How to prepare for laws that give criminal offenders another chance

Ban the Box, a movement designed to provide additional opportunities to job candidates who have an arrest or conviction, is gaining steam. According to the National Employment Law Project, one in four Americans have either an arrest or conviction on their record, in most cases for nonviolent offenses. Ban the Box offers the vast majority of these individuals a second chance at an opportunity for employment.

The law does not require an employer to hire any candidate with a criminal background nor does it forbid employers from conducting background checks. Ban the Box simply requires employers to wait until later in the hiring process to ask the applicant about his or her criminal record.

“After the first interview, a potential employer may inquire about any criminal convictions the applicant may have,” says Michael B. Dubin, a member at Semanoff Ormsby Greenberg & Torchia, LLC. “The interview does not need to be a formal in person interview; it can be a telephone interview.”

Smart Business spoke with Dubin about Ban the Box legislation, how it affects employers and what penalties could arise from not following the law.

What is Ban the Box?

Ban the Box is a law that has been adopted in various states and municipalities that prohibits employers from inquiring about criminal convictions or arrests during the application process and the first interview. The law also prohibits employers from making personnel decisions based on arrests or criminal accusations that do not result in a conviction. Ban the Box was enacted by the City of Philadelphia in 2011, and with certain limited exceptions, applies to all city and private employers with 10 or more employees in the city. It was also recently signed into law in New Jersey and will take effect throughout the State of New Jersey on March 1, 2015 for all employers that have 15 or more employees and do business, employ persons, or take applications for employment in New Jersey.

How does Ban the Box affect employers?

Prior to the conclusion of the first interview, including on the employment application, employers are prohibited from inquiring about: (1) any arrest or criminal charge that did not result in a conviction and is not still open in court; and (2) criminal convictions.

After the first interview, employers are prohibited from inquiring about and/or making any adverse employment decisions based on any arrest or criminal charge that did not result in a conviction and is not still open in court. If an employer does not conduct interviews, then it is not permitted to conduct any criminal background inquiry.

There are several exceptions, for example, when an employer is mandated by state or federal law to consider criminal histories of applicants, such as when hiring law enforcement.

What are the penalties for violating Ban the Box laws?

Penalties differ by location. In Philadelphia, violators are subject to a fine of up to $2,000 per violation. In New Jersey, violators will be subject to a civil penalty not to exceed $1,000 for the first violation and $10,000 for each subsequent violation.

What must employers do to ensure they comply with Ban the Box laws?

Employers should review their form job applications and job posting advertisements to ensure they do not ask about criminal arrests or convictions. Any such inquiry should be removed.

Employers should also review the law in each state and municipality in which they either do business or have employees to ensure compliance. Human Resource personnel and hiring managers should be properly trained regarding Ban the Box laws and instructed as to what can and cannot be asked of job candidates and when criminal background inquiries may be made.

As the trend is moving toward more states and municipalities enacting Ban the Box legislation, multi-state and nationwide employers should be extra vigilant in ensuring compliance. The consequences of failing to do so could be extremely expensive for employers.

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

What to do if your customer patents your invention

Many companies face an unrealized risk when approached by a customer with a problem. Companies will devote a great deal of time and money developing a solution, only to have that customer seek to secretly patent the solution without naming the company’s personnel as inventors or at least co-inventors.

“This leads to several bad outcomes, depending upon the particular facts,” says Steve Haas, a partner at Fay Sharpe LLP.

“At worst, the company and its other customers can be sued for patent infringement by the first customer, even though the company created the solution. Also, the first customer can source the solution from a third-party supplier without compensating the company that solved the problem — the original company that developed the solution does not get to supply it and cannot stop the new supplier.”

Smart Business spoke with Haas about unscrupulous customers that profit from a company’s hard work, and how to avoid getting cheated out of an invention.

How can a company legally attribute another company’s invention as its own?

