Archive for the ‘Lawsuits’ Category

You may have signed many contracts with boilerplate language whereby your company agreed to indemnify and “hold harmless” the other contracting party.  Most people have some concept of what this means, but really do not think through the ramifications of such an agreement.  Whenever possible, delete these provisions from any contract provided by the other party.  If you are forced to agree to indemnity clauses, have your lawyer suggest reasonable changes and explain your company’s risk.  Also, check with your insurance agent to see what will be covered.

The word “indemnify” is usually thought to refer to claims by third parties who are not parties to the contract.  If your company agrees to indemnify ABC company, your company will pay any judgment as well as the cost of defense.  Hold harmless, in the opinion of some legal minds, is slightly different; this could mean that you will not sue ABC company if a third party sues your company for something that ABC company allegedly did wrong.  Both indemnity and hold harmless agreements are subject to judicial review for public policy and reasonableness, and certain statutes apply, both of which can temper their literal interpretations.  However, your best option is either to not sign them at all, or insist on some reasonable parameters.

Even lawyers do not completely understand all of the complexities of indemnity and hold harmless provisions.  Often, these are inserted as boilerplate provisions, with little thought by the lawyer about what they mean.  Many lawyers who draft such provisions are contractual lawyers, not trial lawyers, so they do not fully appreciate the practical implications of indemnity and hold harmless provisions.

Vague indemnity and hold harmless provisions create a lot of unanswered questions.  Do you have to indemnify ABC company if it was negligent?  If it committed an intentional act?  If it sexually harassed someone?  If one of its drivers caused a fatal auto accident?  Can ABC company hire any lawyer it wants to defend it from a third-party claim?  A law firm that charges $500 an hour?  Can the firm engage in a scorched earth defense on your dime?  Can ABC settle the claim for any amount and make you pay it?  Do you have any say in the selection of lawyers and defense of the case?  Does the indemnity provision prohibit you from suing ABC company if it harms your company? Will you have to pay ABC’s legal fees if you sue it?

If you do not know the answers to these questions, or the provisions are simply silent, you need a lawyer to write better provisions.  Plain English is preferable to archaic language that lawyers and courts interpret differently.

The same applies if the coin is flipped and you require ABC company to indemnify you and hold you harmless.  You don’t want to have to rely on vague provisions.  Get the protection you need specified in clear language.

If you have a question about any indemnity and/or hold harmless provisions, call me at 617.338.7000.

By Adam P. Whitney

It’s only mid-January, but Francesco Schettino has made a strong case for Rogue Employee of the Year as a result of the crash of the Concordia, the cruise ship that capsized off Tuscany. You can find the full story here: http://www.huffingtonpost.com/2012/01/16/costa-concordia-ceo-capain-crash-disaster-cruise-ship_n_1208791.html?ref=business&ir=Business

The Captain apparently thought his personal judgment was superior to that of his company, which had a programmed course for the ship. The result was a crash against a reef that capsized the boat, the deaths of at least six people (with sixteen more unaccounted for), and the risk of 500,000 gallons of fuel leaking into pristine waters. It has also been alleged that the Captain abandoned ship before the passengers had been evacuated.

Having an employee who causes injury or death to customers or members of the public is the worst thing that can happen to a company. In addition to the tragic loss of human life in the Concordia crash, the company expects to lose $85 million to $95 million. That’s before the lawsuits start flying, which could conceivably double or triple that number.

There are two lessons here for employers. The first lesson is that employers have to take reasonable precautions to prevent tragic accidents. This it obvious to employers who have company vehicles, and for employers in inherently dangerous fields, such as construction. You may have to drug test and have a strict policy on drugs and alcohol (but, see my post on having employees pee in a cup https://damnedif.com/2011/03/21/you%e2%80%99re-damned-if-you-don%e2%80%99t-get-legal-advice-before-having-your-employees-pee-in-a-cup/).

Even if you have a safe office environment, you still have to be careful about employee drinking and driving (see my post on holiday parties https://damnedif.com/2011/09/27/you-may-be-damned-if-your-drunk-employee-leaves-the-company-party-and-kills-someone-in-a-car-accident/).

