How port authorities can finance development projects

Economic development is a significant part of the mission of port authorities. Originally formed to assist counties, municipalities and political subdivisions with transportation, including rail lines and waterways, their roles have expanded to foster and encourage business investment among private enterprise and other political subdivisions.

“Port authorities have become more of a tool that enables counties and municipalities to foster economic development, as well as job retention and growth,” says Daniel L. Silfani a partner and co-chair of the Corporate & Securities Practice Group at Brouse McDowell.

Smart Business spoke with Silfani about how closely held private businesses can harness the financing capabilities of port authorities.

How are port authorities able to finance small development projects?

Ohio law gives port authorities broad investment and economic development powers to do business with private enterprises. These are powers that counties, municipalities and other political subdivisions may not have or are restricted from exercising in certain ways, which inhibits public-private investment projects. It means port authorities can:

  • Acquire and improve real property.
  • Hold title to new facilities for off-balance-sheet financing.
  • Receive and apply for state and federal grants and loans.
  • Receive property from other local governments so it does not go to public bid.

Port authorities, which are exempt from having to use prevailing wage structure for projects, can also issue bonds and other gap financing to help business owners fill various layers of capital. They can often do this with loan or credit terms, such as interest rates, that are advantageous because of the credit rating of the port authority, and which companies may not necessarily qualify for under traditional commercial lending standards.

What makes this topic relevant now?

Port authorities today are being utilized for more than just the biggest economic development projects. Recently, there’s been more emphasis on local financing efforts, and port authorities are the preferred mechanism for federal and state agencies because they have flexibility to transact financing deals and programs. This flexibility means port authorities can administer and act as middle-men with respect to a broad range of loan or grant programs from those other agencies, helping business owners fill much needed layers of capital to complete a project. As a result, targeted loan and grant programs, such as those for manufacturing equipment upgrades, energy efficiency improvements or other projects are becoming available for the closely held business owner. Depending upon the program, there still may be an underwriting process to unlock financing through port authorities, but there’s more flexibility for a business owner to target select programs to fill those much needed layers of capital for their anticipated project.

What should small businesses know about port authority financing before applying for financing?

Port authorities usually have descriptions on their websites of the programs they offer, and many provide applications online that can help business owners or advisers describe their projects and the financing they’re looking for.

It’s good to work with an attorney who understands how port authorities function and who have economic development project experience. Experienced attorneys, however, can put the process into perspective so companies can better understand what port authorities offer and the programs for which companies are likely to qualify.

Don’t overlook what a port authority can offer when it comes to project financing. There are many different programs available that can provide the needed capital with preferred financing terms, or through under-recognized grants.

Insights Legal Affairs is brought to you by Brouse McDowell LPA

As boomers age, it is important to be aware of age bias

Age discrimination is any adverse employment action taken against an employee that’s motivated by the person’s age. It’s far more prevalent than most employers realize. And it’s also illegal.

“There’s a lot of talk about gender or racial diversity, but little to no talk about age diversity,” says Ann-Marie Ahern, a Principal and head of the employment law practice at McCarthy, Lebit, Crystal & Liffman Co., LPA. “But just like sex and race, age is a protected category, so it’s important to be aware of age bias in the workplace.”

Smart Business spoke with Ahern about employer age discrimination — what forms it takes and the laws that protect against it.

How does age discrimination typically manifest in the workplace? 

Age discrimination in employment has a typical pathology. Typically, one or more of the following are present:

  •   Long term employee.
  •   Most often, around age 55 or older (even though the protected age category technically begins at 40).
  •   Previously rated as meeting or exceeding expectations.
  •   Valued for many years for knowledge and contributions.
  •   Sudden shift in perception of value or effectiveness of employee’s work.
  •   Often coinciding with a change in management or leadership.
  •   New emphasis on the part of the company on succession planning or hiring younger, fresh employees.
  •   Unreasonable scrutiny or wholly subjective criticism of employee’s work.
  •   Feelings of being marginalized or ostracized.
  •   Inquiries about retirement intentions.
  •   Older employee is singled out for discipline for conduct that goes unpunished in younger colleagues.
  •   Suspicious reorganization or reduction in force that appears to be driven by a desire to remove certain employees rather than to accomplish organizational needs.
  •   Successive departures of a number of older employees, either involuntarily or after pressure to leave.  
  •   Vague, disingenuous or previously unmentioned performance concerns are the stated basis for separation.  

