Best Practices For The Growing Business The material provided herein is for informational purposes only and is not intended as legal advice or counsel. Please help yourself to food and drinks Please let us know if the room temperature is too hot or cold Bathrooms are located past the reception desk on the right Please turn OFF your cell phones Please complete and return surveys at the end of the seminar 2 Corporate Maintenance, Tune Up and Succession Planning Stefanie McNamara I. Observing Formalities 1. 2. 3. 4. 5. Governing Bodies • Shareholders/Members • Board of Directors/Managers • Officers Documenting Corporate Action • Authorizing Resolutions • Delegations of Authority for Officers/Key Employees Meetings • Annual/Periodic Meetings Proper Record Keeping • Minute Book/Stock Ledger File Annual Report With Department of Treasury Note: These Requirements Apply to All Entities Regardless of Size/Number Failure to Comply Creates Risk of Losing Corporate Shield From Individual Liability 4 II. Contract Trouble Spots • Indemnification • Warranty • Ownership of IP • Assignment • Term and Termination • Restrictive Covenants 5 III. Corporate Succession Planning Shareholder (Operating) Agreements • Restrictions on transfer or issuance of stock/equity • Buy/Sell Provisions Voluntary sales to third parties Upon death/retirement/termination/divorce Planning your exit strategy Planning for your partner’s exit Estate Planning • Funding – Key Person Life Insurance; Disability 6 Insurance for the Growing Business - and Beyond Charles Miller Risk Management Areas 1. 2. 3. 4. Liability Loss Exposures Income Loss Exposures Property Loss Exposures People Loss Exposures 8 Liability Loss Exposures 1. Commercial General Liability Insurance 9 1. Commercial General Liability Insurance • Cover bodily injury and property damage claims • Excludes coverage for employment practices claims • Exclude coverage for professional liability claims • Exclude coverage for pollution claims • How much? 10 Liability Loss Exposures 1. Commercial General Liability Insurance 2. Commercial Auto Insurance 11 2. Commercial Auto Insurance • Covers vehicles used by business • Both property damage and liability coverage 12 Liability Loss Exposures 1. Commercial General Liability Insurance 2. Commercial Auto Insurance 3. Professional Liability/Errors and Omissions Insurance 13 3. Professional Liability/Errors and Omissions Insurance • Covers claims arising out providing professional services • Covers financial loss • Excluded from coverage under CGL policies 14 Liability Loss Exposures 1. Commercial General Liability Insurance 2. Commercial Auto Insurance 3. Professional Liability/Errors and Omissions Insurance 4. Employment Practices/Employers Liability Insurance 15 4. Employment Practices/Employers Liability Insurance • Discrimination • Wrongful termination • Sexual harassment 16 Liability Loss Exposures 1. Commercial General Liability Insurance 2. Commercial Auto Insurance 3. Professional Liability/Errors and Omissions Insurance 4. Employment Practices/Employers Liability Insurance 5. Business/Profession Specific Liability Insurance?? 17 Income Loss Exposures 1. Business Interruption Insurance 18 1. Business Interruption/Extra Expense Insurance • Covers lost cash flow and profits • Often part of property insurance coverage 19 Income Loss Exposures 1. Business Interruption Insurance 2. Workers Compensation Insurance 20 2. Workers Compensation Insurance • Covers job-related injuries • Mandatory for most employers 21 Income Loss Exposures 1. Business Interruption Insurance 2. Workers Compensation Insurance 3. Disability/Life Insurance 22 3. Disability/Life Insurance • Disability Insurance • Life Insurance 23 Property Loss Exposures 1. Business Property Insurance 24 1. Business Property Insurance • Covers business real and personal property • Business auto (property damage) • Inland marine Insurance 25 People Loss Exposures 1. Workers Compensation Insurance 2. Medical Insurance 3. Business Continuity Insurance 26 3. Business Continuity Insurance 1. Life/Disability Insurance 27 Life Insurance 1. Buy-sell agreement - set up by Owners. 2. Life insurance fund the buy-sell. 28 3. Business Continuity Insurance 1. Life/Disability Insurance 2. Key Person Insurance 29 Key Person Insurance Why? To compensate the business for its losses and to facilitate business continuity when that key person is lost to the business. 