What to know when questions come up about workers’ comp entitlement

The authority of an employer to deny an employee’s entitlement to workers’ compensation benefits can sometimes be difficult to define. The challenge arises when the employee has done something that leaves the individual unable to work, says Dave McCarty, a director at Kegler, Brown, Hill + Ritter.

“Most employers have written work policies that lay out what you can and can’t do as an employee in that company,” McCarty says. “Those policies have implications on employment status. The question is to what degree can those policies also be used to impact your workers’ comp entitlement?”

In other words, if you have an employee who is terminated as a result of breaking a written company rule, are you still responsible to cover the employee’s workers’ compensation claim?

Smart Business spoke with McCarty about what to do when faced with questions about workers’ compensation entitlement.

How do workers’ compensation entitlement cases come about?

They happen more often than you might think in a variety of scenarios. For example, you have an individual who lies on his employment application. He says he has a commercial driver’s license and gets hired and injured before it’s discovered that he lied and wasn’t qualified for the job. So you have a valid workers’ compensation claim, but a question as to whether he is entitled to compensation or only payment of medical bills. It’s a big deal to employers because compensation being paid as opposed to medical benefits being paid, things like total temporary disability and other forms of compensation, are big cost drivers for employer premiums. If employers can avoid having to pay compensation, even though there is a valid claim, that’s significant.

What is the voluntary abandonment doctrine and how does it apply in these cases?

If an employee is fired for violating a written work policy that clearly defines the prohibited conduct, which has been identified as a dischargeable offense and which the employee knew or should have known, he is not entitled to temporary total disability benefits. The reason is the fact that it is his own action, rather than the injury in the workplace, which prevents returning to work and therefore the loss of wages. There needs to be a causal connection between the injury and the loss of wages in order for the person to be entitled to compensation.

In 1995, a case called Louisiana-Pacific said that if you as an employee take some action that you know or should know is going to result in your termination, the natural consequence of that act which can be anticipated is you’re going to lose your job. The causal connection between the injury and the loss of wages is broken.

What is total temporary disability?

It’s defined as a temporary inability to return to the former position of employment. So whatever the person was doing at the time he or she got hurt, if the doctor says as a result of the injuries, the person can’t do his or her regular job and it is a temporary situation, not a permanent inability and then that person doesn’t return to work, they would be entitled to temporary total compensation. Other than when incarcerated, that rule is pretty universal with one exception: if you commit violations of written work policy that result in your termination, you may not be entitled to compensation.

Are employers typically familiar with how these cases are handled?

Enough employers are unaware of how this issue is handled that legal advice is recommended. Larger employers often have a support staff in place and probably have encountered these situations before. Smaller employers may not have the experience to realize that this is a defense that might be the difference between being able to stay in a group and have really good premium savings or get kicked out of the group and have the business’s bottom line really be impacted.

How should employers respond to workers’ compensation entitlement questions?

Meet with legal counsel before deciding on a course of action. If a network of attorneys and third-party administrators can be established to serve as a sounding board when these issues come up, it can make dealing with them much easier.

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

Why you must diligently enforce policies that protect valuable data

When most people think of cybersecurity issues, they think about loss of personal information such as bank and credit card data or usernames and passwords which may lead to identify theft and potential financial loss.

But the loss of intellectual property (IP) and IP rights can often create more lasting damage, says Michael Craig, an attorney in the Intellectual Property Group at Brouse McDowell.

Patents, trademarks, copyrights and even trade secrets are all tools used by companies to protect their IP rights. The problem is some companies get so busy that they don’t take the time to formally apply for these protections.

“You’ll find companies that put it off and leave openings for their invention to be disclosed publicly,” Craig says. “One of the things about patents is there has to be absolute novelty, meaning no public disclosure. It doesn’t matter if it’s inadvertent or purposeful. If it’s publicly disclosed, you may not be able to get a patent on it.”

