Understand a broker’s goal before investing with one

Though most investors believe brokers put investors’ interests above all else, that’s not always true.
“There isn’t a single statute that makes a broker a fiduciary,” says Hugh Berkson, a principal at McCarthy, Lebit, Crystal & Liffman Co., LPA.

“Investors don’t understand that and are surprised to find that when something goes wrong thanks to bad or conflicted investment advice, brokers will claim that they are just a salesperson.”

Smart Business spoke with Berkson about the signs that suggest investment brokers are working more for themselves than they are for their clients.

What is it that investors don’t understand about their brokers?
No single statute requires brokers to disclose a conflict of interest, so brokers may put their own or their firm’s interests ahead of their clients’ interests. Investment advisers, on the other hand, operate under a statute that establishes them as fiduciaries. They, therefore, maintain an unquestioned legal obligation to act in their clients’ best interests.

Investors might not be able to tell a broker apart from an investment adviser by title alone. Many brokers try to blur the distinction by using titles like ‘financial adviser,’ but those titles are of no legal import. A savvy investor will ask: ‘Are you a broker, or a registered investment adviser?’

Investors can check any brokers’ background to see whether other investors or regulators have found fault with their conduct through BrokerCheck. BrokerCheck reports are maintained by the Financial Industry Regulatory Authority (FINRA), the regulator that oversees the brokerage industry, and are available for free through FINRA’s website.

Why should investors monitor their investments?
Brokers make investment recommendations to clients and typically don’t believe they have an obligation to monitor their clients’ accounts. Brokers who get paid a management fee (usually a percentage of assets under management) are supposed to keep an eye on the account, but brokers who are paid a straight commission on each transaction likely won’t. That leaves it up to the client to monitor his or her investments.

Brokers can and do hide misconduct, but often there are signs that something is off. For example, something is likely wrong if investors see transactions they didn’t explicitly authorize, a surprisingly high number of transactions, a concentration of their portfolio in a particular investment or category of investments, or results that contradict what the broker told them to expect.

Brokers cross a legal line when they make a trade without a client’s permission, ask to borrow money from a client, or suggest the client should invest with the broker outside of the firm — a ‘can’t-miss’ real estate deal on the side, for instance.

What should investors do if they’re suspicious of their broker’s actions?
Investors can start by talking with a branch manager to try to get the issue resolved, though it’s not certain that the manager will reach a solution the investor finds adequate. When that’s the case, investors would do well to seek legal counsel to determine what, if anything, should be done.

Most attorneys will offer a free consultation to listen to investors’ complaints and give them a sense of whether it’s something that should be pursued.

FINRA maintains a dispute resolution forum — arbitration — to resolve disputes between investors and their brokers. While investors are free to represent themselves in arbitration, they will be at a significant disadvantage when faced with experienced counsel on the other side. Investors can level the playing field by hiring an attorney who understands both the law underlying investor claims, as well as the unique nature of a FINRA arbitration.

For investors with particularly small claims — less than $5,000 — there are law school securities clinics that offer to help investors reach a resolution.

The vast majority of brokers want to do the right thing by their clients and try to add value to the process. Very few brokers violate the industry’s rules and standards. In the unfortunate circumstance that a bad broker violated the rules and caused losses, investors would do well to get help to try to recover their damages.

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

How to determine the best structure for the sale of your business

In a traditional sale of a business, owners often make a relatively straightforward transaction — they sell the entire company to a buyer, get paid and walk away.

Deal terms need to be set between buyers and sellers. What is discovered during those negotiations will determine if a traditional sale is optimal, or even possible.

“It’s critical to a deal that sellers know what they want before negotiating,” says Michael Makofsky, a principal at McCarthy, Lebit, Crystal & Liffman Co., LPA. “Sure, they want to be paid, but in many cases, there’s more to it.”

Smart Business spoke with Makofsky about alternatives to a traditional sale and what owners need to do to prepare ahead of negotiations.

What would indicate that a traditional sale isn’t in an owner’s best interest?
It comes down to what the owner needs to get out of the sale of his or her business. For instance, the owner might need to live off the purchase price for the rest of his or her life. That may drive decision-making in a deal, or at least a push for more money, and that might not work with a buyer.

A seller might still want to be involved in the business, either in the day-to-day or as a consultant. Most buyers, however, will want a clean break so they can pursue other interests.

