Offit Kurman Blogs

Labor and Employment

A Dose of Education Law: Supreme Court Rules Disabled Students May Sue Under ADA After Settling with School District

As you may know, I represent students in education matters (as well as educators in some employment matters.) I help elementary and secondary students with everything from attaining special education services, accommodations, and payment for private schools when public schools aren’t serving students’ needs, provide bullying help to victims, and I defend disciplinary matters such as expulsions. For post-secondary (including graduate) students, I defend Title IX complaints, appeal disciplinary actions and school or program dismissals, and enforce my clients’ Americans with Disabilities Act (ADA) rights to accommodations (enforceable in every post-secondary program that accepts federal student loan money or federal grants). So I am, of course, interested in a recent Supreme Court case on an ADA action brought by a deaf student. Students and parents must proceed with an administrative process before seeking court relief in special education cases for failure to provide a free appropriate education under the federal Individuals with Disabilities Education Act (IDEA). Money damages are not available under the IDEA; courts may order school districts to pay for tutoring or private education as a remedy for failure to provide a proper education, however. The question arose whether, if a special education student settled a complaint against a school district for violating their ADA rights, they may sue in court for monetary damages without going through the administrative process regarding the ADA claim. Mr. Perez, a deaf man, alleges that the district provided him with aids who didn’t know sign language to translate for him and misled the family about the amount of progress he made. The unanimous Court allowed the case under the ADA for money damages to move forward even after Mr. Perez had received a settlement for his violation of IDEA claims. This decision is a game changer, as many students with disabilities will have a threat of an ADA claim hanging over the school district in addition to the threat of an administrative hearing under IDEA. In fact, Justice Gorsuch wrote that the case “holds consequences not just for Mr. Perez but for a great many children with disabilities and their parents.” The case is Perez v. Sturgis Public Schools, et al., No. 21-887, U.S. (2023). Many parents and students don’t know the extent of their rights under the ADA nor the IDEA and don’t know where to get assistance. Education specialists give legal guidance and help students navigate the process of attaining relief for students who were denied education via legal violations. Reach out if you have questions.

March 30, 2023

Elder Law and Advocacy

LGBTQ+: NY’s Goal of Aging Without Discrimination

It is no surprise to LGBTQ+ individuals and their allies that nine out of ten of those who identify as LGBTQ+ fear discrimination in medical settings.  According to SAGE, LGBTQ+ people are two times as likely to age alone and four times less likely to have children who might otherwise serve as caregivers and advocates. This means the LGBTQ+ population is even more vulnerable as they age. As a result, and at long last, Governor Hochul signed a law that is intended to address this discrimination related to the medical care received by the LGBTQ+ community in the home care and nursing home setting.   Beginning in June 2023, New York State will require that all home health aides, certified nurses’ aides and personal care aides – essentially the backbone of a senior’s long-term care team– will receive training focused on providing care to patients of diverse sexual orientations, expressions and gender identities. This ambitious and much-needed law includes several components that will be included in the training program. Much of the training relates to the education of the caregivers to provide comprehensive explanations of various terms related to the LGBTQ+ community and provides an understanding of why patients with diverse sexual orientations and gender identities or expressions may conceal their identities.  The goal of the training is, of course, to incorporate the concerns of these patients and ensure that they receive “person” directed care and to address the unique healthcare needs of LGBTQ+ patients. In light of the nearly 400 anti-LGBTQ+ legislative actions pending in the states across the country, it’s heartening that New York is taking the lead to combat this discrimination, especially for the most vulnerable in the LGBTQ+ population.

March 29, 2023

Labor and Employment

Time to Review Settlement and Severance Agreement Templates

In a surprising decision that reveals the National Labor Relations Board’s (NLRB) position on perceived threats to employees’ right to organize under the National Labor Relations Act (NLRA), the Board held in McLaren Macomb, 372 NLRB No. 58 (2023), that even if an employer (with a unionized or non-unionized workplace) merely offers a severance agreement containing broad confidentiality and non-disparagement provisions, it is illegal. Note: The Board’s ruling only applies to nonmanagerial, nonsupervisory employees with Section 7 rights under the NLRA. The current Board’s view is that agreements are unlawful on their face if they contain terms with a “reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights” under the NLRA. As such, if an employee files a complaint, the NLRB will now review severance agreements for language that’s too “broad or coercive.” In McLaren Macomb, the NLRB found that asking an employee to agree to keep terms of an agreement confidential (even with exceptions for spouses, lawyers, and tax advisors, and as ordered by a court or agency) violated the NLRA because the former employee would be unable to discuss it with current employees, who might want to organize. The Board also decided that a non-disparagement agreement was illegally overbroad when it required the employee not to make statements that could disparage or harm the image of the “employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.” Note: This restriction has no time limitation and covers other entities and persons, not just the employer. Courts don’t have to follow the rulings of the NLRB. The courts always look to whether a non-disparagement agreement is “reasonable under the circumstances,” and I believe that a non-disparagement clause limited to the company would be reasonable as long as the non-disparagement clause doesn’t purport to last forever and cover too many entities. Would a court agree that it’s illegal to promise not to disclose the agreement’s terms? The ability to require confidentiality serves as the important public policy of encouraging settlements outside of court. That said, having your template severance and settlement agreements with employees reviewed for compliance with the Board’s rationale and holding it is not very time-consuming. I’m recommending this to my clients — tweaks would not be difficult. If you have questions, please reach out.

March 23, 2023

M&A Nuggets

M & A Nuggets: Beware the Four Corners Offense

As the NCAA Basketball Tournament begins this week, it is appropriate to remember the “Four Corners Offense” and tie it to the merger process.  The “Four Corners Offense” was popularized by the University of North Carolina in the 1960s and 1970s.  The offense involved four of five players standing in the corners of the offensive half court with the fifth player dribbling in the middle, often for several minutes at a time.  The result was a big slowdown of the game with no progress.  Sellers of businesses devote substantial time, energy and resources to move a sale transaction to closing, but ultimately, are at the mercy of the purchaser.  At the inception of the relationship between the potential seller and purchaser, all things are rosy. The purchaser lets the seller know how impressive the seller’s business is and how terrific of a fit the seller will be with the purchaser.  As time unfolds during the merger process, sellers need to have an eagle eye for action or inaction by the purchaser that is not so obvious, but that indicates the purchaser intends to slow down the process, and which often results in the purchaser retreating from the transaction.  Here are a few actions or inactions that should trigger concern: Comment from Purchaser: “One or two of our board (or investment committee) members are thinking about the pricing of the transaction or the current economic headwinds.” Real Meaning: The purchaser’s decision making body is rethinking the transaction. Inaction from Purchaser: Purchaser’s counsel is silent on when the purchase agreement will be forthcoming.Real Meaning: Purchaser has told its counsel not to prepare the purchase agreement because the purchaser is rethinking the transaction. Comment from Purchaser: “We are re-examining the valuation based upon current numbers.”Real Meaning: The purchaser intends to lower the purchase price or not proceed. The objective of seller and its counsel is to move the transaction along as fast as possible towards closing, but the above warning signs may indicate that the purchaser is deploying the “Four Corners Offense” and that the purchaser will withdraw.  Being able to recognize this sooner rather than later will allow the seller to save a tremendous amount of time, energy and money and refocus on growing its business until such time as a purchaser with intent to complete a transaction arrives on the court ready to play and finish.

March 16, 2023

Litigation

Virginia Civil Lawsuit Filings Increase in 2022

Civil lawsuit filings in Virginia's General District Courts increased 9% during 2022. The biggest increase? Unlawful detainer (eviction) filings. Meanwhile, civil lawsuit filings in Virginia's Circuit Courts decreased, with domestic case filings (including divorces) seeing a notable decrease. Full data from the Supreme Court of Virginia can be found here & here. If you or your organization are served with a civil lawsuit, don’t make any decisions about how to proceed before talking with a trusted attorney in your area. Offit Kurman attorneys are available to advise and counsel you. Reach out to Anders Sleight | Offit Kurman today to discuss your specific situation.

March 16, 2023

One Minute of Overtime

Executive Exemption

Welcome to One Minute of Overtime, where I will share insights on Labor and Employment Law topics, mostly related to minimum wage and overtime compliance issues. Compliance in this area of law is nuanced and technical, so it is critical for employers to audit and adjust their practices to remain compliant, so stop by to stay up-to-date and in-the-know. An employee is exempt pursuant to the administrative exemption, and not subject to the minimum wage and overtime requirements, if the employee is paid consistent with the salary basis test and their primary duty is managing the enterprise, or division thereof, where the employee customarily and regularly directs the work of at least two or more other full-time employees and has the authority to hire or fire or the employee’s suggestions and recommendations as to hiring, firing, etc. is given particular weight.

