Legal Trickery – Eric A. Parzianello

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Millions of Dollars Can Turn on a Phrase: The Story of How Football Coach Contracts Affected the Universities of Michigan, Florida and Wisconsin

Posted by Eric Parzianello on December 5, 2014

College football is big fun for fans but big business for universities.  Employment agreements for head coaches are as important as those for private sector employees.

The recent hiring and firing of three college football head coaches certainly raised some interesting contractual issues involving millions of dollars.

At Colorado State University (“CSU”), Jim McElwain’s decision to leave for a more lucrative position at the University of Florida required a $7.5 million buyout payment to CSU – but one which curiously could be reduced at the president’s discretion. At the University of Michigan, the timing of Brady Hoke’s dismissal earned him $1 million more than if he were fired a few weeks later. At the University of Wisconsin, Gary Andersen gave notice of his departure for Oregon State University, triggering a potential $3 million buyout.

THE McELWAIN / COLORADO STATE CONTRACT

McElwain and Frank

In the case of Jim McElwain, he entered into a new contract with CSU in June of 2014 after two years on the job. McElwain’s contract was full of incentives.  Some provisions allowed him to make up to an extra $150,000 if certain player graduation rates were realized and earn substantial increases to his base salary if CSU achieved a final national ranking in the top 10 or if it appeared in a post-season College Football Playoff system game.

The new contract extended at least through 2018 with annual options for either McElwain or CSU to extend it through 2023.  The agreement gave the coach the right to terminate it, without cause, and take a new job at any time.  However, if McElwain terminated it before December 31, 2018, he was required to pay the University $7,500,000 as liquidated damages.  Former CSU athletic director Jack Graham told the Colorodoan that the whole purpose of the new agreement was to give McElwain an opportunity to make money based on his performance and to give him security in the form of a 10-year agreement. In exchange, Graham said McElwain had to agree to a break-up fee that would make it very difficult for him to leave CSU for any other university. Graham said that McElwain’s attorney asked “a number of times if we would carve out Alabama and other top head football coaching jobs from the breakup fee,” but Graham declined to do so. Nevertheless, Graham was at least partially overruled on that issue by CSU’s president, Tony Frank.

Graham said that “unfortunately . . . Tony agreed to reduce if not eliminate the breakup fee if a ‘dream job’ were to come along.”  To the credit of McElwain’s attorney, they ultimately agreed on the following language which essentially left the buyout to the president’s discretion:

“The Parties acknowledge, understand, and agree that in the case or event of extenuating circumstances the University’s President shall have the discretion, but not the obligation, to reduce in whole or in part McElwain’s obligation to pay Liquidated Damages to the University. McElwain shall have the right to request that the Parties engage in a good faith discussion of such Liquidated Damages amount prior to McElwain providing formal notice to the University of his decision to terminate this Agreement without cause, and in such event the University agrees to engage in such discussion, although the University has no obligation to reduce in whole or in part McElwain’s obligation to pay Liquidated Damages, with an understanding and acknowledgement that lime will be of the essence in coming to a final decision.”

This provision essentially undermined what could have been an iron-clad liquidated damages provision. A complete copy of the agreement can be viewed at Scribd.

Ultimately, reports by the Coloradoan indicate that CSU will receive a portion of the $7.5 million buyout.  However, the president’s discretionary provision permitted him to agree that CSU would instead receive $3 million over a six-year period from the University of Florida Athletic Association and $2 million from McElwain over an unspecified period of time.  The University of Florida also agreed to play a football game against Colorado State in Gainesville between 2017 and 2020 and pay $2 million to Colorado State for that appearance.

THE BRADY HOKE CONTRACT

Hoke

In the case of the University of Michigan, it entered into a six year contract with Brady Hoke for its head football coaching position in 2011. Unlike McElwain’s contract at CSU, Hoke had no buyout clause if he left U of M prior to the expiration of the contract, although U of M did have to pay $1 million to to buy out Hoke’s contract at San Diego State University. Hoke also had no incentives for graduation performance, national ranking or appearances in a College Football Playoff Game. The contract did however have incentives for Big Ten Conference Championship game appearances.  Hoke was required to attend alumni,  donor solicitation, recruitment-related and other events as reasonably directed by the Athletic Director. A termination provision in Hoke’s contract also raised interesting issues.

U of M was able to terminate the contract without cause at any time and in fact did terminate Hoke’s employment on December 2, 2014. The contract had a sliding scale of buyout payments due to Hoke in the event of such termination. Because Hoke’s last date of employment occurred during “Contract Year Four” which was defined as ending on December 31, 2014, U of M was obligated to pay Hoke $3 million in monthly installments through 2016.  Had it terminated Hoke a few weeks later (on or after January 1, 2015), it would have been obligated to pay Hoke only $2 million in monthly installments through 2016.  The January 1 trigger date for determining the amount of the buyout is curious – when college football coaches are fired, it is typically done immediately after the season ends in late November or early December for various reasons including recruiting. The negotiation of that provision certainly benefitted Hoke.

Interestingly, he is required to seek employment in order to receive that full buyout in an ambiguous provision of the contract – the complete copy of which can be found at Crain’s Detroit.  The specific provision reads as follows:

The Head Coach is required to mitigate the University’s obligations under Section 4.01(a) by making reasonable efforts to obtain other football related employment (such as a head or assistant coach of a professional football team, head men’s football coach of an NCAA Division I team, or media commentator) as soon as possible following such termination.. . . .The University’s obligation to pay the Head Coach as set forth in Section 4.01(a) shall be reduced by Head Coach’s total compensation from all such sources.

