Philadelphia Business Lawyer Blog

Protections for Employees Reporting Illegal Activity

Mon, 23 May 2011 13:55:41 -0500

Just this spring, what is usually seen as a pro-business Supreme Court issued a ruling clearly on the side of workers. The case, Kasten v Saint-Gobain Performance Plastics Corp., addressed the question of protection for workers who file complaints against their employers. Smart business owners, with the right policies, will be able to turn this case to their advantage in keeping government investigators out.

The general rule has historically been that workers who report the illegal activities or illegal working conditions of their employers are protected from retaliation. This makes sense, we want those with inside knowledge of their employers fraud or illegal activities to feel they can come forward without risking their livelihood. But if the employee reported the problem internally, to an owner or supervisor instead of the government, there was always a question of whether protection applied. In other words, by trying to get the company to fix the problem in house, quietly and without a governmental investigation, did the employee lose the protections of the anti-retaliatory laws? The Court said no, employees who try to solve problems in house are still protected by the law (in this case, it was the Fair Labor Standards Act), even though the government was not involved. To qualify for protection against retaliation, the complaint can even be as simple as a verbal statement to a supervisor, it doesn't have to be in writing.

Since it's not unusual for less then stellar employees to have complained to a supervisor about working conditions or practices, this certainly creates an additional burden for the employer to comply with prior to terminating these under performing workers. It's not hard to image a scenario in which a company's failure to plan appropriately creates retaliation liability even when there was no provable case of an underlying violation. Of course, it also presents a huge opportunity for a proactive company to encourage internal self-reporting. As an owner, it's always preferable to learn about potential problems directly from your employees, rather then after they've reported your business to the governmental authorities.

Confidential Settlement Agreements and the Public's Right of Access

Fri, 13 May 2011 10:31:45 -0500

Confidentiality terms in settlement agreements are fairly commonplace, but most people do not know that until recently the courts would often ignore them. Historically, the public's "right of access" to judicial records outweighed a party's desire to keep their settlement confidential. This makes sense when the issues involve public interests or safety concerns. But when the settlement involves trade secrets or other proprietary information, businesses have long argued the public's right of access should be more limited. In many cases, especially with regard to hi-tech and growth companies, the desire for confidentiality is the prime motivation for settling the case.

In a recent 3rd Circuit ruling, LEAP Systems Inc. v. MoneyTrax, the court shifted away from previous decisions to allow business's a better chance at maintaining the confidentiality of settlement agreements. In the LEAP case, the settlement was based on assurances from the court that the agreement would remain confidential. The district court's assurances of confidentiality were clearly a pervasive factor for the 3rd Circuit, and not something every trial judge is going to agree to put on the record. But counsel certainly should ask for a statement on the record that confidentiality is a key term of the settlement. Also, in most cases the business will want to justify the reasons for the confidentiality on the record, since the importance of trade secrets may not be as apparent to courts reviewing the matter in the future as it is to the trial judge overseeing the settlement discussions. These were both factors considered by the 3rd Circuit in finding in favor of LEAP on the confidentiality issue.

One way around this privacy risk has always been to keep the terms of your settlement agreements away from the courthouse. But in many cases, especially in certain federal courts or business law courts like Philadelphia's Commerce Program, judges may be highly involved in facilitating the settlement process. When that happens, the settlement agreements or even the oral transcripts of the proceeding may be considered judicial records subject to public access. Even if the parties reach a settlement on their own, the court often becomes involved with motions to enforce down the line. The LEAP case begins an outline of how to maintain the confidentiality of these records.

Pennsylvania Property Owners Not Always Liable for Contractor's Injuries

Tue, 10 May 2011 10:42:51 -0500

The Pennsylvania Supreme Court in a recent decision stated that residential and commercial property owners who hire contractors are not responsible for personal injuries happening during construction on their property. Previously, plaintiffs had argued for a "retained control" exception where property owners could be held responsible for injuries to workers if the owner was present at the job site and exercised control over the construction project. The theory was if the owner was present at the job site, then the owner bore a responsibility to recognize any unsafe condition and do something about it. This recent decision by the court ends this avenue of attack created by the plaintiff's bar, which had put owners in the uncomfortable position of weighing liability burdens against the need to supervise their own projects. Now the law is clear that property owners are not liable for the injuries to the contractors and their subs so long as the owners did not control the "means and methods" of how the work was performed. In other words, did the owner actually tell the injured party how to ply his trade?

