Author: National Law Forum

A group of in-house attorneys developed the National Law Review on-line edition to create an easy to use resource to capture legal trends and news as they first start to emerge. We were looking for a better way to organize, vet and easily retrieve all the updates that were being sent to us on a daily basis.In the process, we’ve become one of the highest volume business law websites in the U.S. Today, the National Law Review’s seasoned editors screen and classify breaking news and analysis authored by recognized legal professionals and our own journalists. There is no log in to access the database and new articles are added hourly. The National Law Review revolutionized legal publication in 1888 and this cutting-edge tradition continues today.

eDiscovery & Social Media

The National Law Review’s featured guest blogger last week was Meredith L. Williams of  Baker Donelson provides some great insight on discovery issues related to social media sites: 

Social media is not going anywhere, so we must learn to live with it and use it to our advantage and within the confines of the newly articulated and always changing rules.  If ever a doubt, one can look to the Nielson Report (“What Americans Do Online: Social Media and Games Dominate Activity,” Aug. 2, 2010) that states two-thirds of the internet population utilize social media sites.  Internet users now spend more than 10% of their online time on social media sites, and usage is constantly increasing.  With this rise in social media usage, the issues surrounding ediscovery in the realm of social media data is an important consideration of litigation.

The definition of legal discovery is locating all documents that are relevant to support the litigation.  But how does ediscovery work when the content is not owned or controlled by the business? How does a business preserve data that is outside of its firewall? Finally, how does one seek relevant information held on social media sites?

Social media sites are not like email or word processing documents when it comes to preservation. These sites are operated outside of a business’s firewall by a third party. Data is normally scattered on many sites and connected by many people or custodians.  Finally, the retention policy or schedule of a business does not affect data located on social media sites.   When a business maintains social media pages, it has a duty to preserve the data that may be relevant in anticipated or actual litigation.

Seeking information from social media sites can be difficult at best.  Many times discovery of this data must be gained through consent or authorization of a third party, which only causes an extra, and often expensive, burden.  Each third party is different in how it maintains the data, and each has the right to delete any content for violation of its terms of use policy, at any time. That deleted information could be relevant to litigation.

Unfortunately for businesses, the courts are only beginning to outline the duty of preservation and the right to discover the information from social media sites.  The best line of defense for many businesses is to develop internal policies and training programs to educate all employees of the risks of using social media.  In addition, new software now exists that can aid in preserving data.

Duty to Preserve

The 2006 Federal Rules of Civil Procedure amendments changed the discovery rules to allow a party to request “electronically stored information” within the “possession, custody, or control” of the responding party.  A duty to preserve potentially relevant evidence exists when litigation is “reasonably anticipated.”  In addition, parties who fail to preserve electronically stored information (ESI) are subject to penalties. Social media data fits the definition of ESI; thus, businesses must deal with the issue of preserving and possibly producing social media data that falls under their data retention policy.

Due to the fact that social media sites are owned and controlled by third parties, vendors are beginning to develop technology to capture dynamic web pages for preservation.  The first few companies in this market include Iterasi, Smarsh, Arkovi and LiveOffice.  Additionally, Adobe may be used to capture web images in static format.  These are but a few examples of new technologies that businesses are considering to meet their duty to preserve and produce ESI.

Recent Case Law

Additional issues remain – whether the information on social media sites is considered private, whether it is discoverable and whether it is admissible as evidence.  Recent case law has addressed these as yet unanswered issues.

In Guest v. Leis, 255 F.3d 325 (6th Cir. 2001), the court held that there is a lack of expectation of privacy regarding public postings on social media sites.  The user has the right to select privacy preferences on his social media sites.  Certain settings allow the public to see limited information and authorized, connected individuals to have greater access. In addition, many social media site privacy policies specifically state that certain postings are subject to a weakened privacy expectation.  Courts have generally held that when a user makes information available publically via their privacy settings, there is a lower expectation of privacy and, therefore, the information is discoverable.

