The Old “Borello” Test

Prior to the California Supreme Court’s ruling in Dynamex, the Borello test prevailed. Under the Borello “economic realities test,” courts first evaluated whether the person to whom service is rendered has the right to control the manner and means of accomplishing the results desired. Then, a number of additional factors are taken into consideration, none of which are dispositive on its own, but all of which are evaluated in the totality of the circumstances. These factors generally included:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
2. Whether or not the work is a part of the regular business of the principal or alleged employer;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship.

The New “ABC” Test

The Supreme Court in Dynamex reevaluated the multi-factor Borello test, and as a result there is a new, three-factor “ABC” test used when evaluating whether a worker has been properly classified as an independent contractor. The Court held that the analysis begins with the rebuttable presumption that a worker is an employee and that an entity classifying a worker as an independent contractor bears the burden of rebutting the presumption by establishing each of the following three factors:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Failure to satisfy any of the three factors of the ABC test results in a finding that the worker is an employee and not an independent contractor.

What This Means for Hiring Entities

The new ABC Test provides a more rigid framework for compliance and less flexibility in the “grey” areas. As a result, hiring entities should be cautious when classifying workers as independent contractors to ensure that the worker’s classification will satisfy the ABC test. Hiring entities are encouraged to seek the advice of experienced legal counsel whenever classifying certain workers as independent contractors.

Print This Article

Ian Corzine, of West Corzine, LLP is not your stereotypical insurance litigator, nor is he your stereotypical attorney.

For those following him on social media, you’d think he’s a friend of an adventurer like Richard Branson. He’s often found skiing or hiking or traveling or spending time with his kids. But don’t let that fool you. Ian Corzine is a partner at a firm that is fast becoming a powerhouse in the insurance and business litigation world.

He’s an active networker and leads a Pro­Visors group in Calabasas. When he’s not doing that, he finds time to be an author on legal issues. Despite his busy schedule, we recently caught up with Ian long enough to find out what makes him tick, and what has made their firm successful with its growing list of clients.

SCP: Tell us a little about your background, your upbringing, and how you became a lawyer.

Corzine: I grew up in a small town—now a bigger one—called Pleasanton, Calif. It was kind a like a “Stand by Me” type childhood. Mostly outdoors, playing basketball until sunset, building forts and having dirt clod wars, having mini-Olympics for local kids in our neighborhoods. We never found a dead body, though.

I always say I have “dual citizenship” for Northern and Southern California. My parents moved in my junior year of high school to Thousand Oaks to start their dream: a retail furniture store called Thomasville Home Furnishings. It was tough making the trans­ition, but the adversity gave me my love of performance—which I have translated to the ­courtroom (and sometimes, ProVisors meetings). My parents’ business grew and grew. Eventually, they had stores in Encino, Northridge, Agoura and Santa Barbara. I earned my living during high school and college summers working as a maintenance man—fixing stuff that broke, doing construction work, and even vacuuming in the early morning, for hours on end, in dark commercial spaces. I would listen endlessly to Zeppelin CD’s. That’s when I learned that manual labor was not for me.

I did well in high school and attended U.C. Davis undergrad with my NorCal friends. I majored in Rhetoric & Communications, which I loved. Public speaking was what I really came to enjoy.

I also liked politics. My sister jokes that I was the only big brother in the world with photos of Ronald Reagan and LL Cool J on my wall. So, during undergrad, I started interning at Governor Pete Wilson’s Office. I eventually made my way up the ranks, and the Governor created a special job classification for me. I got paid about $40,000 a year to be Executive Assistant to the Chief of Staff Bob White. I thought I was rich!

After a year or two toiling as staff, I mentioned to the Governor that I wanted to be where he was. He said, “You need to go to law school.” He recommended McGeorge School of Law in Sacramento, which is where I ended up going.

During law school, I really loved courtroom instruction. Eventually, I worked my way into a program of the U.S. Attorney for the Eastern District of California (Sacramento) in which non-attorneys were hired from law school to act as Special Assistant U.S. Attorneys. They prosecuted low-grade federal crimes, like DUIs on military bases, theft of government property worth less than $1,000, and various Vehicle Code violations. During my time doing criminal trials, I met federal judge U.S. Magistrate Peter A. Nowinski. Over time, he agreed to hire me as a Federal Judicial Law Clerk, which was quite an honor. I was the only one in the Eastern District. Then I made $46,000 a year!

