Business Law Articles

Take care with COBRA compliance — or pay big damages

In recent months, at least four companies have gotten into trouble for failing to provide Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) notices to health plan participants.

Suits of this nature can lead to big damages. Since 2015, courts have approved settlements ranging from $290,000 to $1 million.

Damages include statutory penalties of $110 per day, awards to qualified beneficiaries as relief for damages that occur due to the failure to provide an adequate COBRA notice, and attorney fees. The IRS can also assess excise tax penalties of up to $200 per day for each day that a plan fails to comply with COBRA. [Read more…]

Tips for avoiding a data security breach

Regardless of the size of your business, it’s critical that you work proactively to protect the sensitive and private information of your customers, clients and employees.

While you might hear more often about data breaches at bigger companies, the reality is that smaller companies and organizations are often targeted and typically have limited data security protections in place.

Your approach to protecting your company from a data breach must be comprehensive. [Read more…]

New law reaffirms right to post negative reviews online

Under a new federal law, individuals have a right to post truthful negative reviews about a product or service provider. That’s the case even if they previously signed an agreement that prohibited such reviews.

Over the past few years, this controversial business practice of including non-disparagement clauses in contracts or terms of service has led to a number of lawsuits. These so-called “gag clauses” are intended to deter customers from writing negative reviews, and require them to pay a fee if they do so despite the contract.

The new Consumer Review Freedom Act bars companies from using these clauses.  It gives the Federal Trade Commission and the states the power to enforce the law, allowing them to take legal action against businesses that fail to remove these clauses from their contracts.   [Read more…]

Conduct a website self-audit to ensure compliance with the ADA

Over the past couple of years, more than 200 plaintiffs have sued businesses nationwide arguing that their websites fail to provide access to people with certain disabilities, alleging a violation of the Americans with Disabilities Act. More recently, a law firm based in Pittsburgh sent demand letters to businesses, banks and others saying that they were willing to “work constructively” toward compliance for a fee.

While court rulings on whether the ADA applies to websites have been mixed, plaintiffs have been using the rulings in their favor to persuade businesses to settle.

The ADA, which went into effect in 1990, prohibits discrimination against people with disabilities. Title III of the Act prohibits discrimination on the basis of disability in “places of public accommodation.” The law doesn’t specifically mention websites, but some plaintiffs argue that a website should be treated as a “place of public accommodation.”   [Read more…]

Social media endorsements: How to pay influencers to endorse your brand

It’s becoming popular for companies to pay social media users with big followings to endorse their products or share content about their brand. It’s a great way to get your message out to a wider network of target customers in an authentic way.

But the Federal Trade Commission (FTC) is paying attention and enforcing rules that say you can’t do it without disclosing the relationship.

Recently, the FTC reached settlements with such brands as Lord & Taylor and Warner Bros. Home Entertainment over their failure to disclose such relationships. [Read more…]

Many requests for businesses to take goods off Amazon or eBay fraudulent

It’s pretty common for businesses of all sizes to sell products on sites like Amazon or eBay.

So imagine one day receiving a “take-down notice” informing you that the site is taking down your listings because another party has demanded it under a federal law called the Digital Millennium Copyright Act (“DMCA”). According to the notice, the other party says your goods infringe its copyrights.

If you ever receive such a notice, be sure to look carefully into the matter. That’s because it’s become more common for these demands to have no valid copyright infringement claim to back them. Or worse yet, sometimes the demander doesn’t own any copyrights at all. [Read more…]

Injury and illness records may become public

Most businesses with 10 or more employees must keep records of serious work-related injuries and illnesses. This OSHA rule is intended to help businesses identify and address occupational hazards.

Under new OSHA rules, however, many businesses will also have to submit their records to OSHA itself, which apparently plans to make them public, at least in some form.

Businesses with 20 or more workers must begin submitting OSHA Form 300A starting July 1, 2017. In addition, businesses with 250 or more workers must begin submitting OSHA Forms 300 and 301 starting July 1, 2018. Starting in 2019, all information must be submitted by March 2. [Read more…]

Can you sue if a customer posts a bad online review?

For a business, a bad online review can help determine whether new clients flock in the door.

But if someone writes such a review on Yelp or any other website, you might be out of luck.

