Is Your Non-Compete Agreement Enforceable?

August 30, 2012 by 10 Comments
Spider-Man vs. Batman by JD Hancock, Non-compete Agreements

Spider-Man vs. Batman by JD Hancock

When you started your job, did you read your employment agreement before you signed it? What about the employee handbook – did you read it or just sign the form that says you read it? There’s a good chance one of those documents contained a non-compete agreement (NCA).

NCAs are a necessary evil, especially in this day when employees are less likely to stay at a company for their entire careers. These are contracts that restrict your ability to work in a similar position for a specified amount of time and geographic area if you leave the company.

When someone’s thinking of leaving their job, they often review their NCA and ask if it’s valid. A lot of companies won’t hire you if it would violate your NCA. If you think your NCA is invalid, you can go to court and ask a judge to invalidate it.

The court will have a hearing and weigh your interests against your employer’s. On one hand your employer doesn’t want to train someone and give them access to company information to lose them to their direct competition.  On the other hand, you have a right to choose where you work and you shouldn’t become unemployable because of a NCA.

The validity of a NCA is governed by state laws and decisions from previous court cases. There was a great article in the September edition of Arizona Attorney Magazine by David Bray and David Ferrucci about the enforceability of NCAs. Here are some of the highlights.

Courts generally want NCAs to have clear and reasonable provisions. If your NCA can interpreted in two ways – one that narrow and enforceable one that is overly broad and unenforceable and in the ex-employee’s favor – the court will usually rule in that it’s too broad and thus unenforceable. The court will look at whether you negotiated your NCA. Many new hires are given a nonnegotiable NCA as part of their employee handbook and they can either accept it as written or work somewhere else. If the NCA was negotiated, the court will be more likely to try to determine the parties’ intent when they wrote the contract.

There’s also something called the blue-pencil rule in Arizona. This allows a court to excise “grammatically severable” and unreasonable provisions from a contract but keep the reasonable provisions. This keeps the whole contract from being invalid because of one invalid provision.

You can also have step-down provisions in the contract.  An example of this would be, “This non-compete agreement will be in place for 12 months after the employee leaves the company. If a court finds this duration to be invalid, then the duration will be 9 months. If a court finds this duration to be invalid, then the duration will be 6 months.”

A valid step-down provision will only have 2 or 3 choices and be written in good faith. A 2006 Arizona case said that good faith step-down provisions must be:

  1. Definite,
  2. Consistent with the underlying provision,
  3. Easily severable from unreasonable provisions,
  4. Have a narrow duration range, and
  5. Have a reasonable geographic scope.

A valid NCA might result in you not being able to work for a direct competitor or in the physical vicinity of your previous employment, but your skills are likely transferable to other jobs or you can do the same job if you’re willing to do it far enough away from your previous employer.

Read your employment contract carefully. If you’re an employee, get a copy of it before your first day on the job so you can review it and possibly have a business lawyer review it. If you’re an employer, hire a lawyer to write your NCA for you so a court will be less likely to rule that it’s overly broad or otherwise invalid.

One word of caution: In contract cases, Arizona is a “loser pays” state. If you go to court to dispute a NCA and you lose, you’ll be paying for your attorney and the other side’s attorney.

Feel free to connect with me via Twitter, Google+, Facebook, and LinkedIn, or you can email me.
Please visit my homepage for more information about Carter Law Firm.

Filed Under: Business Law Tagged With: , , , , , , , , , , , ,

Employers Can’t Control Personal SM Accounts

August 23, 2012 by 51 Comments
i love my job by peretzpup

i love my job by peretzpup

Last week a friend of mine asked about if employers can require employees to do anything with their social media accounts. Apparently, his friend’s employer asked the employees to change the cover photos and avatars on their Facebook pages to some type of advertising for the company.

If a company wants to be involved in social media, they need to create their own accounts on Facebook, Twitter, and any other site where they want to have a presence. They should also have crystal clear contracts with the employees and/or businesses who manage these accounts that state how they should be used, who will own the intellectual property on the sites, and who will own the accounts and followers if the employee leaves or changes positions or if the company hires another company to manage their social media.

Back to employers telling employees what to do on their personal accounts – your personal Facebook account is your personal property. Your employer can prohibit you from being on your personal accounts during work hours or work computers and they can discipline you for violating your employment contract on it (as long as it doesn’t violate the NLRA). But to require you to promote the company on your personal page? That would be a big “Oh hell no.”