After my year term as a Judicial Law Clerk, I went back to the U.S. Attorneys Office. I wanted to be a full-fledged Assistant U.S. Attorney—or maybe someday, The U.S. Attorney. The office said I needed civil experience. So I looked into moving to the best place for that—Los Angeles!

SCP: How did you get into the insurance area of practice as an attorney?

Corzine: In L.A., I went to work for a mid-sized law firm called, Monteleone & McCrory. M&M practiced primarily construction civil law. However, often there was an interplay with insurance law, because Commercial General Liability (“CGL”) policies of contractors often covered various construction defects, which were at the heart of various disputes. Nobody at the firm liked insurance law work, except one partner. I wanted to make my way up the ladder. By this time, I had a family and was losing interest in having a U.S. Attorney badge. So, I worked my butt off to learn that area of the law, and soon became the “go to” associate for insurance law. I enjoyed it because I found I was always representing a client (i.e., the contractor or business) that had a good case. The insurance company was always trying to get out of paying a claim.

Well, after a few years passed, it was getting to the point where I was being considered for partnership. I did not want to spend my life working in downtown L.A. The commute was killing me. I met my current partner, Gene West, at a mediation. We were representing opposing sides. He liked what he saw and offered me a position. I started in 2002 and became his partner in 2007. The rest is history.

SCP: What are some of the trends you are seeing this area of law?

Corzine: There’s a lot going on. Here’s some of what we are currently seeing:

• We are starting to see cyber liability claims—new law is being created in this area.
• Steady rise in sale and claims regarding Representations & Warranties Insurance (i.e., M&A Insurance).
• Crime/theft claims are being litigated because of broad insurance policy language, focusing on “Computer Fraud” coverage.
• Heightened disputes among carriers about how to allocate paid losses.
• Claims by owners of large custom homes increasing.
• Softer market: broadening of policy terms.
• More insurance cases going to trial/arbitration.
• Unpredictable court/jury decisions—decrease in public resources means that neither gets sufficient time to make very consequential decisions.
• Mediations more focused on coverage versus liability and damage issues.

SCP: West Corzine is growing and the firm just moved into new offices. Is this a result of the market growing, or that you’re getting known as one of the leading law firms practicing in insurance litigation?

Corzine: Our firm is growing for two reasons. First, it’s because of the market for our services (i.e., large loss claims handling and “bad faith” litigation for insurance companies who fail to pay claims when they should). Second, our notoriety in the industry is getting us the big cases with multi-millions of dollars in the balance.

SCP: Tell us a little about your client base. Are they local, distant, large businesses, small, or individuals?

Corzine: The majority of our client base is small to medium-sized businesses, across the country (we even have a case now venued in Toronto) with cases valued at between $300,000 and $20 million.

SCP: What did the great recession of 2008/2009 do to your practice areas? Is litigation up since then? What are some of the hottest or most active areas right now?

Corzine: It increased business. The insurance industry is one of the true recession-resistant businesses. When people have no money, they look to other sources. Often times those sources are large insurance funds. They need West Corzine to represent them and access those funds.
I think the hottest area for me is D&O (Directors and Officers). These insurance policies are omnipresent with most businesses. They have fairly broad coverage. Negligent misrepresentation—in my experience, most business deal includes at least one “negligent misrepresentation.”

SCP: You’re an active guy, an adventure guy, and family man. How do you balance work and life?

Corzine: I guess I strive for context. I do a meditative practice as well as frequent exercise. This helps remind me that no matter what the clients’ trauma—it is not mine—I am just an adviser. They need to see that I am calm, results driven, but have boundaries. I find that if you take control in the situation, you can manage expectations so that the client does not manage you!

SCP: What are some of your non-work activities. What are your favorites?

Corzine: Maybe you should ask, “What are the things you don’t like to do?” I hate to rake leaves! My primary passion is spending time with my daughters, Maddy (14) and Charley (4). We love the outdoors—snowboarding, skiing, mountain biking, hiking, fly-fishing, scuba diving, paddle boarding, and kayaking. We have a bunch of outdoor toys.

SCP: You and your firm have received a lot of attention, awards, and accolades. What do those mean to the firm, and what words of advice would you give to new attorneys just coming out of law school?

Corzine: We are certainly proud of the awards, but they do not drive us. Our goal is do right by our families, our faith, our community, and our business, and let the chips fall where they may.