In a recent case in California, a federal appeals court decided that an angry business owner who got a one-star rating from a customer couldn’t sue Yelp. [Read more…]

Review your retaliation policies in light of EEOC guidance

It’s even easier for employees and former employees to sue businesses for retaliation under the Equal Employment Opportunity Commission’s new enforcement guidance.

For the first time since 1998, the agency has updated its guidance on the claim, which is already “asserted in nearly 45 percent of all charges … and is the most frequently alleged basis of discrimination,” it said.

Needless to say, preventing a claim is much better than defending one, and retaliation often occurs even when the underlying discrimination claim doesn’t have merit. So businesses must take action to avoid retaliation in the first place. [Read more…]

Could your business be facing a lawsuit over Internet search results?

Any business would jump at the chance to dictate the order of organic Internet search results that include its name. But that’s not so easy.

Still, a judge in Florida recently told a well-known, international company that it must find a way to do exactly that. And in the vast world of the web, it’s a cautionary tale for businesses of all sizes.

The case involves a Gainesville, Fla., company, Uber Promotions, which has a regional trademark that supersedes the more well-known ride-sharing service’s trademark. [Read more…]

Drug testing policies may need to be revised

If you have a policy that requires drug testing after a workplace accident or injury, you may need to change it as a result of new rules issued by OSHA.

The new rules generally require that companies have a reporting procedure in place for work-related injuries and illnesses, and prohibit them from discouraging workers from reporting injuries. The catch is that, according to OSHA, a policy that requires drug testing after a workplace accident could discourage workers from reporting accidents in the first place.

To be clear, OSHA is not saying that you can never give a drug test after a mishap. But to justify a test, two things must be true: [Read more…]

What happens to unused ‘flexible spending’ funds?

Many companies have flexible spending accounts that allow employees to pay health care and dependent care expenses with pre-tax dollars. The biggest drawback to these accounts is that they’re “use it or lose it” – so if employees put money into an FSA and don’t spend all of it on qualified expenses during that calendar year, they forfeit the remainder.

So what happens to the money they forfeit?

The short answer is that the business can simply keep it. However, if a business wants to ease the burden on employees and make the FSA a more attractive benefit, there are several other options allowed under the tax laws: [Read more…]

Many computer ‘hacks’ are actually low-tech thefts

All businesses are scared these days of having their data stolen by highly sophisticated foreign computer experts – and yet a surprisingly large number of “hacks” are actually very low-tech affairs, carried out by people with minimal computer skills. The good news is that some simple measures can reduce the risk.

According to a study by the Ponemon Institute, the vast majority of CEOs view sophisticated intentional hacking as the biggest data security problem they face. The vast majority of IT managers, on the other hand, see the biggest threat as careless employees who haven’t received basic security training about phishing, passwords, cloud access, and the like.

To take one example, you might have heard that a St. Louis Cardinals baseball team employee was recently sentenced to jail for hacking into the computer secrets of a rival team, the Houston Astros. But you might not know exactly how he did it.

[Read more…]

Federal penalties are increasing dramatically

The maximum penalties that can be imposed on businesses by federal agencies are being dramatically increased, as a result of a new law passed by Congress.

OSHA’s civil penalties hadn’t increased since 1990, but that changed on August 1, 2016, when they jumped roughly 80%. The top penalty for a serious OSHA violation went from $7,000 to $12,471, and the top penalty for a willful or repeated violation went from $70,000 to $124,709.

What’s more, if an employer was inspected before August 1, but OSHA didn’t issue a citation until after August 1, OSHA can issue a penalty at the new higher rate. Since OSHA has six months from the date of a violation to issue a citation, it’s expected that a lot of companies that were inspected in the first part of 2016 will see large penalties assessed after August 1. [Read more…]

New law protects trade secrets

President Obama has signed a new federal law that expands the ability of companies to sue when someone steals or misuses a trade secret.

The law also contains new requirements for employment contracts that refer to trade secrets – which means that many such agreements should now be revised.

The “Defend Trade Secrets Act,” or DTSA, will change the legal landscape by making misuse of trade secrets a federal issue, comparable to patent, trademark and copyright infringement.

[Read more…]

Must you disclose notes from an HR investigation?