Smart Business spoke with Craig about how to protect your IP from being exposed through social media.

What can a company do to protect its IP from being leaked?

If you have new discoveries, inventions or processes that you want to protect with a patent, don’t wait. The law recently changed with patents so that it is the first person to file that gets the patent. It used to be the first to invent, but now it’s the first to file. So the first person to the patent office with their application is the one who gets the patent.

In the U.S., there is a one-year grace period from public disclosure, but most other countries do not have that in place. So the lesson here is once you’ve vetted something for a patent, pursue it as quickly and securely as possible.

Trademarks are a little different in that once you file a trademark, it becomes publicly available. If you’re Cedar Point and you’re coming out with a new roller coaster, you might not mind the publicity when you file the trademark. But if you’re rolling out a new branding strategy, you may want to wait to file until the day you are coming out with it so as not to alert others until you’re ready.

Trademarks, copyrights and patents are all protected by federal law. This is not the case for trade secrets. But if you have a design, process, procedure, formula or some method that you derive some kind of economic value from not being known by others, you are protected in Ohio. As long as you’re making an effort to protect that information as a trade secret, you can do it perpetually.

What’s the key to protecting IP as it is being developed?

Information loss often comes by way of current and former employees and vendors. Most often it is a crime of opportunity, and is not always malicious. It’s unlikely that your company will fall victim to an act of corporate espionage involving an unknown infiltrator trying to expose your new ideas.

But events occur, and companies often live by the ‘patch and pray’ method of protecting IP. An incident occurs and you throw a patch on it hoping it never happens again. Obviously, this is not a very reliable security strategy.

The best approach is to begin with a top down review of how information is managed in your company both internally and externally. Everything is on the cloud now, providing countless access points to valuable information. Get a policy in place to protect you and enforce that policy. Make sure all employees, vendors and anyone else who might come across sensitive information sign nondisclosure agreements that provide a remedy if something is disclosed. You also need a policy for online behavior. Any place you go, you have people on their mobile devices accessing a variety of information online. Unfortunately, that’s where these compromised bits of code and things are introduced onto the devices.

They return to the office, link back to your system and that code gets uploaded which can allow access to sensitive information.

You may need to limit user access to websites or the email they can send and receive, if you have information you’re serious about protecting.

Insights Legal Affairs is brought to you by Brouse McDowell

Don’t let IP protection be a side note

Building a strong intellectual property (IP) portfolio benefits a business by improving market access, facilitating a strong market presence and building defensive strength against new market entrants. Ultimately, this creates the two-pronged effect of establishing a stable revenue stream and increasing the attractiveness of a business to potential buyers.

“Whether a business is a startup or experiencing growth, it is important to understand IP from the outset and, together with an IP professional, develop a protection and enforcement strategy for strengthening the business’ IP,” says Alexis Dillett Isztwan, member at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Isztwan about IP, what assets are most worthy of protection and how to avoid common mistakes.

When should a business start to invest in its IP portfolio?

Time is of the essence when protecting IP. Certain types of IP rely on early protection efforts —patent applications must be filed within a year after an invention is public and trade secrets must be kept secret from inception.

What IP should a business protect, particularly if cost is a factor?

The key is to evaluate what drives the business’ revenue stream. For some businesses, the answer is simple: the main focus of their IP strategy is their next great invention or hot software product.

Businesses in a crowded product or services market, however, achieve success by differentiating the business with a strong brand and effective branding effort. For these businesses, company value relies heavily on brand strength and market presence. Multiple assets often work together to generate this success: the business’ trademarks, website, advertising and social media presence. Protection for these assets through trademark and copyright registrations should be explored, particularly as they form the crux of the company’s value. Many businesses tend to underestimate the need to protect those assets.

When evaluating whether to invest in formal protection for IP assets, most businesses weigh the value of the IP asset against the cost of the protections. The better analysis is to determine what the business loss would be if it no longer had exclusive rights to the IP and competitors were free to use it or if the business faced an infringement lawsuit.