30 Key Person Insurance Who? Death or disability would be a financial detriment to the company 31 “Do I Have Enough Insurance?” Let’s talk! 32 Questions & Answers Session Part 1 Seminar Intermission No Excuses! No Surprises! Employee Handbooks and Employment Policies Pat Collins Key Practical Issues • Who is covered – – – – Location Status Union/Non-Union Salaried/Hourly • What is covered – Are these your policies in practice 36 Key Practical Issues • Drafting – Conversational – Non -Threatening – Avoid Legalese – Consistency • Terminology • Conflicting policies • Distribution – Format (hard copy – intranet) – Time to Review – Acknowledgement of Receipt 37 Key Legal Issues • EEO – Discrimination Prohibited • Anti-Harassment • Employment At-Will • Benefits/Payroll Administration • Privacy Expectations • Employee Contract • General Work Rules 38 N.J. Law Against Discrimination (“LAD”) N.J. Conscientious Employee Protection Act (“CEPA”) • Extremely liberal interpretation – Easier administrative process. No caps on damages. • • • • Lower Thresholds than Federal Laws Allows Suits Against Individuals Broader Scope of Protected Classes under LAD CEPA “Reasonable Belief Standard” 39 LAD • Applies to employers, individuals, and “any person who aids, abets, or otherwise assists” in prohibited conduct. • Makes it unlawful to refuse to buy from, sell to, license, contract with or provide goods or services to anyone on the basis of a protected class. • Prohibits harassing conduct by third parties (visitors, customers, vendors). CEPA • Applies not only to employees, but independent contractors as well. 40 EEO – Non-Discrimination – Anti-Harassment Policies • Written Policy Mandatory in NJ – Presumed negligent without one • Training of Managers Mandatory in NJ • Risk Losing “Employer Defense” • Employee Liability • Good Business Practice 41 Employment At-Will No Contracts • Policy emphasized repeatedly • Introductory Disclaimer • At-Will Statement • Benefits Disclaimer • Codes of Conduct • Discipline & Termination • Signed Acknowledgement 42 Benefits/Pay Practices • Disclaimer – “The Company reserves the right to amend or terminate any of these programs and to require or increase premium contributions toward any benefit programs in its discretion.” • Benefit Explanations • Leaves • Pay Practices – Safe Harbor Language • Hours of Work – Employee Classification – Overtime Policy 43 Privacy Expectations • Confidentiality Issues • Conflicts of Interest • Company Property/Trade Secrets • Employee Reference Requests • Medical Information • Company Investigations 44 Privacy Expectations • Drug and Alcohol Testing • Searches • Internet and Electronic Media • Social Media and Networking – Cell phones, Blackberrys, Smartphones – Facebook, LinkedIn, Twitter 45 Employee Conduct • Codes of Conduct • Performance Reviews – Counseling • Discipline – Avoid progressive – Require documentation • Termination – – – – Commissions/Bonuses Benefits paid Return of property Exit Interview 46 General Work Rules •Moonlighting •Jury Duty •Emergency Procedures •Personnel Files •Tuition Assistance •Office Supplies/Machines •Office Hours •Dress Codes •Mail/Telephones •Inclement Weather •No Smoking •Media Contacts •Comp Time •Weapons •Inventions •Direct Deposit •Violence •Gifts •Performance Reviews •Solicitations •Customer Relations •Vacations •Bulletin Boards •Arrests/Convictions •Sick Days •Radios •Garnishments •Holidays •Layoffs •Expenses •Safety •Resignations •Language •Workplace Injuries •Terminations •Nepotism •Family Leave Issues •Exit Interviews •Grievance Procedure •Military Leave •Office Searches •Open Door Policy •Bereavement Leave •Visitors •Interns/Trainees 47 Keeping Key Employees Agreements with Employees and Noncompete Issues – Protection of Company Assets and Retention of Talent David Harmon Retention, Protection and Enforcement EMPLOYEES TRADE SECRETS, CONFIDENTIAL/ PROPRIETARY INFORMATION, FILES AND RECORDS COMPETITION COMPANY CUSTOMERS COURTS 49 Take Your Employment Temperature Ask the following questions regarding your employees and your business: Who? What? When? Why? How? 50 Ask These Questions While Considering The Importance Of: • Protecting company assets and customer relationships, retaining key employees, and safely engaging consultants. 