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

Are you considering a franchise business?  Read this blog post on evaluating the strength of your franchisor before signing on from the First Prize Franchise blog.

I posted on this a couple of years ago but  I consistently see people who invest their life savings tinto franchise operations.  Some of these people achieve great results but many (perhaps even a majority) do not. What separates the good from the bad? 

One critical aspect to consider in my view is the brand itself.  Is the brand recognizable?  If not, the franchise better have a fantastic system, unique concept or protected intellectual property.  Otherwise, I think you need to question up front whether the franchise is right for you.

There is no also validity to the claim that franchise operations are less likely to fail than non-franchise operations. The truth is that franchisees fail at a rate that is similar to non-franchise businesses. In fact, the International Franchising Association has discouraged all franchisors from making such claims.  So careful due diligence is important when considering a franchise opportunity. One of the best things you can do is talk to as many existing (and former) franchisees as possible. Also, consider several key disclosure issues including:

1. Franchisor's litigation history;
2. Amount of the initial investment;
3. Vendor rebates and products you must buy from the franchisor;
4. Earnings claims made by the franchisor;
5. Franchisor's financial statements;
6. Trends concerning the number of outlets.  It is important to closely review the information regarding outlets. Carefully study the number of transfers and not just the number of closures.  A high number of transfers may be an indication that franchisees in the system are struggling, but bad stores have not been shut down. 

And finally, be willing to walk away. This is the paradox of successful negotiation. Those that are willing to walk away usually find they get more in negotiation, especially in today's economy. Many franchisors are willing to make a deal these days. Don't get in a hurry in your negotiations. You may be able to secure important concessions if you are patient.

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A common thing I see from franchisees is that they include only the name of their franchise in an agreement as opposed to including their corporate or limited liability company name. Most of the time the names are different. For example, if my franchise is "Tops Franchise" but my corporate name is "Rush Nigut Enterprises, Inc.", I need to make sure the corporate name is included in the contract. 

I had this exact thing happen to a franchisee client. He failed to include the name of his corporation in a contract and used only the name of his franchise. The court ruled that he was personally liable for the debt because he had not disclosed to the other side that he was signing in a corporate capacity.

So be careful to always include your corporate or LLC name and sign with your title, (i.e. President, Vice-President, member, etc.).

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This is a part of an on-going series of posts which will form the Legal Guide for Starting a Business in Iowa.

You are considering forming an Iowa small business. What type of business structure should you choose? In Iowa, your choices generally are a sole proprietorship, a partnership, S corporation, C corporation, or a limited liability company. There are others but these are the main entities to research.

Some of the factors to consider in choosing a business structure are:

1) Personal liability protection;
2) How profits are taxed;
3) Ability to take advantage of fringe benefits;
4) Ease in raising capital.

A sole proprietorship is the easiest to set up (you generally do not need to take legal action) but you have unlimited personal liability. In today's sue happy society it is probably a good idea to consider a form of business that provides you with personal liability protection like a corporation or LLC.

Similarly, a partnership is also easy to set up and involves two or more people. A partnership requires no formal documentation but a partnership agreement is preferred. Like sole proprietorships, you and your partners have unlimited liability. With the ease of setting up and operating a limited liability company, a partnership is usually not recommended given today's litigious society. 

Traditionally, most small business owners selected the S corporation as their form of business. The S corporation is often a good choice because it provides you the limited liability you need but you avoid double taxation because all business profits are taxed to you as an individual.

The limited liability company has exploded in popularity over the past decade and also provides limited liability and avoidance of double taxation. An LLC may offer flexibility not available with corporations when it comes to ongoing requirements, its ownership and how the owners are paid.

The C corporation has traditionally been used for larger businesses but accountants may recommend this entity because the owners can take advantage of certain fringe benefits. Also if you need outside capital, a C corporation may make it easier to attract investors such as venture capitalists.

So which business structure should you choose? Before choosing a business structure it is wise to talk with an accountant. The accountant can review your financial situation with you and advise you on the best strategy for your business. In my view the choice of a business structure usually boils down to tax treatment. So talk to your accountant first and then go to the business lawyer to set up the business entity.

Our next posts in the Legal Guide to Starting a Business in Iowa series will examine the S corporation, limited liability companies and C corporations in more detail.

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A couple of years ago I set out to write a Legal Guide to Starting a Business in Iowa. Unfortunately trying to work, write a blog, coach baseball and write the guidebook didn't quite work for me. I started the guidebook but never came close to finishing it.

So this year I have decided to blog the guidebook. At the end of the project, I'll have my book and hopefully Iowa entrepreneurs will have something that is helpful and informative.  The project may take several months so most of the information on the blog over this time will be very general in nature rather than dealing with current events. I'll still blog on current events as appropriate.

Thanks for your continued support and have a happy New Year!

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A couple of years ago I touched on how wage and hour lawsuits were on the rise. Since then Iowa's own Casey's General Stores got tagged for $11.7 million in a settlement.  But not even I could have predicted the potential $1,000,000,000 liability that AT&T allegedly faces for failure to pay overtime. Yep, that's a BILLION dollar claim!

Naturally that kind of pie in the sky number might leave one to think, "It's never going to happen to me, my business is much smaller and I won't be a target." But when you look at the fact that experts believe approximately 70 percent of businesses are out of compliance with wage and hour laws, you shouldn't be quick to shrug off the prospects of a process server knocking on your door. All it takes is one disgruntled employee to contact the Iowa Workforce Development or the Department of Labor and you could find yourself in the middle of a wage and hour dispute.

So what are some helpful tips to avoid wage and hour lawsuits? (The outline below is from an earlier post.  The comments from some prominent employment attorneys are especially good).

• Conduct a Wage and Hour Review.  Your first step should be to get with an employment law attorney or other wage and hour/human resources specialist who can review your pay practices to determine whether you are in compliance with the law.  The cost spent for a review and developing a compliance program could save you tens of thousands of dollars in the long run or perhaps even millions if you run a large company. 
• Train Managers.  Making sure managers understand the rules is paramount.  Managers can avoid costly mistakes and spot problems before they become too costly.
• Think Exempt-Non Exempt, Not Just Salary - Hourly.  Too many employers pay employees a salary and then believe that relieves them from any obligation to pay overtime.  Employees need to make sure those employees are properly classified as exempt (someone who is typically not paid overtime) or non-exempt (someone that is generally entitled to overtime).
• Take Complaints on Wage Issues Seriously.  You want to treat wage and hour complaints just as seriously as employment issues including harassment or discrimination.  In fact, these wage and hour lawsuits could be more costly to your business.
• Do Not Retaliate.  Never, never, never retaliate against someone that makes a complaint for wage and hour issues.
• Develop strong policies on pay practices and employee hours.  Make sure employees work those hours assigned and do not work off-the-clock.  Above all, properly document the number of hours worked because just like in baseball where a tie goes to the runner - if the employer has not documented the hours worked by the employee - the benefit of the doubt will go to the employee. 

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An article in Barron's supports, in a big way, the importance of keeping good business records. The article details how the IRS disputed a $75,000 repayment of a loan for a business owner named Henry resulting instead in a $68,000 dividend, on which Henry owed tax. 

Joseph Gelband, a tax attorney from Larchmont, New York, wrote the article. He provides some wise counsel for business owners:

[Henry's] story points to the importance-especially for a closely held corporation-of observing formal business practices, if for no other reason than to create a record.  Minutes should be kept, and updated at least annually. Executive salaries, bonuses, and loan transactions should be reflected in those minutes, which should be reviewed by the company's accountant when statements are prepared.  The existence of that kind of paper trail would have left Henry in a much stronger position.

Now is a great time to document those transactions before the end of the year. 

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Throughout this blog you will see posts that recommend business people enter into a shareholder agreement when they start a corporation with multiple shareholders. But did you know that unless your shareholder agreement states otherwise, your shareholder agreement may only be valid for 10 years pursuant to Iowa corporate law?

Chapter 490.732 of the Iowa Code seems to indicate exactly that (although I have never seen it applied in a case yet). I think this is something that maybe even some of the most experienced corporate attorneys may not realize. So don't be surprised. You should review your shareholder agreement. If it is more than 10 years old, it may no longer be valid and a new agreement may be necessary.  If the agreement is less than 10 years old it may be a good idea to revise it so there is language indicating the agreement applies for more than 10 years. 

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I had the pleasure of sitting down for an interview with Michael Libbie yesterday. We talked blogging, discrimination cases, franchising and other issues.

If you didn't catch it live you can watch the podcast here. (The interview begins at about the 30 minute mark).

If you haven't heard about Des Moines Local Live, you should check it out. It's an Internet radio station with 50 local radio hosts talking everything from business to sports.  A real testament to Des Moines' Internet-blogging presence.

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Need capital for your business? Looking for an investor? If so, you should take the opportunity to attend a seminar from the Business Innovation Zone of Central Iowa (BIZ) on how to get your business into shape and attract an investor's eye.

Adam Claypool of DeWaay Investment Banking is the speaker. I have worked with Adam on several occasions so I know this will be a worthwhile opportunity to listen to one of central Iowa's more prominent investment bankers. The presentation is this Wednesday, October 21st at the Des Moines Partnership offices, 700 Locust Street, Suite 100, Des Moines, Iowa. It begins at 11:30 a.m.

Afterwards you can listen to me on the radio this Wednesday at 1:00 p.m. with Mike Libbie offering insights on business on Des Moines Local Live.

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Megan Erickson of the Dickinson Law Firm has started Erickson's Blog on Social Networking and the Law.  Now that's a blog that will have a never ending flow of posts.  She already has an interesting array of posts including one where a business owner got slapped with a $2 million libel lawsuit for Facebook and Twitter posts.

This is one blog I'll be sure to follow.

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Liz Overton of Sullivan & Ward, P.C. has a timely post on how employers should deal with the H1N1 virus. 

While it's true that employers are currently under no obligation to allow additional time off to employees who do not have available time off or have exhausted their available leave, I could easily see employers facing a tough dilemma about whether to adjust their leave and/or PTO policies if a significant outbreak of H1N1 occurs at work, or perhaps even in our schools. 

Have you considered what you will do as an employer if a significant outbreak occurs?  Will you make changes in your policies? Whatever you decide, consistency and fairness are keys to avoiding legal problems.    

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A few weeks ago I posted on how your spouse could get you fired. Well, its not just your spouse you need to worry about. What about your kids?

A recent Family Circle article discussed how a teen's post got her father fired.  The father apparently could not get time off to attend his daughter's school musical.  The daughter was upset and vented about it on her MySpace page.  The article says she stated she didn't want to work for someone like dad's boss: "He yells all the time, treats my dad like dirt, won't let my dad spend time with his family even though he gets to take time off constantly, and doesn't even know how to do his job."  

Unfortunately, the rant went out to several hundred of the girl's MySpace friends, including kids at school, one of whom was the boss' son. The boy showed the post to his father and the girl's father was fired.

All of this underscores the importance of discussing with your kids how "public" information can become. Even if an account is private, that doesn't mean that one of your kid's friends won't share the information with the rest of the world.  

P.S. Sorry I couldn't find a link to the article online but check out the October 17, 2009 edition of Family Circle magazine for the article, Share Tactics. There are several examples of how today's teens have no problem revealing every detail of their lives online.

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You've probably seen them in your contracts. Miscellaneous provisions such as choice of law, litigation venue, successors and assigns provisions, no waiver, entire understanding, or supersede clauses.  They tend to always appear at the end of the contract and are almost always an afterthought by the parties. After all, those provisions don't mean anything, right? 

Wrong.

Often when a contract claim proceeds to litigation these miscellaneous provisions are outcome determinative.  Take for example the litigation venue provision.  Let's say you are a small Iowa company and the contract specifies that your case must be heard in the courts of Los Angeles, California.  This means you must be prepared to fight the case in Los Angeles or you may automatically lose your case. The California venue will almost assuredly drive up the costs of litigation over an Iowa venue. First, your Iowa lawyer, unless he or she is licensed in California, will need to get local counsel in California. Chances are the California local counsel will charge a substantially higher hourly rate than here in the Midwest and you will likely need to travel for court hearings and other proceedings.  WIthout the money to fight, you are doomed from the outset regardless of how good your case may be. Plus, without a history with the judges in that state it is often difficult to predict the outcome of issues which could put you at a real disadvantage.

That's just one example. The other miscellaneous provisions in your contracts can come back to bite you in other ways. My recommendation is to carefully consider these provisions and don't treat them as an afterthought. If litigation occurs, you may be very happy you did.

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Tiger Woods is the greatest golfer of his time. He was such a lock going into the weekend of the PGA Championship that an Irish bookmaker actually paid out the winnings on Tiger before the third round even started -- oops! I'll admit that I never could have imagined Y.E. Yang would actually pull it out for a victory.

But all of this provides a good lesson about trial law. You just never know what will happen when you go in front of a jury or judge. The case you thought was a lock may not be so.  When we are in the role of representing the underdog (which is often the case) I love it when the other side says we can't win. It motivates us, and frankly, it takes much of the pressure off. If you're not supposed to win you have nowhere to go but up!

So thanks, Y.E.. You proved why the game must be played, no matter who is in the lead (or who thinks they have the case that can't be beat).

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A recent case reported in the Des Moines Register discusses how a handshake deal on the sale of a home went awry for a man that apparently invested over $100,000 in a home - only to learn the home was not his.

Actually there was a one-line agreement in this instance which read, "I Floyd A. Schake agree to put 1500 E. 9th on contract with Billy Erico Stockbauer on 1 Feb. 1989." Schake argued successfully to the court that the language meant he intended to sell the home on contract in the future but the deal was never made.

While the axiom is to get a contract in writing, it is especially critical in real estate deals where oral contracts are generally not valid. The judge in the case ruled that the language did not set out the terms necessary to convey the property.  It's fairly easy to criticize Stockbauer for not having an agreement that set out all the terms but this type of thing happens much more than anyone would ever imagine.

That's why the old adage holds, "get it in writing."

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How Business Gets Done, Words of Wisdom from Central Iowa Experts has hit the virtual bookshelves at www.lulu.com. I am honored to be a contributing author with several respected peers in our business community. My chapter is on the Partnership Prenuptial where I discuss the importance of drafting a  buy-sell agreement from the beginning of your business relationship.

The costs of litigating a business dispute can easily run in excess of $100,000 per side while a buy-sell agreement usually costs less than a a couple of thousand dollars. Unquestionably most business owners would rather concentrate on running their business than spending time in court.

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 The U.S. Supreme Court recently handed down a decision in Gross v. FBL Financial Services. The Court ruled that a plaintiff bringing a claim under the Age Discrimination in Employment Act (ADEA) must show by a preponderance of the evidence that age was the "but for" cause of the employer's adverse employment decision, and that an employer need not show that it would have made the same decision regardless of age, even if the employee produces some evidence that age may have been a contributing factor in the decision. Accordingly, plaintiffs must now prove that age was a factor in a decision. The burden of proof no longer shifts.

The case is widely viewed as a big win for employers but some employment lawyers, like Daniel Schwartz, believe employers should largely ignore the decision. Daniel says that while it will be "technically" harder for plaintiffs to establish a claim, it is only marginally so, and he also expects "corrective" legislation at some point.  From a practical perspective he does not see a huge change in the way employers will defend age discrimination claims or the way in which plaintiffs will bring those claims.

Ross Runkel of Law Memo says it is the biggest employment law case of 2009 and considers it a big surprise because the issue decided by the Court was not briefed and argued. But, like Schwartz, he too expects action from Congress so the impact may be short lived.

Read the decision here.

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Whether you are starting a business from scratch or buying an existing business you should consider setting up a corporation or limited liability company (LLC) before you actually sign any agreements or documents relating to your new venture. To the extent possible, avoid signing any contracts, loan agreements or leases in your personal name. In many cases, however, you may be required to personally guarantee the loan or other debts but it is still recommended that you place those agreements in the company name. It is often surprising how the start-up documents may impact litigation issues down the road. If those agreements are in the business name it may help you avoid personal liability on unknown issues in the future. One of the most important reasons for starting a corporation or LLC is to protect your personal assets from the risks of the business. It is smart to start right from the very beginning.

A post from Ohio business lawyer Terri Rasmussen describes how one person went a little too far in trying to avoid personal liability. But the underlying advice in the blog post cannot be minimized. It is critical to sign documents in your corporate capacity (i.e. "President" or "Vice-President") and if you are signing on behalf of an LLC you should sign as "Member". Using catchy marketing titles such as "Big Cheese" or "Chief of Results" has no place when you are signing documents that could bind your business and subject you to personal liability. 

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 According to the Wall Street Journal, Iowa-based Casey's General Stores agreed to pay $11.7 million to settle two class action wage lawsuits.  

According to the Department of Labor and industry experts, it is believed that 70 percent (or more) of businesses are out of compliance with wage and hour laws. How can your business help avoid wage and hour lawsuits? See my previous post on the topic here.

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From time to time I enjoy featuring a business law blog worth reading. The San Diego Small Business Law Blog from Joseph Dang is definitely one to check out. Although the blog is centered on California law, Joseph has a number of general posts that are helpful to any small business owner.

In particular, I encourage you to read his posts on business formation and incorporation. Real good stuff!

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The Iowa House and Senate recently passed legislation to give consumers a private right of action for fraud claims.  Previously Iowa was the only state in the nation that did not provide such a right to its citizens.  

Consumer advocacy groups say there are too many exemptions under the bill, which is expected to be signed by Governor Culver, including services provided by insurance companies, banks, lawyers, cable TV providers, doctors, veterinarians and architects. But overall this is a positive step for protection of Iowa's consumers. 

The Iowa Attorney General is understandably pleased as it will now allow private lawyers to pursue consumer fraud claims and will help alleviate a backlog of these claims which were handled previously by the AG's office.

Consumers may be awarded up to three times the amount of the actual damages plus an award of reasonably attorney's fees if successful.  This will undoubtedly put pressure on businesses accused of fraud claims to resolve their differences with consumers.  

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A few weeks ago I attended a conference relating to venture capital in Iowa. During the talk several of the panelists commented that they would not sign a non-disclosure agreement prohibiting them from discussing a potential business idea they learned about from someone seeking capital. The venture capitalists did not want potential liability for ideas that they might hear several times in a week. Almost every single panelist indicated that sliding a non-disclosure agreement over the table at the beginning of the meeting was a deal killer.

That discussion led into a great discussion involving non-compete agreements and employee non-solicitation agreements. The participants had mixed feelings about non-compete agreements. It is often tough for entrepreneurial types to admit that restricting another person from competition is a good idea. However, all were committed in the importance of employee non-solicitation agreements. An employee non-solicitation agreement prevents one of your employees from hiring one or more of your employees for a set time period, generally about 1 year.

In the end the panelists believed that the human capital was critical to the success of the business, perhaps even more so than the clients themselves. An interesting take indeed. 

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A terrific post from employment attorney Ellen Simon discusses the potential liability and hazards when an employer accesses the personal emails of an employee. The actions of the employer described in the post were extreme but every employer should think twice before accessing an employee's personal email.

I have discussed the dangers of the electronic workplace in several presentations over the past several years including last year for the Central Iowa SHRM Chapter. I'll be giving a similar presentation at the upcoming Iowa Employment, Training and Benefits Conference on April 21, 2009. The conference is sponsored by HR-One Source. If you are an employer in Iowa, we hope to see you there.

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You've worked hard to build a successful business and have built up some significant personal assets. You were smart enough to sell stocks before the recent stock market downturn so you have a fair amount of cash built up. You own a few pieces of real estate.  One night your 18 year old son is driving his car and causes an accident. The driver of the other car is seriously injured and may require medical care for the rest of his life. The car is owned by you and insured in your name. The amount of insurance will not cover the other driver's damages. A personal injury lawyer files a lawsuit on the other driver's behalf and tells you they will be seeking payment beyond the insurance limits.

FIrst, let me say that if this scenario occurs to you the time for asset protection has likely passed. Making adjustments after the fact may raise red flags and could subject you to liability for fraudulent conveyances. You must protect your assets in advance. Unfortunately asset protection is often overlooked.

One of the easiest ways add a layer of protection in this scenario is to have umbrella insurance coverage. Look at obtaining the most expensive coverage you can reasonably afford. One million dollars ($1,000,000) in umbrella coverage is usually under $200.00 or less per year, plus some added expense for increased coverage on your vehicle. However, I say you should consider buying a larger policy. You might be surprised to learn to that five million dollars ($5,000,000) in umbrella coverage will not cost you substantially more while the protection is FIVE times as much.

But remember that not all umbrella policies are the same. They differ in coverage, definitions, scope and features. Some umbrella coverages may have exclusions that do not provide coverage in connection with  a business, occupation, trade or profession. Therefore, It is  good idea to read the policy carefully to understand what is covered and what is not. Sometimes business owners automatically assume they are covered for all situations with their umbrella policies. That is not always the case and you may end up with business owners that have the false sense they are covered. Generally, umbrella policies will cover you for personal situations only.

Another consideration in the scenario I outlined is whether the child should own the car and maintain all insurance coverage. Naturally the cost of insuring the vehicle is substantially higher if you place the insurance coverage in the name of your teenage son. But the the increased cost may not be nearly as great as the potential loss of assets. If you are able to afford it, consider placing ownership and all insurance coverage in the name of your child if the child is the primary driver of the car. This could help protect your assets from damages caused by your child. While you are sure to complain about the costs when you pay for the insurance, you will be very happy if the scenario I described ever happens to you.

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 The State of Iowa recently announced that it intends to step up efforts to enforce independent contractor misclassification. It is anticipated these enforcement efforts could bring in millions to the state coffers.

For more information on this topic please see my recent post on IowaBiz and another post from August of 2007 warning about independent contractor misclassification.

See also this article on how to avoid misclassification of independent contractors. 

It is more important than ever for businesses in Iowa to understand the differences between employees and independent contractors.

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This blog post is the fourth in a series of blog posts highlighting changes in the 2009 Iowa Limited Liability Company Act. The new law applies to all LLCs filed in Iowa after January 1, 2009. The new LLC law will apply to older LLCs beginning on January 1, 2011 unless otherwise agreed by the members.

The new Iowa LLC law has a significant change relating to management. The current law provides that member voting is based upon capital contributions of the members. Generally, that means voting is based upon the percentages of the members and a member with 51% or more will control how the company is operated.

 However the default provision with the new LLC law is one member - one vote. This means that even a member with a minority percentage may have the ability to have as much management authority as an member that has a majority of the membership units. Accordingly, if a majority owner wants to maintain management control, the written operating agreement will need to specify such arrangement.

This may become even more important after January 1, 2011, when all LLC companies will need to comply with the new law. Some unsuspecting LLC majority owners may be surprised to learn that they may not be in control of their business unless an operating agreement specifies the majority interest controls.

This issue is just one of reasons I recommend that all LLC owners seek legal advice from a business attorney when forming an LLC under the new Iowa LLC act.

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This blog post is third in a series of blog posts highlighting changes in the 2009 Iowa Limited Liability Company Act. The new law applies to all LLCs filed in Iowa after January 1, 2009. The new LLC law will apply to older LLCs beginning on January 1, 2011 unless otherwise agreed by the members.

