AICPAs Annual Business Law Update

• Chapter 1 - Current Employment Issues – Part I
  • Learning Objectives
  • Introduction
  • “At Will” Employment and Wrongful/Constructive Discharge – When Can an Employee be Fired?
  • Discrimination
  • Sexual Harassment
  • What About Consensual Workplace Romances?
  • Retaliation Claims and Public Policy (Whistleblower) Discharges
  • Can Employee Bonus Programs Take Worker’s Compensation Costs, Merchandise Losses and Damage, and Cash Losses into Account?
  • ADA Compliance and Disability Issues
  • So, as an Employer, What Should You Do?
  • Summary
  • Questions
  • Citations
• Chapter 2 - Current Employment Issues – Part II
  • Learning Objectives
  • Introduction
  • E-business-related Issues
  • When Can a Business Enforce a Non-Compete?
  • The Developing Trend in Using the Computer Fraud and Abuse Act to Prevent Migration or Destruction of Company Information
  • Applicant Rights, Overtime, Training, Expenses, and Use of Independent Contractors
  • Implications of the USA Patriot Act and Military Service of Employees
  • Use of Undocumented Workers/Subcontractors and Immigration-Related Issues
  • HIPAA, COBRA, FMLA, FLSA, ERISA, and More Alphabet Soup Mixes
    • HIPAA
    • COBRA
    • FMLA
    • FLSA
    • FECA, FELA, and Other Specialized Laws
    • ERISA
    • PDA
  • Miscellaneous Issues – Privacy Concerns and California Initiatives
  • Ethics Training and Compliance – What Not to Forget and Why It Is Important
  • Preventive Measures to Take to Reduce Potential Liability Exposure for Employment-Related Issues
  • Summary
  • Questions
  • Citations
• Chapter 3 - Intellectual Property Issues
  • Learning Objectives
  • Introduction
  • How Intellectual Property Is Protected
    • Trademarks
    • Service Marks
    • Copyrights
    • Patents
    • Trade Names
    • Trade Secrets
  • Recent Developments in the Law of Protecting Intellectual Property
    • Business Method Patents
  • Patent, Trademark, and Copyright Infringement
  • Trade Secrets and the Uniform Trade Secret Act – How to Protect Your Company and Its Intellectual Property from “Migrating” Employees
  • The Strategic Partner Dilemma, or What to Do When You Have to Deal with Your Industry’s Big Gorilla (Microsoft)
  • Summary
  • Questions
  • Citations
• Chapter 4 - Corporate and Securities Matters
  • Learning Objectives
  • Introduction
  • Director and Officer Liability and D&O Insurance
    • Who Is an Independent Director?
    • Limiting Your Liability through Charter Documents and Indemnification Agreements
  • Sarbanes-Oxley Expands White Collar Criminal Liability and Penalties; Certification Requirements and What to Do in Response
    • Civil Charges Against Former Audit Firm Staff and Partner; Former Audit Firm Partner Pleads Guilty to Criminal Charges; Audit Firm Penalties; CEO and Other Officers Face Criminal Exposure
  • Corporate Governance Issues
    • Reporting Wrongful Acts: No Longer the Province of the Outside Audit Firm – the New Rights of Employees and the New Obligations of Counsel
    • Provisions of Sarbanes-Oxley That Apply to Private Companies
  • Summary
  • Questions
  • Citations
• Chapter 5 - Developments in Mergers and Acquisitions
  • Learning Objectives
  • Introduction
  • Evolving Antitrust Issues and Regulatory Trends
  • Popular Defensive Strategies Today – “Just Say No,” Stockholder Rights Plans, and Super-Voting Stock
  • Critical Issues to Address in Mergers
    • Retention Payments – Permissible or Not?
    • Avoid “Gun-Jumping”
    • Do Not Underestimate Due Diligence
    • Worry about Post-closing Executive Departures
    • Advance Planning and Compiling an M&A Action List Will Help Keep Your Integration Team Together
    • Incentivizing Target Company Management May Play a Critical Role in Success
    • Everyone Says Use Stock, Not Cash – Right?
    • Earnouts Are a Good Way to Bridge Purchase Price Gaps – Yes or No?
    • Effect of the WARN Act
    • Benefits and Other Employment Issues
    • Insurance Coverage Questions
    • Other Structural Issues
  • Why You Should Incorporate or Reincorporate in Delaware
  • Watch What You Say: Are Stockholders to Believe What You Said Before the Merger or What You Said After the Merger? (DaimlerChrysler/Kerkorian)
  • Titan Corp. Re-Opens New Territory in M&A Liability
  • Summary
  • Questions
  • Citations
• Chapter 6 - What to Worry About (or at Least be Aware of) if Your Company Is Public
  • Learning Objectives
  • Introduction
