Rush on Business : Iowa Corporate Lawyer & Attorney : Rush Nigut of Brick Gentry Law Firm : Serving Des Moines, Cedar Rapids, Davenport, & Sioux City

The IowaBiz.com site is gaining popularity daily.  Yours truly is one of the contributing authors but the other eleven authors have me checking this site every day and reading it through my feedreader.  I am continually impressed with the quality of the ideas and concepts developed by the authors.  A couple of my recent favorites and applicable to readers of this site include:

• What Kind of a Critter is an LLC?
• S Corporation Losses:  The Basics

Both posts were written by Joe Kristan of the Roth & Company Tax Updates Blog.  Joe is one of the best business blog writers I have seen on the topics of accounting and finance. 

Hats off to Professional Solutions Insurance Services for sponsoring the site.  The company exhibits a pay it forward approach.  They really "walk the walk" when it comes to putting the needs of small businesses before their own.  And one of their agents, Brian Honnold, has turned out to be a pretty good blog author in his own right.

So congratulations to PSIS and the IowaBiz.com team.  It is fun to be a part of such a great group.

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Howard Hagen and Jeffrey Andersen of The Dickinson Law Firm have started the Iowa Banking Law Blog.  This is sure to be a helpful resource for the Iowa banking industry. 

A recent post on the Iowa Supreme Court's dismissal of an antitrust class action against Visa and MasterCard caught my eye.  It appears there will be limits to the "indirect purchaser" argument featured in the Comes v. Microsoft case.  Jeffrey says, 

"... the court made it clear that the expansive language of Comes (stating that Iowa law creates a cause of action for “all consumers regardless of one’s status as a direct or indirect purchaser) does not give standing to all consumers injured by anticompetitive behavior.  Even if adversely affected by anticompetitive behavior, consumers will not have antitrust standing under Iowa law unless they are direct or indirect purchasers of the product in question."

I also appreciated the nice compliment concerning my article on Document Retention and Electronic Discovery.  If you are in banking and business I would say this is a blog you will want to place on your feedreader or favorite list.

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Charlie Longbrief had just turned off his computer to end his day when the phone rang.  It was John Grains.  John owns the local grain elevator in Hometown, Iowa and Charlie has been his business lawyer for several years.

"Charlie, I've got a problem,"  he said. 

"Tell me about it," Charlie said.

"Well, I need to fire Nancy in my accounting department.  She just isn't getting the job done.  She is late for work.  She is lazy and never gets her work done on time.  Nancy makes mistakes.  She is one of the worst employees I have.  I just can't take it anymore."

"How old is she?  Is she a minority?  How long has she worked for you?", Charlie asked.

"She's 25 and white.  She has worked for us for six months but you also probably need to know that she is eight months pregnant.  I knew she was pregnant when I hired her.   What do you think? Can I get rid of her?"

Charlie paused, leaned back in his chair and thought for a little bit.   "Have you conducted any evaluations?"

"Actually, yes.  We gave her a review after three months on the job and pointed out some very specific instances where she needed improvement consistent with her job description.  I included the dates, times and specific examples of conduct.  I suggested some ways she could improve.   I gave her a chance to respond to our comments and I told her we would review her again at the six month mark to see if she had improved.  I indicated that if she had not improved by that date I would need to let her go.  I documented the review in writing, including her responses, and asked her to sign the review, " explained John.

"Any improvement?" asked Charlie.

"Very little.  She isn't late for work as much but the work product has not improved at all.  Just last week she missed a deadline for a very important meeting. I hate to fire someone who is eight months pregnant but I don't feel like I have any choice," he said. 

Charlie advised, "Well, the fact you have conducted an effective employee evaluation and followed it up in writing is extremely helpful.  It sounds like your performance expectations are consistent with your job description.   Without the evaluation the decision to fire her could be much more difficult because of her pregnancy.  A plaintiffs' attorney could look at this suspiciously because of her pregnancy.   Why don't you send me a copy of the evaluation and her job description but my initial reaction is you likely have a reasonable basis for her termination.  The key is whether you have demonstrated legitimate business reasons for her termination."