An essential element of building a valuable IP portfolio requires looking at both protecting the business’ IP and avoiding infringement of someone else’s IP. Going through the IP protection process will often shed light on the strength of the business’ IP as well as the potential for infringing existing IP of others.

What are some of the most common IP missteps businesses make?

By far the most common misstep is businesses failing to have the proper IP agreement in place when engaging a developer or other vendor to develop a product.

Businesses often pay to have a critical product developed — typically a software product — only to discover later that it does not own the IP. This misconception arises from a common misunderstanding of IP laws.

Under IP law, absent an assignment, the developer or the inventor owns the IP asset. While the business paying for the development may retain certain implied license rights to use the IP asset, those rights are not exclusive and the business is not the owner. For that reason, a business must ensure it has written agreements with all developers/contractors and that they contain assignment language ensuring exclusive ownership rests with the business. Potential buyers of the business will want to see a clear chain of IP ownership during due diligence.

Another frequent misstep is businesses investing significant resources in launching a new brand without conducting proper trademark availability searches. Businesses often forgo searching citing the cost. Discovering post-launch via a demand letter that the new brand infringes someone else’s trademark, however, puts the upfront search cost into perspective.

While earlier is typically better, businesses always benefit from getting their IP in order, whether the objective is attracting potential buyers or dominating the market. Businesses should also plan a periodic review to ensure any new developments are adequately protected.

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

Staffing firms and their clients: Who is the employer?

The Affordable Care Act (ACA), with its so-called “play or pay” penalties under the employer mandate, has some businesses deciding not to increase their permanent workforce. Large employers must offer group health insurance to their full-time employees or pay a penalty. That has many employers turning to staffing agencies as a cost-saving solution.

“Generally, staffing firms offer lower benefits for the temporary workers placed with clients as compared to a business’s permanent employees,” says Jules S. Henshell, of counsel at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Henshell about the employer mandate and the use of staffing agencies.

What is the employer mandate?

The ACA added Section 4980H to the IRS Code to require applicable large employers to either offer their full-time employees, including full-time equivalent employees (FTEs), affordable, minimum essential health coverage or pay a penalty. For 2015, employers with at least 100 FTEs are subject to this so-called pay or play mandate. In 2016, the mandate becomes effective for employers with at least 50 FTEs.

For 2015, an employer that fails to offer minimum essential coverage must pay a penalty of $2,000 per year for each full-time employee minus the first 80 if any full-time employee receives a tax credit to purchase health insurance through a health care exchange. Beginning in 2016, the penalty is based upon the number of full-time employees minus 30.

An employer may be liable for a penalty of $3,000 annually for each full-time employee who receives a tax credit because the employer does not offer coverage that is affordable or fails to provide minimum value.

How can staffing agencies help business owners comply with the ACA, contain costs and avoid penalties?

If a business uses temporary workers from a staffing agency, it can get work done without increasing its FTE count. If the business is close to the threshold for becoming a large employer, using a varying number of temporary workers hired through staffing agencies can save benefit costs. A small business with fewer than 25 FTEs could bring in temporary workers as needed, remain below the employee threshold and thereby maintain eligibility for health care tax credits under the ACA.

By using a temp-to-perm hiring plan, businesses can delay the cost of providing health insurance. The staffing agency supplies qualified candidates. If they don’t work out, the client can request another worker from the staffing agency without having to go through the firing process.

Is the staffing agency responsible for the ACA pay or play obligations?

The determination of who is the employer is complicated in a scenario in which a business retains the services of temporary and contract workers through a third-party staffing agency. The operating premise of the staffing industry has been that a staffing firm is the employer of the workers it assigns to clients for the purpose of tax and benefits laws.

