Making It Legal:

I have friends from college where our only communication right now is an annual Christmas missive, detailing all the high points of the year about to end. I’m always delighted to hear their news and to live vicariously through the stories they share. But these are not the people I turn to in a crisis. These are not the people whose lives are intimately intertwined with mine. If our lives can be seen as concentric circles, these friends are not in the innermost circles.

Think of all the relationships you’ve ever had–with romantic partners, children, parents, friends and colleagues. Which ones were most important to you? And of those, how many relationships truly flourished if you communicated only once a year?

When it comes to business, you want to keep your employees close. Perhaps not “inner sanctum” close, but certainly more than “Christmas card” close.

That’s why communication with your employees needs to be an ongoing process. As I mention in my article, “R-E-S-P-E-C-T: The Key to Employee Loyalty,” you’ll want to give them regular feedback so that they know where they are on track, and where they need improvement. F. John Reh also notes in his article, “Why Annual Performance Reviews Are a Waste of Time,” that:

the best performance review is the ongoing review. Work with your employees on how they are doing on a task-by-task basis–daily or weekly. Let them know right away what they are doing wrong so they can correct it now, not 12 months from now when it has become an ingrained habit.
 

This week’s Basic Training involves a situation that really stinks. (Insert groans here). Read on to find out why . . . .

Q: What are the rights of co-workers when another experiences side effects (i.e. malodorous flatulence) due to gastric bypass? The surgery is not recent, and to add insult to injury, the offender does not maintain a healthy diet, which only exacerbates the problem. The office manager has supplied the office with various oder-eliminating products, which we all use, except for the guilty party. He has absolutely no regard for his co-workers, and to my knowledge our HR person has not counseled him on any kind of office etiquette. There are laws in place to protect those with medical disabilities, but what type of protection is there for those having to be around such an inconsiderate person? This may seem like a joke, but it is not! I think people are leery to say anything to this person for fear of being accused of discrimination.

A: Unquestionably, your employer should be doing more to resolve the problem than merely leaving bottles of Beano sitting around. It’s not clear whether your co-worker’s flatulence is truly disability-related. You mention other factors, like poor diet, that may point to this being simply a hygiene issue (which is not a protected class under discrimination statutes). It’s for your employer to determine whether there’s really a disability issue here and, if so, whether the Americans with Disabilities Act applies and there’s an accommodation that will resolve the problem. If your company is sophisticated enough to have a dedicated HR person, it probably has an HR manual that outlines grievance procedures. Following those steps should make it clear to your employer that you (and others) mean business and that this issue must be addressed.

For anyone who ever doubted the benefit of confidentiality agreements, the case of Chris Botticella, former Thomas’ English Muffin executive should put the doubts to rest. 

As recently reported in the New York Times, Botticella was one of a small handful of people who knew the entire “nook and cranny” secret.  He signed a confidentiality agreement with the company. Within a year, he gave two weeks’ notice (ostensibly, to retire), but then rumors circulated that he was jumping ship to go to a competitor, Hostess Bakeries.  It was also claimed that, after Botticella confirmed he was going to work for Hostess, he immediately started downloading Thomas’ confidential company information. 

Lawyers for Thomas’ parent company, Grupo Bimbo, acted quickly to prevent him from making the move.  Because the case is tied up in court . . . and presumably because they don’t want to get dragged into the lawsuit, Hostess has said it is no longer holding the job for Mr. Botticella.

For the fuller story, see http://www.nytimes.com/2010/08/07/business/07muffin.html

It’s a good reminder to companies of all sizes of the value of protecting their intellectual property.  Too easily, they let employees and others have access to their proprietary information, only to find out they may have trained their next competitor.  A confidentiality agreement that prevents any misuse of their property can go a long way to keeping their business intact.

“Aw, c’mon,” you cry, “so what if I have my friend’s daughter coming into handle my bookkeeping and I just pay her hourly?” Well, that “so what” could cost you thousands of extra dollars in penalties and interest if you don’t classify your “workforce” properly.

Whenever your business benefits from someone else’s time, intellect, and labor, you want to be sure that you know what class of worker you’re dealing with. It makes a difference. If you’re hiring an independent company to handle your IT tech support, you’ll have certain rights and obligations. Basically, you’ll have the right to expect a certain level of service and you’ll have the obligation to pay the fees you agree to pay.  If you hire a receptionist to answer your phones from 9 to 5, you’re looking at a different set of rights and obligations. In addition to paying salary, many states require that you also pay for certain benefits and withhold taxes on behalf of an employee–which you don’t have to do with an independent contractor.

So how do you know which is which? As I mention in my article, “Walking the Employee-Independent Contractor Tightrope,” the answer often comes down to “control.” How much control you have over the work this person is doing for you? Do you:

• Determine the hours of work?
• Provide the tools or equipment (such as computers) to do the work?
• Offer training to get the work done?
• Dictate where the work has to be performed?
• Pay the individual directly, and not a corporate entity?