* This is an educational hypothetical.  Please consult your employment lawyer for specific advice in your own situation.   Slight changes in factual situations may require a material variance in applicable advice.  Read our Disclaimer.

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In today’s business environment, organizations need to respond to an increasing number of document requests, from regulatory compliance issues to internal investigations to full-scale litigation. Much of this information is available electronically. Despite the prevalence of such document requests most organizations remain reactive rather than proactive when it comes to dealing with the issue of electronic discovery.

In reality, electronic discovery of documents has been around for several years. But late last year, the federal courts amended its rules regarding electronic discovery. Organizations can no longer afford to be reactive when it comes to the discovery of electronically stored information (ESI). Organizations not prepared for electronic discovery could face fines and/or sanctions if they are sued in federal court.  (FYI:  It is also expected that Iowa will soon amend its state civil rules regarding electronic discovery making it imperative that all businesses in Iowa should prepare for discovery of ESI).

One way to prepare your organization for the new federal electronic discovery rules is to have a solid document and email retention policy. If don’t have such a policy you need one but even organizations that have a policy should review their policy to make sure it covers issues that may come up under the new federal rules. Some important issues to cover include, but are not limited to:

• The name of the custodian for electronically stored information;
• A list of servers and back-up tapes used by the organization;
• The different ways employees save information in the organization;
• How to implement a litigation hold including email back-up.

It is important to have your IT staff involved in the process. Many organizations will write a policy but fail to take into account the various ways the organization actually stores information. ESI is present, not only on office computers, but also laptops, BlackBerrys, iPhones, other PDAs, and even cell phones.

Fortunately the new federal rules provide a “safe harbor” provision for those organizations that inadvertently destroy ESI during the routine, good faith operation of an electronic information system. How do you qualify for this safe harbor? The best way is through the implementation of an ESI management system that is actively enforced and audited. Investing in an ESI management system is likely to pay big dividends down the road if you are ever involved in litigation and is critically important under the new federal rules regarding electronic discovery.

For more information regarding the new federal electronic discovery rules, document retention policies and ESI management, you may want to check out my podcast with Brett Trout on electronic discovery issues.  Another great resource is the Electronic Discovery Law Blog which I highly recommend.

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Let's say you are the owner of a manufacturing company.  You've decided to sell your business and you are presented with a Letter of Intent to buy the business.  It's everything you wanted with respect to the price and the buyer is financial sound. 

You may be excited about the potential sale but a word of caution.  Do not forget to address the environmental issues up front.  In many instances a bank will require the buyer to obtain a Phase I assessment by an environmental consultant.  The cost varies but you are looking at approximately $2,500 for such a report.  If recognized environmental conditions (REC) are present the consultant could recommend a Phase II report.  The Phase II report is usually much more expensive and could easily approximate $10,000 and up.

So who pays for these environmental inspections?  It is a negotiable item that you should address from the outset of your Letter of Intent or business purchase agreement.  The seller must carefully consider the environmental issues.  Some of the things to think about include:

1. Who pays for the environmental inspections/assessments?
2. What happens in the event a Phase II is recommended?  Again, who pays?
3. Have you included a provision that allows you to back out of the sale in event the Phase II is not something you are willing to do?
4. What if there is a likelihood of groundwater contamination?  You may be required to notify the DNR after the Phase II.
5. What steps are necessary for clean up and who will pay for those recommendations?
6. Will you be required to indemnify the buyer?
7.  If you don't take care of the environmental issues with the current sale are you only delaying the inevitable problems in the future?
8. If the buyer walks won't you be required to disclose any recognized environmental conditions to another buyer?