Typically, a business owner wants to see the employees taken care of and that management can stay on. That may not align with the buyer’s idea of the business going forward. In the case that these caveats exist, a traditional sale may not work.

What options other than a traditional sale exist?
There are many ways to structure a transaction. Recapitalization, for instance, is an option in which an owner doesn’t sell the entire business. Instead, he or she keeps partial ownership, selling the majority and holding the minority, or vice versa.

An owner can maintain a stake in the company and stay involved, while bringing in a buyer who the owner believes can benefit the business. In this structure, the new buyer will want to maximize the company value and sell for a return, which gives the owner a second liquidity event if the value during that time increases. On the flip side, the original owner has another person to deal with, so it has to be someone who the owner is comfortable working with.

A management buyout is another option. Here, the managers become the owners of the company, and the original owner gets the proceeds as well as the comfort of knowing the new owners understand the business, are capable and are likely to keep most or all of the employees. It offers continuity compared to selling to an outside buyer, but sometimes the managers might not have the funds to purchase the business, so the financing has to be worked out.

Who should be on the owner’s deal team?
Lawyers, financial advisers and accountants are all essential members of a deal team.  More than their professional designations, however, team members need real-world buying and selling experience and the ability to combine their respective strengths to become a team.

Working with advisers who haven’t sold a business puts an owner at a disadvantage. Sophisticated buyers won’t point out to the seller’s attorney that something was missed. They’ll take advantage of the opening.

What should owners do ahead of a sale event to maximize their return?
Owners need to think about their timeline well in advance of starting the sale process. Typically, it’s a three- to five-year planning process, much of which centers on positioning the company in the best light.

Buyers expect the company’s financials, corporate documents and contracts to be in good shape for due diligence. When buyers find things they don’t like or things the owner can’t explain, it affects a deal in the form of concessions, a lowered purchase price or the termination of negotiations.

How a business is sold hinges on the wants and needs of the seller and buyer. Structuring a deal that works for everyone takes creativity, flexibility and a knowledgeable deal team to achieve.

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

New Pennsylvania law puts more of a burden on Pennsylvania companies

“For all you businesses operating in Pennsylvania, effective January 1, 2018, Pennsylvania requires you to withhold Pennsylvania personal income tax, currently at the rate of 3.07 percent, from any payments made to: non-resident individuals; and disregarded entities that have a non-resident member.”

“Anybody who is concerned about the new law should contact their accountant or attorney to make sure they understand the parameters,” says Charles W. Ormsby, Jr., Managing Member at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Ormsby about the new tax law, how it will impact companies’ administrative burden and the risks and costs associated with the provision.

How is the new law structured?

If you have an individual (not employee) who was doing work for your business as an independent contractor and they live out of state, you would be required to withhold the 3.07 percent on payments to them and remit it to the Commonwealth of Pennsylvania. Similarly, if you are doing business with a limited liability company (LLC) that is considered a disregarded entity and the owner is a non-resident, you would have to withhold. This holds true even if the company is a Pennsylvania business with a mailing address in Pennsylvania, but the owner lives in New Jersey.

Lease payments are treated a bit differently. If you have a non-resident landlord, you are only required to withhold for individuals, trusts and estates. It does not apply to disregarded entities. The policy behind the law is to capture tax from non-residents who were not paying the Pennsylvania income tax. The withholding is mandatory if a business pays equal to or greater than $5,000 to a vendor, other than a landlord.

How will the law affect a company’s administrative burden?

The law implicitly imposes due diligence requirements on Pennsylvania taxpayers to determine if a vendor is a disregarded entity (such as an LLC) with an out-of-state owner or an out-of-state individual. It is not enough just to send a check to a Pennsylvania address and assume the recipient is a Pennsylvania taxpayer. Failure to withhold can result in your business being required to pay the tax not withheld and remitted, plus penalties and interest. However, your business will not be subject to assessment for failure to withhold for a period ending prior to July 1, 2018. So there is still time to get prepared.

Businesses need to go through their accounts payable to identify whether they are making payments to either landlords or vendors who are out of state and determine whether they are paying $5,000 or more to the vendors. Landlords are not subject to the $5,000 limitation. From the standpoint of remitting, you need to check with your accountant to make sure you are filling out the right forms and making timely payments. There are a set of rules with regard to semi-weekly, semi-monthly and quarterly remittances. A Pennsylvania taxpayer may also want to apply for a 1099-Misc withholding account or use their existing account.

