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Arbitration – Friend or Foe

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Arbitration is an increasingly common alternative to traditional resolution of business disputes in state and federal courts.  Most sophisticated businesses have used or experienced contracts with Arbitration clauses at some point in the past.  In numerous industries, such as Construction, Network Marketing, IP, and Financial/Brokerage relationships, arbitration clauses have become prevalent.  Arbitration is also frequently being used as a method of dispute resolution in employment relationships.
So how should businesses of all sizes view Arbitration?  This post helps provide a practical understanding of what Arbitration actually is – and some Pros vs. Cons to consider.
Arbitration is a form of legal dispute resolution in which two parties agree (by contract) not to take their dispute to court, but instead resolve the dispute by hiring an arbitrator to hear both sides and render a decision.
 
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Notably absent from the above graphic are arbitration length and cost.  Both time efficiency and cost are commonly thought to favor Arbitration proceedings, but that is not necessarily the case.  Some studies, such as the one discussed in this Corporate Counsel post, have shown that both the length of Arbitration proceedings, and cost of the proceedings, can frequently be greater than that of traditional litigation.  If these two factors are controlling for you and have persuaded you or your business to agree to Arbitration in the past, it may be time to reconsider.
As a business attorney having experienced both traditional litigation and Arbitration, I don’t have a particular preference and generally work to identify what are the most important considerations for the particular client.  More times than not, it comes down to the privacy of arbitration versus its lack of a real appeal process.  There are also different types of Arbitration itself, with several common third-party Arbitration providers, which I will leave for another discussion.
Legal disputes going through the Arbitration process is growing.  Whether your business is already in contracts with Arbitration clauses, or is starting to use or see them in the course of its business, hopefully this post has helped bring a better understanding of the rival dispute resolution processes.

A Little Secret About Trade Secrets

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A business commonly has all sorts of valuable assets. 

Most businesses have some combination of assets such as real estate, equipment, inventory, cash, receivables and patents just to name a few.  One class of assets that can be misunderstood, if not entirely overlooked, are the Trade Secrets of a business.  Regardless of size, virtually every business will have Trade Secrets.

Here is a little secret, there are far more Trade Secrets out there than you think. A common misconception is that Trade Secrets have to be highly technical in nature, or that only very large tech companies have them. This is not true. One of the most commonly litigated Trade Secrets is something that almost every business has…. or at least should have if it intends to make any money – Customer Lists.

Just like other assets of a business, Trade Secrets need protection. While not every customer list is a Trade Secret warranting protection, Courts routinely are confronted with business disputes where (former) employees, contractors, consultants, and even competitors wrongfully take customer lists. They can be extremely valuable to others seeking a quick competitive advantage. Here are just a couple examples: (i) customer lists and pricing information protected where former employee admitted it was confidential. Flake v. EGL Eagle Global Logistics, 2002 WL 31008136 (Tex. App.—Houston [14th Dist.] Sept. 5, 2002, no pet.); and (ii) customer lists with prior purchase information and customer/buyer preferences protected. Zoecon Indus. v. American Stockman Tag Co., 713 F.2d 1174 (5th Cir. 1983).

So what is a Trade Secret?  A Trade Secret is defined in Texas as:

Information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers, that: a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.  

Section 134A of Texas Civil Practice & Remedies Code

The Trade Secrets of a business can certainly go beyond mere customer lists. In fact, while the analysis of what constitutes a Trade Secret is case specific, the following have all previously been found in some circumstances to be Trade Secrets: marketing strategies, pricing data, business/service methods, vendor and supplier lists, product formulas, and manufacturing processes.

As a business attorney that has experienced many Trade Secret disputes, one certainty is that taking reasonable measures to protect the Trade Secrets of your business is vital.  You wouldn’t leave cash lying around unprotected. The same goes for Trade Secrets. Like other assets of a business, Trade Secrets commonly come under attack from internal and external sources in the form of theft and misappropriation. Taking smart steps to safeguard the Trade Secrets of a business with the use of Non-Disclosure Agreements and other company policy, enforced by legal injunctive relief if necessary, is one way.  Protect it or lose it

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Building a Better Owner – Learn to Love Lien Waivers

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Remarkably, Lien Waivers continue to be among the most overlooked construction project documents. For a CRE Developer or Property Owner, the purpose of the Lien Waiver is clear: to ensure Contractors are paid so as to reduce the risk of liens on the property. The Lien Waiver is an affirmation from the Contractor to the Owner/GC that it has received a payment, and they will not record a lien against the property for their work.