The impact of this decision is clear. With a little proper drafting, both residential and commercial property owners can greatly reduce their risks from personal injury claims of workers injured on their property. Commercial property owners should seek legal advice to have their contracts reviewed to insure they have language in place that require a safe and organized work site. From the contractor and subcontractor perspective, the gun has clearly been leveled in your direction and care needs to be taken to make sure you have the proper insurance in place in light of your increased singular exposure; as well as to make sure your contracts have the appropriate contractual protections as well. Contractor's agreements also now need to be especially careful not to take on unnecessary liability in those situations where the owner is dictating the work or acting as their own GC.

Attorney Client Privilege is now a Two-Way Street in Pennsylvania

Tue, 08 Mar 2011 14:52:50 -0500

Many clients have often been surprised to learn that the attorney client privilege in Pennsylvania did not necessarily apply to advice their attorney's gave them. Previously, the Pennsylvania Superior Court had held that only communications made from the client to the lawyer were privileged, not those flowing from the attorney to the client. That holding, which is in conflict with the approach taken by most other states, was recently overturn on February 23, 2011 by the Pennsylvania Supreme Court. The Supreme Court held that the attorney client privilege now operates to protect confidential client to attorney and attorney to client communications made for the purpose of obtaining or providing legal advice. This decision is extremely important to both Pennsylvania lawyers and clients alike because it allows for a much more open flow of information between client's and their attorney advisors.

The benefits afforded to clients as a result of this broader interpretation of the Pennsylvania privilege statute is that counsel may now, for example, proactively advise clients about a compliance issue without the attendant privilege concern that existed under prior law. Attorneys will be able to guide their clients through the process of curing ongoing legal problems without the fear that their advice could be discoverable in court. Not only will this benefit the client, as it will certainly facilitate a more open dialogue, but the benefits will also hopefully trickle down to benefit society as a whole.

Could Your Business Lose Its Name in Pennsylvania?

Wed, 19 Jan 2011 21:10:18 -0500

Many corporations, LLC's, LP's, and other businesses registered to operate in Pennsylvania must take action this year to avoid losing the ownership of their name. Pennsylvania law requires something called a "Decennial Report" to be filed every 10 years with the Department of State. The report is filed in every year ending with the number "1", so you've got until December 31, 2011 to get this year's report in. A similar law also applies to registered marks and insignias so be sure to act to protect your logos as well.

Any business that fails to file a required decennial report loses the exclusive right to the ownership of its corporate name. In the case of a registered mark, when a business fails to file the mark becomes unregistered. Every January of a year ending in "2" we see poachers trying to appropriate the names of ongoing businesses to sell them as back. Make sure your business is not one of the unlucky ones by acting early and getting your filing done soon this year.

There are exemptions to this law, the biggest of which applies to businesses who have filed new or amended registrations with the Department of State since January 1, 2002.

President Obama Extends Bush Era Tax Cuts

Tue, 28 Dec 2010 15:23:42 -0500

On December 17, 2010, President Obama signed into law a two year extension of former President Bush's tax cuts that were set to expire at the end of this year. Remaining in effect till the end of 2012 are all of the Bush-era reductions on income and capital gains taxes. A fix to the estate tax, which temporarily expired this year, was also a hot topic between the Republicans and Democrats. The Republicans won this battle, with a reduced top rate of 35% next year, the lowest rate since 1931, and applies on estates larger than $5 million per person. For a married couple with the simplest of planning, that means estate under $10 million can be made free from estate tax. The Democrats had wanted the top rate to be 45% and the exemption to be applied after $3.5 million per person. This reduction is sparking fears in the non-profit community that charitable giving may drop substantially if there is no longer a tax benefit for the contributions.

Employers will benefit with deduction rules which allow businesses to write off 100% of certain capital investments made from September 9, 2010 through the end of 2011, instead of over the investment's useful life. Employees get a 2 percent reduction in their payroll tax for the next year, which will mean more money into their pockets every week. This is a benefit that will positively affect sole proprietors and small business owners as well, and may require a rethinking of the traditional bonus vs. dividend analysis made during the year. The plan also continues extended unemployment insurance benefits through 2011.

Experts estimate the total cost of the tax cuts to be $858 billion over the two year life of the extension.

