Monthly Archives: August 2015

TOP TEN THINGS TO CONSIDER WHEN DRAFTING EMPLOYMENT AGREEMENTS

Drafting a solid, enforceable employment agreement is essential to (1) understanding your relationship with your employee and (2) determining what will happen at the end of employment — whether the end is good, bad, or ugly.

Despite the importance of employment agreements, many businesses use old or borrowed forms, make a few “tweaks” to the forms, and proceed to start the employment relationship with a bad agreement.  Only when the relationship sours or ends does the employer realize that it has a lousy agreement.  Oftentimes this results in getting out the checkbook to pay the ex-employee a large sum of money.

Do not put your company in a position of having to enforce or defend a bad agreement.  Instead,  consider the following ten action items.

1.  DO NOT USE A FORM AGREEMENT

Form is a four letter word when it comes to drafting employment —  and many other  — agreements.  Avoid form agreements.  Draft an employment agreement that is appropriate for your business.

2.  AT WILL OR FOR CAUSE OR…?

Decide upon the nature of the relationship with your employee.  Most businesses will want an “at will” relationship.  This allows employers maximum discretion in the relationship.  “At-will” employment means that the employee may be terminated from employment at any time for any lawful reason or for no reason.

Key employees or others may require that they only be terminated “for cause.”  If a business must engage in this kind of employment relationship it should carefully consider what circumstances will constitute “good cause” and who gets to decide whether it applies to a given scenario.

Employers typically want “good cause” to include a broad range of non-performance and misconduct; they also want to have maximum discretion to determine whether non-performance or misconduct has occurred.  I have seen numerous drafting mistakes in this area which have led to significant pain for employers by way of litigation and writing large checks.

There are any number of permutations on the spectrum between a pure at will relationship and a for cause relationship.  The trick — which is not really a trick so much as understanding  your objectives — is to decide upon what you want and write an agreement consistent therewith.

3.  TERM AGREEMENTS

Employers (or employees) sometimes desire a so-called “term” agreement.  This type of agreement calls for the employment relationship to last a specified period of time, unless an event occurs to cause early termination.

Term agreements can be an effective way to demonstrate confidence in the budding employment relationship.  They can also provide the security of locking the parties into a long term relationship — one which is not subject to the “whims” of a pure at will relationship, where either party may exit at any time.

Term agreements, however, must be drafted very carefully.  On one hand, employers cannot allow themselves to be stuck in a bad relationships with underperforming employees for a long term with no way out; yet on the other, employees want to be assured that if they perform the employer cannot end the term early on a whim.

Both of these needs can be served with a well-drafted agreement.  Conversely, a poorly drafted or inapplicable agreement can trigger a domino effect of misunderstandings and disagreements.

4.  WHAT WILL HAPPEN UPON TERMINATION?

Ironically, one of the first issues to consider in starting an employment relationship is what will happen when it ends.  There are many issues to consider but, in most cases, money tops the list.

Employers typically want to pay nothing upon the termination of the employment relationship.  However, many employment agreements call for payment to the employee upon an early termination (where there is a term agreement) and/or if the employment is terminated without cause (where there is a for cause agreement).

There is often a significant amount of interplay between (1) the term of an agreement, (2) the type of relationship, (3) who initiated the termination (employer or employee), and (4)what will happen upon termination.  Employers should always play out a number of hypotheticals to ensure they fully understand the variety of situations that may occur and their corresponding obligations.

5.  SCOPE OF JOB RESPONSIBILITIES

Both parties to the employment relationship should know what is expected of the employee.  The best way  to “get on the same page” is to have a provision describing the employee’s job responsibilities.

Significant thought and care should go into describing an employee’s job responsibilities.   Management should carefully discuss and formulate the best job responsibility clause possible.  Otherwise, the relationship may get off to a bad start when expectations are not fulfilled.

No employer, however, can accurately predict every task an employee may be asked to perform.  Changing needs caused by a shifting business environment may dictate that the employee’s job responsibilities be broadened or reduced.  Thus, include language that affords your business with maximum discretion to change job responsibilities.