March 15, 2023

So, you’re thinking about a Prenup Agreement

More and more couples and considering entering into a prenuptial agreement before marriage. It’s often concerning that even the mention of exploring an agreement would be detrimental to the relationship. The parties are basically negotiating what would happen should there be a divorce, which can cause a great deal of stress, especially if the discussions are near the wedding date. The divorce rate is generally understood to be 50%, no matter where the parties live, or what their social or economic status may be. A prenuptial agreement is a written agreement where an engaged couple considers what would happen upon separation or divorce, which may happen, if it does, at any time during the marriage. The uncertainty of when a separation may take place creates a great deal of anxiety. What if the parties separated in a few years, vis-a-vis after many years, and potentially when the parties have children? Experts suggest that since finances often contribute to conflict in marriages and may often be the reason for separation and divorce, discussing the financial aspects of an agreement may be helpful in that it may promote a foundation for a better relationship. Here are crucial requirements: Give a great deal of thought to what your goals are and what you want to accomplish in the event of separation, divorce or death. Both parties must be represented. There must be full and complete disclosure of assets and debts at the time the Agreement is executed. It must be agreed upon by both parties, and discussions should begin at least six months prior to the marriage to assure that each party is not under any duress. It must be realistic and equitable.

March 14, 2023

Franchise Law

SBA Exiting Regulation of Franchise Relationships as Part of Effort to Increase Availability of Its Small Business Loan Programs

The U.S. Small Business Administration (SBA) is amending various regulations governing SBA's 7(a) Loan Program and 504 Loan Program, including streamlining determinations of loan applicants’ eligibility as small business owners. As part of the amended regulations, the SBA is removing the provisions relating to affiliation based on franchise and license agreements, along with all other provisions evaluating affiliation based on factors other than actual or indirect (or “beneficial”) ownership. Because of that removal, the SBA is eliminating the SBA Franchise Registry as of May 11, 2023. As stated by the SBA, “These revisions remove the principle of control of one entity over another from consideration of affiliation; therefore, the mere fact that an applicant may be a franchisee is not in itself a reason that would render the applicant ineligible for an SBA loan, and thus there is no longer a compelling reason to maintain the SBA Franchise Directory".  In addition, the SBA will not require franchisors and franchisees to sign any sort of standard or pre-negotiated franchise agreement addendum to obtain an SBA-guaranteed loan. Instead, as is a requirement for all SBA guarantees of loans, lenders must examine the franchised business for affiliation based on ownership. The SBA announcement described the following as an example: “(W)hen lending to a Franchised business, the SBA Lender must determine who owns the applicant business and any businesses the applicant owns in accordance with these regulations. However, neither the SBA Lender nor SBA will review the applicant Franchised business for affiliation with other entities beyond ownership; the applicant business will not be considered affiliated with the Franchisor or other Franchised businesses except by ownership.” What Does This Mean for Franchising? As to regulation of the franchise relationship, this marks a major retrenchment of SBA’s involvement in that area, having required franchise agreement changes as a condition of lending for several decades. However, readers should note that the Federal Trade Commission is scrutinizing franchise relationships due to a large volume of complaints it has received from franchisees in the process of considering updates to its long-standing Franchise Sales Rule. During March 2023, the FTC issued a  “Solicitation for Public Comments on Provisions of Franchise Agreements and Franchisor Business Practices” that may be a preliminary step towards FTC issuing rules restricting franchise agreement terms and/or franchisor business practices that it perceives to be “unfair” to franchisees. In addition, the FTC is accepting comments on extending its proposed rule banning non-competition agreements in employment agreements to include franchise relationships. Finally, bills have been introduced in several state legislatures to substantively regulate aspects of franchise relationships. In terms of franchisee financing, this change may streamline obtaining an SBA-guaranteed loan. However, as the SBA noted in issuing its new regulations, to obtain an SBA guarantee a lender must determine whether the applicant meets all eligibility and other SBA Loan Program Requirements, including: certifying that the applicant does not have the ability to obtain some or all of the requested loan funds on reasonable terms from non-government sources, ensuring that applicants are U.S. citizens or Legal Permanent Residents, obtaining personal and corporate guaranties, confirming that the applicant business has the ability to repay the loan through cash flow of the business, and has eligible uses of proceeds, verifying financial information, obtaining proper collateral and lien position, determining whether there is a direct or indirect impact on historic properties (and) compliance with environmental policies and procedures, and closing the loan in accordance with SBA program requirements. This is a reminder that obtaining an SBA loan is still not the easiest way to finance.  Also, we anticipate that, for the development of new franchise locations, lenders may require heightened business plan verification and support from franchisors, especially for emerging franchise systems and for applicants that are new to the system (even for larger franchisors).  It may be more important than ever for franchisors to have a package of unit-level financial performance information to provide to lenders.

March 14, 2023

Labor and Employment

Adhering to Laws of Every State in Which Employees Are Working Remotely Part II

As I’ve written before, the employment laws of the states where an employer hires employees are applicable to the employment relationship. If you missed those blogs, you may access them here and here. I am listing more types of laws to consider here. If you’re bored by this topic, I promise this is my last blog on the subject. Prior wages inquiries:  The employer can’t do any or all of the following under some state laws: Require, as a condition of employment, that an employee refrain from inquiring about, discussing, or disclosing information about either the employee's own wages or about any other employee's wages (also violates federal law); Seek the wage or salary history of a prospective employee from the prospective employee or a current or former employer or to require that a prospective employee's prior wage or salary history meet certain criteria; provided, however, that: If a prospective employee has voluntarily disclosed such information, a prospective employer may confirm prior wages or salary or permit a prospective employee to confirm prior wages or salary; and A prospective employer may seek or confirm a prospective employee's wage or salary history after an offer of employment with compensation has been negotiated and made to the prospective employee. Employers can’t retaliate against employees who report violations. Wage payment: Employers must pay wages earned by employees within different time periods of a termination; the definitions of “wages” and penalties for failing to pay on time vary from state to state. Medical assistance & family medical leave contributions: Employers in some locations must pay into an account set up by the state, similar to the unemployment insurance fund. Workers’ compensation and unemployment insurance premiums: Employers must pay these, in every state, for each employee performing any work in that state. Contribution to a workforce training fund program: Where a state has such a fund or similar, the employer must contribute. The list is not exclusive. There are other employment-related laws in some states that are not common, so I’ve omitted them here. Please ask if you have questions.

March 9, 2023

Business

Cannabis Manufacturing Complicated by New Jersey Industrial Site Recovery Act (ISRA) and Potential Environmental Liability

New Jersey’s Industrial Site Recovery Act (ISRA) may impose significant environmental liabilities on unsuspecting Class 2 Cannabis Manufacturers, including liability for historical contamination.  ISRA requires investigation and remediation of all historical contamination, whether or not caused by the manufacturer, each time certain business goes through a change of ownership or control or ceases operations including as a result of a lease termination, subject to specific exceptions and limitations.  Cannabis businesses that may be subject to ISRA will want to take additional precautions through due diligence, contracting, and perhaps even obtaining environmental insurance, to limit potential liability. However, ISRA does not apply to all businesses or transactions, and will not apply to all Class 2 Cannabis Manufacturers.  In fact, the provisions of ISRA only apply if the following the place of business must have a North American Industry Classification System (NAICS) code listed in N.J.A.C. 7:26 B – Appendix C of the regulations implementing ISRA.  A Class 2 Cannabis Manufacturer may fall under a few different NAICS codes, including: 311812 – Commercial Bakeries: This industry comprises establishments primarily engaged in manufacturing fresh and frozen bread and bread-type rolls and other fresh bakery (except cookies and crackers) products.” 311991 – Perishable Food Manufacturing: This industry comprises establishments primarily engaged in manufacturing perishable prepared foods, such as salads, sandwiches, prepared meals, fresh pizza, fresh pasta, and peeled or cut vegetables. 325411–Medicinal and Botanical Manufacturing: This industry comprises manufacturing uncompounded medicinal chemicals and their derivatives (i.e., generally for use by pharmaceutical preparation manufacturers) and/or Grading, grinding, and milling uncompounded botanicals 424590– Other Farm Product Raw Material Merchant Wholesalers: This industry comprises establishments primarily engaged in the merchant wholesale distribution of farm products (except grain and field beans, livestock, raw milk, live poultry, and fresh fruits and vegetables). It is possible that a business will have multiple operations at a single location, and then the dominant use must be determined for purposes of ISRA.  The only ISRA-subject code noted above is 325411 (Medicinal and Botanical Manufacturing), but other ISRA-subject codes not listed above could apply in certain situations.   Class 2 Cannabis Manufacturers with medicinal and botanical manufacturing as the dominant use may need to comply with the requirements of ISRA each time a change of ownership or operations, or a cessation of operations, including a lease termination, occurs.  These businesses should protect themselves by conducting due diligence on historical contamination, carefully allocating environmental risks and liabilities in leases and other real estate contracts, and perhaps even obtaining pollution legal liability or other environmental insurance.  Competent local environmental attorneys can assist with the evaluation of whether ISRA applies, and, if it does, advise on risk mitigation.

March 9, 2023

Litigation

Beware Sellers . . . Caveat Emptor May Not Be All You Believe it to Be!