An employee complains about discrimination or harassment, and you conduct an investigation. The employee is still unhappy and sues. Can you be forced to turn over all your notes from the investigation as part of the court case?

The answer is not always clear – and it’s an important issue you should be aware of.

As a general rule, any relevant documents that are created in the normal course of business are fair game to be turned over in a lawsuit. That includes documents that are created as part of a routine investigation by human resources personnel. [Read more…]

Government steps up audits of health care privacy

The federal government has begun a much more intensive program of auditing health care providers for violations of HIPAA, the federal law that protects patients’ privacy.

For the first time, the government will be auditing not only health care providers but also related businesses to whom patients’ information might be disclosed – including third-party administrators, accountants, attorneys, consultants, clearinghouses, transcriptionists and pharmacy benefits managers.

For this reason, it’s important for all providers to understand the relevant obligations and take steps to minimize risks – and make sure their vendors do so as well. [Read more…]

Employee gets away with keeping confidential info

Anthony Leness was an executive at a company called EventMonitor. His contract stated that he couldn’t disclose confidential information and that he would return all such information if he left the company.

After six years, Leness was terminated. Shortly afterward, the company discovered that he had subscribed to an online data storage service and had uploaded a large number of the company’s files to the service, including confidential data.

The company changed the status of his termination to “for cause,” and cut off his severance payments. [Read more…]

‘Tip pools’ are limited by federal law

Businesses can require their tipped employees to participate in “tip pools,” in which they contribute all their tips to a pot and then share them according to some formula.

As a general rule, a tip pool can only include employees who regularly receive tips. So for instance, a restaurant can require all its waiters to share tips among themselves, but it can’t require them to share their tips with prep cooks and dishwashers.

You should also know that a business can pay its tipped employees less than the federal minimum wage, as long as the employee makes at least the federal minimum once tips are taken into account. [Read more…]

New threats to online retailers

As more and more companies sell things online, especially to far-flung customers, it can be difficult to keep track of the ever-changing legal rules that apply. Here’s a look at just some of the issues on the horizon that online retailers should be aware of:

Is your website accessible to the disabled? You might be surprised at the idea that the federal Americans With Disabilities Act applies to online stores, but the U.S. Department of Justice has taken the position that it does, and is planning to issue rules soon for how retailers should comply.

It’s likely the government will soon require retail websites to do some or all of the following: [Read more…]

What business entertainment expenses are deductible?

As a general rule, you can deduct 50% of what you spend on business entertainment on your federal taxes. Although the IRS is very strict about requiring you to document the expenses and their business purpose, it can be surprisingly generous about what counts as a business expense. [Read more…]

Businesses can’t agree not to ‘poach’ employees

It might be tempting to informally agree with other business owners in a niche field not to poach one another’s employees, but it’s illegal – and recently, some businesses have paid a high price.

For example, the Department of Justice went after several tech companies that allegedly had an informal “no-poach” understanding. The employees themselves then filed a class action, which resulted in a $415 million settlement. [Read more…]

New rules are resulting in faster union elections

Many businesses have predicted that new federal rules that took effect last year could result in “quickie” union elections in which the employer wouldn’t have time to campaign effectively and get its message across. It now looks like those fears might be justified – the average time before a private-sector union election is now only three weeks, compared to five weeks previously, according to the National Labor Relations Board. [Read more…]

Beware of trademark scams

The U.S. Patent and Trademark Office has put its records online, including trademark owners’ full addresses. As a result, many shady but official-sounding businesses are now contacting trademark owners and offering scam services.

For instance, such businesses may offer to arrange third-party publication (which is unnecessary), or they may offer legitimate services such as filing a record with the Customs Office at exorbitant prices.

The most dangerous scams offer to renew a trademark registration without properly updating the declarations as to identification and use. Trademarks that are renewed in this manner may later turn out to be invalid, and may be cancelled or successfully challenged by competitors. [Read more…]

Managers’ ability to keep investigations secret is limited

Can a company that conducts an internal investigation tell the employees it’s interviewing not to talk about the matter while the inquiry is pending?

Not necessarily, according to a new decision by the National Labor Relations Board. The ruling applies to all businesses, regardless of whether they have a union.

