Aiken & Aiken

Sheila Aiken April 2nd, 2008

These days with more and more type of records that a business creates and which are recognized by courts, businesses need an effective records retention policy as part of their overall policy and procedure strategy.  Companies need to ensure compliance with both state and federal laws that govern a company’s records.

For instance, the Sarbanes-Oxley Act of 2002 created record retention requirements that apply to all companies, both publicly traded and privately held.  Section 802 which provides that it is a crime for someone to intentionally destroy, alter, mutilate, conceal, cover up or falsify any records, documents or tangible objects that are involved in (or could be involved in) a U.S. government investigation or prosecution of any matter or in a Chapter 11 bankruptcy filing.

A records retention program can protect businesses in litigation and disputes that arise during the course of business.  These programs help ensure compliance with federal and state laws and regulations.  Additionally, evidence of a clear and consistently enforced records retention program, provided it is enacted for valid purposes, will go a long way to convince courts that the destruction was reasonable and will generally provide a “safe harbor” under current rules of civil procedure.

However, while it is important to keep clutter to a minimum, a company can get into difficulties by tossing the wrong paper or deleting an important e-mail.  It is important to have all relevant documents during a lawsuit.  Not having a document can mean the difference between winning and losing in a lawsuit.  A judge or jury may be permitted to conclude that the document contained information detrimental a business should they not be able to product it.

Any policy a company creates should cover both hard copy documents and electronic documents.  Now that electronic discovery has been recognized in law suits, companies need to ensure they review their electronic records with the same careful attention as other documents.  Electronic records include records stored in email; on employee’s voicemail, computers, PDAs, cell phones, external drives, CDs, and DVDs; and on company networks and backup systems.

A comprehensive policy should cover how long to keep a document, when and how to store the document, and how to dispose of the document, will depend on the type of document.  It should also include details on how the destruction of documents should be handled.  Things to consider in this should include how electronic records will be destroyed as well how confidential information will be destroyed.  Additionally, the policy should include a procedure that preserves all records once a company is reasonably anticipates litigation. 

It is important for the success of the policy that employees be trained and be held accountable for compliance.  Additionally, a periodic audit should be held to ensure that the appropriate records are being destroyed. 

Due to the magnitude of legal requirements, as well as the specific needs of each company, it is advisable to consult legal counsel before implementing a tailored records retention policy.  In addition, businesses should consider any industry standards that may affect the holding period of records due to unusual legal circumstances.

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Michele Aiken March 14th, 2008

The 79 million Baby Boomers in the U.S. continue to charge full-speed toward retirement age.  The oldest of the Boomers will turn 65 in 2011, and from that point on, it is likely that more workers will be leaving the workforce than will be entering it.  Companies need to face the reality that there will soon be a significant gap in the workforce, assess how it will impact their organization, and implement a company-wide succession planning project.  According to a recent report released by the Aberdeen Group, succession planning is underutilized by most small and mid-sized businesses.  Only 35% of small and mid-sized businesses have a succession plan in place.

Although succession planning is most frequently used for presidents, CEOs, or other senior management personnel, it can be a useful tool for virtually all levels of an organization, regardless of the organization’s size.  Many businesses have positions that require specialized knowledge, skills and/or abilities.  If the employee that filled such a position retired or left the company, the company needs to ensure that there is someone immediately available with the same specific skill set to take over.  This is especially crucial for small to mid-sized businesses, where there is little-to-no employee redundancy, and everyone’s job is vital to conducting ongoing business activities.

A company’s first step in succession planning should be to conduct a risk evaluation.  This can be accomplished by examining every position in the company and assessing (1) possible retirement plans of the individual working in the position, (2) importance of the position in relation to the overall functioning of the company, and (3) current status of possible replacements for the individual working in the position.

Once the risk evaluation is complete, the company should develop a strategy for minimizing the potential impact of retirements by various HR tools, including succession planning and updating recruitment and training policies.  Some potential avenues to explore include:

• Create consulting agreements with senior managers that would provide access to their knowledge and experience after retirement
• Create policies and procedures allowing for part-time return to work after retirement
• Update existing training policies and procedures to allow for accelerated training opportunities for key positions

Keep in mind that employment and employee benefits issues could arise as a result of the succession planning.  For example, re-hiring retirees can have an impact on benefits eligibility.  Consulting with your benefits attorney during the risk evaluation and strategy development can identify and correct employment and benefit issues before the employer implements policies and procedures that can create problems in these other areas.