What laws exist regarding age discrimination?

There are two primary sources of protection against age discrimination. At the federal level, there’s the Age Discrimination and Employment Act (ADEA), which provides protection from demotions or other adverse employment actions based on an employee’s age. Ohio has a corresponding law that provides an independent source of protection from age discrimination. 

Damages available to someone who has been terminated because of their age include lost pay, the value of lost benefits and any fringe benefits, as well as damages caused by emotional distress. 

How do severance agreements play into age discrimination? 

When a person losing a job is offered severance pay — severance is only required under the law if a company has an existing policy or plan that provides for it when an employee is terminated — its payment is typically contingent on the full release by the employee of any legal claims against the employer, including a claim of age bias.

In other words, in order to pursue a claim, an employee would be required to forgo severance pay. This is a difficult decision and an employee who agrees to severance should only do so after a careful evaluation of whether age bias has been a factor in the decision-making.

Under federal law, the employer must offer 21 days for the employee to consider the severance agreement, as well as seven days to revoke acceptance. That law also requires that the employee be offered something of value to which the employee is not otherwise entitled.

For instance, an employer can’t withhold a bonus that has already been earned or commissions unless the employee signs a release of claims. Additionally, the employer has to advise the employee to talk with a lawyer to evaluate the agreement and fully understand their rights. 

The baby boomer generation now spans from age 55 to 73. Whether you are an employee or an employer, being aware of age bias and the laws that prevent it in the workplace is important to protect yourself.

Insights Legal Affairs is brought to you by McCarthy, Lebit, Crystal & Liffman

Know what you’re getting into before you sign the loan papers

It’s not always easy for business owners to find financing. Most business owners will, at some point, turn to conventional bank lending to help finance their business or fund growth, like acquisitions. There are, however, many different types of financing products available in the commercial lending market. But whatever type of financing you settle on, it’s critical to know exactly what you’re risking.

“Business owners often focus more on ‘getting the loan’ than on the specific terms and covenants of the loan, which in many instances can hinder the ongoing operations of the business,” says Christian A. Farmakis, shareholder and chairman of the board at Babst Calland.

Smart Business spoke with Farmakis about the lending environment and legal risks to keep an eye on.

What are loan options for small and mid-sized business owners?

Since the Great Recession, traditional bank lending has competed with other forms of lending. For instance, business owners are increasingly turning to private equity funding and family office lending rather than traditional, asset-based lending. These options may require sacrificing significant ownership and control over the business.

Other loan types include U.S. Small Business Administration loans backed by the federal government but underwritten by banks, small business loans for real estate financing and equipment loans.

Credit unions and regional and community banks sometimes offer different and more flexible terms and do smaller loans because they service the loan in their portfolio, where a larger bank might have stricter underwriting requirements.

What legal issues could crop up in the term sheet and loan documents?

Loans can include affirmative and negative covenants, but it’s usually the negative ones that trip people up.

Most loans require you to give a personal guarantee, provide certain information on a yearly basis, keep you from spending above a particular threshold on capital expenditures without prior approval, or stop you from taking out more debt. Most financial covenants require compliance with certain ratios, such as a debt to equity ratio; if you exceed those, the lender can theoretically default the loan. A larger loan also may require annual audits or reviewed statements, which can be disruptive and costly if the company is not already having those statements done by a CPA.

Another item to consider is pre-payment penalties, which can be significant but might decline over the first few years of the loan. It’s also not uncommon for a burdensome pre-payment penalty to stall, end or defer the business owner from doing a deal until the penalty is gone.

Therefore, it’s critical to know how the loan terms might restrict your operations and burden you with requirements. Take time to truly understand what events could trigger fees or penalties.

How much room is there to negotiate these terms?

Your negotiating room depends on the financial strength of your business, your growth model and if the bank sees opportunities to cross sell other fee-based services. Healthier, stronger businesses may be able to get items minimized or eliminated, such as fees. In addition, sometimes loans require borrowers to use services like payroll, lockbox or credit card processing. You may be able to disassociate the loan from these services.

You also want to get several quotes because banks have different underwriting requirements. For instance, one lender may require less collateral than others. And while a lot of this relates to the strength of the borrower, it also connects to the bank’s focus. If a lender isn’t interested in lending to a certain industry, it might not give the best terms.