This provision is anything but clear.  While “football related employment” is extremely broad, the parenthetical uses the phrase “such as” to describe types of employment without specifically defining or limiting them.  From the university’s perspective, it could take the position that the parenthetical merely contains examples of football related employment and an assistant NCAA coach position or any other football related employment would all reduce U of M’s obligation to pay Hoke the full buyout amount.  From Hoke’s perspective, anything other than the listed positions would still entitle him to receive the full buyout.  As with any contract, a lack of clarity can lead to later disputes.

THE GARY ANDERSEN CONTRACT

Unknown

The most recent coaching move came at the University of Wisconsin where head coach Gary Andersen left after just two years on the job and after just signing a contract extension in early 2014.  Like McElwain, Andersen’s contract has a buyout provision which is also discretionary.  However, the language of Andersen’s contract does not leave the decision solely to the president but to the University itself, requiring a vote of the Board of Regents:

This Agreement may be terminated by Coach by giving University written notice of the termination of his employment with University. In such event, if Coach accepts another coaching position at any time during the remaining term of this Agreement, Coach may be required to pay to the University, at University’s sole discretion, in lieu of any and all other legal remedies, damages of any type or equitable relief available to the University, and without regard to actions by the University to mitigate its damages, liquidated damages in an amount of three million dollars ($3,000,000.00) if separation occurs within first two years of Employment Agreement (February 1[2014] – January 31 [2016]) as amended; two million dollars ($2,000,000.00) if separation occurs during years three or four of Employment Agreement as amended; or one million dollars ($1,000,000.00) if separation occurs during year five of the Employment Agreement as amended.

Such liquidated damages shall be due and payable within one hundred twenty (120) days after notice of termination of this Agreement or after acceptance of employment in a college, university or professional program as stated above, whichever occurs first.

Oregon State was undeterred by this provision and scooped up its new head coach within days of losing Mike Riley to the University of Nebraska.

Eric Parzianello

eparzianello@hspplc.com
313-672-7300

Posted in General Employment Law | Leave a Comment »

How Can An Employer Limit Its Litigation Risk?

Posted by Eric Parzianello on December 3, 2014

An employee’s post-termination lawsuit can be very costly for an employer regardless of whether the claims have any merit.  A complaint alleging discrimination based on sexual harassment or age, race or gender discrimination can result in significant litigation and/or settlement cost.  One way for an employer to limit the risk of such claims is to shorten the time by which an employee must file any suit against the employer.

In the case of Posselius v. Springer Pub. Co., Inc., the plaintiff began working for her employer in 2000. In 2005, she received a revised employee handbook and signed a form acknowledging her receipt of the book.  That form in part stated:

“I agree that in consideration for my employment or continued employment that any claim or lawsuit arising out of my employment with, or my application for employment with, the Company or any of its principals or subsidiaries must be filed no more than six (6) months after the day of the employment action that is the subject of the claim or lawsuit. While I understand that the statute of limitations for claims arising out of an employment action may be longer than six (6) months, I agree to be bound by the six (6) month period of limitations set forth herein, and I WAIVE ANY STATUTE OF LIMITATIONS TO THE CONTRARY.”

The plaintiff was terminated in July of 2008 and she filed suit a year later in July of 2009 for gender discrimination. The employer argued that the plaintiff’s action was barred by the six-month contractual limitations period in the signed acknowledgment.  The Michigan Court of Appeals agreed and dismissed the lawsuit.  It found that “because the acknowledgement form created an enforceable agreement and was not ambiguous, plaintiff was bound by the provision requiring claims to be brought within six months.”

This is one of many ways an employer can reduce the likelihood of litigation.  A regular review by an employer of its policies and procedures is highly recommended.

Eric Parzianello
eparzianello@hspplc.com
313-672-7300

Posted in Business Litigation, General Employment Law | Tagged: , , | Leave a Comment »

Do You Have a Written Post-Termination Commission Agreement? If Not, It Could Be Costly

Posted by Eric Parzianello on September 18, 2014

When commission based employees terminate their employment, do they get commissions for sales made after they leave?  If no contract exists regarding post-termination commissions and the salesperson procured the sales, the employer must pay commissions even after termination of the employee under the procuring cause doctrine.  We recently obtained a significant victory for our client in Oakland County (MI) Circuit Court in large part because his former employer failed to have any written agreement with him regarding commissions.

What is the procuring cause doctrine?  The procuring-cause doctrine applies when the parties have a contract regarding the payment of sales commissions, but the contract is silent regarding the payment of post-termination commissions. The procuring-cause doctrine acts as a default rule for interpreting a contract that is silent with respect to commissions on sales generated by a salesperson before, but consummated after, termination of the relationship between the salesperson and the principal.

An salesperson is entitled to recover a commission whether or not he has personally concluded and completed the sale as long as  his efforts were the procuring cause of the sale.

How is “procuring cause” defined? A procuring cause has been defined by Michigan courts as the “chief means” by which a sale was finally effected. Whether a salesperson was a procuring cause generally turns on the facts of each case making written agreements critical in order to avoid litigating those facts.

Employers and salespersons both should minimize their litigation risk by having written agreements in place before any termination occurs.

Eric Parzianello
eparzianello@hspplc.com
313-672-7300

Posted in Business Litigation, General Employment Law | Tagged: , , , | Leave a Comment »

How The Employee You Terminated 20 Years Ago Can Still Be a Shareholder in Your Company

Posted by Eric Parzianello on July 16, 2014

Is it possible that the employee you terminated 20 years ago retains an ownership interest in your company?