In my last blog post I picked on the new Iowa LLC law because I don't see great benefits to LLC members with some of the changes in the law related to operating agreements. But changes relating to Statements of Authority may not be so bad. (That is if you are an LLC owner. Third parties might disagree). 

Currently, Iowa LLC law says that all members of the LLC are agents of the company unless otherwise stated in the articles of organization. The new LLC law provides that members are no longer automatically agents of the company. As fellow Iowa business lawyer Marc Ward points out on his blog, "The risk of a rogue member binding or otherwise obligating the LLC will be gone."

The new law also permits an LLC to file a statement of authority with the Iowa Secretary of State. (Still amazing to me the Sec. of State has no notice of the new LLC law on its site). The statement of authority will serve as notice of who does or does not have authority to act for the LLC, sign documents transferring real property, or otherwise act for and bind the LLC.  The statement can state the authority or limits on authority by position (e.g. member, manager, president) or a specific person or persons.

Third parties will need to be careful in assessing whether a member actually has authority to sign on behalf of the LLC.  In doing so, third parties probably should request a copy of the Statement of Authority documentation from the LLC. This information will also likely be viewable on the Sec. of State's Web site under the Company's  filings. It will be interesting how courts will handle the issue of "apparent authority" under the new law (i.e. where a person purports to have authority to bind the company but really doesn't). After all, the whole purpose behind the provision is to prevent rogue members from binding the company. Is "apparent authority" thrown out the window if a Statement of Authority is filed?

A statement of authority filed in the county recorder's office will be conclusive evidence in favor of a person who gives value for real property in reliance on the statement.  Similarly, a filed statement limiting the authority of a person or position to transfer real property will constitute notice to all.

Under the new law, a statement of authority will expire 5 years after it or the most recent amendment becomes effective, unless canceled earlier.

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This blog post is second in a series of blog posts highlighting changes in the 2009 Iowa Limited Liability Company Act. The new law applies to all LLCs filed in Iowa after January 1, 2009. The new LLC law will apply to older LLCs beginning on January 1, 2011 unless otherwise agreed by the members.

Beginning in 2009 there are a couple of issues relating to operating agreements that LLC business owners must consider. The operating agreement is the document that sets forth how the LLC is governed and run.

1. LLCs are not required to have an operating agreement in writing but watch out. On its face the fact an operating agreement is not required in writing might excite LLC owners. However, it is not advisable to go without a written operating agreement, particularly if there are two or more members in the LLC. Even a single member LLC should consider a written operating agreement in order to protect against piercing the corporate veil. If an operating agreement is not in writing, the provisions of the new statute will automatically apply to the LLC. In many instances, the statute has provisions that may surprise and bite unknowing LLC owners especially with regard to management rights, profit distribution and transfers of interest. It is best practice to have a written operating agreement.  
2. Operating Agreements may be amended orally. LLC owners may amend their operating agreement orally under the new statute. Again, while that may make it easy to amend the agreement it will likely remain best practice to override this statutory provision to include language in the written operating agreement requiring an amendment to be in writing. That way members may avoid the enevitable arguments that ensue when agreements are not memorialized in writing. People tend to remember things differently when agreements are not in writing and the agreement is more difficult to prove in court.

Check back for more on the Iowa LLC law changes in future blog posts.

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There are significant changes to the Iowa limited liability company (LLC) statute effective January 1, 2009.  The changes include everything from how an LLC is initially formed and filed with the Secretary of State to changes that apply when a member leaves (i.e. disassociates) from the LLC.

Check back over the next couple of weeks for a series of posts regarding the new changes in Iowa's LLC law.

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In this current economic downturn many people will lose their jobs.  Many of those individuals will turn to franchising as a form of business ownership instead of opting for another position in the corporate world.  While franchising may be a legitimate option for some, it is important for prospective franchisees to remember that it is not often very easy to get out of a franchise agreement.  Investing in a franchise is not a decision to take lightly.

A typical franchise agreement may last anywhere from 5-10 years and have options for renewal.  Often franchisees mistakenly believe they can get out of the franchise agreement if things go bad.  The reality is that the written franchise agreement usually remains in force and often the franchisor has rights to sue the franchisee for lost royalties if the franchisee does not pay.  Not to mention potential problems you will have with your lease and/or other contracts.

So before you buy a franchise follow these steps as outlined on the FTC Website:

• Study the disclosure document and proposed contract carefully.
• Interview current owners in person. (They should be listed in the disclosure document.) Visiting them in person may help you identify any that are "shills" — people paid to give favorable reports. Don't rely on a list of references selected by the company because it may contain shills. Ask owners and operators how the information in the disclosure document matches their experiences with the company.
• Investigate claims about your potential earnings. Some companies may claim that you'll earn a certain income or that existing franchisees or business opportunity purchasers earn a certain amount. Companies making earnings representations must provide you with the written basis for their claims. Be suspicious of any company that does not show you in writing how it computed its earnings claims.
• Sellers also must tell you in writing the number and percentage of owners who have done as well as they claim you will. Keep in mind that broad sales claims about successful areas of business — "Be a part of our $4 billion industry," for example — may have no bearing on your likelihood of success. Also, recognize that once you buy the business, you may be competing with franchise owners or independent business people with more experience than you.
• Shop around. Compare franchises with other business opportunities. Some companies may offer benefits not available from the first company you considered.
• Listen carefully to the sales presentation. Some sales tactics should signal caution. For example, if you are pressured to sign immediately "because prices will go up tomorrow," or "another buyer wants this deal," slow down. A seller with a good offer doesn't use high-pressure tactics. Get the seller's promises in writing. Any oral promises you get from a salesperson should be written into the contract you sign. If the salesperson says one thing but the contract says nothing about it or says something different, it's the contract that counts. If a seller balks at putting oral promises in writing, be alert to potential problems and consider doing business with another firm.
• Consider getting professional advice. Ask a lawyer, accountant, or business advisor to read the disclosure document and proposed contract. The money and time you spend on professional assistance, and research — such as phone calls to current owners — could save you from a bad investment decision.

In representation of a new franchisor I have recently been on the other end of this investigation process. But it is clear to me that a good franchisor will not discourage you from conducting due diligence.  You should be very wary of high pressure sales tactics.  Don't be in a hurry.

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Good article on IowaBiz regarding insurance for employee lawsuits.  Most businesses would be smart to explore this type of insurance coverage, especially in today's slumping economy.

I think many small businesses are under the mistaken believe that they are covered for employment lawsuits through their ordinary business liability coverage. This is usually not the case.  You will need to purchase a specific policy relating to employer practices in order to be covered. In addition, employer practices liability insurance policies vary greatly so be sure to carefully review the covered items with your insurance agent and lawyer.  Find a policy that provides comprehensive coverage.

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Week one in the Des Moines Franchise Case is in the books. Looks like the trial will last another couple of weeks. In the first week several city council members and officials testified but the bottom line is that this case boils down the the experts and the trees.

As discussed in my previous post, the central issue of the trial is to determine if the franchise fees charged by the city are in fact reasonably related to the City's administrative expenses. In an effort to defend its administrative expenses, the city argues that it costs about $19.6 million per year to regulate utilities in public rights of way. Much of this allegedly comes from improper tree trimming causing more than $4 million in damage each year to trees along 800 miles of streets.

The plaintiff challenged the validity of the number of the trees and also presented expert testimony from an arborist who testified that he could not follow the city's tree survey and found substantially less trees in the public right of way.

For more read this article from the Des Moines Register. 

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The City of Des Moines utility franchise tax trial begins today.  The following is a summary of the procedural aspects of the case and what is at stake.

Initially, the Des Moines had been sued in District Court by Lisa Kragnes seeking to declare the utility franchise fee found on MidAmerican Energy bills illegal. Kragnes won in district court when the judge granted her motion for summary judgment. The City of Des Moines appealed and the Iowa Supreme Court reversed the summary judgment decision.

The Supreme Court reversed the case because it ruled a geniune issue of material fact exists as to whether all or part of the franchise fees are reasonably related to the City's administrative expenses. The Court ruled the grant of the franchises to the utility causes the City to incur some ongoing administrative expenses in the exercise of its police power. These expenses would include the reasonable costs of inspecting, supervising and otherwise regulating the gas and electric utility franchises.

The Court has now remanded the case to the district court for a trial on the merits which begins today. The critical issue is whether the fees charged by the City of Des Moines bear a relationship to the cost to the City of the utility's occupancy of public areas in the City. The Court said the case record is replete with references that the City of Des Moines used a portion of the franchise fees for purposes other than administrative expenses. The Supreme Court, however, ruled that this fact alone does not mean Des Moines is not using other streams of revenue to cover the administrative expenses it incurs as a result of granting MidAmerican the gas and electric utility franchises. 

The upcoming trial will determine if the franchise fees are in fact reasonably related to the City's administrative expenses. If not, the district court will then issue an order disallowing the franchise fees as contained in the ordinances and also likely award damages to the plaintiff's class. If the franchise fees are reasonably related to the administrative expenses, the court shall enforce the ordinances up to an amount equal to the fees reasonably related to the City's administrative expenses in exercising its police power.

For more check out this article from the Des Moines Register.

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UCLA professor Samuel Culbert says to get rid of the employee performance review. But to protect your business I say you better not do that any time soon. Find out why in my post over on IowaBiz.com.

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It has taken longer than I had hoped but my November goal is to lauch the Interactive Learning Environment for clients and others interested in employment law compliance and training, franchising basics and starting up your business.  Our initial free program will include a Legal Guidebook on Starting Your Iowa Business.  Gradually, we will release more and more content on the important issues that impact your business. One of my partners, Matthew Brick, will be a major contributer on employment law issues.

My introductory video is complete so I need to get moving on the programs. Due to time constraints with work load and this project, followers should expect blogging to be very light over the remainder of the month. I appreciate your loyal support to this blog and I encourage you to give our ILE a try when its finished. 

A special thanks to the guys at createWOWmedia who have been so invaluable in getting the ILE project off the ground. Stay tuned for the finished product and I look forward to your comments once we are up and running.

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Juice Magazine recently interviewed me for an article on how to start your own business. I offered the following tips to new business owners:

• Get agreements in writing up front, whether it's a few hundred dollars or larger.
• Small business centers are a good place for people to start. It's often a good place for people to go get some counseling.
• You should be very careful if you're going to go into business with partners. You should draft a buy-sell agreement that outlines how the business will be run, and what happens if one of them should die or want to leave the business. Whether it's family or friend. 

I also thought Iowa intellectual property attorney Brett Trout offered some excellent advice by recommending that new business owners obtain a federal trademark for their business name or product. In this flat world it is more important than ever to protect your intellectual property. A federal registration is significant because it enables you to collect attorney's fees and treble damages under certain circumstances in a trademark infringement lawsuit.

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I am honored to be included among the Alltop franchising news selections.  Some exciting things have been happening for me on the franchising front including developing the franchise disclosure document and franchise agreement for a new local franchisor, the opening of a client's new Max Muscle franchise location just on Thursday and the completion of a franchise litigation dispute.

I am also excited to attend the Forum on Franchising in Austin, Texas this October.  Last year's seminar was one of the best I have attended.  Given this year's lineup I am sure it will be equally as good.

Thanks to Joel Libava of Franchise King Blog for suggesting this blog for Alltop. 

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It's so simple.  Everybody knows you get agreements in writing, right?

Then tell me why so many people ignore this most important axiom in the business world.

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I have seen many articles on the Internet which state that you absolutely need to form a limited liability company (LLC) if you are a small business owner.  The S corporation, once the darling of small business entities, is probably feeling a little lonely these days.

One important aspect of the S corporation is that you may be able to save on self-employment taxes by using an S corp instead of an LLC.

But don't get too carried away in the belief that you can set a low salary says accountant Joe Kristan in his latest post on Iowa Biz regarding s corporation salaries.  The key is to set a "reasonable salary" if you are the owner, although admittedly no one really knows what that means.

As is often the case in dealing with tax issues, Joe's advice is to remember that "pigs get fat, but hogs get slaughtered."  It's definitely a good idea to talk with an accountant when setting your salary in your S corporation.  It could save you considerable time and expense in dealing with the IRS. 

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Twice a month I blog for IowaBiz which was acquired by the Des Moines Business Record this summer.  Since that time it appears the bloggers have stepped up their game.  The posts have been informative and entertaining.  I encourage you to take a look.

My post today for IowaBiz centers on the trend of hiring outside law firms on a non-billable hour basis.  It's a trend I embrace and use frequently in my law practice.  Similar to the law firms mentioned in my post, I have already provided outside general counsel services to certain business clients based upon a mutually agreeable fixed monthly fee.  These clients receive a fixed monthly bill and do not receive bills for phone calls and overhead costs such as copying and postage.  I also have performed certain projects such as incorporation and LLC formation on a fixed rate and have also done so with contract review and writing.  No, I have not completely eliminated the billable hour from my practice but would love to do so.

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Great post from Susan Reid on the Small Business Trends Web site on the 15 Ways the Olympics Exemplify Success for Small Business Owners.  In the comments of Reid's post, Anita Campbell has some terrific words about West Des Moines, Iowa's very own Shawn Johnson.  Johnson definitely made us all proud with her amazing attitude and fantastic performance.

But I'll add one to Reid's list:

Be Honest.  Although you may initially capture the gold it certainly won't be worth the consequences if you are caught being dishonest.  It includes your dealings with the IRS, customers, suppliers, employees and business partners.  The dishonest small business owner will likely get sued, or worse, end up being prosecuted.  And with the Internet it is very hard to keep your reputation quiet.

photo of Shawn Johnson in butter at the Iowa State Fair on Flickr by Iowaarcheryboy.

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Gavin Craig in his new Twin Cities Business Litigation Blog has an excellent post on the importance of making sure the world knows you have a corporate entity.  Craig is convinced that many small business owners (especially contractors) do not know how to properly operate a corporation or LLC. Craig says,

When a person incorporates their business, it takes more than just filing a form with the Secretary of State. When a business is incorporated, it can't be a secret to those that do business with the new corporation. In other words, the new corporation needs to disclose the fact that the business (the party that is contracting with others) is incorporated on its letterhead, business cards, invoices and checks.

Craig is right on with his warning on this issue.  Whether you live in Minnesota, Iowa or Timbuktu, you must make sure you disclose the fact you have a corporate entity on your letterhead, business cards, invoices, checks and especially CONTRACTS. 

This is a particularly important message for franchisees.  Many franchisees operate under franchise trade name but fail to disclose in contracts, letterhead, business cards, etc. the name of their actual corporate entity.  One franchisee I know was personally sued for the damages related to an advertising contract because he had not disclosed to the other side that he actually operated with an LLC rather than as a sole proprietorship.  He had signed the contract using only the trade name of the franchise.  The other side said at trial that it didn't know the franchisee had an LLC.  So ultimately the judge sided with the advertising company.  It was an expensive lesson that could have been easily avoided. 

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After reading a post from Ohio business lawyer Terri Rasmussen I wrote a post for IowaBiz asking whether Iowa will need a "business" court to compete?

In response I received an email from the Co-Chair of the ABA's Subcommittee on Business Courts, Lee Applebaum, who was kind enough to provide me more information on the recent developments in business and technology courts.  At this point Iowa is not included in the states that have established business and technology courts.

Business people often express frustration with our court system but Iowa courts do rank high in polls when it comes to judical fairness.  What you think?  Should Iowa should establish or experiment with a business court?

photo on flickr by Greg Westfall

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The Ohio Employer's Law Blog earns a gold medal with its Olympic-themed Blawg Review #172.  Jon Hyman's review has some great blog posts from lawyers across the country,  both in and outside of employment law.  Be sure to read it.

Thanks to Jon for including my post on the real reason the Packers traded Brett Favre.   

photo on flickr by Marc van der Chijs

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"How could the Packers trade him?"

"What were the Packers thinking?"

"I just don't understand it?"

I am writing to shed some light on this decision.  Favre turns 39 in October.  That means next year Favre would have entered a protected class for the purposes of age discrimination when he turned 40.  Sure, Favre may have had a decent season with the Packers this coming year (although he most assuredly will not for the Jets), but what about the following year?  Seriously, how many years does this guy have left?  Eventually he would have been benched in favor of a younger quarterback.

So Aaron Rodgers (age 24) steps into the role of starting quarterback now.  Rodgers may be untested but it makes perfect sense.  Trade Favre now and avoid the unpleasantness of an age discrimination claim by the all-time passing leader later.

So quit blaming the Packers' president or general manager for this fiasco.  Everybody knows the lawyer is to blame.  

photo on flickr by *Jame*

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Franchisee lawyer Richard Solomon has a passion for spreading the word about conducting pre-investment due diligence.  His latest post on the BlueMauMau site outlines many of the pitfalls experienced by franchisees in various industries.  It also discusses the fact that a mere review of the franchise disclosure document and franchise agreement is not enough.  On that subject he says,

Every failed franchisee hired some cheap lawyer to “read the contract”.  When you add up what you are risking, you will appreciate that a few hundred dollars for an incompetent review of documents by someone who doesn’t know where else to look for what needs to be considered is really stupid. You can’t afford that approach. But it’s your money and your decision.  

I agree with Richard that due diligence is critically important.  I also agree that prospective franchisees must do more than just read the contract (i.e. Franchise Agreement and Disclosure Document).  Real due diligence will require a multi-disciplined approach.  The prospective franchisee should get a lawyer, accountant, banker, and even a marketing professional into the decision-making process.  If a specific location is key (such as retail or restaurants) you will want a commericial real estate agent also involved.

But above all, the franchisee must become engaged in the process.  Don't rely on the professionals to do the hard work for you.  You must roll up your sleeves and investigate.  In the next post we will discuss more of the details about how conduct franchise due diligence.    

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In this morning's paper I noticed that Dear Abby a/k/a Jeanne Phillips dispensed a little advice concerning the sexual harassment of "Millie". 

While I didn't have major problems with the advice in the column ("Dear Abby" thinks Millie should report the inappropriate behavior by one of the firm's clients to her boss), I wondered why "Dear Abby" wouldn't also mention that "Millie" should consult the advice of an employment lawyer.  Perhaps an employment lawyer would inform Millie about the need to follow the steps outlined in any employment handbook when reporting the harassment and her rights and responsibilities in the event that the employer does nothing to investigate or stop the harassment.  This includes the fact that Millie may need to file a civil rights claim if she intends to pursue any legal action. 

Just a thought but I always think it is important to get information and advice from someone that actually might be able to help you.  Many lawyers will provide a free consultation or work on a contingency in plaintiff's cases, so you shouldn't be afraid to seek the advice of a lawyer when the situation calls for it.

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Washington employment lawyer Donald Heyrich details some recent huge verdicts against employers.  The verdicts in his report range all the way up to a whopping $47 million.

Looking to avoid big verdicts?  I say treat employees with RESPECT and keep in mind the Golden Rule of Employee Relations:  Fairness.  Unfortunately too many employers forget these basic rules.

It is critical to remember that in a jury trial your jurors are likely to be employees rather than employers.  Being fair will not only reduce the employment claims against you but increase your chances of success if you are sued.

photo on flickr by benleto

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Many Iowa business owners think the new Iowa SmokeFree Air Act only applies to bars and restaurants.  Not so!

Check out my post today on the Des Moines Business Record's IowaBiz site for more details.

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Employment law guru Mark Toth has some very helpful "cheat sheets" covering the Family Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA) and the Age Discrimination in Employment Act (ADEA).

Mark says there are more cheat sheets to come.  Also, you would be smart to attend his free Webinar on July 30th for Every Employment Law in 60 Minutes or Less.

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Des Moines CPA Joe Kristan provides an important lesson on his Roth & Co. Tax Updates Blog in a post entitled, "It's Your Company.  Is it Your Deduction?"

Joe recounts the story of an entrepreneur who incorporated a business but then spent over $47,000 in business expense out of his own pocket, which he then deducted on his schedule C.  When the IRS called him on it  the tax court told him that only the corporation can deduct corporate expenses.  If the shareholder pays them and isn't reimbursed, the expenses are treated as a contribution to capital.  That increases the shareholder's basis, but that doesn't help the shareholder's tax picture until the company is sold.  That's true both for C corporations and S corporations.

Joe offers this lesson:

Mr. Meyer could have submitted his receipts to the company for reimbursement; the company would have been able to deduct the expenses.  Or he could have had the corporation pay the expenses directly.  But by paying the expenses out of his own checkbook and not turning them in for reimbursement, he lost his deductions altogether.

Another problem I see is the entrepreneur who wants to run all his business AND personal expenses through the business.  For example, earlier this spring I witnessed a father buying his son's baseball equipment at a local sporting goods store.  I chuckled when he pulled out a company check to pay for the equipment.  Sure, one expense might get buried and never noticed in an audit but experience tells me that "pigs get fat while hogs get slaughtered."  Many business people don't understand where to draw the line.  Business expenses are fine to deduct.  But  running obvious personal expenses through the business just isn't acceptable.  It could even be a reason to "pierce the corporate veil" in litigation causing you to lose your limited liability protection.  

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Liz Overton recently discussed the latest blow suffered by Wal-Mart on wage and hour claims over on the Iowa Law Blog.

I predict It's only a matter of time before wage and hour class action claims impact more mid-sized and smaller companies.  It's the one area where plaintiff's attorneys are experiencing success.   

Read also my previous post on how to avoid wage and hour lawsuits including some great comments from top notch attorneys like Dan Schwartz, Anthony Zaller and Bill Grell.

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With the help of Doug Mitchell and Andy Brudtkuhl I will be going live with an Interactive Learning Environment to complement this blog very soon.   The Rush on Business Legal Wire will focus primarily on employment law, franchise due diligence  / investigation issues and business purchase or sale considerations.  I also hope to attract top speakers to participate in the process.  The online seminar presentations will include in-depth written materials, audio presentations, podcasts and possibly video.

Forums will also be available for you to share your insights and ask questions.  Similar to the blog format, I won't be able to answer questions regarding specific situations but we can discuss topics generally.

I welcome your comments and suggestions on topics you would like to hear more about.

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Don't forget that Iowa's smoking ban in public places starts July 1, 2008.  If you are a business interested in learning more about compliance with the new law please visit the Iowa Department of Public Heath site at www.iowasmokefreeair.gov.

An informative Q & A concerning the smoking ban is available here.

Bar owners in particular are upset about the new law.  Is a challenge in the works?

photo on flickr by greefus groinks

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Jonathan Frieden of the E-Commerce Law Blog offers some excellent advice that companies should refrain from copying another company's Web site terms of use policy.  Jonathan says that even sophisticated companies are tempted to reduce legal expenses by copying such policies.

Iowa intellectual property attorney Brett Trout has also offered the same advice.  As Brett pointed out in his post, an Iowa company looks pretty awkward explaining to a court why its dispute should be tried in Albuquerque.    

The bottom line is that even if you use standard terms of use policies and other online policies you will need some customization for your particular business needs.  Discuss with your lawyer whether he or she has standards forms that can be customized for your business.  Most eCommerce lawyers have such forms.  But it is a good practice to avoid directly copying the terms of use and other online policies of other companies.