Generally, a first-time, smaller borrower’s loan terms will be standard. You can take it or leave it, so you’re left negotiating interest rate and whether there’s a pre-payment penalty. But bigger borrowers with a solid balance sheet and strong business can prioritize the most costly or burdensome items and see if better terms are possible.

Insights Legal Affairs is brought to you by Babst Calland

How to use mediation rather than litigation to resolve business disputes

Civil litigation very often is mediated, sometimes twice, so that parties in conflict can avoid fighting out a dispute in court. 

“Businesses should think long and hard about moving forward with litigation without first trying to reconcile their differences through mediation,” says David Schaefer, Esq., a principal at McCarthy, Lebit, Crystal & Liffman Co., L.P.A. and a member of the National Academy of Distinguished Neutrals. “It’s a tried-and-true process that’s inexpensive when compared to the cost of litigation. And it’s a process that can save companies both time and money.”

Smart Business spoke with Schaefer about the mediation process and how it can be used in place of litigation to resolve business disputes.

When is mediation a good choice for businesses in dispute? 

Mediation typically is undertaken after a dispute has been ongoing for some time. At the very beginning of a dispute, the ability to resolve it through mediation is lower than after it has gone on for, say, a few months — statistics on early mediation indicate the settlement rate pre-lawsuit is lower than during the lawsuit. Still, there are a good number of mediations that occur before a lawsuit is filed, and some of those pre-lawsuit mediations work out, but not often. 

What is involved in the mediation process? 

Typically, the process is initiated by one party’s lawyer. A conference call with attorneys on both sides follows to discuss the procedural details: when, where, who will attend, the written materials the mediator would like to receive from the parties before the mediation, and the cost. 

The parties in conflict, along with their lawyers, meet at a neutral location — usually an office — where they’re split into separate rooms. The mediator goes from one party to the other getting information that will be used to find a resolution to the dispute. 

How can the parties be sure each is negotiating in good faith?

If one side is using mediation as, say, a means of inexpensive discovery, it becomes apparent quickly — within a couple hours of the start of mediation. But that doesn’t happen very often.

There are also instances in which a party might be ‘hoop jumping.’ That’s when a party has either been ordered by a court to mediate or needs to use mediation for dispute resolution because of a contractual obligation and is undertaking the process with little or no intention of settling the case and just wants to clear the legal or contractual hurdle.

What obligation do the parties have to abide by the mediator’s determination?

Mediators don’t make a final, binding decision like a judge or an arbitrator. Mediators, instead, make an objective suggestion to resolve the dispute. In monetary disputes, he or she can provide a mediator’s number, a suggested amount to settle the case. If both sides reject that number, then there is no agreement, and the parties and their counsel will need to decide on a future course. If both accept the mediator’s suggestion, a deal is reached and mediation is a success. 

What can parties do post mediation if they’re unsatisfied with the outcome?

When an agreement is reached through mediation, there should be a short document written up during the mediation and signed by both parties that binds them to the agreement. That document is an enforceable agreement. If one side tries to back out, which is rare, the other party can file a complaint in court to enforce the mediation settlement agreement.

There are a variety of steps that can be taken if the parties fail to reach settlement at the mediation. Probably the most common is the parties go back to litigation and engage in discovery. Sometimes the mediator will follow up with the parties’ lawyers and see if a resolution can be reached over the phone. Other times, the parties will pause and reconsider the offered resolution, and possibly accept it if it’s thought to be better than undertaking litigation.

Insights Legal Affairs is brought to you by McCarthy, Lebit, Crystal & Liffman Co., L.P.A.

How to choose strong trademarks and protect them

A trademark’s value is wholly contingent on how well it conveys to the public who is behind a product or service. That’s why it’s critical for companies to ensure their trademarks are strong and protected. However, not all companies take the proper steps.

“The costliest mistake companies make when choosing a trademark is getting too far along in the process before evaluating whether or not it’s a good and useable trademark, one that’s capable of passing a clearance review with the U.S. Patent and Trademark Office (USPTO),” says Suzanne Bretz Blum, a partner at Brouse McDowell.

A second critical mistake is failing to protect a trademark once it’s created, leaving it vulnerable for use by other companies, which may diminish its value or transfer the value built up to another company.

Smart Business spoke with Blum about how companies can ensure their trademarks are strong and the mark’s value is protected.

What legal protections exist for trademarks?

Federal law provides protections for trademarks, including provisions for suing someone who is using a trademark registered to another company through the USPTO.