Jumping ahead to the current year, we find EEOC v. Simply Storage Mgmt., LLC, No. 1:09-cv-1223-WTL-DML (S.D. Ind. May 11, 2010).  In this case, the court compelled production of relevant content from social media sites.  The court discussed discovery of social media site data as simply “requir[ing] the application of basic discovery principles in a novel context.”  The facts of Simply Storage Mgmt, involved the defendant seeking production of social media site profiles and communications from Facebook and MySpace.  The court ordered the plaintiff to produce the content that was relevant to the case.  The plaintiff argued that requiring such production would infringe on his privacy.  However, the court held that the expectation of privacy is not a basis for shielding discovery.  In addition, the court found that any privacy concern therein was lessened due to the fact the information had already been shared.

Earlier this year, Crispin v. Audigier (C.D. Cal.) (May 26, 2010), brought us a new ruling regarding social media and the Stored Communications Act (SCA).  In this case, the court was reluctant to allow discovery of private social media email communications.   The case involved a copyright infringement claim.  Audigier subpoenas the private social media messages of Crispin.  A magistrate judge disagreed with Crispin’s arguments that these communications fell under the SCA, preventing the provider of the messaging service from releasing private communications, because the social media sites messaging services are used solely for public display.  However, the district court reversed the ruling, holding that Facebook and MySpace allow private message or e-mail services which are separate from the general public posting.  This case held that the SCA protects Facebook and MySpace messages that aren’t publicly available.  Therefore, these messages cannot be subpoenaed in civil litigation.  In addition, the court left the door open for further clarification, noting that “Facebook wall postings and the MySpace comments are not strictly ‘public,’ but are accessible only to those users plaintiff selects.”

On the other side of the country, we find a slightly different ruling with Romano v. Steelcase Inc., 2010 WL 3703242 (N.Y. Sup. Ct. Sept. 21, 2010).  TheRomanocourt allowed discovery of an entire social media site with all current and deleted postings.  The court ordered the plaintiff to provide the defendant with access to private postings from two social media sites. The court reasoned that information contradicting the plaintiff’s claims was included on the public sections of the plaintiff’s social media site and, therefore, it was reasonable to believe that the private sections might contain additional relevant information. The court even cited Facebook and MySpace policies, which warn users they should have “no expectation of privacy.”

Even if one is able to surmount the difficult hurtle of obtaining data from a social media site, an equally daunting challenge remains – getting the data admitted.  The main issue with admissibility is authenticity; spam, viruses, hackers and the like make social media sites susceptible to manipulation or fraud.   For this reason, courts have consistently been cautious when admitting social media data. In some cases, judges have become online “friends” with a party in order to authenticate postings, photos, captions and comments. (Barnes v. CUS Nashville, LLC).  Other courts have allowed printed copies with time date stamps to corroborate facts. (Treat v. Tom Kelley Buick Pontiac GMC, Inc.). Finally, some courts have used circumstantial evidence associated with the creation of the data (i.e. metadata and hash tags) to authenticate social media content.  (Lorraine v. Markel Am. Insur. Co.).  Admissability remains  an area of concern as the use of social media data in discovery becomes the norm.

Discovery of Social Media Data

A lawyer must decide early on whether relevant information exists on social media sites.  Within that evaluation, the costs to preserve, collect, review and produce the social media information should be considered.

Start discovery of social media by conducting large sweeping web searches for public social media sites of adverse parties or adverse witnesses.  Many individuals do not lock profiles or use privacy settings; therefore,  all postings, messages, comments, etc. are open to the public.  Preserve the sites with date stamps.

If an individual’s social media sites are set to private, and, therefore, not open to the public, what can a lawyer do?  Many boards of ethics do not allow lawyers to “friend” anyone to gain access to private profiles of information (NY State Bar Association Ethics Opinion 843 (Sept. 10, 2010)). So, instead of friending an individual, use discovery requests.  Start with a document request asking for all postings and messages that are related to and relevant in the litigation.  One can also consider requesting an access wavier to social media sites that allow for complete access to the site.  LinkedIn has a standard wavier located on its site. Finally, ask for all social media identifications used by the adverse party in an interrogatory.  Regardless of what direction taken, social media should be a part of the ediscovery process.

