Making It Legal:

Like this is news? But it seems that some employees just don’t get it (no pun intended). A recent 2^nd Circuit case, Patane v. Clark and Fordham University, held that even viewing porn in one’s office (a somewhat private place) is a no-no. In Patane, Professor Clark watched hard-core S/M tapes on the VCR in his office, left tapes scattered on the floor and had new purchases shipped to the office. His poor secretary, Patane, could see the smut through the glass partition of the office, on the floor when she entered his office, and when opening his mail (which was part of her job). The final straw was when Clark started to use her computer for porn access. The court held that “the mere presence of pornography in a workplace can alter the status of the environment for women . . . and is relevant to assessing the hostility” of the workplace.

If you have any questions about whether porn is legally permitted at work, let’s make it as simple as . . . green eggs and ham.  Here’s my initial stab at a no-porn company policy:

We want no porn behind closed doors
We want no porn left on your floors
Don’t put it on an iPod
Or camera with a tripod
We are not a company of boors

Do not surf porn for play
At any time of the work day
To your co-workers do not avail
To your friends do not e-mail
Or lose your job you certainly may

Steps to take when facing the presence of porn at work:

• Don’t put up with it.  Reaffirm the anti-harrassment policies to all employees.  Be vocal and visible in your enforcement of the policy.
• Prevent it from coming into the workplace.
• Keep an ear open for office gossip about who’s displaying it (”Did you see the pictures on Jim’s computer! What was that, a ZZZ-cup?”)
• Install appropriate firewalls and filters to prevent pornography access on workplace computers
• Lead by example.

Remember that when you have an awkward work environment, you’re not just at risk of a lawsuit. Porn is a huge contributor to loss of employee productivity . . . which means a less efficient (and profit-making) business for you.

Because “one size does not fit all.” And because “you get what you pay for.”
In “a whopper of a sexual harrassment claim” (thanks to blog author Jon Hyman for the turn of phrase I couldn’t resist), the case of EEOC v. V & J Foods, Inc., a Burger King franchise had an employee manual that outlined the procedures to be followed in a sexual harassment grievance. However, the policy was written in a convoluted and confusing manner and–significantly–provided no way to bypass a harassing supervisor. When a part-time teenage employee ran into a problem with her supervisor, she didn’t follow the grievance procedure in the manual.

The Seventh Circuit Court of Appeals didn’t care that she didn’t follow the proper procedure. The employment manual wasn’t clear to the average employee (in this case the average employee would be a teenager or high school graduate). In fact, the court found that the complaint procedure was confusing even for adults and, as a result, the grievance process was unreasonable.

The issue for your employment manuals is that they need to be clear and easily understood. If you do download them from the internet, make sure you show them to your attorney in order to demystify the boilerplate and insert the right provisions for your business. Otherwise, you could end up with a document full of policies and procedures that no one is required to follow.

Between paper and pixels, the amount of information that one company has to retain can become staggering. Plus, like Arthur Anderson, if you shred (or delete) information that you should have retained (or you’re destroying because you were just named in a lawsuit), that fact can be held against you in court.

There’s a way around that. You can implement a routine document retention (and destruction policy) that governs how and when you can destroy documents. If you set the policy and implement it routinely before there’s litigation on the horizon, you can protect your company.

For a free white paper that looks at what to retain and for how long, go to theHRSpecialist.com/

Here’s a scenario for you: You’re the sole owner of a corporation and have no employees. Every once in a while you find yourself a bit short, so you let the company pay for some of your personal expenses, such as dry cleaning, spa treatments and house cleaning services. You’re not depriving a business partner or any employees of a salary so, in essence, it’s your money to do with as you like. Right?

Wrong.

Because your business is a separate entity, you need to think of it as if it were another person entirely. For example, you wouldn’t just walk into the florist shop next door and take money out of its cash register for your manicures, would you? No (at least I hope not). And you wouldn’t just poke your nose into your friend’s handbag to take money out of her wallet–you’d ask for permission. Likewise, for tax and legal reasons, you need to “ask” your corporation for permission to take funds for your personal use.

How do you do this? By writing a check to yourself from the business account for your salary (or draw), depositing the check into your personal account, and using the funds from there.

Having the company pay directly for your personal expenses can get you into a world of trouble. If your corporation or LLC is sued by creditors for nonpayment, it could be found that you “stripped” the corporation of the money needed to meet these obligations by using corporate money for your personal expenses. As a result, a court might consider your corporation a “sham.” A court then could ignore the limited liability protection your corporation is supposed to provide and pierce it (known in legal terms as “piercing the corporate veil”) to reach your personal assets for repaying the creditors. Another grave danger is when business owners use one checking account for both business and personal expenses. This becomes known as “commingling funds”–also a no-no, and also grounds for disregarding the personal asset protection that a corporation can provide.

Even for businesses operating as sole proprietorships, where your personal assets are at risk anyway, it’s a far better practice to open a separate bank account for your business activities. Face it: It really doesn’t take that long to write yourself a check to deposit into your personal account. Plus, you’ll receive two important benefits:

1. You’ll start to develop the kind of business mindset your company needs in order to grow and
   
2. You’ll save a great deal on accounting fees, because the separation between business and personal (and what’s legitimately tax-deductible) will be that much clearer.