In addition to federal protections, most states have their own trademark registration systems. There are also common-law trademark protections that exist under states’ unfair competition laws. These protect businesses from economic injury through deceptive or wrongful business practices, including the hijacking of a long-held but unregistered mark

How do companies enforce trademark protections once they’re secured?

It’s the responsibility of companies to watch the market for infringing uses of their trademark. Larger, international companies often pay for a service that monitors usage of their marks around the world and will alert the company to any potential infringers.

Companies with products that aren’t distributed as broadly should keep an eye out where their goods are sold, as well as in local advertising, and chase infringers with cease-and-desist letters.

Another useful strategy for protecting your marks is to take advantage of programs like Amazon’s brand registry program, through which companies can alert Amazon when they see other products on the site using an existing trademark. If the complaint is valid, Amazon will intervene and block the imposter from using the mark on the site.

What are the limitations of trademark protections?

Companies might not be able to stop others from using a trademark if it is not distinctive, or is too literal — for example, using an image of an apple to sell apples. An earlier user of a similar mark may also challenge a company’s ability to protect its trademark.

There are 45 trademark classes that categorize marks by the type of goods and services represented. Two companies that have the same mark but are in completely different trademark classes have a good chance of registering and protecting them. It becomes an issue when similar marks are used in the same marketplace and could cause confusion among consumers.

To evaluate your trademark’s strength in such a situation, consider evidence of the first use of each mark, like early advertisements, brochures or dated photos of packaged products for sale. Consumer surveys that show public awareness of the link between a company and trademark, and evidence that the company has taken steps to prevent others from using the trademark, will help establish rights where challenged.

How can companies ensure they’re on strong legal footing as they select a trademark?

It benefits companies seeking trademark protections to work with an attorney at multiple stages of the process. Experienced attorneys can conduct clearance reviews quickly and with a clear understanding of what to look for, which leads to a more reliable conclusion. They also understand what the courts are likely to say is confusing and can help companies strategize when it comes to the registration process.

Careful consideration in the early stages of developing a trademark is important. Once a company has invested in and is using a trademark, protecting the mark is critical. An experienced attorney can help ensure that companies continue to benefit from the value they’ve created in their mark.

Insights Legal Affairs is brought to you by Brouse McDowell

The good and the ugly of convertible debt financing

Convertible debt is a common investment vehicle by which early-stage companies raise capital, where an investor grants to a company a short-term, often interest-bearing loan that converts into equity of the company at a future date. The convertible debt investors agree to push the question of what the company is worth — the valuation — down the road until the company’s next priced funding round. In return, the investors receive certain advantageous terms at the time that the debt converts to equity.

Smart Business spoke with Christian A. Farmakis, shareholder and chairman of the board, and Justine M. Kasznica, shareholder, at Babst Calland, about this investment vehicle.

What are the benefits for these investors?

As with any loan, the convertible debt note accrues interest until a defined maturity date. Unlike a standard promissory note, the convertible note often includes a conversion discount, valuation cap and other terms designed to mitigate the investor’s risk.

With the conversion discount, these investors receive a discount on the price per share at which their note converts to equity at a future priced round. Although discounts vary, it’s commonly set around 20 percent. Thus, if the price per share is set at $1, an investor’s convertible debt note would convert at a price of 80 cents per share.

With a valuation cap, (a) a maximum value of the company is established, solely for the purpose of calculating conversion of debt to equity; and (b) the investor’s price per share will be capped at the agreed upon number.

How can convertible debt negatively impact the startup?

Convertible notes are intended to be short-term investments. But when a company doesn’t get to its priced round quickly — or may require more notes to generate sufficient capital to keep the company in business — the founders can run into trouble.

By the time the company gets to a priced round, the accrual of interest, conversion discounts and valuation caps can result in a disproportionate percentage of the company being owned by the convertible debt investors, leaving the founders and employees as well as future investors with little future upside. Such a scenario can scare away new investors and render a company uninvestable.

How can founders get out of this scenario?

In many cases, this situation can be remedied through a renegotiation of the notes. For example, the valuation cap can be renegotiated or waived by the existing noteholders. Also, noteholders may agree to waive interest payments to reduce the impact of the conversion and the dilution effect on the founders. Still other times, noteholders may be interested in a buyout to get some or all of their money back.

