FAQs on Corporate Liability for Employee’s Unauthorized Actions

Posted by on Aug 22, 2012 in Direct Investment from China, Employment and Labor |

By: Kun Zhao, Esq.

In the course of conducting business, companies rely on their employees to carry out their duties.  The relationship between company and employee is a principal-agent relationship. When employee is acting on behalf of the company within the scope of his authority, the company is bound to the employee’s decisions and activities dealing with third parties on behalf of the company. Disputes arise when employees act outside their scope of authority and third parties have no knowledge or notice that the employees were acting in such a manner.

Situations involving employees acting outside their scope of authority generally fall into three categories. Under the first scenario, an employee has no authority to perform certain actions on behalf of the company. For example, a salesman cannot dispose of his company’s real property. Where one deals with an agent who is apparently without authority to act, he must inquire into the agent’s authority to represent the company. If a third party fails to make such an inquiry, the company has no liability and the third party can only seek remedy against the employee agent.

Under the second scenario, an employee’s act is within the scope of his authority but his conduct is in fact unauthorized by the company and there is no surrounding circumstance that alerts the third person. For example, a salesman may have the authority to collect non-cash payments for transactions, but he has no authority to receive cash payments. In this situation, the company is accountable for the conduct of its agent acting within the scope of his authority even though the conduct is unauthorized and the company receives no benefit from it. The rationale underlying this doctrine is that even though the employee agent may have deceived the principal company, as well as the third person victim, it is more equitable to hold the company accountable rather than the innocent third party because the company placed its employee in a position to perpetuate the act.

The third scenario is identical to the second scenario except that there are circumstances that cause the third party to suspect something is amiss. For example, past payments may have been made by wire transfer, but the salesman suddenly demands substantial cash payment. Such circumstances serve to put the third party on notice and to charge him with the duty of making an inquiry. If the third party fails to make an inquiry and confirm the employee’s authority with the company, the risk shifts to him.

Multi-party relationships in the business world are normally inevitable. Thus, companies should be careful about giving authority to employees to properly notify employees about the scope of their authority. Companies should also firmly enforce their policies and procedures in dealing with third parties. Third parties should adhere to their customary dealings with company employees and make alert inquires if there are any deviations from past practices.

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Withholding or Deducting from Wages: FAQs for Employers

Posted by on Jul 19, 2012 in Direct Investment from China, Employment and Labor |

By: Kun Zhao, Esq.

During the employment relationship, employer and employee may encounter wage payment issues, especially when employer is a small business. Under what circumstances an employer can deduct from employee’s wages and how wage dispute should be dealt with properly are often at issue. Employers are often confronted with the issue of whether employees must be reimbursed for certain expenses or for economic loss or damage purportedly sustained by employees.

New Jersey law is very strict as to what may be deducted from employee wages. Other than very limited situations where the employer is allowed to deduct monies for the benefit of the employee, such as employee-authorized contributions to employee welfare, insurance, pension, retirement plans, etc., an employer may not withhold, deduct, or divert any portion of an employee’s wages.

Employers may not deduct wages for the purchase of necessary items for employment, such as tools, uniforms or clothing.  However, with employee consent, employers may deduct wages for the rental or cleaning of required uniforms or clothing. Employers are not allowed to withhold or deduct employee wages even when employees damage employer property or when employees steal employer funds. If an employer suffers losses due to employee misconduct and cannot resolve the matter with the employee, it should seek judicial relief rather than engaging in self-help measures that may be illegal.

Additionally, in the event of disputes over the amount of wages between an employer and employee, the employer is required by law to timely pay, without condition, all wages, or parts thereof, conceded by him to be due, leaving to the employee all remedies to which he might otherwise be entitled as to any balance claimed. The acceptance by an employee of a payment of the conceded amount does not constitute a release as to the balance of any claim. Any release required by an employer as a condition to payment is null and void.

Therefore, when dealing with wage issues with employees, employers should be very careful to comply with state and federal laws to avoid unnecessary state investigations and penalties due to violations.

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Non-Competition Agreement FAQs

Posted by on Jan 25, 2012 in Employment and Labor, Intellectual Property |

By: Kun Zhao, Esq.

Where an employer’s most valuable assets are trade secrets, such as sensitive technical and commercial information that are not generally known to the public, the employer will often require its employees execute two types of agreements to protect its trade secrets and maintain its competitive edge in the marketplace: (1) a confidentiality/non-disclosure agreement and (2) a non-competition agreement.

The purpose of a confidentiality agreement is to require an employee who receives confidential information not to disclose such information to any other person and to keep it a secret. On the other hand, the purpose of a non-competition agreement is to limit the employee’s actions following termination and to prevent the employee from using resources, knowledge, sensitive trade secrets, and/or leads gained during the employment to directly or indirectly compete with the employer.

While confidentiality agreements are generally enforceable in New Jersey and New York, restrictive covenants on competition, such as a non-competition agreement, are not favored in the law. Under the New Jersey and New York law, only a reasonable non-competition agreement is enforceable by the court.