For new attorneys—being a lawyer is awesome! In what other profession do you bill by the 1/10 of an hour for thinking? You will do well financially as an attorney, but the flip side is that you have to really work hard. If you want to get to a place where others work for you, then major in business and get an MBA. Find a business niche no one is in, make a killing, and sell it.

I was taught by other stellar business professionals that you need to work into your business charitable time and contributions. It takes your passion to the next level, seeing how you can help people. Tom Means, one of those who taught me that, and I were some of the founders of Hope’s Haven. One of the best experiences of my life was taking an idea for a charity, discussing it in our living rooms, and turning it into multi-hundred thousand dollar donations for families with life-threatening diseases and ailments. •

About Hope’s Haven

Hope’s Haven Children’s Charity is a 501(c)3 non-profit organization in Ventura County that is dedicated to enriching the quality of lives of children facing life threatening illnesses and serious injuries. They work directly with County hospitals, clinics and social workers to provide financial and emotional support for families during treatment. One of their long-term programs is to deliver iPads to all of the pediatric hospital beds within Ventura County. This allows children to communicate, interact, be encouraged and entertained while undergoing medical care. Hope’s Haven is able to lighten the load during the most challenging times when children and their families need it most. www.hopes-haven.org.

Print This Article

For small business owners and start-ups, registering a trademark is fairly straightforward if you do your due diligence before filing and meet generous trademark office deadlines. However, there are minor nuances of the application process business owners can get tripped up on.

The U.S. Patent and Trademark Office (USPTO) provides clear directions for registering a trademark online, and an applicant’s first concern is ensuring the trademark isn’t already in use in the same International Class. A thorough trademark search by a reputable search firm is crucial to a smooth registration process. The USPTO maintains a database of all registered trademarks in the Trademark Electronic Search System (TESS). Although applicants can search TESS themselves, it is easy to miss conflicting marks.

Scammers are another potential pitfall. TESS provides the information about trademark owners publicly available to anyone for free. This makes it easy for scam companies to obtain information and target trademark owners. These scammers utilize official-looking documents and misleading statements in attempts to scare trademark owners into paying thousands of dollars for unnecessary and worthless services.

Here are some best practices for registering and monitoring your trademark to avoid issues.

Conducting a Trademark Search

Conducting a trademark search is not simply a matter of running the letters in your mark on TESS, finding no matches in the applicable class of goods or services, and thinking “I’m okay.” Minor things, such as a comma or apostrophe, may not come up in search results. Therefore, it is important to hire a reputable trademark search company. Comprehensive trademark searches range in price from $350 to $600 per mark, per class. A search is particularly important if you want to trademark a design logo or stylized mark. You may be able to get away with doing it on your own for a word mark, but you can run into trouble with more complex marks and the trademark office could reject your application on the grounds that it could cause confusion in the marketplace.

Application Process

Once you’ve completed the search, you file the application, which costs $225 per mark, per class of goods/services if you use the Trademark Electronic Application System (TEAS) Plus system (https://teas.uspto.gov/forms/teasplus). TEAS Plus is an online filing option that promotes electronic communication and application processing while giving applicants more flexibility in identifying their goods and/or services. If you have a product that spans more than one class, you’re again better off having specialist research your mark because you could inadvertently not designate within the right class. The good news is the trademark office will assign an examiner who will conduct another trademark search and then if it checks out, the trademark will be published for opposition, giving opposers 30-days to file an opposition to registration of your mark. Anyone who opposes the registration has an opportunity to file a challenge to the registration with the trademark office. A proceeding follows where the applicant has an opportunity to argue why the mark will not cause consumer confusion and thus, should still be registered in spite of the opposition.

Protecting Your Trademark

After registration, monitoring your trademark class can be a challenge. At this stage, you need to consider whether you’re comfortable investing the time to monitor yourself, or hire a firm to monitor for you for around $200 per year. A lot of small businesses don’t hire outside firms and don’t appropriately monitor, which leaves the door open to having a competing mark registered without filing an opposition during the opposition period. If this occurs, it’s not your last opportunity to challenge it; you can still challenge the competing mark, but the challenge can be more costly than if you challenge during the opposition period. So while you’re not precluded from challenging, it’s easier to do it during the application stage versus after registration is completed.