A company’s negotiation and bargaining power is greatly enhanced if it can point to new investors who have conditioned their investment on a cap table adjustment. Noteholders can often be persuaded to give up or alter their contractual rights, if such a decision will help the company get the critical investment it needs to succeed.

What can be done to avoid this problem?

Although startups are often forced to accept bad financing deals just to get enough operating capital to survive, a few best practices can help mitigate some of these issues.

  • Fully understand the impact convertible debt financing rounds will have on shareholder equity positions by working through a variety of conversion and post-financing scenarios with advisers.
  • Where possible, try to treat multiple investments as if they were a single round, with a super-majority vote of the holders needed to amend the notes, making it easier to effectuate future note amendments.
  • When possible, ask for protective provisions such as prepayment rights, voluntary conversion prior to the maturity date and time-based conversion discounts (where the discount is smaller if the company can get to a priced round sooner).
  • Take time to know and cultivate a personal relationship with investors and to communicate regularly the company’s successes and challenges, which can go a long way in gaining goodwill in the event terms need to be renegotiated.

Insights Legal Affairs is brought to you by Babst Calland

Ways to resolve business disputes without litigation

Generally, when a business dispute arises, avoiding litigation can be the only thing two parties agree on. It could be costly, and parties want to avoid it to protect not only their secrets, but also their relationships. 

“No one goes into a business transaction looking for a dispute,” says Nicholas R. Oleski, an associate at McCarthy, Lebit, Crystal & Liffman Co., LPA. “When two parties reach an impasse, lawyers can become involved to find a way around it. And, generally, lawyers will look to negotiate the issue without litigation.”

Smart Business spoke with Oleski about alternatives to litigation when working to resolve business disputes.

Why would avoiding litigation benefit the parties involved?

Costs, confidentially and certainty are reasons parties look to avoid litigation. The process is inherently uncertain. A party might enter the process believing its case is a clear winner, but a judge or jury might not see it that way. Results can’t be guaranteed, even by the best lawyers, and that opens a party up to a great deal of risk, as well as higher-than-expected costs if the process drags out.

It’s also difficult to maintain confidentiality during litigation because court is public, and much of what happens in court becomes public record. There are mechanisms to protect confidential business information, but pleadings and other documents submitted as evidence might not get sealed by the court. Businesses want to avoid litigation when trade secrets aren’t at the center of case but could be disclosed as part of a lawsuit. 

Commercial transaction documents — contracts between the buyer and seller — should provide remedies short of litigation for disputes. The process can have multiple ascending levels, starting with informal talks between executives, before heading into formal alternative dispute resolutions, such as mediation and arbitration.

What is involved in the mediation and arbitration processes? 

Mediation is a formal negotiation procedure during which two parties and their attorneys talk with a mediator — a neutral third party, usually an experienced lawyer, with a background in whatever area the dispute is about — and attempt to resolve the dispute with a nonbinding verdict. Any information exchanged in mediation is considered privileged and can’t be used in court. 

Arbitration is a more adversarial form of negotiation, held in a more formal venue in front of an arbitrator — again, usually a neutral lawyer — who will render a legally binding decision to the parties. Arbitration enforcement is backed by federal and state statutes. The party that wins in arbitration confirms the arbitration award by filing the decision in court, which then confirms the arbitrator’s award. Then the court issues a public judgment that’s fully binding. 

When is litigation the best option when resolving business disputes?

Litigation may be the best way to protect trade secret information when it’s at the center of a dispute. Courts generally will seal or otherwise protect certain sensitive documents, which means the information they contain can only be shared between the parties’ lawyers. 

Both mediation and arbitration may not be desirable if one party is going to need access to the other’s documents regarding the transaction. In this instance, litigation in court may be preferable because the discovery mechanisms are more formal. 

Also, litigation offers the losing party appellate rights through the court of appeals. That option doesn’t exist in arbitration. 

Who should the parties consult with when deciding how best to resolve a business dispute? 

Talk with the internal employees closest to the source of the dispute first to get their input, then consult with internal counsel and discuss the event with them. Outside counsel could be brought in if additional expertise is needed. 

If at all possible, try to work it out with the aggrieved party before involving outside counsel. It’s usually never a bad idea for two sides to try to negotiate with each other to resolve the dispute before involving lawyers. However, it’s important to get lawyers involved before the dispute rises to troubling levels.

