Articles Posted in Business Law

On September 18, 2015 the New Jersey Appellate Court issued a decision that should make all employers review their employee handbooks if it contains a mandatory arbitration provision. In the beginning of almost every employee handbook there is a disclaimer provision that says something along the lines that the employment relationship is at-will and that the “provisions of this handbook is not intended to create a contract between the Company and the employee with regard to the matter set forth in the handbook”.

In this case, the New Jersey Appellate Court refused to enforce the mandatory arbitration provision in the employee handbook and stated in part, “the plain language in the handbook the defendant drafted shows, with unmistakable clarity, that Employer did not intend the handbook to create a binding agreement”. The Court went on to state “The employee handbook cannot be a binding agreement with respect to the arbitration provision, and an unenforceable document merely containing “management guidelines” for the rest of its provisions.” Click here to read a copy of this opinion.

In addition to the wording of the handbook being one of the main reasons the Court refused to enforce the arbitration provision, the Court also set forth other “problems” with the handbook that should serve as a guide to HR and in-house legal departments so their handbooks don’t suffer the same fate.

The arbitration waiver must spell out the rights that are being waived. Courts look closely when the constitutional right to bring an employment matter in court is being waived by an employee. Does the waiver spell out the rights being waived? Does the employee understand that he or she is giving up the right to have the case heard by a jury or whether this covers discrimination and other types of claims?

Additionally, there is the matter of the procedure set up by the employer being sufficient to show that the employee unmistakably agreed to arbitrate. Email consent is not enough – where the employee just clicks or agrees that he or she has received a copy of the handbook. Get the employee’s signature to show the employee agreed to the mandatory arbitration provision – assuming you have cured the other issues set forth above.

This case has broad reaching implications and not just in New Jersey. The provisions that caused this failure are common boilerplate protective provisions that are found in most employer handbooks (even if it was drafted by counsel) and therefore makes this cautionary tale relevant to every employer. I also believe this provision will may apply to covenants not to compete and non-solicitation agreements to the extent they too are set forth in employee handbooks and not in separate employment agreements signed by the employee. Be careful however, because merely placing such an agreement in front of your already employed employees to rectify the handbook issue will not work. While the reasons why are beyond the scope of this post, please click here to review an earlier post that addresses these issues.

If you have any questions regarding this employment issue or any other matter affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

I was driving into work this morning and I heard on the radio a caller complaining that the secret service cancelled her wedding just 8 days short of the big day because of the Pope. So I started thinking, what happened to all the deposit money? Did she lose it all-the money-not her mind. What about the caterer or the photographer? Did she owe more than just the deposit money? And then I thought-is this the ultimate Act of God defense?

In contract law, when party fails to perform according to the terms of the agreement it is viewed as a breach of contract. However, sometimes there are justifiable reasons that will allow or excuse a party from performing according to the terms of their agreement. For example, when Hurricane Sandy destroyed most of the hotels along the Jersey Shore, these hotels were excused from liability based upon their failure to provide accommodations or being able to host wedding receptions. In essence, an act of God may be interpreted as a defense for failure to perform based upon impossibility or impracticality. So I ponder, is the Pope being in Philly the ultimate Act of God defense.

If you have any questions regarding your legal obligations under a contract you are a party to or any other issue affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

EMV stands for EuroPay, Mastercard and Visa and starting next week, it will be important for business owners to consider how they employ this payment method. On October 1, 2015 the liability for credit card fraud will shift to the business entity that employs the least effective security technology. In other words, in disputes between the merchant (store front owner) and the credit card issuer (for example a Citizens Bank Visa), the party that uses non-compliant EMV technology will assume the liability for credit card fraud if the other party uses EMV technology. If both parties do not use EMV technology then the liability issues remains unchanged.

So what is EMV technology and how does it work? Have you ever noticed on your new credit card that there is shiny silver square? This is a computer chip and it produces a code that EMV compliant credit card terminals must receive in order to authorize the trasaction. You will no longer “swipe” your card but rather insert it into the terminal. The code will be constantly changing making fraud much harder to occur. In addition, some issuers will also require a PIN to confirm the transaction as well. If either your credit card or the merchant’s terminal is not EMV compliant, the card, for now, will work as before by the swipe method. The only thing that has changed is the potential shift of liability. This is not new technology. Europe has been using this technology for years. For more information on EMV technology, click here.

While it makes sense for brick and mortar stores to switch to EMV compliant terminals it is less clear for on-line retailers. Right now major credit card companies are using two different systems for EMV online technology. MasterCard uses its “Chip Authentication Program” or CAP and Visa offers its “Dynamic Passcode Authentication” or DPA.  It is very similar to the choice between VHS and Betamax all over again. Which technology will prevail is anyone’s guess at this point. In the meantime, it’s best to understand what’s out there and make an informed decision for your business’ individual needs.