In the recent case of Turner v. J&J Slavik Inc., a Michigan corporation’s former employee claimed that his shares in the company were not redeemed pursuant to the procedures in the parties’ stock restriction and redemption agreement when his employment terminated in January 1992.  He therefore contended that he holds the same ownership interest today.  The Michigan Court of Appeals agreed.

The agreement provided, in part, that: “[i]n the event the employment . . . of [plaintiff] . . . terminates, . . . [defendant] shall purchase, and [plaintiff] . . . shall sell, all of the shares of common stock in [defendant] then owned by such terminated employee.”  The purchase price was to be “the fair market value thereof as of . . . the last day of the month immediately preceding the termination of employment . . ..” “Fair market value” meant “the amount of [defendant’s] assets less the amount of its liabilities (book value) on the [v]aluation [d]ate divided by the number of shares outstanding . . . .”  However, no valuation occurred.  Instead, the company simply represented to the employee that the shares were worthless.  Additionally, despite the agreement’s deadline for the closing of the redemption of the stock, no such closing took place.

The Court found that the agreement contained no exemption from the valuation and closing procedure for allegedly worthless shares.  The Court ruled that because the redemption procedure was not followed, the employee’s stock was not canceled, and the employee did not lose his status as a shareholder.

Here, an employer’s prudence in having a well-drafted agreement with its employees was negated by the failure to follow its own procedures.

Eric Parzianello
eparzianello@hspplc.com
313-672-7300

Posted in Business Litigation, General Employment Law | Leave a Comment »

Sixth Circuit Bails Out Employer’s Questionable Drafting: Arbitration Clause Enforced Despite Lack of Mention of Survival

Posted by Eric Parzianello on April 13, 2014

The Sixth Circuit Court of Appeals recently bailed out an employer from some questionable drafting in its professional services contracts.  As a result, multiple former workers were required to arbitrate their claims individually as opposed to a class.

In Huffman v. Hilltop Companies LLC, the plaintiffs were hired by Hilltop to review the files of mortgage loans originated by PNC Bank. For over a year, they regularly worked in excess of forty hours per week but were not paid at overtime rates because they were classified as independent contractors – a classification the plaintiffs believed was erroneous.

One paragraph of their 24 paragraph Professional Services Contract contained the following arbitration clause:21.  ARBITRATION. Any Claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding arbitration administered by the American Arbitration Association (“AAA”) in accordance with its Commercial Arbitration Rules and its Optional Procedures for Large, Complex Commercial Disputes. The … arbitration and all related proceedings and discovery shall take place pursuant to a protective order entered by the arbitrators that adequately protects the confidential nature of the parties’ proprietary and confidential information.

A separate paragraph containing the survival clause read as follows:

22. SURVIVAL. Paragraphs 4, 5, 6, 7, 8, 9, 10. 11, 12, 14, 17, and 22 shall survive the expiration or earlier termination of this Agreement.

The plaintiffs’ contracts were terminated and they later filed suit in federal court alleging a violation of the Fair Labor Standards Act.  The employer argued that the plaintiffs were required to arbitrate their claims; the plaintiffs argued that the arbitration clause expired when the contracts were terminated since it wasn’t one of the twelve paragraphs listed in the survival clause.

The federal district court agreed with the plaintiffs.  It ruled that there was a “clear implication” that the parties intended the arbitration clause to expire with the agreement since 12 of the 24 paragraphs in the contracts were identified in the survival clause – and the “Arbitration” paragraph was not one of them. 

However, the Court of Appeals reversed.  It held that there is a strong presumption in favor of arbitration.  It found that the plaintiffs’ interpretation that the arbitration clause terminated upon the contract’s termination depends on a “strained reading” of the contract.  The listing of half of the contract’s paragraphs in the survival clause was apparently not enough for the Court:  it stated that “if the survival clause listed twenty-three of the agreement’s twenty-four clauses—all but the arbitration clause—that might constitute a clear implication, and yield a different result.”

The Court then not only held that the multiple plaintiffs were required to arbitrate but that they could not proceed as a class in arbitration.  Though the contract and the arbitration clause did not address classwide arbitration, the court held that the plaintiffs must proceed individually in the absence of a specific authorization to do so.  Despite this ruling, an employer would best be served by an explicit reference that an arbitration provision survives termination and a specific prohibition against classwide arbitration.  

Eric A. Parzianello
eparzianello@hspplc.com
313-672-7300

Posted in Uncategorized | 1 Comment »

How To Breach An Employment Agreement and Still Enforce Your Former Employee’s Non-Compete

Posted by Eric Parzianello on April 10, 2014

Can non-compete agreements still be enforceable when an employer fails to pay the employee amounts due under the same contract?  A Florida court found that answer to be ‘yes’.

A typical defense of an employee accused of violating a non-competition agreement is that the employer breached some agreement either by failing to pay amounts due under the contract or in some other manner. While this is usually a valid defense which could undermine an injunction enforcing the non-competition provision, careful drafting by the employer can make its prior breach irrelevant.

In the recent Florida case of Richland Towers v. Denton, the trial court found that the employer had not paid bonuses to the employee as required under the employment agreements. The court accepted the argument that this was a prior breach rendering the non-competition covenants unenforceable. The 2nd District Court of Appeals, however, reversed this decision. It found that to “reach this conclusion, the circuit court necessarily had to determine that the parties’ obligations under the contracts were dependent covenants. When a dependent covenant has been breached, the entire contract is virtually destroyed.”

The agreement however had an explicit provision which “trumped” the general rule that covenants are considered dependent.  The agreement provided as follows:

“Covenants Independent. Each restrictive covenant on the part of the Employee set forth in this Agreement shall be construed as a covenant independent of any other covenant or provisions of this Agreement or any other agreement which the Corporation and the Employee may have, fully performed and not executory, and the existence of any claim or cause of action by the Employee against the Corporation, whether predicated upon another covenant or provision of the Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of any other covenant.”

