Articles Posted in Business Law

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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Foreign corporations may not transact business in Pennsylvania without first obtaining a Certificate of Authority from the Secretary of the Commonwealth. All that is required is a simple application, docketing statement and a small fee. The specific requirements are clearly set forth on the Pennsylvania Department of State’s website. What happens if you decide to ignore this requirement and are “not authorized” to transact business in Pennsylvania?

Aside from fines and penalties that can be assessed by the Commonwealth, you would not have the capacity to bring a lawsuit if the need were to arise. This means that even if you are owed a substantial sum of money for equipment that you delivered and the defendant is using without any complaints; you would not be able to collect. If your business is not authorized to do business within the Commonwealth of Pennsylvania you simply do not have the capacity to bring your lawsuit. Think of this as a foreign corporation’s ticket to gain entrance to the Pennsylvania Court System.

All is not lost however if you find yourself in litigation and you do not have a Certificate of Authority. In fact, the Pennsylvania Appellate Court just this past January spoke on this issue. All that is required is that the Certificate of Authority be entered into evidence prior to a court entering its verdict. If this is accomplished, the lawsuit will be valid and the judgment entered will be enforceable. If however this is not accomplished prior to verdict, the lawsuit will be dismissed, you’ve potentially lost money regarding the subject of the suit, and left your company vulnerable to fines and penalties from the Commonwealth.
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On January 14, 2015, in a unanimous decision, the New Jersey Supreme determined that the ABC test is the proper test an employer must use to determine if its workers are independent contractors or employees. Of all the various tests used by New Jersey and other states, the ABC test sets the bar the highest for an employer to successfully uphold it independent contractor status designation for its employees.

The New Jersey Supreme Court began its analysis by recognizing that the New Jersey wage and hour laws are remedial statutes and are meant to be interpreted broadly to benefit workers. Thus, the Court held that the ABC test presumes that an individual is an employee unless the company can show that the individual meets the following three elements:

(A) such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
(B) such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

(C) such individual is customarily engaged in an independently established trade, occupation, profession or business.

If the company does not meet one element of the three part test, the individual will be deemed to be an employee and therefore entitled to all of the rights and benefits afforded to employees. It is important to recognize that this is not a new test but rather the same test that New Jersey already uses in connection with its unemployment compensation cases. In addition, the ABC test is the controlling test used by many other states in connection with their independent contractor/employee analyses in the wage and hour context.
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On November 13, 2014 the New Jersey Supreme Court added New Jersey to the growing number of states that have established complex business litigation programs. Effective January 1, 2015, designated judges in each county will provide individualized case management to complex commercial and construction cases that meet the required criteria. The Supreme Court of New Jersey will designate the specific judge who will participate in the program and these judges will receive extensive specialized training in areas that are specific to business litigation.

Attorneys will self-designate their case for this program on the civil case information statement or they may move for inclusion or removal from this program depending on what opposing counsel may or may have not selected. Case will have a minimum $200,000 threshold but in certain circumstances a case may be included in the program due to the complex nature of issues even if the amount in controversy is less than $200,000.

The result of the program will be a win for all parties involved. Consistency will be developed as fewer judges will be ruling on complex commercial disputes. This will help the attorneys provide better cost benefit advice to their client based upon what they can expect at trial.

Judges will benefit as well as they will gain more experience in handling complex business disputes and gain experience and insight into what works and does not work from the point of view from the bench. For example, the judges will see what impact their discovery ruling has at the trial stage and whether they would have liked more information on a particular topic. Now the judges will see what impact their discovery ruling has at trial. In the past, a discovery judge might limit an area of inquiry, but at trial you are faced with a different judge looking down at you with a perplexed look wondering why you did not develop this through further discovery.
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