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Nascar has been sued by a former technical inspector in the Nationwide series.  The African-American woman seeks at least $225 million in her claims for sexual harassment, racial and gender discrimination and wrongful termination.  In the lawsuit, she alleged she was referred to as "Nappy Headed Mo" and "Queen Sheba," by co-workers, was often told she worked on "colored people time," and was frightened by one official who routinely made references to the Ku Klux Klan. In addition, she claims male co-workers made sexual advances, two of whom allegedly exposed themselves to her, and graphic and lewd jokes.

If true, those claims are indeed strong evidence of harassment and discrimination.  But what's worse is that her supervisor allegedly ignored her complaints and dismissed by saying that the guys were "former military guys" with a rough sense of humor and that she would just need to "deal with it".  Now, Nascar must "deal" with a huge lawsuit.  And in case they didn't notice, this predominately white and male sport is a fairly easy target in a case of this nature.

Nascar should have heeded several of my tips on how to avoid employment lawsuits.  Th two that quickly come to mind are to treat all employees with respect and to take action promptly to investigate when complaints occur.  If you are a supervisor in an organization where harassment or discrimination is suspected you had better not tell the employee to simply "deal with it".  That's going to get you sued every time. 

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In the film Evan Almighty everyone believes Evan has lost his mind when he begins building an ark next to his home to protect against an upcoming flood.  Right now, in Iowa, no one would proclaim him crazy.  Our recent flooding has once again wrecked havoc to homes and businesses throughout Iowa.  

So how do you build an ark to protect yourself from continually rising employment lawsuits?

1.  Treat Employees with Respect:  Seems like a basic philosophy but it is amazing how many employers forget to treat their employees with respect.  Employees that are humilated or treated in a disrespectful way are much more likely to sue your company. 

2.  Communicate with Your Employees:  First, make sure you have an effective employee handbook with up-to-date employment policies and publicize your policies to employees.  Make sure you follow your policies.  One of the easiest ways to land in an employee lawsuit is the failure to follow your employment policies.  Also make sure you have an open door policy where employees are allowed to voice their concerns or complaints.  Do not let complaints fester.  Deal with them right away.

3.  Implement an Effective Unlawful Discrimination and Harassment Policy:  Your harassment policy should include more than just sexual harassment.  There may be other forms of harassment based upon race, religion, age or disability.  It is also critical to consistently train employees and supervisors regarding unlawful harassment and discrimination.  You should consider training employees on harassment and discrimination issues at least once every year.

4.  Document, Document, Document:  The importance of good record keeping cannot be overstated.  If you don't have something in writing, chances are a jury or judge may not believe it happened.  Be sure to document even verbal warnings and maintain an appropriate personnel file in order to make sure the documentation is not lost. 

5.  Conduct Honest Employee Evaluations on a Regular Basis:  Unless your company is headquartered in Lake Wobegon every employee is probably not above average.  Evaluations can be valuable proof in an employment lawsuit.  Make sure poor performance is properly documented.  Otherwise, the judge or jury will not believe you when you say the employee performed poorly but all their evaluations are excellent.  You should conduct the evaluations on a regular basis, usually at least once per year.  I recently represented a client sued for discrimination.  A key in defending the case were the honest performance appraisals performed b management.

6. Do Not Retaliate:  Employers are often blindsided by retaliation claims.  There are a number of proactive measures you can take in order to avoid liability for retaliation claims.  It is important to avoid retaliation because recent cases have lowered the burden for plaintiffs to prove their retaliation claims and the number of retaliation claims from plaintiffs is continually on the rise.

7.  Take Action and Investigate Promptly: If a complaint arises, make sure you take the complaint seriously and investigate promptly.  A quick and thorough investigation may help eliminate problems before you have a real mess.  You will need to consider who should conduct the internal investigation.

8.  Compy with Wage and Hour Laws:  Ensure your exempt employees (i.e., salaried employees) are properly classified as exempt under the law.  Wage and hour claims are also on the rise and could result in a class action against your company.  This is a common area of the law that is ignored by many employers and could result in significant liability.

9.  Review and update your employee handbook and/or policies:  At least you should review your policies to incorporate any changes in the law or your manner of doing business.

These simple steps will go a long ways to reducing employee lawsuits.  To ensure that your company has done everything it can to avoid employee lawsuits, you should have your employment policies, training and practices reviewed by your employment lawyer.

*This post originally appeared as the Seven Ways to Avoid Employee Lawsuits from January of 2007 but this updated version is worth repeating.  It also includes some ideas from Anthony Zaller of the California Workforce Resource Blog who had commented on my original post. 

Photo on flickr by Whisper Photograhy.

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Glad to see my friend Mark Landa blogging over on the Iowa Law Blog.  Mark has an important reminder that the time for filing a civil rights complaint under Iowa law will be extended from 180 days to 300 days in order to conform to the federal timeline.

Iowa employment lawyer Victoria Herring points out on her blog that it is not a good idea to push deadlines but the extended time frame will allow complainants (and employers) and additional time to work out a resolution or gather evidence for claims.

The new Iowa law goes into effect July 1, 2008.

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This post on employment lawsuits causing most e-discovery woes just confirms the reasons why a sound document retention policy is necessary 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.

Are you prepared?

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This past January I posted on an Iowa immigration bill that targeted employers.  The bill sparked significant debate but was not passed.

Now in the wake of the raid at the AgriProcessors slaughterhouse and packing plant in Postville, Iowa, Iowa's legislative leaders are renewing promises to target employers.

This time legislative leaders will introduce legislation to prevent employers from hiring immigrant workers as independent contractors when they should be considered employees.  It is also anticipated the legislature will renew efforts to create sanctions on employers that knowingly hire undocumented workers.

I have written on the issues relating to employees and independent contractors on several occasions.  The issue of whether a worker is an employee or independent contractor is one of the most misunderstood (or should I say ignored) areas of the law.  The proposed legislation is likely to crack down on the use of illegal immigrants serving as independent contractors in the construction industry. 

In my experience a significant percentage of workers in the construction and other industries are misclassified as independent contractors rather than employees, not just illegal immigrants.  For most companies I would argue it's more about saving on payroll taxes and workers' compensation insurance than hiring undocumented illegal immigrants.    

As I have said in the past, the approach of misclassifying workers as independent contractors is not worth the risk.  The safest course is to treat workers as employees if the workers' status as an independent contractor could reasonably be questioned. 

If you have questions about whether to treat workers as employees or independent contractors be sure to consult with an employment lawyer.

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My most recent post on Love Contracts received some link love from the Wall St. Journal and Law.com's Legal Blog Watch.  It's nice to get a little recognition now and then from the heavyweights.

Be sure to check out employment lawyer Mark Toth's blog that was the source of my post.  He has one of the most informative and creative employment law blogs around.

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Mark Toth of the Manpower Employment Law Blog has an interesting post on "hooking up at work" and whether love contracts are a good idea.  This is where co-workers sign a contract in order to protect the company and the employees involved against sexual harassment or other discrimination charges.  Mark says he doesn't think the agreements are necessarily a good idea because it forces the company to become the love police and subordinates may claim that they were forced to sign such an agreements under duress when a superior is involved.

Other employment lawyers quoted in the Newsweek article featuring Mark believe the love contracts may be a good idea.  However, I tend to agree with Mark.  Sure certain office-romance relationships may start out consensual but it can quickly turn to harassment when one of the lovers calls it quits and the other won't give up the pursuit.  I tend to believe that the changed circumstances and conduct that occurred after the relationship broke off still opens the company up to liability - love contract or no love contract. 

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Tomorrow's BIZ networking luncheon features Jonni Tonnemacher, a CPA specializing in fraud detection services.  Learn how to identify fraud in your business and implement controls to prevent fraud from occurring.

I have not heard Jonni talk previously but the topic is fascinating.  It is downright scary how much fraud occurs in business.  Don't be a victim.  Be informed.

Read more about the offerings of BIZ at www.bizci.org.

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I am frequently involved with the purchase and/or sale of a business.  Often the purchaser discovers the business through a business broker.  In the Des Moines area, it seems as though several of the business brokers convince prospective buyers to make an offer before seeking legal advice or reviewing the basic terms before the offer is signed. (i.e. price, financing terms, earn-out, non-compete, etc.).  The selling point is that the broker's form offer to purchase makes the agreement contingent upon review by professionals including a lawyer and/or accountant. 

While the contingency is a good one, the problem is that it does not replace a consultation with a lawyer or accountant before the offer is made.  The simple reason is that once the offer is made it creates a binding agreement.  If you fail to consult the lawyer before signing the offer the basic terms of the sale are complete.  At that point, the lawyer may be able to help you with the legal wording in the final contract but it is awfully tough to change the terms of the deal.

So if you are purchasing a business be sure to consult a business lawyer before signing the offer.  Don't fall for the notion that a contingency permitting legal professionals to review the agreement will allow you to change the terms of deal in the final agreement.  Once you sign the offer it is probably too late.

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In his new blog, Marc Ward of the Dickinson Law Firm, sets out some key changes to the new Iowa LLC Act.  One important issue to remember is that by default under the current law, Iowa LLCs are member managed unless unless the articles of organization or the operating agreement provides for management by manager(s).  Under the new law only a provision in the operating agreement can change the management of the LLC from member-managed to manager-managed.  As Marc indicates:

The operating agreement must expressly provide that (a) the LLC is "manager-managed" (b) the LLC is "managed by managers" (c) management of the LLC is "vested in managers" or (d) words of similar import.  Be safe, use one of the first three phrases recognized by the Act to avoid all doubt.

But even perhaps more importantly, the new law (effective Jan. 2009) provides that a member is not an agent that can bind the LLC just because they are a member.  The LLC may also file a statement of authority with the Iowa Secretary of State that specifically sets forth who does or does not have authority to act for the LLC to execute an instrument transferring real property or to enter into transactions on  behalf of or otherwise act for or bind the LLC.

Hat tip to Joe Kristan for pointing out Marc's blog.  For those that doubt the validity of social media, it's kind of funny that I learned my neighbor was blogging through someone else's blog post. 

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Former general counsel and small business owner, Anita Campbell, offers sage advice in her post on the Build a Solo Practice Blog about how to write a better contract .  What is the better contract in Anita's view?

1. First and foremost, the better contract protects the client.
2. The better contract is written in plain English.  (A novel concept indeed!)
3. The better contract is written for a 12th grade education or lower.
4. The better contract incorporates standardization.

A word of caution concerning standardization of contracts:  Clients will often take a standardized contract and fail to adapt it appropriately for the current business transaction.  Clients should be reminded that it is a good idea to have the business lawyer review the agreement to make sure it adequately protects the client in the current transaction, contains the actual terms of the current transaction and fulfills the goals of the current transaction.  I can't tell you how many times I have seen the embarassing situation where a business person took a standardized contract and failed to revise it appropriately for the situation.  It happens often when people pilfer agreements from the Internet and fail to modify the terms.  If litigation occurs, the result of this carelessness could be a verdict against the client.

Anita's solution involves providing a set of instructions to the client along with the standarized contract.  Included in the instruction sheet is the direction to have the business manager consult the corporate lawyer before signing or implementing the agreement.  This may work well with organizations that have in-house counsel but is probably less intuitive for businesses with outside counsel.  I offer the reminder to always have contracts reviewed by your business lawyer.

Hat tip to Susan Cartier Liebel and her Build a Solo Practice Blog.  Susan is passionately building one of the best blogs in the country.  Notice I didn't limit it to legal related blogs either.

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Anita Campbell of Small Business Trends shares her thoughts about how to avoid the contract from hell on the Build a Solo Practice site. 

As a former general counsel and now a small business owner, Anita has been on both sides of the fence when it comes to contracts.  According to Anita, here are some things to avoid in your next contract:

• Too much legalese.
• Using adverbs like "whereas" and "heretofore".  It's kind of like using "COMES NOW" for pleadings.  Does anyone really talk like that?
• More than 5-7 defined terms.
• Attaching multiple exhibits.  I can speak from experience that multiple exhibits is a real pain for the drafter so I can't imagine what it is like for the reader.
• Making it so hard to understand that it leads to avoidable litigation just because no one can understand it.

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In a recent blog post, Daniel Schwartz of the Connecticut Employment Law Blog reminds employers just how important it is to notify insurers under their employment practices liability insurance.

This advice is not just critical in the employment context.  It is vital for every type of insurance your business may have.  If a claim occurs be sure to notify your insurer immediately.  The failure to do so may result in a denial of coverage.

Thanks to Daniel for the reminder.

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In last week's Tip of Week (yes, I am a little behind), John Phillips of the Word on Employment Law raises the interesting perspective that it is possible to overdocument in employment cases.

Some of John's warnings on overdocumentation include:

• Documentation on trivial matters.
• Creating a paper trail right before an employee is terminated.
• Documenting conduct or performance issues for an employee when you have not done the same for others.
• Summarizing in a document right before an employee is terminated all the things you wanted to document when the conduct occurred but didn't.
• Preparing documentation after the employee is terminated.

Granted, John's point is well taken.  It is important to be fair and consistent in the documentation of employee performance and conduct.  Employees should be treated in a consistent manner and it is best to document performance and conduct as it occurs. 

However, I am not sure I necessarily agree that it is best to go forward without any documentation at all when the documentation has not been done right away.  It depends on the circumstances.  There are times when a summary of events written after the fact may be helpful.  Much of this also depends on the way the document is written.  And of course I would never advocate that anyone fabricate evidence.  

Please consult your employment lawyer for advice in a particular situation.   

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The Dickinson Law Firm's Iowa Banking Law Blog ignores its disclaimer and provides some legal advice:

F-Bombs in a deposition are a bad idea!

It's just another subprime market meltdown.  One F-bomb is a mistake.  Two might be forgiven.  But 73?  That's gonna get you sanctioned every time.

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Are you considering a franchise business?  Read this blog post on evaluating the strength of your franchisor before signing on from the First Prize Franchise blog.

Time and time again I see people invest their life savings into franchise operations.  Some of these people achieve great results but others do not.  There is no validity to the claim that franchise operations are less likely to fail than non-franchise operations.  One critical aspect to consider in my view is the brand itself.  Is the brand recognizable?  If not, the franchise better have a fantastic system, unique concept or protected intellectual property.  Otherwise, I think you need to question whether the franchise is right for you.

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Today I will present at the Central Iowa SHRM monthly meeting located at Copper Creek Golf Course on electronic workplace issues. The electronic workplace is all around us. Computers, voice mail, internet, intranet, e-mail, fax machines, laptops, PDAs, videoconferencing, social media, blogs and more are common features in the American workplace. The development of the electronic workplace has not come without legal implications. The same technology that allows us to perform work more efficiently creates several twists on several areas of employment law. We will explore many of the dangers and pitfalls in the electronic workplace:

I. Email

• Discovery in Litigation
• Record Retention
• Discrimination, harassment and other concerns

II. Internet

• Accessing Inappropriate Material
• Social Media and Blogs
• Copyright violations

III. Employee Privacy Rights

• Electronic Communications Privacy Act
• Handbooks - lower expectation of privacy
• Consistency

IV. Telecommuting

• ADA
• Workers' Compensation

V.  Employment Ads and Resume Posting on Internet

Program details:  Tuesday, April 8, 2008 at Copper Creek Golf Course, 4825 Copper Creek Drive, Pleasant Hill, Iowa.  Registration begins at 7:15 a.m. Business Meeting begins at 7:40 a.m. Program begins at 8:00 a.m.

1.0 General recertification credit has been pre-approved.

Thanks to the Central Iowa SHRM Chapter for the invitation.

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The Des Moines Register had an article about how support has poured in for a Pizza Hut Delivery driver that was suspended from work after he shot an alleged armed robber.  The employee had a valid handgun permit but a Pizza Hut human resources representative indicated that employees are not allowed to carry guns "because we (Pizza Hut) believe that is the safest for everybody."

I saw a clip where the delivery driver spoke with the TV media and he was obviously shaken by the incident.  He said he appreciated the fact his employer had given him the time off without automatically taking action against him. 

I know many readers on the Register blogs have been critical of Pizza Hut but they appear to be handling this difficult situation rather cautiously.  They have not terminated the driver at this time but rather have suspended the employee pending an investigation. 

Public opinion is definitely in favor of the driver.  Even a state senator has publicly stated his position that the company would be wrong to fire the driver and vows to stop buying Pizza Hut products if the driver is fired.  So this is a tough one for the company and there are no easy answers.  I don't envy the employer's position on this one. 

Ultimately I suspect the employer will enforce its policy but I will let you know as this unfolds.

photo on flickr by hashcakes.

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Pennsylvania employment lawyer Michael Moore has an excellent post on Five Things Every HR Generalist Should Know about Retaliation Claims.  Michael notes that the number of retaliation claims rose 18% in 2007 to a record high, doubling since 1992.  His post covers the following areas:

• What is unlawful retaliation?
• What is "Adverse Action" by an employer?
• What is "Protected Activity by an employee?
• Promptly investigate comments & complaints regarding discrimination.
• Monitor supervisors for adverse action following an employee complaint.

In my experience, employers are usually cognizant of discrimination and harassment claims. However, they are often blindsided by retaliation claims. The successful resolution of a discrimination or harassment complaint means you are only halfway home. Supervisors and employees must not retaliate against the employee who complained. This is especially important because of a United States Supreme Court decision lowering the burden for employees to show retaliation.

Here are some proactive measures employers can take in order to avoid retaliation claims:

1. Make sure your employee handbook includes a policy prohibiting retaliation.
2. Always have alternative reporting avenues.
3. Conduct supervisor and management training on harassment, discrimination and retaliation. 
4. Make sure supervisors and management have been asked the tough questions when it comes to employee discipline. Make sure the discipline has nothing to do with the complaints of harassment, discrimination or retaliation. 
5. Periodically talk with the complaining employee to determine if anyone has retaliated against them. If performance is an issue for the employee be sure to bring this to the attention of the employee and make sure to document your conversations. Document! Document! Document!

As always, be sure to consult your employment lawyer for advice in specific situations.

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Des Moines attorney Charles Kenville has a great post on the need for lawyers to be mindful of the new media exposure in their cases.  Chuck has a criminal law bent to his post but his reminder is just as true for civil cases.

I know from experience that savvy businesses are acutely aware of blogs and other social media in their trial preparation.  In particular, Microsoft did a great job a staying in contact with Des Moines patent attorney Brett Trout and I when the Microsoft-Iowa litigation was going full steam.  But the plaintiffs were not to be outdone.  We routinely received updates from the plaintiffs' public relations team as well.

The bottom line is that lawyers engaging in trial law today ignore blogs and social media at their peril.  Learn how to read RSS feeds to stay on top of pretrial publicity.  You will be glad you did.

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I read a Des Moines Register article this past week on a young man who is starting a business while employed by another company.  According to the SBA deputy director in Iowa this happens frequently.  I must say that I greatly admire anyone who has the courage and desire to start their own business. But my question is whether this is good for employers?

This is not an easy question.  On the one hand it is important for an employee to grow and allowing an employee to create a business on his or her own time may in fact create a more productive and happy employee.  Particularly if the employee is starting a business that is different than the employer and they do it on their own time there may be no harm.

On the other hand, an employer pays an employee to do their job.  The employee's allegiance should be to the employer as long as that employee is receiving wages and other job benefits, right?

I must confess that I am not sure whether there is a right answer and it probably depends on the circumstances.  I am aware of many successful companies that draft policies that prohibit outside business activities while many other successful companies provide an environment that encourages employees to start their own companies.

One important risk in allowing employees to start businesses while on the employer's dime is the potential for the employer to start a similar business and steal clients.  This should be prevented.  One way to do this is with a non-compete agreement.  Other ways employers can protect themselves is through the use of confidentiality and non-solicitation agreements. 

But employers may want to read this article on what to do when an employee betrays you.  Unfortunately, many employees are not as upfront and honest as the young man in the Register article.  Employees have a legal obligation to act in the employer's best interests.  If an employee breaches this duty an employer may have an enforceable right.

Photo on flickr by Burpee Gardens.

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A cautionary tale about partnership from Richard Fox on the Kauffman eVenturing site is an absolute must read.  Fox shares how he thought his legal background would protect him well as he created shareholder agreements, buy/sell agreements, voting trusts, special bylaws and articles of incorporation when he entered into a business partnership.  But even he was surprised when a 50 percent partner tried to sell the company out from underneath him after his father's funeral.  To make matters worse the partner tried to sell the company to their number one competitor.

Fortunately for Fox he was able to ultimately sell the company for a handsome price because he continued to concentrate on building the business rather than retaliating against his partner.  But it's pretty clear Fox believes any business person should be extremely careful when taking on partner.  He offers the following priceless advice (with my comments following):

• Know Your Existing Shareholders' Rights. Shareholders of private companies—even minority shareholders—hold the same legal rights as shareholders of public companies. When you accept shareholders, you accept the same scrutiny that comes with being a public company without the benefits. Understand that you can never be adequately prepared for a shareholder who wants to maliciously assert their shareholder rights to cause you problems. 

(Comment:  In Iowa, all shareholders are entitled to the financial information of the company as well as copies of all corporate documents   I strongly suggest you keep all copies of all important corporate documents and financial information routinely, not just when you need them.  In particular make sure you have any documents that would evidence ownership rights.  It is my experience that often one partner will have access to the corporate documentation while the other partner does not.  Don't let that happen to you).

• Avoid Taking on New "Legal" Shareholders. Entrepreneurs sometimes give ownership interests to key employees to allow them to share in the equity growth of the business. For the reason stated immediately above, you might consider offering "phantom stock," (read this article for more on phantom stocks) which carries all the economic benefits of common stock ownership without the potentially abusive rights of legal ownership. A lawyer should be able to advise you on the details. 

(Comment:  My experience with clients is that most employees really want to be paid more.  I know entrepreneurs often want employees to feel as though they have a "piece of the action".  But I also caution you to think twice about employee ownership).

• Take the high road. Rather than counter-suing the partner, Fox chose to put his energy into building the business. Not only was it good for the business, but it kept from muddying the waters any further and made a much needed ally out of the company's other corporate director. 

 (Comment:  This is very difficult to do is some situations.  Sometimes you may have no alternative but to fight back.  But I agree it is critical to continue growing the business). 

• Be prepared for anything. Pushed to the edge, some people will fight back with extreme measures. Although secretly passing legislation is extreme, be prepared for the unexpected.

(Comment:  I have learned this lesson the hard way myself with business partners in a few of my endeavors.  Do everything you can to protect yourself.  Start by knowing your rights and make sure to document, document, document.  Adversity often brings out the worst in people but amazingly people also change with substantial success.  Researchers have found the mere presence of money changes people.  It is also a good idea to have a trusted confidant that can help you vet a potential partnership without emotion).

• Sell on your way up. Entrepreneurs are "hard-wired" to grow businesses. The idea of selling is usually a far-away concept that is considered, but knowing the best time to sell is not intuitive. Don't wait until you can see the peak because chances are your buyers can see it too and will discount the price accordingly. Plan on a full year for the sale process to be completed; if you pull the trigger too late, you may miss.