It's Now Tougher To Change Deposition Testimony in Pennsylvania, New Jersey and Delaware

Tue, 12 Oct 2010 14:16:44 -0500

Mistakes made during deposition testimony by corporate officers recently became harder to correct in the Third Circuit (the 3rd Circuit covers federal courts in Pennsylvania, New Jersey, Delaware & the Virgin Islands). In the past, attorneys often had their clients complete errata sheets after a deposition to correct harmful testimony. However, in EBC, Inc. v. Clark Bldg. Systems, Inc., the Third Circuit stated that use of errata sheets pursuant to Federal Rule of Procedure 30(e) to create issues of fact to defeat summary judgment motions will be disregarded in most circumstances. The limited exception to this rule is where sufficient justification exists for changing the deposition testimony that exists on the deposition record itself. The Court noted that errata sheets used to create genuine issues of fact are fundamentally indistinguishable from self serving affidavits.

The practical impact of this cautionary footnote is that more time must be given to preparing the witness for what questions might be asked during her deposition. Perhaps just as important is to take the time to impress upon your witness the inherent dangers in the deposition process itself. If not properly prepared, your witness may destroy your case without realizing it.

Major Changes Coming for Philadelphia Business Taxes?

Thu, 30 Sep 2010 14:02:39 -0500

It's been discussed for years (decades?) and the subject of numerous mayoral campaign debates, but it looks like major changes to Philadelphia business taxes may be in the works. The Philadelphia Inquirer is reporting that a majority of City Council has signed onto a plan to shift the business tax burden away from profits towards gross receipts. All at first blush this seems to be a counterintuitive move since our firm, like many others, has for years advised clients who located their businesses outside of the city because of the onerous gross receipts tax. However, there are provisions which may make this shift not only palatable, but beneficial to small businesses in the city.

The Inquirer is reporting that the first $100,000 of sales will be exempt from the gross receipts tax. Further, certain industries such as manufacturing and retail will be taxed at preferential gross receipts tax rates, some as low as 0.10%. for other businesses, the proposed 0.53% tax, on receipts over $100,000, is targeted to hit out of town operations harder than local mom-and-pop's. Whether that holds true or not, or if Mayor Nutter even goes along with the plan, is something that remains to be seen.

One thing the does seem to be certain is that we're going to see a major shift in the compensation packages paid to owners and principles of small businesses in Philadelphia. For years the business privilege tax pushed owners to take their income as salary and bonus, rather than profits and distribution, unlike their colleagues in the rest of the country. With the abolishment of the Business Privilege Tax we're nearly certain to see small business owners in Philadelphia making a change to pay themselves a distribution, subject to the lower capital gains tax rate, rather than the higher taxed bonuses we've seen over the past few years.

If this bill goes through, savvy business owners will start to think about establishing secondary entities outside the city limits to reduce the gross receipts subject Philadelphia taxes.

Businesses Required to Accomodate Nursing Mothers

Mon, 20 Sep 2010 13:23:31 -0500

Hidden well over a 1,000 pages into President Obama's health care bill that was passed earlier this year is a provision that all working mother's can appreciate. Employers are now required to provide "a place, other than a bathroom, that is shielded from view and free from intrusion from co-workers and the public, which may be used by an employee to express breast milk." Businesses with less than 50 employees can claim it's an undue hardship if they can prove it truly is, but larger companies will have to comply. Mother's can take time to express milk as often as they like, but they don't have to be paid for that time.

Cybersquatting and Protection of your Good Name

Wed, 15 Sep 2010 13:17:55 -0500

Did you know your disgruntled customers could set up a website using your business name? It's called cybersquatting, and unfortunately it's a growing problem for businesses these days. While the issue has been resolved in some areas of the country, for Pennsylvania, New Jersey, and Delaware businesses cybersquatting is still a very real threat.

These so-called gripe cites are set up by disgruntled customers and even former employees to tarnish your businesses good name. A recent example of this phenomenon was the gripe site levinsonaxelrodreallysucks.com, set up by a former associate at the Levinson Axelrod law firm. In that case, the former associate had also set up a squatting site at levinsonaxelrod.net (the real firm site has a .com address). Although both sites were ultimately taken down as a result of litigation and a confidential settlement, the firm had to deal with months of time and cost in order to protect their business reputation. No doubt significantly more expensive where the services of the online reputation management firm they were forced to hire in order to keep perspective clients from finding the wrong website.