6.  NON-DISCLOSURE AND CONFIDENTIALITY

Non-disclosure and confidentiality provisions should be part of any employment agreement.  Businesses should ensure that these provisions are as broad as possible to protect their interests.  In my experience, form agreements can be excessively narrow, fail to accurately describe the applicable documents and information sought to be protected, and can fail to afford the employer with maximum discretion to enforce the agreement.

7.  NON-COMPETITION AND N0N-SOLICITATION

Is it important to ensure that you do not invest in and train your new employee, only to have that employee compete against you and solicit employees and customers upon termination?  Then include non-compete and non-solicitation provisions in your employment agreement.

Do not use form agreements to draft non-compete and non-solicitation provisions in your employment agreement.  They may arise from other states that have different laws, and may include language that is outdated or inapplicable.  If you care about competition at the end of employment, start planning wisely with  appropriate non-compete and non-solicitation provisions at the beginning of employment.

8.  DISPUTE RESOLUTION AND REMEDIES FOR BREACH

Hope for the best, but prepare for the worst:  decide up front what mechanisms you want to use to resolve any disputes or pursue legal claims.  Issues to consider in this area include, for example:

  • The benefit or detriment of a cure period for breaches of the agreement
  • Whether mandatory mediation or arbitration provisions are advisable
  • Whether liquidated damages in the event of breach are appropriate
  • What laws should apply and the applicable forum (court) to decide the dispute

9.  OTHER “STANDARD” PROVISIONS

There are many other so-called “standard” provisions in employment agreements (e.g. integration clauses; notice provisions; etc.).  Please read each of them.  You may find that one business’ standard provision does not work for your business.

10.  PLAN LIKE A GREEN BERET

I recently read that our Green Berets and Special Forces  train for missions by spending a significant amount of time on what can go right and on what can go wrong.  Of course, everyone wants the former.  Then why are Green Berets arguably at there best when things turn ugly?  Because they have planned for any number of scenarios — good, bad, and ugly.

Your employment agreement should embody this same principle of planning  — focusing both on the potential success and potential failure of the relationship.  As observed by Daniel Coyle, author of the Talent Code:

“When it comes to approaching a major performance test, most of us follow advice that can be distilled into three words:  Focus on success.

That is, we prepare ourselves by banishing doubt and visualizing the positive. We vividly imagine ourselves making all the right moves with fluid grace, with zero mistakes or missteps. And it feels good.

What’s interesting, though, is that when you look closely at world-class performers, most don’t use this feel-good approach. In fact, they do the opposite — what you might call the Feel-Bad-First approach.

It goes like this: First they focus on the mistakes — and figure out, in detail, how they will react to them. Then they visualize the positive.

A great example of this is the Green Berets, the U.S. Army Special Forces soldiers. Teams spend weeks training for a mission (most of which happen at night). On the day of the mission they follow a two-part routine.

First, they spend the entire morning going over every possible mistake or disaster that could happen during the mission. Every possible screwup is mercilessly examined, and linked to an appropriate response: if the helicopter crash-lands, we’ll do X. If we are dropped off at the wrong spot, we’ll do Y. If we are outnumbered, we’ll do Z.

After some hours of doing this, the team takes a break and has lunch together. They socialize, relax, and maybe take a nap.

Then they spend the afternoon in phase two, talking about everything going exactly right. They review each move, visualizing each step, and vividly imagine it going 100 percent perfectly.

You might call this Balanced-Positive Approach: equally split between negative and positive, and ending on the positive. Notice the complete wall of separation between the two phases. They don’t toggle back and forth between positive and negative. The two phases are kept as separate as night and day: first comes all negative, then all positive.

Many top performers (Peyton Manning and Steve Jobs jump to mind) embody this approach. Half the time, they are persnickety, chronically dissatisfied, negative, doubtful, obsessed with potential failures. The other half of the time, they’re incredibly positive, confident performers.”