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Michele Aiken February 26th, 2008

Cell phones have become almost indispensable in today’s society. Frequently, employers provide their employees with cell phones as a part of their job. Even if the cell phone is not employer-provided, many jobs today necessitate the use of a cell phone. Employers need to be wary of the complications that can arise from their employees’ use of cell phones.

More and more claims are being asserted against employers by plaintiffs who have been injured by an employee/driver who was using a cell phone at or near the time of injury. Under the doctrine of vicarious liability, employers may be held legally liable for its employee’s negligent acts committed in the course of employment. It is not even a requirement that an employee be on company business, or that the phone call in question be a business call in order for employers to be held liable.

Some recent cases that were brought against employers under the doctrine of vicarious liability due to employee cell phone usage include:

• In Pennsylvania, a stockbroker, making sales calls on his cell phone while driving, hit and killed a motorcyclist. While the cell phone was not provided by the employer, individuals in the stockbroker’s position were routinely expected to make sales calls outside of business hours. The employer settled the suit against it for $500,000 before the case went to trial.
• In Arkansas, an employee was talking on a cell phone at the time that the employee was involved in a car accident. Suit was brought against the employer for the injuries sustained by another individual involved in the accident. The employer was found liable and was assessed damages of over $20 million.
• In Virginia, a law firm was sued for $30 million when their employee, who was taking a business call on a cell phone while driving, struck and killed a teenager with the car.
• In Hawaii, a state employee, while driving and talking on a cell phone, struck and severely injured a tourist. The state was found to be partially liable for the injuries the tourist sustained, and the state settled for $2.5 million.
• In Georgia, an employee of a construction company caused a multi-car accident while attempting to access voice mail on a company-provided cell phone, causing serious injuries to another individual involved in the accident. The company settled in the suit brought against it for over $4 million.
• Also in Georgia, an employee, while using a company-provided cell phone, rear-ended another car and caused an accident that ended in the other driver losing an arm. In December 2007, the employee’s company settled the suit for over $5 million.

In addition to the vicarious liability issues employers face, OSHA (and numerous other state statutes) mandates that employers have an affirmative duty to ensure worker’s safety by establishing appropriate policies. In light of the recent case law, this duty may encompass procedures for the safe use of cell phones.

Because of the litigation activity in this area and the affirmative duty under OSHA, employers should implement a cell phone policy for their employees. While such a policy will not absolve employers from all liability, the policy, and the strict adherence to it, can be used as an affirmative defense if a lawsuit is brought against the company. Employers should consult with counsel before implementing a cell phone policy to ensure that the policy provides as much protection as is possible.

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Michele Aiken February 14th, 2008

There has been a lot of information released recently about the impact of Section 409A on traditional nonqualified deferred compensation plans.  However, what most employers don’t realize is that the 409A rules can also impact some of the common provisions relating to compensation arrangements contained within individual employment agreements.  Because Section 409A defines deferred compensation extremely broadly, some types of compensation that an employer might view as current may actually fall within the expansive scope of Section 409A.

A non-discretionary bonus which is paid in the year following the year in which it is earned may be encompassed within the 409A definition of deferred compensation.  However, a short-term deferral exception exists which removes these types of bonuses from the deferred compensation arena.  Generally, this exception provides that if the bonus is payable no later than March 15^th of the year following the year in which services were performed then the bonus program is exempt from Section 409A.  However, if the bonus is paid by the employer after March 15^th, the exception will no longer apply and 409A rules come into play.

Individual employment agreements may contain a provision that allows the employee to receive compensation in the event of a change in control.  While these types of payments are allowed by Section 409A, the change in control event defined in the employment agreement must match the definition for a change in control as given in the regulations.

