56.5 cents.

The IRS approves.

I got a letter this week from the “Corporate Records Service,” insisting that we “must account for 100% of the outstanding shares” by filing the 2012 – Annual Minutes Records Form. Don’t fall for it — it is another scam.
2012 saw a new law forbidding misleading representations that suggest that the company is related to the Secretary or State. These scams face fines of up to $2500 per violation unless they have a legend that says something like:

THIS PRODUCT OR SERVICE HAS NOT BEEN APPROVED OR ENDORSED BY ANY GOVERNMENTAL AGENCY, AND THIS OFFER IS NOT BEING MADE BY AN AGENCY OF THE GOVERNMENT.

This solicitation meets that obligation, but is still preying upon overworked small businesses that think that they are behind on their recordkeeping obligations. Sending a check to these guys do nothing but impoverish your firm, and enrich them. Save yourself some trouble, and recycle it — or even better, send everything to the

California Attorney General’s Office
Public Inquiry Unit
PO Box 944255
Sacramento CA 94244-2550

along with a complaint form that can be filled out here.

Employers know that there is an election here in California November 6th, but what obligation do employers have to accommodate their employee’s need to cast ballots? Under section 14000 of the California Elections Code, if an employee does not have time off the clock to go vote, an employer has to provide paid time off:

(a) If a voter does not have sufficient time outside of working hours to vote at a statewide election, the voter may, without loss of pay, take off enough working time that, when added to the voting time available outside of working hours, will enable the voter to vote.
(b) No more than two hours of the time taken off for voting shall be without loss of pay. The time off for voting shall be only at the beginning or end of the regular working shift, whichever allows the most free time for voting and the least time off from the regular working shift, unless otherwise mutually agreed.
(c) If the employee on the third working day prior to the day of election, knows or has reason to believe that time off will be necessary to be able to vote on election day, the employee shall give the employer at least two working days’ notice that time off for voting is desired, in accordance with this section.

American glass ballot box, circa 1884. Courtesy of the Smithsonian.

According to section 14001 of the Elections Code, employers have to give notice ten days in advance of statewide elections of the provisions of section 14000. The English language notice is here; the Spanish language notice can be found here.
If employees need to take time off, it is best to schedule as far in advance as possible. Employees don’t have the right to come to work late, or leave early, without notice.
With polls open 12 hours in California, most employees should be able to vote when they are not on duty. For those for whom it is unavoidable, schedule it in advance.

While allowing two paid hours off to vote may seem unfair to some employers, a lot of Americans sacrificed far more so that everyone has the right to vote. Allowing two hours off to vote twice every two years is not an intolerable burden.

Walking on red-hot irons? Easy. Try a 3-day depo.

It is easy to feel smug when we look back on our ancestors 1000 years ago. They had donkeys — we have 400 horsepower, 4 wheel drive vehicles. They had the Black Death — we have vaccines for all types of illness, even cancer. For a justice system, they had trial by ordeal — we have civil court depositions. Well, some things never change.

Actually, one thing has. In September, California’s Governor Jerry Brown signed Assembly Bill 1875, which generally limits civil depositions to just seven hours of testimony.

The federal courts have been following a seven hour rule for several years now. Federal Rule of Civil Procedure 30(d)(1) limits depositions to “1 day of 7 hours.” If someone tries to impede, delay, or frustrate a deposition, that person can be sanctioned.

New California Civil Procedure Code section 2025.290 provides:

(a) Except as provided in subdivision (b), or by any court order, including a case management order, a deposition examination of the witness by all counsel, other than the witness’ counsel of record, shall be limited to seven hours of total testimony. The court shall allow additional time, beyond any limits imposed by this section, if needed to fairly examine the deponent or if the deponent, another person, or any other circumstance impedes or delays the examination.

(b) This section shall not apply under any of the following circumstances:

(1) If the parties have stipulated that this section will not apply to a specific deposition or to the entire proceeding.

(2) To any deposition of a witness designated as an expert pursuant to Sections 2034.210 to 2034.310, inclusive.

