Selling Products In CA – A New Prop 65? Keeping Consumers Safe & Businesses On Their Toes

By: Talin Haroutunian, Esq.
Business Counsel Group, P.C.
· www.businesscounselgroup.com
September 3, 2015

https://www.linkedin.com/pulse/selling-products-ca-new-prop-65-keeping-consumers-safe-haroutunian?trk=pulse_spock-articles

California Proposition 65 (“Prop 65”) is a law that regulates the sale of consumer products in California.  The regulation lists chemicals known to cause cancer and/or reproductive toxicity (birth defects), and currently has over 800 chemicals on the list, including lead—a chemical very commonly found in, among other things, apparel and jewelry.  Prop 65 goes beyond apparel and jewelry, and affects consumer products including toys, food and beverage packaging, personal care products, and household products.

Prop 65 requires businesses to give the public “adequate notice” of the existence of the relevant chemical in the products by placing warning labels on the products (assuming trace amounts of the known chemical is found in the products in an amount greater than the safe harbor limit allowed under the regulation).  Granted, a warning like that isn’t exactly ideal when trying to sell a product, but given the fact that Prop 65 concerns the health and safety of all consumers, an argument against its existence isn’t very compelling.

But the issue business owners have with Prop 65 isn’t what it’s intended to protect, but rather the manner in which it goes about doing it.  Many argue that the regulation leaves very little (if any) room for error, and the tiniest of errors can be very costly.  Failure to comply with Prop 65 notice requirements can result in penalties of up to $2,500 per day. A penalty of tens of thousands of dollars isn’t uncommon, and even less uncommon is receipt of a notice of violation from a bounty-hunting firm or organization, looking for an easy pay day.

The Center for Environmental Health (“CEH”) (http://www.ceh.org/), an organization that polices businesses, and brings lawsuits against non-compliant companies, is now leading the charge for an amendment to the regulation, calling for stricter daily safe harbor limits, arguing that the current limits aren’t really safe.

If the amendment passes (California’s Office of Environmental Health Hazard Assessment is holding a hearing on CEH’s petition on October 9, 2015), many businesses will have to re-evaluate the way they’re doing business in California—a potentially costly undertaking.

Business Counsel Group is ready to answer any questions you may have regarding Proposition 65, including how to mitigate possible risk.  You may reach Talin via email at Talin.Haroutunian@businesscounselgroup.com. 

Copyright © Business Counsel Group, P.C. All rights reserved.  This newsletter is for general informational purposes only and does constitute legal or other professional advice.  No attorney client or other professional relationship is created between you and Business Counsel Group, P.C. 

Laying the Foundation for Your Business: Tips to Minimize Risk

By: Talin Haroutunian, Esq.
Business Counsel Group, P.C.
· www.businesscounselgroup.com
August 26, 2015

https://www.linkedin.com/pulse/laying-foundation-your-business-tips-minimize-risk-talin-haroutunian?trk=mp-author-card

No business wants exposure to unnecessary risk.   Below are a few tips to help achieve that goal.