Companies can insist on confidentiality only if certain conditions are met, the Board said. [Read more…]

Creating an LLC? What you need to know

Many business owners think it’s easy to set up an LLC. That’s partly the result of companies and websites that claim to offer simple, “standardized” LLC operating agreements. Just fill in the blanks and you’re off!

In reality, there’s no such thing as a “standard” LLC operating agreement. You have a lot of choices to make, and even if you’re starting a very simple business, your choices will have a profound effect on you down the road if the business takes off. [Read more…]

Federal lawsuits might become less burdensome

“Discovery” is the phase of a lawsuit before trial in which the two sides have a right to demand relevant information from each other. Sometimes, big companies suing little companies try to “bury” the little company with endless requests for information, hoping to find some stray helpful tidbit or simply pressure the little company to settle to avoid the burden and expense.

But starting in 2016, the federal court rules have been changed to limit this tactic. The rules now say that discovery must be “proportional” to the needs of the case – taking into account the issues, the amount of money at stake, the importance of the information, the parties’ resources, and the burden involved.

This could make it easier to convince a court (at least in a federal case) that the other side’s endless requests for information are out of proportion and should be stopped.

When is a competitor’s name too similar to yours?

This can be a tricky question, because it often turns on whether the public is likely to actually be confused.

In one recent case, a California company called White Oak Vineyard & Winery brought a lawsuit against a Florida vodka distiller called White Oak Spirits.

The vodka company argued that wine and vodka are different products, and that no one would be confused by the two names, especially since White Oak Vineyard was not a nationally known brand. [Read more…]

Federal contractors must provide paid sick leave

Starting in 2017, companies that have federal contracts must allow employees to earn up to seven paid sick days per year, under an executive order signed by President Obama.

Employees can earn one sick day for each 30 hours worked, up to seven days per year. These days carry over from one year to the next, although an employee who quits or is fired without using them doesn’t have to be compensated for them.

Sick leave can be taken for an employee’s own illness, or to take care of a sick family member. It can also be used to deal with domestic violence, stalking or assault. [Read more…]

Business gets salary back from ‘disloyal’ employee

Did you know that executives and other employees may have a legal obligation to be “loyal” to their companies? This means that they have to act in the company’s interest, and not deliberately harm the company or take advantage of it for their own interest.

This came up in a recent New Jersey case where a timeshare company hired a COO who made $500,000 a year.

The company eventually fired the COO, claiming that he had exposed the company to potential liability by forging timeshare owners’ signatures on legal documents, misrepresenting the status of independent contractors, and sexually harassing two women. [Read more…]

Company can’t require workers to buy its merchandise

The Abercrombie & Fitch clothing chain cannot require its salespeople to buy and wear Abercrombie & Fitch clothes in order to work there, says a federal court in California.

The court okayed a class-action lawsuit on behalf of 62,000 Abercrombie employees in the state, based on the claim that the company’s “look policy” required them to buy Abercrombie clothes – and then buy new Abercrombie clothes every time the company issued a new sales guide.

The “look policy” did contain a disclaimer saying that “Abercrombie employees are not required to purchase Abercrombie clothing.” But the workers who brought the lawsuit claimed that this disclaimer was ignored in practice, and that salespeople who didn’t wear Abercrombie clothes were fired, given reduced hours, or sent home to change. [Read more…]

Clicking or e-mailing can create a binding contract

A New York company ran a loan-application website. As part of the application process, users had to click a box to get from one screen to the next. Above the box it said, “Clicking the box below constitutes your acceptance of … the borrower registration agreement.”

The borrower registration agreement wasn’t on the page, but the words “borrower registration agreement” were a hyperlink to another page that included the complete contract. In fine print, the contract said that disappointed borrowers couldn’t sue in court and had to take all claims to arbitration.

Was this binding? [Read more…]

Here’s a problem with employee arbitration clauses

A software company called TIBCO tried to protect itself by including a non-compete clause in its employment agreements. It also required that any disputes over the employment relationship go to arbitration rather than being tried in court.

When an employee left to work for a competitor, TIBCO filed a lawsuit and asked for an emergency injunction so it could immediately stop the employee from competing against it.

But the court said – surprise! – that it couldn’t issue an injunction because, under the terms of the company’s own contract,  the dispute had to go to arbitration. [Read more…]

What can you do if a competitor lies in its ads?