Technically speaking, the patent is not valid because it fails to name the correct inventors. Proving this, however, is often problematic because ideas and solutions are now generated and transmitted to a customer rapidly and without sufficient documentation. The routine emails that circulate while the project is ongoing are often vague and without the necessary evidence to invalidate the patent. Meetings are often informal and undocumented.

What can companies do to stop this?

Companies partnering to create an invention should work under a written joint development contract at the start of each engagement. This agreement specifies the rights and obligations concerning ownership of the intellectual property (IP) and the responsibility for filing and prosecuting patent applications. Negotiate these agreements carefully.

A company developing a solution on behalf of a customer should file at least a provisional patent application for all significant new developments and improvements to a product or process. If possible, the provisional patent application should be filed before disclosing the ideas and improvements to the customer. A provisional application establishes an early effective filing date and allows the term ‘patent pending’ to be used. The application filing fees for a provisional application are minimal compared to litigation and other fees that would result from a dispute.

Inventions should be carefully documented with written records, drawings and detailed letters/emails to the customer. It’s important to be very specific in these messages. So, instead of writing, ‘here is the latest thing we discussed,’ write ‘enclosed is the latest design for the project XYZ developed by our personnel to address ABC problem, which includes the following features.’ Save all correspondence and engineering records in a way that’s organized and easily searchable.

To be sure your development partner hasn’t snuck off and patented the invention without your knowledge, you should monitor the published patent applications of your customers and identify any with incorrect named inventors.

What can be done if a customer partner has filed for or obtained a patent?

In the event that this happens, consider initiating a derivation proceeding in the U.S. Patent and Trademark Office, a proceeding that allows the original inventor, who may not be the first to file, to challenge the first applicant’s right to a patent. This requires a showing of complete conception of the claimed invention and communication of the invention to the other party, which then filed the patent application without authorization. That’s why thorough documentation of the invention process is so important. A derivation proceeding must be initiated within one year of the first publication of the patent application or patent.

Another option is to initiate a federal court action that allows for the name of the inventor on a patent to be corrected by the court if the patent has already been issued.

In general, the best defense is a good offense. Aggressively pursuing patents for new ideas as soon as possible after development will minimize the chance that an unscrupulous customer will fraudulently secure patent rights for your IP.

Insights Legal Affairs is brought to you by Fay Sharpe LLP

Why IP insurance is a good way to secure what drives your business

Intellectual property (IP) insurance can be expensive, but the cost of not protecting the unique thoughts and ideas that give your company its identity could cost you even more.

“If you knowingly let someone infringe on your intellectual property, it becomes valueless,” says Michael Craig, an attorney in the Intellectual Property Group at Brouse McDowell. “If you let someone infringe on your trademark and you do nothing about it, your trademark may no longer be protectable because you let someone else use that trademark for the same thing. You have to actively manage this process to protect what you’ve worked hard to build.”

One of the reasons IP insurance is expensive is the litigation process that unfolds when the question of infringement comes about.

“When you have a personal injury, it’s very easy to understand,” Craig says. “Did the car hit the guy and what were his injuries? When you talk about patents, you are sometimes talking about manufacturing processes or electronic techniques that the lay person doesn’t understand, making trials more difficult.”

Smart Business spoke with Craig about why IP insurance is critical to achieving long-term success.

Why do you need IP insurance?

There are non-practicing entities, commonly known as ‘trolls,’ that don’t actually make any products or services. They just own patents and try to enforce them against people. These entities are often companies that understand the cost of going through this kind of litigation, so they can more easily pressure a target into settling. However, if they find out you have IP insurance to defend yourself and are willing to do so, they may go away in search of low-hanging fruit.

Proper IP management can also help you with your own insurers. If they see that you have an active IP management system in place and you’re trying to avoid infringement and do the things necessary to protect your IP internally, your IP insurance costs are going to be lower.

You have to weigh the cost of IP insurance versus the cost of what you think the ultimate outcome will be through litigation and how often you may experience this type of potential business interruption. Is it going to help you with market share? Is it going to lead you toward profit?