Because the covenants were independent, the employer’s prior breach of the agreement was irrelevant to the enforcement of the non-competition provision.

On a separate issue, the Court of Appeals also found that the discontinuation of business by the corporation which signed the agreements was irrelevant: another provision in the agreements provided that the corporation’s affiliates could enforce the non-competition provisions:

“Corporation (and each of the Affiliates comprising the Corporation) shall be deemed to be third party beneficiaries under this Agreement with the right to seek enforcement hereof and make claims hereunder, including but not limited to claims arising under this Section 10.”

The Court of Appeals therefore reversed the denial of the temporary injunction.  This decision is another example that the likelihood of success on a request for an injunction enforcing a non-compete provision depends in large part on the language of the contract.

Eric A. Parzianello
eparzianello@hspplc.com
313-672-7300

 

Posted in Business Litigation, General Employment Law, Non-Compete Law | Tagged: , , , | Leave a Comment »

How Employers Can Protect Against Résumé Lies: The Steve Masiello Story

Posted by Eric Parzianello on March 30, 2014

After Manhattan College’s basketball team nearly upset the University of Louisville in the NCAA tournament on March 20, 2014, its coach, Steve Masiello, was offered and apparently agreed to terms on a new job with the University of South Florida.  As Lee Corso might say, “not so fast my friend.”  Fortunately, for South Florida, the offer was contingent upon a background check.  Image

As reported in a story by the New York Times, the offer was pulled after South Florida officials discovered an “inaccuracy” on his résumé which said that he graduated from the University of Kentucky in 2000.  Masiello had attended but in fact did not graduate from Kentucky.  South Florida policy requires head coaches to have earned at least a bachelor’s degree.  This wasn’t Masiello’s first such misrepresentation about that degree; his bio on the official Manhattan College website – still active as of April 22, 2014 – lists his “alma mater” as Kentucky in 2000.

This story was reminiscent of football coach George O’Leary who falsely claimed that he had earned a master’s degree in education from New York University.  Unfortunately for the University of Notre Dame, this didn’t come to light until after Notre Dame offered O’Leary the position of head coach in 2001, he accepted it and a press conference was held to announce Tyrone Willingham’s replacement to the sports world.

Image
Five days later, the New York Times reported that “O’Leary had resigned suddenly after admitting to falsifying parts of his academic and athletic background.”

How do employers protect themselves from these types of situations?  Ideally, a formal offer and employment agreement would not be extended until after a background check is completed.  However, time constraints often do not allow for complete background checks, drug testing and the like.  Offers of employment should therefore have an “out” clause for the employer: a clause which makes clear that the offer can be revoked even after acceptance if certain information is discovered within a certain time.  A sample clause:

  • The effectiveness of this Employment Agreement is conditioned upon successful completion of a background check on Employee to be completed within 21 days after execution of this Agreement (the “Revocation Period”).  In the event Employer determines in its sole discretion that there are any inaccuracies in Employee’s representations, Employer shall provide written notice of revocation of this Agreement and Employer shall have no liability to Employee under this Agreement or otherwise.  Employee is cautioned to not take any action, including the voluntary termination of Employee’s current employment, until this Revocation Period expires.

As for Masiello, his position even as Manhattan’s coach remained in limbo until recently when Manhattan announced that Masiello would complete 10 credit hours at Kentucky this summer and then be eligible to return as Manhattan’s head coach.  Apparently, Manhattan never bothered with a background check either.

Eric Parzianello
eparzianello@hspplc.com
313-672-7300

 

Posted in General Employment Law | Leave a Comment »

On Twitter Bets, NCAA Upsets and “Manning Up”

Posted by Eric Parzianello on March 24, 2014

Is a one-sided bet enforceable?  NFL player Roddy White doesn’t think so.  Before last week’s first round NCAA game between 3rd seeded Duke and 14th seeded Mercer, White tweeted to a Mercer fan that he’d give him 50 yard-line first row season tickets if Mercer beat Duke.  Mercer, a 13 point underdog, upset Duke 78-71.

White went back to Twitter to say he’d only give him tickets to one game.  After getting roasted in the Twitter-verse, White tweeted:  “Y’all people are crazy on twitter you want me to man up and pay a bet to a person that had nothing to lose in the bet “.  Screenshots of the Twitter exchange can be found here.

Aside from the fact that, yes, he should “man up” after tweeting an unprovoked bet to a Mercer fan, White is legally correct.  For an enforceable agreement to exist, there must be consideration: something of value given by both parties that induces them to enter into an agreement.  Without consideration, there’s no contract here unless the Mercer fan did something in reliance on White’s statement.

Regardless, the lesson here is to shut up unless you’re ready to “man up.”

Posted in Social Media in the Workplace | Leave a Comment »

Tiger Woods Finds Florida’s Deceptive Trade Act Costly

Posted by Eric Parzianello on March 18, 2014

Your business contract has been breached in Florida and litigation can be costly.  However, as Tiger Woods will likely soon find out, Florida’s Deceptive Trade Practices Act (“DTPA”) provides a powerful tool for the collection of attorney’s fees.

Florida’s DTPA prohibits “unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce.”  Under the DTPA, the prevailing party may receive his or her reasonable attorney’s fees and costs from the nonprevailing party.  Therefore, even if your contract doesn’t provide for attorney’s fees in the event of breach, adding this cause of action may be beneficial if you can prevail on it.