I am not an environmental lawyer but fortunately Mark Landa from our office has been particularly helpful in this area.  Mark's previous experience in working with the Iowa DNR has proven invaluable.  Environmental issues could make or break a deal in certain business sales.  I have had make or break issues come up in the sale of manufacturing companies, gas stations, implement dealerships, and more.  If you are selling a business with potential enviromental hazards carefully consider your options from the outset and reach a preliminary agreement with the buyer before due diligence begins.

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Iowa intellectual property lawyer Brett Trout offers a trademark law primer today on IowaBiz.com.  Brett points out that companies seeking to protect their trademarks should consider federal registration of those marks for valuable trademark protection.  He says,

Once you start using your trademark in commerce, you obtain what are known as "common law" trademark rights.  Common law trademark rights can be effective in obtaining an injunction or a judgment against someone infringing your trademark, but they do not provide all of the benefits associated with state or federal trademark registration.

Every state provides for both registration and enforcement of trademark rights. While these state protections involve a small cost, they typically offer little more protection than common law rights. Accordingly, most companies opt for either free common law protection or much more valuable federal law protection. Federal trademark registration involves governmental and attorney fees of approximately $1,200 and about an eighteen month wait.

I agree with Brett.  Many Iowa businesses fail to register their marks or file the mark only with the Iowa Secretary of State.  Federal registration offers several advantages and should be considered.

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Thanks to Rob La Gatta over at Lexblog for the heads up that the New York lawyer advertising rules have been declared unconstitutional.

I hope this means we will see regular posts again from Imke Ratschko of the New York Small Business Law Blog.  She has great insight and practical posts that provide helpful legal information for small businesses.

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I ran across this list of tips for new small businesses.  Some terrific advice.  Here are the ten tips as listed:

1. Save up as much money as possible before starting.
2. Start on a shoestring.
3. Protect your personal assets.
4. Understand how--and if--you will make a profit.
5. Make a business plan, so matter how short.
6. Get and keep a competitive edge.
7. Put all agreements in writing.
8. Hire and keep good people.
9. Pay attention to the legal status of your workers.
10. Pay your bills early and your taxes on time. 

I especially appreciate the emphais placed on paying your payroll taxes on time, particularly the portion you withhold from your employees' wages. (See the commentary on No. 10).  It is critically important to understand that a corporation or LLC will not protect you from personal liability in the event these taxes are not paid.  (For an example, see a post from my favorite blogging accountant, Joe Kristan).

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An employer recently called me to inquire about a drug testing policy.  The employer received reports that a delivery driver had driven while under the influence of alcohol.  These types of occurrences often serve as wake up calls.  Drug testing can deter such behavior.  So it makes sense to implement drug tests in the workplace, right?  Well . . . maybe.   

I have dealt with many employers who were surprised by the requirements of Iowa's drug testing law (Iowa code section 730.5).  Before making a decision on drug testing, several factors should be considered.

The types of private sector workplace drug testing in Iowa include:

1. Unannounced testing of workers randomly selected from pools of employees.
2. Testing of employees during, and after completion of drug or alcohol rehabilitation.
3. Testing of employees for reasonable suspicion.
4. Testing of prospective employees.
5. Testing of employees, as required by federal law or regulation or by law enforcement.
6. Testing of employees in the investigation of workplace accidents that cause sufficient injury or damage to require a report to OSHA.

But the responsibilities of employers that drug test are many, including:

1. The employer must establish a detailed written drug testing policy - prior to testing - and provide it to every employee subject to testing.
2. The employer must establish - prior to testing - and maintain either an Employee Assistance program or a resource file where workers can access help for substance abuse problems.
3. The employer must provide supervisors with a minimal amount of annual training (2 hours the first year, and 1 hour each year thereafter).
4. In the event of a positive alcohol test in which the alcohol concentration exceeds the levels established by the employer - and under certain other conditions - the employer may be required to pay up to $2,000 in rehabiliation costs for the employee in question, depending on employee benefit plan coverage.
5. A laboratory doing business for an employer that conducts drug or alcohol tests must file an annual report with the Iowa Department of Public Health by March 1 of each year concerning the number of positive drug and alcohol tests during the previous calendar year.

