What is the future of non-compete agreements?

The debate over the use of non-compete provisions in employment contracts continues to stir as state and federal regulators push back against the inappropriate use of these provisions for low-wage workers. In New York, for example, the state Attorney General has been actively challenging the use of these restrictive covenants and recently announced settlements with three companies that will effectively end their use of non-competes. These settlements come on the heels of a report issued by the White House in May 2016 that criticized the use of non-compete agreements.

The report, based on a Labor Department study conducted in March, questions the extent to which many employees actually have access to proprietary information and the effectiveness of non-competes in preventing the misappropriation of trade secrets. In sum, the federal government has taken the position that workers are unfairly hampered from negotiating for better compensation and benefits and are often prevented from advancing in their fields by overly restrictive non-compete provisions.

What is a non-compete agreement?

Non-compete agreements are restrictive covenants that are typically included in executive-level employment agreements designed to prevent them from working with competitors after resigning or being terminated. The provisions usually include a term of 6 months or up to two years, and specify a geographic region as well. These agreements, however, are currently being used more broadly to cover lower-level employees. Proponents contend that these provisions are necessary to prevent employees from taking sensitive business information, or trade secrets, to competitors. On the other hand, some observers argue that non-competes can also stifle innovation and mobility in the labor market.

The Takeaway

Other states besides New York, particularly Illinois, Nevada, and Massachusetts have been taking a look at the use of non-compete provisions. In addition, legislation was considered by lawmakers on Capitol Hill in 2015, to no avail. Whether the Labor Department will take any action in this regard is unclear, the growing trend of action by the states in this area should give business owners pause.

That being said, there are other ways a business can protect its trade secrets, such as relying on confidentiality provisions in employment agreements. In the end, there needs to be a balance between protecting sensitive information and not impermissibly binding workers from pursuing opportunities. The best way for a business to achieve this objective is to engage the services of an experienced business law attorney.

How will the new arbitration rule affect lenders and other financial firms?

The Consumer Financial Protection Bureau (CFPB) intends to limit mandatory arbitration clauses that banks and financial firms have long relied on to prevent class action lawsuits. This move comes after the CFPB conducted a study that was authorized by the Dodd-Frank law. The proposed rule applies to a variety of consumer financial products and services such as lending, storing and exchanging money.

While arbitration clauses will no longer encompass class actions, the new rule will keep mandatory arbitration in place for individual consumer actions. It remains to be seen whether this is the first step in completely eliminating arbitration clauses, however. CFPB Director Cordray painted these agreements as “gotcha contracts” that force certain groups of consumers to forfeit their legal rights.

The new rule will require firms that include arbitration clauses in their client agreements to revise these provisions by explicitly stating that arbitration cannot be used to prevent consumers from being part of a class action. One the final rule is issued, after the comment period closes in August, the CFPB intends to provide specific language that these firms must use. In addition, the consumer watchdog intends to monitor arbitration proceedings and will require firms to submit any materials used in an arbitrated case.

Industry groups are obviously opposed to the CFPB’s proposed rule because they contend removing class actions from arbitration will lead to a surge of lawsuits that will only benefit trial attorneys. They also contend that consumers will not be helped by the new rule in light of an earlier study by the CFPB that revealed that groups of consumers fair better in arbitration proceedings than those who join a class action.

Others argue that the proposed rule is designed to protect low income families and students who are typically more vulnerable to being pushed into loans and other consumer finance products with higher interest rates. These individuals also have no choice but to accept mandatory arbitration and in so doing surrender their basic legal rights.

The rule will become effective 210 days from the date when a final rule is announced which gives banks and other financial firms time to plan ahead for the compliance costs associated with revising their client agreements and the administrative costs they will incur for providing arbitration material to the CFPB. If you have questions about the new arbitration rule, you should engage the services of an experienced regulatory/compliance attorney.

If you own a business or would like to create one, you need to seek the expert advice of an attorney.  Counsel will be able to answer your questions regarding what type of business you may form as well as the dealings you may engage in.  He or she will also delineate any limitations in managing your company and will advise you as to the chronological steps that need to be taken to ensure your success.

For instance, you may require certain licenses to carry out business as usual.  These licenses may include a “Retail Sales Tax License” or an “Alcohol Beverage License,” and you will need to be listed with the South Carolina Department of Revenue (SCDOR).  However, some businesses may be exempt from registering if certain services are provided.

If you are planning to form a business, you will need to be versed in the filing requirements of South Carolina as well.  This will include filing with the Secretary of State (SOS).  Upon successful registration, the SOS will issue you a Certificate that you should maintain as proof of your South Carolina listing.

Moreover, you typically need to provide a name for your business, but the business name must not be used by another company.  An attorney can guide you as to how to determine whether the business name you desire is available.  Your business may also require a registered agent and office, and your company must comply with the South Carolina Code of Laws.