Conclusion

In conclusion, a business should take inventory of what social media sites are being used within the organization.  Then, set policies to help educate all employees of the risks regarding social media usage.  Finally, decide if backup software is needed to help with preservation and production of the business’s own social media data.  Regardless of retention schedule taken with social media, plan to always show the court that you’ve done your best, which is all that is expected.

For lawyers, be prepared to incorporate social media into an edisovery plan.  Start early within the litigation.  Draft standard document requests, waiver forms or interogatories around social media production.  Finally, be aware of the changing legal landscape on privacy, discoverability and admissibility, as these areas will continue to change, more and more rapidly in the future.

©2010 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. All Rights Reserved.

Legal and Risk Management Implications of Cloud Computing

We’ve been seeing a whole bunch of things at the National Law Review about the legal risks and risk management issues related to cloud computing.  Accordingly, we’d like to share some of the better articles we’ve come across on the NLR and on Twitter…

For an Overview of What Cloud Computing or SaaS is and the Advantages and Disadvantages for Businesses, Especially Law Firms…..

Are You Ready For the Cloud? from Baker Donelson

Lawyers Should Not Be Wary of SaaS and Cloud Computing by Niki Black of Lawyerist.com

What Cloud Computing Really Means from InfoWorld.com

What Lies Ahead? Business and Legal Issues in the Coming Decade from Much Shelist

For Risk Management and Legal Considerations Related to Cloud Computing or SaaS…..

The Cloud and Your Data from Risk Management

The Legal Issues Around Cloud Computing by Amit Agarwal of Digital Inspiration

Privacy and Information Security for Emerging Businesses by Poyner Spruill

For Specific Things to Consider When Choosing a Cloud Computing Provider….

Putting Cloud Data Storage Providers to the Test by Risk Management

7 Questions For Any Cloud Based Service from the Legal Typist, Inc.

How to Evaluate Cloud Computing Providers by Jason Baker – Data Center Knowledge

Copyright ©2010 National Law Forum, LLC

Time Is Running Out for One-Time Estate Planning Opportunities: Gift Tax Rates Will Increase in 2011, Bonus Gift Tax Exemption Available for Some Gifts Made in 2010-11 and Opportunity for Gifts or Trust Distributions to Grandchildren

Very comprehensive post recently received at the National Law Review from Michael D. Whitty of Vedder Price P.C. on year end estate and tax planning issues: 

As the end of the year approaches, it appears increasingly unlikely that Congress will pass legislation on gift and estate taxes before 2011.  Many one-time opportunities for gifting and tax planning will expire at the end of 2010.

Executive Summary:

  • Gift Tax Will Increase in 2011. For 2010 only, the tax rate on gifts that exceed the $13,000 gift tax annual exclusion and the $1 million lifetime gift tax exemption is only 35%, compared to a 45% rate in 2009 and rates of up to 55% in 2011 and beyond.  Persons who are otherwise facing substantial estate taxes should consider making gifts this year to take advantage of the 35% rate.
  • Bonus Gift Tax Exemption Available for Some Gifts Made in 2010–2011. Due to quirks in the way the $1 million lifetime gift tax exemption is determined, some donors may not have a full $1 million exemption this year, but if they use the full exemption by the end of 2010, they can obtain a bonus exemption in 2011.
  • Opportunity for Gifts or Trust Distributions to Grandchildren. Some gifts or trust distributions to grandchildren (or similar younger-generation beneficiaries) can be made in 2010 without any generation-skipping transfer tax (GST tax).  Such gifts and distributions must be carefully structured to avoid GST tax in the future, however
  • Low Interest Rates May Not Last Much Longer. Interest rates have remained low this year, but they will eventually increase.  This year could be the best opportunity for the foreseeable future to use a leveraged techniquesuch as a grantor retained annuity trust (GRAT), an installment sale to a grantor trust, an intra-family loan (including refinancing an existing family loan), or a charitable lead annuity trust.
  • Converting to Roth IRA with Charitable Deduction to Offset the Tax. Conversion of a regular IRA to a Roth IRA in 2010 may provide substantial benefits for certain individuals, in particular those with sufficient liquid assets outside of the IRA to pay the tax.  The tax burden can be further reduced, or offset entirely, with substantial charitable gifts made this year.  The temporary sunset (for 2010 only) of the phase-out of itemized deductions (including charitable deductions) for high-income earners will allow those taxpayers to obtain a greater after-tax benefit from their 2010 charitable deductions.