Another stop gap to protecting your mark is the USPTO examiner, who performs a trademark search and issues an office action if there is a problem. Once you receive an office action, you have six months to respond. In this case, it’s best to use an attorney to respond. Oftentimes it’s an easy fix where the office examiner offers language to change on the application to pave the way to registration; this is something you can probably handle yourself. But sometimes it’s more complicated and worth noting even the seemingly simple fixes the examiner suggests can be problematic because there may be some legal ramifications to changing the language as the examiner suggests. The examiner’s suggestion is not necessarily in your business’s interest; the examiner is simply saying this is what will be approved.

On a positive note, the examiner is there to serve you. One, the examiner wants to ensure there are no competing marks and two, if the examiner sees any potential issues or flaws that could leave the mark open to problems later, the examiner is a good measure of whether your mark will survive a challenge later because it passed through their specifications. Personally, I welcome office actions to the extent that I’ve always found them to be helpful and there’s open dialogue—you can call the examiner and talk through concerns and next steps. Although problematic in terms of dealing with issues and fighting for your mark, the examiner always wants to be helpful.

Once the application process is completed, your application will be published for opposition. After the opposition period runs without challenge, your mark will be registered. Between the 5th and 6th year of trademark ownership—measured from the approved registration date—you have to file an Affidavit of Use, which states that you’ve been using it in commerce for the past five years. The five-year mark is also your first opportunity to file a Declaration of Incontestability, which helps make your mark more impervious to challenge. These filings have small fees associated with them—the Affidavit of Use fee is $125 per mark, per class, and the Declaration of Incontestability fee is $200 per mark, per class.

Misleading Letters

Recently, my client received an official-looking letter stating their trademark was about to expire (it wasn’t) and offering services to file the renewal. The required filing the letter referenced—filing the five-year affidavit of use—would take about fifteen minutes of attorney time, plus the $125 fee. The scammer company offered to do that filing for $925—a whopping $800 surcharge. This is exploitative and greatly impacts small businesses who are trying to do all of this on their own. Business owners are trying to save money by not using an attorney and end up spending more money through these services. The worst part is you don’t know if the filing is being done right because these fly-by-night companies have no kind of fiduciary obligation to do it correctly. They likely have assets completely protected and if you lose your mark because of something they do or don’t do, you could have a serious problem.

Unfortunately, this is a larger issue and not a scam that’s limited to trademarks. It’s a theme of attacking small businesses that may not have lawyers. These companies use publicly available information on government websites, create an official government-sounding name and send a letter with misleading, alarmist messages to cause a business owner to think licenses and registrations are at risk. The USPTO has issued a warning about these companies: https://www.uspto.gov/trademark/trademark-updates-and-announcements/warning-uspto-customers-trademark-monitoring-and.

To avoid spending more money than necessary, sign onto the USPTO site (www.uspto.gov) and look up the status of any trademark. All documents filed with respect to each mark are publicly available, as well as any actions litigated with the Trademark Trial and Appeals Board. The USPTO also provides a clear list of all upcoming deadlines to maintain your mark. Beyond that, the USPTO emails reminders of upcoming deadlines to the email contact designated by the registrant. For my clients, I’m the contact of record so I get emails reminding me of deadlines. My clients can also be copied directly from the USPTO. Because of this, applicants should always be sure to keep their electronic contact information current with the USPTO. The takeaway is, if you’re doing this yourself, you shouldn’t rely on the USPTO to remind you; calendar all of the deadlines. As mentioned, the key deadlines are  between the 5th and 6th year after registration, at which time an Affidavit of Use must be filed to maintain the mark. Also after the 5th year of registration, an applicant can file a Declaration of Incontestability, which further protects the mark. Thereafter, another affidavit of use and application for renewal is due between the 10th and 11th year after registration, and then every ten years after that. The fee is $300 per mark, per class.

Cost Considerations

Hiring a reputable search company can go a long way in ensuring your mark is safe. You should always try and use a specialist. Just like you wouldn’t go to a podiatrist for hearing loss, you shouldn’t use your real estate lawyer to do your search. If you do turn to a lawyer to conduct the search, use an intellectual property or trademark attorney, or at least a generalist who has trademark experience.

