Archive for the ‘Arbitration’ Category

It’s easy to plug in a standard arbitration form into your business or employment contract and think that you’ve covered yourself.  If only it were that easy.  A sophisticated client recently had to good sense to ask me to modify the standard arbitration clause.  The client saw the arbitration forum as a quicker and less expensive way to resolve disputes.  This can be true, but the devil is in the details.

For example, some arbitration agreements or clauses call for a panel of three arbitrators.  Guess what?  You just tripled the cost of arbitration.  Arbitrators do not work for free.  The parties pay them for their time.  I don’t begrudge their getting paid for their work, but they are expensive.  In a perfect world, three arbitrators would be nice.  But I reserve that for disputes that will have very significant dollar values.  Otherwise, arbitration becomes cost-prohibitive.

You may want to have a mediation requirement prior to entering into arbitration.  Mediation can be an excellent way to resolve disputes.  And it’s much cheaper and quicker than arbitration.

You may want to specify the type of arbitrator who will be chosen.  If you have a construction contract at issue, you will want an arbitrator with experience in the construction industry or construction law.

You will want to consider what rules apply to the arbitration.  Most arbitration firms have different sets of rules, including expedited procedures for quick resolutions.

You should consider where arbitration should be held.  Arbitration in another state will cost you time and money.  Of course you want to agree to your home forum in most circumstances.

Finally, consider the scope of the arbitration clause.  Not all disputes lend themselves well to arbitration.  For example, you may want a carve out for injunctive relief and prejudgment security.

If you need help drafting an arbitration clause or modifying your “standard” clause, please call me at 617.338.7000.

By Adam P. Whitney

 

 

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It sucks when your company gets sued.  But it’s part of operating a successful business.  No one wants to sue a business that has no money and no assets.  The more successful you are, the bigger the target you have on your back.  Lawsuits are not fun.  They are risky.  And very expensive.  No lawyer can change any of that, but there are certain things that you should do, and not do, as soon as you receive lawsuit papers, including the following.

 

  1. Don’t Ignore It.  Although some threatening letters from lawyers are empty threats (you should not ignore these either; some require a response by statute) that you may choose to ignore, a summons and complaint notifying you of a lawsuit will not go away on its own.  In fact, there can be grave consequences, including a default judgment against the named defendants, or, in some cases, an immediate injunction (court order) against your company.  Although a default can sometimes be vacated if you take swift action, you don’t want to leave that to chance.  This leads to the second point …

 

  1. Call Your Lawyer Immediately.  I know this sounds self-serving, and no one likes to pay legal fees, but you need legal advice, and fast.  If your business is a legal entity, such as a corporation or LLC, you cannot represent it in court in Massachusetts (with the exception of small claims).  One of the consequences of incorporating is that your business is a separate legal entity from its owners; unless one of the owners is a licensed lawyer, you will need to hire an attorney or else face default.

 

  1. Choose the Right Lawyer.  All lawyers are not the same.  There are different specialties, different personalities and styles, and different hourly rates.  Your ideal lawyer will have some experience in the type of case at issue, will have a reasonable rate, and will have a personality and style that you can work with.  Don’t be shy about asking tough questions about the lawyer’s experience.  Consider asking for references.  Investigate the lawyer on-line (www.avvo.com is a good starting point).  Ask the lawyer for a litigation budget, a general defense strategy, and the lawyer’s thoughts on alternative dispute resolution.  You will not offend the lawyer by being a smart consumer of legal services.  If you do, then you are probably talking to the wrong lawyer.

 

  1. Check for Insurance Coverage Immediately.  Even if you think that your policy, be it a general liability policy, directors and officers policy, or other insurance does not cover the claim, check with your insurance agent anyway.  You may be pleasantly surprised.  If you are fully covered, the insurer will assign a lawyer and will pay the lawyer, subject to any deductible, and will likely pay for any settlement or judgment.  Sometimes insurers agree that they have a duty to defend your company, subject to a reservation of rights.  This usually means that you can pick your own lawyer, and the insurer will pay the reasonable and necessary legal fees, at least until and unless it or a court determines that there is no coverage.

 

  1. Preserve Electronic and Paper Information.  Put any normal document destruction or e-mail purging programs on hold.  You have a duty to preserve information, which could help you or the other side.  If you destroy information, that fact can be used against you, which may look like you are trying to hide something even when you are not.