When it comes to buying residential real estate in Virginia, the doctrine of caveat emptor, or “buyer beware,” may not be as onerous as you think. I’ve had numerous potential clients come to me with horror stories of post-purchase discoveries or mishaps occurring shortly after buying a property. Appliances are breaking down, ceilings are collapsing, and water in the basement! – just to name a few. Generally speaking, there’s not a whole lot one can do about it other than get the problem fixed! If you’re smart, you’ve paid for a good homeowner’s insurance (always get an HO policy! and have it in effect the moment you take the title – if not sooner!). If you’re doubly smart, you insisted upon having a pre-purchase inspection (and bordering on brilliant if you did your homework and checked the credentials of your inspector!). You’re atop the smarts pyramid if, in addition to all that, you also managed to sign an agreement with your inspector in which you refused to limit your damages to whatever comparative pittance you might have paid the inspector (g’luck with that one!). Congratulations are still in order if you at least insisted on accompanying the inspector and insisted further that everything gets inspected as thoroughly as possible for the money (to each their own as to how far to take this one, but I suggest you consider the following before you decide the extent to which you take heed . . . . Believe it or not, not every home seller is completely above board when it comes to disclosing shortcomings. This may shock you, but some share less than the full truth about the foibles and/or outright problems with their soon-to-be-someone-else’s-money-pit of a home. In fact, some people lie! NO?! Yes. It’s one thing to be less than completely forthcoming; it is quite another to hide, mislead, deflect, cover-up, and/or outright deny problems that exist. “Have these pipes ever caused you any problems? Have you ever had any water issues in the basement? Any known cracks in the foundation? How’s the roof? Has the place ever been struck by lightning to your knowledge?”  How a seller responds to these inquiries may very well provide a future legal cause of action against them, even if they have seen fit to try to protect themselves as sellers with anything and everything from a “caveat emptor” contract condition to an “as is, where is” clause, and a disavowal of any buyer’s reliance on absolutely anything the seller might have said prior to finalizing the deal. In fact, you can take it up another notch (turn the volume up to eleven, if you will!) and find that you might still have a claim against the sellers even if, after signing a contract with all of these seller protections, you only closed on the deal after having a professional inspector look to find any problems and fail to discover anything. Now, in the event of a major “miss” from your inspector, you might certainly want to get your money back for a negligent inspection, for sure! (And, hopefully, you were savvy enough in advance to have negotiated out of your typical “money back” liability cap on the inspection contract). The key to whether you have any reasonable expectation of recovery from the sellers is if they committed fraud in the process. You see, it’s one thing not to discover problems when you are actively looking for them; it’s another thing entirely when a seller purposefully covers them up and/or affirmatively takes steps to prevent the discovery of the problem altogether. In this regard, I was recently surprised to learn that such cover-up actions can themselves satisfy the “misstatement” element required to establish an actionable fraud claim. In other words, a seller need not affirmatively lie about a problem if acts to “put you off your guard,” i.e., to prevent you from discovering the true nature of the condition. Consider in this regard examples such as damage from an active water leak that gets covered up, painted over, re-plastered, etc.; a “new” roof that was cheaply/improperly installed (with no underlayment by unskilled day laborers); denied access to a problem area (a locked entrance to a boiler room where the allegedly/assuredly “brand new” boiler is located); or, perhaps, a covered-up, foundation wall crack (for instance, with water-absorbent, sawdust packed in the newly-walled over “renovations” – yup, it’s been done!). All of these present possible major problems and potentially unmanageable expenses (not to mention frustration and aggravation!) after the purchase. Should you even bother asking the sellers if any of these potential deal-breakers exist? Undoubtedly, yes. Perhaps they respond truthfully when asked. You won’t know if you don’t try. Alternatively, perhaps they lie and deny it. What then? Trust but verify! But if you do get taken for a ride, you may not be a defenseless victim. Fraudulently inducing someone into a real estate purchase may not only be actionable in particular circumstances, it might also include with it the recovery of legal fees – often the difference between being made whole with a successful case and not being able to afford to bring the case in the first place. So, caveat emptor, for sure . . . but to those would-be fraudsters thinking they can hide safely behind this good-faith seller’s protection, I say, “caveat venditor!”  And to those believing themselves victimized, I say document the seemingly fraudulent statements and actions and have a qualified legal professional look before you opt to do nothing.

