The sad truth

One of the sad facts of life for business owners — and corporate officers — is that divorces happen.

Their existence, however, doesn’t make
them any less palatable.

“For high net worth individuals, getting divorced not only brings with it the
usual emotional trauma, it can also be
financially devastating,” says Jason R.
Marks, a member of the law firm of
Kluger, Peretz, Kaplan & Berlin P.L.
“Any high net worth individual should
use the same approach when getting
divorced as they do when making critical decisions for their business. Think
with your wallet and not with your
heart.”

Smart Business talked to Marks
about some of the issues that arise
when a high net worth individual goes
through a divorce in the state of
Florida.

Are the assets of both publicly held and privately held companies subject to inclusion
in divorce proceedings?

Divorce can have consequences
whether closely held or publicly held
businesses are involved, no matter
what your job title or position is, no
matter whether you’re the plaintiff or
defendant. Legally, your spouse is your
de facto partner during your marriage;
if your interest in your business was
acquired during the marriage, Florida
law requires that you part with 50 percent of its value when you get divorced.

How does the court split assets?

All assets acquired and liabilities
incurred during the marriage by either
spouse are subject to equitable division,
no matter whom the asset is titled to.
Court’s have substantial discretion
when splitting up assets. One option is
for the court to give the owner spouse
100 percent of the asset and give the
nonowner some other asset to equalize
things; for example cash or equity in
real estate.

If the company was formed before
marriage, the nonowner spouse gets 50
percent of the company’s enhanced
value over the course of the marriage.

In Florida, each party in a divorce is
obligated to exchange financial affidavits that show the party’s incomes,
expenses, assets and liabilities. In
determining the value of a business,
sometimes you will need to go back in
the records to find the company’s value
when it was formed or acquired, when
the marriage occurred, and at the date
of the filing of the divorce petition.

How can one avoid having business assets
be the object of a divorce proceeding?

Two words — prenuptial agreement.
Prenups are a high net worth individual’s best friend. Courts will uphold
these agreements, as long as they were
entered into freely and voluntarily and
with full financial disclosure.

In a prenup, the nonowner spouse can
agree that he or she will not share in any
of the owner spouse’s share of the business, and the business will remain intact upon the dissolution of the marriage.

Before you get married, you should
consider a prenup that allows you to do
on the front end what is difficult to do
on the back end — that is, cut a deal.
For better or for worse, at least you will
know what you are getting in the event
that your marriage breaks down.

The only other way to limit the impact
a divorce will have on your business is
to figure out an approach to extricate
the business from the conflict. Once the
nonowner spouse understands what the
value of the owner spouse’s interest is in
the business, he or she can then begin to
assess what other assets he or she may
want in its place. The problem for the
high net worth individual is when the
business is all you’ve got to give.

Can a divorce clause be included in the
documents of incorporation when partners
are involved?

It’s important for companies to understand that whether they like it or not,
the company will be involved when one
of the owners or partners goes through
a divorce. The court will require documents from the business, even when
other owners or partners may not want
the nonowner’s accountant rummaging
through confidential, proprietary financial information.

The governing documents of the business/partnership can state that no
owner/partner can convey away his or
her stock or assign the stock to a
spouse as security to meet any other
obligation in the event of a divorce and
contemplate what will happen to the
business if an owner/partner does. The
objective is to ensure that the business/partnership remains intact if an
owner/partner later gets divorced so
that the ongoing operations of the business are not affected.

JASON R. MARKS is a member of the law firm of Kluger, Peretz, Kaplan & Berlin P.L. practicing in the litigation and dispute resolution department, focusing on matrimonial and family law. Reach him at (305) 341-3152 or [email protected].

Staying in bounds

Question: What happens when a
“stakeholder” — an interested board
of directors, holding company,

investor, private equity firm or hedge fund
— oversteps its bounds and controls the
day-to-day operation of a company?
Answer: Legally speaking, nothing good.

“As a stakeholder, you have to think
about how your actions appear to an outsider looking in,” says Jason S. Oletsky,
member and co-chair of the litigation
department at Kluger, Peretz, Kaplan &
Berlin P.L. “Does it look like you’re acting
properly through the company’s board of
directors or like an investor trying to control the company’s day-to-day actions?”

Oletsky counsels stakeholders on how to
balance their majority financial position
and independence from the companies in
which they serve on the boards of directors
and own majority interests.

Smart Business talked to him about the
legal ramifications of trying to exercise too
much control.

Are there limits to how much control an
investor can have over a company’s day-today activities?

Absolutely. Although there is no specific
statutory framework involved, courts look
for an investor’s exercise of excessive control that created — and breached — a fiduciary duty thereby creating a co-employer
relationship, or alter-ego liability.

Ideally, an investor should have no direct
say over a company’s day-to-day operations. Today, however, where private equity and hedge funds are so heavily invested
in companies, it is unrealistic to believe
that investors won’t have their say in their
companies’ operations. The key is to properly structure this control through corporate governance.

From the stakeholder’s perspective what is
the issue?

It’s a balancing act. The stakeholder has a
duty to return the greatest investment possible to investors. If the person is a board
member, however, he or she owes a fiduciary duty to the shareholders of the company. If those distinctions become blurred and it is determined the stakeholder has
exercised excessive control, he or she
could become liable for company debts.

If proper controls and governance are in
place, the investor can still exercise control
and oversight, but without the threat of
personal liability.

Can you cite an example?

The most common examples I’ve seen
thus far usually arise either in bankruptcy
or distressed company situations. For
instance, if a financially struggling company is forced into a mass layoff, federal law
requires that the affected employees
receive 60 days’ advance notice. The
chances of employees recovering against
such a company are minimal, but, if they
can show that an investor had too much of
a say in the mass layoff and proper corporate formalities were not followed, the
investor can be deemed a ‘co-employer’
and subsequently be responsible for the
employees’ statutory right to pay.

Additionally, where a company is in the
‘zone of insolvency,’ the board’s fiduciary
duty shifts from shareholders to creditors.
If the board, influenced by the stakeholder,
takes actions adverse to interests of the
creditors, it can be held liable for company
debts.

What are some indications of excessive control that you see and counsel against?

Generally, it’s a precarious position for
the investor who attempts to control the
daily financial affairs of the company.
While it is permissible for a company’s
board to have ultimate say over these types
of decisions if handled properly, where
direct dialogue from the investor to the
company executives occurs, problems can
arise. Other mistakes, just to name a few:

  • Direct e-mails telling a company president what to do concerning day-to-day
    operations.

  • Issuing press releases on behalf of the
    company creating the appearance of
    investor involvement.

  • Intermingling bank accounts.

What steps do you recommend for avoiding
excessive control allegations?

  • Ensure that corporate formalities, such
    as board resolutions for important corporate decisions, are met.

  • Limit the number of stakeholder personnel serving as officers and directors at
    the operating level.

  • Include nonstakeholder personnel on
    the board.

  • Limit investor in-house personnel at
    the operating level.

  • Maintain separate books and records.

  • Act through the board for company
    decisions, not through the investor.

  • Don’t blur the distinction between
    investor and the operating company in corporate communications.

  • Have sufficient operating capital at the
    operating company separate and apart
    from the stakeholder.

The most important piece of advice —
don’t get lazy. Think about what your
actions are going to look like to the outside
world before you act and go from there.

JASON S. OLETSKY is a member and co-chair of the litigation
department at Kluger, Peretz, Kaplan & Berlin P.L. Reach him at
(305) 341-3014 or [email protected]. He has been nationally
recognized by Best Lawyers in America in the area of private
funds/private equity law.

Alternative dispute resolution

Most business people have had the
mantra beat into their heads —
arbitration is better, faster and cheaper. Accordingly, many routinely
include mandatory arbitration clauses in
commercial contracts without any real
thought. Andrew Gold, a member of the
law firm Kluger, Peretz, Kaplan & Berlin
P.L. and past chairman of its litigation
department, however, warns that arbitration is not always the best choice. Dispute
resolution options include jury trial, bench
trial and arbitration.

Smart Business talked to Gold about
weighing the arbitration process versus
jury and bench trials.

Why do companies put an arbitration provision in a contract?

Most people include arbitration clauses
in their contracts as a knee-jerk reaction to
years of hearing speeches touting the benefits. I agree that arbitration has its place.
However, my experience has been that
arbitration is not faster or cheaper to
resolve complicated disputes. I recommend arbitration only where the matter
involves a substantive area requiring a fact
finder to have a particular expertise to
ensure a fair resolution.

Why not arbitration?

First, the general consensus is that arbitration is faster than trial. In my experience, that’s not necessarily so. The arbitration panel is often composed of three busy
professionals, whose schedules are difficult to coordinate. It’s very possible that
you’ll end up scheduling seven to 10 days
of arbitration scattered over many months.

Second, people assert that arbitration is
cheaper. My experience is that it’s not
cheaper because lawyers and their clients
have to prepare for each hearing, instead of
trying the case from start to finish at once,
and the clients have to pay the arbitrators
for their time.

Finally, it’s assumed that less discovery is
generally involved in the arbitration
process. Many arbitrators, however, allow
significant discovery, defeating any cost
savings. More importantly, limited discovery is often harmful to a corporate defendant. Often, a plaintiff will know its complaints, gather evidence and prepare the
case for hearing. Without discovery, a
defendant goes in blind, not knowing what
witnesses to bring or what documents to
use to impeach the plaintiff’s witnesses.

What are viable alternatives to arbitration?

It’s common to weigh arbitration versus a
jury trial. But nonjury, or bench trials, are a
wonderful alternative to more expensive
jury trials while retaining the actual and
supposed benefits of arbitration. In a
bench trial you get one assigned judge who
is not being paid — as opposed to arbitrators, who are paid. You avoid the high cost
associated with a jury trial, and avoid the
supposed risk of a runaway jury. You don’t
have to work around so many schedules —
the judge has nothing to do but try cases —
and you don’t have to pay the hourly rate
for each arbitrator.

If arbitration is chosen, what should and
should not be included in the arbitration provision?

Any arbitration provision should be specific. To avoid conflicts over the scope and
implementation of the clause, the parties should address each of the following
issues:
1) What dispute is the arbitration clause
intended to cover? For example, will the
clause apply only to a claimed breach of
the subtract contract or to any dispute
related to the transaction?
2) What types of damages are included
within the scope of the arbitration clause?
There is governing Florida law suggesting
that in a business context claims for personal injury will not be included within an
arbitration clause unless specifically noted.
3) What parties are included within the
provision? This is very important in multi-party transactions. A mistake could result
in a party litigating in multiple forums at
once.
4) Who considers any potential award of
attorney fees? Under the Florida statutory
scheme, an arbitrator typically doesn’t
award fees. That’s left to the circuit court.
In my experience, that is a poor process
requiring a long summary trial before the
circuit court so that the sitting judge can
learn enough about the case to make a
meaningful decision.
5) What administrative body should oversee the procedure? There are many choices including general bodies, such as The
American Arbitration Association, or
industry specific bodies, such as The
Construction Industry Association.
6) How many arbitrators will comprise
the panel?
7) What kind of expertise — if any —
must the arbitrators possess?
8) What method will be used to select the
arbitrators?
9) Will discovery be allowed and if so,
how much?

There isn’t any limit to what can be
included in an arbitration agreement. The
key is to think it through and specify the
dispute resolution process at the time the
parties are negotiating other deal terms.

ANDREW GOLD is a member of the law firm Kluger, Peretz,
Kaplan & Berlin P.L. and past chairman of its litigation department. Reach him at (305) 341-3120 or [email protected].

Confidentiality in settlements

Corporations and public figures often
settle lawsuits for the sake of confidentiality. In some of these instances, confidentiality provisions within the settlements are appropriate. In other cases, good
business judgment should prevail.

“Typically, confidentiality is used to protect trade secrets that may be divulged in
the course of litigation,” says Stuart Silver,
a partner at Kluger, Peretz, Kaplan & Berlin
P.L. “Confidentiality provisions are accepted and customary in those situations.
Similarly, confidentiality provisions which
deter frivolous lawsuits are appropriate.”

However, businesses face a real danger
when they try to conceal a product’s potential harm by invoking a confidentiality provision. “Hopefully, that’s where good business judgment enters the picture,” he says.

Smart Business talked to Silver about
the occasions when confidentiality provisions in settlements are not practical or
legally enforceable.

With respect to confidentiality provisions,
what does the law allow and what does it
prohibit?

Businesses that are subject to tort claims
need to be concerned about confidentiality
provisions within settlement agreements,
bargaining for confidentiality, and whether
they’ll get the benefit of the bargain.

A settlement agreement is a contract.
Parties can agree to confidentiality as a
condition for payment, but there are limitations imposed by law. Reliance upon a
confidentiality provision depends on what
it is designed to accomplish.

Florida’s Sunshine in Litigation Act
(Florida Statutes, Sec. 69.081) prohibits
concealment of a public hazard, which is
defined as a potential for personal injury.
The Act specifically prohibits a court order
that would sanction concealment. In order
to protect the public’s right to be made
aware of the hazard, Florida law also prohibits a court from sealing a file.

The Florida statute and comparable laws
in other jurisdictions make certain confidentiality provisions unenforceable. You
cannot contract to do something illegal —
and even if it’s legal, the courts may not
enforce it due to public policy.

Should a company consider a confidentiality
provision when settling with a plaintiff over a
hazardous product?

Confidentiality provisions have their
place, but a business should not attempt to
hide information about a potentially dangerous product. Instead, businesses should
be careful how they produce and market
products, and how they react to knowledge about potential harm from a consumer’s use of their products. The company with a policy or protocol for being
proactive in this regard avoids the need to
conceal public harm.

Not every claim where damage is alleged
is deemed to be a public hazard. For example, economic damages resulting from
allegedly wrongful conduct is not subject
to the Sunshine in Litigation Act.
Economic losses are not considered to be
hazardous.

I think the whole issue deals with corporate wisdom rather than morality or philosophy. The wisdom lies in knowing Florida’s
Sunshine in Litigation Act, and recognizing
that if it’s conceivable for a product to be
deemed a public hazard, the business
should take steps other than concealment
to mitigate the perception of danger.

In the past, many businesses have gotten
a lot of credit in the ‘court of public opinion’ by revealing a potential product hazard
to the public once it learned of it, and by
trying to eliminate the hazard.

How does the business lawyer balance his or
her duty to the client with acting in the public
interest?

The Code of Professional Responsibility
makes lawyers’ duty to their client primary,
and the public’s interest secondary. However, lawyers are also officers of the court
and, as such, should strive to serve both
interests without creating a conflict. That’s
a dilemma that may be resolved by counseling their client on the impact of the
Sunshine Act. Advocacy for the client
should lead a business lawyer to include a
confidentiality provision in any settlement
agreement. At the same time, a lawyer
should counsel his or her client that a court
will not condone concealment in the case
of products that expose the public to physical harm.

What are a business lawyer’s options in
cases of product liability?

Confidentiality as a concept is fine and
there are reasons to invoke it. It can be
used to discourage litigation in the ordinary course of a company’s business. It can
be used to minimize copycat claims that
have little merit.

The bottom line is that businesses must
be aware that confidentiality has its limitations. It is incumbent upon us to advise
them to consider potential risks of harm
before marketing a product. Consumer
feedback that suggests a genuine risk of
harm in the use of a product should be publicly disclosed, if not also remedied. We are
obliged to discourage concealment of a
public hazard.

STUART SILVER is a partner practicing in the Litigation &
Dispute Resolution Department at Kluger, Peretz, Kaplan & Berlin
P.L. in Miami and Boca Raton, Florida. Reach him at (305) 379-9000 or [email protected].

More plaintiff filings

Why has there has been a significant
increase in the filing of Fair Labor
Standards Act (FLSA) court cases against employers? Because employees
are not required to go through the Equal
Employment Opportunity Commission
(EEOC) process to file, and because the
statute contains an attorneys’ fees recovery provision for employees, which
increases the probability of quick cash settlements from employers faced with a cost-benefit concern in defending these cases.

“The FLSA, which regulates wage-and-hour, minimum wage and overtime pay, is
complicated and more technical in its
application and interpretation than other
employment laws,like the ADA
[Americans with Disabilities Act] and
FMLA [Family and Medical Leave Act],”
says Michael Landen, a partner at Kluger,
Peretz, Kaplan & Berlin P.L. “Many little
nuances in the law need to be taken into
consideration, emphasizing the need for
knowledgeable employment counsel to
assist with that process.”

Smart Business asked Landen how a
human resources (HR) department should
approach compliance with the FLSA.

What current trends are surfacing with regard
to the Fair Labor Standards Act?

I have seen an increase in the number of
filings of FLSA cases by plaintiffs who
claim they are owed overtime compensation or that they were not paid minimum
wage. Recent filings have included an
increase in the number of class action
cases filed on behalf of employees.

The FLSA has become attractive to plaintiff’s attorneys because its provisions allow
plaintiffs to recover their attorney’s fees in
the event they prevail on their claims. These
are typically cases that include lower-dollar
damages, so an employer’s cost of litigating
the case can outweigh what the employee
seeks to recover. Employers may look to
settle those cases out of court, and the plaintiff’s attorneys know that.

What classes of employees are exempt from
the requirements of the FLSA?

Several classes are exempt — in particular, executives, administrative employees,
computer professionals, outside sales
employees, and those who are ‘highly compensated.’ Each of these terms is carefully
defined within the Code of Federal
Regulations, which sets forth the criteria
for determining what classes exempt
employees fall into under the FLSA.

What are some common misconceptions that
employers tend to have about the FLSA?

One is the classification of employees as
exempt or nonexempt. It is important for
human resources professionals to engage
an employment attorney to assist with this
analysis. The problem with assigning job
titles and descriptions alone is that they
may not accurately reflect what the
employee actually does when he or she
performs the functions of the job. This is an
especially important consideration for
large companies that have a wide range of
job duties, where one job description may
affect hundreds of employees.
Knowledgeable employment counsel can
assist with carefully crafting the appropriate job descriptions in order to ensure
exempt status.

A common mistake when dealing with
nonexempt employees — who are subject to the requirements of the FLSA — is that
not all HR professionals are necessarily
aware that commissions can enter into the
calculation of overtime pay. The formula
for calculating the appropriate overtime
rate is set forth in the code and must be followed to ensure compliance with the
FLSA. Failing to do so is a common basis
for lawsuits.

One other misconception is that employers may improperly consider some of the
people working for them to be ‘independent contractors’ and, thus, not employees
of the company — and therefore not subject to coverage under the FLSA. However,
employers must carefully comply with a
detailed set of guidelines that define exactly what an ‘independent contractor’ is and
is not.

How important, then, is the HR department
in avoiding FLSA violations or lawsuits?

Extremely important. The HR department sets the policy, which must comply
with the FLSA, and thus, take into consideration all the minute details of the law.

However, as much as an HR professional
can do to protect the company, lawsuits
are almost unavoidable.

My recommendation to minimize the risk
of FLSA violations or lawsuits is to make
sure the company has a thorough employee handbook or manual that sets forth — in
writing — its policies concerning overtime,
including time off, antidiscrimination, the
FLSA, ADA, FMLA and all of the other federal and state laws and considerations that
come into play in an employer/employee
relationship. A knowledgeable employment attorney is key for this process.

HR professionals should consult with
counsel before preparing an employee
handbook to ensure that the company is in
the best position to defend against these
sorts of lawsuits and to potentially avoid
them altogether.

MICHAEL LANDEN is a partner who practices in the areas of
employment law and commercial litigation at Kluger, Peretz,
Kaplan & Berlin P.L. Reach him at [email protected] or (305)
379-9000.

Terms and conditions

On the reverse of nearly every invoice,
bill of lading or airway bill, you will
find “terms and conditions of service” involving that shipment. It’s imperative that
corporate officers and heads of shipping
know how the legal ramifications of these
terms and conditions can result in large
payments either to or from their company.

Smart Business spoke to Francesca
Russo-Di Staulo, an attorney with Kluger,
Peretz, Kaplan & Berlin P.L., about how to
minimize financial losses due to goods that
are damaged in transit from or to a company.

What are terms and conditions?

In the daily transportation of goods, they
are preprinted, standard contract conditions that form part of the shipping contract between a shipper and a carrier that
set forth general conditions.

If you have purchased goods that are
being transported or delivered to your
warehouse or place of business, chances
are that the person or persons involved in
the handling, delivery and/or transportation of those goods will issue an invoice or
bill of lading containing terms and conditions of service.

If you are the person handling, delivering
or transporting the goods, you will not
want to do so without such terms and conditions of service.

If you are a shipper (the seller) or the
consignee (the buyer), then you need to be
aware that such terms and conditions exist
and that they may well regulate the shipment of your goods.

Are terms and conditions more applicable to
international shipments, or are they equally
applicable to domestic shipments?

They’re equally applicable to international and domestic shipments. What becomes
contentious are situations when more than
one governing statute is in place.

For example, if you have goods transported by interstate commerce by motor
carrier, then the Carmack Amendment —
the federal statute — applies, in addition to
whatever terms and conditions the carriers
may want to impose.

For international shipments, you have to
determine the mode of transport, who the
carriers are, and where the possible damage to the shipment occurred. If airlines
provided transport, the Warsaw
Convention can apply. The Carriage of
Goods by Sea Act (COGSA) applies to all
contracts for carriage of goods by sea to or
from ports of the United States in foreign
trade. The Convention on the International
Sale of Goods may also apply to questions
including when the title to the goods and
risk of loss pass from seller to the buyer
with or without transportation by a carrier.

How do terms and conditions apply?

They regulate and define the contract
between you, the person shipping the
goods or the person receiving the goods,
and the carrier, the person handling the
transportation. You can be subject to the
terms and conditions even if you did not
expressly acknowledge them and even if
you never read them, so long as they are
printed in legible form and so long as this is
not the first time you received such an
invoice containing identical terms and conditions.

They can also act as a waiver of your
rights and stop you from filing a claim to recover for the lost, damaged or delayed
shipment — unless you file a claim as soon
as you discover the problem. The claim
often can simply be a letter — as long as
you provide the carrier with reasonable
notice of the loss, including the claim for
the payment of a determinable amount of
money.

What can shippers and carriers do to protect
themselves?

If you are the shipper, you can avoid the
limits on liability by declaring a higher
value and paying a special compensation,
so that the limits of liability will not apply.
Typically, the invoice or the bill of lading
will provide a space for just such a purpose.

If you are the consignee, you often will be
handed a delivery bill of lading at the time
the goods are delivered. This will be the
first opportunity you would have to see a
bill of lading, let alone see the terms and
conditions. Don’t fret. The law provides
that unless the carrier issued the bill of lading prior to moving the goods and unless
you have been given a reasonable opportunity to choose between two levels of liability, a carrier may be hard-pressed to
impose such terms against you.

If your company acts as the carrier, you
naturally will want to make sure you issue
the bill of lading prior to the movement of
the goods, and you will want to make sure
the shipper or consignee received the bill
of lading containing the terms and conditions prior to the movement of the goods.

FRANCESCA RUSSO-Di STAULO is an attorney and a member of the litigation and dispute resolution practice with Kluger,
Peretz, Kaplan & Berlin P.L. Reach her at (305) 379-9000 or
[email protected].

Bringing premiums down

High-profit and high-performance companies are typical industry leaders in
quality control, productivity and employee safety, and their insurance rates
are invariably lower.

Employee job safety is not an expense as
much as it is a management process that
improves quality control, production and,
ultimately, corporate profits. Conversely,
human error, equipment breakdowns,
mechanical failure and quality control
shortfalls all impact profits.

“Safety and profit go hand in hand,” says
Jim Smith, managing director of the South
East Region Risk Control Services for
Arthur J. Gallagher Risk Management
Services in Miami. “A recent study shows
the highest profit companies are also
OSHA VPP [Occupational Safety & Health
Administration Voluntary Protection
Programs] star sites, a leading indicator of
employee safety and compliance. In addition, there are several studies that support
the correlation of high-performing companies and employee safety.”

Smart Business asked Smith more about
how safety and profit go hand in hand, like
technology and training — and insurance.

How does good training and safety have a positive impact on a company’s insurance premiums?