Approach your employment agreement like a Green Beret would his next mission:  plan for success and a smooth mission, but also allot significant thought and preparation into what will happen if the employment relationship hits the proverbial rocks.  It all begins with a solid employment agreement.

CONCLUSION

An employment agreement can be a useful, necessary tool; or, it can be a hammer that is used against your business.   Which employment agreement is your company going to choose?  I thought so.  Nice job!

 

 

TOP TEN WAYS TO SUCCESSFULLY DEFEND A DEPARTMENT OF LABOR AUDIT OF YOUR BUSINESS

United States Department of Labor (DOL) business audits are rising due to stepped-up enforcement of wage, hour, and recordkeeping laws by the DOL and Obama administration.

The thought of a government audit is painful for most; however, the actual process itself and the result — whether your business will face fines and penalties for non-compliance — need not be painful.

Yesterday morning I walked out of a DOL “closing conference” — a meeting the DOL calls with business management/ownership at the end of an audit to announce its findings — with a deep sense of satisfaction.  The closing conference was a complete success:  no fines or penalties.  Why?  I am convinced that my client “got it right” by following the guidelines discussed in this article.

1.  TREAT EMPLOYEES WELL

The number one cause of DOL audits is employee/ex-employee complaints of alleged unlawful conduct.  Complaints almost always relate to (a) unpaid wages, including overtime, (b) misclassification of employees as exempt from overtime requirements, (c) misclassification of workers as independent contractors, and (d) recordkeeping violations.

The best way to deal with a potential problem is to avoid it in the first instance.  Avoid DOL audits by hiring good people, managing them well, and treating them fairly.

2.  MAKE SURE YOUR HOUSE IS IN ORDER

Most audits go well because the subject business complied with the law.  Previous HR Law Insider editions explain what it takes to do so.  Whether it comes to paying overtime or properly classifying employees, follow the law and avoid white-knuckling it on audit day.

3.  HAVE A PLAN WHEN YOU RECEIVE THE DOL AUDIT CALL

Typically the DOL will call the company’s main office and send a letter to announce its audit.  From there things move very fast — the auditor may say that she/he wants to inspect company records at the company’s business that day or the next day.  This is often very unsettling to unprepared businesses.

Here is a plan:  First, assign one owner or manager to handle a DOL audit if it occurs; have a backup person available if the owner or manager is on vacation or otherwise unavailable.  Second, call legal counsel immediately, meet as soon as possible, and, as a team, develop a specific strategy to defend the audit.  This strategy will include how to deal with any, issues (i.e. potential violations) you anticipate may surface.

4.  BE COOPERATIVE WITH THE AUDITOR AND, IF NECESSARY, OBTAIN ADDITIONAL TIME  TO PRODUCE RECORDS AND SUBJECT MANAGEMENT TO INTERVIEWS

Being nice to an auditor goes a long way.  Conversely, an uncooperative or rude attitude toward an audit or auditor increases the chance of an adverse result.

Being nice does not mean caving in on unreasonable requests, which do occur; nor does it mean accepting DOL findings that may not be supported by the facts or law.  It means working cooperatively with the DOL agent while protecting your company’s interests.

Virtually every auditor I have worked with has allowed my client and me more time (than a day or two) to prepare for the initial meeting (opening conference) with the auditor.  Do not rush into that initial meeting and document production if more time will allow you to be better organized and prepared.

5.  PREPARE FOR MANAGEMENT AND EMPLOYEE INTERVIEWS 

The DOL agent will likely interview managers and employees immediately after the initial conference.  This will likely occur at the employer’s place of business.  The “process” can seem very invasive and intimidating at times.

Discuss interview preparation with legal counsel.  Counsel will advise you what types of questions to anticipate and how those questions relate to wage and recordkeeping laws (and potential violations).  This preparation significantly increases the odds of achieving a positive result for the employer.