There are two ways lawyers can charge for filing trademarks. Many charge a flat fee—$2,500–$3,500—which includes responding to all office actions. This can turn out to be a large net hourly fee to the lawyer, because typically there aren’t going to be any registration issues or they will be minimal. The other option is an hourly rate that could end up costing you much less than the flat fee. However, if an office action requires a significant amount of attorney time to craft a response, an hourly engagement could wind up costing much more than the flat fee. So the flat fee is a bit like insurance because then you’re covered and don’t have to worry about possible issues in the event that your application generates office actions. The reality is, if you receive an office action, you’re most likely going to need to hire an attorney. Your odds of not having an office action go way down if you use an attorney who is knowledgeable in trademarks. An hourly fee with a cap is the best of both worlds, if your lawyer will agree to it.

A seemingly attractive, cost-effective alternative is using a company like LegalZoom. While its basic search fees run just a bit higher than the norm, office actions can get pricey. Depending on the extent of your issues, costs can be around the same as attorney fees, however with an attorney, you’re relying on someone with whom you have a relationship that’s offering specific advice tailored to your business needs, rather than a LegalZoom-designated attorney who only offers suggestions. The attorney will take time to understand your business and will be another resource to think through what works best for you because they’ve had experience in this area.

Understanding the plusses and minuses to handling your own trademark or hiring specialists will go a long way in ensuring you’re doing what’s best for your business. In either situation, educate yourself on the process so you can be proactive and avoid potential issues. •

Print This Article

When you have a conversation with Yi Sun Kim, you quickly get the idea of what she is truly passionate about: her family, her pro-bono work, helping people, and the law. People who don’t know her would be mistaken to think she is a shy, demure, easily-swayed attorney that just sits at her desk pushing transactions and settling cases. Once you know her, she is anything but. She is outspoken, has a wicked sense of humor, works extremely hard at maintaining her relationships with friends, colleagues and family, and has just made partner at one of the San Fernando Valley’s premier law firms, Greenberg & Bass. She specializes in bankruptcy, business litigation, business formations and transactions.

In case her law practice is not keeping her busy enough, she volunteers at the Self Help Desk at the San Fernando Valley Bankruptcy Court. She helps individuals who need to file Chapter 7 by giving them free assistance on what the procedure is like and how to fill out their paperwork. This particular Self Help Desk is coordinated by Neighborhood Legal Services of Los Angeles. In 2015, she was the recipient of Public Counsel’s prestigious Lasarow Award for this pro bono service.

Her current involvement as Secretary on the Board of Directors for the San Fernando Valley Bar Association has her on track for what could be the first Asian American President of the SFVBA.

On the eve of her partnership celebration at the firm, we asked her some questions about her path to becoming partner.

You got out of law school just at the beginning of the great recession. Did this have any impact on your choosing bankruptcy as a primary practice area?

Absolutely. While I was awaiting my bar results, Greenberg & Bass hired me as a law clerk to assist with a new, large case in the litigation department. It required reviewing something like 50 boxes of documents, so it initially took up all of my time. Then the economy turned so quickly that the firm’s existing robust bankruptcy department suddenly needed even more assistance. Although I continued to work on business litigation matters, I spent an increasing amount of time focusing on bankruptcy matters, both from the debtor and creditor perspectives. Although the firm handled many business related filings, it was the individual or personal bankruptcy cases that really pulled me in. Helping people go through such a scary process, and seeing how relieved they are afterwards knowing they can move forward with a fresh start for themselves and their families, made me feel like I was actually doing something worthwhile. Therefore, although it started out by necessity, I found that I really enjoyed bankruptcy law and proactively inserted myself into more bankruptcy cases as they came in.

You have been recognized as a Rising Star by several organizations and publications. What do you attribute your success?

The number of people who have helped me and continue to mentor and support me. My family has been my biggest inspiration when it comes to hard work and integrity, which keeps me on the right path. And since Day One, fellow partners James Felton and David Adelman along with everyone at Greenberg & Bass, staff and attorneys, have taught, mentored and pushed me. Law school taught me about the written laws and procedures, but G&B is where I was trained on the practice of law, as well as how to communicate with people. They are also generous when it comes to highlighting me and my practice, making sure that I am seen, so much so that it is hard for people not to notice.

How are the bankruptcy cases you deal with today different from those during the worst of the recession years?

The bulk of the bankruptcy cases I handled during the recession was, understandably, related to real estate: Individuals who could not pay their mortgage, investors whose collateral rapidly depreciated, or vendors in related industries who suddenly lost their client base. There are significantly fewer bankruptcy filings today. The personal filings are usually persons who have experienced an unfortunate change in circumstances, such as a sudden injury or illness resulting in loss of employment and substantial medical bills. The trend in business filings is with retail stores, especially in the apparel industry.

