Insurance companies are not in the business of defending your company and paying claims. They are in the business of collecting premiums and avoiding paying the claims and the costs of defense. Forget the commercials touting the insurer being on your side. The insurance contract (the policy) and insurance laws form the basis of your relationship with your insurer.

I’m not being overly critical of insurers, but they are in business to make a buck, not to look out for you. Insurers have, literally, hordes of in-house and outside lawyers. The deck may seemed stacked against you, because it is. But some knowledge and the assistance of a qualified attorney can even the playing field (to mix the metaphors some more, you can put the shoe on the other foot).

Understand that you are required to promptly put your insurer on notice of any claim or potential claim. Failure to report a claim can give the insurer an argument that it has been prejudiced and thus can disclaim coverage. You also generally must to cooperate in the defense of the claim.

It’s great if your insurer assumes coverage of a claim. You likely won’t need to worry as much about the claim, other than assisting in the claim, so long as the coverage is adequate. The insurer will assign one of its panel attorneys from a local firm to represent your company in the suit. You will likely not get to choose the attorney. The insurer will pay any settlement it negotiates, or any judgment within the policy limits. Keep in mind that the costs of defense may diminish the policy.

However, the insurer could deny coverage altogether, and assert that it has neither the duty to defend, nor the duty to indemnify. In that scenario, you must promptly defend the case yourself with your own attorney before you the court defaults you. But don’t give up too easily. Insurers often deny coverage. A call or letter from your attorney familiar with insurance coverage issues may get the insurer to reverse its decision. It’s easy for the insurer to deny your claim if they have at least a colorable argument.

If you don’t challenge it, the insurer has saved tons of money, so it is in the insurer’s interest to deny claims when arguable. You can also file a Declaratory Judgment lawsuit to ask a Massachusetts Court to rule that the insurer has an obligation to defend and/or indemnify you. If you win that case, the insurer could be on the hook for your legal fees, as well as paying its own lawyer, and the lawyer who defended the original claim. It is a risky proposition for the insurer. Given that exclusions are strictly construed against the insurer, you may have a fair argument on coverage.

The insurer could also agree to initially cover you under a “reservation of rights.” This means that the insurer believes it might not have to defend and/or indemnify you, or that it acknowledges the obligation to defend only (the duty to defend is broader than the duty to indemnify). But it is covering the costs of defense until it can work through the coverage questions. The insurer may even file its own Declaratory Judgment action to have a court declare that it has no coverage obligations.

The reservation of rights does not come without consequences for the insurer. In Massachusetts, you will usually have the right to choose your own attorney, at the insurer’s expense. Some insurers are sneaky and will not inform you of your right to choose your own attorney. They will try to steer you toward their panel counsel, with whom they work on hundreds of other cases. Although the attorney will represent your business, will he be loyal to you, his one-time client? Maybe, but are you better off with a lawyer you choose who does not have an economic relationship with the insurer?  You should at least consult with your own lawyer to make sure your company’s best interests are being represented.

As always, the above is meant for general information, and is not legal advice.

By Adam P. Whitney

They say that half of marriages end in divorce. This (perhaps made-up) statistic is equally true for business partnerships. Like an in-love, engaged couple, entrepreneurs often see their business partner relationship through rose-colored glasses. It hardly enters their mind that they could disagree on things, have different visions, and expectations, or that one side would abuse the relationship.

An operating agreement (for simplicity, the term will refer to all types of agreements between business partners, shareholders, members, etc.) is akin to an engaged couple’s prenuptial agreement. But it can and should be much more than that. Like the name implies, it should govern how the business is to work. In particular, what are the agreements among the partners? What role will each partner have in the work, in the management, in the finances? Will any partner receive a salary? How much? Are partners entitled to a job? What fiduciary duties does each owe to the business? How will profits be distributed. What about losses; will the partners have to invest more in the business? Will there be other employees? What happens if there is not enough business income to pay employees? What will the exit strategy/buyout be? Are the parties married to one another for any future business of the same type?

