Thursday, February 26, 2015

Get Vendor Outsourcing in Writing

A vendor may outsource the service it provides your employer. If you are negotiating vendor service agreements for your employer you should clarify in the agreement what portion of services, if any, the vendor can outsource to contractors and whether the vendor is still ultimately responsible for all services provided.

This is important since under New Hampshire law companies are generally not liable for their independent contractor's negligence. The three exceptions to this rule are when there is negligence of the company in selecting, instructing, or supervising the contractor, or when the work is inherently dangerous or when the company has a duty which can not be delegated, such as the duty to maintain a safe workplace or the duty of a building owner to maintain safe premises.

If your company wants its vendors to be ultimately responsible for their outsourced services, you need to specify this clearly in the written agreement between your company and the vendor. Otherwise, it is possible your company may be left pursuing a negligence claim solely against the independent contractor who may have a lot less resources available to remedy the problem or to pay any monetary damages. While the vendor should still be liable for any breach of contract caused by the independent contractor not fulfilling the vendor's contractual obligations, the vendor may not be liable for the contractor's negligence which causes the company property damage.

For example, your company hires a property management firm to provide all facility maintenance for your manufacturing plant and that company, in turn, hires an independent contractor to provide janitorial services. Your company would be best served by clarifying in the facility maintenance contract that the property management company is responsible for any damages caused by its employees or agents, irrespective of whether or not they are independent contractors of the vendor. Not only would this contract clarification assist your company in holding the property management firm liable for any janitorial negligence causing damage to the premises, but also that firm would have an additional incentive to provide oversight for the independent contractor's janitorial services.

Outsourcing contractual duties can be economically prudent because it allows a business to minimize overhead and thereby keep the cost down. However, your company should know up front, through expressed contractual provisions; a)whether your vendor will outsource and, if so, to whom, b) what level of oversight will be provided to your vendor's contractors, and c) whether the vendor is ultimately responsible for its contractor's errors and omissions.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at dmarr@nashualaw.com.

Wednesday, February 25, 2015

Destruction of Work E-Mails

If a former employee and employer have a dispute that has or will likely lead to litigation, they have a duty to preserve relevant evidence. If either of them deletes relevant e-mails from their respective computers, they may find the sanction by the Court to be substantial. Such a sanction was ordered in the decision from the Massachusetts Superior Court in the case of Israel M. Stein, M.D. v. Clinical Data, Inc. Stein, a physician, was the founder of Clinical Data, Inc. who served in various executive positions with the company until he resigned. Stein’s employment agreement with Clinical Data provided him severance pay and benefits after resignation. A dispute arose between his former employer and he related to his competitive conduct both during employment and after his resignation alleged to be in violation of the agreement as well as his alleged releasing of confidential information to the detriment of his employer. The Court noted that Stein knew that his e-mails with third parties, from the time of his resignation forward, would at least potentially be relevant to the litigation. That knowledge gave rise to his duty to act scrupulously and carefully to preserve all such e-mails. Notwithstanding that duty, Stein installed on his computer a program which erased all deleted e-mails from his computer automatically every seven days, McAfee Quick Clean Software with Shredder. Thereafter, upon receiving service of Clinical Data’s motion seeking examination of his computer, Stein immediately made use of Drive Scrubber 3 to remove from the computer permanently whatever pertinent materials may have been present there as of the date of the motion. While Stein had several explanations why he was innocent of intentionally spoiling evidence through the erasing of e-mails, the Court found him not credible and ultimately sanctioned him by dismissing all of his claims against Clinical Data. Further, the Court granted Clinical Data the right to collect its reasonable discovery costs starting when it filed its motion to examine Stein’s computer related to seeking to obtain the discovery of the e-mails. In regard to Clinical Data’s counterclaim against Stein the judge held that she would instruct the jury that it may infer from his destruction of the e-mails that additional relevant materials not yet discovered existed but had not been recovered or produced, and that such materials would have provided evidence of facts inconsistent with Stein’s position as to Clinical Data’s claims.

The lesson from this case is that employers and employees should understand that they have a duty to preserve evidence, including electronic evidence. In particular, when the monetary stakes are high, forensic computer experts may be retained to examine computers to determine whether e-mails have been intentionally erased. Both employers and employees should be meticulous, once they know of a potential claim they may make or one that could be made against them, to save all relevant e-mails and any other evidence whether it is hurtful or helpful to their claims or defenses.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at dmarr@nashualaw.com.

Tuesday, February 24, 2015

Many Things To Consider When Negotiating / Tips on Negotiation

Many workers find that their jobs involve some level of negotiating agreements with vendors, customers, or others. Prior to entering into such negotiations, it is important for the worker to analyze the negotiation parameters.

The worker must first understand his level of authority in negotiating on behalf of his employer. If the transaction is for a product or service about which the employer has little or no experience, the worker's input after researching the topic (including information, for example, on what industry competitors are negotiating as terms for similar products or services) will be appreciated by the employer.