The reasonableness of a non-competition agreement is to be determined on a case by case basis. In drafting a non-competition agreement to protect its business interests, an employer needs to determine whether (1) the restrictive covenant is necessary to protect its legitimate interests, (2) whether it would cause undue hardship to the employee, and (3) whether it would be injurious to the public.

To be reasonable, employers need to show that they have a legitimate interest in restricting competition, such as protecting confidential business information, protecting its investment in the training of its employee, or protecting its client bases. Beyond that, three additional factors should be considered in determining whether the restrictive covenant is not overbroad: (1) its duration, (2) the geographic limits, and (3) the scope of activities prohibited. Each of these factors must be narrowly tailored to ensure the covenant is no broader than necessary to protect the employer’s interests.

We at Hill Wallack LLP stand ready to assist with any questions and assistance needed in drafting and preparing confidentiality agreements and non-competition agreements to protect your business interests.

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New Trade Secrets Act Requires Review of Employment Agreements

Posted by on Jan 13, 2012 in Dispute Resolution, Employment and Labor |

By:  Christina L. Saveriano, Esq. and David J. Truelove, Esq.

Your most important business asset is that which sets you apart from your competitors. If that asset is protectable, confidential information and/or a “trade secret,” reviewing and analyzing recently-passed New Jersey legislation is required reading.

Gov. Chris Christie has recently signed the New Jersey Trade Secrets Act. This law has significant implications for employers that possess information protected under the Trade Secrets Act. This warrants review of any current employment agreements and restrictive covenants currently in place for revision. Likewise, employers should consider entering into such agreements with employees if no such agreements are in place.

As a starting point, employers should review any existing agreements which define the term “trade secret” to confirm that it is consistent with the definition under the Trade Secrets Act. In addition, employers should consider alerting employees to the consequences of misappropriation of the employer’s trade secret which under the Trade Secrets Act include the entry of injunctive relief, imposition of punitive damages and an award of costs and attorney’s fees.

Furthermore, employers should be aware that an action for misappropriation of a trade secret against an employee, under the Trade Secrets Act, must be brought within three years after the misappropriation is discovered. Passage of the New Jersey Trade Secrets Act now creates a statutory right for employers where only case law has existed to date.

We at Hill Wallack LLP stand ready to assist with any questions and assistance needed in view of this new legislation.

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Expanding Wage & Hour Protections Will Be a Hot Topic for the 112th Congress

Posted by on Nov 12, 2010 in Employment and Labor |

By: Susan L. Swatski

Wage and hour matters are prominent in employment law news these days as a result of the new Federal health care laws - the Patient Protection and Affordable Care Act of 2010, Pub. L. 111-148 and the Health Care and Education Reconciliation Act of 2010, Pub. L. 111-152 (collectively, the “Health Care Laws”). These laws not only will change the availability of health insurance, but also how health care is delivered in America, specifically with respect to direct-care staff.

Direct-care staff are individuals who provide domestic services such as nursing aides, companionship and home heath assistants. As the population ages and people shy away from institutional health care, direct-care workers comprise one of the nation’s fastest growing occupations.

A primary focus of the Health Care Laws is the wages of direct-care staff . According to the U.S. Department of Health and Human Services (“HHS”), the real wages for these workers, which are far below the median for all occupations, have remained flat over the last decade. As a result, the Health Care Laws required HHS to establish a workforce advisory panel for direct-care workers. Beginning in 2011, this panel will be responsible for tackling the challenge of improving wages for these workers.

The Fair Labor Standards Act (FLSA) was enacted to ensure a minimum standard of living for workers by establishing a minimum wage, overtime pay and other protections. The FLSA traditionally has excluded direct-care workers from its umbrella of protection. In a landmark 2007 decision, the U.S. Supreme Court upheld HHS’s authority to define exceptions to the FLSA (see Long Island Care at Home, Ltd. v. Coke). Current law, however, still excludes direct-care workers.

Pending Legislation

In response to Long Island Care at Home, Ltd. and the Health Care Laws, on July 30, 2010, Representative Linda Sánchez (D-CA) introduced the Direct Care Workforce Empowerment Act (H.R. 5902) to limit the FLSA exclusion of direct-care workers to those who work 20 hours or less per week. On August 3, 2010, Senator Robert Casey (D-PA) introduced a companion bill (S. 3696) in the Senate. The proposed bills’ Findings state that in the direct-care industry “working conditions are often difficult and turnover is high because of low pay, access to health insurance and other benefits, strenuous conditions…”

The Findings also report that 13 million Americans currently are receiving such services and that “two-thirds of older adults will need some form of long-term care at some point in their lives.” Although both bills are languishing in their respective committees (the House bill was referred to the Committee on Education and Labor and to the Committee on Energy and Commerce, and the Senate bill was referred to the Committee on Health, Education, Labor and Pensions), strong support from HHS and the White House likely will keep this issue in the forefront in the 112th Congress, regardless of which party is in the Congressional majority.