What are some best practices in terms of accounts payable files?

Do not be fooled by simply relying on someone’s street address. You may also want to rely on or use IRS Form W-9. Otherwise you might want to confirm the residence in writing or reach out to people in writing and have them provide written verification as to whether they are a resident or not. Some companies have thousands of vendors so they will need to dedicate a fair amount of resources to doing the due diligence necessary to determine the withholding situation.

How costly could the provision be?

The administrative costs, interest and penalties could swamp whatever the actual amount is that should have been withheld. In addition, if you have a claim that is made by the state for failure to withhold, then you will need to get your accountant or attorney involved and you will need to spend time and money to extricate yourself from the situation. Being prepared in advance is key!

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

Have the right team in place before you buy to improve the chance for success

Having a qualified deal team is crucial to the success of a commercial property transaction. The combination of a commercial real estate lawyer, commercial realtor, accountant and mortgage broker helps the buyer with everything from determining the right time to buy, to financing, ownership structure and negotiating the best terms for the deal.

“People who are looking to purchase a commercial property for the first time may not be familiar with the process,” says Danielle G. Garson, an associate at McCarthy, Lebit, Crystal & Liffman Co., LPA. “They don’t know what to look for or who to rely on, and that can expose their assets to costly risks.”

Smart Business spoke with Garson about forming a deal team to help execute a commercial property purchase, and how to structure ownership to control risk.

What are the responsibilities of each person on the buyer’s deal team?
The commercial lawyer can negotiate with the seller and lender on behalf of the buyer and advise on the best way to structure the entity used to purchase the property. The lawyer should also look at zoning and permissible uses, and draft a contract in such a way as to protect the buyer’s rights and to further ensure that the deal is structured to the buyer’s maximum advantage.

The accountant will analyze the financial aspects of the deal, while the commercial realtor helps identify properties and the mortgage broker secures financing.

The process to obtain commercial lending can also be complex. The buyer should talk to his or her bank prior to entering into negotiations so there is clarity on the terms of the loan. The buyer’s attorney can also negotiate a financing contingency in case financing is not unconditionally approved before the agreement is signed.

In approving a loan, banks often require environmental and other reports, which may require the expertise of appraisers, engineers and environmental specialists. Often the commercial attorney or realtor will make referrals to find those specialists.

What are some rules to live by for first-time buyers?
Rule 1) Sometimes buyers get so immersed in a deal and put so much time and money into a purchase that they continue to pursue it despite clear signs that it doesn’t make financial sense. Every deal has its hiccups, but if it becomes clear prior to closing that the buyer has underestimated the expenses in either purchasing or owning that particular property, thereby greatly diminishing the expected return, it probably is wise to walk away.

Rule 2) Buyers also must choose their partners carefully. It is imperative that the buyer is comfortable with all business partners who will share the purchase, in addition to having a strong, legally binding agreement that dictates the rules of ownership.

Rule 3) Buying isn’t necessarily the best answer. Leasing may be the better option, especially for newer businesses, as it has less upfront costs, frees up money for other business expenses, provides annual flexibility, and retains the option to move out of the building if the business outgrows the space or needs to downsize.

How can buyers structure the ownership of their property to reduce risk?
Buyers can use the structure of a single purpose entity (SPE) to silo non-tax liability and risks. In this arrangement, the SPE owns the property and leases it to the operating company. Rent payments are made to the SPE, which in turn pays the mortgage.

This arrangement protects the commercial property from the unpredictability of the business and insulates one from the other’s creditors. If the business suffers a major loss or even goes into bankruptcy, the SPE may have a far greater chance to keep the property. That gives the SPE the option to sell it, lease it out or otherwise find a way to profit from owning the property.

The lawyer will get the SPE up and running by drafting the operating agreement and/or bylaws, getting a unique tax ID number and setting it up with the secretary of state.

By following a few relatively simple rules and having the right team in place to help implement those rules, a buyer will greatly enhance his or her probability for success in the purchase of any commercial real estate.