Gift Tax Rates Will Increase in 2011

Due to political considerations, the 2001 estate tax act eliminated the estate tax for only one year—2010.  The gift tax was retained, even for 2010, primarily to avoid the loss of income tax revenue.  For 2010 only, the tax rate on gifts that exceed the $13,000 gift tax annual exclusion and the $1 million lifetime gift tax exemption isonly 35%.  This is a substantial discount from the 45% rate for 2009 and rates of up to 55% that will apply after 2010.

Persons facing substantial estate taxes who can afford to transfer assets and pay gift taxes now should give serious consideration to making gifts this year.  Gifts in 2010 should substantially reduce the total tax cost of transferring wealth to descendants and other beneficiaries as a result of four factors:

  • the lower gift tax rate for 2010;
  • the shift of future income and appreciation out of the taxable estate;
  • the potential for valuation discounts that often apply to gifts but not bequests of the same property; and
  • the potential to reduce the taxable estate by the amount of gift taxes paid if the donor survives the gift by three years.

This is illustrated by the three examples in the table on the following page, each involving a donor who has previously used his or her available gift tax annual exclusions and $1 million lifetime gift tax exemption.  The donor owns $10 million of other assets in addition to a controlling interest in a company, which would be included in the donor’s estate without valuation discounts (Example 1).  Examples 2 and 3 assume a gift of the interest in the company structured in a way that achieves valuation discounts for lack of marketability and lack of control.

It appears increasingly likely that Congress will not act in 2010 to retroactively impose a higher gift tax rate on gifts made previously in 2010.  However, to avoid that risk entirely, a gift could be set up in advance of the year-end and then executed in late December 2010 after the possibility of a retroactive rate increase disappears.  Other, more complicated alternatives can be structured to allow final decisions to be postponed into 2011.

Large gifts require some planning and implementation, especially if special entities are to be created and appraisals obtained to determine valuation discounts.  Consequently, it is important for donors interested in taking advantage of this opportunity to contact their advisors as soon as possible so that there is sufficient time to plan and implement the transfers.  Donors who wait until December may not have enough time to implement full and optimal strategies.

Gift Tax Exemption Available for Some Gifts Made in 2010–2011

The common understanding that there is a $1 million lifetime exemption from gift taxes in 2010 and 2011 is not exactly correct.  There are some modest but real variations in the way the gift tax exemption is determined in those years.  As a result, donors who used $500,000 or more of their exemption before 2010 do not have a full $1 million lifetime gift tax exemption in 2010.  However, those who use their full amount by the end of 2010 can obtain a small amount (up to $36,585) of bonus exemption in 2011.

For example, a donor who has made $1,000,000 of taxable gifts before 2010 will have no additional lifetime gift tax exemption in 2010, but will have another $36,585 of exemption in 2011.  On the other hand, a donor who had made $600,000 of taxable gifts before 2010 will have only an additional $394,386 (not $400,000) of lifetime gift tax exemption remaining in 2010, but if he or she makes a taxable gift of at least $394,286 in 2010, that taxpayer would have an additional $41,742 of exemption available in 2011.  In each case, careful calculations must be made to determine a donor’s remaining gift tax exemption for 2010 and the amount of taxable gifts that should be made in 2010 to obtain the maximum possible additional exemption in 2011.

Table:  Illustration of Benefits of Taxable Gifts in 2010

Description Example 1: Bequest in 2015  

Example 2: Gift in 2011

 

 Example 3: Gift in 2010
Value of property in 2010, before transfer

(transfer = by bequest or gift, as indicated)