March 8, 2023

Business

Crisis Management – Lessons from the Law, Aviation and Real Life

Originally posted on 03/04/2020, content updated on 03/04/2023 Crises are often self-inflicted, such as the Boeing 737 Max crisis in which Boeing’s executives apparently ignored the very people inside Boeing who knew of the Max’s problems – the pilots.  “After the crash, Boeing issued a bulletin disclosing that this line of planes, known as the 737 Max 8, was equipped with a new type of software as part of the plane’s automated functions. Some pilots were furious that they were not told about the new software when the plane was unveiled.”[1]  “Boeing Pilot Complained of ‘Egregious’ Issue With 737 Max in 2016” was a headline in the New York Times.[2]  Too often a crisis in the cockpit is so urgent that time does not allow for taking out the paper or electronic flight manual to help analyze and solve the problem. Student pilots are taught the “4 C’s” -- when faced with difficulty, “Climb, Communicate, Confess and Comply with instructions.”[3]  In addition to learning what’s in the flight manual for the aircraft being flown, the 4 C’s are part of every pilot’s proficiency check ride.  “A pilot goes through four stages of proficiency when learning a new airplane, a new set of skills, or working in a new environment. Those stages are Cautious, Compliant (or Current), Confident and Complacent.  The last of these can kill you.”[4] Boeing as an institution seems to have gotten “complacent” when it came to Max’s safety because, it appears, those in the C-suite knew better than the pilots in the trenches.  Once a self-inflicted crisis due to whatever cause, such as complacency, escalates, the 4 C’s come into play – Climb to safety, Communicate the problem, Confess what you did and what the problem is, and Comply with instructions from the higher authority of air traffic control. Boeing did what the Iranians did in the crash of a Ukrainian Boeing 737-800 (not a Max).  The Iranians denied there was a problem and blamed someone else.  Boeing blamed pilot error and the Iranians blamed mechanical failure.  The two Boeing Max crashes occurred when foreign pilots were in control of new Boeing Max jets maintained and operated by foreign airlines. The Iranians did what some say they do best – invoke the big lie.  The Iranians had no access to the black box or to cockpit information; there was no distress call; and in lying the Iranians were effectively faulting Ukraine’s pilots, mechanics, and pilot training even though Ukraine has one of the best safety records in terms of aircraft maintenance and pilot training.  Only days later did the Iranians admit their military “unintentionally” shot down the Ukrainian airliner.[5]  Even when “confessing,” the Iranians continued to lie – the missile was fired intentionally at an ascending aircraft, not at a descending incoming anything, and the Iranian’s Russian missile homed in on the airliner’s transponder which is what those missiles are supposed to do to hit their targets.   The “unintentional” word was intended to excuse the incompetence and stupidity of the Iranian missile defense personnel. Bill Clinton in the Monica Lewinsky affair invoked only part of the 4 C’s -- he Climbed by telling America he had to get back to work as President of the United States, and he certainly Communicated that position.  He also did the big lie when he denied he had had “sex with that woman.”  In telling America, “It depends on what the meaning of ‘is’ is,”[6] President Clinton made every American parent of a daughter cringe. Boeing, Iran and President Clinton created these crises, and all mismanaged them.  While it would seem axiomatic that a self-inflicted crisis can be managed more easily than an unexpected crisis, that unfortunately appears not to be the case. In unexpected crises, these rules of aviation also apply.  The obituary of one of America’s foremost crisis management experts, Harold Burson, said: “Mr. Burson advised corporate C.E.O.s to get bad news out quickly and fully, making it a one-day story rather than letting it drag out. He urged them to be candid, and refused to take clients who could not be. He held staff seminars to promote Burson-Marsteller’s ‘vision and values.’ He was less interested in hiring reporters with contacts than he was in finding good writers who could capture the essence of a client. As business and financial news reporting improved in the 1970s and ’80s, he sought writers adept at detailed analysis, not the old puffery about chief executives and companies.”[7] [Emphasis added]  Boeing, Iran and President Clinton could have used and heeded this advice which looks similar to the 4 C’s As a lawyer for over 50 years, I have had the privilege of having clients trust my judgment when a crisis occurs.  Sometimes those have been “bet-the-company” crises.  Boeing’s Max crisis was potentially a “bet-the-company” crisis.  The Iranian shoot-down of a passenger plane and killing all 176 aboard was nothing more than a seeming “public relations” crisis to the Iranian regime.[8]  And the Clinton crisis was a “Bet-the-Presidency” crisis that turned on a 50-50 Senate vote. “Over the years, I learned that the traditional advice of a lawyer to avoid public comment during a legal crisis had become outdated, especially with the impact of the Internet at the turn of the twenty-first century. . . .  It was no longer viable for a lawyer to tell a client, ‘We’ll win it in the courtroom—we won’t litigate this in the media.’ There were too many ways for the judge and the jury to be influenced by public opinion, consciously or unconsciously; too many ways for prosecutors and regulators to be persuaded by adverse media coverage to launch an investigation or to bring a case, as broadcast news, once a day, became 24/7 cable, and then within just a few years, the Internet led to websites and then some blogs and then the blogosphere and then Google, Twitter, YouTube, WiFi, and social networks.  Everything that follows ineffective crisis management – developing a simple message, rapid response to correct misinformation that could hurt a client’s reputation, share values or outcome in the courtroom – and, in the long-term, repairing the damage begins with the need to get the facts, all the facts, good and bad – not just those that attorneys are ready to tell a non-attorney crisis manager or public relations, consultant. And that means getting access to all the facts, first with the protection of attorney-client privilege.”[9] While the author of that advice was one of President Clinton’s advisers in the Paula Jones and Monica Lewinsky matters, his words of today, which may be ironic given what happened some 25 years ago, are valuable: “The first rule of Crisis Management is to get all the facts.”[10]  Some law firms have created crisis management practices, sometimes within their government investigations practices.   One firm “advocates a multifront approach to crisis management. Whether the situation stems from internal problems or external events, we enable our clients to maintain focus on their business objectives while managing a crisis to its best outcome.”[11]  In aviation terms, this law firm is telling clients to continue to fly the airplane – continue to run their businesses, which is the “Climb” mandate of the 4 C’s, and the lawyers will gather the facts and engage other professionals such as public relations or crisis management firms, under the umbrella of the attorney-client privilege, and then advise the client on potential courses of action. An Above-the-Law article explains the critical importance of learning the facts: A hospital manager’s lost laptop with protected patient information on it meant the focus had to be not first on what the potential damage for a HIPAA violation could be, but first on making sure the “fact” the laptop was lost was accurate.  “[T]he only ‘wise’ decision I made that day was to turn over the reins of our response to my colleague who suggested we first ask the manager to retrace her steps over the previous day. And as luck would have it, her laptop turned up in a rarely used conference room a few minutes later. Safe and sound, and most importantly, no violation of HIPAA or our patients’ information.”[12]  There is no substitute for learning the facts as quickly and as accurately as possible. Another aviation crisis management lesson taught to all student pilots and repeated at all phases of pilot training is to “Aviate, Navigate, Communicate.”[13]  The “Aviate and Navigate” part of this mandate is the “Climb” part of the 4 C’s.  The “Communicate” element is shorthand for the “Communicate, Confess and Comply with instructions” part of the 4 C’s.  The client must always Aviate and Climb – run the business.  The Confess part is usually where things get dicey in terms of whether the client will come clean with the lawyers.  Boeing apparently did not.  The global media were the lawyers in the case of the Iranian shoot-down of the Ukrainian aircraft.  And we do not know whether President Clinton Confessed to his advisers at the time all of the facts regarding Paula Jones, Monica Lewinsky and other women accusers. I chose the aviation analogy to crisis management for business because as a licensed pilot for more than 40 years and having owned my own single engine aircraft for more than 38 years, I have had my share of difficult situations just as every plot does.  Having a landing light blow out on approach to an unfamiliar non-tower controlled airport after a multi-hour night cross country to work on an acquisition in Maine; having a very large Seagull dive towards my windscreen and hit my right wing over the New Jersey Turnpike at 500 feet on approach to my home airport; and getting lost when encountering an unexpected snow squall in Western Pennsylvania, many occurring in my aircraft’s pre-GPS days, were all manageable because of my recurrent pilot training to prepare for those potential crises. While the possible crises in aviation are seemingly endless, especially the more complicated the aircraft, training and more training proves the adage that “practice makes perfect.”  There are some crises that cannot be practiced in an aircraft and need to be practiced in a simulator, especially when flying more complicated aircraft.  An airplane is a machine with parts, systems, passengers and crew that can malfunction.  What we do as student pilots and then as pilots is train for contingencies.  Training for a crisis in business is not as easy as training for a crisis in aviation because training for crises is usually not part of a business’s agenda.  Contingency planning can be urged by insurers, and some companies’ management will have risk managers who do engage in contingency planning.  Unenlightened management will often view costly contingency planning as an expense without a quantifiable immediate benefit. How often do we roll our eyes at fire drills in high rise office buildings?  This is contingency planning and practice, or recurrent training, no different from what we do as pilots.  “If you see fire or smoke, follow the four ACES of high rise building fire safety: 1. ACTIVATE the fire alarm immediately by pulling the nearest Fire Alarm Box . . . .   If you cannot pull the Fire Alarm, call 911.  2. COMMUNICATE with the Fire Warden Team and other colleagues on your floor.  3. EVACUATE by using the stairs . . . .  DO NOT USE THE ELEVATORS.  Members of the Fire Warden team will lead the evacuation down two or more floors for re-entry (or if there is the need to evacuate the building completely . . .).  4. SELF-ESCAPE Stay calm, don’t panic.  Stay low in smoke conditions, and close doors to confine fire and smoke.  Feel doors before opening them; if they’re hot, don’t open!”[14]  Isn’t this really a tenant’s variant on “Climb, Communicate, Confess and Comply with instructions?” “I have written before about the necessity of contingency plans, but what if there is simply no time to pull out the book and turn to page 63? You are in a state of emergency, your stomach is in a knot, and the CEO is asking you some very difficult questions. Grab the canoe. Take a breath and do your best.”[15]  The canoe is the business or the aviate and navigate/fly the plane part of dealing with an aviation crisis.  “First, you must ‘grab the canoe’ and get back to floating; only then can you assess what else might be wrong (missing possessions, food, wet socks, etc.). Things are going to go screwy during your tenure as an attorney — they just will. You cannot possibly plan for everything, but you can remember the mantra of ‘grab the canoe.’  The canoe is a metaphor for the stasis that usually surrounds your job. You are first and foremost representing an entity. . . . The entity is what keeps you and the other employees afloat. During a crisis, all of the happenings within the entity are to be worried about after first taking care to right your primary client, the business. Some things that occur in an emergency, or a quickly moving negotiation, can be left behind, such as obsolete contractual language. Other issues are absolutely necessary in a publicly-traded company — reporting requirements, for instance. And in the time it takes to read this column, some of these issues can overturn your company’s sense of balance, and leave you drifting.”[16]  “Of course we are not saving lives, or curing dread disease. We practice law. The key is in the word “practice.” As you practice, answers become ingrained, and your expertise begins to grow. After years of “practice,” you enable yourself to right tipped canoes, and assist stressed CEOs quickly, efficiently, and appropriately. But in the recesses of your mind, you must always be aware of the possibilities for crisis. Remember that in the moment you will rely on what you know and keep the primary focus on staying afloat. You can allow yourself to let the what-ifs creep in once you are past the crisis and are happily ensconced at the third seat at the bar, with a martini safely in hand.”[17] Crises can be big or small.  And they can sometimes involve saving lives.  It is not often we as lawyers are called upon to help clients deal with “Bet-the-Company” or life-and-death crises.  Our “practice” for these crisis events usually comes on the job and our performance often turns on the judgment we have developed from experience, from observing more experienced lawyers, from reading as much as we can about as much as possible, and most of all from thinking and analyzing what we read, see and hear and all the what-if’s that never cease in our daily law practices. In my law practice, I have had a few “Bet-the-Company” crises to help clients through.  Fortunately, all turned out fine.  One involved consumer product tampering and the other involved a brother-in-law’s attempt to misappropriate my client’s business. The Product Tampering Crisis:  The CEO of my branded consumer product client called in a panic, telling me a supermarket executive notified the client and FBI that one of its stores had received a call from someone claiming to have put poison in a container of the client's product. The client asked whether he should issue a product recall.  I have used this example in interviewing job applicants. I ascertained the facts by speaking with the client’s CEO, COO and plant manager and by liaising with the FBI.  I learned that wiretaps had been placed on the supermarket's telephone lines and that the FBI agent’s experience was more often than not these were hoaxes.  My advice to the client was to wait, not rush to issue a product recall, and instead to withdraw the product just from the stores in the local area, to test the withdrawn product, and to replace the product with new product produced at a different plant. That was done and testing proved negative.  We waited. This was in the days before computer real-time inventory could tell us how much product had been purchased at each location.  If no poisoned product was out there and the client issued a recall, the company and its brand would have been severely and possibly irreparably damaged.  If a poisoned container was already out there in commerce to an unsuspecting consumer, the company would be severely damaged, and a recall would necessarily follow.  The FBI agent and I thought the odds of a just-purchased container being consumed and harming or killing someone were fairly low. The supermarket received a second call from the same caller a few hours later.  The FBI wiretap led to an arrest that day of a disgruntled teenage supermarket employee who confessed to the hoax.  A public product recall was avoided, and no one was hurt. The Brother-In-Law Crisis:  A prospective client was referred to me to discuss estate planning and his desire to leave his hotel business to his adult child who had joined the business and opened an on-premises restaurant.  The client believed this hotel was “his,” as the client ran this hotel and his brother-in-law ran two other hotels that all four in-laws owned.  I needed to know what the client owned, not what the client told me he owned.  After reading the relevant documents, I learned that the client did not own or control the business he thought he did, and he would not be able to leave the business to his heir.  The client owned 26% of a limited partnership that owned the business, and he was one of two general partners, the other being his brother-in-law, a very controlling and domineering person.  The brother-in-law conditioned his okay for the client’s adult child to open the restaurant on the restaurant providing, at its expense, free breakfasts to the hotel’s guests. The client's then-lawyer and then-accountant were among the dozen or so family and friends limited partners. The partnership's term was contractually scheduled to expire some years earlier, but the brother-in-law, attorney and accountant had advised the client to extend the partnership's term because if the business was sold, they would all have to pay taxes. It was not a coincidence that each limited partner's original investment was yielding an annual 700% cash return, all while the assets of the business had appreciated significantly. Because the client was the nicest person I had ever met and was the kind of man one would choose as your father if that was a matter of choice, the client was not confrontational and did not want to sue despite what I thought were good claims against some of the actors here.  I devised a non-litigation strategy that included the partnership not distributing cash to its partners so the partnership could use its cash for acquisitions and other business matters.  That resulted in the partners having taxable income without cash being distributed to them. The client offered to buy out the limited partners who rejected the offer, commenced arbitration, and sued for an injunction to compel cash distributions.  Although the client would not sue, he would defend himself quite vigorously. The injunction was denied. The case proceeded to pre-arbitration mediation.  Relying on their own "expertise," the former lawyer and former accountant chose not to obtain an appraisal and agreed on behalf of the limited partners to a buy-out at a particular partnership valuation.  I arranged for a bank client to make a loan to the partnership in an amount greater than the buy-out value of the limited partners’ 48%. The bank's appraised value of the business turned out to be about 50% greater than the buy-out value.  After some intra-family transactions, this crisis was resolved with my client owning 100% of his business and having the ability to leave his very valuable asset to his heir. The client said that the decision to make me his attorney was the most significant business decision of his life. It is critical to ascertain the facts in any crisis situation, both for the lawyer and the client, and the lawyer must be able to communicate those facts clearly to the client and ultimately to others involved in the crisis.  “’We are advocates,’ Mr. Burson told The New York Times in 1984. ‘We are being paid to tell our clients’ side of the story. We are in the business of changing and molding attitudes, and we aren’t successful unless we move the needle, get people to do something. But we are also a client’s conscience, and we have to do what is in the public interest.”[18]  While we are advocates to the world outside the client, we need to be truth-tellers to and questioners of the client. “When cyanide-laced capsules of Tylenol, the pain medication, killed seven people in the Chicago area in 1982, its manufacturer, Johnson & Johnson, made the best of a bad situation. After consulting Mr. Burson, the company’s chief, James E. Burke, announced a recall, ordered new tamper-resistant caplets and packaging seals, and mounted a campaign that acknowledged the facts, stressed safety measures and eventually restored his company’s credibility.  ‘Basically, I served to help him think through problems and reinforce his own instincts,’ Mr. Burson said of Mr. Burke. It was not modesty. P.R. people have always tried to keep their hands invisible, allowing clients to take credit and blame, and the Tylenol case is often cited as a textbook model of corporate responsibility in a crisis. No one was ever prosecuted for the tampering, or for an isolated 1986 recurrence.”[19] (Coincidentally, I advised a pharmaceutical packaging company client at that time that repackaged Tylenol in tamper-evident packaging following that crisis.) Sometimes, identifying and articulating the facts suggests a solution.  In my examples, each business needed to continue to be operated while these crisis situations played out and resolved.  “Climb, Communicate, Confess and Comply with instructions” is the client’s job in a crisis.  Our role as lawyers is to focus the client on running the business and ascertaining the facts as rapidly and as accurately as possible, evaluate options with the client, and then together arrive at the solution that makes the most sense for the client and the client’s constituencies.  "Never let a good crisis go to waste" has been attributed to Winston Churchill[20] and to others.[21]  No matter the outcome of a crisis, there is always a lesson to be learned. [1] https://www.washingtonpost.com/business/economy/new-software-in-boeing-737-max-planes-under-scrutinty-after-second-crash/2019/03/13/06716fda-45c7-11e9-90f0-0ccfeec87a61_story.html[2] https://www.nytimes.com/2019/10/18/business/boeing-flight-simulator-text-message.html [3] https://airfactsjournal.com/2018/09/the-other-4-cs-of-aviation/ [4] https://airfactsjournal.com/2018/09/the-other-4-cs-of-aviation/ [5] https://www.nbcnews.com/news/world/iranian-military-says-it-unintentionally-shot-down-ukrainian-plane-n1113996 [6] https://en.wikipedia.org/wiki/Impeachment_of_Bill_Clinton [7] Harold Burson, a Giant in Public Relations, Dies at 98  https://www.nytimes.com/2020/01/10/business/media/harold-burson-dead.html [8] https://en.wikipedia.org/wiki/Ukraine_International_Airlines_Flight_752 [9] Lanny J. Davis, Why Lawyers Are Best At Crisis Management http://www.lannyjdavis.com/why-lawyers-are-best-at-crisis-management/ [10] http://www.lannyjdavis.com/why-lawyers-are-best-at-crisis-management/ [11] https://www.steptoe.com/en/services/practices/criminal-defense-investigations/crisis-management.html [12] https://abovethelaw.com/2017/05/counseling-through-an-in-house-crisis/ [13] For much more on this topic, see https://idea.library.drexel.edu › idea:6094 › datastream › OBJ › download). [14] https://finance.columbia.edu/content/building-evacuation-procedures [15] https://abovethelaw.com/2013/07/grabbing-the-canoe-or-reflections-on-crisis-management/ [16] https://abovethelaw.com/2013/07/grabbing-the-canoe-or-reflections-on-crisis-management/?rf=1 [17] https://abovethelaw.com/2013/07/grabbing-the-canoe-or-reflections-on-crisis-management/?rf=1 [18] https://www.nytimes.com/2020/01/10/business/media/harold-burson-dead.html [19] https://www.nytimes.com/2020/01/10/business/media/harold-burson-dead.html [20] https://realbusiness.co.uk/as-said-by-winston-churchill-never-waste-a-good-crisis/ [21] http://freakonomics.com/2009/08/13/quotes-uncovered-who-said-no-crisis-should-go-to-waste/