(Comment:  This is a tough one for most business people.  You need to have a little luck on your side to sell at the right time.  But it's just like investing in the stock market.  You will likely never sell at the peak so don't be greedy.  A business sale should be a win-win for the buyer and seller). 

Overall, I just can't stress enough the importance of carefully considering whether a business partnership is right for you.  I often joke that it is not a matter of "if" but a matter of "when" the partnership will end.  But this is one joke I don't consider to be a laughing matter.  Fox's tale proves it.   

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Today is my last day with the Sullivan & Ward law firm.  This coming Monday I am taking a hop, skip and a jump over to the law firm of Brick Gentry, P.C. in West Des Moines, Iowa.  This is actually almost literally true as the Brick Gentry law firm is located across the parking lot just to the west of my current office location. 

It is difficult to leave my friends at the Sullivan & Ward firm but I am excited by this new opportunity.  Brick Gentry is a growing law firm with an excellent reputation in the Des Moines legal community for over 40 years.  The firm now consists of approximately twenty-five lawyers practicing in a wide range of areas including business law, municipal law, health care law, employment law, litigation and real estate.   

I'll join the firm as a shareholder and continue to work with my current business law clients and litigation matters.  Rush on Business will also continue although you will notice some changes to the links and contact information on the blog in the next couple of days. 

My new contact information is:

Rush Nigut, Brick Gentry, P.C., 6701 Westown Parkway, Suite 100, West Des Moines, IA 50266.  Phone:  515-274-1450; Fax:  515-274-1488; email:  rush.nigut@brickgentrylaw.com

Thank you again to all of you that read this blog.  I appreciate your support and look forward to this next step in the journey.  Stay tuned for more because I have a few plans ahead to mix it up and enhance the blog.  I'll need to settled in but I am looking forward to working on some new challenges very soon. 

photo on flickr by phxpma

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As a blogger you may want to read this post from the Write Stuff on how to protect your online reputation. 

The post discusses how several employees have been fired from their jobs for writing controversial blog posts including a Web designer that shared stories and opinions about co-workers on a personal blog, an airline attendant who posted photos of herself in an empty jet, and the former CNN reporter who published opinionated entries on his blog.

As pointed out:

In each instance, the blogger’s justifications and legal arguments may be compelling. But that doesn’t change the fact that they all have one thing in common: Termination from lucrative positions that permanently clouds their employment histories.

The post goes on to give some great reminders including

• Blog as if your employer is watching and behave accordingly.
• Don't mix business and personal matters.
• Research company employee handbooks and/or consult HR before blogging.
• Consider what you stand to gain against what you stand to lose.
• If you are monetizing your blog check your company's conflict of interest policy.
• Blog truthfully and accurately.

Above all, whether you are blogging on a personal or business blog, you must be cognizant of whether your words and actions could damage and/or embarass your employer.  If so, you shouldn't be surprised when you receive your pink slip. 

And also always remember the shortest corporate blogging policy:  "Be professional".

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I don't know a single employer that can't use some good interview tips.  Fortunately for us Ohio Employer attorney Jon Hyman shares how to avoid hidden interview traps  and common stereotypes to avoid during job interviews.

These are great posts so be sure to check them out.

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The Electronic Discovery Blog of K & L Gates has an informative post on a recent electronic discovery decision out of the Northern District of Georgia. 

In the case the court found that deleted emails were not reasonably accessible and the defendant had no duty to search backup tapes for emails of a sexual nature.

Lessons from this decision:

1. DIscovery requests for emails should be relevent, specific and limited by time, sender and recipient.
2. Following a written document retention and destruction schedule can prevent spoilation sanctions.
3. Plaintiffs should request company-wide email perservation and not rely solely on the fact litigation has commenced.  Requests should also include the names of individuals from whom you want the emails.
4. If the costs of retrieving emails on backup tapes are too high, judges are reluctant to order production.

Read the entire decision here.

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Brian Honnold of Professional Solutions Insurance Services shares important information on IowaBiz that every retailer should know about their insurance coverage when you build out your new retail space in your local mall or strip center.

If you don't fully check out your coverages chances are you will be sorry.

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As disclosed in the last post the new amended FTC rule concerning franchise disclosure documents requires franchisors to update their UFOC by no later than July 1, 2008.  After July 1, 2008, franchisors must comply with the new FTC rule only.  Currently, franchisors may comply with either the former rule or the new rule.

Here are some key differences between the former rule and the new rule:

• Use of unaudited financial statements.  Start-up franchisors may phase-in the use of audited financial statements.  In this case the franchisor must clearly and conspicuously disclose that the franchise has not been in business for three or more years and cannot include all required financial statements.  (There may still be requirements to submit audited opening balance sheets in registration states).  Franchisees should make sure to review the financials carefully as always.
• Financial Statements.  The FTC will allow the use of financial statements prepared according to U.S. generally accepted accounting principles ("GAAP").  There must be separate audited financial statements for any parent that "commits to perform post-sale obligations for the franchisor or guarantees the franchisor's obligations" in the disclosure document.
• No Broker Disclosures.  The Amended FTC rule eliminates the broker disclosure requirement.  However, the broker will need to be listed on the Receipt Page because the Receipt Page requires the franchisor to identify all "franchise sellers".
• Litigation.  Franchisors will be required to disclose material franchisor-initiated litigation against its franchisees.  The rule will be more lenient as a franchisor will only have to disclose actions that the franchisor filed during its last fiscal year - not the last 10 years. Further,  a full description of the case will not be necessary.  If a counterclaim is filed against a franchisee the disclosure will need to be treated as any other franchisee-initiated action and the regular, full disclosure will be required.  (Franchisees will need to more fully investigate whether franchisor-initiated litigation occurred whether it is in the disclosure document or not).
• Financial Performance Representations.  The new rule encourages franchisors to provide financial performance representations but it is still voluntary.  Franchisors may provide a more detailed cost and expense analysis which could be helpful for prospective franchisees.  Also, franchisors may provide financial representations based upon a subset that shares the same characteristics. 

There are other differences so be sure to talk with an attorney experienced in franchise matters if you are looking at purchasing a franchise.

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Jon simply has one of most informative employment law blogs around.  Here are his highlights of the new regulations:

Except in emergency situations, employees will be required to follow the employer's policy for notification of FMLA leave, eliminating employees' ability under the old regulations to take up to 2 days after an absence begins to notify their employer that they intend to take FMLA leave. This change will greatly improve employers' ability to plan and schedule around employees' medical leaves.

• Employers will be able to directly contact employees' doctors when employers have questions about FMLA medical certification forms that the doctors have filled out. Employers will no longer have to go through the employee as an intermediary, or retain their own doctor to contact the employee's doctor. While this change may have some effect on employee privacy, it will greatly improve the flow of information and streamline the ability of employers to make proper decisions based on full and complete medical information. This rule will also eliminate the expense and burden of companies having to retain their own doctors simply to ensure that a form is properly filled out.
• To employers' dismay, the regulations do not change the time increments in which employees can take intermittent leave, but do require that an employee using intermittent leave use the employer's regular call in procedure except in emergencies. Thus, employees will still be able to take intermittent leave in very short increments, continuing for employers the administrative nightmare of intermittent leave, albeit with some additional notice.
• Employers will be entitled to require employees to obtain certification of FMLA-eligible medical conditions twice a year instead of annually.
• Currently, the clock under which employees accrue their 12 months of service for eligibility has no time limit, even after multiple breaks of service. Thus, if I work for 6 months for a company, and return 10 years later, I am eligible for FMLA leave after another 6 months. The new regulations place a 5-year cap on years of service for calculating eligibility, except for military or childrearing leaves, or where rehiring is covered by a collective bargaining agreement.

Please note that I often find many small employers mistakenly believe they are subject to the FMLA regulations.  Generally, the FMLA covers employers with 50 or more employees, and employees must have worked for the employer for 12 months and for 1,250 hours of service during the previous year to be eligible for FMLA leave.  So be sure not to create a situation where you are responsible for FMLA leave if you are not required to do so.

As always, seek the advice of an employment lawyer in your particular situation.

flickr photo by mahalie

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Welcome to a RAGBRAI inspired Blawg Review.  What is RAGBRAI?  The Register's Annual Great Bicycle Ride Across Iowa is an annual seven-day ride across the state.  Heading into its 36th year, RAGBRAI is the longest, largest and oldest touring bicycle ride in the world.  It's not a race.  It's an experience.   And since Blawg Review is a carnival, nothing says carnival in an uniquely Iowa way like bicycles, spandex, pork chops, pie, frivolity and 10,000 of your closest friends!

The weather in Iowa is frigid this winter.  As the weekend of this Blawg Review approaches Iowans brace for another heavy snow.  Our friend Charlie Longbrief looks at the floor below his stationary bike and dreams of summer.  A person can stand only so many YMCA spinning classes.  He thinks back to his first RAGBRAI as a twenty year old when law school hadn't yet entered his mind and the biggest celebrity on the ride was Oakland Raiders great and Miller Lite spokeman Ben Davidson.  Now it's nothing to see the likes of lawyer turned politician John Edwards or the bicycling legend himself, Lance Armstrong.  Armstrong may have participated in the famous New York City Marathon but his heart will always belong with RAGBRAI.  Listen for yourself:

Day 1:  Missouri Valley to Harlan  - 58 miles

This year's ride starts in the river town of Missouri Valley.  While performing the traditional dip of his back tire in the Missouri River, Charlie sees Liz Overton of the Iowa Law Blog who warns him that because of the $350,000 settlement in a 2004 RAGBRAI death bicyclers better beware of the new proposed legislation from the Iowa State Association of Counties.

Unfazed Charlie gets on his bike and sets out on his adventure.  But as he rides off he does ask himself whether Mad Kane is right.  Is it wise to travel with friends particularly where tents are involved?

About 15 miles down the road Charlie takes a break and starts getting an earful from New Yorker Eric Turkewitz about how State Farm has been hit with a RICO lawsuit over alleged sham medical exams.  That hasn't been reported elsewhere and Charlie worries whether State Farm might be doing the same thing in Iowa.  Charlie is so interested he and Eric ride the rest of the way to Harlan together.  Although its only the first day Turkewitz remarks that he agrees with Lance Armstrong . . . RAGBRAI is a hell of lot more fun than his beloved New York City Marathon.

As he pulls into Harlan, Charlie finds himself a little short on cash and heads off to find an ATM.  There he sees John Crenshaw who starts telling him about the biggest scams banks are pulling off everyday. Charlie just shakes his head in agreement as he pays the $2.00 charge to get the money out of the ATM.  After a little angel hair pasta its time to hit the sleeping bag.  There is a big week ahead and unfortunately Charlie isn't twenty any longer.

Day 2:  Harlan to Jefferson - 83 miles

The next morning Charlie wakes up bright and early and sets off for Jefferson.  He has some clients that are buying a business nearby and that reminds him he should heed Larry Staton Jr.'s advice to know what you are getting when you buy a trademark from an existing business.

About half way to Jefferson our city boy is a little mesmerized by the miles and miles of corn.  It makes him wonder whether Farmer David will be able to pay that large patent judgment he now owes Monsanto as reported by the Patent Baristas.

In Scranton, just short of Jefferson, Charlie sees a big group of people gathered in a park off the town's main drag.  There he sees Dan Slater of the WSJ Law Blog who explains that all the hoopla is because the M & M boys have turned their attention to the RAGBRAI water slides because the Naked Cowboy drove them outta of Dodge.  The revelers love it and the log jam causes a very slow ride into Jefferson that evening.

Day 3:  Jefferson to Ames - 56 miles

It's a big day for politicians on the way to Ames, home of Iowa State University.  Barack Obama and John McCain are expected to make appearances today.  Hillary Clinton is here too and keeps talking about how the Florida and Michigan delegates must count.  Obama shrugs it off by saying even his six year old knows it wouldn't be fair to count votes where there was no campaign.  But at least Florida has made significant strides in improving its jury system according to Juries.  While Diane Levin points out voters can learn a lot from the field of negotiation.  Eugene Volokh shares that John Mellencamp may be able to stop McCain from playing his songs after all.

All the political talk has people addressing serious issues on the road today.  Riding on a three person tandum, Leon Gettler of Sox First tells Charlie that Sarbanes-Oxley not only failed to stop the subprime meltdown, it contributed by giving investors the false confidence that they could rely on the law, and not prudence to protect their market holdings.  Scott Greenfield shares that Congress has a pending bill that may immunize banks from paying billions in dollars to a small Plano, Texas company.  Patently-O adds that although DataTreasury is not directly mentioned in the bill it is pretty clear that Section 14 is directed primarily at the company. 

As Charlie rides into Ames he sees Kevin O'Keefe and  Holden Oliver of What About Clients engaged in a heated discussion about whether corporate clients really want a lawyer that blogs.  O'Keefe says yes while Oliver says no.  It then gets a little personal when O'Keefe accuses Oliver of being someone else.  Charlie blames Teri Rasmussen who started the whole thing when she said every client should want a lawyer who blawgs.

Day 4:  Ames to Tama-Toledo - 75 miles

Charlie gets ready to head off to Iowa's version of the twin cities today.  In the pancake breakfast line he meets Connie Crosby who is kind enough to introduce him to David Bilinsky.  David tells Charlie all about how there is a great need for law firms to turn their senior partners into business leaders.  David Maister overhears them and chimes in that one-firm firms are often quite successful.

After an uneventful morning Charlie witnesses an accident on today's route where someone goes to the hospital.  It looks like the rider will be okay but David Harlow of HealthBlawg warns that hospital-acquired infections are a real problem.  Iowa estate lawyer Matt Gardner says that even if the rider makes it through he should still think about the disposition of his bodily remains.

 As he enters Tama (or is it Toledo), John Phillips of the Word on Employment Law almost runs smack into a little beagle that darts in front of him.  The incident causes John to conclude that beagles should no longer be excluded from the Animal Employment Protection Act (AEPA).  John is obviously a little excited about the near miss and starts rambling about how he handled the situation a whole lot better than Roger Clemens handled the accusations from Brian McNamee.

Day 5:  Tama-Toledo to North Liberty - 82 miles

Now that we have passed the mid-way point for this year's ride, everyone is a little loosey-goosey today.  Charlie's cadence starts to pick up as the wind blows with the sweet smell of pork chops.  That could only mean that Mr. Pork Chop is nearby.  As he pulls off the roadside to visit our pork chop hero, Charlie sees that Iowa legal blogger extraordinaire Brett Trout and his band of Iowa legal bloggers are engaging Mr. Pork Chop in a battle of wills to determine who has the loudest pork chop call.  Sadly, while Trout may be Iowa's toughest attorney he is no match for Mr. Pork Chop in this arena.  Hear why:

After a pork chop and a short nap Charlie rides along to catch up with Michael Moore who discusses risk management in employee terminations and explains sometimes the "How" is as important as the "Why".  Pretty soon both of them come across a big party along the roadside.  A crowd is gathered around Dennis Kennedy who apparently is still celebrating his blawgiversary and birthday.  During the party Tulane Law Professor Alan Childress wonders aloud whether any Iowa legal counselors had ever been in trouble like the lawyer that got into trouble with his state bar by trying to talk his way out of a ticket for deer hunting.

Still a little full from his banana cream pie, Charlie and his new friend Charles H. Green ride along at an easy pace discussing that as more and more banks and consumers walk away from loans--and contracts gone bad, we are reminded that legally binding contracts are often only as strong as the morality of those signing them.

That evening after dinner there is lots of entertainment in North Liberty.  At a concert Cathy Gellis proclaims, "I need a husband!"  The revelation causes Jon Hyman to explain what happens when office romances go bad.  But Cynthia Shapiro, who received her RAGBRAI pass from George's Employment Blawg, says you might be able to have that office romance if you know a few secrets.  When Jennifer Jaskolka-Brown overhears them she warns them that email has made it much easier to collect damaging evidence in divorce cases.

Day 6:  North Liberty to Tipton - 62 miles

Charlie decides to join the Lance Armstrong peloton this morning for some fun.  As you might expect with Armstrong the ride is a little faster paced today.  There are several others brave enough to join the pack this morning:

• Colin Samuels says he'll never say never when Charlie asks if he'll ride again but Colin sure didn't like it when he got lost on the road from Harlan to Jefferson.
• David Lat explains that the only reason he is on the ride is because his playstation didn't arrive on time.
• Daniel Solove says this is more fun than being interviewed by Money Magazine.
• Barry Barnett offers tips on how to make the ride easier when you are with him.
• Jackie Dowd contemplates what life would be like without a legal system which is maybe a little profound this late in the ride. 
• Carolyn Elefant is usually Solo by Choice but today she is content to ride with the group especially since she thinks Lance is so cute.
• Anne Reed says sometimes its better to walk this way but Charlie can't imagine a walk across Iowa. 

Day 7: Tipton to LeClaire - 55 miles

The last day!  On his ride to LeClaire, Charlie meets up with the anonymous Editor of Blawg Review to tell him the ride has been worth it.  Together they dip their front tires into the Mississippi River where Charlie quips that normally what happens on RAGBRAI stays on RAGRBRAI, but this year what happens on RAGBRAI ends up on Blawg Review!

 * Legal Disclaimer:  This Blawg Review is a work of fiction.  Names, characters, places, events and incidents either are the product of the author's imagination or are used fictitiously.  Any resemblance to actual persons, living or dead, events or locales is entirely coincidental.

Blawg Review has information about next week’s host, and instructions how to get your blawg posts reviewed in upcoming issues.  My dear friend and fellow Iowa legal blogger Brett Trout takes the helm next week.  We wish him well as he tries to best the excellence of his previous effort on Blawg Review #106.

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 Flickr Photo Credits:  johnedwards2008, wade, blmurch, MNgilen, IaRuth, wade and artandscience

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A .300 batting average may get you into Major League Baseball's Hall of Fame but winning only 30 percent of your employment lawsuits won't do the trick.

See Mark Toth's Manpower blog for the results of the Question of the Week - What % of employment lawsuits are won by employers?  That's right, only 30 percent.

But fortunately there are things an employer can do to increase their chances to win and/or avoid lawsuits.  Jon Hyman offers several suggestions for the proactive employer:

1. Review and update handbooks, policy manuals and forms;
2. Implement a document retention and destruction policy;
3. Implement a harassment training program;
4. Audit job descriptions and employee classification for wage and hour compliance;
5. Properly document all performance problems.

photo on flickr by ewen and donabel

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Chris Moander of the Wisconsin Business Law and Litigation Blog shares his take on the timeless advice that business people can pay for it now . . . or pay for it later.  Chris points out that many business people sadly lump legal services into the "too costly" or "unnecessary" categories when it comes to starting or running a business.  And while good legal services are not cheap it may actually save you in the long run.  Here are some of the downsides for not seeking professional advice as described by Chris:

• Purchased form documents create a false sense of security as “boilerplate” terms are assumed by the entrepreneurs to be “safe,” which is hardly the case. Owners who are not getting along and decide to split may find themselves mired in extremely expensive litigation over a long period of time, all of which could have been avoided by spending a fraction of the litigation costs on quality document drafting by an attorney.
• Technical faults in any number of license or regulatory filings go unnoticed until the company is audited, a criminal investigation occurs, or some other form of litigation begins. The litigation costs dwarf up-front legal costs due to the belief that preventative legal advice was not necessary or worthwhile.
• Buyers and sellers throw together an amalgam of words, believing that the resulting document reflects a mutual understanding. Eventually, one party feels aggrieved and suddenly the so-called contract is revealed as imprecise and nebulous…and so costly litigation commences.

My favorite blogging CPA, Joe Kristan, also shares similar advice over on IowaBiz.com.  Joe's moral?

When you mess with the ownership of your business, it's a lot cheaper to call a business lawyer and a tax guy before you do the deal; it costs a lot more to repair a deal than to do it right in the first place. 

Focus on doing it right the first time.  You will never regret it.

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Terri Rasmussen of the Ohio Practical Business Law Counsel blog says that every client should want a lawyer that blogs.  As you might guess, I agree. 

Why is it important, you ask?  Terri shares her thoughts (with some comments by me):

1. Knowledgeable Entrepreneur.  The blogging lawyer thinks in broader terms about what they want to know and what they can offer to clients.
2. Communication 101.  Connecting in a simple, straight-forward manner is key.
3. Authenticy and Real Voice.  You get to see the personality of the lawyer. 
4. Quality and Competence.  There is some ability to assess the quality and competence of the lawyer you are thinking about hiring.  No way to do that with a yellow pages ad.  This is where Terri makes perhaps her best point.  Any lawyer that is willing to put themselves out there and open up to scrutiny ought to be high on the list of any client.
5. Commitment to the Law Made Practical.  Most clients want to deal with a lawyer that just isn't in it for the money.  Why not consider a blogging lawyer that not only spends their spares time writing but also GIVES AWAY practical information to help people?  Blogging lawyers care.

Like Terri, I strive to have fun and help people through my blog and there is no question it has made me a much more effective lawyer.  Blogging is an educational process.  Not just for the reader but especially for the writer.  Without blogging I would never get to learn from great lawyers like Terri.

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It's always nice when people say great things about you but I am particularly humbled by a recent post from What About Clients?  WAC? is one of the great blogs (and I do mean great as evidenced by their award as the Best All Business Blog for 2007 by the ABA).  I respect Dan Hull and his gang for their absolute passion to delivering superior customer service.  WAC? is really just an extension of that passion.  As a young lawyer it was drilled into me that you do whatever it takes to serve clients and even a little bit more.  It's apparent Dan Hull lives that motto every day - 24/7.

But now there is a little pressure for the Blawg Review on February 18th.  Between WAC? and the comments from the wildly popular Iowa patent attorney Brett Trout I better not disappoint.

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When our law firm started the Iowa Law Blog, I had high hopes despite the fact that I knew a firm-wide blog would not be easy.  But I saw what Stark and Stark had created with their New Jersey Law Blog and knew it could be done.

I don't know if you have noticed lately but Sullivan & Ward's Iowa Law Blog really seems to be catching its stride.  Three blogging faithfuls (Matt Gardner, Jennifer Jaskolka-Brown and Liz Overton) are creating a wealth of information in niche topics of Iowa law including weath and estate planning, family law and employment law.   Here are some of their great posts this past week:

• What is Probate for an Iowa Estate?
• Full Disclosure Required in Prenuptial Agreements
• You're Fired

Plus we officially (finally) made the I list.   Thanks to Chris Punke for that great widget.  Now I just need to get it on the blog.

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I have often stressed the need for business people to follow corporate formalities and keep their corporations or limited liability companies up-to-date.  However, the recent decision impacting builders from the Iowa Supreme Court makes it significantly more important for builders and other contractors to do so.

The Iowa Supreme Court ruling essentially says that builders must provide a 15-year implied warranty for their work.  Fifteen years is a long time.  If a builder were to let their corporate entity lapse it could mean the builder would be personally liable if a lawsuit were to occur.  Same for other contractors who are likely to be pulled into lawsuits for work they performed as subcontractors.