How do you find the right IP insurance policy?

The first step is to sit down with your IP attorney, who can take a look at your IP portfolio and develop a specific roadmap as to what you need. You can use that to bargain with your insurance broker.

There are a number of different types of coverage. Defensive protection helps you against third-party IP claims for patent, copyright and/or trademark infringement. Offensive protection is for costs related to enforcing IP rights against potential infringers. First-party loss of value coverage is meant to protect the value of IP against a negative ruling in court.

A lot depends on the industry you are in and the size of your patent portfolio. If you are in the software realm, there is a higher likelihood of some type of infringement claim, particularly if your business is successful. So you might want to look at defensive coverage in this area. If you have some valuable trademarks, you may find some people who recognize the value and want to ride on your coattails. In that case, you would want to look at first-person offensive coverage.

You will pay anywhere from 1 to 10 percent of the coverage, so if you want a $2 million policy, you could be paying $200,000 a year. If, however, you’re a well-run, well-managed company and you use your IP assets properly – and you’re not in a very litigious area – you may end up on the lower end.

What if your claim is denied?

An insurance recovery attorney can review a claim to see if your existing coverage protects you against IP claims made against you when an insurance company turns down your claim. You could accidentally infringe on a trademark, which could be covered under your existing business insurance or general liability policy. It’s always a good practice if you are denied a claim to do another check to see if you can get a different result.

Insights Legal Affairs is brought to you by Brouse McDowell

Why employees and employers need new solutions to protect their wealth

Pension plans have become a headache for employers who were already struggling to find enough cash to keep up with expenses.

While it’s great that people are leading longer and healthier lives, the result is pension funds that are being stretched to the breaking point — and beyond.

“People live longer and draw on these pensions longer, but there are fewer workers paying into these funds,” says Timothy J. Gallagher, an associate at Kegler, Brown, Hill + Ritter.

“So you get a gap between what is being paid out and what is being paid in.”

Employers have come up with a variety of ideas to deal with the situation.

Some have tried to drop out of the pension plan completely, only to realize that they couldn’t escape their contractual responsibility.

“If you are participating in a multiemployer defined pension plan and you as the employer try to leave, you may have what is called withdrawal liability,” Gallagher says.

“The company that is no longer participating has to pay for unfunded vested benefits, which amounts to the balance of what they owe to the fund, but have not yet paid into the fund.

“An employer’s withdrawal liability occurs whether the employer withdraws completely from a plan, or just in part,” he says. “If all the employers in a plan withdraw completely at the same time, there are still withdrawal liability consequences. Basically, you can’t get out of it completely.”

Smart Business spoke with Gallagher about what employers can do to deal with this growing problem.

How can employers deal with rising pension costs?

One option is to determine what you owe and take out a loan for that exact amount at a more affordable interest rate. If you have the credit to take that option, it could be a good solution. It stops the bleeding and caps your liability at a fixed point.

You feel that your income can cover your day-to-day expenses, but as the people drawing on these pensions live longer, your contributions to these funds continue to expand. As companies continue to grow, they have to start thinking about their readiness to handle this issue down the road. If they are proactive, they can confront their future head-on and have a solution in place to deal with it.

If your company is participating in a multiemployer pension plan, it’s very important that you consult with someone who works in this area of the law. There are certain rules and exceptions depending on what industry the employer works in, and how much and how quickly the employer withdraws from a plan. Good advice will be worth its weight in gold.

Are pension plans on the verge of becoming extinct?

Employers will not take this option away completely because it is still an important benefit to entice top-quality employees. Unions will likely keep them as well because it is a benefit that they want to offer to members and potential members. The problem is the funding method used to support these programs. There needs to be a change in the rules for how these plans work and how they are funded.

In the future, you will see changes that give pension plans more stability, which may come with a slightly diminished return for employees. The best case scenario is that the changes will lead to something they can count on, and they won’t have to worry about whether or not their pension will be there when they need it.

