Time to Get Commission Agreements in Writing
September 12th, 2012
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.
Return of the Scammers
September 6th, 2012
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.
Resist the Torrent
September 4th, 2012
If you had any doubts, the New Scientist has published a report that says that most torrent downloaders have their internet protocol (“IP”) addresses logged within three hours of the download.
The article wonders whether the information will be reliable enough to be admitted in a court of law, but another legitimate question is whether there are many who can afford to fight the evidentiary battles. The owners of copyrighted content are very good at targeting the price points where it is cheaper to settle than to fight.
BitTorrent is seen as a godsend to many illegal downloaders, but it should be seen for what it is: a trap. To participate in a “swarm,” you have to give up your IP address, so that the other members of the swarm can copy from and to you. If you don’t want to leave your home address with the owners of the content, then do not use BitTorrent. The End. Finis. Owari.
Unemployment Benefits: The Greased Pig
July 26th, 2012
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.
Business Owners: Keep Your Networks Secure
July 22nd, 2012
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.
Filing Fees Rise, Again
July 2nd, 2012
Governor Jerry Brown has signed a bill that raises filing fees for California state courts. The first filing fee (for a plaintiff’s complaint, or for defendants’ first appearance fees) is now $435 for general civil cases. Motion fees are now $60.
The California court system has been hit especially hard by the long-term budget crisis. Los Angeles, the largest county in California, has repeatedly cut staff. We have seen it in the weeks it sometimes takes to have documents returned to us — even if they were supposedly stamped “filed” on the day they arrived.
These cutbacks and fee hikes will end up costing parties to lawsuits in not only direct ways, like higher filing fees, but indirect ways as well. Courts will be taking longer to decide cases, and that means it is more expensive, as cases that used to take eight to ten months now will take eighteen months or more.
Who Is Using Your Trademark? (Google II)
June 19th, 2012
New Legal Developments in Keyword Advertising
Go ahead: after you google yourself, google your company name. We’ll wait. Hold on – did you see that? Above your company name is an ad from someone pretending to be a reseller of your product – but you’ve never heard of them. Can they do that? Can companies use your company name as a keyword when advertising with Google? A recent appellate decision from Virginia casts doubt about that.
The company that makes the language software “Rosetta Stone” sued Google in Virginia, contending that Google allowed competitors to use the term “Rosetta Stone” as an advertising keyword: whenever someone typed “rosetta stone” into the Google search engine, sponsored links featuring Rosetta Stone’s competitors popped up above or to the right of the actual search results. Rosetta Stone does not get any revenue for the sponsored link – Google gets all that.
According to the Fourth Circuit Court of Appeal,
“Prior to 2004, Google’s policy precluded both the use of trademarks in the text of an advertisement and the use of trademarks as keywords upon request of the trademark owner. In 2004, Google loosened its trademark usage policy to allow the use of third-party trademarks as keywords even over the objection of the trademark owner. Google later even introduced a trademark-specific keyword tool that suggested relevant trademarks for Google’s advertising clients to bid on as keywords. Google, however, continued to block the use of trademarks in the actual advertisement text at the request of a trademark owner. At that time, Google’s internal studies suggested the unrestricted use of trademarks in the text of an advertisement might confuse Internet users.
“Finally, in 2009, Google changed its policy to permit the limited use of trademarks in advertising text in four situations: (1) the sponsor is a reseller of a genuine trademarked product; (2) the sponsor makes or sells component parts for a trademarked product; (3) the sponsor offers compatible parts or goods for use with the trademarked product; or (4) the sponsor provides information about or reviews a trademarked product. Google’s policy shift came after it developed the technology to automatically check the linked websites to determine if the sponsor’s use of the trademark in the ad text was legitimate.”
Since 2009, Rosetta Stone had complained to Google that companies had been advertising as resellers of Rosetta Stone products when they were not associated with Rosetta Stone. Indeed, Rosetta Stone had received many complaints about “resellers” selling counterfeit products.
The District Court in Virginia awarded judgment to Google two years ago, finding that there was no chance of confusion, despite the deposition testimony of five consumers who had relied upon Google’s sponsored links to buy what turned out to be pirated Rosetta Stone software, and hundreds of complaints to Rosetta Stone about counterfeit software purchased online.
The Fourth Circuit reversed, finding that the district court ignored the substantial evidence that Google’s trademark use policy could harm owners of legitimate trademarks. Google itself had earlier concluded that many Google users were confused when trademarks were included in the title or body of advertisements, but elected to risk that confusion, because about 7% of its total revenue was because of trademarked keywords.
If Google Can’t Figure It Out . . . . The most devastating evidence came from two of Google’s own trademark lawyers, who testified on behalf of Google. They “were shown a Google search results page for the keyword phrase ‘Rosetta Stone,’ and they were unable to determine without more research which sponsored links were authorized resellers of ROSETTA STONE products.” The Fourth Circuit found that such uncertainty “is quintessential actual confusion evidence.”
No Help for Google at Function Junction. The appellate court also rejected a novel use the functionality doctrine. While Coca-Cola might be able to trademark the shape of the traditional Coca-Cola bottle, it cannot trademark the functionality of the bottle – the concept of a container. Google claimed that trademarks became mere functionaries when used for a keyword search. While the trial court bought that argument, the appellate court did not:
“The functionality doctrine simply does not apply in these circumstances. The functionality analysis below was focused on whether Rosetta Stone’s mark made Google’s product more useful, neglecting to consider whether the mark was functional as Rosetta Stone used it. Rosetta Stone uses its registered mark as a classic source identifier in connection with its language learning products. Clearly, there is nothing functional about Rosetta Stone’s use of its own mark; use of the words ‘Rosetta Stone’ is not essential for the functioning of its language-learning products, which would operate no differently if Rosetta Stone had branded its product ‘SPHINX’ instead of ROSETTA STONE.”