Here are some basic tips on how to make sure your corporate entity stays viable:

1. Hold regular board of director and shareholder meetings in accordance with the bylaws.
2. Document those meetings with meeting minutes.
3. Observe corporate formalities (e.g. segregating corporate assets from personal assets; adhering to the bylaws, etc.)
4. File biennial reports with the Iowa Secretary of State.

Another tip would be that if you intend to dissolve or shut down a corporate entity you should follow the steps to publish notice of the dissolution as set forth in the Iowa Code.  This could allow the dissolved corporate entity to avoid certain claims that are not commenced within three years of the publication of the notice.

As always, be sure to seek the advice of your business lawyer if you have any questions in your specific situation.

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My friend and law partner Matt Gardner has an excellent summary on Sullivan & Ward's Iowa Law Blog about the crushing blow handed down to home builders this past Friday by the Iowa Supreme Court. 

The ruling holds builders responsible to subsequent owners for defective conditions.  The old law was caveat emptor or "buyer beware".  The Court noted that public policy justifications support further erosion of the doctrine of caveat emptor.  The purpose of the rule is to ensure that innocent home buyers are protected from latent defects.  The court said subsequent purchasers are in no better position to discover those defects than the original purchaser.  "Builders should be accountable for their work" quoted the court.

The new law might become known as the Home Builders' Attorneys Equal Employment Act (HBAEEA).  It seems inevitable more lawsuits will occur against builders because of the Court's interpretation.  Great if you are a homeowner but very bad for builders.

Read the full opinion here.

photo on flickr by pdz house

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Under a new Iowa immigration bill, employers that repeatedly employ illegal aliens would face civil penalties of up to $10,000 and up to a year in jail under legislation being proposed in the legislature.  Employers would be exempt from penalties if they seek verification of a worker's citizenship status through the Department of Homeland Security's verification system.  But many employers complain that system is dreadfully slow.

House File 2026 has sparked significant debate.  Democrats claim it is a human rights issue.  Republicans claim it is pure politics in an election year and intended to protect unions while harming non-unionized independent contractors.   The Hispanic community in particular has great fears that jobs will no longer be available in Iowa under the new law.

This bill may have the biggest impact on Iowa businesses this legislative season.  Read  House File 2026 here.

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Employee lawsuits are continually on the rise.  So how do you keep your employees happy and stay out of court?

While it is technically not a "legal requirement" I have long suggested that treating employees with respect is the best way to avoid employee lawsuits.  Building on this thought I recently saw a couple of excellent posts from employment lawyers John Phillips and Jon Hyman concerning fairness as the Golden Rule of Employee Relations.

Treating others as you want to be treated is a concept that even young children understand.  But while the concept is easily understandable employers still have a difficult time being fair.  To this end, Phillips offers five areas of fairness where employers should concentrate their efforts:

1. Appearance: does an employment action appear fair to an outside observer?
2. Counseling: except in the most egregious of cases, was the employee told of a deficiency and given a chance to correct it?
3. Consistency: are similar disciplinary problems handled similarly and to the same degree?
4. Documentation: can you point to a performance review, written warning, a note in a personnel file, or some other contemporaneous piece of paper that supports the personnel decision?
5. Rationale: was the employee given a reason for the decision, and was it the real reason?

As Hyman points out, juries are big on fairness.  It is critical to remember that in a jury trial your jurors are likely to be employees rather than employers.  Being fair will not only reduce the employment claims against you but increase your chances of success if you are sued.

So next time you deal with an employee disciplinary situation be sure to remember the Golden Rule of Employee Relations.  It will make a difference.

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Read this post from Indiana lawyer Sam Hasler to find out why it is so important to respond promptly and appropriately to sexual harassment complaints. 

In the case mentioned by Sam, Chili's Grill and Bar escaped liability even though the employee established a prima facie case of harassment in her lawsuit.

Sam also has some great advice:  "Having a harassment policy is not enough. Having a that policy in an employee handbook is not enough. Having the policy and enforcing the policy is the key to success."

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I've said it before (and also here) but it bears repeating that wage and hour class actions are booming.  Just this past week Iowa's Casey's General Stores was hit with a wage and hour lawsuit with allegedly more than $5 million at stake.  If that isn't enough to convince you to examine whether your company has vulnerabilities you better read this informative blog post from Mark Toth of Manpower.

The 4th Annual Workplace Class Action report from Seyfarth Shaw shows the volume of wage and hour class action continues to grow exponentially.  As the report's editor says, “identifying, addressing, and remediating class action vulnerabilities” should be at the top of every employer’s list of 2008 priorities. 

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This post from the New York Business Divorce Blog will make you think twice before becoming involved in a business with your romantic partner.

I recently wrote on the firm's Iowa Law Blog that one way to avoid a volatile business divorce is to draft and enter into an effective buy-sell agreement with your partner(s).  This is true whether you are entering into a business arrangement with your spouse, significant other or friend down the street.  Rarely do partner spouses enter into buy-sell agreements.  Like prenuptial agreements, it may not always be comfortable to form a buy-sell agreement  with a spouse.  But it is advisable nonetheless.

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Today I'll be pinch hitting for Brett Trout at the Des Moines Partnership's Biz Networking Luncheon.  I will cover how to stop doing things online that will land you into court.  The best part of this presentation is I get Brett's material.  I hope to see you there today.

This event will be held in the Arthur Davis room at the Greater Des Moines Partnership on January 15th. The luncheon will begin at noon and will conclude at 1:30. The cost of the event is $10 for members and $12 for non-members.  To RSVP for the event, please email Cathy Spenceri at caspenceri@dmacc.edu . We hope to see you there!

photo on flickr by jimcchou

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The Pennsylvania Employment Law Blog posts on how Lockheed's failure to take discrimination complaints seriously led to liability. 

Want to know how to avoid employment lawsuits?  See one of my more popular posts: 

 Seven ways to avoid employment lawsuits. 

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Roger Clemens has sued his former trainer for defamation in an attempt to regain his Hall of Fame reputation.  The WSJ Law Blog has a great story on the lawsuit.

The interesting question will be whether the trainer will file a counterclaim for defamation.  Why not?  McNamee now has to protect his reputation and Clemens has the deeper pockets.  At this point McNamee won't have anything to lose either.  Public opinion for baseball players after the Mitchell Report is perhaps only a little higher than the public's views of lawyers.

See my thoughts on the Mitchell Report here.

Photo on flickr by dethtrip99

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Iowa trial lawyer Joe Gunderson was featured this past week during the Iowa Caucus on the Wall Street Journal Law Blog.   Joe had the following comments regarding what it's like to have Iowa in the national spotlight:

It’s fabulous because we get a rejuvenated civics lesson every four years. Our newspapers for the past few months have been filled with the political process and the issues of the day. The candidates get asked questions in Osceola about the Iraq war. In Orange City, they get asked about ethanol. In Fort Madison, they get asked about Social Security and Medicare. Just this morning, I was driving in downtown Des Moines and there were college students standing outside, underdressed in 10 degree weather, smiling and waving Obama signs. How could you be cynical about politics when you see that in the morning while driving to work.

It was kind of funny that the Law Blog expressed surprise Gunderson was a trial lawyer AND chaired President Bush's Iowa campaign.  Only in Iowa, right?  Republican trial lawyers and Democrat defense lawyers like Gordon Fischer.   On the Iowa lawyer-advisor side, Joe mentioned Iowa lawyers Doug Gross (Romney) and Jerry Crawford (Clinton) in the story but apparently forgot about the younger Fischer and his advisor role on the Obama campaign.  Gordon accurately projected the huge turnout, which no one expected other than Ann Selzer, and helped lead the Obama campaign to victory. 

There's change happening here in Iowa too.

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Is your business in need of a buy-sell agreement?  Don't know how to get started? 

An excellent resource worth considering is a book from Z. Christopher Mercer called Buy-Sell Agreements:  Ticking Time Bombs or Reasonable Solutions?   A blog post from Mercer worth reading also raises an excellent point regarding buy-sell agreements:

If you are in the process of creating a buy-sell agreement, be sure that the document actually reflects the agreement of the parties to the critical business and valuation issues that relate to the particular situation.  If you have an existing buy sell agreement, review it to insure that it reflects agreement of the parties on key business and valuation issues that currently pertain to your situation (and not to the situation fifteen years ago when you first signed it!).  In both cases, be sure through review by competent legal counsel, that the agreement appropriately considers legal issues that pertain to your situation.

Seems like common sense but I recently learned of a situation where two owners had drafted their own agreement. (Kudos for at least recognizing the need for it).  The owners agreed upon a valuation.  The problem that arose is that neither owner really understood the valuation they had agreed upon and as their business progressed the valuation did not reflect the realities of their business.  The failure to review and implement an agreement with competent counsel has now resulted in litigation. 

It's also wise to get advice from an accountant or other business valuation expert when creating the buy-sell agreement.  A team approach is often very helpful.

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A Des Moines Register article discusses how many bosses are unwilling to allow night shift workers to caucus.  Understandably this makes politically active employees a little upset.  The article quotes a Medicom employee who said,

"It made me so furious. I raised such a fit I'm surprised they didn't send me home."

It's true that Iowa law does not require employers to give employees time off so they can caucus.  But as I have pointed out before it is my view that treating employees with respect is one of the best ways to avoid employee lawsuits.  An employer should ask themselves whether a few hours away from work every four years would really hurt production?  But think of the goodwill that could occur by respecting the employees' desire to participate in the political process.  Do you think you might have more committed and loyal employees?

At least the Des Moines Police Department gets it because police officers working on the night shift will have the opportunity to caucus provided they have made the request in advance and calls for service allow them to do it.

Update:  The Des Moines Register reported in its Sunday edition that the Medicom worker described above will now be allowed to participate in the caucus. 

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An Iowa man who worked with Catfish Bend Casinos in Burlington was fired for posting a Dilbert cartoon on the office bulletin board.  Apparently the boss didn't appreciate the comparison to a drunken lemur.

Dilbert creater, Scott Adams, offers this advice:

If you intend to mock your boss with Dilbert comics, the trick is in knowing which comics to pick. Apparently there is a fine line between posting a comic that criticizes a particular policy decision, versus a comic that calls your boss an inebriated prosimian. (Thank you, Wikipedia.) 

It's important to remember that humor is in the eye of the beholder.   If humor is used too much or at the wrong time in the workplace bad things can happen.  A hostile work environment occurs when jokes, suggestive remarks, pictures, cartoons, or sexually, discriminatory or otherwise derogatory comments alter the circumstances of the workplace.

On the other hand, humor in the workplace is important to job satisfaction.  I really can't imagine working in a place without some humor here and there.  But at the very least it's best to still maintain professionalism and have a good sense of how people will react to your humor.  Calling your boss a drunken lemur?   Even Adams agrees that one was a little more cutting than the typical Dilbert strip.  In an interview with the Register reporter he said, "I can see how this one may have been a tad bit over the line."

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Abe Lincoln, Freedom Fighter (1978)
Abe: I don't know about this politician business.
Judge: What do you mean by that?
Abe: If I have to sacrifice my integrity for politics, I guess I'll just have to stay a lawyer! 

Up to this point I have avoided blogging on politics and the Iowa caucus.  It's a no win situation for me.  I have clients on both sides of the aisle and a policy not to debate politics with clients has served me well.    Besides, Iowa lawyers like Gordon Fischer and Ted Sporer do a tremendous job of covering politics with their blogs so I'll leave the debate to the experts.

But one campaign strategy surprised me.  Many of the candidates are lawyers.  But as Joe Kristan recently pointed out, lawyers are not exactly the apple of the public's eye.  It's probably part of the reason why lawyer candidates tend to rarely emphasize their legal careers.  But one candidate has decided to go against the grain.  Trial lawyer extraordinaire John Edwards is campaigning in Iowa today with his most famous client.

As detailed in his book, Four Trials, Edwards obtained a $25 million judgment on behalf of Valerie Lakey and her parents.  Valerie nearly lost her life when she was disemboweled by a swimming pool drain that was incorrectly attached.  He has sent out mailings featuring the Lakeys and is now campaigning with them.  He also unabashedly points to his career as a trial lawyer as an example of how he will stand up and fight against corporate and special interests.    It's a bold but risky move given the public opinion of trial lawyers in particular.  But I am proud of Edwards for not shying away from his tremendous career as a lawyer. 

While the image of lawyers could be improved, it should start with lawyers being proud of the profession they have chosen.  We offer society a valuable and important service.  My thanks goes to lawyers like Edwards who aren't afraid to talk about it.   

Photo on flickr by alexdecarvalho  

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I am attending the Iowa State Bar Association's eCommerce seminar tomorrow.  The man formerly known as the sixth best law blogger in the world is one of the presenters.  I am looking forward to Brett's talk as he shares his Vegas Blogworld speech with the audience.

It got me thinking a little bit about how to improve presentations.  Recently I have been to a rash of presentations where the speakers throw up their power point and then talk directly to the screen rather than the audience.  It's unbelievably annoying.  It's death by power point.

The best presenters I know are terrific storytellers.  The best speech I have heard over the past year came from Charlie Anderson who delivered a terrific story about his company at a SEMEE event earlier this year.  He was the only presenter that evening who talked without a power point.  His passion was evident.  No slides were necessary.

For great advice on making the right presentation be sure to check out how I made my presentations little better.  This comment about slides from the post is particularly insightful:

Let the slide serve your message, rather than letting you (and your personality and timing) be governed by the slide. 

Thanks to Matthew Homann's [non]billable hour for the link to the presentation post.

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The deadline for filing claims in the Microsoft Iowa Class Action Settlement is December 14, 2007.  If you have any questions about how to file a claim be sure to email the claims administrator at claimsadmin@iowamicrosoftcase.com.

For a recap of articles on the Microsoft Iowa case click here which includes one of my most popular blog posts entitled On the Seventh Day She Rested.

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In the last blog post I picked on college football coaches and their exorborant salaries.  But its probably not fair to pick on college coaches alone.

The Philadelphia Litigation Blog discusses how lawyers at large Manhattan firms are now charging $1,000 per hour or more.  Superstar litigator, David Boies, sums it up pretty well:

Frankly, it's a little hard to think about anyone who doesn't save lives being worth this much money . . .

All of this reminded me of a great story from John Ward the managing shareholder of our firm.  Sullivan & Ward has represented many of the rural electric cooperatives in Iowa for decades.  At some point many years ago a decision was made to raise hourly rates to $50.00 per hour.  When John discussed this rate increase with a client one of the board members proclaimed:

Ain't no man alive worth $50.00 per hour!

And while I don't advocate returning to the days of charging $50.00 per hour, I agree with the discussion on the Philadelphia Litigation Blog regarding flat fees in a case or deal.  In many instances billing in this manner promotes greater efficiency than billing by the hour.  In late 2006  I decided I would start charging on a flat fee basis for litigation in addition to my work for incorporating businesses, forming LLCs or monthly outside general counsel services.    I have not moved exclusively to flat fees.  I find some clients still prefer the billable hour but I am always open to alternative billing arrangements. 

I know others agree with moving away from the billable hour including lawyer and author Scott Turow who believes the billable hour must die.  For me I like flat fees and alternative billing arrangement for two reasons:

1. The businesses I represent can better budget and allocate for legal fees.  Business clients seem to appreciate that.
2. I have experienced greater satisfaction in my work.  Living by a clock is no fun in my opinion.

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Recently I have been discussing the rise in wage and hour litigation.  See here and here. 

According to the Department of Labor approximately 70 percent of businesses are out of compliance with wage and hour laws.  That's right - 70 percent!  According to Shanti Atkins of the Compliance Training Blog, some experts believe this number is even higher.

But you might be asking yourself, "How could my business be out of compliance?  Everyone is salary.  I don't need to pay overtime.  Besides employees can volunteer their time."  As Mark Twain said,

It ain't what you don't know that gets you into trouble.  It's what you know for sure that just ain't so.

So what are some helpful tips to avoid wage and hour lawsuits?

• Conduct a Wage and Hour Review.  Your first step should be to get with an employment law attorney or other wage and hour/human resources specialist who can review your pay practices to determine whether you are in compliance with the law.  The cost spent for a review and developing a compliance program could save you tens of thousands of dollars in the long run or perhaps even millions if you run a large company. 
• Train Managers.  Making sure managers understand the rules is paramount.  Managers can avoid costly mistakes and spot problems before they become too costly.
• Think Exempt - Non-Exempt, Not Just Salary - Hourly.  Too many employers pay employees a salary and then believe that relieves them from any obligation to pay overtime.  Employees need to make sure those employees are properly classified as exempt (someone who is typically not paid overtime) or non-exempt (someone that is generally entitled to overtime).
• Take Complaints on Wage Issues Seriously.  You want to treat wage and hour complaints just as seriously as employment issues including harassment or discrimination.  In fact, these wage and hour lawsuits could be more costly to your business.
• Do Not Retaliate.  Never, never, never retaliate against someone that makes a complaint for wage and hour issues.
• Develop strong policies on pay practices and employee hours.  Make sure employees work those hours assigned and do not work off-the-clock.  Above all, properly document the number of hours worked because just like in baseball where a tie goes to the runner - if the employer has not documented the hours worked by the employee - the benefit of the doubt will go to the employee. 

The Department of Labor Web site is an excellent place for more information or please feel free to let me know if you desire more information on wage and hour reviews.

Update:  SMBTime blog had a great point in a follow up to this blog post regarding the fact that businesses should consider hiring an attorney to conduct the wage and hour audit so as the maintain the attorney-client privilege. 

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Last month I wrote on the rise of wage and hour litigation.  In that post I talked about how I believe wage and hour issues are often misunderstood by employers which often results in misclassification of workers or possibly "off-the-clock" allegations where workers are not properly credited for time worked. 

Yesterday, I heard the same sentiments from lawyers at the Iowa State Bar Association's Labor and Employment Law Seminar.  The plaintiffs' lawyers in the audience had a glint in their eye during the presentation on the Fair Labor Standards Act (FSLA). 

Why?

1. The FSLA is a plaintiffs friendly act.  It is truly the one law that favors the employee and consequently plaintiffs' lawyers.  Plaintiffs' lawyers are usually able to tell whether a lawsuit has merit very early in the process.   Further, class actions are often conditionally certified without having to meet the typical standards for class action certification.
2. Companies often make mistakes.  Wal-Mart, Merrill-Lynch,  Starbucks, Citigroup and the list goes on and on.  These companies have access to herds of the brightest and best lawyers.  Yet, many successful lawsuits have been filed against these and other companies for wage and hour claims.  What about all those smaller businesses out there?  Let's just say I have my doubts these smaller businesses are doing it any better.
3. The dollars at risk are HUGE!  $172 million, 78 million, 98 million, 87 million.  Even smaller businesses potentially face risks in the hundreds of thousands.   Willful violations are not uncommon which double the damages and attorney's fees are generally awarded to the winning plaintiffs.

How can businesses avoid wage and hour claims?  Stay tuned for the next post . . .

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So who's more likely to land you in court: 

Customers or Employees?

I would love to hear your thoughts.  Please comment below. 

Photo of Polk County Courthouse on flickr by turtlemoon.

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The Lance Armstrong Foundation has sued an Oklahoma pet collar manufacturer for trademark infringement over the use of its Barkstrong and Purrstrong animal collars.  The pet collars are sold by Animal Charity Collar Group, a Tulsa for-profit operation that sells its tic and flea collar for $6.99, while a "support collar" costs $4.99. The Oklahoma company allegedly began distributing the collars after a July 2005 marketing pitch to Armstrong foundation officials was rejected outright.

It will be interesting to see how this turns out but I can't help but notice that just about every "dog" and his brother are wearing wristbands that mimick the Livestrong wrist bands.  Why get so hot over the collar?

Maybe Iowa intellectual property attorney Brett Trout could weigh in on this issue for us.

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Charlie Longbrief picked up the phone on a Friday afternoon.  He was accustomed to these late Friday afternoon calls.   People with problems always seemed to call at this time because they need peace of mind over the weekend.  It was his friend Joe Smith who worked as sales manager for Shake, Rattle & Roll, Inc. a local baby toy manufacturer. 

"Charlie I need help.  I have just been fired from my job," said Joe.

"Tell me about it," replied Charlie.

"Well, I didn't like working there anyway and I was looking for another job.  I think I found one with a competitor but unfortunately my employer caught wind of it and they fired me.  I have a non-compete but of course they can't enforce that against me because I was fired, right?" asked Joe.

"Unfortunately Joe that is not always the case.  In Iowa, non-competes may be enforced even in situations where the employee has been fired.  It may be a factor to consider but the fact you were fired rather than quit does not necessarily invalidate the non-compete," Charlie said.

Joe shot back, "But I was told by my cousin Frank that works down at the loading dock that one of his friends said they couldn't uphold a non-compete against me if I was fired."

"I know that is a common belief but I am sorry to inform you that is not always the case.  It always depends on the circumstances of the particular case.  Every case is different but just because you are fired does not mean they can't enforce the non-compete," said Charlie with a little more emphasis this time.   

Charlie continued, "As you know I mostly represent businesses and I recently wrote an article on Protecting Your Iowa Business With a Non-Compete.  Why don't you take a look at it.   It outlines some of the key issues in determining whether a non-compete is valid in Iowa.  From an employee perspective it is never a bad idea to look at the situation from the employer's perspective and vise versa.  Read the article and then let's talk."

"Thanks, Charlie.  Not what I wanted to hear but at least I have a better idea of where I stand.  I'll give you a call back Monday," said Joe. 

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New Iowa law blogger, Larry McLellan, posts on challenges for cause in jury selection on Sullivan & Ward's Iowa Law Blog.

Larry references a great article on Building the Foundation for Cause Challenges by jury consultant Harry Plotkin.  If you are a trial lawyer it is definitely worth the read.

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Over on the Iowa Law Blog I discussed the fact that the number of lawsuits is down this past year for U.S. businesses.  The statistics are based upon a study from the international law firm of Fulbright & Jaworski.  But you need to read a little deeper to find a more intriguing statistic:

The survey showed that companies based in the Midwest settled more often than those in other parts of the country.

One surprising statistic is that smaller companies were actually less willing to settle their cases than mid-cap or billion dollar firms.

But no surprise that Midwest companies are more willing to settle.  My experiences have been that most Midwest lawyers, particularly here in Iowa, will work hard to get cases resolved.  Perhaps that is another reason why Iowa is not considered a litigious state.

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First with Drew McLellan on marketing, and now with Shirley Poertner on leadership, the IowaBiz.com free breakfast series is off to a fast start.  Shirley spoke yesterday about accountability in the workplace.  A concept that is frequently missing in many organizations.

Shirley says we have fallen into a "blame" society. 

• If you spill hot coffee in your lap while driving . . . sue McDonald's.
• If you invest money in a high risk portfolio and lose . . sue your broker.
• If your accountant misses the "S" Election . . . blame the lawyer. (Shirley really didn't say this one I just needed to poke fun at Joe one more time). 

This notion of blaming others permeates the workplace.  "It's not my fault" becomes the rallying cry of employees and supervisors alike. 