The second lesson is that employees who do not follow company guidelines will get your company in trouble, no matter what industry you are in. Off-the-course employees can get you into trouble with government regulators, expose you to lawsuits, alienate customers, etc. It’s up to you to identify the danger areas and take safeguards to protect your company. In the case of the Concordia, the company had its set course, but it’s not clear if the company adequately trained the Captain in the specific dangers off the coast of Tuscany. As you read this, someone in your company is cutting corners, or veering off your set path, and they may not even appreciate the risks. You can’t always prevent rogue employees from doing this, but you can at least educate all of your employees on the consequences of their actions.

By Adam P. Whitney

This week I have had a rash of clients dealing with ex-employees behaving badly. Employees who feel that they have been unfairly fired may want to cause harm to your company. And they know how to hit you where it hurts. A favorite devious tactic is to harm your business relationship with your clients or customers by badmouthing you, or by undermining your credibility. They do other devious things too. Once it gets to that point, or you see it about to get to that point, your options are merely brute force and damage control, which are certainly not mutually exclusive. Below, I’ll discuss how to handle these options. In a later post, I’ll discuss how to avoid getting to the point where you are left with these unenviable options.

The Brute Force Option

Clients often come to me after an employment relationship has ended badly and the ex-employee has gone rogue to harm the company. In my world, lawyers can write letters and file lawsuits, but there is not much else that they can do to stop the misbehavior of a rogue ex-employee. In appropriate circumstances, law enforcement can be involved.

I generally opt for the stern letter first. Some of my colleagues call these “nastygrams” because they are usually pretty threatening; some call them “cease and desist” letters. I call them “stop the nonsense” letters. A well-written stop the nonsense letter can actually be very effective. If the rogue ex-employee is told the specific legal exposure that he is creating for himself, many will realize that they are being self-destructive more than they are actually hurting the company. This letter has to be written very carefully (for a variety of reasons) to both show the employee the exposure he is creating for himself, as well as show the employee the way to avoid further exposure.

The brute force option of last resort is a lawsuit against the rogue ex-employee. In rare cases, these are necessary, but no one really wins these lawsuits, other than the lawyers collecting fees (I like collecting fees too, but only if the client has a fair chance to get a good result). Even if the employer obtains a total victory, it is very unlikely that the employer will collect significant damages. These cases can be bitter, hard-fought and expensive. No one will be happy in the end unless the employer has such significant resources that vindication is priceless. I usually try to talk clients out of these suits, but I will and have pursued them if they have merit. The fruitlessness of suits can also be true for many types of suits against rogue ex-employees, including embezzlers and trade secret thieves, but it is not always the case. I have some nice judgments against ex-employees, but a judgment is just a very expensive piece of paper that gives you some rights to collect from the assets of the ex-employee, if any.

Damage Control

You should know best how to perform damage control and protect your valuable relationships with your clients. Cut off the rogue ex-employee,s access to your e-mails, cell phones, computers, etc., etc. If possible, cut off all chains of communications that the ex-employee can have with your client (the stop the nonsense letters can direct the employee to not trespass onto your property or your clients’ property and to not contact your clients). If appropriate, inform the client in advance that you have a rogue ex-employee who may try to defame you. Apologize in advance and assure the client that you are dealing with it. The client will appreciate and understand this, and may even be an ally.

If you have a rogue ex-employee who you need help dealing with, call me at 617.338.7000.

By Adam P. Whitney

That’s the lesson learned by a Massachusetts business owner in a case that just came down from the Massachusetts Appeals Court, A.C. Vaccaro, Inc. v. Anthony Vaccaro, ___ Mass. App. Ct. ___ (Oct. 13, 2011). The business owner lost the case, in part, because the buyer showed that he lacked “business integrity,” by not filing tax returns and by misrepresenting revenues to the buyer.

The case involved the purchase of a small business by the plaintiff from the defendant. After the purchase, the plaintiff alleged that the defendant had misrepresented the volume of business that the plaintiff could expect, and sued for damages. The plaintiff also alleged that the defendant violated the spirit and letter of an accompanying non-compete agreement by referring customers away from the plaintiff.