  • Regulation FD, or How to Avoid Getting Sued for Improper Disclosure to Analysts and Bankers
  • How §21(a) Resulted in Motorola Avoiding Liability – and What You and Your Business Can Learn from This
  • The SEC Speaks: Views on Using a Company Website to Provide Information to Investors
  • Regulation G, or How to Use Non-GAAP Information
  • Code of Ethics
  • Using the Safe Harbor for Forward-Looking Information; Class Action and Derivative Litigation; Avoiding Entanglement with Analysts
  • The Free Writing Prospectus – Which is What?
    • When Liability Attaches and What This Means to Businesses
  • More Cost Savings: Internet Posting of Proxy Statements and Annual Reports
  • Executive Compensation and “Say-on-Pay” Become the Hot Topics – Along with Related Party Transactions, Corporate Governance Disclosure, and Revised Periodic Reports
    • Executive Compensation
    • Board and Committee Disclosure Changes
    • Director Compensation and Stock Ownership
    • Related Party Transactions
    • Other Changes to Content of Periodic Reports and the Right to Use S-3
  • Audit Committee Duties and Liabilities; Best Practices for Audit Committees and Boards
  • New Stockholder Nomination Rights for Directors: Should You Use a Staggered Board?
  • PCAOB Initiatives Affecting Public Companies and Their Auditors
  • Summary
  • Questions
  • Citations
• Chapter 7 - Business Tax Issues
  • Learning Objectives
  • Introduction
  • The “Geoffrey Problem,” or How Toys “R” Us Raised the Tax Profile of Intellectual Property Holding Companies
  • Series LLCs: Insulated for Liability Purposes and Not for Tax? Or Vice Versa?
  • Tax Shelter Registration, Reporting and List Keeping Requirements Expand to Address Deemed Abusive Shelters; Pending Expansion in Penalties and What to Do in Response
  • What Changes to Circular 230 and Accompanying Regulations Mean to Tax Practitioners
  • Internet Tax Freedom – in Limbo or Jeopardy?
  • The Demise of Family Limited Partnerships – Real or Imagined?
  • The ARRA Extends New and Existing Business Tax Breaks
  • “SUTA” Dumping – Why Corporate Restructuring Is Not the Way to Reduce a Business’s Unemployment Taxes
  • Section 409A Final Regulations and What These Mean for Private Company Stock Options
    • What Is Section 409A and Why Is It Important?
    • Application of Section 409A
    • What to Do in 2009
    • What About Private Companies – How Do You Know If an Option or SAR Was Granted at Less Than Fair Market Value?
  • Use of Variable Prepaid Forward Contracts to Monetize Large Restricted Stock Positions
  • Nonprofits Abuses, Pending Reforms, and New Rules
  • Summary
  • Questions
  • Citations
• Chapter 8 - Resolving Business Disputes
  • Learning Objectives
  • Introduction
  • The Different Means of Resolving Business Disputes Outside of Court, or ADR
  • Threshold Issues in Arbitration
  • Can Your Business Use an Arbitration Clause to Rid Itself of Class Actions?
  • Employment Disputes and Arbitration Clauses
  • Our Business Sent Around an E-Mail That Announced a New Arbitration Procedure for Resolving Employment Disputes – Is That Binding on the Employees?
  • Accounting Firm and Auditor Engagement Letters – What Not to Do and What Is on the Horizon
  • Other Arbitration Issues
    • Can Our Business Get a Bad Arbitration Award Overturned?
    • People Did Not Sign or Even Read an Arbitration Agreement – Can They Enforce the Arbitration Clause and Is It Still Binding on Them?
    • Can Our Business Use an Arbitration Clause to Eliminate Punitive Damage Awards?
  • Summary
  • Questions
  • Citations
• Chapter 9 - Environmental Protection and Related Issues
  • Learning Objectives
  • Introduction
  • Claiming the “Innocent Landowner” Defense – What Must Our Business Do When It Buys or Leases Real Estate?
  • Why Environmental Compliance Is So Important
  • Regulatory, Civil, and Criminal Consequences of Environmental Misconduct are Often Severe
    • National Priority: Financial Responsibility
    • National Priority: Wet Weather
    • National Priority: Air Toxics – Maximum Achievable Control Technology (MACT)
    • National Priority: New Source Review/Prevention of Significant Deterioration (NSR/PSD)
    • National Priority: Mineral Processing
    • National Priority: Tribal Lands
  • Environmental Accounting Gets Ashland, Inc. and the Environmental Remediation Director in Trouble
  • Recent Developments Affecting Select Industries and Countries
  • Summary
  • Questions
  • Citations
• Chapter 10 - Latest Developments