 

  1. Be Careful What You Say or Write.  Other than communications with your attorney, almost everything you say about the plaintiff or the lawsuit is discoverable.  That includes internal e-mails with your staff.  It likely includes investigations or interviews that you take without a lawyer (sometimes, it makes sense for companies to do their own investigations).  Your best bet is to let your lawyer handle it.  A meeting with you and your key personnel is not protected from discovery if your lawyer is not there.  E-mails and memoranda can be especially devastating.  Don’t put something in an e-mail unless you want it blown up on a giant poster-board in front of a judge and jury.  If you have any doubt, check with your lawyer.

 

  1. Don’t Just Let the Lawyers Handle It.  Although you want to continue to focus on your business, it would be a mistake to turn the defense of the suit over to your lawyers and then not monitor it.  You want to be involved, because you know your business and the facts better than the lawyers.  There is so much at stake.  Think of yourself as part of the defense team.  If you have no insurance coverage, you can also keep a better handle on legal fees and expenses.

 

  1. Consider Alternative Dispute Resolution.  First, check to see if a contract at issue requires arbitration.  In some circumstances, arbitration can be quicker and cheaper than litigation (but not always).  It’s also more private.  Also consider, after consultation with your attorney, pursuing early mediation.  If there is some exposure on the claim and the plaintiff and plaintiff’s lawyer appear to be reasonable, you may be able to save tens of thousands in legal fees and eliminate the risk of a judgment in an indeterminate amount.  Consider that, in Massachusetts, interest runs at 12% per annum from the date of the breach of contract or the date of filing.  Do the math; it adds up.  If handled correctly, a request for mediation is not a sign of weakness.

If you or your company have been sued, or you know a lawsuit is on the horizon, and you need assistance, give me a call at 617.338.7000.

Much of what you may think you know about employment contractual issues could be wrong. Is your company exposing itself to liability because of misinformation or a lack of information about contracts? Employment law creates traps for unwary employers. For example, you could be damned by a poorly drafted commission plan, which could subject you to triple damages, costs and attorneys’ fees even where you think an employee is owed nothing. You could be damned by your own personnel manual, which inadvertently creates contractual rights in employees. You could be damned by firing a minority owner of your business (stockholder, partner or LLC Member) without legal advice. Here is a brief guide, which just scratches the surface of these complex issues.

Does a Contract Have to Be in Writing?

Yes and no. Ideally, every employment agreement should be in writing to clarify the rights and obligations of both parties. Sometimes, a simple offer letter will do. To some extent, oral contracts can be enforceable if they can be performed within one year. If the contract cannot be performed within one year, then it must be in writing to satisfy the statute of frauds. Like many things in the law, there are exceptions to these rules. For example, if an employee relied on an oral promise of a contract for a term of years, the employee might be able to enforce the oral promise using the court’s equitable powers? Also, a promise of employment for life can be performed within one year because anyone can die within a year. Thus, an oral promise of employment for life can be enforceable.

Does a Partner in a Partnership, a Shareholder in a Small Corporation, or a Member of an LLC Have Rights Against Being Terminated by the Majority Owners?

Yes, to an extent. This is a very complicated area of the law and depends on the specific facts of each case. In general, if the owner-employee has a reasonable expectation of continued employment, he cannot be fired unless there is a business purpose for the firing and no less harmful alternative. This is because the majority owners owe the minority owner the utmost duty of good faith and fair dealing. Thus, majority owners should seek sound legal advice before terminating or taking other action against a minority owner employee.

Can Other Employees Be Fired Without Cause?

The general rule is that, if an employee is “at-will,” which means that the employment is not for a specified period of time and there is no contractual protection to employment, the employer can fire the employee for any reason or for no reason. If an employee has a specific contract (or if a personnel policy creates rights against termination, as set forth below), usually the employer can terminate the employee only if there is “cause” to do so. Well-drafted contracts define the specific “for cause” reasons for termination.

Also, there are dozens of statutory and common law protections which protect employees from discrimination and other matters. Thus, if the employer terminates the employee without cause, the employee may believe that there is a discriminatory or other reason for the termination.

Does the Employee Manual or Personnel Manual Create an Employment Contract Giving Rights to the Employee?

Yes, no, maybe. Typical lawyer answer, I know, but it is the right answer. A well drafted manual usually will not create contractual rights in favor of employees. However, there are reported cases where a poorly drafted manual inadvertently gives rights to employees that prevent their termination without cause. Employers should have their manual reviewed by a qualified employment lawyer to protect themselves from suit.

Can an Offer Letter Create an Employment Contract for a Term?

Yes. Employers can unintentionally create an implied contract for a term by the wording in an offer letter. Employers should have their offer letters reviewed by a qualified employment attorney before sending them.