It remains to be seen, however, whether the ACA’s shared responsibility requirements will impact which entity is deemed to be the common law employer and subject to the employer mandate penalty. That determination requires a case-by-case factual analysis. There are some 20 factors that are considered by the IRS. Those factors address what entity has behavioral, financial and legal control over a worker. The fact that a staffing contract designates which party is the employer is not dispositive of the issue, according to the IRS.

How can businesses using staffing agencies limit their risk under the ACA?

Together with counsel, businesses should review their staffing agreements, operations and financial arrangements and determine who is likely to be deemed the employer under the common law test. Businesses and staffing firms should each assess internal compliance with the ACA employer mandate by reviewing health insurance coverage, correctly tracking employee hours and accurately identifying new workers as variable hour, part-time, seasonal or full-time. Also, review and revise all staffing agreements to promote the reliability of representations that the staffing firm is the employer and it will provide adequate offers of health coverage where required by the ACA as well as indemnification of the business client.

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

Companies must be thoughtful in how wellness programs are offered

Corporate wellness programs lead to healthier and more productive employees, as well as reduced insurance premiums. There are challenges, however, in the design and implementation of these programs, says Daniel K. Glessner, attorney at law with Brouse McDowell.

“Wellness programs are viewed by employees in different ways,” Glessner says. “Some see them as a violation of their privacy and do not want to be told that they have to do certain things to participate in a wellness program.”

This leaves employers in a tough spot. In order to maximize savings on health care expenses and reduce insurance premiums, you need to maximize participation. But there are legal considerations in terms of what you can do to compel employees to participate.

Smart Business spoke with Glessner about designing a wellness program that is compliant, maximizes participation and reduces your insurance premiums.

How can a wellness program help a company reduce insurance premiums?

Your savings is completely based on participation. Insurance companies will say if you get 80 percent of your people to participate, you will save X on your premium — savings resulting from an anticipated reduction in claims when you have healthier employees. There are also deductible business expenses, which can provide a tax advantage to corporations that have wellness programs.

What legal considerations should companies be concerned about?

Under the Affordable Care Act, employers may reward employees for participation in nondiscriminatory health-contingent wellness programs. However, the Americans with Disabilities Act (ADA) requires participation in wellness programs to be voluntary. That leads employers to the question — what does voluntary mean?

In late 2014, the Equal Employment Opportunity Commission (EEOC) began targeting corporate wellness programs under the ADA. The EEOC has sued in cases where employees were required to pay the full cost of their health plan premium and fined $50 if they did not complete a health assessment and fitness test, and in a case where an employer required that employees submit to certain testing or their insurance coverage would be cancelled.

Most recently, the EEOC sued Honeywell over its wellness program, which requires employees to get biometric testing, or stand to lose the contribution to their health savings account and incur a $500 surcharge on their insurance premiums. This case is still pending and leaves many unanswered questions for employers. The EEOC has acknowledged that with regard to voluntary wellness programs, the meaning of ‘voluntary’ warrants further clarification.

Until that happens, be transparent in communications to your employees. Emphasize rewards for those who participate and refrain from punishing those who don’t. Be clear about how personal information is collected, why it is needed, and how it will be protected. A good rule of thumb is to offer your employees a discount on their premium in return for completing a health assessment, rather than charging them if they fail to complete testing.

How does physician pay/reimbursement factor into the wellness equation?

The payment structure from Medicare and commercial insurers is trending towards risk-sharing. Providers have a strong incentive to have a healthy patient population. Where a hospital’s reimbursement is based on having healthy patients, incentive pay for its employed physicians may be based on metrics that determine a healthy patient population.

The use of electronic health records also makes it easier to have a recurring dialogue with patients that encourages a healthier lifestyle. Momentum is in place to improve wellness programs in the workplace and in the process, reduce insurance premiums. For naysayers, consider the power of one life that is changed.

If one or two people quit smoking, monitor their diet or manage their diabetes, that’s a great start. Ultimately, corporate wellness programs are encouraging employees to become healthier. The challenge lies in implementing a wellness program that complies with the law and effectively incentivizes employees.