The plaintiff prevailed on claims for breach of contract and violation of Chapter 93A and was awarded damages and attorneys’ fees of $119,200. Presumably, that number will go up significantly if attorneys’ fees on appeal are awarded, and interest is added to the judgment. The judgment will be pushing $200,000, which incidentally was the purchase price of the business.

An interesting wrinkle arose during the litigation when the plaintiff discovered that the defendant had not paid its federal income taxes for the three years prior to the sale and had not even filed returns. The defendant was allowed, over the plaintiff’s strong objection, to present this evidence at trial. The Appeals Court affirmed this ruling, reasoning that the defendant had made specific representations in the purchase and sale agreement that taxes had been paid in accordance with the representations as to the volume of business.

Additionally, the Appeals Court reasoned that the failure to pay taxes or file tax returns “undermine generally [the defendant’s] credibility in a case challenging his business integrity.” One wonders how wide this opens the door to show a defendant’s lack of business integrity in business tort cases.

That question remains to be answered, but what is certain is that failing to play by the rules will eventually come back to bite you. If you don’t pay your taxes, you will be exposed eventually. You can’t fire employees for fear that they will turn you in. You will have to fear all litigation for fear that your actions will be exposed in court. The same is true if you misclassify your employees, if you don’t provide worker’s comp. insurance, etc., etc. In Massachusetts especially, there is a large push for businesses to follow a variety of laws that protect the public and benefit the government. Not following these rules will impact your business integrity and subject you to lawsuits, government sanctions, etc. You take shortcuts and violate these laws at your peril.

If you have any questions about your obligations as a business or employer, call me at 617.338.7000.

By Adam P. Whitney

The time of year is soon enough coming when employers hold holiday parties or open houses. It’s easy to get caught up in the spirit(s) of the season and to overdo it on the alcohol. Are you putting your firm at risk if an employee or guest drinks too much and causes an auto accident and injures himself or a third person? It depends (that catch-all lawyer answer).

There are a variety of options for employee parties, from providing the liquor yourself at the company premises, having a professional caterer on the premises, renting a function hall, or going to a bar or restaurant. Some of these are safer options than others.

The safest option is a bar or restaurant where the employees and guests are buying their own drinks (the employer could hand out bonus cash that day). Even if the company is picking up the tab, the risk is still low. The crucial issue is control of the liquor. If the restaurant wait staff is in control of serving, your risk of liability for an accident is low. Employers do not have a general duty to act as big brother or sister to employees, especially after work hours. That doesn’t mean that a manager should be forcing shots on employees, as even this safe option has logical limits.

Also generally safe would be to hire a professional caterer either at a function hall or your place of business. But there are a few more guidelines to follow. First, make sure that the caterer is reputable and that the staff has experience serving alcohol. Make sure that the caterer obtains the permits. Make sure that the caterer is properly insured, and get an indemnity agreement from the caterer. Also, find out the plan of service. For example, you would not want employees and guests to have free access to liquor; they must order drinks from trained staff which has the authority to refuse drinks to someone underage or visibly intoxicated. You also should not ignore if drinking is getting excessive, such as drinking games organized by an employee. Check with your own insurance agent to see what coverage you have if you do get sued (speaking with your insurance professional is always a good idea).

The biggest risk is when the employer provides the alcohol and serves the alcohol. This fully opens the door to liability if you over serve someone who causes an accident. Although this may be a money-saving option, I would advise against it. It’s very easy for employees to get carried away at these events, and you don’t want to be in a position of either being the wet blanket or worry about liability.

Of course, you should remind employees ahead of time to be responsible and to designate a driver. Better yet, if the company could possibly provide drivers or promise to reimburse cab fare, that’s all the better all the better. In addition to preventing liability, you should of course care about the well-being of employees and innocent third parties. You don’t want to be sued, and you don’t want your company name in the paper because your employee killed someone after a wild party. Also think about the devastating effect on morale if something happened.

A topic for another day is the risk of sexual harassment at firm parties (or even “date rape”, as was alleged in one case).

If you have any questions on dealing with liability issues for an open house or company party, call me at 617.338.7000. As always, the above is general information, not legal advice.