(3) To any case designated as complex by the court pursuant to Rule 3.400 of the California Rules of Court, unless a licensed physician attests in a declaration served on the parties that the deponent suffers from an illness or condition that raises substantial medical doubt of survival of the deponent beyond six months, in which case the deposition examination of the witness by all counsel, other than the witness’ counsel of record, shall be limited to two days of no more than seven hours of total testimony each day, or 14 hours of total testimony.

(4) To any case brought by an employee or applicant for employment against an employer for acts or omissions arising out of or relating to the employment relationship.

(5) To any deposition of a person who is designated as the most qualified person to be deposed under Section 2025.230.

(6) To any party who appeared in the action after the deposition has concluded, in which case the new party may notice another deposition subject to the requirements of this section.

(c) It is the intent of the Legislature that any exclusions made by this section shall not be construed to create any presumption or any substantive change to existing law relating to the appropriate time limit for depositions falling within the exclusion. Nothing in this section shall be construed to affect the existing right of any party to move for a protective order or the court’s discretion to make any order that justice requires to limit a deposition in order to protect any party, deponent, or other natural person or organization from unwarranted annoyance, embarrassment, oppression, undue burden, or expense.

Your phone rings, and it is your friend from the PTA: your name is listed in the local paper for having skipped jury duty last month. Your friend informs you that you may be subject to jail time and/or a fine. You were called for jury duty awhile ago, but you checked the website, and you didn’t have to go in — but when was that? Last year? The year before? Your friend sounds worried, but tells you that there is a number to call, and you get the number. Now your fingers are shaking a little bit as you dial.
Your fingers start shaking a little more as you listen to the recorded message tell you the bad news that you may face a thirty day jail term and a $500 fine — but then you hear that this is all just a joke, but you can use the number to mess around with the head of one of your friends. What the —?

No joke. Photo courtesy of Photos-public-domain.com

This is really happening in Pennsylvania, as the Administrator for the Courts, Zygmont Pines (yes, that is his real name) is warning about the hoax. The only question is how soon it will spread to the jokers here in California. As much of a drag that jury duty is, it is vitally necessary for our justice system. If one of your friends tries to play this one on you, just tell him its really not funny.

Lawyers love Latin — it makes the sordid sound sophisticated. After reading the below, ask yourself cui bono? Who benefits?
Judge William Pauley recently knocked down an attorneys’ fee request:

“”Astonishingly, Kramer Levin attorneys, paralegals, and staff amassed 5536.4 billable hours on this matter, employing four partners, three special counsel, ten associates, eight paralegals and a summer associate,” he said, with partners billing in a range of $680 per hour to $1025 per hour, associates from $440 per hour to $745 per hour, paralegals from $250 per hour to $295 per hour, and “last but not least,” a summer associate for $335 per hour.”

Cui bono, Robin? By Louis Rhead, 1912, from Wikipedia Commons

Now, partners billing between $700 and $1000 an hour is pretty steep — but maybe, just maybe, they are very, very good.  Then to have 10 associates — attorneys either too new or not good enough to be partners — billing between $440 and $745 an hour?

But here comes the kicker: a summer associate billing at $335 an hour? A summer associate is a law student who is only there for the summer. A summer associate is not an attorney — just a wanna-be attorney (I know — I was one, back in the Reagan administration). Can you call yourself Robin Hood if you steal from the rich — and become rich doing so?

We’ve said it before, about the need to get things in writing, but now getting commission schedules in writing will be the law here in California starting next year:

“By January 1, 2013, whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid.”

This parallels the requirement from the beginning of last year that effectively requires that every employment relationship gets put into writing via a state-supplied form.

One important issue is the distinction between a commission and a performance bonus, which is not required to be in writing: “‘Commissions’ does not include short-term productivity bonuses such as are paid to retail clerks; and it does not include bonus and profit-sharing plans, unless there as been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.” Cal. Lab. Code sec. 2751(d).

Each commission contract needs to be acknowledged by both the business’ representative AND the employee, who needs to get an acknowledged copy. The fact that a physical signature is not required actually brings us into the 21st century — even if the best process is to still get a physical signature from both parties to the contract. If you want to conduct everything electronically, you can — but make sure the information is backed up and easily accessible.