 $10,000,000 $10,000,000 $10,000,000
Period of appreciation before transfer 5 years 1 year 0 years
Appreciation before transfer, at 5% per year $2,762,816 $500,000 (None)
Value at time of transfer $12,762,816 $10,500,000 $10,000,000
Valuation discounts (33%*) $0 ($3,465,000) ($3,300,000)
Value subject to transfer $12,762,816 $7,035,000 $6,700,000
Transfer tax type Estate Gift Gift
Marginal transfer tax rate 55% 55% 35%
Transfer taxes (estate or gift; federal and state combined) $7,052,689 $3,699,250 $2,345,000
Value of other estate in 2015** $10,000,000 $6,300,750 $7,655,000
Estate taxes on other estate $5,671,059 $3,682,200 $4,478,000
Net to beneficiaries *** $7,276,251 $8,919,300 $10,832,000
Cost of postponement compared to 2010 gift ($3,555,749) ($1,912,700) (None)
Effective tax rate **** 63.62% 45.28% 38.65%
*  Valuation adjustments for factors such as lack of marketability and minority interest are commonly in this range, but sometimes higher or lower.  A qualified appraisal should be arranged as part of the planning on the transaction.  This table’s Example 1 assumes that the interest is retained until death in a manner that does not qualify for valuation discounts.
**   Value of other estate = $10 million less gift taxes paid (Examples 2 and 3), plus value of other estate in 2015, less estate taxes on other estate
***  Net to beneficiaries = pre-discount 2010 value less transfer (estate or gift) tax, plus value of other estate in 2015, less estate taxes on other estate
**** Effective tax rate = tax ÷ (tax + net to beneficiaries)

Opportunity for Gifts or Trust Distributions to Grandchildren

In years before and after 2010, gifts or trust distributions to grandchildren (or similar younger-generation beneficiaries) were subject to a generation-skipping transfer tax in addition to any gift tax that might be due.  The GST tax is a flat tax at the top estate tax rate, and only applies after a lifetime exemption is fully used.  Because the GST tax is suspended for 2010, gifts or trust distributions this yearcan avoid that additional tax.  Such gifts and distributions must be carefully structured to avoid future GST tax, however.  Transfers to trusts or trust equivalents (including UTMA accounts) for the benefit of a grandchild will still be subject to GST tax when later distributed to the grandchild.  A direct transfer to a grandchild (including, we believe, a guardianship estate for a minor grandchild) will avoid the tax, both now and later.  Persons planning gifts or bequests to grandchildren should consider whether a gift this year might be more advantageous.  Trustees expecting future distributions to grandchildren of the trust’s donor should consider whether accelerating the distribution into 2010 would provide more of a tax advantage.  In both cases, an attorney  can help analyze whether and to what extent taking action this year would help.

Low Interest Rates May Not Last Much Longer

Interest rates remained low this year, but they will eventually increase.  We may never see a better opportunity to use leveraged techniques such as GRATs, installment sales to grantor trusts, intra-family loans (including refinancing existing family loans) and charitable lead annuity trusts.  A weighted average of Treasury rates is used to calculate the rates used in these wealth transfer techniques.  Once those rates increase, techniques that perform best with low interest rates will lose some of their advantage.  This would affect some of the most attractive wealth transfer techniques, all of which are described in prior newsletters:

  • GRAT:  a gift of future appreciation while retaining the present value of the transferred property
  • Charitable lead annuity trust (CLAT):  a gift of future appreciation while transferring the present value of the transferred property to charities of the donor’s choice
  • Installment sale to grantor trust:  a sale of appreciating property without immediate income tax consequences, with low interest rates and principal repayment in the future
  • Intra-family loan (including refinancing of a prior loan):  giving family members the benefit of lower interest rates than those available from commercial lenders

Because these leveraged techniques will be far more powerful while interest rates remain low, now is the time to put these techniques to work for you.

Converting to Roth IRA with Charitable Deduction to Offset the Tax

Starting with 2010, the income ceiling for conversions of regular IRAs to Roth IRAs was eliminated.  Conversion of a regular IRA to a Roth IRA in 2010 or 2011 can provide a substantial benefit for certain individuals, in particular those with sufficient liquid assets outside of the IRA to pay the tax.  Conversions in 2010 are generally more favorable than those postponed to 2011, both for a lower tax rate (under current law) and for the option to spread the additional taxable income over two years (2011 and 2012).