The more questions like that to which you answer “yes,” the more likely it is you’ve hired an employee. As a result, there are many more obligations (legal and financial) that now rest on your plate as an employer.

A murky area arises when business owners hire workers on a part-time or as-needed basis. Are these people part-time employees, were truly independent contractors? The lines can easily get blurred. And it up on the wrong side of the line can also harm you personally–as government authorities in some states have the right to look past your corporate (or LLC) entity and into your personal pockets to make sure that the right taxes get paid. To steer clear of this mess, consider consulting with an attorney who understands employment issues so that you can prepare yourself properly.

If you’ve been reading between the lines at all regarding the state of our economy (and, in particular, our government treasuries), you’ll be very much aware that state and local governments need money. Need our money. Need millions and billions and trillions of dollars of it, in particular. In order to avoid bankrupting themselves, governments have to do one of two things:  1. decrease spending and cut expenses (highly unlikely, in light of the proposed programs concerning health care, job stimulus, etc.) or 2. raise revenue.

So how will government raise revenue? One way that state and local governments raise revenue is by more closely enforcing their laws, and levying penalties against those who violate them. If there’s ever been a time as a business to “clean up your act,” now’s the time to do it so that you can keep the government out of your underpants.

A trend I’m seeing in particular is a crackdown on businesses that employ “independent contractors.“ If your company uses independent contractors to staff its work force, be very careful that you do this properly. You want to be sure to use people who can properly be classified as independent contractors and are not just part-time employees in disguise.

What’s the difference? The IRS has a “test”–a checklist, if you will–20 different factors that it weighs to determine whether a service provider is truly independent, or an employee for whom you should have been paying the legally mandated employment taxes.  In a word, it comes down to control. The amount of control you have over when, where and how the service provider delivers her services will affect which side of the scale you fall on.

“Feh,” you say dismissively.  “I’m a small business. The government deals with hundreds of thousands of them throughout the state– millions throughout the country. How will I possibly pop up on its radar?” Here are just a few of the ways I’ve seen these issues arise:

• The service provider freelances for you while working full time for another company. When laid off, the service provider lists you as someone she’s done work for in the previous year.
• You provide an independent contractor with a long-term assignment. Because of the economy and your budget constraints, you need to let the person go. Disgruntled, he files a claim for unemployment benefits.
• A freelancer gets injured while performing services on your job site.  Somehow, the claim gets filed through Workers’ Compensation.

In all these situations, in ways you do not plan, you might suddenly find yourself on the radar of a government agency whose job it is to track down those who are not in compliance . . . and s-q-u-e-e-z-e you with penalties.

That’s why having a written agreement with your independent contractors can be a valuable weapon in your arsenal against these kinds of claims. (Reviewing the 20 factors with an employment attorney before you hire someone is another).

Q: I’ve found various sites that have templates for employee handbooks, including one at Business.gov.  Am I putting myself at any risk by using this as the basis of my employee handbook?  What sorts of legal issues should I take into consideration before using any employee handbook in my business?

A: Templates are great as a place to start and a way to identify some of the issues you need to know.  But, like downloading anything else from the internet, it’s hard to know what’s in the template that could hurt you . . . and what’s not in there that could help you.  Also, because templates are, by their nature, somewhat “vanilla” forms, there may be quirks in the local laws of your state, special circumstances in your business or recent laws that have been passed that may not be included.

After you read through the template (or different templates, to get a sense of the issues you want to make sure you cover with your employees), your best next step would be to have the document reviewed by a local attorney to make sure that everything is covered properly.

In my practice, I’m finding that the IRS and Department of Labor are getting more aggressive about enforcing the proper classification of workers. Essentially, they want to be sure that you’re not hiring a worker as an “independent contractor” (thus avoiding the payment of employment taxes), yet treating him/her as an employee by micromanaging every aspect of how the work gets done. 

There are subtle nuances between an independent contractor and a part-time employee, largely centering around the issue of “control.” How much control do you have over how the work gets done, when and by whom? Getting on the wrong side of that balance could cost thousands of dollars in unpaid employment taxes, plus interest and penalties.

Bill Bischoff’s article in the Wall Street Journal online sets out some handy distinctions, in addition to suggesting you look at IRS Form SS-8, which lets you know the factors the IRS considers in making its determination.  For more on the issue of control, check out my article, “Walking The Employee-Independent Contractor Tightrope,” available at GreatBusinessLawTips.com.

Q: For how long are employee non-compete agreements normally valid?  If a person signs such an agreement, leaves the company for a period of time and then comes back to the company, is he/she still bound by such an agreement even if he did not sign it again?  Is such an agreement valid for customers with which the company is no longer doing business?  What if the agreement mentions any and all past and present customers?