If the contract is only for a particular period of time, but work is still being done, it is presumed that the contract is still in force until there is a new written contract, or the employment is terminated.

Consulting with Bay Oak Law about your specific situation is best, but if you want to walk on the wild side and do it yourself, know that the following issues are key:

A Percentage of What? Commissions are normally percentage based, and it should be clear what the percentage is of. Is it of the sales price? Is it what the client actually pays (important if there are discounts for early payment)? Is it the net profit or gross profit? This needs to be clearly spelled out.

Are There Limits? If your commissioned salespeople have territories, what happens if the salesperson makes a sale outside the territory? What about later purchases by the same customer — does the salesperson get anything for those, and if so, for when?

When Is It Earned? Is the commission earned when the order is handed in? When it is shipped? 31 days after receipt by the customer? The clearer this is, the better off both the employer and employee are — once they agree to the terms.

Advances Policy? Is the commission considered an “advance” that might be withdrawn or reversed? This procedure has to be in writing, or it is likely to be disregarded by the Labor Commissioner or the court.

Clawbacks? If the product is returned, does the employer have the right to “clawback” the commission? If so, under what conditions? Unless these conditions are in writing on the document that the employee acknowledges receiving, it is not likely to be enforced.

Is the Employment At Will? The terms of the employment should be listed: is it for

How Long Does It Last? If there is a length of time (six months, three years, etc.), the writing should also make clear what happens after the term is done, but the parties are still continuing to perform. If the contract is terminable at will, specify what happens after it is terminated, but there are commissions in the pipeline.

There are a lot of variables, and a consultation with a lawyer can be valuable.

A few years ago, we warned about scammers who were sending official-looking notices from the “Business Filings Division,” asking for $239 for statement of information filings. It was all a scam — but I remember spending fifteen minutes looking at one, trying to verify that it wasn’t official.

It seems that these scammers are back, only this time they are hitting on companies with applications or registrations with the United States Patent & Trademark Office. They look official and ask for the payment of fees. If you are catching up with paperwork on a Friday evening, you don’t want to fall for this. If you have a trademark application or registration, the only office that will contact you is the “United States Patent & Trademark Office,” which is in Alexandria, Virginia, and the email domain is “@uspto.gov.” If you have questions, both our firm and the USPTO can help keep the scammers away.

2004 Greased Pig Contest, Photo by Ken Ratcliff, Wikipedia Commons

Sometimes being an employer is like being in a greased pig contest: you just can’t get your arms around it. An employee does something that amply justifies firing him. He admits what he did, but seeks and (eventually) is awarded unemployment, thereby costing the employer’s account. What gives?

A recent court decision, Robles v. EDD  here in Alameda County shows how slippery this problem is. Liquid Environmental Solutions employed Jose Robles as a food grease collector, and provided him with a shoe allowance that allowed him to buy work shoes> Instead, Mr. Robles tried to used the allowance to buy shoes for a needy friend. He knew this was not allowed, and he lost his job. The Employment Development Department determined that he broke a “reasonable employer rule” and because of that, Mr. Robles was denied unemployment benefits. Mr. Robles appealed the EDD determination, lost twice, failed to get a the Alameda County Superior Court to overturn, and won in the First District Court of Appeal.

The Court of Appeal noted that Cal. Unemp. Ins. Code § 1256 states that an “individual is disqualified for unemployment compensation benefits if the director finds that he or she . . . has been discharged for misconduct connected with his or her most recent work.” However, the same statute creates a presumption that reasons other than misconduct caused the discharge. This means that it is up to the employer to prove that the discharge was because of misconduct.

Relying on the case of Amador v. Unemployment Ins. Appeals Bd, 35 Cal. 3d 671 (1985), the court found that “misconduct” is something more than good faith errors or “ordinary negligence”: it is
“conduct evincing such wilful or wanton disregard of an employer’s interests as is found in deliberate violations or disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such degree or recurrence as to manifest equal culpability, wrongful intent or evil design, or to show an intentional and substantial disregard of the employer’s interests or of the employee’s duties and obligations to his employer.