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

Physician challenges under Pennsylvania’s medical marijuana law

In April 2016, Gov. Tom Wolf signed into law Act 16, legalizing medical marijuana in Pennsylvania. Since then, the Pennsylvania Department of Health (DOH) has awarded licenses to grow medical marijuana and to operate medical marijuana dispensaries. As of February 12, 2018, more than 150 physicians have been approved by the Pennsylvania Department of Health (DOH) to certify patients to participate in the state’s Medical Marijuana Program in Philadelphia and the surrounding counties of Bucks, Montgomery and Delaware. It is estimated that many more will register in the program.

Physicians registering under the Act face conflict between federal and state marijuana laws, limited education on efficacy and dosage of marijuana to guide recommendations to patients, and large numbers of patients seeking certification for medical marijuana.

Smart Business spoke with Jules S. Henshell, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC, about how this law will affect physicians.

What does it mean to ‘certify’ patients for medical marijuana?

Act 16 does not permit the prescription of medical cannabis products. Instead, physicians are permitted to issue certifications to patients who qualify for medical marijuana treatment. To qualify, a patient must have one of 17 serious medical conditions.

To issue medical marijuana certifications, physicians must register with the DOH and complete a four-hour training course offered by a DOH-approved provider.

Physicians are required to be licensed to practice medicine in Pennsylvania and be qualified, by training or experience, to treat at least one of the serious medical conditions that are identified in Act 16.

Once registered, the DOH places the physician’s name, business address and medical credentials on the physician medical marijuana registry, available on its website. Physicians are not permitted to advertise that they are approved to certify patients for medical marijuana use. Registered physicians should consult counsel about conduct that constitutes advertising.

What must a physician do before providing a certification to a patient?

Registered physicians are required to consult with the patient and review the Prescription Drug Monitoring Program and the patient’s controlled substance history prior to providing a medical marijuana certification to a patient. Physicians must identify the recommendations, requirements and limitations as to the form of cannabis and the dosage. The certification also must state the length of time for which the physician believes medical marijuana will be therapeutic or palliative. Physicians may recommend that a patient consult with a medical professional employed by a medical marijuana dispensary, all of which must have a pharmacist on staff. Certifying physicians may defer to the pharmacist’s expertise.

Importantly, registered physicians must provide continuing care to their patients for the serious medical condition that qualifies under Act 16. During such ongoing care, physicians are required to notify the DOH if the patient no longer has the ‘serious medical condition’ previously certified, medical cannabis would no longer be therapeutic or palliative, or the patient dies.

What are some of the challenges and risks registered physicians face?

Approved physicians may face significant backlogs of patients seeking certification and must balance the demand with the ability to provide ongoing care.

Cannabis products are not a Food and Drug Administration approved treatment. Medical marijuana is illegal under federal law. While various federal appropriation acts have precluded the Department of Justice (DOJ) from spending funds on the prosecution of individuals engaged in compliant conduct permitted by state medical marijuana laws, the continuation of such protections are uncertain. U.S. Attorney General Jeff Sessions has vehemently opposed legalization of marijuana and has rescinded prior DOJ policy that discouraged investigating and prosecuting cannabis operations that are legal under applicable state law.

With the assistance of counsel, physicians can maximize compliance with Act 16 and minimize the risk of changing federal policy and enforcement priorities.

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

Lessons for parents about the risks their children face on social media

Students of all ages are getting into trouble with social media — at school and with the law. It’s media that’s meant to be fast. But what students fail to realize is that a quick post or response can have lasting consequences.

“Today, students as young as 10 years old have smartphones, which gives them access to different messaging services that use a variety of media to make public posts. It’s important that parents recognize and understand the risks this brings,” says Kristina W. Supler, a Principal at McCarthy, Lebit, Crystal & Liffman Co., LPA.

“A student’s improper use of social media can put their educational futures in jeopardy, costing them scholarships and in some cases eliminating them from enrollment consideration as college acceptance becomes more competitive,” says Susan C. Stone, a Principal at McCarthy, Lebit, Crystal & Liffman Co., LPA.

Smart Business spoke with Supler and Stone about the risks students face when using social media, and what parents can do to mitigate those risks.

How might social media misuse put the account holder at risk?
Every school, private and public, has policies that govern the use of students’ social media use. A violation of those policies could get a student suspended or expelled.

Students also face legal consequences. There have been cases of a student’s social media posts leading to charges for inducing panic. In some cases, parents could be liable for as much as $10,000 in penalties if their child’s acts are determined to be malicious and willful.

If a student is found guilty by a Juvenile Court of a first degree misdemeanor, it puts a conviction on record that would need to be disclosed on their college application. That could be life changing for some as colleges tighten enrolment standards and scholarship dollars become scarcer.