Severance plans are usually considered deferred compensation, and are subject to Section 409A compliance unless a specific exception exists.  Under Section 409A, severance payments include cash, continuation of benefits, tax gross-ups, and any other kind of post-employment benefit or payment.  Most existing severance agreements will probably either already comply with 409A requirements or fall within an allowable exception.  However, frequently severance agreements are negotiated at the time of separation.  The problem then becomes that Section 409A does not allow for the restructure or renegotiation of severance agreements at the time of termination if the severance agreement is to fall within the 409A rules.  Additionally, with regard to severance plans, voluntary termination and involuntary termination are looked at and treated differently under 409A.

Taxable post-termination reimbursements and in-kind benefits are considered by the IRS to be deferred compensation, and, as such, would be subject to 409A regulation.  If an employer has employment agreements with individuals that contain provisions for post-termination reimbursements and/or in-king benefits, these types of arrangements can be restructured to comply with the final regulations.

The application of 409A rules to employment agreements means that employers will have to change their procedures for negotiating and implementing employment agreements.  The new rules require more specificity in employment agreements, the use of a greater level of pre-established rules and procedures in the agreements, and a decreased ability to make subsequent changes to the agreement provisions.  Employers would be well-served to engage benefits counsel to assist them in identifying, analyzing, and amending all written and unwritten employment agreements that might contain any deferred compensation provisions under 409A.

Tags: 409A, Employment Agreements, Severance plans

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Sheila Aiken February 14th, 2008

The Fair Labor Standard Act (”FLSA”) is an extremely complex law, and, as such, it can be very difficult to ensure that your company’s overtime policies are in compliance with its requirements.  Even minor violations of the FLSA can be costly to companies as the statute contains a penalty provision that can allow for employee-plaintiffs to recover twice the actual back wages, as well as automatically awarding successful employee-plaintiffs their attorneys’ fees.

There are several common errors that a large number of employers are guilty of making, but which should be avoided (or corrected quickly) at all costs:

• Automatically exempting salaried employees from overtime pay - Numerous employers make the incorrect assumption that if an employee is “salaried” rather than “hourly”, s/he is not eligible for overtime, but not all “salaried” employees are exempt.  In order to be exempt from overtime pay under FLSA, each individual must be evaluated to determine whether one of the statutorily allowed exemptions is applicable.
• Incorrectly applying the executive exemption to assistant manager positions - In order to qualify for the executive exemption allowed under FLSA, an employee: must be paid a minimum salary amount, must regularly and routinely direct the work of at least 2 full-time employees, must either have the authority for or have input into the hiring, firing and promoting of other employees, and must have the primary duty of management of the department.  Just having a “manager” title and being salaried rather than hourly isn’t enough; the job description must meet the statute’s requirements for the exemption to apply.
• Making automatic deductions from hourly employees for meal breaks - While this practice is not illegal, it can create problems for employers.  In both lawsuits brought by employees and in Department of Labor audits, an employer has the burden of proving the actual hours worked by hourly employees.  Employers will most likely have a very difficult time in proving that an employee took a full meal break each and every workday if the deduction was made pursuant to an automatic deduction policy.
• Refusing to pay overtime that was not “pre-approved” per the company’s internal procedures - An extremely large amount of employer’s have a policy that overtime must be pre-approved by the employee’s manager.  The problems with such a policy begin when employers refuse to compensate an employee for overtime worked without that approval.  Under the FLSA, employers are required to pay for overtime worked with or without prior approval.  Any violation of this policy would need to be handled through an employer’s usual disciplinary process.
• Accepting an employee’s waiver of overtime pay and/or allowing an employee to “bank” hours -  employers cannot agree to let employees earn extra money by working additional hours at regular pay, even if the employee requests the hours and agrees not to get overtime for those hours.  On the reverse side of this situation, employees cannot work overtime hours (e.g. over 40 hours in 1 week) and have those “extra” hours credited to a subsequent pay period in which s/he will not work their full 40 hours.  Although the FLSA doesn’t use this phrase, “nice guys finish last”, and an employer cannot use the employee’s request and agreement as a defense against an FLSA claim.

These VERY common mistakes can be potentially devastating to employers as these types of overtime actions have the potential to become class actions, depending on the number of affected employees.  To limit their potential exposure, employers should have their legal counsel review their pay and overtime policies and procedures to ensure that those policies and procedures fully comply with FLSA’s requirements.

Tags: Fair Labor Standard Act, FLSA

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