The basic test is: what was the employee’s intent? Sloppiness does not meet the standard. It has to be willful and wanton. The court found that “an employee’s unequivocal refusal to comply with the employer’s rule, without more, is not misconduct within the meaning of section 1256.” Instead, there has to be evidence of deliberate disobedience, such as prior warnings after similar incidents. Mr. Robles violated a reasonable rule, but it was “a good faith error in judgment rather than [] misconduct.”

Mr. Robles’ saving grace was that his former employer never contested his application for unemployment benefits. It never responded to a request for information; in fact, the EDD and the trial court only used information that Mr. Robles presented to deny him benefits. By remaining silent, the employer did not meet its burden of proving misconduct under section 1256 – something that even the EDD seemed willing to find without the help of the employer.

Takeaway for Employers.

First, do as Mr. Robles’ employer did – establish a clear policy – in this case, a shoe allowance for the employee. That makes it easier to decide what is a policy violation. Second, if you think someone might lose his job because of misconduct, you have to document that it was deliberate misconduct. That usually means giving written warnings not to repeat conduct, although if the conduct is sufficiently deliberate and bad, you can establish misconduct the first time it happens. Third, if sacking someone for misconduct, be prepared to meet your burden at an EDD hearing. The employee wins if you do not provide evidence, because the law presumes that no misconduct was involved.

Just in case the business owner didn’t have anything to worry about, here is a new headache to avoid. EPN Inc., also known as Checknet, Inc. is a collection agency that also provides electronic payment and e-commerce services. Unfortunately, Checknet has recently settled charges  brought by the Federal Trade Commission that Checknet failed to maintain security measures over the sensitive financial information it manages for its clients. Its chief executive officer had installed file-sharing software on the company’s computers, and that allowed access to thousands of people’s financial and health information. The FTC also charged an auto dealership in Georgia with the same installation of file-sharing software. The companies are subject to audits for the next 20 years to verify that their computers protect information properly.

In 2010, the FTC warned that file-sharing software was also being used to steal consumer data. “As the nation’s consumer protection agency, the FTC enforces laws that require companies in various industries to take reasonable and appropriate security measures to protect sensitive personal information, including the Gramm-Leach-Bliley Act and Section 5 of the FTC Act.” The action against Checknet and the Georgia auto dealership seems to be the initial wave of actions to defend against such file-sharing.

What Is File-Sharing Software? File-sharing software (sometimes known as P2P networks) does as it says – it shares files across the Internet. Bram Cohen developed BitTorrent over a decade ago. Instead of “top down” method of one server downloading files to computers, BitTorrent clients create a “swarm,” harnessing the computers that have downloaded a file to the share parts of that file to other parts of the swarm. About half of all Internet traffic now is now related to BitTorrent swarms, and legitimate purchases of content like movies are now outnumbered by 3 to 1 or more.

File-sharing programs like BitTorrent have been a constant problem for residential Internet users. While these are often used to obtain movies, their ability to move large files quickly also make them convenient for more prosaic uses, such as getting files from the office to work with at home. However, this open window can be used for scarier things, like downloading confidential information like social security numbers, bank accounts, and the like.

More industries are subject to privacy requirements like HIPAA or the FDIC than ever before. Even if your company is not subject to such rules, your clients and customers will not appreciate their private information being made available on BitTorrent sites. While being caught downloading movies or music illegally is embarrassing, getting caught allowing access to private information can quickly destroy a business’ goodwill that was years or decades in the making.

What To Do. Search your entire network – including any devices such as laptops or smartphones – for BitTorrent clients. The most common clients are BitTorrent 7, BitComet , Shareaza, Vuze, and utorrent. If they are found, remove them, and inform the person on whose computer it was on that it was removed. Also, check your employee manual to see whether it needs to be updated to include warnings that file-sharing software is strictly forbidden. Not only may this prevent copyright trolls from coming after your company because its IP address was attached to a swarm for a movie you wouldn’t tell your mother about, it could also prevent the FTC from coming after your firm, too.