Counsel can — and should — be present at all manager and supervisor interviews.  Counsel cannot be present at employee interviews; this is another reason to treat employees well and follow the law:  they will not be motivated to throw your business under the bus in their interviews.

6.  PRODUCE REQUESTED DOCUMENTS AND NOTHING MORE 

The DOL presents a list of documents to be produced with its initial letter commencing the audit.  The list is often onerous — particularly if the employer’s records are not well kept, scattered, or unorganized.

Assign one person to assemble the documents.  Then review the documents — category by category — with counsel to ensure compliance with the requests and that there are no extraneous documents.  Including documents and information that were not requested will lead to wasted time and, possibly, additional issues.

7.  DO NOT LIE OR HIDE THE TRUTH

There are three reasons not to lie or hide the truth: (1) it is unlawful; (2) it is unethical; and (3) those inclined not to care about nos. 1 and 2 should know that it is quite possible that, based on a complaint, the DOL already has specific knowledge of an unlawful practice;  lying about the practice or hiding it may cause the DOL to determine you wilfully violated the law and are obstructing their investigation, resulting in an unhappy auditor and potentially significant fines and penalties.

8.  LISTEN CAREFULLY TO THE DOL AUDITOR

Audits have an upside for attentive businesses.  By listening to an auditor’s advice and comments, businesses (and their counsel) can better understand what is important to the DOL, any enforcement trends or priorities, and how to stay off the DOL’s proverbial radar going forward.

9.  USE THE AUDIT AS A WAY TO “CLEAN HOUSE” OF ANY RELATED ISSUES

The self-examination which results from a DOL audit often allows employers to identify related business problems or areas of non-compliance.  For example, your business might discover that its handbook is out of date,  that management is doing a poor job of supervising and training employees, that morale is poor, that there is no consistent and identifiable method of disciplining and terminating employees, or that it may be a joint employer with a related or affiliated business.

Just as you would use a physical exam to clean-up your diet, physical training, and lifestyle, use a DOL audit to clean-up aspects of your business identified as unhealthy.  In other words, kill two birds with one stone.

10.  CORRECT ANY ISSUES IDENTIFIED BY THE AUDITOR OR BY COUNSEL

The most heavily penalized businesses are the ones that the DOL determines knowingly fail to comply  wage and hour laws.  Failing to correct issues identified in a DOL audit can bring significant penalties.  So too can employer “tricks” to evade the payment of overtime (e.g. “finessing” records to make it appear a worker who worked overtime did not; keeping time off the books; intentionally misclassifying workers to avoid paying overtime or providing other required benefits).

Do not tempt fate:  correct any items noted by the DOL, who may just decide to re-visit your company to ensure compliance with the law.

CONCLUSION

With preparation, “game day” — the day of the audit — should go well.  Football coach and legend Vince Lombardi put it well, “The will to win is not nearly so important as the will to prepare to win.”

Speaking of the man himself, I am on my fourth reading of a Lombardi book — “What it Takes to be #1.”  The book is less about football than it is about how to build and sustain a top-notch organization (and there are some excellent football vignettes in the book for any fellow gridiron junkies).

Contact me if you would a courtesy copy of the book.  I believe in spreading Lombardi’s “gospel” that much, and thoroughly enjoy comparing notes with similarly inclined leaders.  Are you a leader?  Undoubtedly.  Lombardi observed that we are all leaders in one way, shape or form (family, business, friend, counsel, etc.).  I could not agree more.

 

 

THREE COMMON EMPLOYER MISTAKES HIGHLIGHTED IN 11.9 MILLION DOLLAR SEXUAL HARASSMENT VERDICT

Last Wednesday a federal jury handed down a $11.9 million verdict in favor of a toy company employee.  The huge verdict is the result of three common mistakes I have seen many businesses make over the course of my career:  (1) having poorly written complaint procedures in their employee handbooks; (2) failing to train and oversee management; and (3) commingling the business and human resource operations of parent, subsidiary, and related entities — which can result in the “joint employer” liability of all entities for just one supervisor’s misconduct.