March 4, 2023

Labor and Employment

Adhering to Laws of Every State in Which Employees Are Working Remotely

As I’ve written before, the employment laws of the states where an employer hires employees are applicable to the employment relationship. If you missed that blog, you can access it here. I am listing more types of laws to consider. Sexual harassment policies: It may be legally required to adopt a policy against sexual harassment and provide notice of the policy at certain times. Workplace safety laws: Enough said. Non-competition agreements in an employment relationship: Severely limited or forbidden in some states and may soon be federally banned. Please look at my previous blog on this topic and the proposed legislation. Mini-COBRA laws: There are some state laws applying the COBRA requirements to employers with less than 20 employees. Voting leave: In certain cases, employers are required to provide leave to vote for a certain length of time and be paid for this. Lie detector tests: Requiring or requesting one is unlawful in some locations. Requiring the use of certain surnames: In some states, it’s illegal for employers to require employees to use, because of such individual's sex or marital status, any surname other than the one by which such individual is generally known. Veterans’ Day & Memorial Day leave: Employers in some locations must grant unpaid leave to a veteran or a member of a Department of War veteran who desires to participate in a Memorial Day exercise, parade, or service in the employee's community of residence. Volunteer emergency responders’ leave: Employers can’t take any disciplinary action against any employee of some states because they fail to report for work at the commencement of their regular working hours, where such failure is due to his responding to an emergency in their capacity as a volunteer member of a fire or ambulance department. This list is not exhaustive. I will continue the list in my next blog. I’m able to advise on employment laws applicable in other states, as needed.