A.: Frustratingly, there isn’t a hard-and-fast rule on how long these types of agreements are valid.  In some cases, courts have set outer limits on permissible time frames, but the reasonableness can depend on the length of employment with the company, the level of employment with the company and the geographic scope of the restriction (for example, are you prohibited from working anywhere in the U.S.? Or for a competing company within a 10-mile radius?).

Courts don’t like to see people prevented from supporting themselves, so they construe non-competition provisions (as in “You can’t work for a competing company”) more narrowly.  But as to soliciting customers, they tend to uphold those, for they are the lifeblood of the business. If the agreement says “you may not solicit any present or past customers,” then don’t do it.  A non-solicitation provision is not the same as a non-competition provision.  If the agreement doesn’t say anything about soliciting customers, the non-competition generally won’t be expanded to include customers.  However, sometimes a provision may be called “non-competition” (in the heading), but cover a range of issues, including the non-solicitation of clients.  That’s where consulting with a local employment attorney will be beneficial so that you can get a clear read on the language and the conduct it’s prohibiting.

As to the issue of leaving the company and then coming back, the non-competition provision is moot, as you’ve returned to the same company.  The company can’t be in competition with itself.  Unless the company has made non-competition an aspect of company policy (e.g., through an employment manual), you generally “start fresh” when you start (or restart) an employment relationship.  But again, as different states can vary on the issue (and the law changes frequently), check with an employment attorney who is familiar with this area and the recent court decisions on the subject.

“Faster than a rolling O.  Stronger than silent E“—that’s the pace at which information (and misinformation) flies around in cyberspace.

Even worse is when something written about you/your company comes back to slap you in the face like a coconut cream pie.

In his post, “Should Personal Blogs Be Allowed and Permitted by Employers,” Kirk Noel Narrows outlines the essential conundrum in letting employees blog:  You don’t want to be known as the self-preservationist ogre who stifled self-expression, but you must protect your company from damaging employee blogs.

He goes on to say:
Would it not be smarter from the very start to have clear policy procedures in place , including a signed non-disclosure document, clearly listing rules, proceedings and a time line after leaving the employer? Large corporations do this as a simple matter of routine. Should not this be your established pattern as well ?

I couldn’t agree more.  Far easier to set the boundaries at the beginning with a new hire than try to change horses midstream.

My colleague, Deborah Shapiro, Esq., reminded me of a recent change to New York State employment law.

In short, beginning October 26, 2009, New York employers must inform newly hired employees in writing, at the time of hiring, of their pay rate, regular payday and, if eligible for overtime, regular hourly rate and overtime rate.  In addition, the employer must obtain a written acknowledgement from employees that they received this notice.

The requirement to inform employees about pay rates and paydays is not new.  But the requirement to provide this information in writing and obtain an acknowledgement is.

This is not an issue that necessarily gets front-page coverage, so how do you find out information like this?  Will you become your own full-time researcher?  (Answer: Unless you want your business to fold, it’s probably not a good idea).  Employment laws change regularly–with the stimulus package and the federal government’s attempts to assist the U.S. work force, perhaps even more so.  A good way to stay on top of all this vital information (which can ensnare you in its net SO easily) is to hire someone who knows it and handles it on a daily basis.  In other words, an employment attorney.  You can learn more about how to choose the right one for your business with my program, How to Choose and Use Attorneys, available through GreatBusinessLawResources.com.

If last week’s post about awkward work situations wasn’t enough, firing an employee probably has to top the discomfort charts. It may be justified (the employee was cooking the books) or necessary (sales are down 40 percent because of the economy, so you need to downsize) . . . but it’s rarely a task that business owners face with glee.

There are ways, though, of making the situation a smidge less dread-inspiring.  Have a look at my article, “How to Say Goodbye to an Employee” on the E-Myth Blog to learn the top five steps to navigating this successfully.

“Been there, lived it,” you say.  Crazy co-workers, back-stabbing co-workers, co-workers who babble on all day and won’t SHUT UP enough to let you focus and do your job, co-workers who seem to wear every sensitivity on their sleeve (as well as those who trample over you like a bull in a china shop).

You’ve known the nightmares . . . which may have been part of what catapulted you into entrepreneurship.  But now you’re the boss, and you’re finding out that managing people is often like herding cats.

Awkward work situations seem to follow us around–perhaps they’re part of the human condition.  But how can you manage them?  In Entrepreneur magazine, Chris Pentilla outlines 10 scenarios that can keep you up at night, ranging from the “oh, no you di’int (a la Rosie Perez) to the nail-biting, including:

• The office romance
• TMI: Did I really need to know about your STD test?
• The vengeful, laid-off employee
• The annoying wedding planner
• The drunk on the job
• The secret thief (where did those legal pads go?)