What are some of the more serious mistakes students are making through social media?
Students have gotten in trouble for taking naked pictures of themselves and sending them to other students, which could implicate them in child porn laws.

Some have sent photos of themselves with toy guns that get viewed by school officials who worry it’s a threat to public safety, which can bring a charge of inducing panic and lead to the student’s expulsion. And using racist slurs or bragging about sexual exploits will most likely violate their school’s policies on harassment.

In one case, a person posted that there was going to be a bomb set off at school. A student liked the post and was suspended. That act only took a second, but it had serious long-term repercussions.

What are some of the threats students face online and through social media?
Most of what a student does on social media is public. This opens students up to bullying from others, or worse, they become prey for adults who pose as children. Parents should talk about this threat with their children and the importance of being mindful of what they post. They should never say where they are, who they’re with or where they’re going. If a stranger asks to chat privately with your child on another platform, that’s a red flag.

What can parents do to mitigate the risks associated with social media?
There’s no such thing as privacy online. Just because an account is set to private doesn’t mean they can control who looks at its contents. Further, anything posted through social media can live forever. Even if the author removes a post someone could have a screenshot of it.

It’s difficult to keep up with the ways children use social media. There’s always new technology, a new way to speak to each other. Parents can insist on being linked to their child’s accounts as a follower or friend, but they can’t be sure their children don’t have two accounts — one that they can see and another they’re unaware of.

Ideally, parents would know what sites their children visit, possibly block certain sites from being accessed in the house, and keep their account passcodes on hand so they can access and view their activity anytime.
Ultimately, the lesson to students should be: If you wouldn’t show it to your grandmother, don’t post it on the internet.

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

How new Department of Labor guidelines will affect unpaid internships

In 2010, the U.S. Department of Labor (DOL) issued guidance limiting for-profit companies’ ability to have unpaid interns. However, courts increasingly rejected that stringent six-part test.

On January 5, 2018, the DOL’s Wage and Hour Division published its decision to adopt the “primary beneficiary” test for determining whether interns and students are employees under the Fair Labor Standards Act (FLSA).

“The Department of Labor is using the primary beneficiary test to conform to four Circuit Courts’ rulings adopting the same standard,” says Joseph Fluehr, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Fluehr about the new FLSA guidelines, how employers will be impacted, and the importance of abiding by the new regulations.

What are the new guidelines for unpaid internships?

The FLSA requires that employees of for-profit employers are paid pursuant to minimum wage and overtime requirements. Previously, the DOL maintained a six-part test for determining whether a worker was properly labeled as an unpaid intern. However, the DOL’s new guidance follows the Second, Sixth, Ninth and Eleventh Circuit Courts’ decisions in providing for the examination of the ‘economic reality’ of the intern-employer relationship to determine which party is the ‘primary beneficiary’ of the relationship.

The seven factors, as stated by the DOL, include:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee — and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

How will employers be impacted?

The DOL’s adoption of the ‘primary beneficiary test’ has increased flexibility in determining who is properly labeled an intern. This increased flexibility aids employers in the fight to utilize unpaid interns. However, as no single factor is determinative, the DOL does not provide definitive guidance to for-profit employers, who should still ensure that an unpaid intern is, in fact, the ‘primary beneficiary’ of the relationship.

What should employers do to abide by the new guidelines?

Simply naming someone an unpaid intern will not survive a challenge to the intern’s status. The DOL’s guidelines suggest a balancing of the seven factors in determining whether the intern or the employer is the primary beneficiary of the relationship.

The most important take-away from the change by the DOL is that for-profit employers should ensure that the unpaid intern gets more out of the relationship than the employer. Therefore, employers should consult an attorney familiar with the relevant case law relied upon by the DOL as well as the provisions of the FLSA in reviewing their internship programs.

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

Get outside help to investigate workplace sexual harassment

Sexual harassment in the workplace has recently gotten a lot of attention.

Companies caught in a scandal risk public embarrassment if their knowledge of sexual harassment behavior was handled inappropriately. Worse, there could be liability and punitive damages if nothing is done about the conduct, especially if it escalates.

“A company can’t be willfully blind to sexual harassment accusations made by employees,” says Ann-Marie Ahern, a principal and head of the employment law practice at McCarthy, Lebit, Crystal & Liffman Co., LPA.