After all, getting the construction project done timely and free from liens is the goal.

In many states, as discussed in a recent article from the Credit Management Association, construction lien waivers can be like a scene out of the wild west. A standoff between Owner and Contractor over the waiver, free from any real rules and oftentimes unrestrained in scope. For example, in some instances signing a release not only waives the Contractor’s right to file a mechanic’s lien, but also their ability to file claims for other related issues such as breach of a contract, and delays caused by project mismanagement.

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Texas has become a bit more refined. In 2011, the Texas Legislature addressed the topic of Lien Waivers in Chapter 53 of the Texas Property Code. For the first time, parties to a construction contract signed after January 1, 2012 are to use statutorily prescribed Lien Waiver forms. In fact, the Texas Legislature mandated forms for both progress payments and final payment on a construction project.

The 4 different Lien Waiver forms include:

  1. Conditional Waiver and Release on Progress Payment – to be used when a contractor/subcontractor is required to execute a waiver and release before receiving a progress payment, or the progress payment is made by check.
  2. Unconditional Waiver and Release of Progress Payment – to be used when a contractor/subcontractor is required to execute a waiver and release to prove the receipt of a progress payment.
  3. Conditional Waiver and Release on Final Payment – to be used when a contractor/subcontractor is required to execute a waiver and release before receiving a final payment, or the final payment is made by check.
  4. Unconditional Waiver and Release on Final Payment – to be used when a contractor/subcontractor is required to execute a waiver and release to prove the receipt of a final payment.

Texas Property Code. Chapter 53, Section 53.284

CRE Developers or Owners should learn to love these 4 Lien Waiver forms. When a Contractor signs a valid Lien Waiver and submits it to the Owner, the Contractor waives any lien rights it may have had for work it performed on the project to date.

Of course, there remain some notable exceptions to these waivers, such as written agreements relating to accord and satisfaction disputes, settlement of a pending court or arbitration proceeding, or agreements made after a lien affidavit claim has been filed. The Property Code sets forth the full breath of exceptions.

As a business and construction attorney, I often see those in CRE with bad Lien Waiver practices finding themselves at the center of construction project disputes.  As a Developer or Owner, if done correctly, the days of worrying about liens surfacing weeks or even months after the last payment should be over.  Taking simple steps with Lien Waivers can build a better and more successful Owner.

Policy Dead

Is Your Employee Policy Dead?

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What better time than now to see if there are dead, useless or even dangerous provisions lurking in your Employee Policy?  Business owners and executives already know that the employer/employee environment continues to dramatically change.  This is true not just in Texas but throughout the US.

A few areas of change that employers should know about include:

  1. NON-COMPETES: Many business owners I meet still believe non-competes are unenforceable.  This is wrong.  In Texas, the law has evolved over the last 10 years and now provides that a non-competition provision will be enforced if it is reasonably tailored as to scope, duration and geography; and otherwise complies with the non-compete statute – Texas Business and Commerce Code Section 15.50.  This means, for example, that your long-time sales executive privy to all kinds of valuable business information can be prevented from immediately jumping ship to the competitor.  There’s been a great deal of case law on this subject in recent years, and nationally non-compete agreements are subject to rather persistent criticism.  As I have written on in the past, many businesses should avoid blanket policy wherein all employees sign non-competes. It’s just not appropriate for all employees. The takeaway here is that Courts, including Courts throughout North Texas, routinely enforce compliant non-compete agreements.  When properly done, the non-compete can be a powerful tool for many businesses.  Don’t be afraid to include in your policy, just be sure to do it right.
  2. ARBITRATION: For businesses that have an employee policy or other agreement containing an Arbitration provision, there is a growing divide throughout the country on whether certain arbitration provisions are enforceable.  Particularly, are employer/employee arbitration provisions containing class or collective action waivers enforceable?  This is an increasingly important issue to employer businesses because many legal claims, including minimum wage and OT (or FLSA) claims, have collective action potential.  As this National Law Review article summarizes, the National Labor Relations Board (NLRB) found a few years ago that an arbitration agreement which precluded class or collective actions was an unfair labor practice.  What has followed is a series of conflicting appellate court findings, or split, wherein some have found such arbitration provisions enforceable and others not.  For legal disputes (ie. lawsuits, arbitration) here in Texas, which the Fifth Circuit court of appeals controls, such class or collective action waivers in employer-employee arbitration agreements remain enforceable.  The Supreme Court will likely resolve these conflicting lower court decisions in the not too distant future so stay tuned.
  3. CONFIDENTIALITY: Over the last decade, the NLRB has also been active in protecting employees’ free speech rights. Most businesses prevent workers from disclosing trade secrets and other confidential business information, and routinely have policy that restrict what employees can say to co-workers and others outside the company.  However, when the restrictions in the confidentiality policies are too broad, they may violate collective bargaining rights according to the NLRB – aiming to protect an employee’s right to speak to another, whether it be a co-worker or worker employed elsewhere, seeking to enlist support on a matter of shared employee concern. The NLRB has pursued enforcement actions against employers for this violation.  Here is a good article from accountingweb on recent NLRB findings and examples on this subject, emphasizing the intricate policy road employers must carefully follow. The policy (eg. the social media policies of the business) should be specific and thoughtfully tailored, to prohibit disclosure of confidential information of the business such as proprietary customer information, and avoid restrictions on other protected speech of the employees.