Once the worker understands the parameters of his authority, he should consider the alternatives to a negotiated agreement with the other party and analyze or anticipate the possible alternatives available to the other party if it does not negotiate an agreement. Thinking this through helps identify the respective leverage of each party in the negotiation.

It also helps determine whether or not walking away from a potential deal is an acceptable alternative. It is important to remember that all negotiations need not result in an agreement and sometimes the best decision management can make is to forego a potential deal.

Another important factor is negotiation style. One of the biggest mistakes made in negotiating is beginning with an unreasonable position in the hopes of ultimately settling on a less unreasonable deal. Such tactics often result in the souring of a potential business relationship. It is a good idea to always leave some room in an initial proposal for movement, but not so much as to risk tainting the relationship before it even begins.

Finally, it is extremely important to remember that a judge enforces the written agreement based on its express terms. It would be a mistake to commit to a written provision that is unacceptable to you in reliance on the other party's statement that it is their form provision that is never enforced.

You should be aware if the other party is unwilling to remove a provision from its agreement, they plan to enforce it. It is important that any agreement, however basic, has clear provisions in plain English so that if a problem arises, a judge can read the written provisions and understand what both sides' respective rights and obligations are without having to rely on testimony from either party.

Such clarity in the agreement will not only help your company's position should a dispute arise, but it also decreases the chance of a dispute since both parties can look at a written agreement (after their respective memories of the specifics of the deal fail) and review the provisions to which the actually agreed.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at dmarr@nashualaw.com.

Monday, February 23, 2015

Stock Options

Stock options can be a good way to provide the opportunity to an employee to share in the potential success of the company thereby providing the employee additional incentive to build the company’s value. If an employee is offered stock options in a publicly-held company, generally those options will be provided at a certain price for which the employee can purchase the stock. The employee may exercise those stock options at a specified time in the future assuming continued employment through which they become vested. For example, an employee may be offered stock options in 12,000 shares at the same grant price vested for three years with 4,000 shares vested on the first anniversary of employment; 4,000 vested the second anniversary of employment and 4,000 vested on the third anniversary of employment.

With a publicly-held company, once those stock options are vested, the employee can make a decision to exercise and sell the options at the same time taking the profit if the stock is above the grant price. There can be what is called a “blackout period” wherein the employee who has had some access to sensitive information may not sell the stock and there might be other restrictions, including getting various levels of approval by the company before selling stock. Furthermore, even without such a blackout period a person cannot buy or sell stock based upon insider information. If an employee has insider information that is not available to the general public, the sale of stock would be prohibited.

As to closely-held companies, while the stock options are similarly granted and vested over a period of time thereby becoming exercisable, the major difference is that there is no market in which to sell the stock. Therefore, you may have been given stock options for 12,000 shares. You would in all likelihood have to pay for those shares and hold onto them and hope that the company will eventually be sold. Additionally, closely held companies may have stockholder agreements that you are required to sign which restrict your ability to sell to third parties who are not already shareholders. As a result, not only will the exercise of the stock options affect your personal cash flow, but the ability to sell those shares later may be restricted, even if you could find a buyer of a minority share of stock in a closely-held corporation, which can be difficult. Often these agreements also will have a provision requiring you to sell back your shares at some formula upon termination of your employment.

If you are considering two job offers and one provides more salary, yet the other provides stock options in a closely-held corporation, you should seek legal counsel to review the specific stock option plan and agreement to determine what are the conditions in the stock option plan. A competent business attorney will help you determine if it is worth taking the stock option deal over the one with the higher salary.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at dmarr@nashualaw.com.

Friday, February 20, 2015

Checks and Balances Prevent Employee Fraud

Embezzlement of company funds by employees is more common than reported in the media. Often employers will work out private restitution agreements in order to keep the matter confidential and therefore out of the media and the courts.

A system of checks and balances can diminish the likelihood that an employee will embezzle as well as help catch that employee who does embezzle before he can cause too much financial damage. A more common embezzlement is by the individual who receives the company’s bank statements, signs company checks and enters them into the company’s books. Generally the embezzling bookkeeper will write a check to himself or pay a personal bill of his own and, when the processed check comes in with the bank statement, he will destroy the check and enter a legitimate vendor as the payee into the books of the company.

The best way to thwart this practice is to have someone receive the bank statements at home and review them prior to turning them over to the bookkeeper. If the company has co-owners, the person who receives the bank account statements at home would be one of the owners who does not have check writing or signing authority. If there is only one owner, that individual should be the only one receiving the bank account statements at his home. By reviewing the processed checks and the bank account statement to see if there are any suspicious withdrawals, the company goes a long way with relatively minor effort to ensure that it does not become a victim of embezzlement.

Employers should understand that embezzlers are not always greedy. The embezzler may rationalize the theft because of a perceived wrong he believes the employer has committed. He might believe the end justifies the mean if there is a strong financial need by a family member such as paying for uninsured medical expenses. A check and balance system will help prevent any such employee from being tempted to embezzle.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at dmarr@nashualaw.com.