  1. Build a Circle of Trusted Advisors. As a business owner, you’re making decisions, big and small.  You want your decisions to be deliberate and thought out. For that, you’ll need reliable and trustworthy professional advisors (a lawyer and an accountant) you can call if and when you have questions and need counsel.  Good advisors will not only guide you in the right direction, but will steer you clear from any missteps, saving you both money and strife.
  2. Put it in writing. Drafting of Contracts can be costly.  And it’s true: many deals happen without written agreements in place.  But that’s (really) risky business.  Although things start smoothly, inevitably you’ll hit a bump (or wall) on the road.  A simple misunderstanding or un-discussed term turns an otherwise harmonious business relationship upside down; or worse yet, what you deem is a clear document outlining the agreed terms turns into an obscure and convoluted instrument open all sorts of interpretations. Unfortunately, I’ve seen this, not once, but a 1000 times.  The best fix is a clear and concise agreement signed by all, laying out the understanding between the parties.  So, regardless of the context, or whether you’re dealing with a best friend, a family member, or a complete stranger, get a good agreement in place.  Contracts are preventative measures, they benefit all parties involved, and in the end, you’ll thank yourself for having done it right.
  3. Register Your Intellectual Property. Register your trademarks, copyright your designs, patent your ideas. Not just in the US, but in all your markets.  And if budget is an issue, then build a plan and at the very least, make sure you’re immediately covered in your largest markets.  There’s no point building a brand if it’s not protected, and these types of assets are critical to your success. If you don’t take this simple step, you may one day find that your brand is severely and irreversibly compromised.
  4. Don’t Ignore Your Back Office. In order to operate successfully and be around for the long-run, you need proper infrastructure in place.  You need a handle on everyone you hire—employees, independent contractors, and interns.  Labor laws, especially in CA and NY, are strict, and one wrong move may cost you $1000s. To stay compliant, you want proper offer letters, notices, employment policies and agreements, and tracking mechanisms in place.  If you’re busy managing the bigger picture, then hire someone who can help you stay the course.  One way or the other, you have to make sure you’re covered.
  5. Take a Moment and Reflect. You’ve got momentum, excitement and gumption. Before you take the next step, take a moment to reflect and ask yourself: have you put all the proper foundational pieces in place? Have you done your due diligence? Are you properly set up? Do you have agreements in place? Have you safeguarded your intellectual property? These questions will help minimize unwanted surprises, and mitigate your risk.

The above isn’t an exhaustive list, but it covers some fundamental matters that you need to address. The question is whether you’ll address them now before any fires arise. Reactionary moves cost more money, time, effort and energy.  Be proactive.

Business Counsel Group is ready to assist in all your corporate, employment, and intellectual property needs.  You may reach Talin via email at Talin.Haroutunian@businesscounselgroup.com. 

Copyright © Business Counsel Group, P.C. All rights reserved.  This newsletter is for general informational purposes only and does constitute legal or other professional advice.  No attorney client or other professional relationship is created between you and Business Counsel Group, P.C.  

 

 

 

 

Your business at Risk. Misclassification: Intern or Employee? Second Circuit Court Makes a Pro-Employer Ruling; The Primary Beneficiary Test

By: Talin Haroutunian, Esq.
Business Counsel Group, P.C.
· www.businesscounselgroup.com
August 11, 2015

 https://www.linkedin.com/pulse/intern-employee-new-test-from-second-circuit-talin-haroutunian?trk=mp-author-card

Unpaid internships are not an avenue to free labor. Unless you (the business owner) are careful, the risk involved in bringing in an unpaid intern may simply not be worth it.   In an attempt to minimize abuse by employers, the Department of Labor (“DOL”) and the Supreme Court set guidelines regarding use of interns.   Non-compliance with these guidelines can be costly for employers, as it can result in a finding of misclassification of the individual hired, requiring employers to pay thousands (and thousands) in penalties, back wages, missed meal and break periods, etc.  Fortunately, a recent Second Circuit Court decision is making compliance with internship guidelines a little bit easier for businesses.

The DOL rigidly relies on six (6) criteria that make up the test that must be applied when determining whether an internship is a true internship. However, in a recent decision (Glatt v. Fox Searchlight Pictures (Nos. 13-4478-cv, 13-4481-cv)), the Second Circuit Court of Appeals rejected the DOL’s test (derived originally from a 1947 Supreme Court ruling), and instead introduced a pro-employer approach that has flexibility and balancing.  The Second Circuit focused on two points: (i) what the intern receives in exchange for his work; and (ii) what the economic reality is as it exists between intern and employer. Another big take away from the ruling, is its reference of the criteria as non-exhaustive (versus strict).

Specifically, the Second Circuit identified the following considerations, which are to be used as an aid to the courts in answering the primary question: “whether the intern or the employer is the primary beneficiary of the relationship.”