As a Best Business Attorney Dallas, most medium to large employers I see have written policies.  Some comprehensive, some not.  The Employee Policy of any business can be a vital tool used to establish a productive company culture, and set a framework of expectations for workers to understand and follow.  If left unattended to the changes in the law, however, the policy can also become an unenforceable piece of paper that exposes the business to employee litigation or regulatory enforcement.

With all the changes in employment law effecting businesses these days, don’t leave your Employee Policy stranded and forgotten.

Cillin Country

Mark L. Hill Elected President of Collin County Bar

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Scheef & Stone LLP Partner, Mark L. Hill, has been elected as the President of the Collin County Bar Association (CCBA) effective July 1, 2016 for a one-year term. Mark has served on the CCBA Board of Directors for several years, most recently as the association’s Vice-President. He was previously a founding member and Chair of the Civil Litigation Section of the CCBA.

CCBA LogoThe CCBA is the largest bar association serving the legal community practicing or residing in and around Collin County, Texas; which includes Frisco, McKinney, Allen and Plano, among numerous other smaller communities. It works closely with the judiciary and local leaders in Collin County to create a professional, cordial, and efficient relationship with the court system for all practitioners. “Collin County, including its legal community, is growing at an unprecedented pace and I am extremely proud to lead the Collin County Bar Association during this particular time.”  For the complete release visit here.

Mark offices in the firm’s Hall Park location in Frisco, Texas where his practice involves handling complex business disputes and commercial real estate matters. He represents both corporate and individual clients in state and federal courts throughout Texas.

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What New OT Regulations Mean for Employers

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The Department of Labor (DOL) announced an updated regulation that increases the salary threshold for paid overtime of employees from less than $455 per week to $913 per week. Before this recent change, salaried workers were only entitled to paid overtime if they made less than an annual salary of $23,660. Now, employees who earn yearly salaries of $47,476 or less will be entitled to paid overtime if they work more than 40 hours a week. It’s estimated this change will make about 1/3 of salaried full-time employees eligible for overtime. That is a huge increase from the less than 10% that were previously eligible. This equals major changes for many businesses and will be especially true in Texas (and the south in general), where salaries are frequently lower than other parts of the country. Similarly, it’s expected the change will have widespread impact across many industries and professions. Mashable recently shared an interesting graphic giving perspective as to who this increased salary threshold may benefit the most. Employers have several ways to comply: (a) raise the workers’ salaries to make them exempt from the overtime threshold, (b) pay the required time-and-a-half overtime for those who do work more, or (c) make sure the employees aren’t working overtime.Here are Four (4) things Employers should do now:
  1. Identify Employees Who Need to be Reclassified.  For many Businesses, employees will need to be reclassified.  ID and classify all employees correctly, this is key.
  2. Evaluate Salaries & Calculate Feasibility.  Doubling an employees salary just to comply with the new regulation may not be in the cards.  Could increased part-time workers be the answer?
  3. Develop Administrative Controls to Ensure Compliance.  Evaluate handbooks, guidelines or other policy to see if revisions are needed.  Many contain provisions relating to pay that may be impacted by the changes.
  4. Review Time-Keeping Methods.  Make sure timekeeping practices are sufficient for the new employees that will be required to use it.
The impact of the new OT regulations will play out over the coming months. Employers can and should be proactive in evaluating the impact of the overtime rules. Despite the changes, some employees may still be “exempt” from the overtime, timekeeping and other Fair Labor Standards Act (FLSA) requirements.  
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The Simplicity of an Investment Fraud