Insights Legal Affairs is brought to you by Brouse McDowell

Energy efficiency audits can be a valuable tool in reducing expenses

Business owners who continuously evaluate the energy it takes to power their company and then search for ways to do it more efficiently can significantly reduce their expenses, says Christopher J. Allwein, Of Counsel at Kegler, Brown, Hill + Ritter.

“It’s easy to remember to turn out the lights when you leave a conference room,” Allwein says. “That’s conservation. Energy efficiency is finding ways to do what you need to do to power your business, but do it with less energy. With the rapid pace of technological innovation, it’s important to go back every so often and look at what’s out there to make your business more energy efficient.”

Smart Business spoke with Allwein about developing good energy efficiency practices.

What are some easy steps a company can take to be more energy efficient?

You can begin your pursuit of greater energy efficiency by hiring an energy services professional to come in and conduct an audit of your power usage. If your company is within the territory of an investor-owned utility, contact that utility and review what programs are available for businesses.

Start by identifying obvious areas where efficiencies can be gained cost-effectively (lighting, motors, etc). Next, re-examine processes that may be energy intensive and see if there is a way to accomplish the same result with less energy. Maybe there is a strategic opportunity to cut a couple steps out of a process or new technologies that could enable you to complete that process more efficiently.

What is cogeneration?

Cogeneration, more commonly known as combined heat and power, or CHP, integrates the production of usable heat and power in a single, high-efficiency process. It is not a single technology, but an integrated energy system that can be modified depending upon the energy needs of the process or end-user. Most CHP facilities employ a natural gas generator, but the process is fuel neutral, meaning you could also employ waste heat, fuel oil, etc.

CHP generates electricity and captures the heat byproduct, which can be utilized for space conditioning or as part of a manufacturing process. It reduces the amount of electricity that a business has to pull through utility wires. It’s more efficient because you have excess heat capture that you can now use to power another part of your business. CHP facilities are typically between 70 and 80 percent efficient.

What programs are available to help fund such energy efficiency initiatives?

There are several available from Ohio utilities. Dayton Power & Light just announced a program that provides a fairly significant incentive not only for the project itself, but it also provides funding to offset the cost of an audit. American Electric Power (AEP) Ohio and Duke Energy have also proposed or provided incentives for customers participating in their programs.

If you receive service from an investor-owned utility and think your company might have potential for a CHP facility, you should contact that utility to see what is available. A good approach is to identify the opportunity and then look for rebates or incentives that are available either through the utility or through the state and federal government to offset the cost of the facility and decrease payback time.

What else can companies do to promote energy efficiency?

The best eyes and ears to discover that potential are your employees. Talk to your employees and department managers about the processes they follow to complete their work. Find out if they have ideas to streamline a process. Energy efficiency helps the utility companies deal with forecasted increases in future demand. It’s a way to control future demand increases by making any increase more steady and predictable.

How does the process become easier with a new facility?

The idea of starting something from the ground up when expanding a facility or building a new location is something that is being emphasized in architecture and pre-construction engineering. By investing a little more upfront to make the structure more efficient, you’re going to save quite a bit once you’re in operation or once the new space is occupied. It’s a huge opportunity.

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

What employers need to know about notifying employees

Employers are scrambling to comply with the requirements of the new California sick leave law, the Healthy Workplace Healthy Family Act of 2014.

The law, which covers all types of employees, including interns, part-time and seasonal workers, says that employees who work in California for 30 or more days within a year from the beginning of employment are entitled to at least one hour of paid leave for every 30 hours worked.

“This law applies to employers of all sizes, from those that employ a few individuals who work from their homes to companies that have a workforce that includes thousands of employees,” says Olivia Goodkin, a Labor and Employment Partner at Greenberg Glusker. “It also requires employers to notify employees of their rights.”

Smart Business spoke with Goodkin about what employers need to know about their notification obligations under this new law.