Furthermore, there are various tax and liability consequences associated with your business structure or form.  Several types available in South Carolina include Limited Liability Companies or Partnerships, Statutory Close Corporations, Professional Corporations, or even Non-Profit Corporations.  There may be different requirements and benefits depending on whether you are a for-profit or non-profit corporation.

Lastly, if your corporation has employees or plans to have employees, you will need a Federal Employer Identification Number (FEIN).   You may need to register with the Internal Revenue Service (IRS) or other organizations of the state and county within South Carolina throughout this process.  Confer with your attorney to ensure that every requirement is met.

What types of new jobs have become available in South Carolina?

It is not secret that the economy has been unstable for some time now. This probably makes most think twice about setting up a new business or expanding a current business into a new area. South Carolina is home to working class people and business owners alike and has no doubt been affected by the economic downturn. But, luckily for South Carolina one man has been able to convince a number of Chinese companies that the State is a great place to set up shop.

John Ling of the South Carolina is an employee of the South Carolina Commerce Department. He worked as a recruiter in China for 14 years before coming back to the United States recently. During that time, he worked with a number of companies, 9 of which have set up new factories in South Carolina. We are not talking about small operations. These companies are pumping millions into the economy and have created thousands of jobs. The newest company Ling has worked with is called China Jushi. This company will be setting up a fiberglass plant that will create 400 new jobs and bring $300 million to the state.

With a lot of business coming from China and experts expecting more to come, a number of businesses have had the opportunity to see for themselves that South Carolina is a good investment. But, that doesn’t mean that Chinese companies are the only ones that should be starting up or expanding in the state. Right now is a great time to do business in South Carolina.  Of course, matters relating to business can be complex. The smart entrepreneur knows the value of a solid and reliable legal team.  Talk to a South Carolina business and corporate law attorney today if you are considering doing business in the state.

Finding out that several of your most trusted employees have been jointly planning to steal your clients and usurp your business opportunities, all while using corporate assets, is every employer’s worst nightmare.  This story hits close to home for one law firm where four partners devised an arrangement over the span of eighteen months to leave and begin a new firm with their current employer’s clients.

While these employees continued to collect their robust paychecks, they demonstrated no shame in utilizing the firm’s resources and confidential information to benefit themselves financially.  A forensic exam exposed a trail of emails that confirmed the appropriation of client lists and other confidential information.  The employer brought a legal action based on the fact that the partners each signed an acknowledgment in the handbook, which expressly prohibited conflicts of interest and other breaches of the duty of loyalty.

THE EMPLOYEE HANDBOOK AND WHAT EMPLOYERS SHOULD KNOW

An attorney must decipher whether your current or former employee was “at-will,” or rather, whether the agreements in the employee handbook rise to the level of an employment contract.  A determination must be made with regard to whether the elements of a contract exist, such as a clear employment offer and acceptance, and whether the parties relied to their detriment on the agreement.  The attorney must also analyze whether disclaimers included in the employee handbook were conspicuous, that is, likely to grab the attention of the employee with the use of bold or capital letters, or on a page where it can be clearly seen.  To be valid, the words must be capable of being understood by a typical employee.

Moreover, disclaimers may affect whether or not an implied contract exists.  Other provisions listed in your company handbook may verify what promises were mutually agreed upon as a condition of employment.  Restrictive covenants are also typically evaluated by attorneys to determine whether they are enforceable.  For example, the conditions and scope of non-compete agreements must be very narrow and limited in order to be enforceable in South Carolina.

With the above considered, an attorney can determine whether it is more financially practicable for you to attempt to settle with your employees, pursue a lawsuit, or neither.  Damages available for a breach of an employment contract by an employee may include disgorgement of monies received as a result of the breach, attorney’s fees and lawsuit costs, injunctions, restitution, and other remedies.

Over the past few years, one of the areas in which we have seen business clients out of both our Florence and Myrtle Beach offices run into trouble is with wage and hour lawsuits. A quick scan of the headlines suggests our clients are not alone in facing a growing number of these suits. In fact, the Washington Post reports that wage and hour lawsuits are the fastest-growing category of lawsuits filed in federal courts.

What are wage and hour lawsuits?

Wage and hour lawsuits are claims brought by current and/or former employees against employers under state labor laws or under the Federal Fair Labor Standards Act (FLSA).

All of the following are claims that fall under the wage and hour suit umbrella:

• Misclassification — exempt/hourly, employee/independent contractor
• Unpaid overtime
• Off-the-clock work
• Failure to pay minimum wage
• Improper calculation of the regular rate
• Meal and/or rest break disputes

Just how many of these lawsuits are being filed?