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Chapter 1 Current Employment Issues – Part I Learning Objectives

• Review the most common claims asserted by former employees when discharged or after tendering resignations.

• Explore recent developments in retaliation, discrimination, harassment, and ADA-related claims and the implications of these developments for employers.

• Understand the current trends in employment law and public policy that impact businesses and their liability exposure.

Introduction

Employment-related disputes can require management to expend enormous amounts of time and resources that take away from the business’s primary mission and operations. The subject areas of wrongful discharge, discrimination, and harassment, as well as claims made under the Americans with Disabilities Act (ADA), are among those matters that most commonly expose American businesses to litigation and damage awards. If your business is to minimize the impact of employment-related disputes, it is important for you to understand (1) the subject matter or source of most claims, (2) the types of exposure the business may encounter, including those claims that most often result in awards of punitive damages or attorneys’ fees, and (3) what measures the business can and should take to reduce the chances of ending up in employmentrelated litigation or being on the wrong end of a large damage award.

The purpose of this Chapter is to review the most common sources of employment claims against employers: wrongful and constructive discharge, whistleblower terminations, retaliation, discrimination of all types, harassment, and ADA issues. The next Chapter explores employment-related areas, including developing law on e-business matters that relate to employment or personnel issues; the enforceability of non-competes and arbitration clauses in employment agreements; how the USA Patriot Act and military service impact businesses and employees; HIPAA, COBRA, FMLA, FLSA, ERISA, and other benefits-related laws with which almost all businesses must comply; case law and new statutes on who is a job applicant, what background checks can be legally performed on applicants, who is eligible for payment of overtime or payment for time spent in training, and who is an independent contractor; and several miscellaneous issues. Taken together, these two Chapters will provide you a comprehensive overview of employment and employment-related matters that are timely and of greatest concern to employers.

How important are these employment-related issues to employers? Consider the following results from The Chubb 2007 Private Company Risk Survey:

• 22% of private employers have been sued by an employee or former employee or been subject to an EEOC claim in the last five years;

• Over 60% of the private companies surveyed that experienced a loss due to employee fraud or a director and officer liability claim (D&O) in the last five years expect a similar loss in the next year, while that percentage drops to approximately 15% among the companies that did not experience a loss in the last five years;

• For the companies in the study that experienced a suit or EEOC claim, the average cost was $63,114, and 35% reported costs of between $45,000 and $600,000;

• Executives at 28% of the surveyed companies reported it was likely the company would reduce its workforce in 2008 (before further significant deterioration in economic conditions occurred) and 25% indicated it was likely they would outsource functions or operations in 2008; and

• More than 87% of the private companies surveyed have written discrimination and harassment policies, and 81% of the surveyed private companies have human resources policies, procedures, and training programs in effect.

Based on this survey, it is clear that small and medium-sized private businesses have significant exposure to employment-related claims. Additionally, a company that is not sued this year can likely expect that it will be sued in the next year or two for wrongful termination, discrimination, or harassment by an employee or former employee, or will end up in a similar proceeding in front of the EEOC. Also, companies that have not experienced a loss in the last five years might be inclined to believe they will not be subject to such a claim in the near future, but can find themselves with a big surprise if they are not careful.

