A Lump of Coal for Admin Employees? Texas Court Blocks Implementation of DOL’s Overtime Rule Change

On November 22, Judge Amos Mazzant, of the Eastern District of Texas sitting in Sherman, issued a nationwide injunction blocking implementation of the highly-anticipated changes to the Overtime Rule. A group of 21 state attorneys general, including Ken Paxton of Texas, sued to block implementation of the rule which was slated to take effect on December 1.

The rule change would have raised the overtime exemption for salaried executive, administrative, and professional employees from $455 a week to $921 per week.

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In other words, administrative employees making less than $47,892 per year would have been entitled to overtime if they worked more than 40 hours in a week.

The court found that the Department of Labor (DOL) exceeded its statutory authority in issuing the rule change. The court’s decision is available on the Texas Attorney General’s website: http://tinyurl.com/zzdo4mw.

The DOL stated it is considering its legal options. It has not yet announced whether it will appeal the injunction to the 5th Circuit Court of Appeals. The DOL press release can be viewed here: https://www.dol.gov/WHD/overtime/final2016/.

As a practical matter, the ruling comes too late for most businesses.

The DOL announced the proposed rule change on July 6, 2015. The Department received over 290,000 comments to the proposed rule change. On May 18, 2016 the DOL released the final rule and warned the new rule would take effect on December 1.

Larger businesses adopted strategies for complying with the new rule months ago. Businesses that planned to comply and announced those plans to employees will hesitate to change course because of the cost of making changes at this late date, uncertainty whether the ruling will stand, and harm to employee morale.

Time’s A Wastin’ – Get Ready for the New Overtime Rule

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Each year the Texas Workforce Commission and the Wage and Hour Division of the U.S. Department of Labor investigate scores of Texas businesses for violating minimum wage and overtime laws. With the new federal overtime exemptions imminently taking effect, employers should review their payroll policies to ensure compliance. Beginning December 1, salaried employees who make less than $47,476 per year or $913 per week will be entitled to overtime pay for working more than 40 hours in a work week. Texas recognizes the federal minimum wage which is currently $7.25 an hour.

 

Plan now to be in compliance with the overtime rule on December 1. Salary alone is not the only factor for determining whether a salaried employee is entitled to overtime or is exempt:

 

  • Salaried employees are paid a salary not an hourly wage;
  • Full-time exempt employees’ salaries must be at least $47,476 annually; and
  • Exempt employees must have executive, administrative, or professional duties, e.g., management, exercise of discretion and independent judgment, or work that requires advanced knowledge.

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Nonexempt employees are entitled to overtime pay at time and a half for each hour worked beyond a 40 hour work week. The Department of Labor enumerated four options for employers to comply with the new rule:

 

  • Raise salaries to maintain the exemption;
  • Keep current salaries and pay overtime;
  • Adjust workloads and schedules so that employees work no more than 40 hours per week; or
  • Adjust wages by converting salaried employees to hourly.

 

Raising salaries and paying overtime is not financially feasible for many small businesses. Converting salaried workers to hourly pay could tank employee morale. Another way to comply with the new rule without undertaking additional financial burdens is to adopt a workplace policy forbidding non-exempt employees from working overtime without prior written approval from a supervisor. Enforce the policy consistently. This allows the business to predict and control labor costs while encouraging healthy work-life balance for employees.

The last minute has arrived. If you haven’t already adopted procedures to comply, consult a lawyer to help your business transition to the new rule. The Department of Labor has published this fact sheet for employers: https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf

 

Taking A Cue From Business: Using Technology to Help More People With Less Resources

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It’s become ubiquitous on customer service web pages: the chat box.

Searching through a site’s FAQs, a box pops up with an avatar of a person who looks eager to help encouraging you to type your question in the box.

Years ago, legal aid lawyers began wondering if we could use a chat box to help people who lived far away from the nearest legal aid office or who didn’t have transportation to their local legal aid office.

Nationally, several groups started working on the idea.

What if we could leverage internet chat to allow lawyers to help low income people from their desk?

Enter Texas Legal Services Center (TLSC) and the Texas Access to Justice Foundation. TLSC proposed and received a grant from the Foundation to start a chat service. We call it Live Help, and it’s still up and running on the Texas Law Help website, www.texaslawhelp.org.