So how do we hold others accountable in the workplace according to Shirley? 

1. Set clear expectations.  You may think you have set clear expectations but would your employees say the same thing?  You might be surprised by the answers.
2. Consider Both Motivation and Ability.  Your initial thought may be that your employees are lazy or just want to make your life miserable.  Have you thought about other factors that may be influencing behavior?  What about whether the employees have the skill and knowledge to complete the task?  Is there a bureaucracy in your organization preventing work from getting done?    
3. To Hold Others Accountable:  Skillfully Handle the Hazardous Half Minute. 

• Describe the gap.  Make a statement about what you expected and what occurred.  Ex.  You made a commitment to get the project done by Friday.  It's the following Wednesday and the project is not completed.
• End with a question.  What happened?
• Then listen.  What's going on?  Is it about motivation or ability or both?

These strategies for accountability in the workplace will not only provide you happier employees and greater productivity but it may also help you reduce workplace litigation.  Treating employees with respect and effective communication are two of the cornerstones on how to avoid lawsuits from employees. 

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Attorney Liz Overton has an excellent post on the need to carefully prepare job descriptions for small businesses over on Sullivan & Ward's Iowa Law Blog. 

I encourage you to check it out.

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It took us awhile but Sullivan & Ward's Iowa Law Blog is now live.  It was designed with the able assistance of LexBlog.  (The same company that designed and maintains this blog).

While Rush on Business tends to focus only on issues impacting Iowa businesses, we are taking a broader approach with the Iowa Law Blog to cover many different aspects of Iowa law.  I know many believe that a law blog (or any blog for that matter) should cover a niche topic.  However, I believe that a broader blog is better than no blog and it is frankly tough for a law firm of our size to have eight different niche blogs.  Besides the New Jersey Law Blog is a prime example of how a state law blog can achieve remarkable blogging success.

The Iowa Law Blog will focus on several legal areas including:

• Utility law (the core of the law firm's work for over 70 years);
• Business Law;
• Trust and Estates;
• Trial and Mediation;
• Employment Law;
• Regulatory Compliance;
• Family Law; and
• Real Estate

Similar to what Stark and Stark has done in New Jersey, we hope to keep businesses and individuals updated on legal and legislative developments in the Hawkeye State.  (Yes, you read that correctly despite the lack of wins and no offense).

We hope you find valuable information on the Iowa Law Blog and look forward to your comments.

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Shanti Atkins of the Compliance Training Blog has an interesting blog post about the crippling trend of wage and hour litigation.  The post references a recent BusinessWeek article discussing how plaintiffs' employment lawyers are "printing" money  with wage and hour cases.  One of the plaintiff's lawyers is quoted as saying,

"I can hit a company with a hundred sexual harassment lawsuits, and it will not inflict anywhere near the damage that [a wage and hour suit] will."

In my experience, wage and hour issues are often misunderstood by employers.  Employers tend to run into problems when they ignore overtime regulations.  If you have questions I suggest checking out this handy reference guide to the Fair Labor Standards Act (FLSA) and consulting your employment lawyer.  You might also consider a wage and hour review to avoid misclassification of employees.

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A federal court jury in New York says Isiah Thomas and the New York Knicks are liable for the sexual harassment of a former female executive.  The jury found the former employee was subjected to unwanted sexual advances and verbal insults.  A retaliation claim also was alleged.  While Isiah Thomas still maintains his innocence and vows an appeal,  the jury has spoken.  The Verdict:  the Knicks and its owner owe nearly $12 million in damages.  (Thomas escaped punitive damages but his employer was not so lucky).

Could the harassment lawsuit have been avoided?  

Employers have an obligation to prevent sexual and other forms of harassment in the workplace.  At times employees will screw up but an employer must be prepared.  Some ways to avoid harassment claims include the following:

• Have a written policy against harassment which should include an anti-retaliation provision for those employees who report harassment.
• Provide and communicate in writing multiple channels for your complaint procedure. Employees should be able to report harassment to more than one person within the company.  The complaint process should be clearly defined in your employment manual.
• Make sure you train supervisors each year and require supervisors to report harassing conduct.
• Once notified of harassing conduct - take immediate action to investigate fully.
• Do not retaliate against employees that make a complaint.
• Discipline or terminate the offender as appropriate.

Michael Moore of the Pennsylvania Employment Law Blog has a great post on this issue and the particular problems created by complaints by high level executives.

The executive absolutely cannot have any direct or indirect control over the investigation.  Claims involving the company's CEO may require HR to go directly to the board of directors to protect the company.  Obviously, such action puts HR in an impossible position, so consider using outside counsel to manage the situation.

It is never easy dealing with claims of this nature but do not sweep it under the rug just because a high level employee is involved.  The stakes are high and you must follow your written policies and take the complaints seriously.  Ignore the behavior or retaliate at your peril.

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Bloggers who hide their real identities may want to pay particular attention to a recent case.  A Texas judge has ordered the discovery of an anonymous blogger who posted alleged defamatory comments about a hospital located in Paris, Texas.  The ruling is likely to be appealed.

Anonymous users also posted comments on the blog which the hospital claims is confidential patient information.  The hospital claims that some of the commenters and perhaps the blog operator are current or former employees and the disclosure of such information violates HIPAA.

The Citizen Media Law Project does a nice job of framing the legal issue:

The primary question in cases seeking to uncover the identity of an anonymous defendant is how to balance the defendant's First Amendment protected interest in engaging in anonymous speech against the plaintiff's interest in pursuing a valid cause of action for the effects of nonprotected speech.

The post goes on to discuss the various standards used in determining whether an anonymous blogger's identify should be revealed.  Right now, this issue is not settled among the courts and different standards have been applied in various cases.  But one thing is clear.  If you are a modern day Lone Ranger or Zorro, you should not have the expectation that your anonymity gives you the right to say anything you wish about other people and organizations. 

Even in Delaware, which has applied the most stringent standard, a plaintiff is not required to fully prove its case before an identity is revealed.  And in the Texas case it doesn't appear any evidence was required before the plaintiff could learn the identity of the mysterious blogger. 

If you are concerned about material you are publishing it is probably best to seek the pre-publication advice of a media lawyer.   

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Mark Toth, Chief Legal Officer of Manpower, has a terrific employment law blog post any small business owner should read.  Toth's blog is creative and fun and his advice is right on the mark.  Follow his greatest hits and you are much more likely to stay out of trouble with your employees.

I particularly agree with Toth's Employment Law Golden Rule:

Treat all employees the way you would want to be treated — honestly, objectively, consistently and fairly on a timely basis.

See also my blog post on Seven Ways to Avoid Employee Lawsuits.  Toth and I have very similar thoughts on this subject.  My number 1:  Treat Employees with Respect.  Seems like a basic philosophy but it is amazing how many employers forget to treat their employees with respect.  Employees that are humilated or treated in a disrespectful way are much more likely to sue your company.

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Where should you incorporate your Iowa small business?  This question is asked a lot by many prospective small business owners.  The question used to be surprising but after seeing and hearing numerous advertisements for Delaware and Nevada corporations on the Internet and on satellite radio it is definitely a legitimate question.

Delaware has reputation and history on its side.  Delaware's Division of Corporations boasts that more than a half a million business entities make their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 60% of the Fortune 500.  Businesses, especially large ones, choose Delaware because of the state's business laws and respected Court of Chancery.  Most observers say it is because of Delaware's predictability. 

Nevada has recently exploded in popularity for many businesses.  This is due to Nevada's pro-business climate, low-tax mentality and the lack of an information sharing agreement with the IRS.

Delaware or Nevada may offer viable options for some companies but in general most Iowa small businesses are probably wise to incorporate in Iowa.  First, Iowa has very low fees when it comes to incorporating your business.  It is a $50.00 fee to file Articles of Incorporation for a domestic corporation in the state of Iowa.  Further, it only a $30.00 fee every two years for a biennial report if you file online.  These fees are extremely low compared to other states.

Second, you won't avoid Iowa taxes by incorporating your Iowa small business in Nevada or Delaware if you are doing business here in Iowa.  The tax and corporation laws of Iowa will require you to register your company and pay fees as a foreign corporation in Iowa and you will be required to pay Iowa state income taxes for any income earned.  (You also do not avoid federal income taxes by incorporating in Nevada despite the lack of an information sharing agreement with the IRS).

And the perceived court advantages in Delaware?  That might be fine for a large business that is actually going to litigate a case in Delaware but it is probably not cost effective for most Iowa small businesses to litigate their cases in Delaware.  Besides unless you have well-written forum selection clause in contracts your Iowa small business will likely end up in Iowa courts anyway.

If you have questions regarding where you should incoporate your Iowa small business be sure to contact a business attorney licensed in Iowa. 

Photo on flickr by rsgranne.

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Thanks to Kevin O'Keefe for the heads up on a lawsuit every blogger should know about.  A Texas minor is suing Virgin Mobile Australia for use of a Creative Commons photograph in a commerical ad campaign. 

The lawsuit alleges the use of the photograph by the company violated the minor's privacy rights.  The plaintiff's attorney says the company should have obtained consent from the parents of the minor before using the photograph in the ad campaign.  The photograph was posted on flickr.com by the minor's friend who is also a plaintiff claiming the Creative Commons failed "to adequately educate and warn him ... of the meaning of commercial use and the ramifications and effects of entering into a license allowing such use." 

This should serve as a wake up call for bloggers.  Many bloggers I know, including many of the IowaBiz authors, routinely upload photographs from the Creative Commons portion of flickr.  Have you thought about whether you were violating the privacy rights of somone in the pictures you upload?  Probably not.

Arguably it is much more likely a company using the photograph in a commerical ad campaign is going to get sued rather than your ordinary blogger.  In this case the company also had phrases with the photos that could have been interpreted as offensive to the minor such as "Dump Your Pen Friend" and the real kicker - "Free Text Virgin to Virgin". 

There is much discussion to be had on these issues including the blogs of Internet PR expert Shel Holtz and Stanford law professor Lawrence Lessig. 

The lesson is be careful when you upload photos, even Creative Commons photos, from any sites such as flickr.  As Holtz says:

. . . the social media community embrace and extoll the virtues of Creative Commons licenses, but this lawsuit seems to show that they are not a panacea. It’ll probably be up to the courts, ultimately, to decide who has rights to your image once it escapes into the social media space, with or without your knowledge or consent.

I also encourage you to check out the video of the plaintiff's attorney.  He makes a decent argument on behalf of his client.

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If you operate an online business or you are thinking of starting one I recommend you pick up a copy of Cyberlaw:  A Legal Arsenal For your Online Business.  Written by Iowa intellectual property attorney Brett Trout the book is new and updated with lots more content than his previous version. This book still has the helpful sample agreements and policies, but now covers new topics like document retention policies and social networking. Trout also offers easy how-to’s on avoiding legal pitfalls. The rich content and practical advice is bound to save you costly legal fees down the road.

The great thing about this book is that it is actually written for entrepreneurs - not lawyers.  You will appreciate the easy to understand language.  If you call Brett directly you might even be able to pick up an autographed copy from Iowa's toughest attorney. 

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Michael Moore of the Pennsylvania Employment Law Blog has an excellent post on the possibility of reverse discrimination when employers make decisions under the auspices of voluntary affirmative action plans, diversity programs, or even "risk management".  Michael says:

I am surprised by how many companies will select non-minority employees for layoff in a reduction in force or discipline believing that they have eliminated potential discrimination claims.   

His observation that our discrimination laws are written to prohibit employment decisions based on factors such as race, gender, age, religion, disability, etc. is often forgotten.  Employers must carefully follow the laws and regulations if they intend to implement an affirmative action or diversity program. 

FYI:  Michael's blog was recently named # 3 in the HR Blog Power Rankings by the HR Capitalist.  A ranking well deserved in my opinion.

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Charlie Longbrief, attorney at law, had just turned off his computer late on a Friday afternoon when the phone rang.  It was Pete Geek who owned a local computer consulting service.

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

"Tell me about it," Charlie said.

"Well, I had to fire one of my sales people earlier this week.  The termination seemed to go fine but he hasn't returned his company laptop or cell phone.  I want to deduct the value of those items from his last paycheck or at least withhold his last paycheck until he brings those things back to me."  Pete responded.

"Do you have any type of written agreement with him regarding the return of the equipment?" Charlie asked.

"No, I don't," said Pete.

Charlie advised, "I know it is frustrating but Chapter 91A.5 of the Iowa Code won't allow you withhold the check or deduct the value in this situation unless you have written agreement with the employee where the equipment has been specifically assigned to the employee, and acknowledged in writing by the employee.  Also the written agreement should authorize you to deduct the value of the equipment from the last paycheck if not returned.  If you violate the law you could be forced to pay the employee's attorney's fees, liquidated damages and any court costs plus the wages you owe him.  You definitely have the right to your equipment but you can't get it that way."

"I am glad I asked.  By the way, maybe you could prepare an agreement for my employees to sign authorizing me to deduct the value of the equipment from wages if the equipment is not returned,"  Pete asked.

"You bet.  By the way, you may want to check out a blog post from Jill Pugh on 10 Things to Keep in Mind When You Fire an Employee.  It's also a good idea to review the provisions of Iowa's Wage Payment Collection Act."

"Thanks a lot, Charlie.  I am glad I called."

Photo on Flickr by cutesmallfuzzy.

* This is a hypothetical.  Be sure to seek the advice of an employment attorney for advice in your specific situation.

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Iowa patent and intellectual property attorney Brett Trout posted yesterday on the recent ruling from a federal judge that struck down a key part of the Patriot Act.  Brett refers to an article from the Associated Press.

It is important to note the judge immediately stayed his ruling so the government could appeal.  I will follow this case as it moves forward and provide updates.  This is a critical issue for Internet Service Providers.

A nice overview of the ruling and its potential impact is found on Concurring Opinions.

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Thanks to Nina Kaufman for quoting my post  "Employees v. Independent Contractors" on the Entrepreneur.com Blog Network.  Nina's blog on the network is "Making It Legal:  The small business mentor's guide to entrepreneurship and law."  Her advice on the employee v. independent contractor issue is excellent:

This is not an area to play fast and loose with the law. It’s like gambling in Vegas; the house is stacked against you. As confident as you think you may be about the situation, it’s wise to confirm your choice with an employment or other business attorney.

Another blog post worth mentioning on the subject is from David Willis on his Texas Small Business Law Blog.  David is right on track with his warning to small business owners:

The bottom line is that an SBO cannot simply say that a particular worker is an independent contractor and expect that decision to have legal effect. The consequences for failing to properly determine the relationship between the SBO and worker can be quite serious, resulting in legal liability to third parties, insurance issues, and penalties for unpaid employment taxes. For these reasons, it is critical that an SBO seek help from a professional when defining the nature of an employment relationship is important to the SBO’s business.

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It's been a long time since I have written about the Microsoft-Iowa case but the hearing for final approval of the $179.95 million settlement is this Friday, August 31.  The settlement received preliminary approval from Judge Rosenberg back in April and I anticipate the judge will grant final approval of the settlement.

Class members are entitled to receive $16 for each copy of Windows or MS-DOS they purchased; $25 for each copy of Microsoft Excel; $29 for each copy of Microsoft Office; and $10 for each copy of Microsoft Word, Works and Home Essential software. Consumers do not need proof of purchase to be reimbursed for up to $200.

Microsoft will provide one-half of the difference between $179.95 million and the unclaimed cash and vouchers to Iowa public schools in the form of vouchers that may be used by the schools to purchase a broad range of hardware products, Microsoft and non-Microsoft software, and professional development services.

One of the more interesting aspects of the settlement is that claims from consumers are trickling in very slowly.  As of August 1, 2007, the AP reported that only a little more than 55,000 Iowans have filed claims.  Class members are able to claim $200.00 without a receipt.  It is likely that most of the claims are far below $200 but even if the 55,000 Iowans claimed an average of $200 that  means the total payout for the class members is approximately $11 million at this point.  Probably not too surprising because I think most people have a hard time working up any outrage over Microsoft's actions.  

The plaintiffs lawyers, on the other hand, have requested $75 million in legal fees and expenses for the case.  Initially Microsoft objected to the amount of the fees when Conlin requested more than $75 million but it is my understanding there will be no objections because Conlin has agreed to reduce her claim to no more than $75 million.  (What would Brett Rogers say about this?)  The judge will decide how much is awarded in fees. 

For details on how to file a claim please go to www.iowamicrosoftcase.com.  You must file your claim by December 14, 2007 or within thirty (30) days after the court grants final approval on the settlement, whichever is later.  

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Iowa intellectual property lawyer Brett Trout has a terrific post on IowaBiz illustrating why it is dangerous to steal online contracts.  Brett says,

I have seen companies steal terms of use agreements and privacy policies from websites that have nothing to do with their line of business. Not even taking the time to read the contracts, they unwittingly leave in the original company's name, address and preferred jurisdiction. An Iowa company looks pretty awkward explaining to a court why their contract dispute should be tried in Albuquerque.

Terms in contracts are construed against the drafter. If you leave in an ambiguity, the court will read it in favor of the people suing you. That is why lawyers take such care in customizing contracts to your business and its goals.

Sometimes it is almost laughable how many companies copy the terms of use and other online policies of major Web sites.  In doing some research for an online auction company I noticed several of the companies I researched had the same online policies.  Was it just coincidence the policies were strikingly similar to eBay?  Well, I guess if it ain't broke . . .

Even if you use standard terms of use policies and other online policies you will need some customization for your particular business needs.  Discuss with your lawyer whether he or she has standards forms that can be customized for your business.  Most eCommerce lawyers have such forms.  But it is a good practice to avoid directly copying the terms of use and other online policies of other companies.

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Many businesses make the mistake of treating employees as an independent contractors so they can save money on taxes, red tape and benefit coverage.  The risks associated with this approach is often not worth it.

Businesses that misclassify workers often find themselves embroiled in wage and hour lawsuits or workforce development audits.  These businesses could also face tax penalities and lack of insurance coverage in key liability situations.

Often, businesses treat employees as independent contractors because they fail to fully understand the distinction between the two categories.  The most important difference is whether or not you have the right to control the work.  Other factors, such as where the work is performed, who provides the equipment, how payment is made and if there are set hours, also play an important role.

Generally, an employee is someone whose manner of work the employer has a right to control, even if the employer does not actually exercise that control.  True employees are sometimes known as W-2 employees because of the W-2 form issued to them for federal income tax purposes. 

On the other hand, an independent contractor is someone you engage to perform a certain task, but whose manner of work you do not have the right to control.  You have the right to tell your independent contractor what it is you want done, and you remain free to dismiss them if you do not like the work (depending on your contractual arrangement).  Ultimately though it is the results you are interested in.  The manner in which the results are accomplished is up to the independent contractor and is not subject to your control.  An independent contractor is given a 1099 form to report income for federal tax purposes.

If you have questions about whether to treat workers as employees or independent contractors be sure to consult with an employment or tax lawyer.  This area of the law is more complicated than just the control issue.  Tax lawyer Tripp Atkins is currently analyzing the 20-factor IRS test for determining an employee or independent contractor on his blog.

The safest course is to treat workers as employees if the workers' status as an independent contractor could reasonably be questioned.   

Photo on Flickr by Partsnpieces.   

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Want some great business advice?  Looking for something interesting?  Try out these posts:

Matt Gardner has an interesting post on his Wealth and Estate Planning blog about the "pot of gold" Iowa landowners are sitting on because of the renewable energy craze and why they should review their estate plan.  (Sounds like Iowa farmers have something in common with today's hip-hop stars  - both ignore estate planning). 

Michael Moore (this one's no sicko) talks about what not to do when it comes to employment record retention / destruction policies on his Pennsylvania Employment Law Blog.  Michael has written some great material on this subject and has some terrific comments on this blog as well. 

Roy F. Harmon III addresses record retention for ERISA Plan administrators on his Health Plan Law blog.

Carl Lingren shares key interviewing tips for employers on his Employer Ease blog.

Brett Trout says technology lawyers are so hot but have you seen this guy's face lately.  (Trust me, there is a story there).

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Eric Swenson of Managing People in the 21st Century discusses how small businesses will sometimes "borrow" and "modify" another company's employee handbook in an effort to save money.  Swenson's post illustrates why this is a bad idea. 

In one instance, a small company not required to offer FMLA benefits under the law was required to do so because of misstatements in their employee handbook.  The article from the Sedgwick Law Firm in California refers to an Iowa Federal Court decision by Judge Bennett in Myers v. Tursso Company, Inc.   Judge Bennett held it is possible that an employer with fewer than 50 employees within a 75 mile radius, could still find themselves "required" to grant FMLA leave, based on their conduct, even though not technically within the coverage of the statute. 

For more check out the article by Michael Fox on Jottings by an Employment Lawyer.

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I am excited to announce that the Sullivan & Ward law firm will publish its Iowa Law Blog beginning in mid to late August.  The firm's law blog will cover general legal issues inlcuding the following areas of law:

• Utility and electric cooperative law;
• Business law;
• Trusts and estates;
• Family law;
• Real Estate law;
• Trial & mediation; and
• Regulatory compliance.

It will be a group effort by the lawyers at Sullivan & Ward.  Our friends at Lexblog are developing the blog.  Kevin and his staff have been great to work with.  I'll let you know when it hits the blogosphere. 

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Michael Moore has an informative post on Developing a Record Retention Policy on his Pennsylvania Employment Law Blog.  Michael raises a particularly insightful issue:

Anticipate the arguments that may be made and inferences that could be drawn from the destruction of certain documents and weigh it against the expense of retaining and producing the documents.

In a comment left on my Document Retention and Electronic Discovery post Michael pointed out that businesses need to carefully consider how the destruction of records pursuant to a policy might play to a jury.  Often it may be important for a business to retain the information rather than destroy it.  He warns,

The employer that destroys old e-mails "pursuant to its record retention policy" is left with the inference that the e-mail may have existed and, even worse, it was destroyed in order to keep the truth from coming out. 

I agree that you must carefully consider these policies.  That is why it is so important to assemble a team in order to develop a sound document retention policy.  I would caution businesses to avoid pulling a form, changing the names and feel like you are covered when it comes to record retention.  You should take into account the various ways your organization stores information and be sure to get the IT staff involved in the process.  This will help you determine whether it is beneficial and practical to keep or destroy certain information.   But whatever happens, do not forget to implement a litigation hold in the event of a dispute.

Part of the trial lawyer's job in business cases is explaining to the jury how a document retention policy works, why it was implemented and the methods by which the business consistently follows it policy.  Developing trust can help alleviate the thoughts about businesses just wanting to keep the truth from coming out. 

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Yesterday I had an interesting discussion with one of my buddies.  He is an executive with a Fortune 500 company out-of-state and he was expressing his frustration with lawyers - actually his own lawyers.  He just got off the phone with one of his outside counsel when I called.  After talking with him for less than 30 seconds I could tell the last person he wanted to talk with was another lawyer. 

Although not word for word his frustrations could be summed up in a post from Dan Hull called the 7 Habits of Highly Useless Corporate Lawyers.   This post is right on the mark and should be required reading for every corporate lawyer in America.  The biggest frustration?  No. 3 - Taking a stand.  Nothing seems to frustrate business people more than a lawyer who comes down squarely on both sides of the issue. 