51 Who? What? When? • WHO does my company need? From whom does the company need protection and ongoing loyalty? Executives, consultants and rank and file employees privy to trade secrets and confidential/proprietary information, including customer relationships. Protection from competitors is critical. • WHAT can we do to keep key people and protect the company from theft of data, confidential and proprietary information and interference with employee, consulting and customer relationships? What happens when the consultant leaves or completes the engagement? Create binding contracts that impose reasonable restrictions on activity both during and after the employment and consulting relationships. • WHEN should this be done? Put agreements into effect at the commencement of employment and/or consulting arrangements. Or, for employees make them concurrent with reviews and increases in compensation/benefits. 52 WHY? – Just a Few Reasons: • • • • Costs/losses incurred by companies Increase of theft by employees during recession Security of company assets and retention of files Provide protection from competitors poaching employees and theft of information and relationships • Put your employees and the competition on notice and create right to bring claims against departing employees/consultants for breach of contract and against your competition for tortious interference with your contracts 53 How? • Create agreements • Provide adequate consideration to make sure the agreements are enforceable • Create employment practices and policies that dovetail with your agreements • Enforce those agreements 54 Agreements With Employees and Consultants • Employment Agreements/Consulting Agreements (key executives, consultants) • Confidentiality/Non-disclosure Agreements • Non-Solicitation Agreements (non-poach/raiding) • Non-Interference Agreements • Non-Competition Agreements (reasonable in scope, duration and geography) • Non-Disparagement Agreements (including “no kiss and tell” covenants; no ”bad-mouthing”) • Return of Materials Agreements • Invention Assignment Agreements (Work for Hire) 55 Retention, Protection and Enforcement EMPLOYEES TRADE SECRETS, CONFIDENTIAL/ PROPRIETARY INFORMATION, FILES AND RECORDS COMPETITION COMPANY CUSTOMERS COURTS 56 Intellectual Property Essentials for the Small Business Owner Kenneth Kaplan Categories of Intellectual Property • Copyrights • Trademarks and Service Marks • Patents • Trade Secrets 58 Copyright Law Basics • Protects the creative expression of ideas • Does not protect ideas • Basic legal requirements: – Originality – Fixation • Protection arises automatically upon fixation • You get a basket of rights: – – – – Make copies Distribute work Prepare derivative works Perform the work • Lasts for 70 years (for works created after 1977) 59 Registration of Copyrights • Registration not necessary, but gives you additional rights: – Right to sue in federal court – Ability to recover attorneys’ fees and statutory damages • Registration also puts potential infringers on notice 60 Maintaining Copyrights • Periodic checks of internet • Use copyright notice to put potential infringers on notice and prevent them from claiming “innocent infringement” • Proper notice: – – – – © or “copyright” or “copyr” Year of first publication Name of owner “all rights reserved” 61 Trademark Law Basics • Trademarks distinguish your products and services from those of your competitors • Protects your investment in brand loyalty and good will • Any word, symbol, slogan, logo or design may qualify for trademark protection 62 Acquiring Trademark Protection • Starts with the choice of a name for your business • Continues with the way you brand your products and services • Must be used in commerce (“use it or lose it”) • Protection arises automatically from use in commerce (first to use takes precedence) 63 Selecting and Vetting Your Trademarks • Using the Internet • Using a public database like the USPTO • Professional Search Companies 64 Not All Trademarks are Equal • • • • Choose a strong mark instead of a weak one Arbitrary marks are the strongest Suggestive marks are the most common Descriptive marks may put you in a grey zone • But, you can protect a descriptive mark by: – Establishing “secondary meaning” – Demonstrating exclusive and continuous use for 5 years • Generic words cannot be protected 65 Benefits of Registration • Federal and State Registration possible • Right to use ® symbol • More damages available • Mark can become “incontestable” if used in commerce for 5 years • You can apply for federal