THE TOY COMPANY CASE IS A CAUTIONARY TALE

Danielle Rennenger  worked at a ToyQuest call center in Iowa.  According to the Des Moines Business Record, Renneger alleged in her lawsuit that her direct supervisor and a co-worker created a hostile work environment with vulgar and harassing remarks as well as gestures and physical advances toward Rennenger and other women. At one point, the supervisor grabbed Rennenger’s head and forced it into his crotch.

“Danielle tried to complain and get them to stop, but Downey basically told her that Hong Kong, referring to the owners, doesn’t care about women,” according to a release from the Newkirk Zwagerman law firm, which represents Rennenger and other plaintiffs.

U.S. District Judge James Gritzner said in an August 3 ruling, “Fundamentally, we know that there’s really no dispute about what happened to Ms. Rennenger in terms of the call center and the behavior of people in the call center.”

After hearing the evidence, a federal jury  awarded Rennenger $10 million in punitive damages, $1.8 million for past and future emotional distress, and nearly $83,000 in lost wages.

Sexual harassment lawsuits brought by other ToyQuest employees are also pending.

MISTAKE NUMBER ONE:  TOYQUEST DID NOT HAVE AN ADEQUATE COMPLAINT POLICY 

The ToyQuest case judge noted that “[I]t seems rather clear in this record that it was very difficult for employees there to know how to proceed in the event that their supervisor was actually the harasser.”

Failing to have a clear policy as to how victims of sexual harassment and discrimination can complain — especially when management or ownership is alleged to be the harasser —  is a surefire way for businesses to get in trouble.  The typical mistakes I see are poorly drafted policies, policies that do not reflect the actual organizational structure of the subject company, policies that contradict themselves, and policies that are hard to understand or are ambiguous.

Avoid mistake number one:  have a bombproof complaint and sexual harassment/discrimination policy and review it annually with counsel.

MISTAKE NUMBER TWO:  TOYQUEST DID NOT TRAIN AND OVERSEE MANAGEMENT

ToyQuest management at the Iowa call center was out of control.  Management training and oversight is critical to create a management team and work environment that is free from harassment and discrimination.  Equally so, management training is essential so that management knows how to apply and comply with the complaint provisions in the employee handbook.

Avoid mistake number two:  conduct periodic management training with counsel and stay ahead of the myriad of problems that come with ignorant or undertrained management.

MISTAKE NUMBER THREE:  TOYQUEST APPEARS TO HAVE COMMINGLED ITS DIVISION’S BUSINESS OPERATIONS

After the lawsuits were filed ToyQuest’s parent company created multiple companies, apparently in an effort to avoid liability, according to Rennenger’s lawyers.  The federal judge agrees:  “And there is a very complex series of positions that the various companies have taken here absolutely contradictory of one another in terms of their relationship and how they were set up. Depending upon which executive you talk to, you get a completely different version of how the call center was set up and who employed those people. In the process of looking at the entire picture of this case, there is substantial evidence of active avoidance of liability,” he said in the Aug. 3 ruling.

If your company has a parent, subsidiary, or related company, it is very easy to expose all your businesses to liability for the “sins” of one.  For example, running HR operations from a central location can expose your businesses to the claim that they are a “joint employer” and thus all liable for harassment which occurred only at one business.

Avoid mistake number three:  if you are operating more than one business and are concerned regarding commonality of operations, ownership, or control  — factors which can expose all the businesses to joint employer liability — contact counsel to determine methods to keep the businesses separate.

Don’t be like ToyQuest.  Instead, understand “joint employer” liability before your businesses  — emphasis on plural — get sued and make any necessary changes.

CONCLUSION

Businesses should stay ahead of harassment, discrimination, and joint employer problems by staying proactive with their policies, training, and organizational structuring.  ToyQuest had the chance to do these things but failed — abysmally — to do so.

Speaking of failing to take advantage of a chance to do something the right way, enjoy “I Had My Chance” by Morphine, one of my top ten favorite blues songs: