California Business and Professions code section 7159 comprises eight pages of small type covering home improvement contracts, which makes it difficult for contractors to always follow the letter of the law.

“There are so many very technical requirements in 7159, including type size and placement of various provisions within the contract document, that even a conscientious contractor might miss them,” says Kevin P. Cody, a partner at Ropers Majeski Kohn & Bentley PC.

Smart Business spoke with Cody about construction contracts and how companies can avoid problems that void agreements.

When do contract problems arise?

Obviously, if construction goes well, the contract typically isn’t brought up. But when there is a problem, the homeowner or his or her attorney will search the contract for defenses. For example, the entire contract can be voidable or unenforceable if the contractor hasn’t complied with all of the requirements of section 7159, which are numerous and pretty detailed.

California law gives particular protection for home renovation projects because it’s frequently a one-on-one relationship between an inexperienced homeowner and a contractor. Prior to enactment of 7159, a homeowner might find himself or herself in a position where substantial upfront payments had been made, the contractor would only be partway through with work, and all of a sudden the homeowner couldn’t find the contractor. In a commercial setting, where you’re dealing with people who are quite sophisticated and savvy, they do not require the same degree of protection.

However, strict compliance with 7159 will not always work as a defense for the homeowner. A landscape designer/contractor client didn’t strictly comply with all code provisions, and a homeowner, because he was dissatisfied with a few things, hired an attorney and decided not to pay. The homeowner filed a lawsuit, claiming the contractor’s failure to strictly comply with 7159 justified nonpayment. In spite of the landscape designer/contractor’s failure to strictly comply, the court sided with the designer/contractor and awarded it all of the money the homeowner had withheld.

How detailed are the code provisions?

A window company wanted contracts prepared for installations it was going to be doing. On the first page of the contract, you have to mention the date the buyer signed, there has to be a notice of cancellation and a heading that says ‘home improvement’ in at least 10-point, bold face type — that comes straight from the statute. There are a lot of other very detailed requirements.

What should you do to draft contracts that are compliant?

Most contractors already have contracts that comply in certain areas, but in many instances they haven’t updated them. An attorney can go through and make recommendations. In addition to compliance with the technical requirements of 7159, there are other statutes with provisions that the contractor may not appreciate fully, e.g., those dealing with attorney’s fees, or with provisions that have changed in the last few years, e.g., indemnity.

For example, Civil Code section 1717 states that if a contract provision allows one party to recover attorney’s fees, it will be reciprocal to the other party. Without knowing about 1717, the contractor may want an attorney’s fees clause in the contract that only allows the contractor to recover fees if it has to sue to collect payment. But what happens if there is litigation and the other party can recover attorney fees, even if it isn’t mentioned? It becomes an issue of whether the contractor really wants the clause because it might engender litigation.

Similarly, while the law with respect to what general contractors can be indemnified for recently changed to limit indemnity rights, there still are ways to improve the situation. Though a general contractor cannot be indemnified for its active negligence, it typically has leverage over subcontractors to request that the general contractor is named as an additional insured on the subcontractor’s insurance.

It’s a good idea to update your contracts every two or three years with an attorney who specializes in construction contracts. The cost will be relatively modest in the long run, especially considering the benefits of that review.

Kevin P. Cody is a partner at Ropers Majeski Kohn & Bentley PC. Reach him at (408) 918-4557 or kcody@rmkb.com. To learn more about Kevin Cody.

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Published in Northern California

If your company makes a product, it’s increasingly likely that someone will copy it or produce counterfeit versions.

“I can’t think of any industry that isn’t being affected,” says Timothy L. Skelton, a partner with Ropers Majeski Kohn & Bentley PC. “I bought a $40 bicycle chain that was a counterfeit. It came in a similar-looking package to the chain I normally buy, but when you looked at it closely it was slightly different.”

One client had a medical device copied by another business.

“It was absolutely identical in every way to my client’s product except one letter in the trademark was changed. So it wasn’t actually a counterfeit because it didn’t use my client’s trademark, but it did infringe on the trade dress and product design,” Skelton says.

Smart Business spoke with Skelton about trade dress and how companies can protect themselves from unfair competition.

What is trade dress and how does it differ from trademarks?

Trade dress is the design and appearance of a product together with the elements that comprise its overall image in identifying the product to consumers. Broadly speaking, it’s the product’s look and feel and can include size, shape, color, or combination of colors, texture and graphics. Trade dress can either be the product itself or its packaging.

A trademark is any word, symbol or device indicating the source of a product. For example, the word ‘Coca-Cola’ and the Coca-Cola swoosh are trademarks, but the bottle is trade dress. The shape of the glass bottle is unique and readily identifiable by consumers as being the source of the product.

Do companies have to take specific action to protect trade dress?

No. Trademark and trade dress are protected when used, not when registered. However, both can be registered, which confers certain benefits. If the trade dress is registered, the burden of proof is in the owner’s favor, and the company may be entitled to remedies that wouldn’t otherwise be available.

Where do businesses run into trouble with product infringement?

There is very thin trade dress protection for websites. Web pages look similar — there are only so many ways to arrange them.

But the biggest problem in the last 10 years is not really a legal change; it’s the business landscape changing because of offshore manufacturing. Counterfeiting touches almost every business. One of the most common occurrences is that a company manufacturing your products will just make more without your name. Those items are sold out the back door of the factory.

It used to be that only expensive items like Rolex watches were counterfeited. Nowadays, it’s almost anything. A current client has a case involving curling irons — a sub-$100 product. Most products are now made overseas and, although laws are changing, historically many foreign countries have not respected intellectual property rights. As a result, many overseas companies don’t even realize when they’ve done something wrong.

How can companies fight counterfeiting and trade dress infringement?

Add clauses in supply agreements that prohibit manufacturers from making your product for anyone else. That may or may not provide protection, but it puts the manufacturer on notice that you’re watching.

If copies of your product are entering the U.S., use whatever business intelligence possible to determine their origin. It’s virtually impossible to shut down manufacturing operations overseas, so try to cut it off at the import stage. Write a cease-and-desist letter to the first link you can find. Make sure that the letter invites a dialogue — it’s always preferable to resolve matters without litigation.

Trade shows are a good place to find the source of problems. An attorney friend goes to a show for automotive aftermarket manufacturers every year and is paid to walk around and look for infringing products.

Counterfeits can slip into the supply chain anywhere. Even the most respectable vendors are having problems. Be reasonable — don’t assume people are acting in bad faith — and in a surprising number of cases you can get the problem resolved.

Timothy L. Skelton is a partner at Ropers Majeski Kohn & Bentley PC. Reach him at (213) 312-2055 or tskelton@rmkb.com. Learn more about Timothy L. Skelton.

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Published in Los Angeles

Trademark, copyright and intellectual property (IP) laws can vary greatly in foreign markets, so it’s vital to seek local legal expertise before doing business internationally, says Michael J. Ioannou, a partner at Ropers Majeski Kohn & Bentley.

“Local law firms know the system, including the politicians and judges,” Ioannou says. “It’s no different than doing business here. If a Florida company has a problem in San Jose, they could send someone, but they would most likely hire an attorney here. It makes sense to have someone like me who has practiced law here for 32 years and worked in the local courts.”

Smart Business spoke with Ioannou about how companies can avoid legal problems when expanding into foreign markets.

What are some important issues to consider before entering a foreign market?

From a general standpoint, you need to understand the business environment. You can accomplish that in India, for example, through the National U.S. India Chamber of Commerce, Confederation of Indian Industry or the National Association of Software and Services Companies, which caters to high-tech companies.

You also should be checking local laws with the help of a local lawyer in the country or near where you want to do business. So, if you’re going to mainland China, there are good attorneys in Hong Kong that can advise you or connect you to counsel in mainland China that they know well.

What mistakes do companies make when doing business overseas?

They might rush into a market without checking other companies’ rights and get sued for infringing IP rights in the foreign country. Apple thought it had acquired rights to the iPad trademark in China from a Taiwanese company, but courts said a subsidiary of that company still owned the rights in China. Apple paid $60 million in a court-mediated settlement. So one route is to buy the trademark, but you still have to ensure that what you’re buying is legitimate.

It’s the same situation with foreign companies coming into the U.S. A client with a chain of Indian restaurants wanted to expand here and found a restaurant on the East Coast that used the name in interstate commerce first — that’s the test for trademarks, first use — but the restaurant didn’t have the trademark registered. Instead of spending money to argue in federal court that the restaurant didn’t have first-time use, the client bought the restaurant and trademark. It was cheaper than paying legal fees in a later dispute over the name.

How can businesses protect themselves from legal problems?

When entering a country, you want to secure trademark rights for your product there. If you can, obtain patent protection, register and apply for a patent in China or India, for example. A patent in the U.S. is not enforceable in India or China. You can stop someone from shipping goods into the U.S. that infringe on a patent here, but you can’t stop a sale occurring in India or China based on a U.S. patent.

Pharmaceutical companies are having problems getting inventions patented in India because there’s a huge market there for generic drugs. India doesn’t even recognize software patents. One client in India was threatened by a U.S. company for IT support services offered here. It was a U.S. patent, so as long as the function that was within the patent claim was being done in India only, the U.S. company couldn’t claim infringement.

What can companies do to fight patent infringement?

In India, for example, you could file a lawsuit in civil court, but that could take 15 years to reach a resolution. However, the entity that’s infringing laws in India may be doing business in the U.S., which would provide another angle to file a lawsuit here for unfair competition. You also may be able to intercept their goods from coming into this country, depending on the nature of the IP rights being infringed.

But if you have a counterfeiter in Shanghai that’s only selling goods there, you have to use the local courts. Things are getting better in terms of that kind of infringement — that’s why you’re seeing a lot more activity to enforce rights in China, for example. Just be cognizant that you can’t expect a perfect day in court as a foreign company coming into these jurisdictions.

Michael J. Ioannou is a partner at Ropers Majeski Kohn & Bentley. Reach him at (408) 287-6262 or mioannou@rmkb.com.

Learn more about Michael J. Ioannou.

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Published in National

When screwdrivers were created, they had an obvious use — to turn screws. But over time people started using them as chisels and pry bars, which led to injuries and the addition of warning labels that laid out the proper use of screwdrivers.

What to include on warning labels is tricky. You not only have to warn about the inherent risks of the product from its intended use, but you have to consider the ways it could potentially be misused, says James C. Hyde, a partner at Ropers Majeski Kohn & Bentley PC.

“Most small to midsize businesses think about the need to have instructions and warnings on product labels, but there are topics they need to address that they’re not thinking about or are even aware of,” says Hyde.

Smart Business spoke with Hyde about what should and shouldn’t belong in product warning labels and ways companies can protect themselves from legal judgments.

How do you determine what to address on warning labels?

There’s an obligation to warn about inherent risks associated with the intended use of products and provide instructions on proper use. But companies often don’t understand they have a duty to warn against reasonably foreseeable misuse of the product. Basically, you have to brainstorm scenarios in which people might be injured misusing the product and warn against them.

There is also a duty to warn of potential allergens in your product. That also applies to products that are not ingested. A small business selling hand soap might have an ingredient that could cause an allergic reaction, so there’s an obligation to warn that the product contains the ingredient.

Making this more challenging is the prevalence of companies that sell products they do not manufacture under their own labels. The company might not be aware of all the chemicals used in the manufacturing process. For example, a company was selling exercise mats containing a chemical that required a California Proposition 65 consumer warning label. The company was not the manufacturer and were not aware the chemical was in the finished product, but it was sued for not warning of its presence. The state Office of Environmental Health Hazard Assessment has a website that lists chemicals that require a warning label because they’re considered carcinogens, or could cause birth defects or reproductive harm.

Do you have to warn against obvious dangers, such as coffee being hot?

There is no duty to warn consumers of an obvious danger — those making custom knives do not have to warn that the knives are sharp and may cut the user. The law requires warnings to be effective. But if the warnings become voluminous, consumers won’t read them and they lose their effectiveness.

The famous McDonald’s coffee case seemed pretty obvious on the surface — coffee is hot. But the plaintiff’s argument was that it was served at a temperature that was much hotter than one could drink it at or that one would expect it to be served. This illustrates how broad and very product-specific the issue is and why businesses need to have a well thought out procedure in place for developing use instructions and warnings.

How does a company protect itself?

Before the product goes to market, the company has to evaluate it specifically to determine what use instructions and warnings need to accompany it. The process should include the people involved in developing the idea for the product, as well as the designers and marketers, and engage resources such as industry associations. It’s a good idea to not only document the design and development process of the product but also to document the development of warnings and instructions, too. If sued, it helps to show the jury the process undertaken when developing the warnings. It demonstrates that there was a procedure in place and a comprehensive effort to provide clear and complete warnings including dangers of potential misuses of the product.

Ultimately a jury will decide whether it was reasonably foreseeable that someone was going to use that screwdriver as a chisel.

James C. Hyde is a partner at Ropers Majeski Kohn & Bentley PC. Reach him at (408) 918-4538 or jhyde@rmkb.com.

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Published in National

No one likes to be involved in a lawsuit — especially since they can be so expensive. However, if it should happen to your business, it’s important to not only hire the right lawyer but also to make sure you’re getting your money’s worth from that lawyer.

You need to be aware of how much the litigation will end up costing you in order to make an informed decision about whether or not you want to go through with it, or to settle.

“You might want a very long, involved budget that says how much it’s going to be for certain things. Try to get that in writing,” says Gerald Knapton, partner at Ropers Majeski Kohn & Bentley PC.

“When the bills come in, you and your accounts payable staff should follow and make sure that it seems to be staying within the budget. If the actual invoices exceed the budget by more than 10 percent, have a discussion with the lawyer to find out what’s going on.”

Smart Business spoke with Knapton about what to look for when hiring a lawyer — questions you should ask and how to make sure your dollars are being used properly.

What’s the first question a business owner should consider when looking for a lawyer?

“How much is this going to cost me?” Employers need to have that clearly in mind, but it’s hard to tell sometimes. It’s important to understand the costs on the average case and then try to position yourself at the bottom end of that range, if at all possible.

The best way to do that is ask your lawyer if they have data. Lawyers are resistant to answering how much a case will cost, but push them. Write down the estimate and confirm it in an email, and don’t stop there. Once you’re 60 to 90 days into the case, come back and ask for a revised estimate. That is the key, because while a good, honest lawyer will give you their best shot at the beginning, they are just estimating based on their experience.

What price points should you negotiate with the law firm?

You should negotiate the hourly rate, costs and what’s going to be included in the costs at the beginning. You also should spell out in your retainer agreement the form of the bills. If you don’t do this, some law firms won’t bill in tenths of an hour, which is the standard.

Make sure the firm does not block bill — that is, if there’s a day when they worked 10 hours on nine different matters, have them break it down and explain how much time for each of those discrete items; they’re kept honest by having to put down actual time for actual work done.

What do you do in the case of a fee dispute?

As soon as the bills appear to be exceeding either what you’ve paid in the past, or what your budget said it was going to be the cost, you complain. You work your way up the chain talking to the relationship partner at the firm, then the managing partner of the office, and if necessary, you go up to the firm’s managing partner. Usually, if you’re not asking for free services, that works well and you wind up getting a good hearing.

You can always complain to the L.A. County Bar Association; they have a wonderful program — the Mandatory Fee Arbitration Program — where a client can come and ask professionals look at their bills.

The L.A. County Bar Association Dispute Resolution Services (DRS) allows you to do both mediation and arbitration. If it comes to the point where you and your firm really can’t agree, then you might mention the idea of Mandatory Fee Arbitration to your firm. The lawyers will treat you differently because they don’t want to go through this program. If a client requests it, a lawyer has to go along with it.

What are some other cost-saving tips?

If you can shift away from an hourly rate and go to a flat fee, or a monthly cap, that can save you approximately 5 to 10 percent. Remember that 97 percent of cases are settled. You always want a provision in your agreement that says if the case is settled, the fee will be adjusted.

It’s also worthwhile to look at the amount of documents that are going to be at issue, which is the biggest single factor driving cost in today’s litigation. Electronic programs are now being used to sort documents, and that’s been developed to enable you to perform predictive coding. You can run some samples and find out with 99.9 percent probability all of the documents that might be implicated by your request, especially with the in-house help of a sophisticated IT department. This will cut your costs down dramatically.

In addition, there should be continued discussion about how the documents will be handled. Who’s going to do it? How can we do it more cheaply? Can we do predictive coding? Can we do it some way that will reduce the cost of that?

What else can you do if you’re going to trial?

The first thing you ought to do, if you’re a defendant, is tender this claim to your insurance company. If you don’t tender, the insurance companies will probably deny the claim based on failure to tender. You may even want to try to buy insurance; you can sometimes get insurance with the disclosure that it is existing litigation.

Gerald Knapton is a partner at Ropers Majeski Kohn & Bentley. Reach him at (213) 312-2016 or gknapton@rmkb.com.

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Published in Los Angeles

While there are benefits to classifying a worker as an independent contractor, such as not having to pay overtime or worker’s compensation, you can face severe penalties for misclassification including back pay and litigation.

“You want to make sure you are correct on the facts of the law when you establish an independent contractor relationship,” says David McLaughlin, a partner with Ropers Majeski Kohn & Bentley.

There are several legal factors that determine how a worker should be classified.

“Employers and principals should be careful to examine the facts of each relationship and then apply the law to those facts,” McLaughlin says. “In other words, it might be time for a gut check on these factors.”

Smart Business spoke with McLaughlin about the consequences of misclassifying workers and how to play it safe to avoid the potential financial Armageddon of misclassification.

Why is it important for employers to correctly classify workers?

Both California and federal agencies are cracking down on independent contractor misclassifications. There’s a new California law imposing a penalty of up to $25,000 for each violation where a worker is willfully misclassified. The Department of Labor and the IRS are going to start sharing information as part of a misclassification initiative to try to catch more violations. If you have a worker who is not characterized as an employee then the employer or principal does not have to pay payroll taxes, overtime, meal and rest periods, unemployment insurance, disability or social security. So there is a benefit to an employer having an independent contractor, but if you fall into a misclassification situation then you may face a wage claim and penalties.

How does an employer know if a worker is an employee or independent contractor?

The definition of an independent contractor in the Labor Code is any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished. There are slightly different tests depending on which agency is pursuing the misclassification. When the case is in Superior Court of California, the main consideration is control plus 11 other factors. The key is the right to control the worker both in regard to the work done and the manner and means by which it is performed.

Other factors are: Whether the person performing the services is engaged in an occupation of business distinct from that of the principal; whether or not the work is part of the regular business of the principal or alleged employer; whether the principal or worker supplies the instrumentalities, tools and the place for the person doing the work; the alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers; whether the service rendered requires a special skill; the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; the alleged employee’s opportunity for profit or loss depending on his or her managerial skill; the length of time for which the services are to be performed; the degree of permanence of the working relationship; and the method of payment, whether by the time or by the job. Whether the parties believe that they’re creating an employer-employee relationship may have some bearing on the question, but it is not determinative.

The analysis is not black or white. Each of these factors should be considered but they need not be unanimously established. The existence and degree of each factor is a question of fact. The legal conclusion to be drawn from those facts, however, is a question of law, which a judge can decide.

What is the impact of an employer getting a worker to sign an independent contractor agreement?

The contract or contractor’s agreement is not determinative of whether that person is in fact an independent contractor. It’s one of the factors considered and it’s probably one of the easiest things you can do to satisfy part of the test. A contractor’s agreement will have little value if the employer or principal controls the manner and means to get the work done.

What are the risks of misclassifying employees as contractors?

The misclassification of a worker can expose employers to a wage and hour claim and attorney fees to defend that claim. Employers have exposure to waiting time penalties related to wage claims. Business owners also have exposure to other workers who are similarly situated, leading to a potential class action lawsuit.

In addition, there is exposure to stiffer monetary penalties for willful misclassification. These penalties may include a requirement that the employer publicize on its website a court or agency finding that the employer committed a serious violation of the law and which invites other misclassified employees to contact the appropriate labor agency.

California and federal interest in identifying independent contractor misclassification creates danger for principals using independent contractors. Now, more than ever, it is critical for employers and principals to carefully evaluate independent contractors to confirm they are properly classified. Reclassifying workers to employees has many dangers. California businesses that are considering this should seek legal counsel to help with understanding and navigating the potential risks and ramifications.

David McLaughlin is a partner with Ropers Majeski Kohn & Bentley. Reach him at (650) 780-1717 or dmclaughlin@rmkb.com.

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Published in Northern California

Business owners might avoid bringing an attorney to the table when negotiating a lease, but the advantages of having an advocate in their corner far outweigh the cost.

“In my experience, when you see a lease where an attorney was not involved on behalf of the tenant, you get a lopsided, landlord-favoring lease,” says Jesshill Love, a partner with Ropers Majeski Kohn & Bentley PC. “The attorney’s job is to think ahead to what happens if something goes wrong to make sure the tenant will be treated fairly.”

Smart Business spoke to Love about the pitfalls a tenant can avoid by partnering with an attorney before signing a commercial lease.

Why should an attorney be present in the negotiations?

Any smart businessman or woman is going to employ both an attorney and tenant broker, because they have different roles. A broker is going to be more focused on lease rates, market factors, square footage allocations and tenant improvement allowances. An attorney is going to focus on protections for the tenant from the point of view of the ‘legalese’ of the lease. This can include indemnification, attorney fees, arbitration and mediation issues. Sometimes an attorney has to interpret multiple provisions together in order to get to the conclusion that the lease actually pushes more of the obligations and expenses onto the tenant than it should. The role of the tenant’s attorney is to make sure that the tenant is well represented and receives the benefit of the bargain in the negotiation process.

What is the role of the letter of intent?

This is often where tenants misstep: they start talking to the landlord about deal points or even move to a draft lease before considering the letter of intent (LOI). The LOI is what will set the tone for future negotiations, and if you don’t drive a hard bargain at the LOI stage, then you’re leaving money on the table when the lease is signed. Once the LOI is established, it’s going to serve as a framework for the actual drafting of the lease itself.

There’s a tremendous amount of standard language thrown into a lease, such as forum selection clauses, attorney fee provisions and indemnification and insurance provisions. All of this is fairly standardized in the industry, but the framework of the main deal points from the LOI is what’s going to set the tone for the lease when it comes to flexible items like tenant improvements, common area maintenance (CAM) expenses and operating expenses, and how they’re defined.

What are some provisions a tenant should push for in a lease?

These can change every couple of years as the market changes. Also, as new case law is handed down, attorneys on both sides of the negotiation will angle to push off certain costs or obligations on the opposing party. The big ticket items now are tenant improvements, free rent, environmental concerns, termination provisions and risk of loss provisions.

It’s still a tenant’s market, so negotiating for free rent up front is something you want to try to do, if possible. Also, try to negotiate a cap for any structural improvements with an absolution period and landlord indemnification of the tenant for any pre-existing structural or environmental problems. Mediation and arbitration as well as attorneys’ fees provisions are additional issues to look out for.

Landlords on triple-net leases will try to define everything as a tenant responsibility: roof, plumbing, sewer line, heating, ventilation and air conditioning (HVAC) and electrical problems. A tenant attorney should push back in an effort to make a major structural problem involving the building envelope the responsibility of the landlord.

Another thing you’ll definitely want to have is a clear definition of default, particularly if you have a letter of credit. You don’t want the landlord to be able to draw down on the letter of credit for something that’s an immaterial default under the lease. Also, when lease rates start to increase, landlords are going to be looking for any type of breach they can in order to cancel the tenant’s lease so they can lease to somebody else at a higher rate. Landlords will attempt to define default broadly to effectuate this purpose. We have seen multiple over-reaching default definitions, such as violation of local zoning and use laws and operating hour violations. The attorney’s job is to make sure that a breach of a lease for which the landlord can actually terminate is material; this should be limited to non-payment.

What should tenants avoid in a lease?

First, tenants should avoid personal guarantees when possible, as well as excessive security deposits. Relocation provisions should also be avoided or, at a minimum, limited. Relocation provisions are common in leases with multiple commercial tenant or office spaces. They allow the landlord to move a tenant if the landlord wants to incorporate the tenant’s space with adjoining spaces for a prospective tenant. The tenant has no choice but to move upon notification from the landlord. Relocation could result in a tenant being buried in the back of the office building, or the franchise in the shopping mall could end up tucked away in a space with little foot traffic. This is obviously not what the tenant initially negotiated for when the lease was signed. The tenant must negotiate relocation preferences and safeguards prior to signing that lease.

Further, some lease agreements require a tenant to continue to pay rent even if the space is rendered unusable. For example, if there’s a fire in the building, and the tenant cannot continue to operate the business, the tenant is still required to pay rent. Although the tenant’s lost business can be covered by business interruption insurance, it is not in the tenant’s best interests to have an open-ended time period for the landlord’s repair of the premises. Most large commercial leases are drafted that way — even if it’s not the tenant’s fault, the tenant is not allowed to terminate the lease pending the landlord’s repair of the premises. Litigation surrounding these matters between landlords and tenants can be company killers. There have to be provisions in the lease that say, if this can’t be fixed within a reasonable time period, the tenant gets to walk.

Jesshill E. Love is a partner with Ropers Majeski Kohn & Bentley PC. Contact him at (650) 780-1611 or jlove@rmkb.com.

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Published in Los Angeles

Wrongful termination claims are far and away the number one lawsuit against employers. Even if you feel that you are justified in firing an employee, you may find yourself on trial.

“In California, it often seems like it’s open season on employers,” says Andy Wolfe, partner at Ropers Majeski Kohn & Bentley PC. “It’s not only the most frequent source of litigation, but it’s also the kind of litigation that causes the greatest potential exposure to liability.”

So how can you protect yourself when you are warranted in terminating an employee?

Wolfe explained to Smart Business how to ensure a smooth separation when a worker is released from employment.

What types of claims can be made against an employer for wrongful termination?

Basically, there are two kinds of claims. The first and the most common is a claim that firing a worker violates an established public policy. Good examples are discrimination claims and claims of retaliation – where an employee is claiming he or she was fired for exercising an employment right. In addition to violation of public policy claims, employees can also assert that they were fired in violation of a contract or agreement that they had with their employer.

How can employers best protect themselves from these types of lawsuits?

There are a number of things that can be done to reduce the risk of a costly lawsuit. The first is to be very clear about the rationale for the termination. Was this termination a layoff? Was this person terminated for unsatisfactory performance or misconduct? Once you have clearly thought through the rationale for the termination, the next question is whether or not the employee’s personnel record supports that rationale. Are there clear performance standards? Have there been performance evaluations that are timely and consistent with the rationale?  Have similar employees been treated in a similar way?  Another thing to consider is the length of service: the longer the employee has been working for your company, the more you will have a duty of loyalty to the employee in the eyes of a jury. And the longer an employee has been around, the stronger the rationale must be for terminating that employee.

After that, you should do a very careful risk assessment. In litigation, the truth is not enough. In a court room, the real question is, ‘What can the decision to fire this employee be made to look like in the eyes of a jury?’ Look for warning signs from the employee. Has the employee recently requested to take leave, or made reference to health issues? Has he or she made work-related complaints? Is this a team player or a person who is always looking out for number one? As a general rule of thumb, you should be aware that the higher the level of compensation the employee has, the greater the risk that the employee will bring suit if fired.

It is always a good idea to get a second opinion on the decision to fire an employee, particularly if the decision-maker is the employee’s immediate supervisor. If you decide to fire the employee, it’s smart to have a well-planned termination meeting attended by two or more employer representatives, who present a clear and succinct statement of the reason for the termination, and follow a checklist that includes final pay, written notice of the change of employee’s status, information about unemployment insurance benefits, and a plan for the return of company property.

What should an employer do if the risk of a lawsuit is too high?

In the great majority of cases, the best course of action is to enter into a separation agreement with the employee rather than just firing that employee. It might take a little more time and cost a little more to reach such an agreement, but what the employer gets in return is finality.  The reason is that in exchange for whatever you offer to the employee, you get back a comprehensive release of claims. Then you can sleep at night knowing that once the agreement is reached, this separation is not going to come back and haunt you later.

What are some forms of compensation an employer can offer in a separation agreement?

One of the good things about doing a separation agreement is that a number of things you can offer are not monetary, such as a letter of reference or putting the employee on unpaid leave status.  Sometimes, at little or no cost to you, there can be negotiations allowing the employee to keep company property, such as laptops, cell phones, or even automobiles. Sometimes offering the employee post-employment work as an independent contractor is in your best interest. An agreement not to contest unemployment insurance may also be helpful. And, of course, there are also opportunities to negotiate regarding continued benefits and severance.

Separation agreements are usually a genuine win-win. You avoid the risk of being socked with a wrongful termination lawsuit, and the employee gets to leave with dignity and the opportunity to focus on the future in a constructive way. Not only is it good business economically for an employer to do this, but it’s also an opportunity to the employer to deal with a difficult situation in a way that is much more comfortable and dignified.  Most employers hate to fire people. But negotiating a separation agreement, they find, gives them an opportunity to implement a termination in a cooperative and considerate manner, one that works better for everyone.

Andy Wolfe is a partner with Ropers Majeski Kohn & Bentley PC. Contact him at (415) 972-6352 or awolfe@rmkb.com.

Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC

Published in Los Angeles

When a company decides to expand or enhance its core activities, sometimes a strategic decision is made to acquire another organization that offers the team, the technology or the assets needed to achieve its goals. From a buying company’s perspective, there are three main focal points of an acquisition process in order for the purchase to be successful: strategy, integration and acceleration.

“The strategy needs to be determined early and shared widely and quickly,” explains Francois Laugier, partner and director at Ropers Majeski Kohn & Bentley PC. “Integration is almost equally as important as strategy; because  integration is really about capturing the long-term benefits of an acquisition.”

Speed in execution is also of the utmost importance. “You get the chance to effect change in an organization that you’ve acquired during the first 100 days of the acquisition. There is a tempo to an acquisition, and it is incumbent on the buyer to make sure that it keeps beating the drum and moving people along quickly.”

Smart Business spoke with Laugier to determine a road map for successfully acquiring a business to enhance core activities and products.

What can a company do to prepare for the acquisition process?

The buying company needs to know precisely why it desires to purchase another organization, and that strategy needs to be communicated throughout the core management team that will be involved in the process. Early on, lawyers, investment bankers and consultants need to be involved, because most of the aspects of the acquisition are negotiated in the initial stages.

Nearly 60 percent of the failed acquisitions are failed integrations, not failed negotiations. A team specifically dedicated to integration should be assembled the minute discussions start with a prospective party. This team must ensure that the new assets and employees of the target corporation are quickly and efficiently integrated into operations.

What steps are involved in an acquisition?

At the outset, a buyer must decide whether it will be purchasing assets or stock. If the company being acquired has significant liabilities or unknown liabilities, buying the assets of the company provides flexibility. However, when buying assets, there are a number of transfers that need to take place for the target company to be functional inside of the acquiring company, such as intellectual property rights or foreign employee visas. The alternative choice is to purchase the stock of the company. A big advantage of a stock purchase is the predictability of the process, because domestically or abroad, the acquisition of the stock of a company is often similar. The drawback is that a business may be unintentionally taking on liabilities.

Next, a letter of intent is drafted, where an outline of the terms of an acquisition is determined. Although legally not binding, once there is a handshake on a letter of intent, it is very difficult to later change its terms. For this reason, it is imperative to involve advisers early to draft terms. The due diligence period comes after the letter of intent. The target company completes a legal due diligence checklist and provides the buyer the documents and information requested, thereby reducing the odds that major issues will go unnoticed. The disclosures cover four major areas:: corporate structure,  intellectual property, human resources and tax.

Negotiations of the definitive agreements take place next. The secret to success for negotiations is to move quickly and to keep exchanging redlines of the documents without a lag. The acquisition team needs to work closely together so that all of the fact-finding that took place in the due diligence process gets integrated into the agreements, minimizing risks and maximizing the long-term benefits of the acquisition.

Once a deal is closed, how can a company successfully integrate the target company’s assets?

Integration is really about assimilating the intellectual property and the assets, but, most importantly, the employees of the target corporation. Integration is the true key to success. The first place to start is to roll out the red carpet for the employees of the target, give them an employment agreement, give them equity in the new corporation if you can and honor the benefits that they had in the target company, basically providing them with incentive to do well. An individual should be designated in the buyer’s team to lead the integration and successfully capture the benefits of the acquisition. As soon as the deal closes, the buyer should explain all the synergy and benefits to everyone, including customers, suppliers, the new employees (most essentially) and existing employees. It’s important to understand the culture of the company being acquired and combine it successfully with the culture of the buying company.

The most complex factor is often integrating the information technology systems. Obviously, the legal compliance and the accounting processes need to be integrated as well. The lines of products and services must be considered so that there is no overlap or redundancy. The message that is communicated to the world — all of the marketing, sales, human resources, etc. — need to be integrated after the closing of the deal.

Achieving long-term success is a result of learning about and blending the two companies as successfully as possible. Next is managing an organization that has grown in head count, in lines of products, assets and people, and that may come as a big change. After that, it is time to embrace new resources and reach a new level of success.

Francois Laugier is a partner and director with Ropers Majeski Kohn & Bentley PC. Reach him at francois@rmkb.com or (650) 780-1691.

Published in Los Angeles

Employers and employees alike commonly assume that if an employee is paid an agreed-upon annual salary rather than an hourly wage, that employee is exempt from the strict wage hour laws here in California. For example, employers believe salaried employees are not entitled to overtime pay and meal and break periods. However, that’s not necessarily the case.

“Specific to the white-collar universe, there are exemptions — there’s an executive exemption, an administrative exemption, a computer analyst exemption, a professional exemption — and that means if you meet a salary requirement and you meet duties requirements governed by the statute, then you are classified as exempt and therefore are not entitled to overtime,” says Elise R. Vasquez, partner at Ropers Majeski Kohn & Bentley PC. “What we’ve started to see is an up-rise in white-collar exempt misclassification claims.”

Under the Obama administration, funds have been funneled to labor board investigators meant to probe wage-hour claims to determine whether or not employers are in violation of the wage hour requirement and employees are misclassified as exempt. In the past, many such claims came primarily from blue-collar jobs, such as the restaurant industry. We are seeing more claims from employees for unpaid overtime that they were entitled to, because they were misclassified as exempt based on the job description and duties performed.

Smart Business spoke with Vasquez to find out more about misclassification lawsuits, and what an employer can do in the event a claim is made.

What establishes an employee as exempt or non-exempt?

The list of qualifiers is comprehensive and very specific for each exemption.  Basically, there is a salary requirement and a duties requirement that need to be met for an employee to be exempt. Unfortunately, employers have been relying on the assumption that if they hire a computer analyst, for example, and they pay them the requisite salary, they must be exempt. In reality, that may not be the case. Specific day-to-day duties that they perform may not fall under an exemption. As such, while an employer may meet the salary requirement for a computer analyst, because he or she performs non-exempt duties more than 50 percent of the time, the person is entitled to overtime pay and meal and break periods.

How can employers ensure they are classifying their employees correctly?

The job title and salary requirement are not enough, and each exemption has different requirements. Employers should enlist the counsel of their labor and employment lawyer to perform an audit to make sure each employee falls under the correct exemption.

Their labor and employment lawyer can perform the audit by taking a look at the job description the employer claims is an exempt position, interview the employees in that position, and  determine if in fact they perform exempt duties more than 50 percent of the time.

Prior to hiring an employee, employers should be clear about the job duties and what the employee will be doing. When interviewing a candidate, focus specifically on those duties. After hiring, it becomes an upper management issue, where each employee will have a reporting manager who will be responsible for checking with HR and ensuring employees are performing the correct duties for that position more than 50 percent of the time. Educating upper management and HR as to exempt duties will allow for these checks to be in place.

What should an employer do in the event that a claim is filed?

If a company does not have a labor and employment lawyer in place, it should look to hire one with a level of expertise in misclassification lawsuits, both with class actions and individual cases. The lawyer will get the job descriptions of all employees and/or former employees involved in the claim, talk to the reporting managers to see whether or not they did the exempt duties more than 50 percent of the time, look at payroll records and do a risk benefit analysis. This analysis will determine the company’s potential exposure. If in fact there is potential exposure, the exposure can be calculated with reasonable certainty.

If there is liability, most companies will want to avoid trial and resolve any matter early. Hence the importance of hiring a lawyer who understands each and every one of the exemptions as well as which exemptions the employee(s) fall into.

What if the employer loses the case?

In addition to the employer owing an employee or a class of employees any unpaid wages, the employer is exposed to penalties. For every employee who is no longer working for the company, there will be penalties for not paying them what they are owed. There are also other penalties under various statutes an employer could be subject to for various payroll violations. In addition, all employees who prevail on wage-hour claims are entitled to attorneys’ fees and costs.

Because exposure can usually be calculated with reasonable certainty, a lot of these cases do not go to trial, unless the case for the employer is particularly strong. If the employer is correct and can prove the employee(s) filed a meritless claim, the employer can seek fees from the employee(s). The reality, however, is it is highly unlikely an employee will have the means to pay for the employer’s attorneys’ fees.

Elise R. Vasquez is a partner with Ropers Majeski Kohn & Bentley PC. Contact her at (650) 780-1631 or evasquez@rmkb.com.

Published in Northern California
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