What are the posting and notice requirements employers must follow?

As of Jan. 1, 2015, employers were required to post information about the Healthy Workplace Healthy Family Act in a conspicuous location at the workplace and provide individual notices to both new and existing employees regarding the new sick leave policies. Although notice requirements took effect on Jan. 1, 2015, employers may delay changing their actual sick leave policies until July 1, 2015.

There has been some confusion about the notice requirement. California law, specifically the Wage Theft Protection Act, requires employers to distribute written notices to new nonexempt employees with information regarding wages, workers’ compensation coverage and now compliance with the new sick leave law.

Most employers use the approved notice that is posted on the Division of Labor Standards Enforcement (DLSE) website for these purposes — the DLSE, in addition to providing the notice, is also charged with interpreting and enforcing the new sick leave law.
The notice must be completed and provided to all nonexempt employees hired on or after Jan. 1, 2015, at their time of hire. But it is never too late to provide the notice if you have not done so already.

Under the new law, what must happen if an employer changes its sick leave policy?

According to the DLSE’s FAQs section of its website, the notice must be given to all nonexempt employees both at the time of hire and also at the time any information on the notice changes. For example, if an employer changed its sick leave policy on Jan. 1, 2015, then information about the change needed to be given to existing employees at that time.

The notice is not strictly required. The new information, however, must be communicated in a separate written document containing the required information. Thus, if you have distributed a new handbook or sick leave policy to employees — hopefully with an acknowledgment form for the employee to sign — then you can bypass use of the notice for existing nonexempt employees.

Employers that wait until July 1, 2015, to change their sick leave policies may wait until that time to provide either the notice or another written document to their existing employees, notifying them of the change.

The FAQs also state, somewhat confusingly, that even if an employer’s existing sick leave policy complies with the new law and no changes are made, the notice must be distributed to existing employees containing information about the sick leave law. Although the statute only requires notices to be given to nonexempt employees, it’s recommended that for any change in policy, written notification is distributed to all affected employees.

What questions do employers still have regarding the new law?

While some questions have now been answered by the DLSE, other questions remain. One common question, how employers should determine sick leave entitlement for part-time employees, has been answered. If, for example, a part-time employee is provided three sick days, the three days are considered 24 hours, the minimum required under the law. If the part-time employee regularly works five-hour days, and one sick day is considered five hours, the employee will therefore have 19 hours remaining. ●

Insights Legal Affairs is brought to you by Greenberg Glusker

How sellers can recover if real estate buyers back out of a deal

Despite entering into a written agreement to buy real estate, buyers sometimes back out of their deal and refuse to buy. When this occurs, a seller may be able to recover losses incurred based on the buyer’s breach.

Smart Business spoke with Andrew D. Campbell, a partner with Novack and Macey LLP, about some of the options disappointed sellers have when buyers renege on deals.

If a buyer won’t close on a deal, what should a seller do?

The first thing a seller should do when a buyer backs out on a deal is to review the terms of the purchase agreement. Most agreements require a buyer to provide earnest money to the seller. If the sale goes through, this money is applied towards the purchase price of the property. In the event that the buyer backs out, some sales agreements provide that the earnest money will constitute liquidated damages and will be the seller’s sole remedy.

What if the agreement does not limit a seller’s remedy to the earnest money?

If keeping the buyer’s earnest money is not the seller’s only remedy, the seller has to assess whether he or she has in fact been damaged by the buyer’s breach. For example, if a buyer deposits $100,000 in earnest money and walks away from the deal, the seller has not been damaged if the property later sells at a price equal to or $100,000 less than the contract price with the first buyer.

What if the value of property decreases by more than the amount of the earnest money?