What is the message for employees both now and in the future?

With so many burdens on the pension system as it stands today, future retirees need to understand that their pension is not going to be their parents’ pension. It is the same problem with Social Security. Employees should consider planning for retirement outside of their employer, or find ways to manage their wealth individually.

Employees who still have pensions through one of these plans need to be informed about where the money is invested. If they are in big funds that are underfunded, they need to consider taking other measures to protect the wealth and income they are accruing.

Insights Legal Affairs is brought to you by Kegler Brown Hill + Ritter

Stop legal malpractice before it happens with these tips

The most important step you can take to avoid legal malpractice is to pick the right lawyer to represent you — one who is qualified to do whatever you are hiring a lawyer to do.

But that’s only the first step. Once you have retained a lawyer, it is important to make sure that he or she understands what you want him or her to do for you.

“Many malpractice cases involve situations where the client says, ‘I told my lawyer to do X,’ and the lawyer says, ‘No you didn’t.’ So, do not assume that the lawyer will automatically know everything you want done,” says Timothy J. Miller, general counsel at Novack and Macey LLP.

“If it is important to you that some particular thing be done in some particular way, make sure your lawyer knows it. Ideally, there should be a written record of exactly what you have asked the lawyer to do. That will help avoid misunderstandings about what is expected.”

Smart Business spoke with Miller about avoiding malpractice.

How does someone find a qualified lawyer?

There are many ways to identify qualified lawyers. If you have a lawyer who has done a good job representing you in the past, he or she may be able to recommend somebody to represent you in a case outside his or her area of expertise.

There also is a lot of information about lawyers available on the Internet. Your social media contacts may be able to help, and so might your friends and colleagues.

But, don’t just grab the first name that comes your way. Investigate and interview more than one lawyer before making a decision.

What else can help someone avoid malpractice?

Year after year, lawyer disciplinary agencies report that the No. 1 complaint clients have about lawyers is that lawyers fail to communicate as the client expected.

So, when you are picking a lawyer, you should be clear from the outset what are your communication expectations. Then, during the relationship, the lawyer should respond promptly to your emails and phone calls.

If your lawyer doesn’t respond to your calls, you need to do something about the problem, and ultimately, you may need to find a new lawyer.

Communication is not a one-way street. For example, you should pay attention to the copies of court filings and communications your lawyer sends to you and let the lawyer know if you see something you have questions about.

You also should respond promptly and honestly to your lawyer’s calls and emails. If you don’t return your lawyer’s calls or aren’t truthful with your lawyer, you are opening the door to problems.

In addition, you and your lawyer should communicate clearly about fees. That way you won’t be surprised about the size of your bill.

What if a client is unhappy with the lawyer?

If you are unhappy, you need to make sure the lawyer knows it. For example, if you are unhappy because draft documents do not address a specific issue, your lawyer needs to know that you are unhappy and why.

Lawyers are not mind readers, and if you don’t tell them that something is wrong, they probably will not figure it out on their own.

If nothing else, discussing your unhappiness will give the lawyer a chance to explain his or her reasoning and give you the opportunity to agree or disagree.

What if a client thinks the lawyer has committed malpractice?

Lawyers are humans. Thus, they are not perfect and occasionally do make mistakes. But, you need to keep in mind that just because something went wrong, your lawyer did not necessarily commit legal malpractice.

Cases are lost and deals go wrong even when the lawyer performed well. In addition, sometimes a lawyer makes a mistake, but the mistake is not really what caused the case to be lost or the deal to go bad.

If you believe that your lawyer made a mistake and that the mistake damaged you, consult with a lawyer who understands legal malpractice. Just as you should have done when picking the first lawyer, make sure you pick the right lawyer to advise you on this issue. ●

Insights Legal Affairs is brought to you by Novack and Macey LLP

How to protect your trademark online

Trademarks are the face of a company and its products and services. Customers rely on trademarks when making purchasing decisions — associating a mark with a certain quality. People often confuse trademarks with patents and copyrights. While copyrights protect the expression of ideas and patents protect inventions, trademarks are words, designs or symbols that identify and distinguish the goods of one source from another.