Currently, there is another case pending before the Third Circuit addressing a similar gripe site. In this case the site was set up by the former patient of 2 Lasik doctors who lost his sight after surgery. The jury found in favor of the doctors in the medical malpractice case, but the patient found another way to go after the doctors - he set up multiple sites in an attempt to ruin the reputation of the doctors who performed the surgery. The physicians responded by filing both a federal lawsuit as well as an arbitration dispute under the rule set out by ICANN, the organization set up to oversee Internet names. The arbitrator ruled that the sites were confusingly similar and ordered them taken down. The federal court claim is still proceeding to determine if the patient's First Amendment right to complain trumps the doctors' right to their own names. Because this issue has not been decided by the Court of Appeals in the Third Circuit before, businesses in the area are waiting on the results.

The most effective time for businesses to take action, as always, is before the problem arises. In many cases the simplest and cheapest thing to do is to register not just your domain name but all variations on your name and site address so that they're under your ownership and control. If you become aware of a gripe site attacking your business, the intellectual property laws require that you take action promptly in order to protect your good name, or you could lose the right to do so. The attorneys at Danziger Shapiro & Leavitt believe in a multipronged approach to protecting your business, while litigation is often at the heart of that approach, sometimes there are faster ways to protect your good name wall the court case is ongoing.

Building and Renovation Contractors Need to Understand EPA's Renovation Repair and Painting Rule

Thu, 19 Aug 2010 14:16:39 -0500

With the upcoming deadline fast approaching, we wanted to follow-up our April 15, 2010 post titled "New Lead Paint Rules for Contractors" with a timely reminder. As most people are aware, lead based paints were banned from residential construction in the late 1970's because of the harmful affects to individuals and particularly, the developmental issues it created in young children.

Renovation firms/contractors and workers will have until September 30, 2010 to obtain the necessary training/certifications; or at least be enrolled in these classes to avoid violating the new Renovation Repair and Painting Rule. Requirements include, among others items, new training guidelines, new certification processes for paint disturbances where lead may be present and that each project must have a designated certified renovator that is responsible for overseeing the project and insure compliance with the new RRP Rule. The rule imposes requirements where a failure to comply can result in a substantial fine of $37,500 for a single violation! We know the costs of those new approved HEPA vacuum and filtration systems are high, but they don't approach the level of the potential fines for most small to mid-sized jobsites.
While we don't yet know exactly how expensive the new regulations will be in regards to lawsuits, we are working closely with many of our landlord clients to prepare for this new liability. We've already seen instances of contractors and property owners attempting to nod and wink their way out of compliance as a cost saving measure. From the landlord's perspective, even if the fines aren't enough of a deterrent, the potential lawsuits should be terrifying.

Going forward, we are advising our contractors, property managers and other clients who own and rent/lease real estate that this will be a major issue and that their contracts will need to be reviewed to allocate for this new liability. In addition, clients need to talk with their insurance adjuster as well to make sure they have coverage as well.

The Next Big Small Business Issue? Employee vs. Independent Contractor

Tue, 15 Jun 2010 17:00:56 -0500

The Department of Labor and Internal Revenue Service have joined forces in a "misclassification initiative" that will target small business employers who misclassify employees as independent contractors. How serious is this initiative? Well, President Obama's proposed 2011 budget allocates $25 million for this initiative. This additional funding will allow the Department of Labor to hire 100 more enforcement agents, and will also support grants at the state level to fund various incentive programs. The failure to properly classify an employee will result in heavy fines and penalties against employers. Why does the government care so much about this issue? Because the misclassification is costing the government billions in uncollected taxes; FICA and FUTA obligations.

Complicating the analysis of whether your workers are independent contractors or employees in Pennsylvania is that the state and federal courts focus on different factors. Even more troublesome, in some instances the state itself may have different tests depending upon which state agency you are before. For example, worker's compensation and unemployment compensation are both Pennsylvania state agencies, but each agency looks to different factors when making their determination. As the employer, you must be certain that your decision will satisfy all applicable criteria for the agency or department most likely to be evaluating your business. The analysis entails much more than just reviewing the old 20 part IRS control test. While many worker prefer an independent contractor classification, the risk to the business has just become too great to not conduct a thorough review and action plan.