Many entrepreneurs have not even addressed all of these and other critical topics. This can be a recipe for future disagreements, or worse. Sometimes people go into a business in good faith, but they have different expectations about the business. If you are the primary financial backer, is your sweat equity partner expecting a salary from day one? If so, are you okay with funding the salary until the business generates substantial revenues?

Having litigated major and bitter disagreements between business partners, I have seen the ugly divorces of the business world. The infidelity. Desertion. Dishonesty. No one believes it will happen to them, but business partners lie, cheat and steel. They will fire you and freeze you out of a business. They will expose the company to liability. They will become drug addicts or non-functioning alcoholics. They will hire their do-nothing son-in-law who drives you crazy. They will spent all the profits on their own salary and salary of family members. The will start a competing business and try to take all the clients. They will exploit any ambiguities in an “off the shelf” operating agreement you got on-line. They will die, and their clueless spouse will become your business partner (a cross-sell agreement with life insurance is a topic for another day). Or you will die and they will take advantage of your spouse. I’ve seen all these things and more.

Your best first defense against misunderstandings is misdeeds is a specifically tailored operating agreement. This doesn’t mean that it is a panacea, or that you are defenseless. But courts respect operating agreements, especially if they are negotiated and tailored to the business at issue. You hope that your operating agreement keeps you out of court, but if you have to litigate or arbitrate over your business, you will be in a much, much better position. The relatively small amount of time and money that you spend at the beginning of the business formation (or before significant disputes develop) is some insurance against spending that same money hundreds of times over.

By Adam P. Whitney

I greatly admire employees who are able to work while battling a life threatening disease like cancer. Employers also face difficulties when they learn that one of their employees has cancer, albeit not as great as the employee’s struggles. If you are an employer of any size, sooner or later you will face these issues. The private employers whom I have counseled are, of course, very sympathetic. Most will bend over backwards to help their employee, often to the detriment of everyday operations.

Employers often wonder what they can and what they should do in these situations. Is the employee qualified to work? Do we have to give the employee time off? How much? Does it have to be paid? What do we do if the employee’s performance is slipping? Do we have to allow work from home? Do we have a right to obtain medical information? Can we replace the employee temporarily? Permanently? What if the employee does not want to come back to work? Do we have to provide severance? Do we have to pay the employee’s medical insurance?

The answers to all of these questions is beyond the scope of this article, and will vary according to the law of your jurisdiction and, as to federal law, the number of employees you have. What you should not do is make any negative assumptions about a person with cancer. That’s what this employer appeared to do: http://www.huffingtonpost.com/2014/09/11/woman-laid-off-cancer_n_5806194.html. It now appears that the employer is facing a public relations backlash, and potentially serious legal ramifications.

Under Massachusetts law, if you have six or more employees, you are subject to the provisions of state law comparable to the Americans with Disabilities Act (which currently applies when you have 15 or more employees). Generally speaking, under both laws, you cannot simply terminate someone because they are disabled or facing a disabling disease, or because you think that they are disabled. There may be protections under other laws as well.

If these laws apply, you have an obligation to consider reasonable accommodations, including a leave of absence. That does not necessarily mean that you have to provide a leave of absence, especially a lengthy or open-ended one. Each situation is different, and must be separately evaluated. What you also should not do is to automatically terminate an employee after 12 weeks of FMLA leave, which some employers have learned the hard way. You may also have to consider work at home, and intermittent time off for treatment, as well as other accommodations.

The above being said, you still have the right to operate your business. You owe it to your business and your other employees to set clear standards of conduct and performance and to hold employees accountable. Cancer does not discriminate. It strikes the best employees, and it strikes employees who are not the best. Some employees will want to come to work everyday, if possible. Others will, understandably, want to focus their energies on their treatment and their family. As an employer, you will have to carefully consider how to strike a balance between accommodating the employee, and not harming your business. I wish I could tell you that this was easy, but it’s not. But if you face it head on like other business challenges and seek sound advice, you can get through it.