I checked out Facebook’s terms of service and they clearly state you must use Facebook Apps for all promotions and that you will not use “your personal timeline for your own commercial gain (such as selling your status update to an advertiser).” If your employment is contingent on promoting the business on your personal account, I see a valid argument that you essentially sold your part of your timeline to your employer.

On the other hand, companies want their employees to be happy in general and want them to support the product. I see no problem in companies making images available if employees wanted to voluntarily change their profile photos. I think it would be awesome if the company allowed employees to take pictures of themselves with a company mural or sign to use in social media if they were so inclined. This would have to be completely voluntary with no consequences, positive or negative, based on employee participation.

I’m a big proponent of employers leaving employees alone when it comes to their personal time and social media accounts as long as the employees aren’t violating company policies. If you think your employer is asking you to do something questionable with your social media accounts, check the website’s terms of service and consult a social media attorney (like me) in your community.

Feel free to connect with me via Twitter, Google+, Facebook, and LinkedIn, or you can email me.
Please visit my homepage for more information about Carter Law Firm.

Filed Under: Business Law, Employment Law Tagged With: , , , , , , , ,

The North Face vs The South Butt Trademark Saga

August 21, 2012 by 18 Comments

 

North Face vs South Butt, Ruth Carter, trademark infringement

The North Face vs The South Butt, photos by TerryJohnston and JL Johnson

The North Face Apparel Corp. is well-known for their outdoor apparel. When I lived in Oregon, I became quite familiar with their brand. Their tagline is “Never Stop Exploring.” In 2010, The North Face sued The South Butt, LLC for trademark infringement when the company started selling apparel with a similar name, logo, and tagline. The South Butt’s logo uses a similar font as The North Face and incorporates a set of curved lines, similar to The North Face’s log. The South Butt’s tagline was “Never Stop Relaxing.” The South Butt even tried to sell the brand to The North Face for $1 million. When I first saw a South Butt shirt, I thought it was hilarious and I knew it was a parody of The North Face, but I figured it wouldn’t last long on the market.

The two companies settled this dispute with an injunction that prohibited The South Butt from using The North Face’s trademarks or any mark that was similar to The North Face’s without permission. The trademark laws generally prohibit you from unfairly riding another brand’s coattails for your own benefit, confusing consumers about what the quality and source of the good they’re buying, or otherwise damaging another brand’s reputation with your trademark.

Fast-forward to the summer of 2012, The North Face is back in court asking a judge to hold the owners of The South Butt in contempt. According to the report, the owners of The South Butt started a new company, Why Climb Mountains, LLC, and they are selling apparel under the brand “The Butt Face” with the tagline “Never Stop Smiling.” The logo also features curved lines which are similar to The North Face’s logo.

The North Face is claiming that The South Butt owners are violating the injunction with this new line of apparel. They commissioned a survey that found that 35% of respondents associated The Butt Face logo with The North Face brand. The judge is expected to decide whether The South Butt owners violated the injunction that prohibited them from using a trademark that’s similar to The North Face.

I understand why a company would want to create a parody of an existing company’s brand, but this story makes me wonder, “Why would you do it twice to the same company if you ended up in court the first time around?” On the flip side, this story shows that there is a market for parody brands which, if a company was looking to expand its market, that would be one option to consider.

If you’re considering using a trademark that might be confused with your competitors’, please consult a trademark attorney in your community before you invest too much time and energy into creating that brand.

If you want to hear more of my thoughts on this topic, or if you think this post is too long to read, I made a video.

Feel free to connect with me via Twitter, Google+, Facebook, and LinkedIn, or you can email me.
Please visit my homepage for more information about Carter Law Firm.

Hat tip: JD Supra

Filed Under: Business Law, Intellectual Property Tagged With: , , , , , , , , ,

Venture Capital Available for Arizona Companies

August 16, 2012 by Leave a Comment
Money Plant by Tax Credits from Flickr

Money Plant by Tax Credits

Money doesn’t grow on trees . . . but sometimes people want to give it to you! The Invest Southwest Capital Conference is coming up on November 28th-30th at the Fairmont Scottsdale Princess Resort. This is the conference where Arizona companies can pitch their business plans and investment opportunities to over 300 venture capitalists and angel investors.

This conference has resulted in over a quarter of a billion dollars being invested in companies since its beginning in 1992. Jonathan Coury, the chairman of this year’s conference says the event’s mission is to encourage “economic growth through capital investments in growing enterprises.” I’ve known Jonathan since I worked under him and helped launch other businesses at the Innovation Advancement Program at Arizona State University. If he believes in this conference, I believe it’s something local companies should consider if they are trying to get a significant amount of venture capital.