You do business litigation, primarily in the areas of disputes arising from bankruptcy actions. What are some of the typical cases like that go to litigation in this area?

When an individual files for bankruptcy relief, his or her intention in doing so is to eliminate their liability or obligation to pay their existing debts (i.e. have their debts “discharged”). Not all debts can be discharged, and the individual will remain liable to pay those debts even after the bankruptcy case is completed. For example, if the debt was incurred by fraud (e.g. knowingly providing a false financial statement to obtain a loan), then the creditor can file a litigation case within the bankruptcy case to obtain judgment saying the debt cannot be discharged. Therefore, many of the bankruptcy litigation cases I have handled center on fraud.

In addition, if the debtor transfers money or property to a third party just before the debtor filed the bankruptcy case, the debtor or trustee may try to get that money or property back from the third party. In some circumstances, the trustee can lawfully unwind those transfers of money or property by filing a litigation action in the bankruptcy case.

You also work at the opposite end of the business spectrum from bankruptcy. You work on formations and startups. What words of advice do you have for today’s startup companies?

Today there are numerous lenders and investors who are willing to help fund exciting new ventures, especially in the technology field. However, having seen the downturn of the economy before, I would caution against being too overzealous with borrowing and to pay special attention to the penalties or personal exposure that can result if the business proves unsuccessful. One should always have an attorney draft or review an agreement before it is signed—even if (or actually, especially if) the agreement or business venture is amongst friends. There are many deficiencies in the form agreements that are floating around online. If the agreement is not complete, then formerly friendly business parties can face protracted and expensive litigation fighting over what the parties intended the contract to mean or say. If a contract is complete, then the parties cannot dispute what is written there and they can come to a quicker, less costly resolution. And even if a person is handed a well written agreement by a lender or investor, he or she should have an attorney review it since it may have provisions that put the ­person or his or her personal assets at more risk than the person realizes.

As someone who has risen quickly in the legal ranks, now as a partner of your firm and a trustee of the Bar Association, what advice do you have law school students and young attorneys just beginning their careers?

Generally I find that in your first couple of years, you make mistakes or take a long time trying to figure out what you are even doing. As frustrating as it may be, you remind yourself that you are a brand new attorney so it is expected. But in your third year, and forever after, you will continue to make mistakes or face issues or fact patterns that you do not know how to resolve. You no longer have the “excuse” that you are brand new, and it can be a humbling and stressful experience. You have to remind yourself that it’s okay, you’re going to make mistakes or come across challenging issues throughout your career. What makes you a good lawyer is knowing what to do next—how to fix the problem, or what resources to access to get the solution. You’re not meant to be perfect, let alone a walking encyclopedia. You’re expected to be resourceful and a problem solver.

I would encourage new lawyers to be social and open minded. Meet as many lawyers as they can in different fields. For years, I had no idea how many types of law or practices were available, or that each firm has its own unique culture and way of functioning. You may discover a field that you can be passionate about, or a type of firm that is compatible with your working style and particular skills. And even if you are already exactly where you want to be, you can find great mentors who will help you grow that practice or adjust as you progress. The San Fernando Valley Bar Association offers a number of opportunities for new lawyers, including sections that highlight different areas of law, networking and social activities with attorneys of various backgrounds and expertise, and community outreach programs where you can test out your skills while helping people in the community. •

Print This Article

Brinker v. Superior Court began as a case more than nine years ago. The class action was brought by restaurant employees who claimed they were denied rest and meal breaks. The California Supreme Court ruled that while employers must still “provide” breaks, they “need not ensure that no work is done during an employee’s meal period.” •

Print This Article

Social media has added a new demand for employer protection from cyber activities.

 

Today, technology is growing by the nanosecond, far too quickly for employers to keep up. Long-standing privacy considerations are at near-constant tension with the advent of the Internet, social media, e-mail and other electronic communications tools.

To be competitive in today’s market, business owners must make effective use of social media. Current marketing trends almost require that businesses have an on-line presence, and volumes of encyclopedias have long since been replaced by Google searches. To protect their businesses, however, employers should set boundaries on their employees’ internet and social media activities, both inside and outside the workplace. Consider these protective methods to avoid damage to the company from employees’ electronic communications and social media activity:

Documentation. Implement effective and thorough policies on social media activity, confidentiality and electronic communications. Employees should be reminded in writing that all electronic communications created on company equipment or accounts will be monitored by the company, and that they have no privacy rights in these communications.  Have your policies reviewed by legal counsel – technology moves faster than the law ever will, and today’s courts are deeply challenged by litigants’ rapidly-developing arguments over newly-discovered electronic media.