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How does an investment or business fraud actually happen?  How is it discovered?  Sometimes, in fact many times, the fraud is remarkably simple and direct. Investment and business frauds can happen to almost any person or company.  As a business attorney, I have seen it in numerous industries, such as Oil & Gas, Real Estate, Network Marketing, Online Businesses, Construction projects, and Corporate/Partnership transactions. To illustrate this simplicity, I want to share a recent settlement announcement of an investment fraud claim. A Financial Advisor targeting wealthy individuals was charged with stealing over $2 Million from clients to invest in purported movie projects. When the Financial Advisor was unable to raise the entire amount needed, he allegedly took funds from other client accounts over which he had control and used the money to finance the projects. One of the clients that rejected the sales pitch to invest had over $500,000 removed from their account through the alleged forging of documents to make it appear as though a transfer had been authorized. After the client discovered the unauthorized investment, he demanded his money back, and was made whole in Ponzi-like fashion by the Financial Advisor taking money from the account of another wealthy client.  The full article detailing the claim can be found here.There is nothing special or unique about this fraud claim. It is ridiculously simple – yet strikingly effective.  Texas courts are routinely confronted with legal disputes involving similar investment and business frauds. Sometimes it is not movie projects but rather real estate schemes. Sometimes the victim investors are professional athletes, doctors, corporate executive or independent business owners. Sometimes signatures are forged, other times invoices are doctored. Yes, there exist elaborate frauds built upon creative and painstaking deception. But frequently the fraud is direct and unsophisticated. As an Investor, of any kind, one must always be diligent and know that should a fraud ever occur there are laws and authority in Texas state and federal courts to enforce recovery.
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Talking Corporate Relocations, Frisco #5BMile and More

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We hear so much about the Business and Real Estate growth in North Texas. Whether it is corporate relocations like Toyota, the sprawling Legacy West development coming together, or the Frisco #5BMile continuing to expand – the Business and Real Estate climate in North Texas and particularly Collin County could not be hotter.

I recently had the opportunity to sit down with Maher Maso, the Mayor of Frisco, Jim Leslie, the Managing Partner of Frisco Square, and Ran Holman, the Market Leader of Cushman & Wakefield.

In this video, Mayor Maso talks about what makes Frisco “the best”, including it’s business partnerships and excellent school system.

The full series of Videos from the event moderated by Mark L. Hill can be seen here.

Mark L. Hill is a Partner with Scheef & Stone, L.L.P.  Scheef & Stone is a full-service business law firm that represents individuals, publicly and privately held corporations, partnerships, financial institutions, and government entities in a wide spectrum of sophisticated transactions and complex litigation.

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Upcoming Event – Frisco’s $5 Billion Mile & Beyond!

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We are only 2 weeks away from the DFW Platinum Corridor® event – Frisco’s $5 Billion Mile & Beyond.

Last I heard, there were over 600 guests attending!  Look forward to being part of this presentation featuring numerous great panellists, including Frisco’s Mayor Maher Maso, Stephen Jones of the Dallas Cowboys, and many others.  You can still get tickets here.

We will be discussing the “$5 Billion Mile,” ways to improve transportation, and why businesses, developers and the public are attracted to this area. 

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Is Non-Compete Worth It?

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By now, most business people are coming to realize that Texas courts regularly enforce non-compete agreements.

Assuming the non-compete has reasonable limits, such as to time and scope, it will likely pass muster.  That being said, as a business owner, it should be considered whether the non-compete is worth it.  A little over a year ago, restaurant chain Jimmy John’s came under scrutiny for requiring all employees, even entry-level sandwich makers, sign non-compete agreements.  Moreover, it was reported these multi-year non-competes prohibited Jimmy John’s employees from working for any business which made 10% or more of its revenue off sandwich sales within three miles of any Jimmy John’s location.

Sandwiches Shop Name Board

This set off a fire storm and made national headlines – it even drew boycotts of the chain and a congressional investigation.  A question to ask is: what was Jimmy John’s seeking to protect with these non-competes?

Was this just a misguided blanket inclusion in their hiring process…

With executives and other workers that are exposed to protected business information, the need for a non-compete is easy to see.  For entry level workers far removed – not so much.  Even if the restriction could ultimately be enforced in court, the lesson here is to use caution when placing such restrictions on all your workers – does it protect a legitimate interest of your business, and is it worth it?

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