Employee job safety is about a practical
common sense approach to employee safety. It’s about thinking safety, having a job
safety procedure, providing safety training,
retraining and regularly reinforcing expectation.

Cost of insurance, meanwhile, is driven
by claims history. The training component
has been shown to reduce insurance
claims. It’s difficult to quantify, but the bottom line is that if you’re reducing claims,
you’re reducing your mod rate, which has a
critical impact on your insurance premium.

Typically, if you’re managing your risk, it
indicates to insurance carriers that you’re
running a good business, so they can be
more aggressive in their pricing. Conversely,
carriers are hesitant to compete for companies that have a higher risk component.
Auto insurance provides a good analogy. If you’ve never been in an accident or had any
citations, it’s easy to find a company to
insure you at comparatively low rates. But if
you’ve been picked up for three or four
DUIs, it’s very difficult to find an insurer, and
your rates will be much higher.

In addition to that, having effective management controls in place is another indication that you’re a good company, another
reason that carriers would try to be more
aggressive and compete for your business.

What specific technologies can enhance corporate training?

Technology is making safety training easy
and very effective. It is creating exciting new
programs for workplace safety and new
methods to train employees. DVD and CDROM program formats, online training,
Web-based intranet and other e-commerce
tools are just a few of the technology
advancements.

Technology is allowing corporations to
make industry-specific and corporate-specific employee job safety training easier to
develop, very cost effective and easier to
train and deliver into a corporate environment. Computer-based training can be
delivered one on one, in a team or group setting, on-site or at your computer. The
employee who missed the training course
can take it the next day.

What types of computer programs are making training more efficient?

These training programs are being developed to be very task- and industry-specific.
Technology is allowing the creation of
training products that are based on actual
industry conditions and practices of the
specific business. These customized programs can be designed in 10- to 12-minute
programs, using adult education techniques to keep the attention of the audience and promote learning. The training
can be targeted to address the claims drivers of the business.

Technology is also allowing business to
utilize automated tracking systems to monitor which employees completed the training. This tracking can provide important
documentation of compliance with the
training standards of the company.

What issues should business leaders
address when using technology to deliver
employee safety training?

First, the program must be industry- and
task-specific with a visual approach for
employees to follow. Second, after the
training, an ongoing communication network needs to be established to keep the
salient points of the training in front of the
employee. This communication process
can be a one-page, job-specific information
bulletin, e-mail notification, lessons-learned pamphlets, a poster message or a
combination of all these.

Business leaders should ask their insurance broker’s loss-control advocates what
training technology assistance they can
provide to promote employee job safety.
As a business leader, you should consider
using technology to advance employee
safety — and at the same time create a corporate image of profit, productivity, quality
control and job safety.

JIM SMITH is managing director of South East Region Risk
Control Services for Arthur J. Gallagher Risk Management
Services in Miami. Reach him at (305) 639-3129.

Beyond flattery?

Imitation, as the old saying goes, can be
the sincerest form of flattery. But it also
might mean liability for violating another’s intellectual property rights.

Intellectual property (IP) rights are analogous to other types of personal property
rights. Just as our laws protect you from
having your car stolen, they also protect
you from having your name, the embodiment of your ideas and other original creations stolen.

“If a company infringes on another’s intellectual property, the situation has gone
beyond flattery,” notes Michael Chesal, a
member of Kluger, Peretz, Kaplan & Berlin
P.L. and co-chair of the firm’s Intellectual
Property Department. In the trademark
context, for example, Chesal notes that
“companies are constantly adopting new
product names and advertising themes. If
management doesn’t sensitize its employees to the potential dangers of IP infringement, the company could be subjected to
serious liability.”

Smart Business spoke to Chesal about
how businesses can both protect their IP,
on the one hand, and minimize the chances
of being liable for violating another’s IP
rights, on the other.

In what legal areas does intellectual property apply?

Intellectual property rights generally
encompass the areas of trademark, copyright, patent and trade secrets.

The most common of these rights
involves trademarks, which are words or
designs — or combination of the two —
used to identify a product or service of one
company and distinguish them from the
products or services of others. The law
protects trademark owners from having
someone else use a mark that is confusingly similar to their own.

When companies select names to identify
their goods or services, the objective
should be to adopt a name that is highly
distinctive. The more distinctive a mark,
the more easily a company can claim
exclusive rights in it, and the less likely it is
that use of the mark will infringe on another’s rights.

Copyright law protects original works of
authorship, like writings, performances,
art, music and poetry. It is important to
know that copyright law is generally
designed to protect authors. This is particularly significant for companies that hire
independent contractors to develop things
such as computer software or advertising;
unless there is a specific agreement
between the company and independent
contractor that provides otherwise, the
independent contractor would be deemed
the owner of the work product, in which
case the company’s rights may be limited

Patent law generally protects inventions
that are “new” and “nonobvious,” and can
even include certain methods of doing
business. In order to obtain patent protection, one must fully disclose to the government how an invention works. In
exchange for this disclosure, the government may grant to the inventor a monopoly
in the invention. Often, patent infringement occurs when a company fails to
investigate via patent search whether a
product or business method of another is
covered by a patent. And while patent
searching can become extremely costly,
that cost often pales in comparison to the
potential liability one may face for infringement.