Ownership. When an employer provides cell phones and laptops to employees and pays for the cell phone account and the wireless access, the employer owns and controls the cell phone number, e-mail inbox, internet accounts, and all social media or other electronic communications created by the employee while on working time, using company equipment, or otherwise controlled by the employer.

Included in “ownership” is the company’s brand, logo, customer information or other trade secret, confidential or proprietary property. While the employer may not prevent the employee from engaging in social media activities on his own time and while using his own equipment, the employer does have the right to pursue a claim against an employee who posts defamatory content on the internet.

Similarly, although an employer cannot safely terminate an employee who vents about a fellow employee in his social media posting, the employer can certainly terminate the employee who harasses a fellow employee in violation of the company’s anti-harassment policy, even when that harassment occurs during the employee’s off-duty conduct.

Monitoring. Employers can actively monitor their employees’ communications and internet activity, both internally and externally, as long as employees have been warned in writing that employers can and will do so in their discretion. Employers should also conduct their own internet searches using tools such as “Google Alerts” to track the information that has been published about the business and its personnel. 

Ultimately, business owners should keep in mind that you are (or should be) the owner of your company, your technological equipment, your electronic communications accounts, your employees’ working time and your reputation. With the advent of technology, we are drowning in information, but starved for knowledge. Make sure that the information publicly available about your company is not the information your employees choose to post, but instead is the knowledge you want to publish. •

CASE IN POINT:
Why Have A Systems Use Policy?

An insurance agency allowed its new agent, Cindy, to use her personal laptop computer and iPhone to conduct her business activities. The agency was thrilled to avoid the cost of a new computer, and was more than happy to reimburse Cindy for her business calls made on her personal cell phone.

Unfortunately, Cindy didn’t perform to the level the agency expected of her. Her sales results were substandard, and she seemed to be wasting an inordinate amount of time on personal matters in the workplace. Her supervisor reviewed her Internet activity while at work and discovered that she was spending several hours each day surfing the Internet on shopping sites, Facebook, and other personal search activities. Much to the agency’s surprise, they also discovered that Cindy was downloading customer lists and files and sending them to her home e-mail address. She was planning to move her business to a competitor agency.

The agency terminated Cindy and sued her for unfair competition activities. The court refused the agency’s demand to recover its customer list, because the agency had previously permitted Cindy to download it to her personal cell phone without restriction. The court also refused to consider the agency’s computer search results in its action against Cindy, because the agency permitted her to use her own laptop for business and personal use. The agency had failed to implement a “systems use” policy notifying Cindy in advance that her computer could be monitored at any time without prior notice. •

Save

Print This Article

This economy has caused a lot of businesses to change ownership. The problems on one side of the table have become opportunities for the other side.

Perhaps you have been thinking about acquiring a franchise operation. There are golden opportunities available, but get ready for twice the due diligence of a traditional deal. The upside: there might be twice the pay-off if you do it right.

Indeed, caution is the by-word in considering the acquisition of a franchisor. Any such deal gets the buyer a unique distribution system consisting of scores, perhaps hundreds, of franchisees who will prove key to the success of the deal.

First Considerations

The franchise business is all about brands and franchisees, and the two concerns interact. The brand is promoted to attract quality franchisees, and then the franchisees are supported to promote the brand. And because franchisees are keys to success, a potential buyer must focus due diligence on the financial and legal health of both franchisor and franchisee. Why? Because a system that is inherently unprofitable for the franchisee will likely be a bust for the franchisor, too.

What does it take to do the right kind of due diligence when buying a franchisor? Where can trouble crop up, and how can one leave oneself room to structure the final terms of the deal to fit the reality one uncovers?

The first step is to inspect the uniform franchise disclosure documents (FDD’s) used by the franchisor in each state where it has done business over the last five years. Thirteen states—California, Hawaii, Illinois, Indiana, Maryland, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin—seek to protect franchisees by requiring franchisors to disclose a great deal of information in the FDD and place it in the public record, usually by registering it with the state attorney general.