Before deciding to drug test you should make sure you review the requirements of Iowa Code 730.5 with your employment or business lawyer. Performing drug tests may be necessary in your business but you need to make sure you are acting within the requirements of the law. Mistakes could be very costly and subject you to significant liability.  The costs of drug testing may be more than many small businesses want to spend. And just because you do not test doesn't mean you cannot have a policy prohibiting drugs and alcohol in the workplace.

See this post on Avoiding the Pitfalls of Drug Testing for an example of why it is so important to follow Iowa's drug testing law.  Be sure to get appropriate advice before implementing a testing policy.

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Like the Portland Trail Blazers drafting Sam Bowie instead of Michael Jordan, how is it that Trent Hamm's Blog, The Simple Dollar, is not among the blogs listed on the Central Iowa Bloggers site?  This guy is the Tim Duncan of the Central Iowa blogging community.  Not flashy but extremely successful.

The Business Record has a great article on Trent and his phenomenal blogging success.  His personal finance site is receiving 1 million page views per month and his technorati ranking is in the Top 500 in the country.  He even earned $5,500 in income from his blog last month and is working on an exclusive joint sponsorship with another personal finance blog written by John David Roth.

It is easy to see why Trent's site has become so successful.  It is chalked full of helpful personal finance tips and a common sense approach that obviously touches a cord with people.  I am particularly interested on his re-evaulation of Money Magazine's 25 Rules to Grow Rich By.

FYI:  Be sure to check out the newly designed Business Record Web site.  Much improved.  The RSS feeds are nice but are blogs in the Business Record's future?

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Very soon Rush on Business will have a new design courtesy of the pros at LexBlog.  Kevin O'Keefe and his talented team are putting the final touches on the blog and I am eagerly anticipating the change.

Why did I switch?

1. I am continually impressed by the professional design and features of the LexBlog law blogs.  When I browse lawyer blogs I have always loved the look-and-feel of LexBlog designs.  They are very appealing.
2. Kevin O'Keefe knows and understands lawyer blogs better than anyone I know.  Even when I had my typepad blog and gave no indication I was interested in LexBlog he took an interest in my blog, helped promote it and discussed ways for me to improve my blog.  All without any pressure whatsoever to switch to his company.  Now that is impressive!
3. The company is on the forefront of the growing law blog phenomenon.  The company is constantly upgrading and striving for excellence.  The customer service is exceptional. 

For more reasons on why to consider LexBlog check out this post from legal marketer extraordinaire, Larry Bodine, who also switched from Typepad to LexBlog.

Stay tuned for the change soon.

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A couple of Central Iowa business updates for your information:

1. SEMEE - The next SEMEE (Society for Entrepreneurial-Minded Executives) meeting is scheduled for July 19, 2007 from 6:00 - 9:00 p.m. at the EMC Insurance Building downtown.  I attended the February meeting and thoroughly enjoyed it.  Last time there were some great presentations by some excellent companies including US Rodeo Supply.  The focus of the organization is finding resources, other than money, that might help these companies grow.  Unfortunately I can't make it this time because of a prior commitment but I highly recommend attending if you are interested in business and live in Central Iowa.  It is a terrific networking and learning opportunity.  Hats off to the Steens of Transition Capital Management for continuing this great program.  There is no charge to attend.  For more information you might want to check out my podcast with Adam Steen.
2. BIZ - The Business Innovation Zone (BIZ) led by Mike Colwell is off to a fast start.  BIZ is a new regional business accelerator through the Greater Des Moines Partnership.  The organization already has many active clients in the first four months and has approximately 10 more ready to join.  A client, Aerospace Geartech, received substantial funding from the Department of Economic Development with the assistance of BIZ in order to start a new Central Iowa business.  For more information you may want to check out this podcast with Mike.  He has a tremendous amount of insight in business and a wealth of experience.