  1. Whether the parties understand that there is no expectation of compensation (in the context of unpaid internships);
  2. Whether the internship provides training similar to that given in an educational environment;
  3. Whether the internship is tied to the intern’s formal education;
  4. Whether the internship is limited to a period where the intern is provided beneficial learning;
  5. Whether the intern’s work complements, rather than displaces, a paid employee’s work; and
  6. Whether the parties understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

In its discussion of the above list, the Court further adds:  “[a]pplying these considerations requires weighing and balancing all of the circumstances.  No one factor is dispositive…[and the] courts may consider relevant evidence beyond the specified factors in appropriate cases.”  Also important to note, the Glatt decision struck a blow to the use of class and collective actions in these matters, arguing that the unique experience of each individual intern may impede the “commonality” factor required to meet class certification.

So where does this leave things?

Well, if you’re Fox Searchlight Pictures, the decision was a tremendous victory.  The company was facing a class action lawsuit for misclassification of its unpaid interns as employees.  The decision reversed the District Court’s finding of class certification, and held (based on this new balancing test) that the interns were not misclassified.

And what does this mean for you?

If you’re an employer residing within the Second Circuit’s jurisdiction (which includes New York), you’re in far better footing than before. Assuming you’ve done your homework, required the intern to sign appropriate documents, and are “training” the intern within the appropriate scope of the internship, then you can rest easy, and most likely have nothing to worry about.

If you’re a California employer, keep your i’s doted and t’s crossed.  The Second Circuit’s decision is persuasive, not mandatory, meaning California courts aren’t required to follow it. Given California’s pro-employee stance, the courts will likely continue to require strict compliance with DOL’s six (6) criteria.  Nonetheless, it’s entirely possible that this Second Circuit decision is a sign of things to come. Until we have a clear California case singing a similar tune, keep your pencil’s extra sharp.

Business Counsel Group is ready to assist in managing compliant internship and employee/employer relationships.  You may reach Talin via email at Talin.Haroutunian@businesscounselgroup.com. 

Copyright © Business Counsel Group, P.C. All rights reserved.  This newsletter is for general informational purposes only and does constitute legal or other professional advice.  No attorney client or other professional relationship is created between you and Business Counsel Group, P.C.  

References:

U.S. Department of Labor Wage and Hour Division (April 2010) Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act

Glatt v Fox Searchlight Pictures, No. 1:11-cv-06784-WHIP, Slip Op. at 26 (S.D.N.Y. June 11, 2013); http://law.justia.com/cases/federal/appellate-courts/ca2/13-4478/13-4478-2015-07-02.html

You’re In Business, But Are You Protected? A Quick Overview: How to Make Sure Your Proprietary Information and Intellectual Property Remain Yours

By: Talin Haroutunian, Esq.
Business Counsel Group, P.C.
· www.businesscounselgroup.com
August 5, 2015

https://www.linkedin.com/pulse/article/keeping-your-proprietary-information-intellectual-talin-haroutunian/edit

Taking extra measures to protect proprietary information and intellectual property isn’t on most entrepreneurs immediate “To Do” list, but it should be.  Your client list, marketing plans/strategies, the designs for the look and feel of your store/product, your logo/brand—these are all things that make up your business, and unless you’ve protected them, they may be taken right from under you.

Protecting Your Proprietary Information. Proprietary information is information that is secret to your business. It includes your client list, the recipe to your secret sauce, your method for production of a particular good, your pricing formula. There are many steps you can and should take to ensure this information stays secret:

  • Keep the information to yourself. Don’t divulge information of this type to anyone unless you have to, and even then, only when you have signed non-disclosure agreements in place.
  • Enter into non-disclosure agreements (“NDA”).   Whether you’re speaking to possible business partners, investors, or independent contractors, keep information to yourself until NDA’s are signed. Even then there’s no guarantee that your information will remain protected, but at least you’ve taken the proper steps, and if push comes to shove, you can pursue legal action.
  • Enter into proper agreements with your employees, independent contractors, and interns.  In addition to NDAs, confidentiality agreements are key.  You should also have appropriate employment policies and a handbook, outlining your proprietary information.
  • Password-protect your computers and key documents. The harder you make it to access the information, the more shielded you are against corporate raiders. It happens all the time, you hire someone you think you can trust, then they steal away your trade secrets and set up shop across the way or join a competitor.  Even with passwords, there’s no guarantee that your information will remain protected, but this step will ensure you have legal recourse against any person who misappropriates your proprietary information.