Lest my previous post be construed as just a plug to pay lawyer fees for no reason, here’s the primary reason that kind of corporate housekeeping is so important:

You risk exposing your personal assets to creditors if you don’t do them.

What? Wasn’t protecting your personal assets the whole point of forming an LLC or corporation? Yes, but formation is only one part of it. There’s maintenance as well. Legally, most states have laws providing that the owners and managers of a business (e.g., the shareholders and directors if a corporation and the members if an LLC) have an annual meeting. At the annual meeting, you are supposed to choose who will run the company for the following year. Even if you’re a solopreneur and hold all the posts, you’re supposed to have a meeting to confirm the decision. If you don’t, you are technically in violation of the law and have just given your creditors a basis for ignoring the limited liability shield you spent good money to establish.

For other reasons why it’s good business practice to prepare minutes at least annually, check out my article, “The Simple But Powerful Reasons for Corporate Minutes,” on my Wise Counsel Press site.

One last tidbit to explain why minutes are good: Potential purchasers of your business look for them as part of their due duiligence. If you’ve gone without them for a number of years, the sloppy record keeping may dissuade the purchasers altogether or reduce the price you could get for your company.

Happy New Year.

With the new year comes the sweeping out of the old, which is where your corporate housekeeping comes into play. Many entrepreneurs think their legal work is done once they’ve incorporated or formed a limited liability company. Not so. Most states’ statutes require you to compile a written record of your major activities at least once a year (called “annual minutes”). Nina Yablok’s Bizblawg gives a nice summary of what to do.

I’m not sure how to document “unanimous written consent.” Consult your business attorney, who can tell you what should be included and how it should be worded. Better yet, don’t do it yourself–delegate it.

I don’t remember who said, “never believe anything you see in print,” but the same can easily apply to e-mail. Perhaps even more so. So often we get bombarded by e-mail messages, offers for products and cries for help that we may accept as true without doing even a molecule of due diligence and checking around to ensure that:
1. The source who sent it to us is legitimate, and
2. the offer/request is valid.

Here, from Virtual Hosting Blog, is a list of “Top 20 Hilarious and Creative Internet Scams.” I’m not sure I’d call them “hilarious,” and it’s a shame that creativity has been used in such a warped way. I also wonder–why aren’t the plaintive emails from the high-ranking Nigerian officials seeking a place to park procurement contract funds on the list?

Have you ever felt “forced” to do something you really don’t want to do? Attending a family function for your in-laws, contributing to a particular charity you don’t care about for a colleague, sitting through Wagner’s Ring Cycle (or a WWE wrestling match) for your significant other–all come to mind. Now imagine if you had to do this monthly. Chances are, you wouldn’t keep it up. You’d find excuses not to go, muster less and less enthusiasm for it and, eventually, find a way to put it out of your mind altogether.

Observing the “formalities” of running a corporation (and, to a lesser extent, a limited liability company) can engender similar feelings in a number of business owners. I’ve met entrepreneurs who were dragged to me kicking and screaming by their accountants (or spouses) to form a corporation. They didn’t want to do it, didn’t want to spend the money, and they  certainly didn’t want to be responsible for holding board meetings, taking minutes, or documenting major decisions made on behalf of the company. So they didn’t.

But in failing to do so, they put themselves and their personal assets at risk. In “Piercing the Corporate Veil and How to Avoid It,” Teri Rasmussen ably points out the dangers of getting lackadaisical with the “niceties” of running a corporation. Although her focus is on Ohio cases, the basic principles apply. Owning and running a corporation is a privilege. The corporate law requirements are not optional. And they should not be dismissed by saying, “They’re not a big deal.” If you don’t handle these matters properly, your business creditors could make a case for coming after your personal assets.

What are some of the vulnerable spots for entrepreneurs, especially in companies with multiple owners?

• When the president (who is not the only officer of the company) makes all the decisions, including how money will be spent.
• Inability to name the members of the board.
• No corporate records.
• Substantial payments being made to family members (for “loans” or “services rendered”) without documentation to support a business reason for them.
• Failure to file corporate tax returns.
• Paying salaries to the owners while the financial records of the company are inaccurate and in arrears.

It’s easy to lose track of these issues and to see them as yet another burden of business ownership. So delegate it. A competent business attorney can help prepare this documentation for you (plus, prod you as to when you should do so).

For anyone with a website, here’s an instructive post from my namesake, California attorney Nina Yablok on privacy policies.  She raises the excellent point that you need to be careful what you promise in your privacy policies.  As long as you’re in control of the website, you may want to promise that you won’t share the information with anyone.  Ever. 

But that policy could come back to haunt you, should you want to sell your company . . . and the mailing list as one of its assets.There are a couple of ways to work around that.  You could carve out a specific exception on your website (“won’t disclose except if the company is sold�).  Or, if you run into a situation where disclosure might come up, you could contact each and every one of your subscribers, inform them of the situation, and ask for their consent to disclose the information.  It’s tedious, but at least you are respecting their privacy. 

