Beware! The “Other” Side of the
LSRP Program
Edward Hogan
David Harmon
Charles Miller
John Lushis, Jr.
John Vanarthos
Pat Collins
The material provided herein is for informational purposes
only and is not intended as legal advice or counsel.
Balancing the Risks,
Responsibilities and
Obligations of the LSRP
Edward Hogan
What Is New?
• LSRP Role in Site Remediation
• New Business Dynamic: 3 Parties
– Client
– Environmental Consulting Firm
– LSRP
3
How Do You Manage?
• LSRP Role
– Training
– Contract
– Insurance
– Use of Corporate Form
4
How Do You Manage
New Business Dynamic
• Contract
– 3 Parties
• What happens when the LSRP leaves
Environmental Consulting Firm?
– For current clients: Someone loses a client!
– For former clients: Who keeps the files?
5
Protecting Your Business
• Corporate Succession
• Employee Handbooks and Employment
Policies
6
Keeping Key Employees
Agreements with Employees/LSRP 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
LSRP
COMPANY
COMPETITION
COURTS
CUSTOMERS
8
Take Your Employment
Temperature
Ask the following questions regarding the
LSRP, your employees and your business:
Who? What?
When?
Why? How?
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Ask These Questions While
Considering the Importance of:
• Protecting company assets and
customer relationships, retaining key
employees, and safely engaging the
LSRP.
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Who? What? When?
•
WHO does my company need? From whom does the company need
protection and ongoing loyalty?
Executive, LSRP 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
LSRP leaves or completes the engagement?
Create binding contracts that impose reasonable restrictions on activity both during
and after the employment and consulting relationships.
•
WHEN does this come into effect?
Put agreements into effect at the commencement of employment and/or consulting
arrangements. Or, for employees make them concurrent with reviews and
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increases in compensation/benefits.
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/LSRP for breach of contract and against
your competition for tortious interference with your
contracts.
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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.
13
Agreements with Employees
and Consultants
• Employment Agreements/Consulting Agreements (key
executives, LSRP)
•
•
•
•
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)
• Return of Materials Agreements
• Invention Assignment Agreements (Work for Hire)
14
Retention, Protection and
Enforcement
EMPLOYEES
TRADE SECRETS,
CONFIDENTIAL/
PROPRIETARY
INFORMATION, FILES
AND RECORDS
LSRP
COMPANY
COMPETITION
COURTS
CUSTOMERS
15
Professional Liability
Insurance- and Beyond
Charles Miller
Commercial General Liability
Insurance
• Cover bodily injury and property
damage claims
• Exclude coverage for professional
liability claims
• Exclude coverage for pollution claims
17
Professional Liability Insurance
• Generally claims-made policies
• Retroactive date- KEY!
• Unique LSRP issues
18
Pollution Legal Liability
Insurance
• For the site owner
• Protects insured against unanticipated losses
associated with pollution conditions arising
from:
– Unknown contamination (existing from past
incidents but not yet discovered)
– New issues from known contamination (i.e. new
regulatory requirements)
– New pollution releases
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SRRA
Why worry with LRSP issuing RAO?
• DEP has up to 3 years to audit RAO
• Can audit beyond 3 years if:
– Undiscovered contamination is found on RAO site
– Board conducts investigation of LSRP
– LSRP has had license suspended or revoked
N.J.S.A. 58:10C-25
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SRRA
• DEP can rescind RAO if remedial action
may no longer protect public health and
safety
N.J.A.C. 7:26C-
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LSRP Risk Management
•
•
•
•
•
•
•
Limitation of liability clause in contract
Re-evaluate insurance
Carefully prepare PL application
Review policy and endorsements
Maintain PL coverage – with retro date!
If closing business, purchase ERP/tail
Pollution coverage for property owner
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Key Person Insurance
How much?
Formula or salary multiple?
Push for a realistic value
23
Limited Liability by
Corporate Formalities
John Lushis, Jr.
Why Form an Entity?
• Forming an entity affords the LSRP liability protection in the
event a problem arises (e.g., litigation) and specifically protects
the LSRP’s personal assets (e.g., house, bank accounts, etc.).
• While liability insurance affords the LSRP protection, without an
entity, the LSRP could still have personal liability if damages
exceed the amount of the insurance proceeds, the matter is
excluded from policy coverage or a dispute arises with the
insurer.
• Forming an entity is relatively inexpensive; i.e., the benefits
substantially outweigh the costs.
25
What Entity?
• Several different entities can provide liability protection.
• The entity typically formed is a corporation (stockholders), a
limited liability company (members) or a limited partnership
(limited partners and general partner). A general partnership is
not preferred because the general partner is liable for the
obligations of the partnership.
• Selection of entity will depend on various factors, most notably
tax considerations for the particular LSRP, the nature of the
assets owned by the LSRP (e.g., land and buildings vs.
personal property) and the degree of sophistication of
management (e.g., sole member vs. Board of Directors).
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Documents: Corporation
Articles of Incorporation
• Sometimes referred to as the “corporate charter” these
documents specify the corporate name, address, the term of
existence, and the type and number of shares of stock issued.
This is filed in the Secretary of State’s Office in Trenton.
By-laws
• These documents outline the manner in which the Corporation
is to be governed and contain provisions relating to directors
and officers and their responsibilities, meetings, and voting.