A recent investigation by the Washington Post found, “The number of wage and hour cases filed in federal court rose to 8,871 for the year ending Sept. 30, [2015,] up from 1,935 in 2000. That’s an increase of 358 percent, compared to the federal judiciary’s overall intake volume, which rose only a total of about 7 percent over the same period.”

How much is this costing businesses?

In July 2015, NERA Economic Consulting released the latest update to its civil wage and hour settlements dataset, which is one of the best resources available on this topic. NERA found that wage and hour settlement payments totaled “$445 million in 2013, $400 million in 2014, and $39 million through the first three months of 2015, bringing the aggregate amount paid for cases settled since January 2007 to over $3.6 billion.”

Though total settlement payments are growing, NERA found that the average payout is decreasing.

“On average, companies paid $5.3 million to resolve a case in 2014, lower than the observed average of $6.3 million in 2013 and the overall average of $6.9 million for the 2007 to 2015 period. This pattern continued into the first quarter of 2015; during this period, average settlement values were down to $2.8 million. Median settlement values have similarly declined. The median settlement value was $3.0 million in 2013, the median was $2.4 million in 2014, and the median was just $1.9 million through the first 3 months of 2015. This is below the overall 2007-2015 median of $2.2 million.”

This trend means that the increase in overall payouts is purely due to more lawsuits being filed.

What can my business do to protect itself against wage and hour lawsuits?

In order to be proactive about addressing the risk of wage and hour suits present, businesses should regularly have their wage policies audited by an attorney that is familiar with the latest employment laws on the books. This is an evolving and complex area of law, so it makes sense to delegate the task of sorting through all the new rules and regulations to an attorney.

Once policies are given the legal green light, employers should clearly communicate them to their employees, and make sure all policies are consistently enforced.

Can Uber use the South Carolina Trade Secrets Act to keep certain information confidential?

Information relating to business operations is often referred to as trade secrets. This information gives a company an advantage in the market is valuable and therefore, companies -must ensure that it remains confidential. Every state has laws regarding trade secrets and protecting this  this information can often become the basis of contested lawsuit.  That seems to be the case developing in South Carolina between Uber and the Airport Limo Taxi Association.

Up and coming transportation company Uber has been operating at the Charleston International Airport under subsidiary name Raiser LLC since 2014.  Recently, the Airport Limo Taxi Association has requested that Uber release certain business statistics.  The request was made to the Charleston County Aviation Authority under South Carolina’s Freedom of Information law.

Uber does not want to turn over this information and claims that the statistics are  confidential and protected by the South Carolina Trade Secrets Act.  Uber also argues that that this information would be valuable to competitors operating at the airport and even to those that have not begun operating in South Carolina..  Releasing this information to the Association would be the only way competitors could obtain this information.  Uber also said that it already provides monthly reports to the airport.  Therefore, the company has filed a lawsuit in the Charleston County Court of Common Please seeking a temporary restraining order.

What does the South Carolina Trade Secrets Act protect?

South Carolina is one of many states that adopted the Uniform Trade Secrets Act.  Specifically, the state legislation protects sensitive business information that is usually valuable, confidential and protected by the company.  Some examples of information that is considered trade secrets are formulas, procedures and techniques used by the company alone.

The overarching issue in this case is whether information requested by the Airport Limo Taxi Association is to be considered a trade secret.  If the court decides that it is, it will not be released.

If you have a trade secret issue, or any other business matter, you should take the time to discuss it with a skilled South Carolina business attorney today.

What can happen to a business engaging in discriminatory hiring and employment practices?

As a South Carolina small business, it is vital for your organization to have a keen understanding of federal and state anti-discrimination laws – as the penalties for violating these mandates are steep. While most well-meaning businesses do not engage in intentional discriminatory misconduct, office policies or protocols that have even the effect of possible discrimination could amount to a violation. By having knowledge of the law, you have a powerful means to protect you business.

BMW plant settles discrimination suit

By way of example, South Carolina’s iconic Spartanburg BMW plant recently settled a two-year old racial discrimination lawsuit for $1.6 million. The case involved nearly 70 former plant applicants, all of whom claimed to have been unfairly discriminated against by the plant’s criminal background check policies. More specifically, the BMW plant had implemented a policy requiring an in-depth criminal background check of any applicant for a job, and also implemented a rule prohibiting the hiring of any applicant with any criminal history within the past seven years.

To make matters worse, the plant further amended its guidelines in 2012 to prohibit the employment of any worker with any criminal history from any year – and promptly fired 88 current employees, some of whom had worked at the plant for over ten years. Of the 88 employees terminated for criminal background issues, 70 were African American – prompting an immediate discrimination lawsuit by the Equal Employment Opportunity Commission (EEOC).