March 3, 2023

Bankruptcy

How Not to Violate the Automatic Stay

The automatic stay is "one of the fundamental debtor protections provided by the bankruptcy laws" of this country.”[1]. It is viewed as a very broad protection that "stops all collection efforts, all harassment, and all foreclosure actions . . . meant to provide “complete, immediate, albeit temporary relief to the debtor from creditors, and also to prevent dissipation of the debtor's assets before orderly distribution to creditors can be effected.”[2] Certain actions (like bringing or continuing a breach of contract action against the debtor) fit neatly in the prohibitions of the Bankruptcy Code while some more nuanced circumstances prove trickier to label as violations, yet they can put a creditor or a counterparty on the naughty list. Here are five examples: 1. The automatic stay applies outside of U.S. geographical borders. A declaration of a setoff and a foreign creditor’s refusal to return the receivables to the debtors upon request was an improper exercise of control over the property of the Debtor's estate, and thus a violation of Section 362(a)(3) of the Bankruptcy Code. [3] 2. The enforcement of provisions in a condominium's bylaws that prohibit a chapter 11 debtor with a pre-petition delinquency in the payment of condominium fees from voting at an annual meeting or holding office as a director of the condominium association violates the automatic stay.[4] 3. A lender proceeding with a foreclosure sale against a limited liability company in which the debtor held 99% of the equity willfully violates the automatic stay under Section 362(a)(1), and to the enforcement of an earlier judgment in that proceeding or action, under Section 362(a)(2) when the foreclosure action named both the company and the debtor as parties in the proceeding.[5] 4. A mortgage company’s attempt to perfect lien against estate property by registering a deed of trust on the debtor’s property, when the stay had not been lifted by the bankruptcy court and when the mortgage company and its counsel had actual knowledge of the bankruptcy filing is a willful violation of the automatic stay.[6] 5. Threatening a debtor with criminal prosecution is a willful violation of the automatic stay. In a case involving a landlord in Tennessee, the Sixth Circuit affirmed the bankruptcy court and the district court in finding that the landlord cannot hide behind the criminal prosecution exception to the automatic stay in Section 362(b)(1).[7] Before the commencement of the bankruptcy case, the debtor had written to the landlord a check that bounced. After the debtor filed for bankruptcy, the landlord wrote letters to the debtor and her mother, claiming he was not attempting to collect back rent but threatened that he would initiate criminal proceedings for the bounced check. __________________ [1] Melanotic Nat'l Bank v. N.J. Dep't of Envtl. Prot., 474 U.S. 494, 503 106 S.Ct. 755, 88 L.Ed.2d 859 (1986) (quoting S. Rep. No. 95-989, at 54-55 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5840, 5963, 6296) [2][2] SEC v. Brennan, 230 F.3d 65, 70 (2d Cir. 2000). [3] In re Arcapita Bank B.S.C.(c), 628 B.R. 414, 480 (Bankr. S.D.N.Y. 2021), aff'd sub nom. In re Arcapita Bank B.S.C.(C), 640 B.R. 604 (S.D.N.Y. 2022); Section 362(a)(3) of the Bankruptcy Code provides that a filed bankruptcy petition filed operates as a stay, applicable to all entities, of any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate. 11 U.S.C. § 362(a)(3). [4] In re Gordon Properties, LLC, 460 B.R. 681, 685 (Bankr. E.D. Va. 2011). [5] Bayview Loan Servicing LLC v. Fogarty (In re Fogarty), 39 F.4th 62 (2d Cir. 2022). Section 362(a)(1) bars the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor ... to recover a claim against the debtor that arose before the commencement of the case. [6] In re Medlin, 201 B.R. 188 (Bankr. E.D. Tenn. 1996). [7] Weary v. Poteat, No. 15-5159, 2015 WL 5712191 (6th Cir. Sept. 30, 2015).

February 28, 2023

Labor and Employment

Consider Labor Laws When Hiring in Other States

Please be aware that the employment laws of the states where an employer hires employees are applicable to the employment relationship. Many companies continue to hire remotely without this consideration. Some states have very complex laws favoring employees, and employers should be alert to this issue. I am mentioning some types of laws to consider so that employers can review this list when considering hires in other states. This is a rather lengthy list to be continued. Written notices: This is a commonly overlooked legal requirement. Check to be sure which legal notices must be provided in each state. Anti-discrimination laws based on protected status: There are various classifications on which an employer may not legally discriminate. These might include the classes protected by federal law or exceed them. For instance, it is illegal in Delaware to discriminate against an employee because they are a firefighter. Disability accommodations: In some states, it’s illegal for an employer to require documentation from an appropriate health care or rehabilitation professional in certain situations, such as a request to lift less than 20 pounds. Pregnancy accommodations: In some states, employers must grant reasonable accommodations requested by employees for their pregnancy or related conditions unless employers can show that these accommodations would impose an undue hardship on their business. Parental leave & sick leave: Some states’ laws grant employees parental leave, unpaid sick leave, or paid sick leave. To be continued next blog. In the meanwhile, if you have questions, please reach out.

February 24, 2023

Business

FTC Seeks to Ban Non-compete Clauses: What This Really Means for Your Business

Today we will cover how the FTC seeks to ban non-compete clauses and what this means for your business. On January 5, 2023, the Federal Trade Commission (“FTC”) proposed a new rule banning employers from imposing non-competes on their workers. The rule is undoubtedly politically motivated as it was issued in response to President Biden’s Executive Order that encouraged the FTC to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” The FTC believes a non-compete is a “widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” By stopping this practice, the FTC erroneously estimates wages would increase by nearly $300 billion per year, and it would expand career opportunities for 30 million Americans. By stopping this practice, the FTC erroneously estimates wages would increase by nearly $300 billion per year, and it would expand career opportunities for 30 million Americans. Scope of Proposed Rule to Ban Non-compete Clauses The FTC’s proposed rule would prohibit employers from using non-compete clauses – i.e., any contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, within a specific geographic area and period of time after the conclusion of the worker’s employment with the employer. It would make it illegal for an employer to: enter into or attempt to enter into a non-compete with a worker; maintain a non-compete with a worker; or represent to a worker, under certain circumstances, that the worker is subject to a non-compete. The proposed rule would apply to “workers,” broadly defined by the FTC to include employees, individuals classified as independent contractors, externs, interns, volunteers, apprentices, and sole proprietors who provide a service to a client or customer. The rule also includes a “functional test” for determining what constitutes a “de facto” non-compete clause that has the same effect as an express non-compete clause – the same test employed by courts in states that already have express prohibitions on non-compete clauses. Effective Date of Proposed Rule Importantly, this is a proposed rule that is not in effect. The proposed rule is in a comment period until March 20, 2023. We do not believe it will go into effect, if at all, until after a lengthy court battle ending with a ruling from the United State Supreme Court. Then, even if the proposed ban becomes law, employers will have 180 days to revise their agreements to conform with the law. Moreover, there are a variety of tools, such as reasonably tailored non-disclosure agreements and confidentiality provisions, employers can use to accomplish their goals without violating the proposed ban. The proposed rule is the first step in a long process that will take years to complete. We expect the FTC will receive thousands or hundreds of thousands of comments to consider. Based on the comments, the rule will be revised. It could take the FTC until late 2023 or even the end of 2024 to issue a final rule. After the final rule is set forth, it will be subject to a legal challenge (or challenges); this will undoubtedly delay the effective date into 2025 or later, assuming the final rule survives any legal hurdles it faces. During this challenging period, a presidential election will occur, and the political winds will likely change, potentially further reversing the course of the FTC. Criticism of the Proposed Rule The U.S. Chamber of Commerce has opined that the FTC lacks the authority to issue the rule and ignores the benefits of non-competes. A senior vice president for the U.S. Chamber of Commerce has stated: “Attempting to ban non-compete clauses in all employment circumstances overturns well-established state laws which had long governed their use and ignores the fact that, when appropriately used, non-compete agreements are an important tool in fostering innovation and preserving competition.” An FTC Commissioner issued a dissenting statement when the proposed ban was announced. The dissenting statement outlined potential legal challenges noting the FTC lacks the legal authority to issue the ban, and the rule is barred by a recent United Supreme Court decision. Even if the FTC has authority, it is an impermissible delegation of that authority. The proposed rule must overcome extensive case law upholding the use of non-compete clauses that are determined to be reasonable unless they are unreasonable as to time or geographic scope. Even if the FTC has authority, it is an impermissible delegation of that authority. Exemptions to Proposed Rule to Ban Non-compete Clauses The proposed rule would exempt non-compete agreements that a person entered in connection with the sale of a business, but only if that person owned 25% or more of that business. The FTC is also seeking comments as to whether: non-compete clauses between employers and senior executives should be subject to a different standard; the rule should apply uniformly to all workers; and the rule should impose a categorical ban on non-compete clauses. Alternatives to Non-compete Clauses Employers are not without options. The FTC’s proposed rule’s definition of a non-compete clause does not include other types of covenants. Accordingly, employers should begin analyzing their confidentiality clauses, non-solicitation, and non-disclosure provisions. Carefully drafted provisions can ensure that employers are able to protect confidential information and customer relationships, as well as the poaching of current employees by former employees. Employers should also use this as an opportunity to strengthen trade secret protection plans. Employers should also use this as an opportunity to strengthen trade secret protection plans. What Should I Do as an Employer? There is no need to panic. The proposed rule will not go into law in its final form, if at all. However, now is the time to implement proper planning techniques into agreements with employees. As noted previously, with proper legal counsel, non-compete, non-solicitation (vertically and horizontally), confidentiality, non-disclosure, and other restrictive covenants can be used to accomplish the goals of employers, most of which are not within the scope of the current version of the proposed rule. With proper legal counsel, non-compete, non-solicitation, confidentiality, non-disclosure, and other restrictive covenants can be used to accomplish the goals of employers. Conclusion Thank you for reading our blog on how the FTC seeks to ban non-compete clauses and what this means for your business. Please contact us immediately so that we can assist you in your planning and contract drafting process to properly implement such restrictions to protect your business. Charles McCauley can be reached at cmccauley@offitkurman.com or 484-531-1712, and Sarah Goodman can be reached at sarah.goodman@offitkurman.com or 267-338-1319.

February 24, 2023

Intellectual Property

Does the First Amendment Protect the Use of Parody for Commercial Purposes?