By Adam P. Whitney

They say that the cover up is worse than the crime. It’s equally as true that retaliation is worse than the original alleged discrimination. The City of Cambridge, Massachusetts learned this lesson the hard way, according to a recent reported decision, Monteiro v. City of Cambridge, Mass. Appeals Court, 10-P-1240 (August 15, 2011). How hard was the lesson? The total award that was affirmed by the Appeals Court was roughly $6.7 million. By some estimates, that City’s total exposure will be $10 million when additional interest and attorneys’ fees and the City’s own attorneys’ fees are added.

In 2011, virtually every employer knows and appreciates that discrimination based on race, national origin, etc. is prohibited and will subject the company to suit and damages. I have never met a manager or owner of a company who thinks that such discrimination is okay. It is obvious to all fair-minded people that such discrimination is wrong and has no place in our society.

What is less obvious to employers is that retaliation claims are at least as great a concern as discrimination cases, even where no discrimination has actually taken place. You read that right; an employer can be liable for significant damages for retaliation of a complaint, even when the original complaint itself could not be proven. Another surprising thing to employers is that an employee could recover for retaliation even if they did something else wrong prior to their termination.

You may now be scratching your head and asking, how can this be? Let’s back up a bit. Employees of employer’s of six or more employees have a right to make both internal and external (to the MCAD or EEOC) complaints about perceived discrimination. By law, employers must take those complaints seriously and they cannot retaliate against the employee for making the complaint. So long as the employee has a good faith basis for the complaint, which is a low standard, the complaint is protected activity. The complaint does not need to be ultimately meritorious. This makes sense because, in fact, most discrimination cases result in a finding of no liability. The employee still has every right to make a good faith complaint and cannot be punished for doing so.

In the Monteiro case, the jury never determined that the City engaged in prohibited discrimination, but it did find that there was retaliation that led to Ms. Monteiro’s termination. A complete description of the trial is not readily available, but based on one news report the City alleged that Monteiro falsified timesheets. Surely, if true, that would give the City a right to fire Monteiro, right?

Wrong. Monteiro’s attorney presented evidence where other employees (who did not file a complaint) committed comparatively equal wrongful acts and were not punished or terminated. This together with other evidence allowed the jury to determine whether the adverse employment actions were the result of Monteiro’s alleged wrongful acts or the result of prohibited retaliation. The jury determined the latter.

The takeaway should be obvious. You want to avoid any actions or an atmosphere that could lead to discrimination complaints in the first place, but if you do get complaints, take them very seriously. It’s important to tell your managers and maybe even co-workers not to take any adverse employment action until you consult with counsel. You may need to err on the side of giving a poorly performing employee more breaks because they filed a discrimination complaint, even if bogus. Do employees abuse the complaint procedure to avoid an expected termination? Sure, some do. But get counsel involved and tread cautiously when you have any discrimination complaints. If you have any questions about how to respond to discrimination complaints, call me at 617.338.7000.

By: Adam P. Whitney

$363,570. That’s the cost to one Massachusetts employer for not participating in the MCAD hearing against it, and being found liable for discrimination based on gender and age. The full decision is set forth in the attached case report from the Massachusetts Commission Against Discrimination.

MCAD v. BG New England

The employee alleged that the company hired a less qualified, 30-year old male instead of her. She was 48 at the time. The employee suffered emotional distress because the company did not value her as an employee, even though she had worked for the employer’s predecessor, and had a long history at the job site and in the industry.

We don’t know the employer’s defense, because the employer took the position that, because it filed for bankruptcy, the automatic stay required the MCAD to postpone its procedures. The MCAD did not agree with that contention, and adjudicated the case without the employer’s involvement.

The MCAD awarded the employee lost wages of $167,380 and emotional distress damages of $75,000. Interest at 12% per annum adds about 50% to the judgment, for a total damages award of about $363,570 by my calculations. The MCAD issued the award against the respondent employer, as well as its successors.

Whether the employee will ultimately collect on the judgment remains to be seen. But the lesson for employers is clear. Ignore the MCAD (or EEOC) at your peril. There are many reported cases of employers ignoring an MCAD complaint, which they have only 21 days to which to respond, and being defaulted. The MCAD will then only hear one side of the story, the employee’s side, and act accordingly.

If you get a complaint, letter or demand from the MCAD, call me at 617.338.7000 to discuss your immediate obligations.

By Adam P. Whitney