Insights Legal Affairs is brought to you by McCarthy, Lebit, Crystal & Liffman Co., LPA

How to avoid common legal pitfalls when starting a business

When forming a business, there are many considerations that should be made to protect the company’s legal and financial future. However, business owners often spend their time focused on what they are good at — making products or delivering services — and fail to assess many legal issues that create future liabilities.

Smart Business spoke with Louise M. Mazur, a partner at Brouse McDowell, about steps new business owners should take to protect their company.

What do new business owners need to know when forming the entity?

Incorporated businesses need a code of regulations that governs the organization of the business. Through this, the founders can create protections that will give them a strong position if they later take on investors for the business, such as delegating voting and nonvoting shares.

Similarly, limited liability companies need articles of organization, which enable the founders to designate themselves as the managing member and tax matter partner. These articles give them control of the day-to-day operations and oversight of the important financial decisions, legally establishing the founder’s authority so it cannot be challenged by future investors.

New businesses should also have an established buy/sell agreement that controls how ownership interests are sold to new investors, which will help avoid disputes with future investors.

There are also ongoing legal responsibilities after a business is formed. For example, a company must regularly update the existence of its business, including updates to the designation of its statutory agent. A company can be cancelled if it fails to file articles of continued existence or does not update its statutory agent. If that occurs, the founders could be, unknowingly, personally liable for the debts and obligations of the business.

How do founders shield themselves from liability?

Founders need to establish a separate mailing address for the company — even if just a P.O. Box — a separate bank account, credit card and line of credit. They should also keep their business receipts separate from personal receipts.

Those who do not establish a clear line between their personal and business identities may have significant problems. For example, if an owner makes a personal purchase on a company credit card, the IRS will classify it as income to the individual, which means the person needs to either declare it as such on his or her taxes, or reimburse the company for the purchase. Failing to do so will lead to penalties.

What should a business do to protect its operations from the start?

An employee should be asked to sign a new hire agreement that contains three components: confidentiality, noncompete, and work-for-hire provisions.

Concerning confidentiality, the employee will acknowledge that certain proprietary information is the property of the business and that the employee is legally prohibited from using the confidential information or sharing confidential information with third parties during and after employment.

Noncompete agreements are designed to restrict an employee’s ability to compete directly with the company, either by setting up a competing business or working for a competitor, within a specified geography and amount of time.

In the employer/employee relationship, the employer owns all rights to the work created by the employee. Nonetheless, the new hire agreement should include a work-for-hire provision to clearly confirm that all of the employee’s works or inventions become the sole property of the employer.

A new business should also develop terms and conditions of sale to outline the required due dates for payment and interest that accrues for late payments. Terms and conditions can also protect a business by placing limitations on liability to customers and minimizing customers’ remedies against the business. Terms and conditions should address how problems will be handled if and when they occur.

Before forming a business, founders should talk with an accountant and an attorney to ensure the company will be on strong legal footing and positioned to optimize any tax advantages. A little foresight at the start goes a long way for a new business.

Insights Legal Affairs is brought to you by Brouse McDowell

Attorney-client privilege: what it is, what it protects, and when it’s broken

The attorney-client privilege is important to foster open discussions between attorneys and their clients. As recently as Jan. 23, 2019, the Pennsylvania Supreme Court reaffirmed the principles of the privilege and the importance of clients and attorneys being able to rely on it. But in order to rely on the privilege, it is necessary for clients to understand what it is.

Smart Business spoke with Ashleigh M. Morales, an attorney with Semanoff Ormsby Greenberg & Torchia, LLC, about the attorney-client privilege and common ways clients accidentally waive the privilege.

What is protected under attorney-client privilege and when is it in effect?

Communications between a client or a potential client and an attorney are protected under the attorney-client privilege. The privilege only applies if it relates to confidential communications — others cannot be present when the communication is made or copied on the email when the communication is sent — and needs to be for the primary purpose of obtaining a legal opinion or legal services (and not for the purpose of committing a crime or a wrongful act). The parties must intend for the communication to be confidential, as well. The privilege protects both oral and written communications. While the privilege would not protect the fact that an attorney and client met at a specific place at a specific time, it would protect the communications that took place there.

When the relationship is between a company (rather than an individual) and an attorney, what constitutes privilege and who is covered by privilege?

In that situation, when the client is a company, the privilege covers communications between the company’s attorney and the company’s employees, officers and agents who are authorized to act on behalf of the company. In addition to the requirements regarding communications that are to be protected by privilege, when a company is the client, the communication must also be regarding a matter that is within the scope of the employee’s, officer’s or agent’s duty to the company.