As this story shows, an employment policy need not be blatantly discriminatory to violate the law, so long as the policy has an adverse impact.  In addition to the seven-figure settlement offered by the company, BMW agreed to rehire all employees who were terminated as a result of the policy change. In a statement by the regional EEOC agent, “[w]e are pleased with BMW’s agreement to resolve this disputed matter by providing both monetary relief and employment opportunities to the logistic workers who lost their jobs at the facility….We commend BMW for re-evaluating its criminal conviction records guidelines that resulted in the discharge of these workers.”

If you would like compliance advice for your South Carolina business, you should consult with a qualified employment and labor law attorney.

What are the implications for a business caught dabbling in fraud? 

As a business owner, you’re likely to engage in a substantial number of transactions with third-party vendors, manufacturers, or suppliers — all of whom you rely on to engage in upstanding and ethical conduct. However, corporate and consumer fraud continues to run rampant in the U.S., with agencies like the Federal Trade Commission (FTC) regularly announcing settlements, lawsuits, and penalties imposed against unscrupulous, dishonest businesses.

Case in Point: LifeLock’s Fraudulent Behavior

In today’s case, the consumer identity protection company LifeLock was recently slapped with the largest order enforcement action in FTC history: $100 million. As a bit of background, the company was penalized in 2010 for false advertising and various other consumer rights violations. More specifically, the company was alleged to have falsely guaranteed its identity theft protection products and even displayed the CEO’s social security number on its delivery trucks – stating it “protects against [identity theft] ever happening to you. Guaranteed.”

Upon investigation by the FTC, however, it was revealed that LifeLock only protects against certain types of identity theft, not including the misuse of an existing account – which is the most common form. The company also did not insulate against employment or medical records theft, as well as a slew of other fraudulent scams abounding in the post-digital age.

As a result, the company was ordered to pay $12 million and cease engaging in false and deceptive trade practices. Now, 5 years later, the company has paid $100 million for violating the terms of the 2010 order. Specifically, LifeLock deceptively advertised it used the same safeguards as banking institutions. In addition, it failed to promptly send alerts when identity theft was suspected. The company is also alleged to have failed to keep adequate corporate records, wrongfully charged users excessive fees, and failed to protect its own customers’ sensitive login and payment information.

The company’s original order has been extended an additional 13 years, provided it can manage to stay in business that long.

If you are dealing with a wayward business or would like to ensure that your company strictly complies with advertising and marketing laws, you should consult with a knowledgeable business attorney.

What are some of the ways Charleston is helping start-ups start up?

In a city famed for old-fashioned grace and hospitality, it may be difficult to picture start-up companies moving into the millennial age of computer technology, but that is exactly what’s happening in Charleston. The movement to promote technological businesses is not limited to South Carolina, but is occurring in cities and states all across the country. In many locations where the Great Recession hit hard and many small and large businesses caved in under the financial pressure, new tech companies are beginning to take root.

Teaching Business Students to Create Businesses

In Charleston, with the help of a $250,000 grant from the South Carolina Commerce Department, the Interdisciplinary Center for Applied Technology (ICAT) program at the College of Charleston has raised another quarter of a million dollars from private companies and private donors. In the initial class of the ICAT program, six of eight students have turned their educational projects into incorporated businesses!

“Accelerators” Putting the Pedal to the Metal

In other parts of Charleston, “accelerators” are also incentivizing start-ups. The Harbor Entrepreneur Center, a nonprofit with four locations in the city, is providing free or inexpensive office space, as well as mentors and training for startups in any industry. What is the incentive for the incentivizer? If the start-up successfully reaches $100,000 in investment or $250,000 in revenue during its first two years, the nonprofit takes a $5,000 cut.

Clearly, it is to everyone’s advantage for the start-up to be successful. Another accelerator, The Charleston Digital Corridor, expects to open its third start-up space downtown. It has already given 92 start-ups its support.

Other Small Cities Encouraging Startups as Well

All over the country, in cities from Chattanooga to Chapel Hill, from Kansas City to Salt Lake City, similar programs are being put into motion. Frequently, they are centered on large universities. The “innovation district” of Chattanooga, sponsored by a city-private partnership that will spend $500 million on the project, is being designed to include 400 apartments, many of them tiny, to put out the welcome mat for millennials, the young adults they want to attract.

Other cities are also trying to attract millennials to open start-ups by building receptive communities; bike paths, restaurants, bars, and musical venues are part of the package. So is access to high-speed internet. Nine cities so far are part of Google Fiber which provides internet service 100 times faster than average.

Government Assistance for Startups

State and federal governments are also providing financial help for entrepreneurship. President Obama’s TechHire Initiative will disperse $100 million in grants to cities, states, universities, and community colleges to train employees through coding boot camps. Twenty cities have also committed to working with regional companies to provide such training.

If you are planning a start-up business, technological or otherwise, you should engage the services of a skilled business attorney.