“A trademark represents a company’s goodwill, essentially a company’s reputation, and allows a company to distinguish itself from competitors,” says Alexis Dillett Isztwan, member at Semanoff Ormsby Greenberg & Torchia, LLC. “That’s why it’s so important for a business to invest in the protection of its trademarks.”

Smart Business spoke with Isztwan about trademarks and how to protect a brand online.

How has increased social media usage impacted how companies brand themselves?

Social media gives companies a platform to build brand recognition and loyalty. A trademark is a critical piece of establishing a brand identity. However, there are a number of risks and pitfalls. On social media, mistakes can be disseminated and amplified quickly. Blunders are posted, Tweeted about and mocked on YouTube. Damage to a company’s brand can happen in a heartbeat on social media. Prior to the advent of social media, businesses had the luxury of time to fix mistakes before hard-earned reputations were undermined by a post gone viral.

What advice would you give about obtaining a trademark for a company name?

Company names are often used as trademarks and should be protected as marks not simply registered with the state as a corporate name. Limited rights in trademarks arise from use in commerce. However, federal registration provides national protection and the strongest protection for your mark in the U.S. Distinctive trademarks are stronger and more protectable. Companies shy away from adopting unique marks opting for marks that merely explain to consumers what the business does. Not only are descriptive marks unprotectable, they fall short of what a business should strive for in its mark — setting itself apart from the competition. Finding a unique mark that has not already been adopted is difficult, so it is essential to perform a thorough search before launching a mark in commerce or applying for a registration.

How should a business protect its brand online?

Once a business settles on an available trademark and files a federal application, several additional steps are worth taking. Use the mark consistently in commerce. Obtain domain names and social media tags not only for the trademark but also derivatives of that mark. Use proper trademark notices: ™ for marks in use but not registered and ® for registered marks. Proper notice alerts third parties of your rights and provides additional protections.

Monitor use of your mark: supervise licensees to ensure proper use of the mark; keep an eye on use of the mark online — sign up for programs like Google alerts, and pay attention to social media sites that your customers might frequent like Facebook, Twitter and YouTube.

How is trademark infringement different on social media and the Internet?

Trademark infringement is infringement — on- or off-line. Certain types of misuse are unique to social media and the Internet including cybersquatting, phishing, brandjacking, and misuse of meta tags. Infringers have many options on the Internet and social media to benefit from the goodwill of established marks, and often are able to do so anonymously. Trademark owners struggle to mitigate damages resulting from the infringement while not knowing who the perpetrator is. Courts will sometimes assist in obtaining the identity of an infringer, but filing suit can be costly and distracting.

Another tricky facet of infringement on social media and the Internet is determining whether the unauthorized use satisfies the “use in commerce” requirement of an infringement claim. In a brandjacking case, imposters may not be using the mark in connection with the sale of goods — while the damage to the business’s reputation is the same, the unauthorized use may not constitute trademark infringement. Adopting a strong mark and vigilantly monitoring usage of and enforcing rights in a mark are critical elements to protecting a company’s mark, and reputation, online.

The Supreme Court’s Alice decision could invalidate your software patent

A Supreme Court decision from this past June could mean that companies with patents on software-related inventions will lose that protection.

The ruling in Alice Corp. Pty. Ltd v. CLS Bank International changes what is patent-eligible subject matter. That could leave some patents unenforceable, and will challenge companies to rethink how they draft patent applications.

“Up until this decision, it was understood by the U.S. Patent and Trademark Office and patent attorneys in general that software-related patents were patent-eligible subject matter if they were sufficiently tied to a machine, such as a computer” says Christian Drago, a senior associate at Fay Sharpe LLP. “In essence, you’re not claiming the software, you’re claiming the computer that’s performing the function that the software is instructing it to do. After Alice, the court said adding a computer is not enough. They’re looking for something that tangibly affects the real world.”