The tax burden of a Roth IRA conversion can be further reduced, or offset entirely, with substantial charitable gifts made this year.  Donors who have substantial charitable plans but do not wish to donate large amounts to independent charities in the current year could make substantial charitable gifts this year to a private foundation or donor-advised fund, from which those funds could be donated in turn to other charities over many years.  Private foundations and, to a lesser extent, donor-advised funds take some time to set up in time for gifts to be completed by year-end.  If this opportunity is of interest, donors should contact their advisors as soon as possible.

From 1990 through 2009, and again after 2010, high-income taxpayers (with $166,800 or more of adjusted gross income in 2009) lost up to the lesser of 3% of their AGI or 80% of their itemized deductions (including charitable deductions).  The temporary sunset (for 2010 only) of this reduction of itemized deductions will allow those high-income taxpayers to obtain a greater after-tax benefit from their 2010 charitable deductions.

To Reduce Tax Uncertainty, Plan Now, Execute in December

Some tax legislation in the 2010 post-election “lame duck” session cannot be ruled out, and the chances for tax legislation in early 2011 are even greater.  Unfortunately, the opportunities described in this Bulletin will generally have to be implemented by the end of 2010 to take full advantage of them.  Fortunately, the types of tax legislation that would most likely be passed in early 2011 will not remove the advantages of transactions completed in 2010.

Time for Action

Many of the opportunities described in this Bulletin have an absolute expiration date:  December 31, 2010.  Others may not be available much longer than that in this volatile economic and legislative environment.  Your advisors to identify the opportunities that are most relevant in your situation and implement them while the opportunities remain available.

FEDERAL TAX NOTICE:  Treasury Regulations require us to inform you that any federal tax advice contained herein (including in any attachments and enclosures) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service.

© 2010 Vedder Price P.C.

Article Marketing Tips for Attorneys: The Power of the Pen

Margaret Grisdela of Legal Expert Connections guest Business of Law blogger on the National Law Review provides some great tips on legal writing for maximum exposure for legal professionals. 

Writing an article on a newsworthy topic is an essential part of any legal marketing program. If the thought of public speaking causes you to break out in a cold sweat, a strategic article placement gives you long term business development benefits without the stage fright.

Speaking engagements, webinars, white papers, enewsletters, and blog posts are just a few of the many ways that the material covered in your article can serve as the basis for additional marketing communication campaigns.

Like many aspects of our “Courting Your Clients” approach to legal marketing, getting published is a process. Here are some guidelines to help you climb the learning curve.

Step 1: Select your topic. You can gain rapid visibility by focusing on emerging issues that challenge the status quo, like pending legislation or controversial industry trends.

Step 2: Spend some time researching current literature to identify the best “angle” for your article. Evaluate other articles written on the same topic and determine how your article can stand apart.

Step 3: Determine the approach that works best for the material you intend to cover. Here are a few article formats proven to capture audience attention:

  • Top 3 reasons to …
  • 10 mistakes to avoid …
  • 7 steps to achieve …
  • The pros and cons of …
  • An interview with …

Step 4: Select and prioritize three or four trade or legal publications for your article, focusing on those that you know welcome outside submissions. Write a friendly email to the editor of the most prestigious publication on the list, after reviewing their “author guidelines.” Describe the proposed article in no more than two to three paragraphs, and ask if they have an interest in publishing it.

If the first publication turns you down, or simply does not respond, move on to the next one sequentially. Editors usually want fresh material, so do not expect to publish the same article in more than one place. Once your article is accepted, you will usually be asked to sign an “Author’s Release” that identifies your reprint rights and other related matters.

If writing is not your strong suit, or you simply do not have the time, consider engaging the services of a ghostwriter to convert the outline of your article idea into a full-length composition. (Some publications do require the author’s original work, however.)

Once you submit your finished article, a good editor is likely to suggest some changes to your headline or copy. Do not be offended. If you feel strongly that any modifications will change the meaning of your message in a significant way, speak candidly with the editor. Most editors will give you a chance to rewrite a portion of your article if they feel it is unclear, but keep in mind that the editor’s decision is final.

Step 5: Upon publication (and not before), mail your article to clients and prospects as a means of staying in touch and reinforcing your reputation as an expert in your field. Proudly add your new article to your CV and post it on your website also, all in keeping with your reprint rights.