Directors are selected by the stockholders and officers are
selected by the Board of Directors. Naming directors and
officers is critical.
27
Documents: Corporation
Shareholders’ Agreement
• This document outlines rights and obligations with respect to the
purchase and sale of shares in the event a stockholder desires
to sell his interest, terminates his employment, dies, becomes
disabled or becomes involved in a legal proceeding such as
bankruptcy or divorce. Specifically, the agreement will specify
who has the right to purchase and at what price.
28
Documents: Limited Liability
Companies
Certificate of Organization
• Similar to the Articles of Incorporation and filed in Trenton.
Operating Agreement
• This document outlines the governance of the company and
also contains provisions relating to buy-sell rights similar to
those found in a shareholders’ agreement.
29
Documents: Limited Liability
Companies
Operating Agreement (continued)
• LLCs can be managed in one of two ways: by all of the
members or by one person who is designated as a manager.
The manager’s responsibilities are specifically outlined in the
Operating Agreement (e.g., right to execute contracts, open
bank accounts), but certain extraordinary transactions will
require approval by a certain percentage of all members (e.g.,
sale of the company).
• LLC requires less documentation to form than a corporation
30
Documents: Limited Partnership
Certificate of Partnership or Formation
• Similar to the Articles of Incorporation and filed in Trenton.
Partnership Agreement
• This document outlines the governance of the partnership and
also contains provisions relating to buy-sell rights similar to
those found in a shareholders’ agreement.
• A limited partnership has at least one general partner. Because
of liability concerns, the general partner is often a limited liability
company that owns 1% partnership interest and the members of
this limited liability company are the limited partners.
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Compliance
Complying with the provisions of governing
documents is critical to avoiding potential
arguments that the entity is not legitimate.
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Corporate Maintenance
and Tune Up
John Vanarthos
I. Operating as a Corporation
1. Governing Bodies
• Shareholders
• Board of Directors
• Officers
2. Documenting Corporate Action
• Authorizing Resolutions
• Delegations of Authority for Officers/Key Employees
3. Meetings
• Annual/Periodic Meetings
4. Proper Record Keeping
• Minute Book/Stock Ledger
5. File Annual Report With Department of Treasury
Note:
 These Requirements Apply to All Corporations Regardless of
Size/Number
 The Formalities Really Matter
 Failure to Comply Creates Risk of Losing Corporate Shield From
Individual Liability
34
II.
Corporate Maintenance
1.
NMM Corporate Tune-Up
• Review and update corporate book/stock ledger
• Limited liability and indemnification provisions
• Defining the Role of the LSRP
 Conflict of Interest Issues
 Limit Company Liability for LSRP’s Legal Responsibilities
2.
NMM Corporate Maintenance Program
• Designed to help maintain corporate records on an ongoing basis
and include:
 Preparation of annual corporate consents
 Updates to corporate minute book throughout the year
 Acting as registered agent
 Guidance with filing of NJ Annual Report
 Meet with you once per year to discuss tax or business
planning concerns
• Annual Fee of $350
• Enrollment may be cancelled at any time
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III.
Corporate Succession Planning
1. Shareholder (Operating) Agreements
• Restrictions on transfer or issuance of stock/equity
• Buy/Sell Provisions
 Upon death/retirement/termination
 Planning your exit strategy
 Planning for your partner’s exit
• Key-Person Life Insurance
2. Coordinating with Estate Planning
• Permitted transfers to family members/trusts
• Marital status
36
Business Continuity Insurance
Charles Miller
Life Insurance
1. Buy-sell
agreement - set up
by Owners.
2. Life insurance fund the buy-sell.
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Life Insurance
Advantages
• Maintains business intact
• Provides heirs with prompt payment of
agreed-upon amount of cash
• Avoids disputes between heirs and
surviving owners
• Helps settle estate quickly
39
Key Person Insurance
An insurance policy taken out by a
business to compensate that business
for financial losses that would arise from
the death or extended disability of the
member of the business specified in the
policy.
40
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
41
Key Person Insurance
Who?
Death or disability would be a financial
detriment to the company
42
Key Person Insurance
What is covered?
1. Replacement costs
2. Lost profits
3. Shareholder protection
4. Guarantee coverage
43
No Excuses! No Surprises! –
Employee Handbook and
Employment Policies
Pat Collins
Key Issues
•
•
•
•
•
•
EEO – Discrimination Prohibited
Anti-Harassment
Employment At-Will
Benefits/Payroll Administration
Privacy Expectations
General Work Rules
45
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”
46
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, LSRP’s).
CEPA
• Applies not only to employees, but independent
contractors as well.
47
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
48
Employment At-Will
No Contracts
•
•
•
•
•
•
•
Policy emphasized repeatedly
Introductory Disclaimer
At-Will Statement
Benefits Disclaimer
Codes of Conduct
Discipline & Termination
Signed Acknowledgement
49
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
50
Privacy Expectations
•
•
•
•
•
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Confidentiality Issues
Conflicts of Interest
Company Property/Trade Secrets
Employee Reference Requests
Medical Information
Company Investigations
51
Privacy Expectations
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•
•
•
Drug and Alcohol Testing
Searches
Internet and Electronic Media
Social Media and Networking
– Cell phones, Blackberrys, Smartphones
– Facebook, LinkedIn, Twitter
52
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
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Question & Answer
Session
Thank you for coming!