Invest Southwest is geared towards companies that are looking for between $500,000 and $10 million in funding. You must apply to present to the conference. Applications must be received by 5pm on Thursday, August 30th with a $199 application fee. A selection committee will chose between 12 and 15 companies to present at the conference. If you are selected, you must pay an additional $350 presenter fee.  At first glance, $549 might seem like a lot of money to present at a conference, but not compared to the $10 million you might take home with you.

When you are seeking venture capital, it’s best to work with an Arizona business lawyer (like me) who can help you understand your obligations when you accept money from venture capitalists or angel investors.

Feel free to connect with me via Twitter, Google+, Facebook, and LinkedIn, or you can email me directly.
Please visit my homepage for more information about Carter Law Firm.

Filed Under: Business Law, News Tagged With: , , , , , , , , , , , ,

Avoid Piercing the Corporate Veil

August 9, 2012 by 5 Comments
Shadow Theatre by tamadhanaval, Piercing the corporate veil

Shadow Theatre by tamadhanaval

After I published the blog post on starting a business in Arizona, someone asked me if there was anything wrong with using PayPal to accept business payments if their PayPal account is connected to a personal bank account. I cringe when I hear stories like this.

One of the benefits of creating a business entities is it limits your liability. If you have a corporation or an LLC and the business gets sued and loses, the prevailing party can only take the business’ assets if the business is set up properly. They can’t go after your personal home, car, bank accounts, or other possessions.

You get this protection by keeping the business assets and your personal assets separate. Your business needs its own bank account, credit card, etc. You should pay for business expenses with the business accounts and personal expenses with your personal accounts. If you don’t keep your accounts separate and you lose in a lawsuit, the prevailing party could make the argument that the business is not a separate entity but is merely an alter ego for you. If that happens they can take assets from the business and your personal property to collect their damages.

Creating an LLC is a good start to protecting yourself against personal liability, but it may not be enough if you don’t keep your business and personal accounts independent from each other. Services like PayPal are so easy to use that it will be simple to create separate accounts for business and personal use.

If you have questions about whether you’ve properly set up your business to protect yourself against liability, please contact a business lawyer (like me) in your community.

Feel free to connect with me via Twitter, Google+, Facebook, and LinkedIn.
Please visit my homepage for more information about Carter Law Firm.

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How To Start a Business in Arizona

July 26, 2012 by 8 Comments
National Geospatial-Intelligence Agency Ribbon Cutting by US Army Corps of Engineers, Carter Law Firm, Ruth Carter

National Geospatial-Intelligence Agency Ribbon Cutting by US Army Corps of Engineers

This week I had two speaking engagements on the basics of starting a business in Arizona. I thought I’d expand my list of tips into the ideal timeline an entrepreneur should follow for setting up their business.

  1. Figure out what type of business you want to have.
  2. Select a name for your business. From a trademark registration perspective, it’s best to pick a name that contains a word or words that don’t already exist. Also be mindful of any business name restrictions that exist in your industry.
  3. Do a search on the U.S. Patent and Trademark Office (USPTO) website to see if someone in a similar business has registered a similar name for their business. If they have, they can prevent you from using your desired trade name. Run a Google search as well to see if someone has a similar name but hasn’t registered it with the USPTO.
  4. Create a business entity by sending the appropriate form and payment to the Arizona Corporation Commission.
  5. Open a bank account for your business. Never use your personal accounts for business expenses or your business accounts for personal expenses.
  6. If you have more than one owner, create an operating agreement. This is a contract that dictates how the company is owned, how you will run your business, and how you will resolve problems. You need this no matter who your partners are, including your spouse and family members.
  7. When you have a business, you have intellectual property – at least copyrights and trademarks, and perhaps trade secrets and patentable ideas. Create an intellectual property strategy to protect these things. This is another time when you should at least buy an hour with a lawyer.
  8. Draft contract templates for documents you will regularly use with vendors and customers. Many business owners get contract templates from the internet. This is an acceptable way to start this project, but you should have a lawyer review them to make sure they are legal and address your needs.
  9. Register your trademark with the USPTO.
  10. If you have employees, you will need employment contracts and an employee handbook that includes a social media policy that complies with the National Labor Relations Act.

Ideally, every new business would have a lawyer to help them set up avoid any legal missteps, but many entrepreneurs can’t afford it. There are a lot of things you can do without a lawyer’s help, but you need to be well-informed about what your’e required to do when going into business for yourself and when it’s worth it to pay for a lawyer (like me).

It’s much easier and cheaper in the long run to consult a lawyer a few times when you’re starting your business than to have to hire one to clean up the mess that can result if you do it the wrong way.