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Pennsylvania business lawyer Anthony Cerminaro has a post on Legal Issues in Internet Contracting.  The post references a comprehensive article from attorney Karl Belum of the Thelen Law Firm's San Francisco office. 

The article provides an excellent overview of the issues involved in Internet contracting.  Belum advises:

"Entities engaging in repeat transactions can contractually adopt agreed upon digital signature/electronic commerce ground rules which will be enforced. Entities engaging in single, high value transactions with parties with whom they have no ongoing relationship may still wish to utilize conservative methods such as confirming faces or paper documents."

My experience is that many business people are still confused by what constitutes an enforceable contract over the Internet.  If you are engaging in a single transaction with whom you have no ongoing relationship it is probably excellent advice to utilize paper documents.  But if you are running an eCommerce Web site that may not be feasible or fit into your business plan.  In those instances you will want to set up Web site policies which eliminate any ambiguity as to when or how a contract is entered into.

If you run an eCommerce Web site or regularly conduct business on the Web you may want to check out Internet Laws Affecting Your Company written by Brett Trout.  The book is a great resource.  I highly recommend it.

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I am hoping you will provide me with some input.  What do you think are the top legal issues facing small businesses today?

My general sense is that employee/human resource issues rank high.  If you are a small business owner, what keeps you up at night from a legal perspective?  If you are a lawyer or consultant, please add your perspective.

Please comment below.   Don't be shy.  I am hoping to develop some blog posts surrounding this discussion and I would love to hear from you.  If you are not interested in commenting publicly, please feel free to email me at rnigut@sullivan-ward.com.  With your input I should be better able to hone in on the legal issues facing small business owners.

Thanks for reading.  I appreciate it. 

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If you are in business long enough it is likely you will eventually face a dispute with a customer, employee or another business.  Are you prepared to face the challenge?

Anthony Zaller of the California Labor and Employment Law Blog provides some Tips on Litigation that expand on the sage advice from Sun Microsystems general counsel, Mike Dillon.  Here are the key strategies discussed:

1. Litigate only when you have an important interest to protect.  Litigation is costly.  Very costly.  Many businesses may consider the cost of legal fees and other expenses but forget about the diversion of employee resources.  Time spent preparing for litigation is time spent away from the business.
2. A non-judical resolution is almost always preferable.  You lose control whether you go to the judge, jury or arbitrator.  Consider mediation as an alternative.
3. Litigate when you have a high degree of confidence you will prevail.  Bluffing is for weekend games of Texas Hold'em.  You need to carefully evaluate all aspects of the case when you file suit to ensure a favorable outcome.
4. You litigate to win.  This means your board, management and employees fully support the decision to litigate and are willing to commit the resources necessary (time and expense) required to prevail.  It also means hiring seasoned litigation counsel that understands your business and objectives.

Zaller makes a great point that businesses should hire legal counsel BEFORE trouble occurs to develop and implement policies that 1) comply with the law and 2) assist the company when a lawsuit is filed.  He points out that No. 2 is important because not only do you need to comply with the law but you also need PROOF that you comply with the law.

I also agree wholeheartedly with Dillon's commentary regarding litigation:

... it's important to remember that litigation is just a tool. And, as with all tools, it is effective only when used dispassionately, in the right way and for the right reasons.

I often hear business owners and individuals say they want to pursue or defend a case because of the principle of the matter.  This initial emotional reaction tends to disappear after legal fees mount and resources are diverted from the actual operation of the business.  Win or lose, business owners rarely enjoy litigation.  Like Dillon, I encourage you to approach litigation dispassionately and consider the best business approach to ending your dispute.  Sometimes the best business approach means litigation is necessary but only after you have carefully evaluated all aspects of your case to determine how to prevail, or at the very least, extract yourself from the litigation under the most favorable settlement terms. 

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