You betcha you do!  Home business, office business – doesn’t matter.  If you’re in business, you should have it.  Like the old American Express tagline, “Don’t leave home without it,� I caution entrepreneurs not to go into business without it.  Particularly as many of them prefer to operate as sole proprietorships, in which case their personal assets are at risk in the event of any problem or calamity.

And make sure to read the article, “Do You Need Insurance for Your Home Business?� by George Devendorf on the Professional Insurance Blog.  It provides the very apt example of an eBay entrepreneur . . . and you’d not be alone in thinking, “Everything’s online!  What would someone like that need insurance for?�  Read on to find out why.

Ummm, virtually all of the time . . . !

However, they tend to operate as sole proprietorships, which has its dangers, not the least of which is unlimited liability in the face of lawsuits.  There’s also a tendency not to see oneself as operating a business, but more like an employee in search of a next project (but without the health insurance benefits). 

That lack of cohesive business planning can have a negative affect on your ability to get work, too, if you don’t put the right “spin� on who you are and the value you can provide.  As Lord Brar points out in his post, “When the Word ‘Freelancer’ Can Totally Screw Up Your Sales Pitch,� perception is the golden rule.  He cautions freelancers to avoid referring to themselves as such at (1) networking events, (2) sales materials, and (3) seminar presentations. 

I would take it one step further and say avoid it altogether.  Not that there’s anything inherently wrong or embarrassing or illegal about it, mind you, but I think it keeps your focus on the ground in front of you instead of “above the dashboard.�  Picture yourself walking along the sidewalk.  What’s your mindset and attitude when you’re looking down?  And how do you feel when you’re standing upright, shoulders squared, head level?  There’s a difference.  That difference plays out, too, in business.  When you’re focused on the minutiae of how you’ll get to your next project, I liken it to looking down.  When you have given thought to creating a pipeline of contacts so that business flows to you, you’re looking up.

A recent survey by online payroll service SurePayroll reveals that more than 80 percent of small business owners believe e-mail is a key element in the success of their business.  But email can also cause legal problems for entrepreneurs . . . something not highlighted in the survey. 

Email is not reliable.  In a very short period of time, small business owners have somehow developed the mindset that email is infallible.  Once you have sent it, delivery is guaranteed.  But it’s not.  Email gets stuck in spam filters.  Or, a technological hiccup causes the packets of information that course through the phone/cable/DSL lines to disappear.  If you have a deadline to meet and rely only on email to meet it, you could be in breach of your obligations if the recipient doesn’t receive it.  Better to confirm with a telephone call, fax, overnight courtier, or other method of delivery. 

Email can be too casual.  When I was a kid, there was a craze for autograph books.  Especially at year’s end, we’d run around to all our friends (and especially the cute guys) to get them to sign their names or write funny messages that would take us through the summer months on happy memories.  I recall one – 2 Ys U R, 2 Ys U B, I C U R 2Ys 4 Me.  I’ve been getting a spate of messages like that, sent from emails, BlackBerrys, or phone text messages, which are problematic.  They may not fully answer a question that was asked.  Or maybe they don’t contain a proper cross-reference to the item they’re responding to.  It makes it more difficult to conduct business when you have to engage in guesswork and endless confirmations because the other person can’t be bothered to write out a full sentence.  

Email can create premature agreements.  Emailers often don’t realize that their casual agreement, handled via email, can bind them without any of the other important terms being negotiated in advance.  For example, you might agree to provide consulting services at a particular rate per session, beginning August 1^st.  But without something in writing saying that you don’t have to deliver further consulting sessions until you’re paid for the ones you have already given, you could leave yourself vulnerable to open invoices for extended periods of time.  Better to make it clear that whatever you negotiate will be subject to a signed agreement containing all the terms. 

Email may be sent by mistake.  How many times has your inbox been inundated because 57 people hit “Reply Allâ€? (instead of “Replyâ€?) to a message about a meeting date?  How many times have you mistakenly sent “Sendâ€? before you had the opportunity to proofread what you’ve written?  (How many people actually proofread, instead of relying only on Spell-Check?)  Email incites us to do business quickly –- get it off my plate! Out of my inbox! — when the better practice may require pausing for a moment.  Recently, a client signed a lease that was emailed to her, only to learn later that the sender sent her the “wrong versionâ€? of the lease.  Had the client had signed the lease (which she didn’t, for other reasons), the landlord could have been bound to terms she didn’t want.  

Email creates a written record . . . when you may not want one.  Once you send an email, it resides somewhere, on someone’s server.  You may have things to say about someone that are not entirely complimentary.  Or, you may have sensitive or confidential information for someone’s eyes only.  Many major corporations faced severe penalties in court because there was an email record of the harm their product caused, or the way management intended to defraud shareholders.  The rules of discovery permit copying of information from computer servers, because even when you have hit “Delete,� that’s not the end of the email! 

Do I love email?  Yes I do!  But it’s not 100% reliable, and it can raise a number of legal and professional problems.  Keep that in mind when communicating in cyberspace!