Feel free to connect with me via Twitter, Google+, Facebook, and LinkedIn.
Please visit my homepage for more information about Carter Law Firm.

Filed Under: Business Law, Intellectual Property Tagged With: , , , , , , , , , , , , , , , , , , , , ,

How To Respond If An Interviewer Asks For Your Facebook Password

March 22, 2012 by 18 Comments

Padlocks by Jon Worth

The news media recently exploded with reports that employers are asking prospective employees for their Facebook passwords. A few years ago, I heard of interviewers asking prospective employees if they could see their Facebook pages. This takes it to a whole new level, and I think it’s disrespectful.

A lot of prospective employees are desperate for work, so I suspect a lot of them are complying with the request. I think a lot of people are shocked by the question and are saying “yes” without fully realizing what they are doing.

If a prospective employer asked for my Facebook password, my first thought would be two choice words (seven letters – you figure it out). Hopefully before those words escaped my lips, I’d temper that thought with something like, “I’m a very private person. I use Facebook to connect with close friends and family. I’d rather not give you that information.” I could follow that up with a statement that all my tweets are public if they want another glimpse into who I am as a person online.

I look at this question like when a police officer asks to look in your bag. They wouldn’t ask the question if they didn’t need your permission. You have the right to say “no” to the cop, just as you have the right to say “no” to prospective employer who asks for your social media passwords.

When a prospective employer asks for your social media passwords, they are opening themselves up for liability. There are a lot of things an employer can’t ask about in an interview, and they can be sued if they make hiring decisions based on things like race, gender, disability, or religion. If they have access to your otherwise privacy protected Facebook page, they may see information like your race, religion, or disability that could influence their hiring decision and put them at risk of getting sued for discrimination.

If anyone asks for your Facebook password, whether it’s your best friend or a prospective employer, the answer is always, “No.” If an employer won’t hire you because you won’t turn over your Facebook password, you don’t want to work for them anyway. A concerted effort from prospective employees pushing back against this question could be enough to make it stop.

UPDATE (3/26/2012): Facebook is warning users not to give their passwords to prospective employers.

Filed Under: Business Law, Employment Law Tagged With: , , , , , , , ,

Form Contracts are the Beginning

March 15, 2012 by Leave a Comment

Signing a Contract by Victor1558Last weekend, I went indoor rock climbing with my friends. It’s not uncommon for me to participate in activities that require signing a liability waiver. I think most people just sign them without reading it. My friends get a kick out watching me read every word and change the terms I disagree with. I respect that these companies want to protect themselves against liability. I accept that I participate in risky activities and as such I might get hurt, but if I get hurt because of their horrific negligence, I want to be able to get them to pay for my injuries that they caused.

The same ideas apply to businesses. A lot of businesses have form contracts that they use for providing services, creating intellectual property, and/or licensing you software or equipment.   I look as these as a jumping off point to begin negotiations.

Whoever writes a contract write the terms that best protect their interests. If a company hires the lawyer, the lawyer writes the best provisions for their client. They may not care about your interests at all. It’s your job to read these contracts carefully and propose the terms and conditions that work best for you. Lots of things may be open for negotiation such as

  • Payment rates,
  • Whether you’re licensing, renting, or purchasing software or equipment,
  • The length of the contract,
  • Whether you can end the contract early,
  • How disputes will be settled, and
  • If their creating intellectual property for your use, who owns it.

There are so many things that could be open to negotiation. It’s best to think of the worst-case scenarios and to protect your interests and assets if one occurs. There may be more than one way to address a potential problem; you and the other side can decide which way works best for the both of you.

If you’re given a form contract and you don’t like a provision, change it and see what the other side says. They may accept it. (Be sure to check with your lawyer so you know how to properly change the contract, or better yet, hire a lawyer to review your contracts before you sign them.) If the other side says they can’t accept an altered contract, ask to speak with someone who can or seriously consider doing business with someone else.  You don’t want to set yourself up to be screwed down the line.

The law generally holds you to the contracts you create, so think hard before signing your name.

In my personal life, I’ve changed contracts and the other side has accepted the changes without question. Sometimes they’ve come back and said they can’t accept it with the changes, and that opened the discussion about what they could accept. Sometimes I have to walk away from an offer if we couldn’t make a deal and sometimes I bind myself to the original contract provisions, but I always know what risks I’m taking and I try to set myself up to be protected.

Filed Under: Business Law Tagged With: , , , , , ,

Why You Need an Operating Agreement

March 8, 2012 by 4 Comments

Sailor race cardboard boat in base competition by Official U.S. Navy Imagery

If you have an LLC and your company has more than one owner, you need an operating agreement. Period.

