to his reputation in the criminal community! Ultimately for Tightlips however, his suit is without merit. Even if a statement tends to prejudice Tightlips in the eyes of his mobster cohorts (e.g. the prison population) that, alone, is not enough to make the statements defamatory when the “affected group” is one whose standards are so anti-social the courts should ignore their “standards” as being against public policy. A statement is defamatory only if it subjects an individual to shame in the minds of “right-thinking people.” The population of “right-thinking people” unambiguously excludes those who reject someone who legitimately cooperates with law enforcement.

Tilting the Scales in Your Favor

“Defamation” is a frequent topic of cocktail conversation. Yet, it is complicated in its application. Generally speaking the act of injuring a person’s reputation by making a false statement by libel (in writing) or slander (orally) can be the subject of a lawsuit. As Tightlips discovered, it is more than just getting your feelings hurt or being scorned by your “friends.” Should you find yourself a defendant in a defamation lawsuit, urge your attorney to review your insurance policies. Frequently a comprehensive general liability policy (“CGL”), commercial or personal, can provide some coverage. Many CGL policies provide indemnification and defense costs for defamation claims also known as “advertising injuries.”

Yes. There really is a mobster who claimed to be defamed when it was reported that he was cooperating with prosecutors. Check it out at Michtavi v. New York Daily News et al., No. 08-2111-cv (2nd Cir. 2009).

Hogeye County Sheriff Zukie Bonnett helped upright a Slyme-Yu Haulers sludge truck yesterday. It overturned in front of the local elementary school and several tons of waste solids from the Yellow River wastewater treatment plant spilled onto the children’s playground. The spill was caught on video and is now on TheyTube, an internet video site.

Sheriff Bonnett reports that he contacted officials from the Hogeye County Health Department to investigate. He believes there is a possibility that the sludge which contains human waste might also contain pathogens, carcinogens and heavy metals harmful to people and wildlife. Outraged homeowners and elementary school parents threaten to sue Slyme-Yu Haulers. Company owners Sam Slyme and Candy Yu refuse to comment.

Tilting the Scales in Your Favor

Last month we discussed the perceived arrogance of a “no-comment” in the midst of crisis. We noted the perils of trial by default in the court of public opinion and the likely demoralizing effect on company employees who risk being condemned by friends and family along with their employer. How does a thoughtful, effective response emerge from panic and pandemonium? Certainly, not by accident. Well considered crisis communications responses should include:

  • Having a crisis plan and team in place well before a crisis ever occurs;
  • Alerting the crisis team at the earliest possible moment to implement the crisis plan;
  • Securing the site or crisis location to limit access and prevent incomplete, inaccurate or misleading dissemination of information, perhaps separately retaining necessary investigative personnel who report only to outside counsel;
  • Assembling all the facts to ensure accurate information is shared with the media and with employees, while at the same time admonishing employees from commenting or speculating on the crisis, specifically avoiding chatty email and social networking sites; and
  • Having a spokesperson ready to communicate clear, concise, accurate information – the higher up in the organization the better, but not the company’s in-house lawyer or public relations “mouthpiece.”

Sal Minella is president and registered agent of Mother Clucking Tasty Chicken, a large poultry processor in East Texas. One afternoon, while flying the coop for a much needed vacation to the Canary Islands, Sal is met by a process server who presents him with a lawsuit. Sal quickly skims the allegations of the lawsuit – yet another food poisoning victim – and hurriedly tosses the papers on his secretary’s desk, fully intending to respond to the meritless claims when he gets back. When Sal returns to the office, he remembers why he doesn’t like vacations, as he is confronted with 721 e-mails and a host of minor emergencies. Not surprisingly, bird-brained Sal completely forgets about the food poisoning lawsuit. Several weeks later Sal receives a default judgment in the mail. Failing to timely answer the meritless lawsuit just cost Sal and Mother Clucking Tasty Chicken a default judgment of almost $9 million. With the plaintiff sitting in the catbird seat, what should Sal do?

Call a lawyer immediately. In this case, Sal has a chance to have the default judgment set aside. In Texas district courts, after being served with a lawsuit a defendant has until the Monday following the expiration of twenty days to file an answer to the lawsuit. If an answer is not timely filed, the Court often grants the Plaintiff a default judgment for the entire amount of the alleged damages without further notice to the defendant. While it is possible to get a default judgment set aside (and have a new trial granted), the defendant must demonstrate, among other things, that the failure to file an answer was an accident or mistake and not intentional or the result of conscious indifference. The defendant must also agree to compensate the plaintiff for certain fees and expenses in obtaining the default judgment.

Tilting the Scales In Your Favor

The Texas case reporters are filled with lawsuits that got buried under papers or lost altogether and never responded to timely. While default judgments can be set aside, the process is costly, extremely stressful and not assured. Never ignore a lawsuit!  Every lawsuit, even those you deem completely frivolous, must be timely addressed. If you fail to answer a lawsuit, it will inevitably take care of itself in a most unfavorable way and might permanently deny you the opportunity to defend yourself. 

Just last month, the newspapers reported that PepsiCo failed to respond to a lawsuit and suffered a judgment of over $1.2 billion. Although the judgment was subsequently set aside, it was undoubtedly an unpleasant situation for PepsiCo and one that likely could have been avoided. See also Craddock v. Sunshine Bus Lines, Inc., 133 S.W.2d 124 (Tex. 1939).

The newspapers recently reported the story of woman who filed suit seeking a $100,000+ recovery from her landlord and former neighbor for damages allegedly caused by cigarette smoke drifting through the adjoining walls of their upscale townhome.  Sue Yu alleges that construction defects at the Tiffany Townhomes allowed Marilyn Marlboro’s (her neighbor) cigarette smoke to seep into her unit resulting in health issues and property damage.

The reported facts make me scratch my head and wonder whether the claim is legitimate or whether Sue Yu is just one of those customers that can never be satisfied.  According to the article: (1) Tiffany Townhome’s managers, at Sue Yu’s request, repeatedly replaced air filters, installed sealant type electrical plates and used industrial grade roofing sealant to caulk pipes under the kitchen cabinet to prevent potential seepage; (2) the smoke was purportedly seeping through a solid, two-hour fire wall; (3) Marilyn Marlboro moved to another townhome unit when a judge issued a TRO forbidding her from lighting up in her townhome; (4) Sue Yu renewed her lease at the Tiffany Townhomes six months after she claims the problem began; and (5) Sue Yu filed a complaint under the Texas Fair Housing Act alleging that her sensitivity to cigarette smoke qualifies her for protection set aside for people with disabilities. 

Tilting the Scales in Your Favor:  Difficult clients.  Difficult customers.  Difficult partners.  You have them.  The question is, what should you do with them?  Often times, businesses try to maintain relationships with difficult people because they are afraid of losing the business or they fear that terminating the relationship would be “uncomfortable” or could result in litigation.  When situations like this occur, you should accept the fact that there are some people that you can please none of the time.  When this happens, do what your mother taught you to do when taking off a Band-Aid…rip it off quickly.  Although it will be momentarily painful, you will avoid what is sure to be a lingering pain.   Maintaining relationships with people that cannot be satisfied will be far more expensive (in legal fees and otherwise) than terminating the relationship when you initially recognize the problem.  When reasonable efforts to accommodate the demands of clients or customers fail, just get it over with and rip off that Band-Aid.