For many buyers who entered into purchase agreements just before the great recession this ‘what if’ was a reality.
In one recent case, a buyer agreed to purchase property in late 2006 for $1.2 million with a closing in early 2007. The buyer reneged, claiming he could not get financing because of the recession — there was no financing contingency in the agreement — while the real estate market was collapsing. The seller eventually sold the building in July 2007 for about $900,000. In that case, the seller sued the buyer who reneged at the $1.2 million price.

What types of money damages can a disappointed seller recover?

The principal form of recovery that sellers may recoup when a buyer breaches is the contract price less the fair market value at the time of breach.

In deciding fair market value at the time of the breach, courts often look at what the property sells for a ‘reasonable’ time after the buyer breaches. A reasonable time can be up to a year after the breach. So, in the case where the buyer backed out of the $1.2 million deal and the seller sold at $900,000, the seller was entitled to at least $300,000, referred to as benefit of the bargain damages.

In addition to benefit of the bargain damages, some courts allow sellers to recover expenses incurred in obtaining a new buyer. These costs can include brokers’ commissions and expenses for advertising.

Further, if the seller does not have beneficial use of the property while it is looking for a new buyer, it may be able to recover expenses such as maintenance, utilities, taxes, insurance premiums and other reasonably foreseeable expenses that the seller had to cover following the buyer’s breach.

At bottom, a seller’s goal is to sell his or her property at an agreed upon price. If a buyer refuses to go forward at the price agreed to, the seller is entitled to be made whole. Making sellers whole includes providing the seller with the difference between the contact price and the value of the property at the time the buyer breaches and may also include carrying costs and costs for obtaining a new buyer. ●

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

Five tips for building a stronger, more sustainable franchise business

Franchising can be a lucrative opportunity for your business, providing the means to expand both your brand awareness and geographic footprint while also earning additional profit through royalty payments.

But many franchise systems fail because they fail to build an infrastructure that can support the new business model.

“Close to 75 percent of all startup franchisors fail within the first 10 years,” says Kacie N. Davis, associate with Kegler, Brown, Hill + Ritter. “A lot of owners see the potential in franchising their business concept and how quickly they can grow their brand and receive a new revenue stream. However, some fail to realize the initial cost of compliance and other important factors. There are things which need to be considered before you franchise.”

Smart Business spoke with Davis about five key tips that can help build a successful, sustainable franchising business.

Tip No. 1 – Establish legally compliant operations from the beginning

Make sure your franchise system is in compliance with all federal and state regulations. The Federal Trade Commission regulates franchise sales and provides the minimum level of compliance for a franchisor. Sales of franchised businesses in violation of the FTC franchise rule are subject to penalties, the ability for franchisees to rescind their contract and other damages.

Various registration states also add a layer of additional compliance. The most important (and costly) piece of compliance for a franchisor is preparing the required Franchise Disclosure Document (FDD). The FDD is a comprehensive regulated report of the franchised business, providing franchisees with detailed information on the investment they are about to make. The FTC requires franchisors to provide prospective franchisees with the FDD at least 14 days before money is exchanged or contracts are signed. Find legal counsel who can help you prepare the FDD and navigate other requirements before you start selling.

Tip No. 2 – Select the right franchisees

Look for motivated, skilled people who are enthusiastic about your brand and concept, not those looking for a business to call their own. Prior industry experience is a plus. You may also want to set a net worth requirement for your franchisees, ensuring you select someone who can afford the franchise and inject enough capital to keep it running. The bottom line: Don’t just accept anyone interested in purchasing a franchise.

Tip No. 3 – Develop a systematic growth plan

Focus on intentional strategic growth rather than growing haphazardly. Everybody wants to see their business grow, but if you don’t have a plan from the start, you could end up with a model that is difficult to manage.

Develop a systematic growth plan of the areas you want to go into rather than just letting people pop up and come to you. Let your market analysis drive the growth plan and make sure you’re growing at a speed which allows you to maintain the necessary support to make it work.

Tip No. 4 – Consider franchisee profitability and satisfaction

Don’t lose sight of the return on investment for your franchisees. Their goal is to develop a business opportunity that provides more money than they would have earned in a traditional employment situation or by opening up their own independent business.