Protecting Your Intellectual Property. Intellectual property may be registered with the US Copyright Office and the US Patent and Trademark Office.  Where to register depends on what it is you’re trying to register.  Registration in the US isn’t mandatory, and common law rights to intellectual property exist.  But if you want the ability to enforce your rights in a court of law against possible infringers, then you must register.

Depending on the type of business you’re running, registration in the US may be insufficient, and you may need to seek registration in foreign countries.  For instance, if you sell in the US but manufacture abroad, it’s important to register in the US as well as the country where you manufacture.  To protect against counterfeit goods, you should also register your registered marks with US Customs and Border Patrol, as well as the customs and border patrol agency in the country of origin. And of course, registration has no value unless you police your mark, sending cease and desist letters when necessary.

In addition to registration, you should enter into appropriate agreements with any third parties with whom you deal, including those in your supply chain, to ensure your registered intellectual property remains yours.  Among other things, this may include NDA’s, distribution agreements, and manufacturing agreements.

Some famous brands that have benefited (and suffered) from having registered (or not registered) their marks include:

  • Tory Burch: recently won a $41.2 Million in damages against infringers;
  • Michael Jordan: recently lost a case in China against a Chinese entity who registered the Chinese equivalent name to Jordan prior to Michael Jordan having registered his mark, and consequently Michael Jordan doesn’t have rights to his own name in China;
  • Gucci: filed numerous suits against Guess, claiming trademark infringement. Having won in some courts, and lost in others, the costly lesson learned is that vigilantly policing is key as some courts attributed the losses to Gucci’s failure to quickly pursue possible infringement; and
  • Converse: filed numerous suits to protect its Chuck Taylor designs, winning some and losing others. The purpose of the numerous suits is to let businesses know they intend to police their registered marks to the fullest.

The above is a quick overview of various steps you can take, and is by no means exhaustive.  What strategy to take to protect your business and brand depends on various factors.  Understanding and mitigating the risks your business faces if you’re unprotected is a critical factor in building a successful long standing business.

Business Counsel Group is ready to assist in corporate and brand protection.  You may reach Talin via email at Talin.Haroutunian@businesscounselgroup.com. 

Copyright © Business Counsel Group, P.C. All rights reserved.  This newsletter is for general informational purposes only and does constitute legal or other professional advice.  No attorney client or other professional relationship is created between you and Business Counsel Group, P.C.  

 

References

http://www.pastemagazine.com/articles/2015/07/tory-burch-just-got-412-million-richer-following-c.html

http://qz.com/467625/in-china-michael-jordan-does-not-hold-the-rights-to-his-own-name/

http://fashionista.com/2014/10/converse-lawsuits

http://fashionista.com/2015/02/french-court-rejects-gucci-trademark-claims-against-guess-paris-france

 

 

Your business at Risk. Misclassification: Are Your Independent Contractors Actually Employees? Why You Should Care and What It May Cost You.

By: Talin Haroutunian, Esq.
Business Counsel Group, P.C. · www.businesscounselgroup.com
July 28, 2015

https://www.linkedin.com/pulse/article/your-independent-contractors-actually-employees-talin-haroutunian/edit

It’s a problem many business owners face.  How do you classify your new hire? Many opt to classify them as independent contractors rather than employees, either because they don’t know any better, or because (seemingly) they believe it to be in their best interest to do so.  But simply placing the independent contractor label on a new hire doesn’t make them so.  Just ask Uber, who earlier this month lost a suit for misclassification of its drivers as independent contractors rather than employees.  The matter is up for appeal, and it will be interesting to see how the facts play out.