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The site and Live Help are geared to legal issues faced by low income Texans; however, the site contains a plethora of useful information about Texas law. It’s well worth a visit.

The first chat lawyer, Elliott Fontenette, is now the project manager leading a team of paid and volunteer attorneys. I consider him to be a visionary. When we started Live Help in 2010, Elliott and I were swimming in uncharted water. Now, legal aid groups around the world are using chat to help people access legal information, and the service has proved popular here in Texas with nearly 28,000 Texans having used the service.

I was reminded of my time at TLSC and working on Texas Law Help when Elliott and I were interviewed for a recent ABA Journal article about legal aid agencies that use web chat: http://www.abajournal.com/magazine/article/legal_aid_agencies_are_using_webchat_to_answer_queries/?utm_source=maestro&utm_medium=email&utm_campaign=tech_monthly

Thanks, Elliott, TLSC and Texas Access to Justice Foundation for continuing to bring quality legal services to those who cannot afford it. Well done!

 

New Federal Law Protects Business Trade Secrets

Pres Obama Signs

On May 11, President Obama signed the Defend Trade Secrets Act of 2016 into law. The Act protects businesses from misappropriation of trade secrets and gives businesses the ability to litigate trade secret cases in the federal courts. The text of the new law can be found here:

https://www.congress.gov/bill/114th-congress/senate-bill/1890/text.

Texas adopted the Uniform Trade Secrets Act in 2013. The Texas law is codified in Chapter 134A of the Texas Civil Practice and Remedies Code. The text of the Texas statute may be found here:

http://www.statutes.legis.state.tx.us/Docs/CP/htm/CP.134A.htm.

There are a few differences between the Texas law and the new federal law. The definition of a trade secret is essentially the same under both the federal and state statutes. A trade secret is information that is valuable because it is specific to the business and that the business reasonably tries to protect. Trade secrets typically include a company’s financial data, policies and procedures, customer lists, supplier lists, intellectual property, and other proprietary information such as formulas, techniques, processes, drawings, and the like

The new law allows a business to file a federal lawsuit to protect trade secrets “related to a  product or service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. § 1836(b)(1). Courts traditionally interpret interstate commerce broadly, so many businesses will be able to litigate in federal court. One of the most interesting provisions of the new law is a pre-emptive strike: the law allows a party to obtain a court order for seizure of property to prevent the dissemination of trade secrets in “extraordinary circumstances.” The seizure order can be obtained without notice to the opposing party. A prevailing party may get an injunction to prevent dissemination of trade secrets, an order requiring the opposing party to pay a royalty, damages for actual business losses, damages for unjust enrichment, and attorneys fees. The law also allows an award of up to two times the amount of damages if the misappropriation was willful and malicious.

Protecting trade secrets is of paramount concern when a competitor hires a former employee. The Defend Trade Secrets Act allows a court to place conditions on the former employee’s employment when there is a threat of misappropriation.

There are some circumstances when employees or former employees have immunity from disclosing trade secrets. For example, an individual is immune from liability for disclosing a trade secret in confidence to a government official or attorney solely for the purpose of reporting or investigating a violation of law. If trade secrets are disclosed in documents filed in a court, the statute requires the filing to be sealed to prevent public disclosure.

Important: The Defend Trade Secrets Act requires employers to notify employees of the immunity provisions in the law. If your business has incorporated non-disclosure language in your employee handbook, or if you require employees to sign non-disclosure agreements, you will need to revise your handbook or agreements to properly notify employees that they are protected from liability when disclosures of trade secrets are made to government agencies or attorneys solely for the purpose of reporting or investigation violations of the law. An employer that fails to provide the required notice loses the right to recover attorneys fees and exemplary damages.

The availability of both state and federal court actions to protect businesses from misappropriation of trade secrets is a welcome development; however, most businesses need to revise their non-disclosure agreements, handbooks, or policies and procedure manuals as soon as possible to avoid losing valuable rights under the new law.

8 Reasons Why Your LLC Needs a Company Agreement

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Jane, Mary, and Alice have a thriving business. They decided to operate as an LLC and handled the formation themselves by filing a certificate of formation with the Texas Secretary of State.

Everything was fine until Alice got divorced, and her ex was assigned half her membership shares.

Who’d have known their company shares were community property!