The US Supreme Court Will Decide On March 22, the US Supreme Court will hear arguments in Jack Daniel's Properties, Inc. v. VIP Products LLC. In a case that pits trademark rights against free speech claims, Jack Daniel's has sued VIP Products for trademark infringement due to VIP Products' sale of a dog chew toy in the shape of a Jack Daniel's bottle with a label replacing "Jack Daniel's" with "Bad Spaniels" and engaging in other parodying of the Jack Daniel's label in a manner referring to dog defecation. VIP Products takes the position that its parody should be protected under the First Amendment Freedom of Speech Clause. Jack Daniel's view is that a company selling a commercial product that makes humorous use of the Jack Daniel's brand should not be entitled to First Amendment protection. I discovered in a store in Colorado that "Bad Spaniels" is just one of a line of dog toys parodying liquor brands. Although it may be that Jack Daniel's is the only brand worked up enough about this to bring a lawsuit (and take it all the way to the Supreme Court), several third parties have filed briefs in support of Jack Daniel's position, including Campbell Soup Company, Nike, and several trade associations. The Supreme Court's decision will likely issue in June.

February 23, 2023

Business

Does Litigation Risk Loss of Potential Insurance for Environmental Harm? New Jersey Court Weighs In

Businesses risk losing potential insurance coverage for investigation and remediation of environmental contamination if they pursue claims against third parties without carefully considering and preserving available coverage. In fact, in recent ligation in New Jersey with implications nationwide, two insurance companies tried to avoid providing coverage for environmental expenses incurred by the owner of the contaminated property by arguing that the property owner’s claims were barred by New Jersey’s “entire controversy” doctrine as a result of prior litigation between the property owner and its former tenant and the tenant’s insurance company. See Industrial Corner Corp. v. Public Serv. Mut. Ins. Co., Docket No. 20-06677 (D.N.J. February 8, 2023). New Jersey’s “entire controversy” doctrine is a unique formulation of the more typical doctrine of “res judicata,” which generally bars claims that could have and should have been brought in prior litigation. However, based on the specific facts at issue, the New Jersey federal district court allowed the property owner to continue to pursue insurance coverage from the insurers despite the prior litigation. That is, the property owner has owned the New Jersey property at issue since 1971. From 1971 through 2008, the property owner leased the property to a tenant conducting manufacturing. The tenant discharged perchloroethylene (“PCE”), a solvent used to clean metal and dry-clean fabric, through its operations and thereby contaminated the property. After learning of the contamination, the property owner sued the tenant and the tenant’s insurance company in separate litigation for damages under the terms of the lease and the applicable insurance policies. The property owner successfully obtained compensation from these parties but was unable to recover all of its costs. As a result, following the conclusion of this litigation, the property owner sought coverage from its own insurance providers. As noted above, the providers responded by arguing that the property owner’s claims were barred by New Jersey’s “entire controversy” doctrine. In evaluating the applicability of the “entire controversy” doctrine, the court determined that two of the three elements of the doctrine weighed in favor of dismissing the property owner’s claims. However, the third and final element was not satisfied. In particular, the court determined that the “entire controversy” doctrine did not apply because the claims by the property owner and its insurance providers did not arise from the same transaction or occurrence as the prior litigation against the former tenant and the tenant’s insurer. The court weighed several factors and determined that, even though all of the claims arise from the PCE contamination, the claims differ in certain key regards. The court also found it dispositive that the property owner could not have brought all of the claims in the same action because they were not yet ripe, i.e., because its insurance providers had not yet refused to provide coverage. While this decision is helpful to insureds, it is easy to formulate a set of facts where the property owner’s insurers could have escaped liability based on the “entire controversy” doctrine or otherwise. As such, this decision provides a necessary warning to parties, whether located in New Jersey or beyond: carefully evaluate all potential recovery options, including private parties and insurance providers, before instituting litigation and take precautions to preserve and maintain all recovery options.

February 22, 2023

Labor and Employment

Is an Individual with a Workers’ Compensation Injury Protected Under the ADA?

Companies operating in the logistics industry, whether it be as contractors for DHL, FedEx, Amazon, or the like, are all too familiar with the challenges of having a workforce that relies primarily on physical ability and the challenges associated with employees who suffer from injuries on the job that impact their ability to perform their job duties and potentially create unsafe working conditions. With physically demanding jobs comes the increased chance for accommodation requests under the Americans with Disabilities Act (ADA). When an employee is injured on the job, contractors are often quick to ensure they follow proper protocols for any potential workers’ compensation claims. However, they often overlook the application of the Americans with Disabilities Act, which may cover the injured worker if the employee meets the definition of disability. The ADA applies to employers with 15 or more employees. It prohibits employers from discriminating against qualified disabled individuals and requires that such employers provide reasonable accommodations that allow them to perform the essential functions of their job or to enjoy benefits and privileges of employment equal to those without a disability. An individual has a disability and is subject to protection if they have a physical or mental impairment that substantially limits major life activities. Crucially, the ADA does not require a showing of long-term effects to qualify, and short-term impairments are covered if they are considerably limiting. Often, employers mistakenly believe that employees struggling with short-term impairments due to a workplace injury do not qualify for protection under the ADA and are too focused on the initial worker’s compensation assessment to realize they also need to consider the implications of the ADA. If an employee asks for accommodation after a workplace injury, the ADA may apply, and the company must perform an individualized assessment to determine whether the individual meets the ADA definition of disabled, and if they do, assess what reasonable accommodations to grant based to help the employee perform their job duties. An accommodation request in the logistics industry can take many forms, including: requests for light duty, including limiting hours worked and weight lifted; requests for periodic unpaid leave or an alternative work schedule to attend physical therapy appointments; increased breaks; and reassignment to a less physically demanding position. While an employer is not obligated to grant the exact accommodation an employee requests, it must assess the request and engage in the interactive process with the employee to determine the employee’s limitations and needs, whether the accommodation requested is appropriate, and what other accommodations are needed. Employers’ obligations under the ADA are complex and fact specific. So complicated, in fact, that the U.S. Equal Employment Opportunity Commission’s (EEOC) guidance is seventy-six pages long. Employers must have a clear and compliant ADA policy that includes instructions for employees on pursuing an accommodation request.

February 22, 2023

Immigration Law

Policy U-Turn: US Visas to be Issued in DC

On February 9th Bloomberg Law reported on an interview they conducted with Julie Stufft, Deputy Assistant Secretary for Visa Services at the Bureau of Consular Affairs, in which Ms. Stufft outlined a Department of State (DOS) plan to restore stateside visa renewals. Which means that eligible nonimmigrants would be able to renew their visa stamps without leaving the country. This marks the turning point in the DOS policy on stateside visa renewals, which were largely discontinued in 2004 except for diplomats and international organization employees. It is great news for H and L visa holders who will be included in the trial program. Details are currently vague, but it will likely include a limited subset of those visa holders. The Covid-19 pandemic brought the policy into the forefront, with multiple organizations seeking assistance from the DOS in accepting stateside visa renewals. This was requested as the pandemic had led to the global closure of embassies and consulates worldwide, which in turn prevented thousands of individuals from traveling abroad with the fear they would not be able to return as there was no mechanism to renew their visa. Further, The Trump administration policies to ban certain visa issuances and strip the DOS of staff still have legacy impacts to the visa processing process. The many voices calling for stateside visa issuance fail to grasp the reality of implementing such a complex and massive undertaking. The DOS certainly has the capabilities to set up such a program, but the resources and procedures are vast, ranging from detailed security screening to secure document handling, possibly including online visa interviews with applicants and a myriad of additional complexities. Ms. Stufft alluded in her interview that the expansion of stateside visa processing would require setting up a new consular division in Washington, D.C. The main point of contention that ended the vast majority of stateside visa processing was the biometric requirements for visas required in 2004. How the DOS plans to address this is vague right now. Still, there are many national biometric screening centers operated by the United States Citizenship and Immigration Services (USCIS). We could see an expansion of use of these centers or the reliance on previously obtained biometrics – a policy implemented by the USCIS during the Covid-19 pandemic. Although the details provided are vague, this change in policy provides another level of protection for nonimmigrant visa holders and hopefully provide more certainty for international travel as visa wait times continue to suffer worldwide. The DOS has continued to highlight their programs to address worldwide visa backlogs, which have included expanded waivers for interviews, special programs to assist individuals affected by the trump administration policies and increased appointments. Further steps recommended to the DOS by a variety of groups include adding additional missions, allowing online visa appointments and streamlining the interview waiver process to cut wait times. If you’d like to discuss further, please reach out to Michael.Freestone@OffitKurman.com.

February 17, 2023

Litigation

Virginia’s 2023 Wage Hike – New Year, New Minimum!