Smart Business spoke with Drago and Jay Moldovanyi, a partner at Fay Sharpe, about the court’s decision and the risks companies now face.

Who does this decision affect most?

Anyone who has patented business methods, such as those that function to process financial information, may be at risk. For instance, Alice Corp. owned several patents directed to a computer-implemented scheme for mitigating settlement risk via a third-party intermediary that CLS Bank International was utilizing, until Alice notified the conglomerate of a possible infringement.

This is also going to affect app developers and e-commerce because they’re not tangibly affecting the real world.

How might this decision play out across those industry players?

Companies with software-related inventions and business methods may move away from filing patents. Many of these companies will use trade secret and copyright to protect their inventions, which are strategies that have some negative consequences.

Copyright can be used to protect software, but to get copyright protection a copy of the code must be sent to the Library of Congress, which means it could be copied. That creates unwanted exposure. So, more likely, companies will protect their inventions as a trade secret. That can be burdensome because it’s difficult for to maintain the secrecy of each step. It also puts a company at risk when those products are sent to the market because the function code may then be copied.

Why is the court taking this approach?

The Court is trying to prevent patents on what are considered abstract ideas, from preempting the use of those ideas by the public. For example, if the court allowed a patent on a human gene, that would preempt someone from studying that gene.

The problem, however, is that the court gives little guidance on what ‘abstract idea’ means.

How can companies with affected inventions protect their products in light of this decision?

Most of the software that’s being invented is going to affect something in the real world, it’s just a matter of making that relation clear in the patent application.

Based on the current rejections being issued by the Patent Office, claims of pending or new applications must be drafted in a way that shows an improvement to an existing technological process, uses an output to affect a tangible object, or links the idea to a particular technological environment with some form of meaningful limitation.

The court is showing that it equates ‘technology’ with ‘physical.’ So, any claims to an ‘abstract idea’ will be deemed patent-eligible only if they claim tangible, physical results or have an impact in the real-world.

Should companies with existing patents on these products be concerned that they could lose their legal protection?

Software remains patentable under the Alice decision. But the manner in which it is described, and the field in which it is implemented, will limit the scope of protection available.

Companies negotiating a license agreement should take precautions that licensees don’t sue for declaratory judgment of invalidity. But the bigger concern is asserting patent protection against infringers.

Contact a patent attorney if there’s a chance patent rights could be lost because of this recent judgment. He or she may be able to help rewrite the patent claims by way of a reissue patent.

When to sacrifice the benefits of arbitration in favor of litigation

Many business managers include arbitration provisions in their companies’ contracts. The prevailing philosophy being that arbitration is preferable to traditional litigation via the court system because it is private, speedier and less expensive. Under certain circumstances, however, a party may prefer to litigate a particular dispute in court even though it previously included an arbitration provision in the relevant contract.

“In such a situation, depending on the dispute and the arbitration provision, a party may be able to avoid arbitration and assert or defend its claim in a state or federal courtroom,” says Joshua E. Liebman, a partner at Novack and Macey LLP.

Smart Business spoke with Liebman about choosing traditional litigation despite the existence of an arbitration provision.

Why would a company choose not to arbitrate?

There are many reasons why a company may prefer to litigate in court as opposed to resolving its dispute via arbitration. For example, it may believe that it needs the broad discovery permitted by the courts, which is typically limited in an arbitration proceeding. Or, a party may believe that it has a strong technical legal defense that is more likely to be enforced by a court bound by the law than by an arbitrator who is not subject to review by the appellate court and may be inclined to seek a more equitable resolution. Also, a party may want to avoid arbitration if there is too much at stake. The substance of an arbitrator’s award is not subject to review on appeal. Rather, a court’s review of an arbitration award is limited to whether the arbitrator acted within the scope of his or her authority and whether the award is consistent with the terms of the underlying contract. A party may prefer to have the protection of appellate review in a substantial dispute.