An operating agreement is a contract between the owners of a business that tells them how they’re going to run their business. Think of it as the owners’ rule book and prenuptial agreement. It puts everyone on the same page from the beginning in terms of what each person owns, what each person is responsible for, and how you’re going to resolve problems.

Your operating agreement can answer important questions like:

  • If an owner wants out, how much notice does he have to give? Do the other owners have first dibs on buying his portion of the company?
  • Do owners ever have to contribute their own money to the business?
  • What do you do if an owner isn’t pulling her weight? Can she be voted out of the company?
  • How will disputes be settled? If there’s an even number of owners with equal votes on each side, what’s the tie-breaker?
  • What happens if an owner dies?

Don’t think that you don’t have to create an operating agreement if you’re going into business with your best friend, spouse, or relative. We all know someone who has gone through a nasty divorce. The same can happen in the break up of a business if there isn’t an operating agreement that tells you how events will proceed.

It may seem strange to think about how you’ll handle problems at the beginning of the business, but it’s the ideal time to put these provisions into place. Hopefully everyone is optimistic and thinking about the business’ best interests which will make it easier to decide the best way to handle major decisions down the road. If you put off figuring out how you’ll resolve disputes until one occurs, you’ll be fighting over how the company should resolve its problems and you’ll be fighting over the problem at hand.

Operating agreements aren’t just about resolving problems. They give you the ability to create the company you want. Some companies may decide disputes in mediation, but you can choose to settle problems with a coin flip, a game of ping pong, or let your dog decide if that’s what you and the other owners want. You can also use your operating agreement to declare other rules like requiring everyone to bring pie to work on March 14th (Pi Day) and allowing video games as an acceptable brainstorming technique.

You’re not required to have an operating agreement if your LLC is in Arizona, but you’re asking for trouble if you don’t. This is one of those times when it’s worth it to pay a lawyer. You will pay a lot less to have someone draft the agreement for you, than to clean up the mess that could result when you and the other owners have a major dispute and everything goes to hell.

Filed Under: Business Law Tagged With: , , , , , , , ,

You’re Screwed if your Social Media Policy Violates the NLRA

February 23, 2012 by 3 Comments

Money by 401K from Flickr

The National Labor Relations Act (NLRA) protects private employees, in particular their rights to “to join together to improve their wages and working conditions, with or without a union,” and it’s enforced by the National Labor Relations Board (NLRB). Employees are allowed to engage in “protected concerted activities,” which includes discussions about wages and work conditions on publicly accessible social media sites.

According to a 2010 survey, nearly 50% of small to medium size businesses don’t have a social media policy, and based on the recent report from the NLRB, I suspect many companies that have social media policies, are in violation of the NLRA. If you’re an employer, you need a social media policy, but it’s critical that it complies with the NLRA.

So, if you fire or discipline an employee based on a social media policy that violates the NLRA, you could be in a world of hurt. Here’s what happens. The employee will file a charge against you with the NLRB. The NLRB will conduct an investigation and have a decision about the merits of the case in 7 to 12 weeks. The NLRB receives 20,000 to 30,000 charges each year.

Here’s the good news – more than 50% of these charges are withdrawn or dismissed.
Here’s the bad news – if the case has merit, you’re probably going to be paying a lot.

If the NLRB decides the case has merit, there’s usually a settlement between the employer and employee – meaning you have to pay the employee for violating their rights. If you can’t come to settlement, the case is decided by an NLRB Administrative Law Judge. The judge may make you provide a remedy to your employee such as giving them backpay and reinstating them in their job.

In 2010, 8,257 cases were decided by NLRB judges. Employers were required to pay over $86 million in backpay and fines. That’s an average of over $10,000 per case! The NLRB judges also required 1,633 employers to offer an unlawfully discharged employee reinstatement of their job – and most of them accepted!

So what’s the worse-case scenario if your social media policy violates the NLRA?

  • You have to pay your unlawfully discharged employee over $10,000 in backpay,
  • Offer them their job back (even though you’d rather they be gone),
  • Fire the person you hired to take the unlawfully discharged person’s place if they accept,
  • Deal with the expense and hassle of an NLRB investigation, and
  • Revise your social media policy so it complies with the NLRA.

If you want to avoid all this financial and professional heartache, make sure your company has a social media policy that’s drafted by an attorney who understands social media and who keeps up with developments from the NLRB. The cost of not doing so is too high.

Filed Under: Business Law, Employment Law Tagged With: , , , , , , , , ,
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