Should Employees Be Told of the Reason for Termination?

Probably, but it depends on the situation. What employers should not do is lie or tell a half-truth, even to save the employee’s feelings. This does not mean that the employer has to be harsh or intentionally hurt an employee’s feelings, but if you do not tell the truth at termination and you are then sued, it’s hard to change your story later. The employee’s lawyer will accuse you of changing your story and that your real reasons were discriminatory. Also, you should document the reason for the firing. Employment lawyers have a saying – if it is not in writing, it didn’t happen.

Additionally, there are new statutory requirements about what employers must put in an employee’s personnel file and how the employer must inform the employee of any negative information. All employers should review these new requirements with a competent employment attorney.

Can an Employment Contract Control over Statutes and Common Law?

Generally, no. Although parties are free to set forth the terms of the employment in writing, there are limitations. For example, employees must be paid minimum wages and must be paid either weekly or bi-weekly. These rights cannot be contracted away. An employer also could not have an employee waive an employee’s rights under anti-discrimination or other protective statutes, such as the Family and Medical Leave Act. However, unless there is some statutory or public policy prohibition, parties are free to tailor their agreement as they see fit.

Are Contracts Requiring Arbitration Enforceable?

To some extent, yes, if the contract is well-drafted, fair and reasonable. An employee is always allowed to challenge whether there is a valid arbitration provision, which is an issue for a court, not an arbitrator. Arbitration can also be waived by the party seeking to enforce it. Also, arbitration clauses cannot prohibit employees from filing with the Massachusetts Commission Against Discrimination, or from filing wage claims or other claims with the Attorney General or other governmental entities. Arbitration issues are complex, so if you are an employer who seeks to enforce an arbitration clause, make sure you have it reviewed by a competent employment attorney.

Can an Employer Make Sure that a Worker Is Not Classified as an Employee by Entering Into an Independent Contractor Agreement?

No. In Massachusetts, there is a strict three-part test for determining whether someone providing services for your company is an employee or independent contractor. This is a complex legal and factual question, but in general, if the individual is providing services within your line of business, or you have some control over the individual’s work, or if the employee does not have his own business or profession, the individual will likely be deemed to be an employee. There can be severe penalties and liabilities for misclassifying a worker as an independent contractor, so have a competent employment lawyer review this issue for you.

Does an Employee Have any Rights and Remedies if a Contract Has Been Breached?

Usually, but it depends on the wording of the contract and whether the employee has suffered damages. Employees will normally have a duty to mitigate damages. Thus, an employee must seek another comparable job after termination. The normal damages would be the loss of earnings during the contract term, minus amounts earned or which could have been earned in mitigation. There could be other damages, depending on the wording of the contract and the situation.

Does an Employer Have to Provide Severance Pay?

Generally, no, unless there is a contractual right or a specific, enforceable policy to do so. There may be exceptions to this general rule, but the exceptions do not apply to most employers and employees.

Does an Employee Have a Contractual Right to Bonuses and Commissions?

Yes, no, maybe. Commissions and bonuses are creatures of contract, but can potentially be enforced through payment of wages statutes. One must first look at the specific wording of any written contract or compensation plan, and also examine the course of dealing of the parties and the standards in the industry. If an employer has a vague commission plan or one that favors the employee, the employee may have a contractual right to commissions, even after termination. Worse yet, the employee could be entitled to triple damages and attorney’s fees, litigation costs and interest. Thus, any commission or bonus plan must be very carefully crafted by a competent employment attorney. A “bonus” is usually thought of as being wholly discretionary and, thus, not subject to contractual or statutory rights. However, “bonus,” is just a word used and the word itself does not control. Employers can inadvertently create employee rights to a “bonus” by a poorly worded compensation plan or a course of dealing.

Can an Employer Make any Employee a Salaried Employ by Putting that in the Contract?

No. There are specific guidelines under federal and state law regarding who is an “exempt employee” and who is a “non-exempt employee” for overtime purposes. Contrary to the belief of some employers, you cannot simply pay any employee a salary and not expect to keep track of their hours and pay overtime. You must first determine whether the employee meets the exempt guidelines, which can be very complicated. For example, lawyers and doctors are professionals and can be paid on a salaried basis, as can some (but not all) executives, managers and computer programmers.

The above is not meant to be legal advice, but merely general information. Employment law is extremely complex, and legal advice cannot be given without a full review of the facts and the law. The above may or may not apply to any particular employer or employee.

By Adam P. Whitney 617.338.7000.