The cure:  try listening to your clients.  You might be surprised what you learn. 

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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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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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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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On the Texas Small Business Law Blog there is an helpful post on the common mistakes made by small business owners.  The common mistakes listed by business attorney David Willis include:

1) Under-capitalization.
2) Failure to plan and adjust for growth.
3) Over-emphasis on the type of business organization.
4) Failure to understand the impact of an employee.
5) Failure to understand the impact of employees.
6) Not having an employee manual.
7) Thinking: "I've got some experience, I can do this myself."
8) Not keeping up with the paperwork.
9) Failure to plan for litigation.
10) Not having an electronic document retention policy in place.
11) Failure to consult an attorney.

David is following up with more detailed posts about each mistake.  The one that caught my eye was No. 3 - over-emphasis on the type of business organization.  David warns that small business owners should not consider themselves invincible just because they have formed a business entity.  The small business owner must operate the business as a distinct entity. 

In the past I have written about some of the exceptions to limited liability.  The best way to maintain limited liability with your corporation or LLC is to is to make sure you keep your personal guarantees to a minimum, pay applicable taxes and keep all business dealings separate from your personal accounts.  Managing your small business corporate goverance (i.e. regular meetings of shareholders and directors with minutes documenting the meetings) is also critical.

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Many business owners I talk with are reluctant to enter into a non-compete with their employees.  These business owners are afraid an employee won't sign or a confrontation will occur.  Some just don't believe they should keep the employee from finding a job - even if it is to the employer's detriment.

But to avoid disruptions to your business or losing customer relationships you should consider non-compete agreements in certain situations.  This is especially true if the employee has a close relationship with the customer and could easily take the customer if the employee leave your employ.

The best time to secure a non-compete agreement is when you hire the employee although continued employment may be sufficient consideration to bind even current employees.  Iowa courts have developed a three-part test to determine whether a non-compete agreement is enforceable:

1.  Is it necessary for the protection of the employer's business?

Factors to consider:  Does the employee have a great deal of personal contact with customers?  Is the employee in a position to lure customers away?  Have you spent significant time and money training the employee?

2. Is the non-compete unreasonably restrictive of the employee's rights? 

Factors to consider:  Is the non-compete limited in time?  The most common time restrictions are 1-3 years.  Courts tend to favor shorter time restrictions.  (This will always depend on the cirmcumstances of the particular case).

Is the non-compete limited in geographic scope?  For a local business, a 50-mile limit may be reasonable while a regional business may use a scope spread out over several states.  It depends on the market area of the particular business.  Because of the Internet and other technologies, geographic limits are becoming a less effective way to control competition from former employees.  Businesses must carefully consider how to be reasonable and still control competition in the global marketplace.

3. Is the non-compete prejudical to the public interest? 

Factors to consider:  Does the particular non-compete harm the general public?  This part of the test has rarely been used to invalidate non-competes in Iowa.  For example, non-competes in Iowa have been upheld against doctors and dentists where you might expect that limiting access to health care could harm the general public.

Finally, Iowa has adopted a "partial enforcement" doctrine permitting a court to uphold a non-compete agreement to the extent it is reasonable and allowing the Court to modify terms if necessary.  For example, a court may reduce a time restriction from 3 years to 1 year if the judge finds that is appropriate.  Or, a judge could change a geographic restriction from the entire state of Iowa to a 100-mile radius of the business.  This is different from an all or nothing approach where a judge might declare the entire non-compete agreement invalid if just one of the terms is found unreasonable.  When litigating non-compete agreements in Iowa the parties must consider whether the agreement may be partially enforced.   

If you are one of those who is not comfortable with a non-compete agreement for your employees I would strongly encourage you to have at least confidentiality and non-solicitation agreements.  These agreements generally provide protection for your business without restricting the employee's ability to work elsewhere.  If a departing employee attempts to take clients or other employees with them you will be glad you had those agreements in place.

*Remember there are several pitfalls relating to these agreements if not written correctly so be sure to contact your employment or business lawyer to review and/or draft such agreements.  For more information read this interesting article on The Power of the Noncompete Clause through the Harvard Business School.

Photo on Flickr by D.F. Shapinsky (pingnews)

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A dry cleaner has finally been vindicated in court by winning a defense verdict against the administrative law judge who originally filed a claim against them for $67 million.

Thanks to the WSJ Law Blog for a link to the opinion and judgment.  For those interested, the award of costs to the defendant does not include an award that plaintiff must pay for defendant's attorney's fees at this point.  There is a pending motion for sanctions concerning the attorney's fees issue so we must wait to see whether the judge awards fees to the defendant.  (Read the end of the 23-page opinion for details).

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Michael Libbie had a great post on the recent 2007 Iowa Employment Values Study showing that more than anything workers want R-E-S-P-E-C-T.  Being respected in the workplace is the value Iowa workers feel is most important. 

But what if more employers were like Tony Dungy?  A post from TechRepublic says it very well,

"Dungy is one of the exceptions, and is part of a new breed of coaches who do things differently. He's not a yeller and he does not lead or motivate with fear. Instead, he believes in putting the right personnel in place, building a winning strategy based on the strengths of that personnel, and then treating them with the respect they deserve as professionals and human beings. As a result, the performance of his players is not driven by a fear of his wrath. The only fear they have is a fear of letting him down or disappointing him because of their trust in him and their loyalty to him."

Studies have shown that how well-respected employees feel is directly related to how enthusiastic they are about their overall employment situations.  Employees who feel well-respected are several times more likely to stay in their jobs.  Interestingly, one study says the main reason employees don't feel respect is not related to abusive management behavior as much as it is indifference or the failure of management to go out of its way to demonstrate respect to employees.

For the record, just check out my Number 1 out of 7 Ways to Avoid Employee Lawsuits written several months in advance of the Iowa Employment Values Study.  As I said then, it seems like a basic philosophy but it is amazing how many employers forget to treat their employees with respect.  Employees that are humilated or treated in a disrespectful way are much more likely to sue your company. 

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The Tennesse Business Litigation Blog has a post discussing the use of an ombudsman in business to prevent lawsuits.

"The ombudsman position can be a very effective tool which provides an outlet for disgruntled employees to air disputes and reinstate respect in the workplace. A large percentage of litigation, including employment litigation, is spawned from misunderstanding. Imagine how much money a business can save by having an experienced neutral person review and assess a dispute before lawyers become involved. An ombudsman can also educate managers about dealing with workplace conflict and identify certain weaknesses in specific managers relating to interpersonal dealings that can be valuable come evaluation time."

Sullivan & Ward lawyer Larry McLellan is likewise a huge proponent of an ombudsman in a business.  Larry, who frequently serves as a mediator and has a master's in law degree in dispute resolution, has studied how businesses can reduce their legal costs through the use of an intermediary in the workplace.  Naturally it tends to be large businesses that use ombudsman programs but small businesses should also consider it.   Larry is always available to discuss with businesses and industry groups how they can reduce their legal costs by incorporting effective dispute resolution strategies in the workplace. 

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A few days ago Brian Honnold had an excellent post about the fear of lawsuits by America's small businesses over on IowaBiz.com.  The most alarming statistic?  Small businesses bear 69% of the total cost of the tort system to all U.S. businesses.  That's $98 billion a year in costs.  Further, six in ten small business owners feel constrained when making business decisions because of the fear of lawsuits.

So what's the solution?

Many call for legal reform.  That's what the Institute for Legal Reform is all about. But is it really working?  Despite millions of dollars poured into extensive campaigns, it is apparent our nation's small businesses do not feel any safer.

Should we kill all the lawyers?  Wait . . . I shouldn't have said that.  I am a lawyer.

The best protection for small businesses is to build a solid foundation.  A house of bricks rather than one of straw or sticks.  As Brian discussed, insurance is a component in building that solid foundation but other protections are necessary.

Here are five suggestions on how to protect yourself from lawsuits:

1. Use written agreements.  Unfortunately the day is over when you could rely on a handshake.  Make sure that your agreements are comprehensive.  The agreements should always set forth the rights and responsibilities of the parties in detail.  It is a good idea to have your written agreements drafted and/or reviewed by a business attorney.
2. Have a comprehensive employee manual.  Employee lawsuits are on the rise and a major distraction for your business.  A written employee handbook affords you a better opportunity to avoid misunderstandings that can lead to litigation.  Disputes are are less likely to occur when your employees know the rules.  Keep in mind that a well-written employee handbook can help your business but a poorly written handbook can cause even more problems for your business.  Don't pull a template from the Internet without consulting an employment lawyer.
3. Maintain your corporate or other limited liability structure.  Make sure to keep your personal guarantees to a minimum, stay current with corporate records, pay your applicable taxes and do not mix your personal assets with your business assets.
4. Protect your intellectual property.  Consider obtaining trademarks, copyrights and patents as applicable.  Consult an intellectual property lawyer in order to protect yourself against infringers.  Likewise, avoid infringing someone else's intellectual property.  Before deciding on a business or product name you should check to see if the name is trademarked by someone else.  Similarly, be careful not to steal copyrighted materials for your own use.
5. Consider alternative dispute resolution.  Mediation is often an efficient way to resolve business disputes.  It is a process in which the parties to a dispute, with the assistance of a neutral third party (the mediator), identify disputed issues, develop options, consider alternatives and work to reach an agreement. There is a time to go to court but consider the costs of the litigation before making that decision.  Approach the decision of whether to litigate in a business-like-manner rather than emotionally.

Be proactive.  Don't wait for the wolf to knock on your door before you protect yourself.

P.S. I wrote this post originally for IowaBiz.com.  The blog sponsor, Professional Solutions Insurance Services, and its parent company, NCMIC, had a nice write up in the Des Moines Business Record this week. 

Photo by Laenulfean on Flickr.

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On her Employee Handbooks Blog Jill Pugh discusses 10 things to keep in mind if you need to fire an employee.

A no-no I see the most on the list is the desire to withhold money from the employee's last paycheck.  (See No. 5). 

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The lawyers at Stark & Stark continue to produce helpful information on their law blog for clients and lawyers alike.  The latest article worth reading is from Stuart Mickleberg the Buy-Sell Agreements in Closely Held Business.  Stuart says a good Buy-Sell Agreement should accomplish at least four important objectives:

1. Providing mechanism for the orderly transfer of the business;
2. Establishing a valuation mechanism which avoids disputes between owners as well as possible disputes with the Internal Revenue Service;
3. Reducing possible disputes between owners, an owner's heirs, and possible unwanted business partners to whom an ownership interest in the company may otherwise be transferred; and
4. Providing financial security to a deceased or disabled owner's family.

As I have indicated in the past, the formation of an Iowa business should include a Buy-Sell Agreement.  Unfortunately it is an agreement that is often neglected by business people because they want to save on initial start-up costs.  As my friend Imke Ratschko says, "Buy-Sell Agreements are like prenuptial agreements for people in business... As with prenuptial agreements, people tend to overlook their importance or simply don't want to deal with the subject; after all, they are in love!"

But the time to enter into a buy-sell agreement is at the beginning of the business relationship when everyone is excited and getting along. It is often very difficult to negotiate a deal when something has gone wrong.  Without a buy-sell agreement, owners may end up in court and the business may suffer.

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Penny J. Ummstattd-Cope of the Joplin, MO Business Blog points out that today's women need to be just as concerned about protecting their assets as men.  Penny says:

Women should start thinking about protecting their assets before they get married or even enter into a living arrangement with a man.  Why?  More and more women are seeing an increase in their income due to owning their own business, working their way up the corporate ladder, etc.  In many cases the woman's income will be more than the man.  Women need to start thinking about protecting their assets just like the men have always done.

It is sound advice from Penny.  I am seeing more and more women starting businesses than ever before.  It is also my impression that more women are becoming professionals such as lawyers, doctors, pharmacists, and accountants than ever before.  These women definitely need to consider asset protection.

Penny's post on Prenups for Women has lots of good information.  Be sure to check it out.

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On the Apprentice Donald Trump always says with such gusto, "You're fired!"  The board room discussion usually focuses on what went wrong and the faults of the candidate.

But is it more important to organizational success to know how to fire or how not to fire?  If a problem arises with an employee do you always focus on what went wrong?  Or instead, do you focus on how changing behaviors and performance could have a positive impact on the organization and the employee?

Inc.com has a series of slides on the Dos and Don't of firing and an article with tips on how to fire employees. Chris Musselwhite, a consultant and columnist with Inc. says:

Despite the discomforts, dismissing an employee can be one of the most important tasks of leadership you'll face. It can be an opportunity to strengthen or build a culture of respect, accountability and trust--especially in an entrepreneurial environment--or it can foster a culture of fear and secrecy at all levels. Other employees are watching, and how you deal with the problem will set standards or norms in the organization. You are shaping your organization's culture whether you take action or ignore the problem. The real question is, what do you want your organization's norms related to competent performance to be?   

Musselwhite cites the three most common mistakes leaders make with a potential firing:

• To treat it as a legalistic, mechanical problem. If you only are worried about having filed the right paperwork and getting through it without having to call the security guards, you've probably been thinking of it as a chance to get rid of a thorn in your side, instead of thinking about the best way to solve the problem for everyone's benefit.
• To wait until a crisis occurs before taking action. If you can address the problem early, before frustration and resentment are high, the chances for success are exponentially greater.
• To make decisions based on emotions rather than facts. We can't fire people based on personality clashes or annoying behaviors. It's got to be about the impact on the organization, accountability and getting the job done. When the decision is fact-based, you remove many of the emotional stressors that arise when sitting down to consider your options.

I agree with Musselwhite that dismissal should be the last step in a postive process for your organization, leader or employee.  Be sure to set out clear performance expectations for employees and provide them with training, mentoring and other opportunities for success.  If it doesn't work after attempting this approach you are more likely to avoid litigation if you end up firing the employee.

Thanks to Mike Colwell of the Des Moines Partnership's new business accelerator for pointing out the articles.

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I recommend employers listen to a podcast from Jason Storipan of Stark & Stark concerning Attendance Control Issues for employees.  Please remember that laws do vary from state to state but much of the information given in Jason's podcast is applicable to all employers even if you are not located in New Jersey.

If you are developing policies and procedures to deal with employee attendance issues be sure to contact your employment lawyer and keep in mind two important ideals:  Fairness and Consistency.

If you treat people fairly and in a consistent manner your liability risks from an employee lawsuit decrease dramatically.  May seem like common sense but as George Will said, "This is an age in which one cannot find common sense without a search warrant." 

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Iowa Governor Chet Culver signed a bill today expanding housing and civil rights protections to the LGBT community.  In signing the bill Governor Culver said,

"It is unacceptable that members of the LGBT community are denied the same protections as every other Iowan, and that is why I made a promise to do whatever necessary to grant these individuals the rights they deserve. I am happy to say that today, we keep this promise. This legislation will guarantee that no individual, regardless of race, age, gender, sexual orientation, or gender identity, is denied the protections of state government."

If you are an Iowa employer be sure to talk with your employment lawyer concerning your employee handbooks and anti-discrimination policies.  It is important to review your handbooks to make sure your anti-discrimination policies now cover sexual orientation and gender identity.  Failing to include such provisions in your policies could result in increased liability.

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Many employers today are conducting do-it-yourself background checks by surfing search engines and other social network sites such as Faceboook and MySpace.  I have discussed the risks and liabilities of utilizing such background checks in the past.

Another reason to be careful before using search engines or social network sites is "cyber slamming".  It occurs when defamatory statements are made about individuals on the Internet.  The Internet is full of sites and chat rooms where anyone can make postings.  Some of these may be anonymous comments that are not reliable.

Recently I was contacted by a prospective client who complained someone was writing defamatory and damaging comments about them on the Internet.  While a lawsuit is a consideration another option may be a service from ReputationDefender which attempts to remove such harmful comments for a fee and also provides monitoring services for clients.

I also suggest you follow this tip from Susan Cartier Liebel:

The same way  you check your credit report on an annual basis, Google your name and your company's name on a weekly basis to see if there is any information circulating that you find is potentially threatening to you.  You must stay proactive and aggresively stamp out any malicious virus threatening to infect and destroy your good name on the internet.   

Like so many things from a legal prospective, protecting your reputation on the Internet requires you to be proactive.

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Most small businesses will enter into a contract or business deal from time to time.  Some agreements may be simple while others may require the skills of a contract or business attorney.  In either case, you will want to feel comfortable that you have negotiated your best deal possible.  The following are five basic suggestions for negotiating the best terms for your next business contract:

1. Set out your goals before you start.  The process of writing down your goals in the negotiation helps you clarify what you intend to do, understand the importance of significant issues, and commit yourself to making it happen.
2. Do your homework.  You should know the law, relevant facts and figures.
3. Decide what you really need and what areas are "throw aways".  Be prepared to trade something to get something important to you. 
4. Build trust and listen to the other party.  A recent post from Brett Rogers sets out the importance of listening.  You learn far more in a negotiation from listening than you do from talking.
5. Manage your emotions.  Resolutions rarely occur when parties lose their temper or become irrational.   

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Earlier this week Larry McLellan and I spoke to a group of clients concerning employment law.  Larry gave a fascinating talk on conflict in the workplace.  I took two main things away from Larry's talk.  First, not all conflict is negative.  There can be constructive conflict in the workplace.  Second, people who have good conflict management skills spend less time dealing with unproductive conflict.  Employees who are trained in conflict management can manage conflict so that it creates positive results instead of tension and stress.  And this is important because unproductive conflict in the workplace often leads to litigation.

Well, a cure for workplace conflict may just be a new book written by Timothy Johnson called GUST - The "Tale" Wind of Office Politics.  Like Larry suggests, Timothy shows us that office politics are not necessarily negative.  The key, however, is identifying the strategies to deal with the various office politicians including the Snake, Ostrich and Bear.  What are those strategies?  Well, I strongly suggest you buy the book.  It is a business fable and a quick read.  I know it can help you develop skills to spend less time dealing with unproductive conflict in the workplace and to create positive results.  It is available on Amazon.com. 

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Every blogger should take a look at the post "12 Important U.S. Laws Every Blogger Should Know" on the Directory Aviva.  (Thanks to Liz Strauss for pointing out her "Great Find").  Overall, it is an excellent post and I wish the author was disclosed.  I particularly like the "How to Stay Out of Trouble" section of each post.  However, I have a few comments about No. 10 - Limited Liability Laws and Incorporating since that is one of my main areas of legal practice.

Here's how the post says to stay out of trouble and my comments about each:

1.  Never mix your company funds and your personal funds if you want to preserve your limited liability protection. 

My response:  So true.  Business owners always need to make sure to keep their company funds and personal funds separate.  It is important to set up a company bank account and do not pay your personal bills and other personal expenses directly from your company account.  And you also need to watch personal guarantees which are often required of new business owners for loans and other expenditures.  You also should use your LLC or corporate name on all documentation and sign any documents using your name and title, i.e. "John Smith, Member or John Smith, President".  This helps make it clear you are acting in a company capacity as opposed to an individual capacity.  Also if you form an LLC or corporation for an existing business be sure to assign any contracts to the new business entity.  You will also want to follow your state corporate or LLC formalities along with drafting minutes of director, shareholder or member meetings.  Articles of interest on this site may include:

• How to Maintain Corporate Status and Maintain Limited Liability;
• Corporate Minutes Help Maintain Limited Liability Shield;
• Exceptions to Limited Liability for Corporations and Limited Liability Companies.

2. Always form an LLC rather than a corporation (Inc.) unless there are very specific reasons which apply to your unique case.

My response:  Small businesses may indeed benefit from forming an LLC because in general that form of business entity may have less formalties than the corporate form of business.  But it is important to realize that each business person may have different circumstances and therefore one entity may be better than the other for that individual.  I believe it is a bit of an overstatement to say that the formation of an LLC is the way to go for almost every single blogger.  In many instances, the S corporation form of business may be a better way to go.  Further, the decision does vary greatly on state laws.  Some states may not even allow single member LLCs.  Getting the advice of a small business lawyer and accountant is key in making the decision on which entity to form.  Articles of interest on this site may include:

• Limited Liability Company (LLC) Formation in Iowa;
• Small Business Incorporation in Iowa;
• Sole Owner:  What type of business entity should I form?

3.  Consider the state you form your LLC in determines the law and to some degree the state taxes that apply to your company.  The vast majority of LLC's are formed in Delaware or Nevada because of the strong legal entity caselaw in those states which tends to favor companies over individuals in lawsuits, but at a minimum creates a set of clear laws for companies to use if something goes wrong.

My response:  Many Iowa entrepreneurs have asked me where they should incorporate or form their LLC.  The question used to surprise me but given the number of advertisements on the Internet touting Delaware and Nevada corporations and LLCs, it is no longer a surprising question.  But in general, most small businesses will likely want to incorporate or form an LLC in their home state for a variety of reasons including convenience and cost savings.  Articles of interest on this site include:

• Where should you incorporate your Iowa small business?
• Iowa Ranks 4th in Judicial Fairness;
• Iowa is Not a Litigious State.

Overall, I believe the Directoy Aviva post is helpful but I do recommend you get the advice of a business lawyer and accountant before you make a decision on which type of business entity to form and where to form it.  The article warned about the application of unique circumstances and those just might apply to you.  It is best to be fully informed before you move ahead.   

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In October of 2006 I posted about an Iowa Association of Business and Industry survey regarding how Iowa business leaders perceived the legal climate in Iowa.  The survey stated that many business leaders are dissatisfied with Iowa's legal climate and believe it is costing the state jobs because of competition with other states.

That survey seemed to contradict the U.S. Chamber of Commerce survey which said Iowa ranks fourth in the country for judicial fairness.  Iowa has ranked in the top five for each of the last four years. 

So, which is it?  Well, we may have the answer.  Jim Carney, Legislative Counsel for the Iowa State Bar Association, says that Iowa's civil trials are on a downward trend.  In the latest addition of the Iowa Lawyer Carney pointed out that there has been a 17.5 percent reduction over the last five years in civil jury trials relating to tort law.  Moreover, the number of civil jury trials in Iowa continues on a downward trend.  There were a total of 262 civil jury trial in the entire state during 2006.  But even more important Carney says is the fact there has been a 44 percent decline in the total number of jury trials (civil and criminal) from 1994 to 2006.  In 2006, 37 counties in Iowa reported no civil jury trials while 21 counties reported one civil jury trial, 18 counties reported two and 7 counties reported three civil jury trials.  All in all, an astonishing 83 counties reported three or less civil jury trials.

Why the downward trend?  One of the major reasons for the decrease in civil jury trials is the increased use of mediation as an alternative to taking cases to court.  Overall, my experience with business clients leads me to believe that Iowa's judicial system is just as good as any state.  There are always ways to improve our Iowa's business climate but it just doesn't appear the facts support the notion that Iowa's legal system is a problem.   

*This was originally written by me for IowaBiz.com.

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Brett Rogers of Beat Canvas had an angry post entitled "What is Wrong with America".  Brett is disgusted with a justice system that allows a lawyer (and administrative law judge) to sue his dry cleaner for $67 million in damages for a lost pair of pants.