Finally, trade secret law protects a company’s valuable information that it maintains in secret, such as formulas, customer
lists, business methods, and processes.
While there is obviously some overlap
between what may be protected as “trade
secret” and what may be protected under
patent law, it is important to note that a
patent protects an invention for only a limited period of time (typically 20 years),
after which the invention falls into the public domain. In contrast, a trade secret may
be protectable for as long as the information remains secret. Thus, a company like
Coca-Cola, whose secret formula for Coke
may have been patentable at one time, has
been able to maintain trade secret protection for its formula simply by keeping the
recipe a secret.

How do you protect your intellectual property?

For protecting trademarks and copyrights, the best thing a company can do is
register them with the federal government
— the U.S. Patent and Trademark Office or
the U.S. Copyright Office.

If a company wishes to secure patent protection, then the only option a company has
is to apply for a patent, which typically must
be done within one year after the invention
is actually used or becomes public.

Protecting trade secrets simply requires
that the company exercise reasonable
efforts to maintain secrecy.

How do you avoid inadvertently infringing on
another company’s intellectual rights?

In order to avoid liability for infringing on
another company’s IP rights, companies
should be vigilant in educating their
employees about the nature of these rights.
If employees are not sensitized about the
legalities of intellectual property use, and
the consequences of their actions, a company’s profits may all be subject to disgorgement.

MICHAEL CHESAL is a member of Kluger, Peretz, Kaplan &
Berlin P.L. and co-chair of the firm’s Intellectual Property Law
Department. Reach him at (305) 379-9000 or
[email protected]. For more information on Kluger, Peretz,
Kaplan & Berlin P.L. visit www.kpkb.com..

Safety first

In Florida, seat belts are mandatory for
front-seat passengers. Like workers’
compensation insurance, the state seat belt law actually protects Floridians.

“We recommend that all businesses carry
workers’ compensation insurance,” says
Brian Stanton of Gateway Insurance, “even
though it’s only required of businesses that
have four or more employees or are
involved in construction.”

The workers’ comp insurance, however,
is not free. Its premiums largely depend on
certain variable factors that a good adviser
can help a business minimize.

“There is help,” says Stanton. “People can
be very appreciative when told that there
are so many options for keeping costs
down. We know of ways to initiate certain
programs that might be state-recommended but are outside of what is mandatory.”

Smart Business talked to Stanton about
the ins and outs of workers’ compensation.

Does every business in Florida need workers’ compensation insurance?

If you are in an industry — other than
construction — and have four or more
employees, full-time or part-time, the state
requires you to carry workers’ compensation coverage. If you are in the construction industry and have one or more
employees including yourself, you are
required by the state to carry workers’
compensation coverage.

Are corporate officers routinely included or
excluded from workers’ compensation insurance? Why or why not?

All owners and officers are automatically
included. Although they can exempt themselves by formally filing to decline workers’
compensation benefits, we still recommend that they be included.

Their thinking is that they won’t sue
themselves, so they don’t need to be protected. But there are good reasons to
include owners and officers. A prime
example is my father, who was hanging a
picture here at the agency and sliced his
finger and went to the emergency room
and the bill was $1,000. Most of your health insurance carriers do not cover work-related injuries. He had a work-related injury
that his health insurance would not pay, so
if it didn’t come out of workers’ comp, it
would have come out of his own pocket.

In addition, workers’ compensation is the
only way to receive lifetime medical benefits. In my book, having workers’ comp
insurance for everyone involved in a business is a no-brainer.

How do insurance companies determine
workers’ compensation premiums? Are they
based — at least in part — on local, state, or
national loss rates/averages?

Workers’ compensation rates are determined by three factors: the size of the payroll, job classifications and the claim experience of the employer.

All insurance companies use the same
rates determined by NCCI (National
Council on Compensation Insurance).
NCCI is a statistical company used by the
state of Florida to promulgate rates by classification codes.

Are alternative workers’ compensation plans
available in Florida? Can you describe what
kinds of companies might be interested in
which alternatives?

As a rule, there are no alternate plans
available in Florida.

Loss-sensitive programs for larger employers can reduce the overall cost if good
loss experience is present. For some employers, self-insurance may be an option,
but typically that requires a company to be
spending a minimum of $1 million per year
on workers’ compensation insurance.

What are some methods a company can use
to reduce its workers’ comp premiums?

Far too many of the claims we see are
avoidable with a combination of education,
training, safety engineering and monitoring. And fewer claims can drastically
reduce your costs.

Two of the most common, simple methods can make a big difference in the long
run. They are a safety program and a drug-free workplace program. You have to fill
out a state application for both.