By Adam P. Whitney

We live in crazy times for businesses. Any crackpot with a computer and internet connection can say anything that they want about your business in an online review, on social media, etc. That’s the unfortunate reality for today’s private businesses. The crackpots may even attack the business owner personally. Even worse, there is little you can do to stop it and, in many cases, you can’t even get it removed (I won’t bore you with a treatise on prior restraints of free speech). But do not take a defeatist attitude. Like getting sued, poor online reviews are now just a part of being a successful business. Below are some ideas on how to deal with them.

If you operate your business in such a way as to avoid angering the crackpots, you will get less negative posts. If you treat everyone with the utmost respect and avoid pointless disputes, you will be ahead of the game. At the very least, if you communicate your policies, services, fees, etc. in as much detail as possible, you avoid surprises and avoid upsetting the crackpots. Doing so will also put you in a much better position to defend yourself, either in a court of law or the court of public opinion.

But no matter what, you will still get bad reviews from crackpots, from competitors posing as your customers, or even someone who just doesn’t like you or one of your employees. The more successful you are, the more you become a target. If the review is purely opinion from an actual customer, consider responding to the review in a professional, non-defensive way. Consider what you can learn from the feedback. That doesn’t mean that you have to agree with some or all of the review, each one must be assessed on its own merits. If you believe that the review was not written by a legitimate customer, you should say that as well, and also contact the review service (Yelp, Google+, etc.) to try to have it removed if possible.

If the review or post contains outright lies of factual statements, not just pure opinion (this can be a fine line), or if the review comes from one who is not a legitimate customer, you may have legal claims. You should consult with a lawyer to see if you have actionable claims and what your options are. These could include a lawyer’s letter to the offending crackpot, working with the review service to remove the review, or as a last resort, a lawsuit. Crackpots may think that they are anonymous and that they cannot be sued for writing false statements about a business on-line, but that is simply not true. A lawsuit should be your last resort, but if you are considering it, find an experienced business litigator and discuss your options. You should also consider a public relations professional to deal with the immediate impact on your business. In fact, public relations should be an ongoing part of your business planning.

The above is not meant to be legal advice, but is merely general information.

By Adam P. Whitney, 617.338.7000

 

 

 

You defend a discrimination claim aggressively all the way to trial. The plaintiff wins a technical victory and gets only a small award of damages. So small, that it seems like a win for you. You can live with that, right? But now here comes the employee’s attorney’s petition for fees and costs. If you think that the small award of damages would be a significant factor to determine the award for the attorney’s fees and costs, you would be wrong, at least in Massachusetts. A Massachusetts employer found that out recently, when an appeals court upheld an award of attorney’s fees and costs to the employee of over $100,000, even though the jury awarded the employee only $7,650 in damages. The case is reported as Diaz v. Jiten Hotel Management, Inc., No. 13-1444 (1st Cir. 2013) (this was the third trip to the appeals court for the case).

 

In fact, the attorneys’ fees and costs could have been much higher. The trial court reduced the amount considerably because the employee had pursued other claims that had no merit and were not successful. The trial court originally reduced the attorney’s fees award because the employee rejected a $75,000 settlement, which would have resulted in the employee’s attorney obtaining a $25,000 contingency fee. However, the appeals court reversed that ruling and stated that it was error to consider the employee’s refusal to settle.

 

On the most recent trip the appeals court, the court rejected the employer’s contention that the award of fees and costs of over $100,000 was so disproportional to the $7,650 damages award as to be an abuse of discretion. The appeals court rejected this contention and reasoned that, under Massachusetts law, fee shifting statutes are “designed to encourage attorneys to take these types of cases and are based on full compensation for the work performed.” It went on to note that these statutes are designed to encourage suits that will not result in a big fee award because the vindicate important rights.