It's cases like this one that upset people and tarnish the image of lawyers and the justice system.  I predict justice will ultimately prevail but it is unfortunate our system is often clogged up with cases of this nature.  For example, last year I blogged about a man that sued Michael Jordan for $832 million because he was constantly mistaken for his Airness.  (The case was ultimately dismissed and it was reported no money was paid).

And although these cases are considered by many as outrageous it is important to point out that neither plaintiff had a lawyer to represent them.  Moreover, I take issue with some of the commentary on Brett's post which lumps the famous McDonald's coffee case in the same category.  Sadly, there are many misconceptions about that case.  If you are interested in reading facts about the McDonald's case you might want to check out this site.  You might actually think McDonald's got what it deserved if you know the facts.  We know the jury who heard all the facts sure did.

It sure is helpful to see how many view our justice system.  I'll remember a lot of the commentary in preparation for my next trial.

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For those Iowa-Microsoft class action case junkies you can view the settlement agreement here.

I have received several emails on how to file a claim in the case.  For details on how to file a claim be sure to go to www.IowaMicrosoftCase.com.

There is a Frequently Asked Questions section to help you with your filing. 

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Judge Rosenberg gave preliminary approval today of a $179.95 million dollar settlement in the Iowa consumer class action against Microsoft.  Unlike other settlements across the country, Microsoft has agreed to pay cash to consumers as opposed to vouchers for future purchases of software.  As I predicted, the settlement is substantial and actually in line with a previous Minnesota settlement from a dollar standpoint.

According to reports, class members are entitled to receive $16 for each copy of Windows or MS-DOS they purchased; $25 for each copy of Microsoft Excel; $29 for each copy of Microsoft Office; and $10 for each copy of Microsoft Word, Works and Home Essential software. Consumers do not need proof of purchase to be reimbursed for up to $200.

Microsoft will provide one-half of the difference between $179.95 million and the unclaimed cash and vouchers to Iowa public schools in the form of vouchers that may be used by the schools to purchase a broad range of hardware products, Microsoft and non-Microsoft software, and professional development services.

There will likely be an uproar over the amount requested by the Plaintiffs' lawyers. Over $75 million in attorney fees and expenses!  Microsoft indicated in court today that it objects to the amount of attorney fees requested.  The judge will ultimately decide how much is awarded.

For details on how to receive your payment please go to www.iowamicrosoftcase.com.  The hearing on final approval of the settlement is currently scheduled for August 31, 2007.

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I read an excellent article by Adam Siegelhiem of Stark & Stark concerning Restrictive Covenant Agreements for Franchises.  Although his post is intended for franchises it is advisable for any business to consider restrictive covenant agreements for their employees.

Somewhat surprisingly, many of the small business owners I talk with are reluctant to enter into restrictive covenant agreements with their employees.  These business owners are afraid that the employee won't sign or that other confrontations may occur.  Some just don't believe they should keep their employees from finding another job - even if it is to the employer's detriment.

But in order to avoid disruptions to your business and client relationships you should consider various agreements to protect yourself including, but not limited to:

• Confidentiality agreements;
• Non-compete agreements;
• Non-solicitations of clients;
• Non-solicitation of company employees.

If you are one of those who is not comfortable with a non-compete agreement for your employees I would strongly encourage you to have at least the confidentiality and non-solicitation agreements.  These agreements generally provide protection for your business without restricting the employee's ability to work elsewhere.  If a departing employee attempts to take clients or other employees with them you will be glad you had those agreements in place.

* Remember these types of agreements are very state specific so it is important to seek the advice of a business lawyer in your state before implementing the agreements discussed in this post.

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The federal government has launched a new initiative aimed at cracking down on discriminatory hiring practices.  According to this law.com article that is exactly what happened to Walgreen Co. when the EEOC decided to file a class action against the company for alleged discrimination against African-American workers.

The initiative is called E-RACE (Eradicating Racism and Colorism in Employment).  Specifically the EEOC will focus on hiring decisions based on names, arrest and conviction records, employment and personality tests and credit scores - all of which may disparately impact people of color.

It may surprise some that discrimination claims are still so prevalent.  But the most frequently filed claims with the EEOC are still race-based claims accounting for a total of 36% of the claims in fiscal year 2006.  Maybe your company's employment training should center on the basics after all.

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Whether it's a deposition or trial, read Jerry Weissman's blog post about the tables getting turned on a pro like Tim Russert (a lawyer himself) to find why anticipation and preparation are the two most important words in law (or perhaps any business for that matter).

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I read with great interest this recent article entitled, 100 Ways to Become a Better Entrepreneur.  In general the article gives pretty solid advice.  But it always concerns me when articles automatically assume the entrepreneur is unable to afford paying a lawyer to draft a business contract. (See No. 74).

I understand that many entrepreneurs must watch their dollars very closely.  Hiring a lawyer to write a business contract may seem like a luxury the struggling entrepreneur cannot afford.  The problem is that I have seen business contracts written by the entrepreneur come back to haunt them many times.  Trust me, litigation is a whole lot more expensive than having a lawyer review or write a contract.  At least go talk with a business lawyer to find out how much it will cost.  Don't automatically assume it is something you cannot afford.

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Thanks to a post by Kevin O'Keefe I discovered a terrific business law blog written by New York business lawyer Nina Kauffman.  Nina had a recent post on how the game of kickball applies to strategic alliances.  Her point is that the world of business is not too far removed from our playground games.  It is always better to know the rules when we enter into business relationships.  Nina says,

When collaborating with another company, business owners want to know what will happen to the clients, intellectual property, and flow of money that the strategic alliance creates, for however long the collaboration lasts.  Deciding those issues only when they arise is like catching the kickball in mid-air and only then deciding whether the kicker should be "out."

While the kickball rules of the playground are not in writing it is a good idea to reduce your understandings with a strategic business partner to writing.  This is particularly true if you have trade secrets or intellectual property you must protect.  Unfortunately you won't have all those screaming kids on the playground to help you in the event your strategic alliance falls apart.  Follow the old adage, if you think you have an agreement, get it in writing.

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The Iowa Supreme Court Advisory Committee on the Rules of Civil Procedure have proposed amendments to the Civil Rules of Procedure.  The proposed amendments primarily address the discovery of electronically stored information and mirror, in large part, the new federal rules concerning electronic discovery which became effective December 1, 2006.

The advisory committee will also be discussing a new Uniform Scheduling Order which will take into account the discovery of electronically stored information.

The Supreme Court Advisory Committee is currently seeking public comments.  The deadline for comments is May 1, 2007.  The email address for comments is rules.comments@jb.state.ia.us and must state "Iowa Rules of Civil Procedure" in the subject line.

As I have suggested in the past, this will make document retention policies a critical business practice for every Iowa business, large or small.

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An excellent post from Shanti Atkins of the Harassment Training Blog reminds us that employment law is always changing and evolving.  What was hot 10 years ago is not necessarily hot today.  Is your training centered on trends from the past?

Shanti points out that pregnancy discrimination and national origin / race cases are on the rise.  A trend she also identifies is that the EEOC is looking for and taking cases to court that have a broad impact in the workplace.  Over the past several years the EEOC is filing between 400 to 421 cases per year.

A couple of other trends I have noticed include an increase in religious discrimination claims and recent cases make it likely employers will face a rise in retaliation claims.

For more information you should review the EEOC Enforcement Statistics and Litigation.

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In small retail businesses you might occasionally see a sign on the door of a business at lunch time: 

Gone for Lunch - Be Back Soon

You are unlikely to get upset when you see the sign and most people will return to the shop at a later time.  But in a jury trial things are a little different.  Believe it or not, juries apparently expect the lawyer to be present during all the phases of a trial.  (Particularly if you are watching boring video-taped depositions with lots of highly technical language that only computer geeks understand).

Anne Reed of Deliberations does a great job of breaking down one of the final events leading up to the Iowa-Microsoft trial settlement.  The fact the case settled was not surprising to me at all.  There was too much risk on both sides to let the jury make the decision.  What surprised me most was this note from a juror to the judge:

"Just wanted you to know that several of the jurors are remarking about the absence of Ms. Conlin during our videotape viewing and that [defense counsel] is here every day. They ... think Ms. Conlin is probably taking vacation on those days and we don't get vacation. And that's not fair because it's her fault that we're here."

As Anne points out in her blog post, the lesson is that a trial lawyer (especially a plaintiff's trial lawyer) must assume the jurors assume the worst.  We will never know whether the jurors would have held it against Conlin and her clients.  Of course, she could always take them to dinner to make up for it.  Oops, I guess Microsoft already beat her to it. 

A thank you dinner for jurors?  Now that is something unheard of in Iowa litigation.  There is no prohibition against it but the gesture just doesn't sit right with many Iowa lawyers.  I don't think jurors will actually decide cases based upon who might provide the better meal as one lawyer suggested in the Register article.  And lawyers often do speak with jurors after a case to learn about what the jury thought was important and how the jury perceived the lawyers' presentation or certain evidence.  As one Iowa lawyer told me, "I actually think it sounds kind of nice."  Of course, she was one of those touchy-feely defense lawyer types.

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How many blog posts about the former Playboy playmate actually provide valuable lessons on legal issues?  Well, Matt Gardner of Sullivan & Ward, P.C., whose blog provides information on Iowa estate planning and probate, tells us why Anna Nicole Smith's Will is not how you should plan your estate.  Matt believes there are some basic lessons we can learn from the Anna Nicole situation:

• Periodically you should review your estate plan, especially if there are significant changes in your life. Birth of a child and/or death of child and/or marriage qualify as "biggies".
• Use an attorney who understands estate planning and listen to any recommendations they may have for you.
• Don't get "cute" with your plans. You'll only create confusion and generate work for attorneys.

Looking for more information on trusts and estates?  You may also want to check out the Ohio Trust & Estate Blog from Michael Bonasera.  One of Michael's most recent posts is planning on the passing of personal property.  Thanks for including me on your blogroll, Michael.  Keep up the good work.

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Employment Law Colorado blog has an interesting blog post on a former employee suing IBM for his Internet addiction.  The lawsuit is based upon a claim that IBM violated the Americans with Disabilities Act.    Although many bloggers' spouses may disagree, Internet addiction is not currently recognized as a true addiction.

This Findlaw article examines the viability of the lawsuit.  Surprisingly Internet addiction lawsuits are something employers could see more of in the future.  So shut off those Blackberrys now.

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Forbes.com opinion writer Daniel Lyons sure doesn't think much of the settlement between the Iowa Plaintiffs and Microsoft in an article in which he links to Rush on Business.  His quote:

"I'm sorry, but I can't work up any outrage over having to pay $100 for the student edition of Office.  And though I'm not a fan of Windows, I've managed to discover an alternative.  It's called an Apple Macintosh.  You can buy them online or in stores."

It seems as though most business people tend to hold this view but I am confident the settlement reached will be substantial - albeit less than the $330 million plaintiffs were requesting.  So, who won you ask?  Perhaps Iowa schools, as Microsoft will donate half of any unclaimed settlements to the Iowa Department of Education for use by public schools.  In the Minnesota case, more than $100 million was unclaimed out of a $175 million settlement and the schools received more than $50 million.

Did Iowa consumers get a victory?  I'll leave that up to you but most people I know aren't getting warm fuzzies over this one.      

Update:  A somewhatmore flattering post about Roxanne appeared in the Wall Street Journal Law Blog yesterday.  She was the Lawyer of the Day.

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The Iowa consumer class action case against Microsoft has settled.  Check out Des Moines patent lawyer Brett Trout's blog post for details.  I'll post more on the settlement at a later date.  Details of the settlement are confidential and will be announced this spring after court approval.

I'll bet there are some happy jurors on this Valentine's Day.

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If you are selling your business you should not divulge trade secrets and confidential business information without a signed confidentiality agreement.  The theft of trade secrets is an increasingly litigated issue.  In the business sale context this often happens when negotiations break down and the potential buyer decides they can start their own business.  It is important for the confidentiality agreement to include the right to obtain an injunction, damages, and attorneys fees in the event of a breach.

The first step in selling your business is to protect yourself.  I also recommend you contact a business lawyer before you enter into any agreements or provide trade secrets and confidential business information. 

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Iowa patent and information technology lawyer Brett Trout recently completed his series of posts on the new federal rules concerning electronic discovery.  Brett and I also recently completed a podcast interview discussing the new electronic discovery rules.  I encourage you to check it out.  Brett has a lot of great information to share on the topic.

One way to prepare your business for the new electronic discovery rules is to have a solid document retention policy.  I found this helpful white paper from LexisNexis Applied Discovery regarding the elements of a good document retention policy.   Some of the key elements include:

• A written document retention policy must be actively enforced and audited;
• the policy should include the name of the custodian of the information;
• the policy should list the types of servers and back up tapes used;
• a lawyer needs to be familiar with the company's IT system;
• companies must educate employees about the policy and stress implications of not following it;
• the policy must be easy to follow, periodically updated and state how often it will be updated;
• the policy must address the different ways employees save information;
• the policy should also address the litigation hold including email back up tapes.

I am interested in hearing from you if you have other document retention recommendations.  In the end, a solid document retention policy could help you avoid substantial sanctions and/or judgments for mismanaging or willfully destroying documents. 

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The Iowa legislature is now considering amendments to Iowa's right-to-work law.  This is a hot button political issue - the merits of which I am not discussing in this blog post.  What I am addressing is the confusion many people express over the Iowa right-to-work law.  Many individuals confuse the law with the belief that non-compete agreements are not enforceable in Iowa.  I have heard many times, "Iowa is a right-to-work state so this non-compete is not enforceable, right?"

Wrong.  Right-to-work has nothing to do with it.  As I discussed in a previous blog post on the topic, non-compete agreements are enforceable in Iowa under certain circumstances.  Iowa's right-to-work issue generally involves the prohibition of a union from making membership or payment of dues or fees a condition of employment, either before or after hire.  Iowans are free to work and join a union and Iowans are also free not to join a union.  The right-to-work law does not involve the issue of non-compete agreements.

If you are looking for a discussion on the political issues of Iowa's right-to-work law check out Mark Ingebretsen's article on IAbiz Online.  IAbiz Online, launched in January of 2007, is the companion Website to the new IA.biz Magazine.  Both projects are communication tools of the Iowa Association of Business and Industry.  (And yes, you might even catch some of my articles re-published on the Web site).

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I listened to an insightful podcast from Becky McCray of Small Biz Survival called Nothing New.  She also quotes Dr. Samuel Johnson who once said, "People need to be reminded more often than they need to be instructed." 

That is so true when it comes to helping businesses recognize legal issues.  So often what I say on a topic is nothing new, but the reminders don't hurt.  Some examples:

• Seven Ways to Avoid Employee Lawsuits
• Corporate Officers Need to Use Care When Signing Agreements
• The Secret of Negotiation: Care Less, Get More
• Five Ways to Avoid Lawsuits Against Your Business
• Small Business Corporate Governance
• Formation of Iowa Business Should Include Buy-Sell Agreement

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I have added podcasts to Rush on Business through BlogTalkRadio.  The first podcast is an interview with Iowa patent and information technology lawyer Brett Trout concerning the important federal rule changes regarding electronic discovery and how it impacts your business.  Brett is the author of Internet Laws Affecting Your Company.  As Brett says, bury your head in the sand regarding electronic discovery and you may pay a hefty price.  All companies, large and small, must familiarize themselves with the new rules and plan accordingly.  If you wait until you get sued, it's too late.

Listen to the electronic discovery podcast by going directly to my BlogTalkRadio Host Page.  The podcast is free.

Another upcoming podcast includes an interview with Matthew Ashburn from Sunbelt Business Brokers in Ankeny and Cedar Rapids.  Matt has a lot of interesting information regarding how to prepare your business for an eventual sale.  The key is good advance planning and it makes a big difference.

I hope you enjoy this new added feature to Rush on Business.

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On December 31, 2006, I wrote a post on how Blog Monitoring is a Top Trend for 2007.  Today's Des Moines Business Record cover story is Exhibit A.  The story recounts how smart companies are listening to bloggers and dealing quite effectively with negative publicity.  It seems Central Iowa blogger Tom Vander Well recounted on his blog about an unfortunate customer service experience he had with the Geek Squad, a subsidiary of Best Buy.  Needless to say, Tom didn't have good things to say about Best Buy or the Geek Squad. 

So what happened next?

Geek Squad founder, Robert Stephens, emails Tom and tells him, "We shall not rest until your problem is addressed."  Now that is service!  But also very resourceful.  If Robert Stephens had not been monitoring RSS feeds that never could have happened. 

Why should lawyers care?  First, monitoring blogs and Web sites through RSS feeds give you INSTANT KNOWLEDGE.  Now you are able to know when someone has said something good or bad about your law firm, your competitors, your clients and legal developments.  Smart companies involved in litigation or disputes (i.e. Mediacom and Microsoft) are monitoring blogs and better understand how to deal with public opinion. 

But here is the best part (this is where YOU may earn a client for life and you don't even need to be a geek).  You have the perfect opportunity to show that you CARE.  If something appears on the Web about your client or if there is something that interests or impacts them you have the opportunity to forward it to them in a record amount of time.  It is conceivable that you may know your client has been sued before the client knows.  Do you think that would help you to keep a client for life? 

You don't need to blog - just start reading feeds.

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I ran across an excellent article by employment law litigator Jason Storipan of Stark & Stark on issues involving electronic discovery and employment law.  Storipan cautions that employers must be aware and plan for the new electronic discovery rules:

". . . [e]mployment law is an area of the law that the increases in the use of technology in the business world increases the risk of a lawsuit.  As any employer is aware, technology has changed the workplace, and its use can create a host of problems in the workplace that can lead to litigation.  The new Rules on electronic discovery potentially can lead to even more problems for the unprepared employer.  In this instance, the best way for the employer to prepare is to plan as if it is involved in litigation and meet with its counsel." 

I agree with Storipan.  Early preparation for electronic discovery by companies is crucial.  The duty to preserve electronic materials begins when a company reasonably anticipates litigation, not once litigation begins.  Spoilation is the destruction of of evidence.  There are significant consequences for destroying evidence.  Employers must be aware of how to preserve this evidence and comply with the new electronic discovery rules.  Waiting until you get into litigation is not the answer.

FYI:  Patent and information technology lawyer Brett Trout of Des Moines is also planning a series of posts on electronic discovery issues.  Be sure to check those out.

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Microsoft has renewed its attacks against Roxanne Conlin in the Iowa consumer class action case.  This time Microsoft wants the right to question the named plaintiffs about their connections to Conlin before the lawsuit.  Apparently Microsoft believes Conlin recruited these plaintiffs to file the lawsuit.  According to the Des Moines Register, Conlin acknowledges she was friends with some of the plaintiffs before the lawsuit began.

Judge Rosenberg had previously ruled that Microsoft could not ask the individual plaintiffs about their connections to Conlin.  Microsoft now claims Conlin and her co-counsel opened the door when they told the jury the plaintiffs were "just regular people".  A ruling on this issue is expected soon.

Earlier in the case Microsoft attempted to disqualify Conlin alleging she had engaged in misconduct while obtaining certain documents.  Judge Rosenberg said there was no misconduct by Conlin and allowed her to stay in the case.

Recruitment by plaintiffs' counsel would be inappropriate and could raise questions about whether the class is properly certified.  On the other hand, there is nothing that prevents a lawyer from representing a friend.  Many lawyers represent friends or acquaintances.  But rarely do cases involve $300 million in damages.  The stakes are high and Microsoft is pulling out all the stops.   

UPDATE:  Judge Rosenberg ruled in favor of Conlin and the plaintiffs.  Microsoft is not allowed to question the named plaintiffs about their connections to Conlin before this lawsuit.  That's strike two in misconduct allegations against Conlin.

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Tim Johnson of Carpe Factum recently challenged Iowa patent lawyer Brett Trout and me to show how we "thin-slice" clients and cases. Brett posted first and did a great job with how he thin-slices clients.  That leaves thin-slicing cases to me.  Thin-slicing is a concept from Malcom Gladwell's book, Blink, and is about how we as human beings are capable of making sense of situations on the thinnest slice of experience.

So, what five things do I look for to quickly size up a litigation case?

1)  Do I like the client?  I generally see the good in people.  If I don't like someone there is a significant possibility a jury or judge won't like them either.  That is not to say the client must be perfect.  No case is perfect and the client won't be either. (Just as lawyers are not perfect).  But I ask myself about whether I am willing to sit next to this person at trial.  It also doesn't hurt if the other side wears a black hat.  But experience tells me a client is never as good and the other side is never as bad as you initially think.

2)   What's the law?  You can have huge damages and a wonderful client but if the law is not on your side - forget about it.  I turned down the largest damage case that ever walked into my office because it could not be won.  You must have a reasonable chance of winning.

3)  Am I familiar with the subject matter?  Preparation of a case in an unfamiliar area of law costs more time and increases the risk.  Plus, I need to be qualified to handle it. 

4)  Will the recovery be worth the effort?  This is true for both the client and lawyer.  If it is an hourly case, I consider the likelihood the client will recover significantly more than they have paid in legal fees and expenses.  If it is a contingency case, the risk is on my shoulders.  So, I consider the likelihood of recovery, the potential amount of recovery, and how much I will need to invest (in time and money) in order to complete the case.  It is also important to know whether the judgment is collectible. 

5)  Is the case interesting or a cause worth pursuing?  It helps to have passion for the case.  We often live with cases for years at a time.  I always ask whether I can make a difference and help someone.   

When I follow these factors it tends to lead to more success and happiness both on my part and the client.   

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If you are a lawyer representing an individual you better start asking your clients whether they have a MySpace, Facebook, or other social networking Web site.  A lawyer I know ended up on the short end of the stick in a pre-trial hearing when opposing counsel pulled out pictures and comments from a client's MySpace site during a hearing.  Needless to say, the pictures and comments were less than flattering for the client.

Whether you have a personal injury, employment, family law or other case be sure to ask the client in your initial interview whether they have a social networking Web site (or whether family members or friends may have posted about them on the Internet).  If so, be sure to visit the site to learn what has been posted.  If you are a client, be sure to tell your lawyer about any of your personal Web sites.  You may think you are safe because only your "friends" have access.  Keep in mind that your friends are one subpoena away from being forced to testify against you. 

Ignore MySpace, Facebook, and other similar sites at your peril.

See this related post on employer background checks.

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The Fifth Circuit Court of Appeals has ruled there is no private right of action for violations of HIPAA (Health Insurance Portability and Accountability Act of 1996).  To this point, every federal district court that has decided the issue has also ruled no private right of action exists.  No other federal circuit court has decided the issue.

A woman had sued filed suit against a doctor for disclosing medical information without her consent.  The Court based its decision on the fact that HIPAA provides both civil and criminal penalties for improper disclosure of medical information and limits enforcement to the Department of Health and Human Services.  The Court ruled that since HIPAA specifically delegates enforcement, there is a strong indication that Congress intended to preclude private enforcement.

Read the opinion.

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