Now, the ex is making life miserable by demanding to see the books, demanding distributions, and threatening to sue. What a mess: a mess that was avoidable. Had they adopted a company agreement, the owners could have managed what happened to the company shares in divorce.

A company agreement, also called an operating agreement, describes the way a limited liability company will do business. The company agreement governs the relations among members, managers, officers, and the company. Even a sole member LLC can, and should, adopt a company agreement. Here are a few reasons why.

 

  1. Retaining control. A company agreement allows the members to determine how the company is governed and what happens to membership shares if a member dies, divorces, files for bankruptcy, or just wants out. These kinds of events can erode members’ control over the business. It is best to deal with these contingencies before they happen. A company agreement does that.
  2. If you don’t have a company agreement, the State of Texas will set the operating rules for your company through Chapter 101 of the Texas Business Organizations Code. Many of the Code provisions can be waived or modified to better suit your company.
  3. With a company agreement, you can establish different classes of ownership. For example, a you may want to retain control of the company but give others a share in ownership. This can be accomplished by having two classes of membership: voting members and non-voting members. Without a company agreement, an LLC is limited to one class of membership.
  4. A member of an LLC cannot withdraw or be expelled from the company unless you have a company agreement that describes a process for a member to withdraw or be expelled. In other words, if one member wants to leave, or if members want to kick out a non-performing member, you can’t do it unless you have a company agreement.
  5. A company agreement can limit assignment of interests. What if a member gets into financial trouble and wants to pledge membership shares as collateral for a loan? If the member defaults on loan payments, you may up with a business partner you never intended to have.
  6. A company agreement can describe the relationship between members and managers. While the certificate of formation states whether an LLC is managed by its members or managers, there is no guidance or restrictions on managers without a company agreement.
  7. A company agreement can expand or limit the duties, responsibilities, and liability of members, managers, and officers. Many members are shocked that Texas law does not impose a fiduciary duty between them. A fiduciary duty is a duty of loyalty to act in the best interest of another. If you want members to owe a heightened duty to one another or to the company, you must have a company agreement.
  8. Having a well-drafted company agreement saves money in the long run. By fully describing expectations in a company agreement, members have a means of resolving disputes without resorting to litigation. The initial investment in legal fees for drafting a solid company agreement is tiny compared to the cost of arbitration or litigation.

 

A company agreement is a valuable tool that allows LLC owners to control the destiny of their company and to manage relationships between themselves, their managers, and their officers.

They can expand or limit responsibilities and liability as they see fit.

Adopting a company agreement early can be a cost saving strategy that staves off expensive problems later, and the agreement can be modified as the company grows. It is critical to use an attorney to draft a company agreement, but it is money well spent.

Hijacking on the Information Highway: Ransomware and How to Avoid it

Ransomeware scams have been around for several years.

However, they are on the rise.

Every business needs to train staff who have access to computers how to avoid this kind of scam. Ransomware is one of the many kinds of malware — that is, malicious code that can infect a computer.

Ransomware enters a network, computer, or other device in the same way as other malware. Usually, a user clicks something they shouldn’t —  like an icon, a link, or a file attachment in an email or text message. Increasingly, criminals are inserting malware links in social media posts as traps for the unwary.

Click and thieves are in the door.

Once ransomware finds its way into a device or network, the device will freeze or appear to crash. Initially, ransomware scams were perpetrated by cybergangs who encrypted the infected device. The only way for the victim to regain control was to pay the required ransom. Now, less skilled copycats generate a pop-up message on the infected device that says the device is frozen or encrypted, but the warning may be a ruse.

Some scammers generate a pop-up warning that purports to be from law enforcement. The warning states the victim has broken a law and that the agency has locked the victim’s device pending payment of a fine.

Other versions of the scam simply notify the victim that the device has been encrypted, and a ransom must be paid to regain control of the device. Either way, the criminal’s endgame is the same: to force the victim to pay to remove the malware. The size of the ransom plus the damage to a business if the situation lingers prompts most victims to pay up.

The FBI has just released a public warning that includes a helpful list of steps to take to avoid ransomeware scams. You can find the full press release here: https://www.fbi.gov/sanjuan/press-releases/2016/fbi-warns-the-public-about-ransomware-internet-scam.