The safety program is very big right now,
and one reason is because it doesn’t cost
anything to implement and it results in a 2
percent discount on premiums. When the
insurance agent does an audit, he needs to
see your safety manual that says you meet
weekly, what topic you cover, and signed
forms from the participants.

The drug-free workplace program does
have a cost, because the actual tests are
usually in the neighborhood of $20 each.
With the drug-free program, you go to a
specific doctor and test at the time of hire,
at the time of any suspicious activity, or
any time there is an injury. This program
results in a 5 percent discount on premiums. It also can help a company cut down
on its claims while helping the insurance
company cut down the chance of claims.

The combination of being enrolled in
these two plans gives a company a 7 percent reduction in its premium. More important, once these two plans are in place, it
can cut down on losses and keep the
client’s modification factor under control,
thus further minimizing their workers’
comp premium.

BRIAN STANTON is a vice president and sales manager at
Gateway Insurance Agency. Reach him at (954) 332-1888 or
[email protected].

Countering counterfeiters

No manufacturer is immune to having
its products counterfeited.

“Everything from medication to
mundane products like extension cords
is being counterfeited,” says Leora
Herrmann, a partner at Kluger, Peretz,
Kaplan & Berlin P.L., whose blog
(www.counterfeitlawblog.com) closely
follows developments in counterfeiting
law. “Nothing is exempt.”

The loss to U.S. businesses from counterfeiting is about $250 billion per year,
according to the Department of Commerce. The International Chamber of
Commerce estimates that the worldwide
counterfeit market is worth $350 billion.

“In recent years, law enforcement has
found more ties between counterfeiters
and organized crime and terrorist organizations,” Herrmann says. “It appears that
organized crime has realized that counterfeiting is less risky and more profitable
than drug trafficking.”

Smart Business asked Herrmann how a
company can proactively discourage counterfeiting and what to do if its products are
being counterfeited.

What can companies do to discourage counterfeiting?

The harder it is to copy a product’s label,
packaging or distinctive features, the harder it is to make a convincing fake. Holograms can be used to identify genuine
products, but these may be faked as well.
The software and entertainment industries
use encryption and other copy protection
means to prevent piracy with varying
degrees of success.

Counterfeits sometimes come from the
same factory that makes the genuine product, especially abroad. It is, therefore,
important to deal only with reputable manufacturers.

Certain types of hidden security measures help brand owners differentiate high-quality fakes from their own products. For
instance, some clothing manufacturers
sew a distinguishing but inconspicuous
thread into their label. They can then prove
in court that a product missing this thread
is a fake.

What can companies do to be in the best possible position if their products are counterfeited?

Registering copyrights and trademarks is
critical.

If your trademark isn’t registered, you
will not qualify for special remedies available in counterfeiting cases. These include
statutory damages, which are not strictly
based on proof of actual losses, and can be
as high as $1 million per trademark.

You can’t even file a copyright claim until
your copyright has been registered. And, in
copyright cases, you generally can only get
statutory damages if you registered before
the infringement started. Registration also
makes it possible to recover your attorney’s fees.

Additionally, companies should record
their trademarks and copyrights with U.S.
Customs.

How would a company know how best to pursue counterfeiters?

There are many tools, including lawsuits,
seeking criminal prosecution and Customs
seizures. Realistically, a company can’t go
after every person who traffics in counterfeits. Ideally, you want to pursue the manufacturers, importers, large-scale distributors
and label-makers who put counterfeits into
the stream of commerce. Flea-market owners and landlords are increasingly being targeted for allowing counterfeiting activity on
their property. If you nab these types of targets, you can make a real dent in the counterfeiting of your product. You can also
deter counterfeiting by publicizing actions
taken against smaller retailers and individuals, such as the RIAA lawsuits against people who download pirated music.

Some companies have adopted PR campaigns aimed at discouraging consumers
from buying fakes, like Sean John’s ‘Don’t
Buy a Lie’ campaign. Other companies are
concerned that publicizing a serious counterfeiting problem could diminish the status of their products. They still want to
combat counterfeiting, but do it in a way
that doesn’t generate a lot of publicity.

How can lawyers help companies deal with a
counterfeiting problem?

You need to get in touch with an experienced counterfeiting lawyer who will
work with you to define a strategy that
will yield the greatest result at the lowest
cost — and it’s not going to be the same
for every business.

An experienced lawyer will have a bank
of cease-and-desist letters, complaints and
other resources. He or she will make sure
you have properly registered your copyrights and trademarks.

These cases frequently involve undercover investigations so the lawyer needs to
have relationships with experienced investigators who know how to do this type of
work. If criminal prosecution is desired,
the lawyer needs to know how to interest
law enforcement in the case.

There really are a lot of tools available to
help fight counterfeiting. With the right team
in place, companies should be able to pursue an effective anti-counterfeiting program
to protect their products and their brands.

LEORA HERRMANN is a partner at Kluger, Peretz, Kaplan &
Berlin P.L. who specializes in intellectual property litigation,
transactions and protection. Reach her at [email protected]
or (305) 379-9000.