If you have any questions regarding this or any other aspect affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

On July 1, 2015, Pennsylvania’s new Entity Transaction Law went into effect and made it easier, faster, and cheaper for business entities to engage in “fundamental transactions” with another business entity. Examples of fundamental changes include a merger of one company into another, an amendment of a company’s articles of incorporation or converting your existing “corporate form” into another business entity. Previously, this took a lot of time and was costly. Now this can be done quickly and cheaply.

The new Entity Transaction Law sets forth five (5) fundamental business transactions that may now take place irrespective of the form of either business entity involved:

  • Merger of one entity with or into another business entity;
  • Conversion of one type of entity to another type of business entity (e.g. a business corporation converts to a limited liability company);
  • Interest exchange between two entities such that one business entity is controlled by the other without actually merging the two business entities;
  • Division of one existing entity into two or more resulting types of associations; and
  • Domestication into Pennsylvania of a foreign business entity originally organized in another state (i.e. converting your DE corporation into a PA corporation).

This is a great opportunity for early stage growth companies. Under the old law, if you wanted to change the form of your existing business entity to make it more attractive for potential investors, you had to wind down the business affairs of your existing company by satisfying all existing obligations, dissolve the company and then form a new company.

This long delay would hurt principals of the early stage companies who, for example, may have originally formed their venture as a LLC for tax reasons but now need to convert to a corporation to satisfy requirements of potential investors. As a result of this rigid approach, PA businesses would flee to Delaware where its statutory scheme afforded business entities the flexibility to change its form; be it through merger, conversion or any other manner set forth above without the need to dissolve. With the enactment of this new Entity Transaction Law, this is no longer the case and makes Pennsylvania a more attractive option.

It is important to note that this new law has no effect on how the transaction will be treated from a tax perspective. Some transactions may be tax free exchanges whereas other transactions may trigger immediate tax recognition. It is important to meet with tax counsel to structure these changes properly before you make any of these fundamental business changes. If you have any questions regarding this or any other aspect affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

Every business owner, large or small, should take time to read the Department of Justice’s Best Practices for Victim Response and Reporting of Cyber Incidents. In today’s cyber world, it seems we cannot go a day without reading about another cyber security incident and its ramifications. For example, the Seventh Circuit Court of Appeals just last week certified a class action based upon mere allegations of future harm as a result from the Neiman Marcus data breach. In addition, the DOJ recently disclosed its successful involvement in the largest coordinated enforcement of on line organized cyber crime. This international investigation targeted a group known as Darkode where online cyber hackers shared and sold secrets to hack into other organizations’ computers. Against this backdrop, reviewing the DOJ’s suggestions regarding preventing cyber intrusion would be well worth your time as would be a quick review of my earlier blog post on an employer’s responsibility if you are hacked under the Pennsylvania Breach of Personal Information Act.

Key elements of the DOJ’s suggested response plan prior to intrusion include:

  • Having a well-established actionable plan;
  • Identify your company’s most valuable information; and
  • Have appropriate technology in place to shut down intrusion.

Key elements of the DOJ’s suggested response plan immediately after intrusion include:

  • Make initial assessment;
  • Take steps to minimize continuing damage;
  • Record all information;
  • Notify people within Organization, law enforcement and other victims; and
  • DO NOT use the compromised system to communicate.

At Danziger Shapiro & Leavitt, P.C. we urge our clients to meet with their technology professionals and develop a plan that deals with both keeping cyber criminals at bay and what to do in the unfortunate event you are hacked. We then work with our clients to make sure that their cyber defense plans are properly worked into employee handbooks and other materials as appropriate. Remember, you do not want to disclose all of your cyber security efforts to your employees and inadvertently provide a roadmap to defeat the measures you have taken. On the other hand, proper training will go a long way in effectively protecting your company’s’ assets. Feel free to contact Doug Leavitt at Danziger Shapiro and Leavitt to discuss this or any other aspect of your business organization.

This entry is presented for informational purposes only and does not constitute legal advice.

The United States Department of Labor provided further guidance earlier this month on how it interprets the tests it uses to determine whether a worker should be classified as either an employee or independent contractor. While in some circumstances it may be appropriate to classify a worker as an independent contractor, to do this only as a means to decrease operating costs is illegal and harms not only the worker but also the government. For example, when an employer wrongly classifies an employee as an independent contractor, the worker does not receive common workplace protections such as minimum wage, overtime, workers’ compensation, or unemployment insurance. In addition, the government also loses out on tax revenue.

