As suggested in “The Effective Use of Liquidated Damages Provisions,” there can be a fine line between an enforceable liquidated damages provision and an unenforceable penalty clause.  Thus, when drafting an agreement, it is important to keep in mind that a payment-for-breach provision will only be enforceable if, at the time of drafting:

  1. It would be difficult to determine the damages that would be caused if the contemplated breach were to occur; and 
  2. The amount of the of the liquidated damages is a reasonable estimate of the actual damages that your company would suffer if there were a breach.

In light of these overarching principles, be sure that the contract expressly states that:

  1. All parties agree that if a breach were to occur, it would be difficult to determine actual damages;
  2. Based on what the parties presently know (include specifics if you can), they agree that $X is a reasonable estimate of the damages that would accrue if a breach occurred in the future; and
  3. All parties agree that the amount of liquidated damages is fair and reasonable and would not act as a penalty to the breaching party.
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In my previous post, I shared three best practices for preparing for a potential employee termination.  Here are two additional steps to consider in the termination process:

1. Prepare for possible exit interview scenarios.

Terminations are never easy and often become very personal.  In most situations, the key is to conduct the termination meeting as respectfully as possible.  In order to do so, it is advisable to have a plan addressing the following points:

a.  Who will be at the meeting?  Whenever possible, have two company representatives present, even if one is simply there to take notes.  Consider security outside the room in those situations where the employee may become volatile.

b.  What security measures will be taken while the employee is in the termination meeting?  Consider placing limitations on or completely shutting off access to company e-mail, company credit cards and company computer systems.  If the termination will not occur until a few weeks later, or transition is required from the employee, then completely shutting off access may not be the best course.  Limiting access to certain areas of the computer systems may be appropriate.

c.  What will be said?  Have a very short introduction, convey the … Keep reading

In an earlier post, “Is Arbitration Quicker, Cheaper and Better for You?” I discussed why having a faster and less expensive dispute resolution mechanism may not be in your best interest.  Make no mistake, however, the differences between traditional litigation and arbitration go well beyond the time and expense it takes to complete the respective processes.  The following are a few of the more notable substantive distinctions between these two dispute resolution mechanisms:

  1. Litigation allows for extensive “discovery” (e.g., depositions, document requests and interrogatories) from parties and non-parties.  Discovery in arbitration often is limited to document requests, but can be broadened by the arbitrator or agreement of the parties.
  2. Because arbitrators are not required to abide by any Federal or State Rules of Evidence, they routinely consider information that never would be admissible in court.
  3. A “bad” decision in a court of law almost always can be appealed.  An arbitrator’s decision, on the other hand, rarely can be appealed – even if it obviously is contrary to the applicable law.
  4. Notwithstanding a lack of empirical data, most litigators agree that arbitrators are much more likely than a judge/jury to issue a compromise decision and/or one based on fairness principles
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Employment attorneys and in-house counsel are used to the 4 p.m. phone call informing them that an employee must be terminated “today,” followed by a request for a separation agreement or advice on how to handle the termination.  More often than not, after asking a few questions we discover that, perhaps, the termination should be slowed down to ensure that we do it right. So, how should you prepare for a potential termination?  Get started with these three tips:

1. Assess the reason for the termination.

Often, the reason given for terminating an employee is that he or she was not a “good fit” – a conveniently vague term that ranges from a host of legitimate business reasons to code for unlawful discrimination.  Consequently, you need to drill down to what the real reason is for selecting this individual for termination at this time.  Eligibility for unemployment benefits and continuation of certain other benefits, such as health insurance, may be dependent on the reason for termination.… Keep reading

Like many lawyers, I learned way back in law school that an “agreement to reach an agreement is a contradiction in terms and imposes no obligation on the parties thereto,”  (Rosenfield v. United States Trust Co. ). What I didn’t learn until many years later, however, was that although a Letter of Intent (LOI) expressly says that the parties’ rights and obligations are subject to the execution of a full-blown contract, that LOI can be binding – even if the contemplated full-blown contract never is executed. 

I learned this through my representation of Robert and Juliann DiMinico in the case of McCarthy v. Tobin.  In that case, Ann Tobin and John McCarthy executed a one-page “Offer to Purchase Real Estate” in connection with Tobin’s condominium at Burrough’s Wharf.  The Offer to Purchase expressly made the parties’ rights and obligations “Subject to a Purchase and Sale Agreement satisfactory to Buyer and Seller,” which was required to be executed by August 16, 1995, and time was of the essence.  After McCarthy failed to return a signed Purchase and Sale Agreement by the August 16 deadline, Tobin sold her property to the DiMinicos.