Can a party that prefers litigation be forced to arbitrate?

Arbitration is contractual by nature. That means that if a party contracts to arbitrate a dispute, it is bound by its agreement to do so. On the other hand, a party cannot be forced to arbitrate any dispute that it has not agreed to submit to arbitration. Accordingly, even if a valid and enforceable contract containing an arbitration provision exists, a party may refuse to arbitrate when the dispute is beyond the scope of the arbitration provision.

Based on the previously mentioned prevailing philosophy that arbitration is preferable, contractual parties often attempt to nullify a ‘beyond the scope’ argument by inserting broad, all-encompassing language into their arbitration provisions that subject to arbitration ‘any and all disputes arising out of or relating to the agreement.’ However, if instead of using this broad stock language the parties take the time to draft a narrowly tailored arbitration provision that identifies certain disputes for arbitration or excludes certain disputes from arbitration, then courts will not force a party to arbitrate a dispute that is beyond the provision’s scope.

Who decides whether a claim is subject to the parties’ arbitration agreement?

Under federal law, a court determines whether the parties are bound by a given arbitration agreement and whether that agreement to arbitrate applies to a particular type of controversy. Under Illinois law, if the arbitration agreement is clear, the court makes the initial determination. If the language is broad or uncertain, the arbitrator decides. In all events, parties can contract to submit the question of ‘arbitrability’ to the arbitrator.

What can business managers do to avoid arbitrating disputes that they prefer to adjudicate in the courts?

It begins and ends with the arbitration provision. If there are specific categories of disputes that a company prefers to resolve in the courtroom, it must identify those disputes and draft an arbitration provision that excludes them. It is crucial that business managers think about the effect of including arbitration provisions in their contracts and craft those provisions to meet their companies’ needs. Arbitration provisions are not one size fits all.

Four common mistakes in business that won’t cost you much to avoid

Realizing it’d be a setback if a key employee who drives a lot of revenue to your business walked out the door, you offer a minority share in the company to show how much you value what this person does.

Six months later, a great opportunity arises with a competitor and the employee decides to take it. You must come up with an amicable solution to the ownership issue, but that’s not your only concern. It turns out you didn’t have the employee sign a non-compete agreement, so he is free to immediately take his talents and client connections to one of your biggest competitors.

The decision to sell shares in your business or to not get a non-compete agreement on file are two mistakes that Todd C. Baumgartner, a partner at Brouse McDowell, sees business owners make over and over again.

“For a few thousand dollars or less of legal work, these mistakes, which can cost a company hundreds of thousands of dollars, can usually be avoided,” says Baumgartner.

Smart Business spoke with Baumgartner about four of the most common mistakes businesses make and what you can do to avoid them.

Mistake No. 1: Not having non-compete agreements for key employees.

Star performers bring revenue to your business. Depending on the depth of your sales team, they can be responsible for a sizable percentage of the overall money that your company brings in each year. A non-compete agreement protects you by formalizing what happens if the employee decides to leave.

The process is not expensive and requires just a few hours with your legal team to make sure you’ve covered all the bases. You may get some grumbling from an employee who has a strong position from which to negotiate. But even if it’s only for six months or a year, it’s worth it to get the agreement.

Mistake No. 2: Not separating key assets in a corporate structure.

Let’s say you have a manufacturing company sitting on a piece of land worth $500,000. You find out the Environmental Protection Agency has issued a $2 million finding on the land. If you have the real estate and the operating company separated, the environmental liability won’t impact the business. You may lose the real estate, but you can keep all your equipment and keep the business operating.

Conversely, if you have a separate operating company and there is an accident in your manufacturing facility, a creditor won’t be able to go after the real estate because it’s a separate company. The limited liability company (LLC) is a useful tool to split out your real estate and it’s something that can be done fairly seamlessly.