Why is attorney-client privilege important?

The attorney-client privilege is important because it allows for honest discussion between a client and his or her attorney. Privileged communications are typically not discoverable in litigation and generally cannot be used against the client (as long as the privilege has not been waived).

How do clients waive the attorney-client privilege?

If an email containing a privileged communication is sent to someone other than the acting attorney, attorney-client privilege is waived. Perhaps the privilege was not needed for the last email they forwarded, but it was for the string of emails below it. Clients should be careful when forwarding their attorney’s emails or responding to their attorney and copying others on the email.

Another way to waive the attorney-client privilege is to include another person in your meeting or on your phone call with your attorney. While it may be awkward for your attorney to ask your friend who came with you to wait in another room while you meet, it is necessary to maintain the attorney-client privilege. Also, adding your attorney to an email does not automatically protect the email as privileged — the communication must be for the purpose of requesting or receiving legal advice or services. Therefore, an email from one employee to another employee is not automatically privileged by adding the company’s attorney to the email.

Clients should stop and think before hitting reply all or forwarding their attorney’s email. If the communication is confidential, relates to legal advice and something you would not want discoverable in litigation, keep it between you and your attorney. It is better to play it safe, because once the communication is sent to a third party, the privilege is waived and there is no undoing it.

While privilege may need to be waived to raise a defense or claim, it is important to protect attorney-client privilege unless your attorney advises you that waiving it would be necessary or advisable.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

What the DOL’s new overtime regulations mean for your business

In March, the U.S. Department of Labor (DOL) issued a replacement of the controversial (and more employee-friendly) Obama-era overtime rule that was blocked by a federal judge in Texas in 2017, days before it was scheduled to take effect. The new rule brings a host of changes, including the reclassification of more than 1 million currently exempt workers as nonexempt.

Smart Business spoke with Stephen C. Goldblum, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC, about what employers need to know about the new rule.

What are the new Department of Labor regulations?

The Fair Labor Standards Act (FLSA) overtime rule determines whether employees are eligible or exempt for overtime pay. Based upon their compensation and the type of work they do, exempt employees are not eligible for overtime pay for hours worked over 40 in a workweek. Nonexempt employees are eligible for overtime pay and must be paid at least time and one-half their regular pay rate for all hours worked over 40 in a workweek.

The new rule, issued in March, raises the minimum salary threshold required for non-exempt workers to qualify for the FLSA’s ‘white collar’ exemptions from $23,660 to $35,308 per year. Above the $35,308 compensation level, employees are not automatically eligible for overtime, but still must meet certain job duties (executive, administrative, professional, computer professionals and outside salespersons) to qualify. The DOL did not make any changes to the ‘duties test,’ which governs whether an employee’s duties fall within one of these classifications.

The new rule also increases the total annual compensation requirement for highly compensated workers from $100,000 to $147,414. That means an employee is exempt from overtime if:

1) The employee earns total annual compensation of $147,414 or more, which includes at least $455 per week paid on a salary basis;

2) The employee’s primary duty includes performing office or non-manual work; and

3) The employee customarily and regularly performs at least one of the duties or responsibilities of an exempt executive, administrative or professional employee.

The DOL also proposed regular increases to the salary threshold every four years. The updates would not be automatic, but would come only after the submission of public comments.

Lastly, the new rule allows employers to include certain non-discretionary bonuses and incentive payments to comprise up to 10 percent of the new $35,308 threshold.

What is the effect of the new DOL regulations?

The DOL estimates the new rule, expected to take effect in January 2020, will result in the reclassification of more than 1 million currently exempt workers as nonexempt, and an increase in pay for others above the new threshold.

What does this mean for businesses?

Companies must determine if there are any employees who are currently exempt (ineligible for overtime) that are:

1) Making between $23,660 and $35,308 (the new minimum salary threshold) or

2) Making between $100,000 and $147,414 (highly compensated).

If there are employees in either category, they will need to be converted to non-exempt hourly employees eligible for overtime effective no later than December 31, 2019, or their salary will need to be increased to exceed the new thresholds.

A word of caution: state laws may differ from these federal regulations. For example, the Pennsylvania Minimum Wage Act does not recognize the highly compensated test or the computer professional exemption and therefore those do not apply in Pennsylvania. Therefore, a review of applicable state laws is necessary before any permanent changes are made.

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