The DOL will look closely at the “economic realities” of the working relationship to determine whether an employer-employee relationship exists rather than what any written agreement states to the contrary. Are the “economic realities” such that the worker is economically dependent on the employer or in business for him or herself? The economic realities test typically includes the following factors: (a) the extent to which the work performed is an integral part of the employer’s business; (b) the worker’s opportunity for profit or loss depending on his or her managerial skill; (c) the extent of the relative investments of the employer and the worker; (d) whether the work performed requires special skills and initiative; (e) the permanency of the relationship; and (f) the degree of control exercised or retained by the employer.  Click here for the DOL memo.

My take away after reading the Administrator’s Interpretation is that the DOL, as its starting point, considers most workers to be employees under the Fair Labor Standards Act. Click here for a post earlier this year where I informed you that the New Jersey Supreme Court ruled the same way. Against the DOL’s new crusade, combined with recent decisions by the Courts, employers would be wise to review all independent contractor relationships anew. The consequences for being wrong are high and include legal fees, back taxes, penalties and back wages which may include overtime. If you have any questions regarding this or any other aspect affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

It is not uncommon for a company to have a board meeting and have its attorney present to render legal advice. What happens though when in litigation the other side requests production of the minutes for this meeting? Can you successfully claim the attorney client privilege? What if an attorney was present but only in his capacity as a board member? These issues were raised again in a recent opinion authored by our appellate court.

The Pennsylvania Superior Court was faced with a hospital appealing the order of the trial court to produce minutes of a board meeting where there was a discussion of the malpractice claim that was the subject of the lawsuit. The hospital claimed that its lawyer was present to render legal advice. However, in its response to the production requests, the hospital failed to provide information sufficient to establish if the attorneys were there merely as board members or as legal advisors. Based on this, the trial court ordered production of the minutes. The appellate court reversed the trial court’s decision and gave the hospital another chance to properly invoke privilege for each document it claimed was privileged. The Court specifically stated that it was necessary to identify the attorney by name so that a determination could be made relative to whether the attorney was there as a board member or attorney. If an attorney is there only in the capacity as a board member then the privilege does not apply.

The take away from this case is that when attorneys are present at board meetings it is critical that the minutes document the capacity in which the lawyers are present. Minutes should specifically identify attorneys who are present for the purpose of rendering legal advice. The minutes should also identify when information is being conveyed to obtain legal advice. In this way, even if the entirety of the minutes cannot be claimed as privileged, then a portion of the minutes can still be redacted.

The attorneys at Danziger Shapiro & Leavitt are well versed with how to properly document board meetings and understand that minutes drafted today might be the subject of discovery in tomorrow’s litigation. Please feel free to contact Doug Leavitt to discuss this or any other issue concerning corporate governance or pending litigation that might be troubling you.


This entry is presented for informational purposes only and does not constitute legal advice.

The Securities and Exchange Commission reported its first enforcement action earlier this month against a company that inserted restrictive language in an employee confidentiality agreement to impede the whistleblower reporting process. In this action, the SEC charged that engineering firm KBR, Inc. violated whistleblower protection rule 21F-17 under the Dodd-Frank Act. (Click here for Order).

The SEC uncovered certain employees who were subject to the internal investigation process were required to sign confidentiality agreements. Among other things, the agreements included language that required the employee to first discuss what they were going to say to the SEC with in-house counsel and that violation of the confidentiality agreement could result in termination of employment.

As a result of this agreement, the SEC imposed a relatively modest fine of only $130,000. The Director of Enforcement for the SEC stated that, “By requiring its employees and former employees to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us. SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC. We will vigorously enforce this provision.”
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New Jersey’s “Ban the Box” law goes into effect next week on March 1, 2015. Employers in New Jersey may no longer have an employment application that contains either a box that must be marked or a question asked that relate to an applicant’s criminal record or lack thereof. Employers also cannot ask about an applicant’s criminal history or even run a criminal background check at the early stages of the employment process. A more thorough analysis of this new law can be found by clicking here to see a previous blog post.
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On Thursday City Council in Philadelphia passed a paid sick day bill which Mayor Nutter immediately signed into law. In essence, an employee will accrue 1 hour of paid sick leave for every 40 hours worked which works out to be about 5 days of paid sick leave per year. Employers with less than 10 employees are exempt and need not provide paid sick time. Philadelphia is the 17th city in the country to require paid sick leave. Mayor Nutter previously vetoed this bill twice but stated that since the economy is doing much better it was the appropriate time to sign this bill into law. The law will take effect in 90 days.
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