Your competitor’s advertising makes false claims about how great its products are – or worse yet, disparages your own products. What are your options?

You have a range of alternatives, from complaining to a private or government agency to filing a lawsuit. Here’s a look at some of the choices.

If your competitor is saying things it shouldn’t, the simplest approach is to complain to the Better Business Bureau’s National Advertising Division, or NAD. The NAD has been around since 1971 and has adjudicated some 5,000 disputes over whether advertising was fair and accurate. [Read more…]

Amazon sued for directing people to competing products

A company called Multi Time Machine makes high-end military-style watches. It refuses to sell them on Amazon. If you search for the company’s watches on Amazon, you’ll get a long list of competing watches.

Is this illegal?

Possibly, according to a federal appeals court in San Francisco, which allowed a lawsuit against Amazon. [Read more…]

Businesses may be in more trouble for data breaches

Two years ago, retailer Neiman Marcus suffered a data breach that resulted in some 350,000 customers having their credit card information compromised. About 9,200 of those customers ended up with fraudulent credit card charges.

That’s bad enough – but Neiman Marcus was then sued in a class action by customers who didn’t have any fraudulent charges on their cards. These customers said Neiman Marcus should nevertheless compensate them for the time and money they had spent on credit monitoring and other efforts to prevent fraud as a result of the hack.

Even though the actual harm to these people might be fairly small, the fact that there were hundreds of thousands of them meant that the size of potential lawsuit was very significant. [Read more…]

‘Comparative advertising’ was close to the line but okay

The Schick razor company recently complained to the National Advertising Division (an ad industry regulatory body administered by the Better Business Bureau) about ads created by the Dollar Shave Club. Schick believed the ads accused name-brand razor companies of engaging in price-gouging and ripping off customers by charging extra for useless features.

One Shave Club ad showed a razor customer at a drugstore receiving a “free gift” of a kick in the groin along with his name-brand razor purchase. Another showed a customer handing over all his worldly possessions to buy razors. [Read more…]

Supreme Court gay marriage ruling affects employee benefits

The U.S. Supreme Court’s recent decision extending same-sex marriage to every state will have a big effect on many employee benefit programs.

Prior to the ruling, most states (and the federal government) recognized same-sex marriage. If all of your employees live in states that previously recognized gay marriages, then no changes are required. But if any of your employees live in previously “non-marriage” states, then the ruling will make a difference.

If some of your workers live in “non-marriage” states and you previously offered benefits to same-sex spouses, then for any employees in those states who have a same-sex spouse, you’ll need to adjust their state tax withholding to the “married” rate, and you may need to adjust their withholding to reflect the fact that spousal health benefits will no longer be subject to state tax. [Read more…]

Social media: New issues for business

Social media is a relatively new field, and the law is just beginning to catch up with all the issues that are being raised for businesses.

Here’s a quick checklist of concerns. It’s by no means exhaustive, which is why a thorough legal review of a company’s social media practices is always a good idea.

Do you look at employees’ (or job applicants’) personal social media accounts? These days, many employers want to keep tabs on their workers’ social media presence. Employers want to get out ahead of problems, such as employees bad-mouthing the company on Twitter or posting confidential information on Facebook. [Read more…]

Buyout provisions can have unexpected consequences

Many businesses have a buyout agreement that says that if one owner retires or resigns, the others can buy out his or her interest at a certain price.

These agreements are a smart idea for retaining control of a company. But you should keep in mind that they can sometimes be used in ways you wouldn’t expect. [Read more…]

Know the tax rules for gifts to employees and customers

If you provide bonuses, awards, gifts or prizes to employees or customers, it’s important to understand the tax consequences. It’s particularly important if the recipient is going to have to pay a tax – you’ll want them to understand this fact from the start, so they don’t get an unpleasant surprise later.

In general, any gifts made by a company to an employee are considered wages. They’re subject to both employment tax and income tax, and must be reported on an employee’s W-2 form. [Read more…]

Company gets sued for mentioning a celebrity in its advertising

The Duluth Trading Company was looking for a way to promote its men’s Henley-style collarless polo shirts. It thought of Don Henley, the lead singer of the Eagles, whose first big hit in 1974 was called “Take It Easy.” So it created an ad that said, “Don a Henley and take it easy.”