“Employers must investigate employees’ claims, but the department responsible for investigating the allegations may not be best suited to effectively handle the situation.”

Smart Business spoke with Ahern about the handling of sexual harassment claims and how outside investigators can help.

What obligations do companies have when a sexual harassment claim is made?
There is no government oversight or mandatory requirement to report any sexual harassment allegations. However, if workplace sexual harassment conduct interferes with a person’s work, it can give rise to a lawsuit.

Where companies face the greatest risk of liability is when claims are made against a person who is near or at the top of the company hierarchy. In these instances, it’s easier for a company to be held responsible because that person may be deemed to be acting with the authority of the company, especially if the company knows or has reason to know of the conduct.

It’s in the best interest of a company that becomes aware of allegations of sexual harassment to investigate the claim. If the alleged conduct is substantiated, the company must take prompt, remedial action.

Failure to investigate promptly or appropriately can lead to liability for further harassment. If the harassment is substantiated, the employer should address it, either through discipline or termination.

What flaws exist in the typical protocols for reporting sexual harassment?
In a small company without an HR department, reporting an incident to management could be very uncomfortable if the manager is the harasser or is a close friend of the harasser.

While it’s unlawful for a company to retaliate against an employee who registers a complaint, practically speaking, a complaint of sexual harassment too often proves to be career-limiting. A complaining employee may be viewed as a troublemaker or not a team player and can be shunned or given little other choice but to quit, especially when the allegations amount to a ‘he said/she said.’

In larger companies, reports are made through the HR department. HR professionals or management, however, often do not conduct an appropriate investigation. Sometimes they are hesitant to substantiate a claim because it would put the company at risk for liability.

Other times, particularly where a high-level employee is the accused, the investigating employee is leery to find guilt. Often, the employee charged with investigating does not have the proper training or background to conduct investigations, or to understand what constitutes sexual harassment conduct under the law.

Who can help companies deal with workplace sexual harassment complaints?
There are employment lawyers who specialize in the investigation of sexual harassment complaints and there are companies that do nothing but investigate these types of concerns. This arrangement can benefit both employees and companies.

The harassed often feel more comfortable talking to an outside investigator because there isn’t a relationship within the company that might affect the outcome.

Companies can point to the outside investigator as neutral and unbiased. If the investigator finds there’s no harassment, it carries more weight and credibility than an employee making the same determination.

Sometimes companies are afraid to bring in an outside investigator because it means giving up control of the process and outcome. The landscape, however, is changing as it relates to sexual harassment in the workplace. Employers should be careful not to underestimate how current events will impact their response to sexual harassment allegations.

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

Is your company prepared to respond to claims of sexual harassment?

It used to be when employees made a sexual harassment complaint to human resources, the department would investigate and the matter stayed confidential from the public until it was resolved. Things have changed.

The slew of recent high-profile sexual harassment claims has caused a sense of unease among owners, managers and executives, which has led them to take steps to mitigate their risks, both legal and reputational.

“Review and revise your policy on sexual harassment and discrimination,” says Michael J. Torchia, a managing member at Semanoff Ormsby Greenberg & Torchia, LLC. “Work with an expert, such as an employment attorney, to craft a user-friendly policy that includes specifics about procedures for making a complaint. And equally as important, train upper and middle management on how to respond to claims of sexual harassment and what to do if news of the allegation spreads outside the company’s walls.”

Smart Business spoke with Torchia about sexual harassment policies, how a company should prepare to respond ahead of any allegations, and the role attorneys play in the event of an emergency.

What steps should a company take to prepare for possible sexual harassment allegations?

To ensure a company is in the best position to respond to a claim of sexual harassment, a response team should be identified to handle it. This way, there is no confusion about who should be notified and who will make initial decisions if a complaint is levied against a company official.

It’s important to determine who will be involved in the decision making if a complaint is accompanied by publicity and if this will be handled differently from normal procedures.

Some companies pre-draft statements to the press before a claim is made stating how it has a commitment to keeping employees harassment free, strong anti-harassment policies, how they have never before had a claim, etc. Of course, these drafts need to be amended by the facts of the particular claim, but the basics are prepared so they can act quickly and respond to the press if there is a charge. This is a much better approach than “no comment.”

Upper management should be involved, but the group might also include human resources, risk management, the company’s general counsel and outside counsel.