Had Google prevailed on that argument, it would have had free run to use anyone’s trademarks any way Google chooses.
What It Means. This case will go back to the trial court for a trial, unless Google and Rosetta Stone settle the case. While Google no doubt appreciates that 7% of revenue derived from the searching for trademarks, getting entangled with counterfeiters is not in the company’s long-term interest. Expect a quiet settlement that gives more control to trademark owners about the use of their trademarks in search engines.
Tips for Employers About Tips in California
June 15th, 2012
California has a long tradition of being employee-friendly: covenants not to compete by employees are unenforceable, and the minimum wage is usually higher in California than that nationally. The same is true for professions with tips, which may be the next “hot” area of labor law in California. Employers whose employees earn tips had best get the law right.
Much of California’s law about tips is found in Labor Code 351. It expresses the philosophy in California very succinctly: “Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.” Even if management establishes a mandatory “tip pool,” management cannot dip into the pool – it is only for the employees who waited on the table. California employers also cannot reduce the minimum wage to account for tips – employees have to make at least the California minimum of $8.00 an hour before tips: “No employer . . . shall . . . deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer.”
Here are some things that every California employer should do if their employees receive tips:
○ Tip pools are legal, see Leighton v. Old Heidelberg, Inc., 219 Cal. App. 3d 1062 (1990), but employers and managers cannot participate.
○ Those who earn tips have to spent all or almost all of their time doing tipped work; if they spend more than 15% to 20% of their time doing work unrelated to tips, like washing dishes, stocking, setting up a room, and the like, they have to be paid for that work in addition to the work that allows them to collect tips.
○ Make sure that tipped employees are getting more than $25 a month in tips.
○ California employers have to bear the entire cost of a credit card transaction that includes a tip – the cost of credit card transaction (often 20 cents plus about 1.5% of the total transaction) cannot be apportioned to the employee.
○ Payment of tips from credit card transactions have to be made by the “next regular payday following the date the patron authorized the credit card payment.”
○ Keep accurate records of both tips received and tips paid to employees – and make sure that your books are always ready for inspection by the employee.
○ Don’t try to get a “private agreement” from the wait staff, to avoid California’s regulations. California already anticipated that, and voids such agreements.
Here are the incentives for the employer to get it right: first, the employer can be fined up to $1000 for each violation, and serve up to sixty days in jail. If the employer shortchanged dozens of employees for dozens of paychecks, the penalty could be very high, indeed. Moreover, lawyers for employees can use these laws for as evidence of unlawful business practices, which can serve as the basis for an action for civil penalties under the Private Attorneys General Act.
Viva La Small Biz!
June 10th, 2012
As the son of a stockbroker, I grew up listening to talk about large, well-established businesses. IBM. Gerber. Proctor & Gamble. All successful companies, in industries that will last a long time. But all, in their way, static. IBM’s headcount of American employees has been falling for years. Most Fortune 500 companies in America that are not in the financial world or in computing are losing jobs, not gaining them. When national unemployment is over 8%, the US needs to focus on the companies that add employees. Those are small businesses.
That is why I was interested in an article about small businesses in The Daily Beast about the real job creators. Small businesses are providing most of the new jobs in the US, but too many of them are left to fend for themselves, as the larger, more connected companies demand and receive far more face time from policymakers.
Small businesses need to organize around their common interests: they need to preserve and improve their flexibility. They need to know that they can hire someone without risking their business. Most small business owners want their employees protected from dangerous situations — and want their competitors subject to the same common sense rules, so that the more ruthless can’t leverage that ruthlessness to the detriment of the compassionate. They want their employees to have decent healthcare — but can’t afford to pay an increasingly large percentage of their revenue for it. Few employers want to be health insurance experts — which they become, involuntarily, when the burden of the decision on health insurance rests on them. The need capital and credit, but they are hard to find.
Small businesses have lots of challenges, from efficiencies of scale to being noticed in the marketplace. When employment rests on their shoulders, though, it behooves policymakers to make the small business environment a pleasant one.
Has “Google” Become Generic? (Google III)
June 5th, 2012
My fellow Business of Media instructor, Eric Sinrod of Duane Morris, has a good article today about a lawsuit an Arizona entrepreneur has brought against Google, claiming that the trademark “Google” has become generic.
One of the perils of a popular trademark is that when it becomes the term for the product or service itself, anyone can start using it. “Aspirin,” “kerosene,” “elevator,” and “bikini” all became generic terms for the product, allowing anyone to use them, instead of the trademark belonging to the owner.
by Keiko Nelson, www.keikonelson.com
While “Google” has become a verb, I don’t think that it has become generic for search services on the Internet. Yahoo!, Microsoft’s Bing, and Ask.com certainly don’t offer to google for you, and these companies would probably oppose someone who tried to say they did.
Still, these generic proceedings illustrate the collision between democracy in action and intellectual property law. No one person or entity chooses to make a mark generic — it is a very communal, egalitarian process. “The people” decide that aspirin is a better word than synthetic acetylsalicylic acid; the judicial system and the trademark owner have to go along.
I highly doubt that Mr. Elliott will succeed in getting “Google” declared as a generic mark, but I am confident that Goggle’s legal department has been losing sleep over this issue for years.