registration based on an “intent to use” 66 Maintaining Trademarks • Marking your products and marketing materials • Use ® for federally registered marks • Establish policies and guidelines for use • Policing your Marks 67 Patent Law Basics • A monopoly on technology • Does not arise automatically – must be filed • Can take several years to obtain and can cost several thousand dollars • Essentially a contract between patent holder and the government 68 What Can be Patented • Often said that “Anything under the sun that is made by man” can be patented • A “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof” (Title 35, section 101 of U.S. patent laws) • Patents in U.S. can be sought for almost any kind of invention 69 What Cannot be Patented • Laws of nature (E=mc²) • Physical phenomena • Abstract ideas 70 Types of Patents Two Main Types: 1. Utility Patents: – – – Most common Protects a new and useful process, machine, manufacture, or composition of matter, or any a new and useful improvement thereof Protects what is useful about your invention 2. Design Patents: – – – – No requirement for utility Protects the appearance of a functional article Covers only the nonfunctional aspects of a product design (e.g. the design of a car) Patents protect the ornamental design of an article. Trademarks protect the public identity of the product. What about Business Method Patents? – – Historically, “methods of doing business” were not patentable because they did not fall into any of the four categories of invention: process, machine, manufacture or composition of matter 71 Up until about 2000 the USPTO took the position that "methods of doing business” are not patentable Requirements for Patentability Invention must be useful, new and non-obvious • Utility/Usefulness: – Usually the easiest of the 3 requirements to establish • Novelty/Newness: – – – Invention cannot be patented if (1) it was described in a publication more than one year prior to the filing date; or (2) was used publicly, or offered for sale to the public more than one year prior to the filing date. Inventor who does not file for patent protection on new invention within this one year grace period will lose all right to obtain patent protection on the invention. Most other countries do not grant a grace period. Therefore, it is almost always preferable to file a patent application before any public disclosure of the invention. • Non-obvious – – Invention must be a non-obvious improvement over prior art. Determination is made by deciding whether the invention sought to be patented would have been obvious "to one of ordinary skill in the art. In other words, the 72 invention is compared to the prior art and a determination is made whether the differences in the new invention would have been obvious to a person having What Rights Does a Patent Holder Have • One word: “exclusivity” • Only a right to exclude others from making, using or selling your invention • Unlike a copyright, which only protects actual copying, patents can protect against commercial use of an idea and its functional equivalent • Right to preclude functionally equivalent works • Doctrine of Equivalents is what makes patents the most comprehensive form of IP protection 73 • Design patents = 14 years Trade Secret Basics • Business secrets, unlike published patents and copyrights which are available for the world to see • A trade secret is information that: – Derives value from not being generally known – Is the subject of efforts to maintain secrecy • Examples: – – – – Formulas Marketing strategies Research pertaining to product formulations Specialized training materials • Protection can last forever (unlike patents and copyrights) 74 Trade Secret Protection • Protected under federal and state laws • Most states have a version of the “Uniform Trade Secrets Act” • Federal Law: the Economic Espionage Act of 1996: makes it a federal crime to steal a trade secret or to possess information that is known to be stolen 75 Advantages over Patent Protection • Perpetual protection • Broader protection that can extend to business know-how • Timely and automatic • No proof of novelty required 76 Safeguarding Valuable Trade Secrets • Employee Confidentiality and noncompete agreements • Customer/Vendor Non-disclosure Agreements • Consultant work-for-hire agreements (making sure you own what you pay for) 77 Questions & Answers Session Part 2 Thank you for coming!