In the recent case of Gotta Have It Golf Inc. vs. ETW Corp., owned by pro golfer Tiger Woods, the plaintiff had an exclusive arrangement requiring Woods’ company to provide memorabilia. It accused Woods of violating a 2001 licensing agreement after his company did not provide it the agreed amount of autographs and photographs for the plaintiff to sell.  Gotta Have It Golf alleged that Woods provided only 550 of 1,300 agreed autographs and denied the use of numerous photographs.

Although Woods testified at trial, a six woman jury was apparently unimpressed.  After deliberating for two hours on March 12, 2014, the jury found that Woods’ company breached its contract, violated its duty of good faith and fair dealing, and, importantly, engaged in deceptive and unfair trade practices under the DTPA.  A copy of the jury verdict can be found here.

The jury awarded $668,346.00 in damages to Gotta Have It Golf. Because of interest to be added to the judgment, the total amount owed could exceed $1.3 million.  Additionally, because the jury found liability under the DTPA, the plaintiff’s attorneys will seek attorney’s fees which could approximate $1 million.  Without making a claim under the DTPA, the plaintiff would likely have not had any ability to recover its attorney’s fees.

Lesson:  litigation creativity can result in cost effective representation.

Posted in Business Litigation | Leave a Comment »

Five Things an Employer Can Do Before a Wage and Hour Claim is Made

Posted by Eric Parzianello on February 4, 2014

Employers both large and small continue to be affected by Wage and Hour claims.  In one recently reported case, a Domino’s Pizza franchisee agreed to pay $1.28 million to 61 pizza delivery workers based on claims of unpaid work.  In a case in which we’re involved, a collective action was filed in federal court on behalf of workers employed by a company but allegedly misclassified as independent contractors.  In another case, the Department of Labor’s Wage and Hour Division received a complaint from a worker and sent the letter no employer wants to receive:

Dear Owner/Manager:
The Wage and Hour Division (WHD) of the U.S. Department of Labor is responsible for administering and enforcing a number of federal labor laws, including The Fair Labor Standards Act (FLSA). This letter is to inform you of the agency’s plans to visit your establishment on February 6, 2014, at 10:00 a.m. to determine your compliance with the FLSA. 

The Department of Labor’s WHD website makes it very easy for any employee to make a claim. The WHD touts that “there are no charges to file a complaint or for the WHD to conduct an investigation” and that it will enforce wage laws “without regard to an employee’s immigration status.”  Damages in a wage and hour case may include attorney fees as well as double the amount of unpaid or under-paid wages.  Not surprisingly, National Economic Research Associates reports that on average, companies paid approximately $4.5 million to resolve cases involving wage and hour violations in 2013.

What can an employer do before a claim is made or an audit is demanded by the Wage and Hour Division?

  1. Conduct periodic internal audits with labor counsel to ensure compliance with applicable laws
  2. Ensure that employees who are classified as salaried workers and thus exempt from overtime pay are properly classified
  3. Review written job descriptions to ensure that duties of exempt employees reflect their actual job duties
  4. Determine that any workers classified as independent contractors are properly classified and are not actually employees
  5. Ensure that time record keeping procedures accurately reflect the work done

These procedures can help minimize the risk of an audit or a claim by an employee for unpaid wages or overtime.

Posted in General Employment Law, Wage and Hour Law | Tagged: , , | Leave a Comment »

Revitalizing Detroit Requires a Leap of Faith and Solid Preparation

Posted by Eric Parzianello on January 30, 2014

It was a cold, February day in 2012 when my partner Mark Snitchler and I drove downtown on Woodward Avenue from Oakland County to view possible Detroit office space for our new law firm Hubbard Snitchler & Parzianello PLC. Despite the passing of more than a decade since moving from Detroit to Franklin, as I traversed the city streets, it initially appeared not much had changed in the city. My immediate thought was “maybe this isn’t such a good idea.” Over the next couple hours, however, my confidence would be restored.

Our “idea” to move downtown was inspired by Detroit’s recent rejuvenation. As companies and organizations moved back to the city, we believed a boutique business law firm, like the one we planned to open, would thrive in Detroit. We met with Bruce Schwartz, Quicken’s Detroit Relocation Ambassador, for what we thought would be a building tour. As Snitchler recalled, “Although we visited a number of buildings, what stood out more was the vision Bruce laid out for us.”

Schwartz shared Dan Gilbert’s plan for downtown, which centers on redeveloping Woodward Avenue and surrounding districts like Capitol Park and Grand Circus Park into a thriving urban environment made of new and renovated residences, offices, stores, restaurants and cultural attractions.  After we examined projection drawings of the Woodward corridor and reviewed artists’ renderings of renovated buildings, we were captivated by the matter-of-fact confidence in what was planned. Still, we were making a huge bet on the city making a comeback. While every new venture has risk, Snitchler, John Hubbard and I knew advance research and planning was a necessity to minimize our risk.

Taking our own advice, we focused on the following items, key to starting any new business:

Develop a business plan. A discussion between owners of the “how,” “why” and “where” of the business is important. For us, our individual expertise had been established, but we still needed to address the markets and clientele we would target. The industry outlook, analysis of competition and financial projections are additional elements of a good business plan. And for us, incorporating Detroit into our future marketing would be important. 

Decide on a business structure. The decision to form a business as a limited liability company, corporation or other entity depends on various factors. Regardless of the type, a company needs a legal entity to limit the owners’ personal liability and maximize tax benefits.  We worked with CPAs to determine the most appropriate structure for our business.

Obtain start-up capital. All ventures need to establish banking relationships. Loans for equipment and lines of credit should be explored. We’re starting to see banks that are more willing to extend loans to start-ups. That has positively affected the downtown area. At the same time, there are grants, tax abatements and other funding programs that should be explored.