In a nutshell, the FBI suggests:

  • Keep your data backed up, and store the backup file in a remote location.
  • In addition, we suggest using at least a two-step backup system. Use a backup service that stores a copy of your files in a remote location either in the cloud or in a remote server, and perform regular backups on a portable storage device such as an external hard drive. Keep the external hard drive in a safe place.
  • Update your settings to show hidden file extensions. The FBI warns that malware may contain double file extensions, e.g., *.pdf.exe.
  • Don’t open *.exe files attached to emails.
  • Use antivirus and firewall protection, keep it up-to-date, and make sure you install operating system updates and security patches as they become available.
  • Use strong passwords, and avoid using the same password for everything.
  • We suggest changing passwords regularly as well.
  • Use a pop-up blocker.
  • Download software only from trustworthy sources. Be especially careful when downloading freeware.
  • Don’t open attachments in unsolicited emails.
  • We suggest treating all unsolicited communications as if they are scams. In other words, if you did not initiate a conversation, be extra careful even if the communication purports to be from someone you trust. Scammers can hijack or spoof email addresses.

    When in doubt, contact the alleged sender. Don’t use contact information from an email, text, or pop-up message. Go to your contacts list, address book, or an official source such as an agency’s website to get the email address or telephone number. Ask whether they sent the suspicious message before opening anything attached to it.

Train your staff to use internet-connected devices safely. If you become a victim, report the crime at www.ic3.gov. Do not jump to pay a ransom. First, turn off file sharing. Then, check to see whether any of your files have been compromised by running your antivirus program. Remove any infected files, and restore them from your backup. This may resolve the problem. If not, contact an IT expert for assistance. 

Writing it Down: 4 A Recipe for Writing Simple & Personal Agreements

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My last post explored common problems with handshake agreements.

Now that you’re convinced to write stuff down, what do you write?

A contract is no good if it isn’t enforceable. To be enforceable, a contract must be made by people who are legally able to make a contract (generally, adults who understand what they are doing), must have a lawful purpose, and must have an offer, acceptance, and consideration.

An offer is exactly what it sounds like – a promise to do something if the other person will do something else. Acceptance means both parties agree to hold up their end of the bargain. Consideration is payment. Consideration can be money, a promise, an action.

The Texas Comptroller’s Office has a handout that describes the legal elements of a binding contract: 

http://comptroller.texas.gov/procurement/pub/contractguide/LegalElementsofaContract.pdf.

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Writing it Down: 2 It's All About the Relationship

Every profitable business is a complex web of relationships. Think about it. Common relationships on which a thriving business is based include:

Customer-Supplier

Co-Owners (shareholders, partners, members)

Employer-Employee

Supervisor-Supervisee

Owner-Management

Business-Regulators (taxing authorities, licensing boards)

Landlord-Tenant

Networking partners

Of course, there are more. On the most basic level, a business cannot exist without customers, and a business will not last long without strong customer relationships. Every profitable business is built on a web of thriving relationships. Relationships are strong when everyone is on the same page, expectations are clear and realistic, and the parties trust each other to do what each has agreed to do.

 

Relationships deteriorate when everyone is not on the same page, expectations are ambiguous or unrealistic, or someone fails to keep a promise. Many times, misunderstandings between parties cause or contribute to the deterioration of otherwise healthy relationships. Misunderstandings happen for a number of reasons – many of which are avoidable. A common cause of misunderstanding is the failure to accurately describe a task to be performed. Who will do what by when, and how will it be done?

Details may be assumed differently by various parties when the details are not written down. For example, John hires Dan to paint a wall. The two negotiate a price and a time for completion. Dan paints the wall. John refuses to pay full price because Dan did not prime the wall before painting it. A critical item was not discussed. Dan assumed the wall did not need priming because it was not discussed. John assumed that any painter would prime the wall first. Now, everyone is dissatisfied.

Had the two written down the terms of their agreement, they may have uncovered the missing information in time to clarify and correct. This example uses a very simple agreement. In reality, the more complicated an agreement is, the more terms and details are needed, and the more steps toward completion of each party’s agreed tasks, the more critical it is to write everything down.

Dan and John did not need a lawyer or fancy language to write their agreement. Their agreement could have been in the form of a work order signed by both of them. It seems obvious that a written agreement would have helped them avoid conflict and would have led to a better working relationship. So, why do we resist writing things down? My next post will explore our propensity to rely on a handshake over pen and paper.