Result: The company got sued – by Don Henley. [Read more…]

What businesses need to know about commercial leasing

Companies that are leasing their own space for the first time are often surprised by the terms of a commercial lease – and even companies that have leased space before sometimes overlook important points where they might be able to negotiate matters to their advantage. Here’s a quick guide to what to look for: [Read more…]

New rules make it easier for unions to organize workers

The National Labor Relations Board has adopted new, “streamlined” rules for union elections that create additional requirements for businesses and could dramatically shorten the time between when a union files a notice and when a vote is held.

Union elections could now be held as little as 13 days after a union files a petition. This means companies will have to scramble to meet very short deadlines, and may have little or no time to respond and make their case to their workers about why they don’t need a union. [Read more…]

Poor expense records cost business owner $27,000

Owners of smaller businesses can sometimes be careless about keeping records of business expenses for tax purposes.

The good news is that there’s no one right way to keep these records. According to the IRS, you can use any method of tracking expenses you like if it works for you and your business.

However, whatever method you use, you still have to be able to substantiate the time, place, amount, and business purpose of each expense, plus the business relationship of any person you entertained.

Recently the U.S. Tax Court criticized a small businessman for poor tax records and refused to allow him to deduct $27,759 in expenses. [Read more…]

How to keep out competitors if you lease retail space

Most stores that lease space in a mall or other commercial area would like a guarantee that the landlord won’t also rent to a competing business.

This guarantee is known as “exclusive use,” and you can negotiate for it in a lease. If you’re negotiating a right to exclusive use, here are some things to consider:

What’s the use? You’ll want to specifically define your “use,” and what kinds of other businesses are allowed. For instance, if you have an ice-cream-cone shop and you also sell a few ice-cream cakes, can the landlord still rent to a bakery? If a coffee retailer has “exclusive use,” does that mean a sandwich shop can’t also sell coffee? [Read more…]

Are your LinkedIn contacts a trade secret?

If salespeople connect with their business contacts on LinkedIn or another social media site, can they take that information with them when they leave the company?

Maybe not, according to a federal court in California.

David Oakes worked for six years as a salesman for a cell phone accessories company. He had signed an agreement saying that he wouldn’t disclose any proprietary information, including the company’s customer base. When the company terminated him, he started a competing business. His old company then sued, claiming, among other things, that he had maintained his LinkedIn contact list after he was terminated. [Read more…]

Government is suing businesses over wellness programs

The federal government has filed two lawsuits against companies that set up “wellness programs” for their employees. According to the government, wellness programs are perfectly fine if they’re voluntary – but these two companies’ programs weren’t really “voluntary” because workers were penalized if they didn’t participate.

Many employers have started wellness programs recently as a way to reduce health insurance costs. The programs are now used by about 94% of businesses with more than 200 workers.

But wellness programs can be tricky, because they often require workers to divulge sensitive information, including disabilities and family medical history. This can conflict with federal laws against discrimination based on disabilities and genetics, and can raise other problems because certain health issues occur disproportionately on the basis of age, sex and race. [Read more…]

Company sued for copying ‘look’ of competitor’s website

If you’ve put a lot of time and money into designing a distinctive website or online store, and a competitor comes along and copies your site’s look, can you sue?

Yes, according to a federal court in California. The “look and feel” of a website is protected by the trademark laws.

Surprisingly, this is one of the first court rulings ever on this question.

Of course, a website is different from a trademark. But a website can still be protected by the law, because it can amount to a company’s “trade dress.” [Read more…]

Wage garnishments are skyrocketing – and they’re a minefield for businesses

More than 10 percent of employees between the ages of 35 and 44 had their wages garnished last year, according to a new study by payroll company ADP. That’s a staggering figure, and it creates a serious problem for employers, who are subject to complex state and federal laws about garnishment and can be sued if they do something wrong.

For years, wage garnishment was generally limited to people who fell behind on child support payments or owed money to the IRS. But that’s changed, as more and more private companies are using wage garnishment as a way to collect overdue consumer debts.

In the past few years, these creditors have filed millions of lawsuits. Last year, some 4 million people had their wages garnished for credit card debts, student loans, car payments, medical bills and other consumer obligations. In fact, among employees earning $25,000 to $40,000 a year, more had garnishments for consumer debts than for child support. [Read more…]