Draft an operating agreement. One of our busiest practice areas is business breakup litigation. When partners don’t plan an exit strategy, it can lead to court battles. Discussion of the terms on which one partner can leave or be asked to leave the business may take the “romance” out of the initial stages of a professional relationship, but it is essential. Non-solicitation agreements also should be considered with a new venture so departing partners or employees can’t attempt to take customers on their way out.

Negotiate a lease.  A lease agreement may a new venture’s largest obligation.  Seeking counsel to help understand all lease obligations – such as taxes, insurance, and common area maintenance charges – is important.  Negotiating terms such as length, tenant improvements, and options for additional years is also essential. 

Recruitment.  There’s no question a vast majority of graduates, entrepreneurs and professionals are looking to work and live in a cool, urban setting.  Detroit has that.  As a case in point, when the David Broderick Tower at Woodward and Witherell was redeveloped into 125 apartments last September, every residence was leased.  As more residences, offices and merchants are added, we believe it will attract the best and brightest professionals in the world.  Instead of brain drain, Detroit is experiencing a brain gain. 

As for our firm, there have only been a couple unanticipated growing pains in moving downtown.  As Hubbard jokes, “We’re still working on patience – waiting for elevators or driving to the top level of the parking garage to find a space. But that means more people are coming back to Detroit, so it’s a good thing.”

Our bet on the city’s comeback is already paying off.  Mark noted, “We’ve attracted new clients who either have businesses located in the city or are looking to move here. Our downtown move to the Chrysler House is a big reason for that, and it uniquely positions us to assist those clients.”

Each day we are reminded of Detroit’s potential by the wall-size Fathead photos of a bustling downtown, taken in 1917, adorning our office. The photos are as much a nod to the city’s rich history as to our belief that the city is coming back. At our firm, we think it’s actually already back.

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This article was originally published in dBusiness Magazine in its July/August 2013 Edition.

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Top 7 Safeguards To Protect Confidential Information

Posted by Eric Parzianello on January 12, 2014

How do I protect my confidential information ?  It’s a common question asked by corporate executives and business owners who are increasingly concerned about how to protect their company’s sensitive material. The disclosure of customer lists, pricing information and business techniques could negatively impact a company’s revenues.  What are the top safeguards a business owner can put in place to protect critical information?

  1. Store critical information with controlled physical access
  2. Limit access to sensitive information in electronic format
  3. Clearly mark any confidential information
  4. Ensure departing employees return confidential information in their possession
  5. Restrict copying and transmission of confidential information
  6. Require employees and others who will view sensitive material to sign confidentiality agreements
  7. Enforce any violations of confidentiality agreements or company policy

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Managers Beware: You Can Be Individually Liable For Discriminating Against Employees

Posted by Eric Parzianello on November 17, 2013

Until recently, federal courts have almost uniformly found that managers or supervisors cannot be individually liable under Title VII, which protects employees against discrimination based on grounds such as race, color, religion, sex, or national origin.  Under Title VII, liability is typically limited to the employer.  A November 4, 2013, case from the Sixth Circuit (which covers Michigan, Tennessee, Kentucky and Ohio), however, has strayed from that general interpretation of the statute.

In Mengelkamp v. Lake Metropolitan Housing Authority, a female plaintiff who was employed at annual salary of $46,000 sued her employer and manager for sex discrimination.  She alleged and a jury found that her male manager consciously disregarded her rights and engaged in “outrageous” and “flagrant” actions.   The jury awarded the plaintiff compensatory damages of $195,000 against the employer and punitive damages of $105,000 against her manager.  The Court of Appeals upheld both awards.  As to the punitive damages, the Court found that the manager held a supervisory position, had significant control over the plaintiff’s firing, and was the person in charge of employment conditions.  The manager was therefore an “employee” under the statute and could be found individually liable.

Lesson for managers and supervisors:  don’t discriminate . . . . or find a job outside of the Sixth Circuit.

 

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Employee’s Facebook Vacation Pictures Lead to Termination

Posted by Eric Parzianello on March 20, 2013

A winter trip to Cancun is the perfect backdrop for Facebook picture posting – unless you happen to be on FMLA leave for “excruciating” back and leg pain.

Lineberry v. DMC

That is the message from a recent federal case out of the Eastern District of Michigan, Lineberry v. Detroit Medical Center.

Carol Lineberry was performing satisfactorily as a registered nurse at the  Detroit Medical Center (“DMC”).   On January 27, 2011, she was moving stretchers at work and woke up the next day with “excruciating pain in her lower back and leg pain.”  The DMC approved leave for Lineberry under the Family and Medical Leave Act (“FMLA”) from January 27, 2011, through April 27, 2011. While on FMLA leave, she took a trip to Mexico.   Her co-workers saw Facebook photos of Lineberry on vacation, including photos of her riding in a motorboat (above) and lying on a bed holding up two bottles of beer in one hand.  Lineberry also posted Facebook pictures of herself holding her grandchildren.  Based on these Facebook postings, Lineberry’s co-workers (and Facebook friends) complained to her supervisors about what they thought was a misuse of FMLA leave.

On her return, she was questioned about her trip during an investigative meeting attended by the DMC’s human resources personnel.  Lineberry claimed that she was wheeled around the airport in a wheelchair.  When reminded that airports have security cameras, she recanted and admitted that the use of a wheelchair was a lie.  The DMC terminated her for violating the DMC’s Progressive Discipline Policy concerning  “Dishonesty, falsifying or omitting information, either verbally, [or] in written format (including electronically) on DMC records including, but not limited to payroll records, human resources records etc.”  Lineberry naturally sued for violation of her FMLA rights.