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In a prior post, we had reminded you that certain changes to the National Labor Relations Act (NLRA) regulations would become effective on April 30. 

However, as of Friday, April 13, in a case brought by the U.S. Chamber of Commerce, the U.S. District Court of South Carolina decided to strike down the requirement to post notices informing employees of their rights to unionize under the NLRA.  The South Carolina federal court decided that the posting requirements exceeded the authority of the National Labor Relations Board (NLRB), the entity charged with enforcing the NLRA.  The D.C. Circuit Court of Appeals promptly followed, issuing an injunction putting the notice posting requirement on hold, pending the resolution of whether or not the NLRB had the authority to issue the notice posting requirement. 

As a result, yesterday afternoon, the NLRB announced that its regional offices would not implement the rule requiring posting of notices of NLRA rights while the appeal of the D.C. Circuit’s decision is pending. … Keep reading

As summer internship season approaches, employers should carefully institute internship programs which comply with the requirements of the Fair Labor Standards Act (FLSA)

The Test.

In the case of “for-profit” companies, unpaid internships must meet the strict criteria of the FLSA.  Specifically, as stated in U.S. Department of Labor’s (DOL) FLSA Fact Sheet #71 unpaid interns must:

  1. Receive training similar to that provided in an educational environment
  2. Be for the benefit of the intern, and not the employer
  3. Not displace regular paid employees
  4. Be closely supervised by existing staff
  5. Not be used for the immediate advantage of the employer (and in some cases, may impede the employer’s operations)
  6. Not necessarily be entitled to a job after the end of the internship
  7. Understand that the intern is not entitled to wages for time spent in the internship

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The Basics of Liquidated Damages Provisions

A liquidated damages provision fixes the amount of money one party will pay to the other if a breach occurs.  Because the law of contracts is designed to be compensatory, however, a payment-for-breach-clause that is penal will not be enforceable (Some reasons for this are discussed in “Why Not Enforce ‘Penalty’ Liquidated Damages Clauses?”).  Accordingly, even if a contract conspicuously says: “If the purchaser is one second late to the closing, it shall pay the seller $10,000,000,” that clause very likely will be deemed to be an unenforceable penalty.

So what makes for a valid liquidated damages provision?  There are two essential conditions:

  1. At the time the contract was executed, it must have been the case that it would have been difficult to determine the damages caused by a breach.
  2. At the time the contract was executed, the amount of the monetary payment designated must have appeared to have been a reasonable estimate of the expected damages for the contemplated breach. 
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Even the most sophisticated employer in the most intellectually demanding industry may misclassify its workers as “exempt” when they are, in fact “non-exempt.”  The increasing number of misclassification litigation is a sure sign that no one is completely immune from inadvertently misclassifying workers. 

What exactly are the workers “exempt” from anyway?  The federal Fair Labor Standards Act (FLSA) requires that workers be paid a minimum wage for every hour they work and an overtime premium for any hours in excess of 40 hours worked in a week, but it permits employers from excluding certain types of employees from each of these requirements; hence, they are “exempt” employees.  The most common areas of exemption are known as the “white collar” exemptions.  These exempt employees are:

Of course, these “white collar” classifications may appear straightforward, but like the roads in the Tuscan hillside, they can become quite foggy and have twists and turns from time to time.  Don’t fall for the typical myths about exempt classifications.

Myth No. 1:  If the employee is paid a “salary” rather than “hourly,” the employee must be “exempt.”

Although any employee who is paid on an “hourly” basis … Keep reading

As many in-house counsel are painfully aware, litigating a dispute in court is generally time-consuming and expensive.  Further, given a losing party’s right to appeal an adverse verdict, and with all due respect to Yogi Berra, litigation ain’t even over when it’s over.  As a result, some companies choose to include arbitration clauses in their agreements, believing that this will greatly reduce the amount of time and expense their company will have to incur if a significant dispute arises that cannot be resolved.

While it usually is quicker and less expensive to arbitrate a dispute rather than to litigate in court, that is not always the case.  For example, while it only would cost $375 to file a $5 million claim for breach of contract in the Federal District Court, the fees for commencing commercial arbitration before the American Arbitration Association (“AAA”) are $14,600 – even if the case is extremely simple. (Fees under the AAA Commercial Rules are tied exclusively to the amount of damages being claimed.)… Keep reading