“At Will” Employment and Wrongful/Constructive Discharge – When Can an Employee be Fired?

Wrongful and constructive discharge claims are the bane of most employers. Why? Because the employer believes that an employee who is employed “at-will,” that is, without a contract, can be terminated at any time, for any reason. Although the idea of employment “at will” sounds appealing to most employers, employment laws have evolved that provide at-will employees with substantive rights that employers ignore at their peril. These rights include the right to

• Work in an environment free of (and to not be terminated or forced to resign because of) discrimination based on race, national origin, color, gender, age, religion, creed, disability, pregnancy, or other protected category;

• Work in an environment free of (and to not be terminated or forced to resign because of) sexual, racial, religious, or disability-based harassment;

• Be free of retaliation by the employer if the employee reports wrongdoing, violations of law, violations of company policies, or if the employee refuses to perform an act that would violate federal or state law;

• Take time away from work to which the employee is legally entitled; and

• Have the employer consistently follow disciplinary and termination procedures that are set forth in the employer’s policies or in applicable law.

An employer that fails to take these employees’ rights into account will likely find itself facing wrongful discharge claims that will expose the employer to compensatory damages, punitive damages, attorneys’ fees of the employer and perhaps the employee as well, and even back pay or future pay awards. These damages and costs can be substantial, but in many instances an employer can reduce or eliminate them if it respects the employees’ rights outlined above. As you will see in a number of the cases discussed below, the employer could have enjoyed a different or less costly result if it had respected these rights and adhered to the following fundamental principles:

• Consistently following its own policies when dealing with a disgruntled employee and performing thorough investigations in response to employee complaints;

• Carefully documenting its receipt of employee complaints, investigative results and findings, and disciplinary action taken, as well as performing and documenting periodic employee performance assessments;

• Training supervisory personnel in how to react, investigate, and report employee complaints up to human resources officers or other responsible officers;

• Consulting employment counsel when the officers had a question about how to handle a specific employment-related issue about which there was some doubt;

• Applying escalating levels of discipline that are appropriate and consistent from employee to employee, in each case after appropriate investigation and notice to the employee;

• In some instances, giving an employee a chance to resign before being fired; and • Where possible, using alternative dispute resolution mechanisms, such as arbitration or mediation, to attempt to resolve employment-related disputes.

None of the foregoing is a panacea, however. There are instances where employees are bound and determined to pursue a company in court for real or perceived wrongs that no policy, procedure, investigation, notice, or consistency of action will forestall. That said, however, it is important to keep in mind these fundamental principles.

While many courts have actively sought ways to protect the rights of “at will” employees by stretching both the letter and the spirit of employment-related laws, the California Supreme Court issued a “pro-employer” decision in August 2006 in which it upheld the right of an employer (Arnold Worldwide) to terminate an “at will” employee (Mr. Dore).¹ What’s the catch? As it so happens, there is one – in the letter Arnold Worldwide sent to Mr. Dore confirming his oral acceptance of the employment offer, Arnold Worldwide noted:

“…please know that as with all of our company employees, your employment with Arnold [Worldwide] is at will. This simply means that Arnold [Worldwide] has the right to terminate your employment at any time just as you have the right to terminate your employment with Arnold [Worldwide] at any time.”

Mr. Dore was asked to sign and return a copy of the letter to signify his acceptance of the terms of his employment, which he did. After a two year stint, Mr. Dore’s employment was terminated by Arnold Worldwide, and Mr. Dore sued for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, fraud, and negligent misrepresentation.

The Dore case went all the way to the California Supreme Court, which held (surprisingly) that the references to “at will” and “at any time” were clear and unambiguous – meaning that Arnold Worldwide could terminate Dore at any time, with or without cause. Unlike most employeefriendly decisions in California courts, this case gives employers a clear, positive message – if the employer uses specific, unambiguous language in an employment offer that tells a prospective employee that he or she is being hired on at “at will” basis, then (even in California) the employer has a good defense to a suit for breach of contract, emotional distress, fraud, and misrepresentation.

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