In February of 2013, the court dismissed her complaint.  It held that employees may be dismissed so long as the dismissal would have occurred regardless of the employee’s taking of FMLA leave.  The court found that she was terminated for dishonesty and not as a retaliation for taking FMLA leave.  The court also found that if an employer, like the DMC’, honestly believes that an employee lied and misused FMLA leave time, it may terminate the employee based on that belief.

Lesson for employers:  have a good employee handbook policy regarding dishonesty.  Lesson for employees:  use better judgment in Facebook posts — and Facebook “friends.”

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Employers Violating Michigan’s New Internet Privacy Protection Act Will Face Criminal and Civil Penalties

Posted by Eric Parzianello on January 2, 2013

A new Michigan law which was unanimously passed by the Michigan legislature and signed by Governor Rick Snyder on December 28, 2012, will impose criminal and civil penalties on employers for requesting an employee or applicant for employment to permit access to or allow observation of that person’s “personal internet account.” A “personal internet account” is defined as a:

bounded system established by an internet-based service that requires a user to input or store access information via an electronic device to view, create, utilize, or edit the user’s account information, profile, display, communications, or stored data.”

Personal internet accounts include popular social media sites such as Facebook and Twitter. The law will be known as the “Internet Privacy Protection Act” (“IPPA”). The IPPA which is immediately effective also applies to educational institutions and prohibits colleges, for instance, from requesting access to personal internet accounts as part of their admission process.

Aside from prohibiting a request for access, an employer is now prohibited from taking adverse action against an employee or applicant for any refusal to allow the employer to access or observe the person’s private social media accounts. A violation of the law is a misdemeanor punishable by a maximum fine of $1,000.  An individual who was the subject of the violation can also bring a lawsuit and recover up to $1,000 in damages plus reasonable attorney fees and court costs after the person makes a written demand on the employer for payment.

Certain actions remain permissible for employers, including:

  • viewing information which is publicly available;
  • requesting access to an electronic device paid for by the employer; reviewing data stored on an electronic device paid for by the employer; and
  • requesting access to an employee’s personal internet account to investigate misconduct if specific information about misconduct exists.

The issue of employee use of social media continues to be a thorny one for employers. An employee’s privacy rights must be balanced with an employer’s right to hire and fire as it pleases. Some cases have already restricted employers’ firing rights such as one which prohibited an employer from firing an employee for inappropriate posts on her Facebook page. To now subject an employer to potential criminal penalties for merely requesting access to personal information seems excessive.

Further, this law creates an invitation for litigation by rejected job applicants. Even if access is not actually requested from a job applicant, if the applicant’s Facebook page or Twitter account is even mentioned during an interview, the likelihood that litigation will be commenced increases. If an employer receives the required demand letter from an applicant, it will need to decide whether to simply pay $1,000 or go to court. If it decides not to pay, it will need to hire an attorney and then face the possibility of paying the applicant’s attorney fees if it loses in court. There is no provision in the proposed legislation which allows an employer to recover its attorney fees if it is successful in court.

There is also an issue of who is liable in the event of a violation. Since the IPPA refers to a ‘person’ who violates the law, training interviewers is important. A company supervisor could be unknowingly subjecting herself to personal liability. Training for anyone who interviews candidates on behalf of a company now becomes even more vitally important to address not only this potential law but all types of questions which are ‘off-limits’ in an interview.

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Employment Handbook Provisions Remain Critically Important

Posted by Eric Parzianello on December 19, 2012

A recent Michigan case shows the importance of employment handbook provisions.  In Woofter v. Mecosta County Medical Center, the Michigan Court of Appeals considered a fired employee’s argument regarding her employee handbook.  She claimed that the disciplinary action policy created a grievance-like procedure and progressive form of discipline leading up to termination which therefore created her legitimate expectation of just-cause employment.  In ruling for the employer, the Court held that language in the handbook which stated that it was not intended to establish a contract between the employer and its employees was “sufficient to overcome contrary language suggesting just-cause employment.”  Employers should conduct an annual review of their employment policies to ensure, among other things, that their policies are consistent with any desired at-will employment arrangements.

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Does Your Employee Handbook Prohibit Texting While Driving? It Should

Posted by Eric Parzianello on November 28, 2011

There is no doubt that texting while driving creates incredible and often deadly dangers.  A recent Florida case not only highlights those dangers but shows the financial risks which employers may face if their employees are texting while driving company cars.

On the morning of August 12, 2008, Lawrence Daniels, a pharmaceutical representative employed by Astellas Pharma US Inc., was driving a car owned by Astellas.  That same morning, James Caskey, was riding his bicycle around his North Naples neighborhood.  He was biking home when he was struck and killed by the car driven by Daniels.   A criminal proceeding found Daniels guilty of failing to yield at a stop sign.  Now, a civil case will determine whether Daniels was texting while driving.  If so, Collier County Circuit Judge Hugh Hayes has permitted Caskey’s widow to seek punitive damages against the driver and his employer according to a story in the Naples Daily News.  Punitive damages have no relation to the actual damages incurred but, rather, are intended to punish the defendants and deter others from engaging in similar conduct.

Although Daniels denies he was using his cellphone while driving, cell phone records suggest otherwise.  Importantly for Daniels’ employer, its employee handbook did not require its drivers to pull to the side of the road to text. Daniels’ handbook simply said: “Use of a cellular phone in a company vehicle is permissible; however, cellular phone usage should be restricted as much as possible while driving.”  While Michigan laws prohibit texting while driving, Florida has not yet enacted such laws.  If Daniels was indeed texting while driving, his company’s failure to issue a policy prohibiting texting while operating its vehicles could be costly, as it eliminates at least one possible defense to company liability.  In Florida DUI cases, punitive damages of up to $500,000.00 are permitted.

