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:
- 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.
- 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.
… Keep reading
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
NOTE: Some changes have occurred since this entry was originally posted. Please see new post from April 18, 2012 for an update.
On April 30, 2012, a number of major changes to the National Labor Relations Act (NLRA) regulations will take effect and businesses, especially those that are not unionized, should take heed. While many employers view the NLRA as a “traditional” labor law that is not applicable to private, non-union entities, almost all employers engaged in interstate commerce are subject to the NLRA.
Two of these changes (effective April 30) are of particular note:
- Posting of Notices: As of April 30, 2012, all employers must post the Notice of Employee Rights under the National Labor Relations Act (English). For now, failure to comply with the posting requirement does not automatically result in an unfair labor practice, as the regulation was originally drafted, but it is likely that the National Labor Relations Board (NLRB)will draw an adverse inference from an employer’s failure to post. The posters must be 11 x 17 inches in size and posted in English and any other language which at least 20% of the workforce speaks, if they are not proficient in
… Keep reading
Because the role of most in-house counsel goes well beyond that of providing legal advice, whether communications with in-house counsel are privileged is a much more nuanced issue than it is with respect to communications with outside counsel.
General Principles Applicable to all Claims of the Privilege
1. Not all communications with attorneys are privileged; only communications for the purpose of obtaining legal advice are privileged. Thus, even conversations between a CEO and his or her General Counsel about the most sensitive and confidential aspects of their business are subject to disclosure unless they are for the purpose of obtaining legal advice.… Keep reading
With the new year, Massachusetts employers must add “gender identity” to the list of classes entitled to protection from employment discrimination and retaliation. What was touted as the “transgender rights” law in Massachusetts is, in fact, a “gender identity” law.
The Massachusetts transgender rights law defines “gender identity” as:
[A] person’s gender-related identity, appearance or behavior, whether or not that gender-related identity, appearance or behavior is different from that traditionally associated with the person’s physiology or assigned sex at birth.
This law allows employees to establish a workplace gender identity by providing their employer with evidence including, but not limited to, medical history, care or treatment of the gender-related identity, consistent and uniform assertion of the gender-related identity, or “any other evidence that the gender-related identity is sincerely held, as part of a person’s core identity.”
Notwithstanding this new law, the Massachusetts Commission Against Discrimination has already found that transgender employees are protected under the Commonwealth’s existing sex and disability discrimination laws. Thus, we have long counseled Massachusetts employers to treat transgendered employees as a protected class, and we do not anticipate that this legislation will change that fundamental advice. … Keep reading
As implied by my prior posting on trustee process attachments (“Gain Leverage By Freezing Bank Accounts – Part I, Offense“), the best way to avoid having your own bank account frozen is to make sure that you do not use a bank that has branches in Massachusetts. Even if your company does bank in Massachusetts, however, there are measures that can be taken to decrease the chances of having the company’s bank account frozen through a trustee process attachment.
An often overlooked fact about trustee process attachments is that payroll accounts are exempt from being attached. Thus, one prophylactic strategy you can employ is to fund your payroll account early and abundantly in order to shield as much money as possible from being attached. Be forewarned, however, that the payroll account exemption only applies if the account is used exclusively for payroll. Thus, if a company places money in its payroll account and later uses it for something other than payroll, the entire account can be attached – even those funds that are needed to comply with the company’s payroll obligation. Accordingly, and because there may be no better way to bring a company to its knees … Keep reading
Most employment claims can be avoided by simply being aware of what the law requires. Here are three recurring issues which plaintiffs’ class action attorneys and government agencies are targeting across the country and which can be easily avoided by taking action now.
1. Misclassification of Workers as Independent Contractors
The Internal Revenue Service (IRS) and US Department of Labor (US DOL) have been increasingly cracking down on independent contractor misclassification. Last year, Massachusetts, along with several other states, signed a Memorandum of Understanding (MOU) with the IRS and DOL, formally agreeing to cooperate in investigating independent contractor misclassifications. If a violation occurs, the government agency investigating the matter is obligated to report it to the other state and federal agencies which may be affected by the misclassification, potentially opening up the company to an audit by the IRS or the US DOL.
Massachusetts has one of the toughest tests to be met in order to classify someone as an independent contractor, and the penalties for misclassifying vary with the legal requirement which was not met as a result of the misclassification. For example, if a worker was not paid accrued wages or vacation time upon termination, the … Keep reading
As all good lawyers know, having leverage is everything, whether you are doing a transaction or trying to settle a dispute. And what could be better leverage than a court order directing your adversary’s bank to freeze the funds in an operating account? Obviously, such a potent weapon could, and often does, allow a plaintiff to dictate the terms of settlement to the defendant. While being able to do this might sound like a fantasy, Massachusetts courts routinely order a freeze on bank accounts through a mechanism called a “trustee process attachment.” Further, some judges even issue trustee process attachments ex parte, i.e., without the defendant having an opportunity to oppose the request for such relief.
If in-house counsel understand how trustee process attachments work, they can help position their companies to more easily (i) obtain trustee process attachments against future adversaries and (ii) avoid having their own bank accounts frozen.… Keep reading
While non-lawyers may not have heard of the term “spoliation,” most people intuitively know that destroying evidence related to an ongoing litigation is a bad thing to do. Conversely, even many lawyers do not know the breadth of a company’s obligation to preserve evidence, particularly electronically stored information (which is quaintly referred to as “ESI”). Further, knowing the basics of this obligation is critical because failing to preserve ESI can lead to monetary penalties, affirmative claims being dismissed and/or defenses being barred.
Perhaps the most common misconception about the obligation to preserve ESI is that a company runs no risk of punishment for having destroyed ESI pursuant to a document retention/destruction policy, as long as such policy (i) is objectively reasonable and (ii) was implemented at a time when no litigation could have been anticipated. Further, at first glance, Rule 37(e) of the Federal Rules of Civil Procedure would appear to support this notion:
Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.
While this rule seems simple enough, the … Keep reading