If you don’t focus on what the franchisee can make out of it, you’re going to have a hard time selling additional franchises. Franchisees are more satisfied when you support them through training, marketing support and other services. Give them the blueprint for an ongoing, successful business. This will in turn drive your profits and help sell future franchised units.

Tip No. 5 – Don’t lose sight of the brand and underlying business operation

Once you start franchising, your primary business becomes selling that franchise.

However, never lose sight of what the business is that you are selling. Keep building the brand and reputation for that business, whether it’s locally, regionally or nationally, to build your customer base. Focus on improving your operations and systems to keep your business competitive. These efforts will help aid you in selling additional franchised units.

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

Why template employment contracts don’t work with foreign nationals

The pressure to streamline internal hiring processes and minimize legal costs often leads employers to utilize template employment agreements during the hiring process.

“Although the document may perfectly fit one type of employer and employee, it may be wholly inadequate for another set of parties,” says Isabelle Bibet-Kalinyak, an Immigration and Health Care Corporate Attorney at Brouse McDowell. “Additionally, labor and employment law is state-specific.”

Employers tend to reuse, tweak and customize the first agreement they obtain in-house, without further consulting legal counsel. Among the many pitfalls of this approach lie the obligations of U.S. employers who employ foreign nationals.

Smart Business spoke with Bibet-Kalinyak about some common traps employers can avoid when drafting employment agreements for aliens.

What is the most common issue with foreign nationals’ employment agreements? 

The most common and contentious issue is money. Who will pay for the government fees and legal costs associated with filing the immigration petition? Employers should reframe this question as follows: ‘Who can or should pay for such costs?’ The Department of Labor (DOL) and immigration regulations prevent employers from putting the burden of some costs on the employee at the onset of the hiring process. Employers cannot contract out of these obligations.

Does this apply to all types of immigration petitions or visas? 

Unfortunately, the rules differ from one type of petition to the other. For example, employers must pay all costs for H-1B and L-1 nonimmigrant visa petitions, with a narrow exception for premium processing fees, which allow the expediting of a petition in two weeks.

Similarly, employers cannot shift any of the costs of the Program Electronic Review Management (PERM) process, the first step to the permanent residence process also known as the green card process. During that initial phase, the employer obtains a prevailing wage determination from the DOL, undertakes a stringent recruitment process and applies for PERM labor certification with the DOL. While there are no filing fees involved, the recruitment fees (advertising) and legal costs can add up.

The costs of the immigrant petition (Form I-140) and adjustment of status (Form I-485) present unique challenges because the rules provide little to no guidance regarding which party should pay. Nonetheless, some state laws prohibit the shifting of costs considered ‘a business necessity.’ Whether costs constitute a business necessity depends on the circumstances.

Which costs may employers safely shift to employees?

The most conservative approach is to pay all costs and treat them as an investment in the foreign national. Another safe alternative is to shift only the costs which the law expressly defines as eligible for payment by the employee such as, but not limited to, the premium processing fees, the costs of applying for the Employment Authorization Document and Advance Parole to travel (Form I-765 and Form I-131, the EAD/AP Card), and the costs for the alien’s dependents. State law would dictate whether the cost of adjusting status, the last step in the green card process (Form I-485), can safely be added to this list.

What alternatives do employers have?

A pragmatic approach is to pay for the costs upfront and draft a claw-back provision in the employment agreement under which the employee agrees to stay for a reasonable period of time or repay the costs (only costs that can be legally borne by the employee).

The repayment may be pro-rated or payable in full if the alien leaves before the end of the period. What constitutes a reasonable period of time is subjective but generally, a two-year period should not be considered unconscionable. The above examples highlight the complexity and the interrelationship between immigration regulations and state labor laws.

Employers should therefore exercise caution when reusing and customizing employment agreements without legal counsel.

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