Six states—Florida, Michigan, Nebraska, Kentucky, Texas and Utah—require franchisors to file only a one-page form, and the others permit franchisors to operate as long as they meet the requirements of at least one of the 13 “registration” states. In addition, irrespective of these differing state requirements, federal law requires franchisors to give copies of their disclosure documents to all prospective franchisees.

This inspection of the records reveals whether the franchisor has properly registered its offering circular where required and whether it has faced state disciplinary action or litigation by franchisees. The FDD must detail the franchisor’s business experience and that of its senior executives, including any bankruptcies and securities violations. As a result, the inspection will turn up at least a cursory notation of any such difficulties, and lead to inspection of other records, i.e. court filings, regulatory records, etc. that describe any problems or deficiencies in detail.

In each case, it is important to understand the nature of the complaint, the franchisor’s explanation or defense, and the result. Was the violation serious or minor? Was it intentional or the result of clerical error? Was it an isolated incident or part of a pattern of behavior? A buyer needs this information to position yourself, when drawing up the warranties and representations of the purchase agreement, to keep the seller on the hook for any trouble that may not be fully known at closing.

Further Due Diligence

The next step is to inspect the franchise agreements in use in each state in which the franchisor operates. This means checking their terms against those of the standard agreements in the FDD. The object here is to discover whether the franchisor entered into any special arrangements with one or more of its franchisees. An example might be providing special terms to favored franchisees, such as giving a franchisee is Los Angeles the right of first refusal when new or additional franchises are available in neighboring Orange County.

This is important to the buyer of a franchising company because it takes on all the obligations of the seller, except those that are expressly left behind in the purchase agreement. A buyer probably cannot escape a side deal such as granting a right of first refusal, assuming it is a valid arrangement, but it can adjust the terms of the deal to reflect the impact of the agreement on post-acquisition plans. If the agreement proves to be too restrictive, such as limiting expansion plans in Orange County, it could cause the buyer to back out of the deal altogether. In any event, the buyer is at minimum informed of the situation.

For the same reasons, it is also important to track down the agreements with franchisees in all states in which the franchisor operates. It may be impractical to check each. These agreements may number in the hundreds, or even in the thousands, making it costly and time-consuming to inspect every one. The solution is to collect a fair sampling and require the franchisor to warrant that there are no undisclosed side deals with franchisees that materially affect the terms of the purchase.

In checking these records, the acquirer’s investigators must take special note of all obligations taken on by the franchisor regarding training, advertising, marketing, and other business functions, all of which represent costs affecting the value of the deal.

For the same reason, the buyer must look for other financial arrangements between the franchisor and its franchisees. A primary target for inspection should be the promissory notes and security agreements that are in place if the franchisor offers financing to help purchase the franchise.

It is equally important to inspect the franchisor’s records of all leases tied to its franchise agreements. In some cases the franchisor itself will lease the property in question and sub-lease it to the franchisee. In others, the franchisee will lease the property directly. Either way, a buyer must match up each lease with its respective franchise agreement, making sure that the terms agree. The buyer also must be certain that no third-party clearance is needed, such as approval of lease transfers by real estate owners.

A great deal of examination can be done in the offices of the franchisor, where other important but unpleasant items may be found, i.e. notices of late payments or default by franchisees, correspondence regarding disputes between franchisor and franchisee, or records detailing the processes followed in terminating franchise agreements. In essence, the goal here is to find out what went wrong between franchisor and franchisee so that a purchase agreement requires the seller to stand behind appropriate representations and warranties.

Final Thoughts

In all of this, it is crucial to step carefully, since few deals close without a hiccup or two.

There is risk for both buyer and seller in any acquisition involving a franchisor, but don’t let that make you run away from the idea. The due diligence necessary to any such acquisition is tough, but it’s really just a measure of the possible pay-off.

The business lawyer doing due diligence in the purchase of a franchise company must track down a great many documents to gain an accurate picture of the relationships between the franchisor and its franchisees. Then the real work begins. It is also necessary to inspect the documents in detail and draw up representations and warranties holding the seller of the franchise company responsible for any agreements or information contrary to or inconsistent with the documents inspected or information provided during due diligence. In deals involving large numbers of franchisees, it becomes impractical to obtain and inspect every document on this checklist, of course. In such cases, the lawyer should sample a number judged reasonable by the client and shape the language of any representations and warranties accordingly. •

Print This Article