Record keeping and timekeeping issues are an inevitable consequence if the proposed amendment is enacted, because direct-care workers generally have significant “down time” when they are able to pursue their own activities. Such gaps in active work time will raise issues as to whether the worker is “engaged to be waiting” or “waiting to be engaged” and thus, “on the clock.” The key is to be proactive and not get caught unaware in a wage and hour dispute.

Confronted With a Clear Wage and Hour Violation – Make An Offer

A recent U.S. District Court case provides a good example of an employer turning a bad situation into a win simply by making an offer. See Simmons v. United Mortgage and Loan Investment, LLC . In Simmons, the defendant mortgage company misclassified a group of “junior asset managers” as salaried “exempt” employees. The employees sued in an opt-in class action.

In an effort to stave off years of class action litigation and recognizing that a likely violation of the Fair Labor Standards Act occurred, the employer confronted the situation head-on by making an offer of judgment under Federal Rule of Civil Procedure 68. The offer provided for “full relief for all parties,” including those that would be opt-in plaintiffs. In sum, the employer offered full relief to which the plaintiffs could have been legally entitled.

For unidentified reasons, the plaintiffs rejected the offer, pounding the death knell into their case. The court held that the defendants’ offer mooted the action by depriving the court of subject matter jurisdiction – no justiciable case or controversy – resulting in the dismissal of the case.

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Viewing Social Networking Sites i.e. MySpace and Facebook Exposes Employers to Claims of Employment Discrimination

Posted by on Sep 7, 2010 in Employment and Labor |

Employers are turning to social networking sites such as MySpace and Facebook to conduct background checks of job applicants and employees. Social networking profiles allow employers to get a sense of what a potential applicant is like and to check up on activities of current employees. Profiles provide employers the opportunity to search out information about applicants and employees that would otherwise be unattainable.

Personal information including, race, gender, age, sexual orientation and political affiliation that have previously been off-limits to employers is now readily available and can be taken under consideration in the hiring and firing process. For example: an employer is not permitted to ask an applicant about his or her age, however, many profiles contain the individual’s birthday. However, employers should be forewarned as this practice can make them vulnerable to potential liability if it can be established that an employer used this information to unlawfully discriminate against protected groups.

Employers are permitted to hire and fire whomever they want even if it is based on false information as long as they do not violate federal, state and local laws. If am employer decides to view applicant and employee profiles they need to take the time to educate themselves on federal, state and local discrimination laws. In Philadelphia, for example, local laws make it unlawful for employers to discriminate based on sexual orientation, however, sexual orientation has not been deemed a protected class under federal and state law. Should an employer in Philadelphia view an applicant profile and discover the applicant is homosexual, and then decide not to extend the applicant an offer because of the individual’s sexual orientation, the employer would be liable for employment discrimination.

Employers that review job applicants and employee profiles however, cannot use the information obtained to make adverse employment decisions that unlawfully discriminate against protected groups. For example, an employer could be potentially liable for age discrimination if the employer decided not to hire the applicant only after reviewing the applicant’s profile and discovering the applicant is over 40 years old.

It may be viewed as evidence of discrimination if an employer reviews only profiles of applicants or employees that are members of protected classes such as women, African Americans or Hispanic. Employers, however, that review all applicant and employee profiles can still commit unlawful discrimination. An employer could be found to have committed employment discrimination if discriminatory bias affects the employer’s evaluation of the information obtained on all applicants or employees. For example, an employer may view more negative photos of a African American male consuming alcohol in an oversized white t-shirt at a bar than photos of an white male consuming alcohol in a frat t-shirt at a bar. The argument could be made that it was not the public drinking that disqualified the black male applicant, but stereotypes perceived by what the employer observed in photos.

As long as an employer’s adverse employment decision does not discriminate against a member of a protected class, the employer can lawfully use information obtained from a profile as a basis for its decision. For example, the Philadelphia Eagles fired an employee after discovering the employee posted on his profile his dissatisfaction with the teams’ decision not to sign player, Brian Dawson. Whether the Eagles decision to terminate the employee was based on the employee’s actual opinion of the team’s decision or whether it was based on the fact that the employee posted his opinion on a social networking site is immaterial. In either case, the Eagles did not violate any federal or state discrimination laws because its decision to terminate the employee was based on non-discriminatory reason.

To avoid potential exposure employers should resist the practice of viewing profiles and focus on conducting better interviews. Employers that are determined to view applicant’s social networking profiles should make sure that they document a legitimate business rationale for rejecting each applicant and put safeguards in place to assure hiring decisions are not motivated by the information found on an applicant’s profile(s). Employers that decide to review applicant profiles should review every applicant’s profile However, none of these steps eliminate risk of liability. Additionally, employers must understand viewing social networking profiles leaves them vulnerable to employment discrimination claims and will make it more challenging to defend against such claims.

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