How often should a harassment policy be updated?

Generally, it should be standard procedure that the anti-discrimination and harassment policy is reviewed every two years or when there has been a change in the law or regulations. In the current environment of high-profile sexual harassment claims, however, employers need to be more conservative. Now is a good time to revisit whatever policies you have in place.

What role should a board of directors play?

News of a sexual harassment claim can travel quickly — sometimes in a matter of hours — especially when allegations are made against an executive at a large or high-profile company, so it’s prudent to be prepared at every level.

The board of directors should be made aware that their involvement could be necessary if a complaint is made. Companies should designate a single member of the board to handle such issues when they arise, or they may prefer to establish a special committee.

For complaints against rank-and-file employees, the board does not usually need to be directly involved.

Why is it important to have your attorney’s cell phone number?

Thankfully, it’s not usually necessary to call your attorney in the middle of the night. However, harassment claims can become public late at night or on weekends, and reach the press or spread through social media before the company is aware of what’s happening. For this reason, it’s a good idea to have both in-house and outside counsel’s cell phone numbers in the case of an emergency. You’ll also need emergency contact numbers for the other members of the response team. It could give a company the time it needs to address the issue before an inaccurate or damaging narrative takes hold.

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

Reducing the impact of personal issues on business

Even more challenging than work-life balance, family discord unintentionally affects employment, says Kaitlyn D. Arthurs, Principal, Attorney and Mediator at McCarthy, Lebit, Crystal & Liffman.

Personal issues, such as divorce and custody disputes, may spill into the workplace and negatively impact daily operations. However, finding the right resources and support can prevent those issues from bleeding over. With the right tools, people entrenched in personal conflict can pivot to succeed in both their personal and professional lives.

Smart Business spoke with Arthurs about strategies to confront difficult family times and still preserve professional success.

How can successful professionals push through difficult family times?
Like a business plan, it is important to have strategy and support. Getting a good result requires the right people and plan.

Nowadays, time is more valuable than money. A family split requires much attention. Finding the right professional to manage the case and keep it on track will curtail wasted time.

When retaining an attorney, it is essential to find a good fit that is aligned with the client’s desired approach and outcome, and is someone who is qualified in that particular subject matter.

The attorney-client relationship is grounded in trust and honesty. A lawyer is not their client’s friend. A good lawyer should tell their client more than what they want to hear. They should be direct, issue-centric and set realistic expectations to prevent disappointment or surprise at the end.

Similarly, the client should ask questions, understand why things are being handled a certain way, be directly involved in the process, provide the attorney with all information requested and understand the consequences of his or her choices.

How can a team make a positive impact?
Just like delegating tasks to the right department, it is valuable to establish a team to manage the matter.
Attorneys are good at one thing: the law. They may not provide guidance on budgets, selling real estate, determining tax consequences, consolidating debts, finding child care or transferring assets.

Third-party providers, such as accountants, financial planners, bankers, insurance agents, mortgage brokers and real estate agents can provide useful services. Hiring those individuals sooner than later will give them the opportunity to answer questions during the process and provide services after. A small expense upfront can prevent unnecessary issues and cost later.

Further, a positive mindset is just as important as professional advice. Breakups are emotional, and counseling can help combat those sensitive issues. While it is necessary to tell an attorney the whole story, the juicy details may not be relevant or appropriate to share, yet may drive the underlying conflict.

It is healthier, and more cost-effective, to hire a counselor at the onset, as an outlet for emotional issues. A counselor may also help relieve stress that could impact work.

How can mediation minimize the detrimental effects of family law matters?
Mediation provides people with control over the outcome. A mediator is jointly hired by the parties to facilitate discussions between them to problem-solve solutions.

The process is confidential and prevents the public display of private matters. It is less expensive, both financially and emotionally, faster and can be arranged around employment schedules. Mediation also provides case finality and results in resolutions that will be less likely to return to court. The parties can find creative solutions that generate lasting agreements.

Mediation also teaches communication skills, which can alleviate reoccurring disputes.

When children are involved, parents must maintain a relationship and open communication until the children emancipate. Mediation provides a hands-on approach where the parties directly deal with the issues, rather than communicate through their advocates. In the end, the parties are better equipped and empowered to address future issues without the need of counsel.

Mediation provides a mechanism to keep personal issues out of court, which can lessen the potential impact on employment.

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