Philadelphia Façade Ordinance Compels Action by Commercial Property Owners

Thu, 20 May 2010 14:36:58 -0500

Building Owners in Philadelphia need to be aware of the February 2010 Philadelphia façade ordinance. This ordinance was enacted in response to the recent high profile collapses of building façades that severely injured or even killed pedestrians walking on the sidewalks.

In a nutshell, the new ordinance affects building higher than 6 stories or that have appurtenances in excess of 60 feet in height. If your building falls into this category, and most of the tall Philadelphia buildings with their intricate ledges and facades do, then you will be required to hire a licensed professional who is experienced in building facades or structural engineering to evaluate your building. The engineer will deliver a report of "safe", "unsafe" or "safe with a repair and maintenance program." If preventative action is required, it must be performed within a very tight time schedule. All of these reports will be filed with the Philadelphia Department of Licenses and Inspections.

The inspection requirement will be phased in over the next 5 years based upon the age of the building. The oldest buildings will require certification by June 30, 2011, and re-inspection is required every 5 years after the initial report. Going forward, we are advising our clients that this will be an issue for both landlords and tenants, as inspections, certifications and repairs will impact tenant costs as well as creating potential business access issues.

Greater Philadelphia Area Commercial Lease Issues: Look Before You Rent

Thu, 06 May 2010 12:21:00 -0500

In this current economic climate, Philadelphia landlords are aggressively recruiting new tenants with offers of robust rent abatement and fit out allowances. Since the commercial lease is often one of a small business's primary expenses, it is a good idea to review any proposed lease carefully before signing or making changes to your existing deal.

A thorough lease review is important so you understand not only what the lease includes, but also what the lease does not include; and what terms are implied by law. Often, we see clients presented with lease agreements that contain terms which are unenforceable in court. Although rent, term, purchase options and security deposits are always the key business terms to any lessee, there are other legal issues which must be considered.

While not an exhaustive list, major issues that a tenant should consider prior to signing or renewing include:

1. Never enter into a commercial real estate lease in your individual capacity. If necessary, offer to personally guaranty part of the lease or pay a higher security deposit. Be wary of the landlord who states, "Don't worry. That is why you have insurance."
2. Pennsylvania law does not require a commercial landlord to mitigate his damages. That means the landlord can refuse to sign a replacement tenant and hold you liable for the unpaid rent. Therefore, make sure your lease requires the landlord to mitigate.
3. If a zoning change is required for you to operate your business, negotiate in advance under what circumstances the lease can be terminated if you are unable to obtain either a zoning change or variance. Also, be sure to include in your lease that your landlord has an obligation to cooperate and support you before the zoning board. This may seem like common sense, but you'd be surprised how often it becomes an issue.
4. You may be responsible under applicable law for environmental problems that occurred on the leased property prior to you getting there. Review the environmental and indemnification sections of your lease carefully and ask questions concerning prior "uses" of the property.
5. Be sure that you have meaningful rights if your landlord sells the property.

Email Policies for Small Businesses in the Greater Philadelphia Region

Fri, 16 Apr 2010 13:50:34 -0500

The New Jersey Supreme Court recently held that an employee has a reasonable expectation of privacy for emails sent through a personal email account (name@gmail.com for example) over her employer's network. This is significant because prior law had held just the opposite-namely that the employer did have access to anything an employee was sending over the employer's network. While this case focused extensively on the relationship between the attorney client privilege (because the personal email the employee sent was to her lawyer about a lawsuit against her employer) and the employer's right to review company email -- this case should give pause to human resource departments that it might be a good time to update or perhaps create your employee manuals.

At our Philadelphia business law firm, we like to think of an employee handbook as not only benefiting the employee, but also providing tremendous legal benefits for the employer. By having a clearly defined policy or procedure in place, along with defined consequences for the failure to meet them, exposure to litigation is greatly reduced. In fact, business insurance carriers will often reduce your premium if you have clearly defined policies for email, communication, sexual harassment, and anti-discrimination.

As a result of this case we are now advising our clients to have communication policies in place that provide notice to employees that personal email accounts (name@gmail or name@yahoo.com for example) are subject to monitoring when sent over the company network. In addition, even if you elect not to monitor personal emails sent over the company's network, everyone should be aware that records of such emails may be discoverable in litigation. This could lead to very embarrassing situations for you and your employees. Any company, whether it is small or large, can benefit by having a strong electronic communications policy in effect to reduce company exposure in litigation.