While there are many employee handbooks available for download on various websites, including one found on the Small Business Administration’s website, consult your attorney to ensure particular issues which may be important to your business are addressed.

Once your policies are implemented, it’s also important to take measures to enforce them.   Last year, the Walt Disney Company updated their employee policies to prohibit the use of any electronic device to send or read text messages, e-mails or any other written communication while operating a vehicle.   Employees who fail to comply are subject to disciplinary action up to and including termination.

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Law Firm’s Arbitration Clause Not Broad Enough to Include Age Discrimination Claim

Posted by Eric Parzianello on November 20, 2011

A recent Michigan Court of Appeals decision shows that even lawyers’ own arbitration clauses may not be as broad as they intended.

In Hall v. Stark Reagan, former shareholders of the law firm alleged that their shareholder status in the firm was terminated by the remaining attorneys based on their age. The attorneys filed suit in Oakland County Circuit Court based on age discrimination.

The law firm claimed that the parties’ shareholder agreement required the parties to arbitrate any age discrimination claims. The Circuit Court agreed and dismissed the complaint.

The Court of Appeals reversed that decision. It found that the arbitration clause in the shareholder agreement was limited in its scope to disputes relating to the “interpretation or enforcement” of the “rights or obligations” described in the agreement. Since those “rights or obligations” only involved various forms of entitlement to stock ownership, a dispute involving age discrimination was not contemplated by the shareholder agreement.

Because the complaint did not contain any allegation that defendants violated the shareholder agreement, the court concluded that including an age discrimination case “within the scope of an arbitration provision expressly limited to the ‘interpretation or enforcement’ of ‘rights or obligations’ concerning corporate stock would expand the clause’s reach beyond that intended by the parties.”

In many cases, arbitration is preferable to litigation. If you currently have arbitration clauses in your agreements with your employees, make sure they cover all of the potential disputes that can arise.

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IRS To Crack Down on Improper Use of Independent Contractors But Offers Early Settlement

Posted by Eric Parzianello on September 27, 2011

A prior blog post examined some of the dangers of classifying workers as independent contractors when the Department of Labor may consider them to be employees.  If the DOL concludes that employees have been erroneously classified as independent contractors, then  minimum wage, overtime, penalties and interest may be only a part of a business owner’s problems.   Another looming risk as a result of an erroneous classification is the IRS seeking to recover unpaid federal employment taxes.  The IRS has publicized its intent to be more vigilant about worker misclassification in the future.

However, under a new IRS settlement program, business owners have the opportunity to “come clean” regarding workers who have been previously misclassified as independent contractors.  The Voluntary Classification Settlement Program allows eligible business owners to voluntarily agree to reclassify independent contractors as employees (one of the eligibility requirements is that the taxpayer is not currently being audited).  The business owners would then pay only 10% of the payroll tax liability which would have been due on the employee’s compensation for the past year, without interest or penalties.  Participating taxpayers agree to treat applicable workers as employees for future tax periods and extend the period of limitations on assessment of employment taxes for three years to allow the IRS to monitor future compliance.  In exchange, the IRS agrees to:

  • Accept 10 percent of the employment tax liability that may have been due on amounts paid to the workers for the most recent tax year;
  • Waive all interest and penalties on unpaid amounts; and
  • Not conduct an employment tax audit with respect to worker classification of those workers being reclassified for prior years.

To determine whether to consider participating in this program, a business owner should consult with counsel to analyze whether the workers are independent contractors or employees.  The factors used by the IRS center around degrees of control and independence:

  1. Does the owner control or have the right to control what the worker does and how the worker does the job?
  2. Are the business aspects of the worker’s job, including how the worker is paid and who provides tools for the job, controlled by the owner?
  3. How continuous is the relationship?
  4. Is the work performed a key aspect of the owner’s business?

The IRS says that “there is no ‘magic’ or set number of factors that ‘makes’ the worker an employee or an independent contractor, and no one factor stands alone in making this determination.”  The entire relationship must be considered.

For business owners who want a free analysis, the IRS is more than willing to conduct one through the filing of Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.   Although it may take at least six months, the IRS will review the facts and circumstances and officially determine the status of any workers.  However, in light of the publicized vigilance in the pursuit of unpaid taxes by the IRS for misclassified workers, this particular option may fall into the category of “be careful what you ask for.”

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Bank of America Fires Poor Manager; U.S. Says She Was a Whistleblower and Awards Her $930,000

Posted by Eric Parzianello on September 15, 2011

As a timely follow-up to a recent blog regarding documentation of employee deficiencies, whether a former Bank of America employee’s personnel file was sufficiently “papered” with negative performance reviews will almost certainly be at issue on appeal.  The bank was ordered to reinstate and pay a former employee approximately $930,000 in back wages, interest, compensatory damages and attorney fees after the United States Department of Labor found that she was fired for being a whistleblower.

The employee worked for Countrywide Financial Corp., which merged with Bank of America in July 2008.   According to the Department of Labor, the employee revealed “widespread and pervasive wire, mail and bank fraud involving Countrywide employees”  and was fired shortly after the merger.

In a Bank of America statement reported by the Los Angeles Times the bank said it fired the employee “solely based on issues with the employee’s management style and in no way related to the employee’s complaints and the allegations made in the complaint.”  The bank said it will appeal the ruling to the Labor Department’s Office of Administrative Law Judges within 30 days.

Posted in General Employment Law, Uncategorized | Leave a Comment »

 
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