Virginia is one of nine jurisdictions en route to a $15 minimum wage (or higher) by 2026.  As it is, Virginia is one of nearly 30 states to affect an increase this year.  The first of the year saw the Commonwealth’s previous minimum of $11 per hour -- which had only gone into effect at the beginning of 2022! -- bump up by another $1 to $12 per hour.  By comparison here in the “DMV,” Virginia continues to lag its neighboring jurisdictions, Maryland and D.C., with the first of the year, Maryland’s minimum jumped from $12.50 to $13.25 per hour (for companies of certain minimum size – i.e., 15 or more employees), while D.C.’s $16.10 hourly rate comes in higher than all fifty states, many of which still abide by the federal minimum of $7.25, which has remained unchanged since 2009. Virginia’s increase is the latest in a series of step-ups scheduled to take effect in the Commonwealth between now and 2026.  The minimum wage rate in Virginia recently climbed $1.50 per hour in 2021 and, after this year’s additional $1 per hour, is slated to increase again to $13.50 per hour in 2025 before reaching the targeted $15 per hour in 2026.  That is, of course, so long as the most recent changes to Virginia’s Minimum Wage Act are not repealed or otherwise limited by the now Republican-controlled General Assembly.  Keep a watchful eye out for attempted changes this legislative session to Code Section 40.1-28.10 as attempts are anticipated to try to walk back the increases or at least to “slow the roll.” Tipped employees, such as restaurant wait staff, continue to face a meager $2.13 per hour minimum but, with tips factored in, must meet the $12 per hour minimum rate.  If you are a small business owner with questions about the new laws and your obligations regarding them, Offit Kurman has the resources to help.  Not sure whether your workers are independent contractors or employees subject to the minimum wage requirements?  Choosing to do nothing is still making a choice – and the wrong one could prove very costly in this context.  If you’re uncertain whether and/or how this or any other new law (recreational cannabis, for instance?) might impact you or your business, let me get you connected with someone who can help.

February 15, 2023

One Minute of Overtime

Deductions from Salaries

Welcome to One Minute of Overtime, where I will share insights on Labor and Employment Law topics, mostly related to minimum wage and overtime compliance issues. Compliance in this area of law is nuanced and technical, so it is critical for employers to audit and adjust their practices to remain compliant, so stop by to stay up-to-date and in-the-know. An employer is permitted to withhold a portion of an exempt employee’s salary in limited circumstances, such as when the employee is absent from work for one or more full days for personal reasons other than sickness or disability; for absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness; to offset amounts employees receive as jury or witness fees, or for military pay; for penalties imposed in good faith for infractions of safety rules of major significance; or for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.

February 15, 2023

Business

Ninth Circuit Court of Appeals Submits Second Certified Question to California Supreme Court On COVID-19 Related Insurance Coverage

On February 7, 2023, the Ninth U.S. Circuit Court of Appeals (“9th Circuit”) sent a certified question to the California Supreme Court on an issue in a pending case relating to insurance coverage for COVID-19-related business shutdowns. This is the second time within the past 45 days that the 9th Circuit has done so, having submitted a different question to the California Supreme Court in another COVID-19 coverage case on December 28, 2022. The certified question sent on February 7, 2023, relating to a pending dispute between French Laundry Partners and its insurer, The Hartford, asks, “[i]s the virus exclusion in French Laundry’s insurance policy unenforceable because enforcing it would render illusory a limited virus coverage provision allowing for the possibility of coverage for business losses and extra expenses allegedly caused by the presence and impacts of COVID-19 at an insured’s properties, including the loss of business due to a civil authority closure order?” The certified question sent on December 28, 2022, relating to a pending dispute between concert organizer Another Planet Entertainment and its insurer Vigilant Insurance Co., asks “[c]an the actual or potential presence of the COVID-19 virus on an insured’s premises constitute ‘direct physical loss or damage to property’ for purposes of coverage under a commercial property insurance policy?” The topics of the two certified questions are not the main points here. Instead, it is the uncertainty that remains as COVID-19-related insurance cases make their way through Courts – in California and elsewhere – that is paramount. Indeed, in its February 7, 2023, submission to the California Supreme Court, the 9th Circuit stressed: Courts at both the state and federal levels are grappling with the application of California insurance contract interpretation law to coverage for losses from business shutdowns due to government closure orders in response to COVID-19. While both state and federal courts have published opinions providing some guidance, there remains much uncertainty as to how California law applies in many scenarios. The prevalence of and uncertainty surrounding COVID-19 insurance litigation is underscored by our certification to the Supreme Court of California on December 28, 2022, in another case asking whether the actual or potential presence of the COVID-19 virus can constitute ‘direct physical loss or damage to property’ for the purposes of coverage under an insurance policy. The stakes are high in COVID-19 coverage cases, which center on an insured’s loss of business due to government closure orders. After more than two years of litigation across the nation, uncertainty remains. The 9th Circuit’s sending of two certified questions to the California Supreme Court in the past 45 days is a manifestation of this and an effort to, in the words of the 9th Circuit, “gain some efficiencies through concurrent consideration of our certification in [the French Laundry] case.” Time will tell what the California Supreme Court decides to do in these two instances and whether more certified questions will come from Federal Courts to State Supreme Courts as courts seek clarity and consistency in handling COVID-19-related insurance coverage cases. If you are still grappling with claims associated with losses due to government closure orders in response to COVID-19 or other comprehensive general liability or property insurance coverage issues, please feel free to contact us for a consultation.

February 14, 2023

Family Law

DIY Divorces Recap

There’s a lot to be said for embracing a do-it-yourself (DIY) ethos. DIYers develop useful skills, sometimes discover new hobbies, and often save a great deal of money. But while plenty of DIY projects can reduce upfront costs and bring personal fulfillment, there are some things you should never, ever do yourself. Giving your house a fresh coat of paint? Go for it! Brewing beer in your garage? Sure—why not? Handling your own divorce proceedings? Not a great idea. Looking to handle a divorce or another family legal matter in the best way possible? Don’t rely on a simple document retrieval service. Offit Kurman’s Family Law attorneys are dedicated to resolving conflicts and protecting your and your family’s interests in a fast, straightforward, and cost-effective manner. See for yourself what we can do for you.

February 13, 2023

Labor and Employment

New Federal Workforce Mobility Act Would Further Limit Non-Compete Agreements

Last week, politicians reintroduced the federal Workforce Mobility Act, a bipartisan bill intended to limit the use of non-compete agreements with U.S. employees. As the bill states, “economists now estimate that 1 in 5 workers is covered by a non-compete agreement.” It further finds that non-compete agreements are “blunt instruments that crudely protect employer interests and place a drag on national productivity by forcing covered workers to wither idle for long periods of time or leave the industries in which the workers have honed their skills altogether… [they] also reduce wages, restrict worker mobility, impinge on the freedom of a worker to maximize labor market potential, and slow the pace of innovation in the United States.” TheWorkforce Mobility Act would: Limit the use of non-competes to business sales and dissolution of partnerships; Require most employers to post a notice of the law for employees; Allow the Federal Trade Commission to bring an action to enforce the act according to the Federal Trade Commission Act; Direct the Department of Labor to investigate violations – confidentially - and allow it and state attorneys general to bring legal action against the employer who uses a non-compete; and Provide that employees may sue their employers or former employers to enforce the act, recovering both actual damages and attorney’s fees and costs. If this act passes, it will expose employers to a minefield of liabilities and enforcement actions. At this point, given both the proposed FTC rule banning non-competes, discussed in my previous blog, companies need to meet with their attorneys regarding protecting information, assets, and business by means of other agreements. Prediction from this litigator/ agreement drafter: if this bill passes, a great deal of litigation is coming. This bill doesn’t allow employees to agree to arbitrate any of these disputes. Employees will have little disincentive to file because they will recover their attorney’s fees and costs if they win the lawsuit. Looking forward, it will be more important than ever to craft an up-to-date agreement with employees to protect a business and its trade secrets.

February 9, 2023

Labor and Employment

New Harvard Wage Study Shows Employers Are Inflating Titles to Illegally Dodge Overtime

I am constantly reminded of employers’ mistakes in determining that their workers are exempt from overtime payments under the Fair Labor Standards Act. I recently came across a report of a new study from researchers at Harvard Business School and the University of Texas at Dallas. This study, covering 2011 – 2018, examined “title inflation,” misclassification of employees to avoid paying overtime, and the risk of U.S. Department of Labor/ USDOL suits. The report states, in part, "Our evidence indicates that firms strategically use job titles to exploit regulatory thresholds to avoid paying for overtime work … We find that [this practice] is also strongly associated with the usage of fake managerial titles and … thus can be used as a timely indicator of potential FLSA violations." The law requires that in order to classify an employee as exempt from overtime, the employee must earn a certain amount of salary, as well as perform the job duties of a non-exempt worker (for instance, managing others, professional duties based on a higher degree, and computer programming.) During the study’s time period, there was a 485% increase in managerial titles and pay that barely bumped workers over the minimum salary required to classify workers as exempt. Inflated titles are used to justify salary: researchers saw a barber called a “grooming manager” and a front desk clerk labeled as a “director of first impressions.” Overtime — or lack thereof — is prevalent in issues of wage theft. Nearly two-thirds of wage theft violations that resulted in fines involved overtime issues, according to the study's analysis of U.S. Department of Labor data from 2010 to 2021. Of all back wage fines levied by the agency, over 80% were for overtime. The USDOL has recovered millions of dollars in back pay for unpaid overtime. If just one employee blows the whistle – it costs employers dearly. Review the employee’s primary duties and then classify them correctly. If concerns arise about retention, know that the employee can retain the title (and salary); but watch hours closely to ensure overtime isn’t owed and set a policy requiring management’s permission to work overtime. Consult an experienced attorney for help to determine classification.

January 25, 2023