Basic Employment Law Issues For Emerging Companies Kristy L. Avino McCarter & English, LLP kavino@mccarter.com May 19, 2016 Developing a Strategy for Managing Employment Law Issues Policies, Best Practices, Training Recruitment and Hiring Immigration Law Issues Compensation 2 1
Hot Topic for Emerging Companies: Employees vs. Independent Contractors Definitions of Independent Contractor Massachusetts Standard (all three elements must be met) Freedom from control Service outside the usual course of employer s business Independent trade, occupation, profession or business 3 Risks of Employee vs. IC Misclassification Massachusetts Wage Act Potential overtime claims Treble damages Attorneys fees Individual liability 4 2
Risks of Employee vs. IC Misclassification State and Federal Taxes Employer Contributions to FICA Unemployment Compensation Workers Compensation Employee Benefits 5 Common Pitfalls for Start-ups Under the Massachusetts Wage Act Dobin v. Cioview Corporation Wage Act applies even to highly paid employees Deferral of wages, even if voluntary at the time, violates the Statute 6 3
Common Pitfalls for Start-ups Under the Massachusetts Wage Act Stanton v. Lighthouse Financial Services, Inc. Wage Act applies even though parties agreed to defer salary of co-founder Deferral agreement void as a matter of law Individual liability 7 Compensation Issues for Emerging Businesses Exempt vs. Non-Exempt Breaking News! Yesterday, the U.S. Department of Labor issued a new regulation increasing the salary requirements for exempt employees and increasing employees eligibility for overtime compensation. Commissions, bonuses, incentive compensation Practical tip: Learn the distinction and ensure such plans are in writing! Equity compensation Interns.there s no such thing as a free lunch! 8 4
Non-Competition Agreements and Other Restrictive Covenants Must be carefully designed to protect legitimate business interests: Trade secrets Confidential information Goodwill Different standards under state law, e.g., Massachusetts vs. California, and enforceability varies from state to state Must be implemented with consideration 9 Non-Competition Agreements and Other Restrictive Covenants Non-disclosure of confidential information Non-competition restrictions must be reasonable in time, geography and scope Non-solicitation of customers and prospects Non-solicitation of employees 10 5
Protecting Trade Secrets, Confidential Information and Inventions Definitions of trade secrets and confidential information: The extent to which the information is known outside of the business; The extent to which it is known by employees and others involved in the business; The extent of measures taken by the employer to guard the secrecy of the information; 11 Protecting Trade Secrets, Confidential Information and Inventions The value of the information to the employer and to his competitors; The amount of effort or money expended by the employer in developing the information; The ease or difficulty with which the information could be properly acquired or duplicated by others. What does this mean? Implementation of mechanisms to safeguard confidential information is critical. 12 6
Protecting Trade Secrets, Confidential Information and Inventions Statutory and common law protections for trade secrets and confidential information Protecting intellectual property and inventions Works for Hire doctrine Contractual provisions including assignment of inventions 13 Handling the Problem Employee Due diligence in the hiring process Deal with issues as they arise Performance evaluations, documentation and consistency Awareness of protected categories under state and federal law Warnings and discipline 14 7
Employment Separations Terminations Voluntary and Involuntary Notice required? Due diligence Process Release of claims, separation agreements and severance Importance of sensitivity 15 To Keep In Mind As You Grow Leave Laws Compensation Reviews Organization Policies Security and Protection of Confidential Information Benefits 16 8
Thank You! Time for Questions and Answers Kristy L. Avino, Esq. McCarter & English, LLP 265 Franklin Street Boston, MA 02110 (617) 449-6577 kavino@mccarter.com 17 9