Mistake No. 3: Bringing in key employees as minority shareholders.

Once you take this step, you can no longer terminate the employee without a legitimate business reason, even if their contract says they are employed on an at-will basis. Complications also arise if you want to reorganize the company.
If this employee works in one part of the company that you want to split off, there is potential liability if you move money between the divisions because you’re moving it away from a minority shareholder.

If the employee decides to leave and you’re not publicly traded, there could also be a dispute about how much the individual share is worth.

A profit sharing program, a stock appreciation rights plan or phantom stock are few options that help you avoid these problems.

Mistake No. 4: Not protecting intellectual property.

Companies will develop software and not get any type of patents on it. There are patent trolls out there just looking for ideas that don’t have intellectual property (IP) protection. Talk to an IP attorney to go through your inventory.

People don’t value IP the way that they should. For some companies, IP is their whole business.

It’s advisable to protect everything, especially for companies looking to make a liquidity event or exit strategy. A potential buyer is going to come in and look to see what is and what is not protected.

What retired pro athletes can teach seasoned leaders about business

The transition from being a professional athlete to an entrepreneur is fraught with risk. Your physical gifts may carry you a long way on the field or the court, but in the business world there are many other factors that play into your ability to succeed.

“It’s a difficult psychological transition,” says Luke Fedlam, emerging business attorney and chair of the sports and entertainment practice at Kegler, Brown, Hill + Ritter. “The first step to managing that transition is to figure out what it is they are going to do with the rest of their lives.”

The challenges faced by retiring pro football players are not all that different from those faced by entrepreneurs feeling the itch to try something new. While the former often has very little business experience, those in the latter group often think they know more than they actually do about what they’re getting into.

Smart Business spoke with Fedlam about the challenge of expanding your business portfolio and how to make the transition easier.

What is one of the biggest mistakes an entrepreneur can make?

Whether you are a former athlete turned entrepreneur or an established business leader who wants to branch out into a new industry, you still need to assemble the right team around you to be a success. When you don’t have that support, it can lead to a lot of problems.

Many professional athletes have mentors that they look to for support. That also holds true for entrepreneurs who have been in the corporate world and built successful businesses. The same philosophy of being open to help must be an integral part of your transition. It’s not expected for you to know everything, so having someone on your team who you can rely on to ask the difficult questions and feel comfortable doing so is a critical component of success.

What lessons can an established entrepreneur take from a retired athlete turned entrepreneur?

The first is to have a game plan for success. What are you looking to get out of this experience? Retired professional athletes know very well the work that went into each step of achieving their dream of playing professional sports. The next step was always on their mind and it’s the same with business.

There is so much that goes into the development of a business that focusing on the success solely because you believe in the industry, service or product will not benefit you or your business in the long-term.

Protecting yourself is vitally important. It could be something simple, such as making sure the appropriate agreements among your business partners are established and you have the necessary corporate formalities in place.

Go beyond the expected return, beyond the opportunity itself and ensure that from a business perspective, you’re protected. Develop the tools in the beginning so when it’s time to take the field, you’re ready to perform.

How do you find the right people to build a strong team?

It’s a matter of establishing your expectations and then having a team at the top that can hold everyone accountable. Articulating both standards of performance and business goals are crucial in forming your plan. It is also important to have a ‘no’ person as part of your team. Oftentimes successful athletes and business leaders are surrounded by people who do not want to ‘upset the apple cart’ and always agree with the leader.

A successful leader ensures that their team understands the business strategy but is empowered to challenge ideas and drive innovation. An added benefit to this approach is when a business leader looks to start a new business, the ‘no’ person can help protect the leader from making decisions that don’t correspond with the direction of the business.

A ‘no’ person will insulate you from the emotional decisions that come with being an entrepreneur, especially those related to personnel decisions. This person has the ability to objectively say, ‘This person is or is not doing the things necessary to make this a successful company.’ The right team can make all the difference.

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