In a recently issued Administrative Interpretation, the Department of Labor’s Wage and Hour division concluded that “most workers are employees under the [Fair Labor Standards Act (the “FLSA”)]…..”   The DOL’s conclusion was predicated on the “economic realities test”—a multifactorial test courts rely on in determining whether a worker is an employee or an independent contractor under the FLSA.  In applying the test, the DOL used the FLSA’s broad definition of “to employ,” which broadened the test’s reach.

In its analysis, the DOL emphasized that the test should not be used in a “mechanical fashion,” and that rather than tallying which factors are met, focus should instead be on the larger picture:  “whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor).”  The DOL, taking a “totality of the circumstances” approach, analyzes each of the following factors:

  1. Is the Work an Integral Part of the Employer’s Business? The more integral the work, the more likely the individual is an employee.  For instance, carpenters are an integral part of a construction company’s business, and are more likely employees; whereas software engineers who create billing software for the same construction company are not integral to the construction business, and are more likely independent contractors.
  2. Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss? If yes, the more the likely the individual is an independent contractor. For instance, workers who take whatever jobs are assigned to them by the company are more likely employees; whereas workers who do their own advertising, negotiate their own contracts, and decide for themselves whether or not to take work, are more likely independent contractors.
  3. How Does the Worker’s Relative Investment Compare to the Employer’s Investment? The less the investment, the more likely the individual is an employee.  To be considered an independent contractor, the individual’s investment must be “significant in nature and magnitude” to the employer’s investment. For instance, construction workers supplied tools by their company, but who nonetheless purchase additional supplies, are more likely employees; whereas construction workers who buy all their tools/supplies, and arrange for storage and transport are more likely independent contractors.
  4. Does the Work Performed Require Special Skill and Initiative?   A worker’s “business skills, judgment, and initiative, not his or her technical skills, will aid in determining whether the worker is economically independent.”  The more business skills, judgment, and initiative used, the more likely the individual is an independent contractor.
  5. Is the Relationship between the Worker and the Employer Permanent or Indefinite? Although permanent engagements are more indicative of an employer-employee relationship, “[t]he key is whether the lack of permanence or indefiniteness is due to ‘operational characteristics intrinsic to the industry’.”  For instance, seasonal workers, although temporary hires, are temporary because of the nature of their job, and therefore are more likely employees.
  6. What is the Nature and Degree of the Employer’s Control? “The worker must control meaningful aspects of the work performed such that it is possible to view the worker as a person conducting his or her own business.” Recognizing that the “FLSA covers workers of an employer even if the employer does not exercise the requisite control over the workers,” the DOL emphasizes that the ultimate determining factor is whether the worker is economically dependent on the employer.

So what’s the significance of all of this? Misclassification is a hot issue—one that’s aggressively pursued by the DOL and state legislatures.  California Labor Code section 226.8 imposes penalties, including fines ranging from $5000 to $15,000 per violation, and up to $25,000, if the employer is considered a patterned, repeat offender. And in California, that’s just the tip of the iceberg.  Once classified as an employee, the business owner may face additional penalties for other wage and hour claims, including meal and rest period violations.  The agencies, departments, commissions, boards and divisions of the California Labor and Workforce Development Agency are ready, willing, and able to enforce the penalties administratively or through a civil suit.

Many owners, too busy running their business and focused on the bigger picture, make the potentially costly, and easily avoidable mistake of misclassification.  Fortunately, there are steps you can take to address any prior missteps, and make certain you properly classify your employees on a going forward basis.   Business Counsel Group is ready to assist in managing compliant independent contractor and employee/employer relationships.  You may reach Talin via email at Talin.Haroutunian@businesscounselgroup.com. 

Copyright © Business Counsel Group, P.C. All rights reserved.  This newsletter is for general informational purposes only and does constitute legal or other professional advice.  No attorney client or other professional relationship is created between you and Business Counsel Group, P.C.  

References:
http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.pdf

http://www.dir.ca.gov/dlse/worker_misclassification.html

http://law.onecle.com/california/labor/226.8.html

http://www.nytimes.com/2015/06/18/business/uber-contests-california-labor-ruling-that-says-drivers-should-be-employees.html?_r=0