 

Thus, the message in Massachusetts is clear. If an employee wins a discrimination suit against you, you could be on the hook for a large award of attorney’s fees and costs, even if the employee wins a very modest award, and even if the employee was unreasonable in rejecting your settlement demand.

 

What to do? There is no magic bullet. Consider an early settlement of a claim that may have some merit. Keep in mind that even if it is a claim that you may not subjectively believe in, that does not mean the case does not have settlement value. Cases that turn heavily on questions of fact can be decided against you, regardless of what the true facts may be. As Denzel Washington’s rogue cop character said in the movie Training Day, “it’s not what you know, it’s what you can prove.”

 

In this case, the employer did try to settle, and actually made a very generous (considering the jury award) offer of $75,000. Who knows why the employee rejected the offer. Ironically, the employee would have been much better of with the settlement (assuming a typical contingency fee agreement), but the employee’s attorney presumably ended up better off with the award. Mediation should be strongly considered in these situations. There is no shame in putting a wedge between the employee and her attorney at mediation if it results in a fair settlement to the employee. There may be other options to consider, including an Offer of Judgment. But full-fledged defense of the claim can backfire, because you spend more fees on your own counsel, but also run up the fees and costs of the employee’s attorney. Have a candid discussion with your attorney about how to defend any claim against your company, including the risks of an adverse judgment and an award of attorney’s fees and costs.

 

By Adam P. Whitney, 617.338.7000

 

 

I am re-posting this entry from two years ago, because it is the time of year 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). I hope I have not taken all of the fun out of the holiday season. As always, the above is general information, not legal advice.

By Adam P. Whitney 617.338.7000

 

Reflecting on Owning A Business

Posted: December 17, 2013 in Uncategorized

 

 

 

Fair warning, this is a self-indulgent off topic post. The end of the year is approaching, and I’m reflecting on my first nine months of starting my own law firm, which focuses on employment law and business litigation for private businesses.  Here’s what I have learned from nine months in business:

 

 

  1. You can’t do it without good clients. Make them happy and they’ll make you happy. I intentionally made this the first item.  I want to take this opportunity to thank my clients, most of whom read this blog. I literally could not have done it without you.

  2. You need trustworthy help. I’m talking about employees, colleagues, accountants, vendors, contractors, bankers, insurance agents, etc. Find good people to help you and return the favor by treating them fairly/paying them on time/referring them business/etc.

  3. Word of mouth is still the best marketing, at least for lawyers. I’ve done almost no marketing other than networking with colleagues (and, I suppose, writing this blog). 98% of my business comes from repeat business and referrals and other word of mouth.  I’ve been steadily busy since starting, and I hired two employees and expanded my office space and equipment.

  4. You must embrace the latest technology. Although there can be some time getting up to speed on new programs and ways of doing things, it’ll be well worth it in the long run. You may feel comfortable doing things the “old way,” but you will increasingly be at a disadvantage. Worse yet, people will laugh at you and make jokes about typewriters (we do this behind your back).

  5. Running a business is hard work. Of course I knew that before, because most of my clients are businesses.  But you don’t really appreciate all the important things that business owners must routinely do that take you away from your core functions – get insurance, do payroll, pay taxes, accounting, pay bills, pay fees and dues, manage employees, deal with vendors – there are dozens of things. Unfortunately, this blog has suffered at times due to all of these demands.

  6. Being a business owner is meaningful and rewarding. Private businesses keep the economy rolling and provide crucial services to the public. They don’t get bailouts or have teams of lobbyists in Congress. They operate both out of necessity to earn a living for the owners – capitalism at its purest – and because they love what they do. I’m proud to play a very small part in all that as a business owner, and by serving private businesses. It is also very rewarding to be “my own boss” and to do things the way I think that they should be done. I like to joke that “my boss is the best,” but I do hope that he gives me a few days off over the holidays.

By Adam P. Whitney, Law Office of Adam P. Whitney, 617.338.7000