Any time is a good time to start or expand your publishing career. Young attorneys who start write articles on a regular basis will enjoy career-long benefits of visibility, an expanded prospect base, and possibly a faster track to the coveted partnership level.

© Legal Expert Connections, Inc.

You've Got Mail (and a Lawsuit): Mobile Communication Devices and the Wage and Hour Pitfalls they Present

From the National Law Review’s guest bloggers at Steptoe & Johnson PLLC – Thomas S. Kleeh provides more details on both the opportunities and the headaches for employers that smartphones provide: 

These days, it’s hard to imagine life without some form of mobile communication device attached to our ear, hip, or thumbs.  Blackberries, iPhones, Droids and the like are as much a required fashion accessory as a productivity tool nowadays.  As such, employees have long since abandoned the traditional complaints about being issued employer-required “cell phones.”  The texts, social networking, games and other apps — not to mention the distraction a properly loaded smartphone can provide for a fussy child in the backseat — make the “constant contact” with the office bearable.

However, that “constant contact” can lead to headaches for employers.  A variety of potential liability sources lurk around the corner after employees are issued mobile communication devices.  An easy example is the personal injury lawsuit that often follows when an employee negligently texts or talks on a phone while driving.  Another often overlooked concern, however, can be found in the wage and hour venue.

One of the best aspects of this era of Blackberries and iPhones is the instant communication it provides, allowing simple questions and responses to be dispatched with a few clicks of the thumbs.  But what if the person on the other end of that email, instant message, or text is a non-exempt employee entitled to overtime compensation for any and all hours worked beyond 40, or an exempt employee who otherwise performed no work during the workweek?  In those cases, each short email or text might eventually be costly.

Non-exempt employees who are required to carry a mobile communication device as part of their job duties and who use the device for job-related matters during non-work hours are arguably entitled to compensation for that time.  A City of Chicago police officer recently filed a purported class action lawsuit making that very claim.  Similarly, exempt employees who perform no work during a workweek generally are not entitled to receive pay for that workweek; but if an exempt employee is required to check e-mail during the workweek, that electronic activity might constitute working time, thus entitling the employee to receive his or her salary for the entire week.  Resolving litigation involving wage and hour claims (voluntarily through settlement or involuntarily at the hands of a jury) can be very expensive with liquidated damages and attorney’s fees at stake in addition to any unpaid wages.  Plus, the “paper” trail created through the email or text traffic can make a litigious employee’s claims easy to prove.

What can employers do?  One option includes establishing a policy prohibiting employees from using mobile communication devices for work purposes while off-duty.  (Of course, if an employee violates that policy, the time spent working must be compensated, but the offending employee can be disciplined for violating the policy).  Another (dreaded) option is to recall all those employer-issued fashion accessories – no matter how fussy employees’ children might get.  Regardless, employees’ use of their smartphones for work purposes needs to be on Human Resources’ and Risk Management’s radar.

© 2010 Steptoe & Johnson PLLC All Rights Reserved

Hidden Assets: Finding New Business in Your Client List

This week’s featured Business of Law Blogger at the National Law Review is Margaret Grisdela of Legal Expert Connections. Margaret provides some great tips on how to do more which what you’ve already got – your client list. 

Your greatest source for new revenue in 2011 is likely to be hidden in your law firm’s client list. Increased business from current or past accounts tends to be more profitable, due to its lower cost of acquisition, higher degree of client satisfaction, and better return on your business development time.

Here are 7 legal marketing strategies to help you tap into this potential goldmine at your fingertips:

  1. Cultivate future Tier 1 accounts. You obviously have been successful in attracting and retaining today’s top accounts, but what about tomorrow? Even big accounts can leave unexpectedly for reasons beyond your control. Segment your current accounts into five tiers, and then devote a significant portion of your business development time to identifying and cultivating those Tier 2 current clients that have the potential to move into Tier 1 within five years. In the process, try not to get distracted by time-consuming small prospects.
  2. Increase client retention rates. If you lose 5 clients out of 100 every year, your retention rate is 95%. This means you need to find 5% new clients just to maintain the status quo. A concerted effort to add 1-2 points to your retention rate can fall right to the bottom line, even for transactional firms.
  3. Identify and protect “at risk” accounts.In any book of business, some accounts are in danger of leaving. You can identify these accounts by a decrease in billing patterns, news events, or less frequent communication. Proactive efforts to prevent these clients from jumping ship will improve your profitability and retention rate.
  4. Re-establish inactive accounts. It’s natural that over time some clients drift away. Identify these accounts and contact them to see what happened. Invite former clients to start using your law firm again or at least to refer others who might use your legal service.
  5. Ask for referrals. New clients await you; all you need to do is ask. Build the request for a referral into multiple stages of the fulfillment process. Natural asking points are the beginning and end of an engagement, as well as at key milestones. Track your referral sources, give them thanks, and reciprocate if appropriate.
  6. Stay in touch. No matter how many times you communicate with your clients, chances are they do not remember the full scope of your services. A monthly or quarterly newsletter will keep you top of mind with substantive content to make your clients more educated consumers of legal services. Social media marketing also offers a wide range of cost-effective marketing techniques.
  7. Up-sell and cross-sell legal services.At the attorney, practice group, or firm level, identify specific services that legitimately represent enhanced value to a client. Family law attorneys may up-sell clients on wills and estates, for example, while intellectual property lawyers can suggest trade secret protection through employment agreements. Compensation plans may complicate the effort, but the rewards can be worthwhile.

Here’s another secret to successful legal marketing: not every client is a good client. Create an “ideal client profile” and do not accept cases that you know from experience are not right for your law firm. Remember the five client tiers mentioned in the first tip above? It’s OK to fire your worst clients in the low level Tier 5.

Of course, all marketing and business development campaigns must be compliant with attorney advertising guidelines. Check with the state bar associations in those states where your practice or solicit business for specific requirements.

© Legal Expert Connections, Inc.

The Danger of NLRB Changes to the Union Election Process

This week’s featured guest bloggers at the National Law Review are from Steptoe & Johnson PLLC.  John Merinar Jr. highlights some of the issues with some of the changes the National Labor Relations Board (“NLRB”) is contemplating such as electronic voting: 

Now that the mid-term elections are over, conventional wisdom is that the “card check” bill – also known as The Employee Free Choice Act – is not going anywhere in Congress.  Employers are right to celebrate this news, and to feel a sense of relief that such a disastrous step on the part of our legislature seemingly has been averted.

However, the celebratory mood should be tempered somewhat by the realization that employers are not out of the woods just yet.  Instead of waiting for Congress, the National Labor Relations Board (“NLRB”) is contemplating making some changes of its own to the union election process, and the ideas the NLRB has voiced are cause for concern.

One of the changes that the NLRB has been contemplating is switching from the current method of voting by secret ballot to electronic voting and voting over the internet.  The problems encountered with electronic voting in general elections have been well documented over the last several years.   There is no reason to think that the NLRB would find it any easier to make the transition to electronic voting than the people who run general elections did.

More importantly, there is no real reason to take on the change in the first place.  The move towards electronic voting in general elections was driven by the desire to obtain faster and more accurate results where hundreds of thousands, and in some elections, millions of voters cast ballots.  The number of voters in union elections is so small in comparison that the same rationale for change does not apply.

More troubling is the suggestion that internet voting might be a substitute for the conventional method.  As proof, look no further than the situation where an employer wins an election by an overwhelming margin.   In that situation, it would be apparent that many employees who signed authorization cards prior to the campaign actually voted for the employer when they had the benefit of confidentiality.  Undeniably, one of the reasons for that was the fact that these employees would cast votes at an independent polling place monitored by the NLRB.  They would vote in a booth protected by a curtain, fold the paper ballot, and stuff their folded ballots into the ballot box.  In short, they are given every assurance that their votes will be secret.  Without a secret ballot election, employees might end up with a union which they did not really want.

For example, if electronic voting were adopted, it’s not hard to imagine union organizers looking over voters’ shoulders as they vote on line.   Worse, it’s also not hard to imagine union organizers working hard to defeat passwords, disrupt service, and otherwise work to frustrate the right of every voter to have the opportunity to cast one ballot, and to do so secretively.

Sometimes the elaborate steps which NLRB representatives take to assure an employer, employee and union that the conventional method of voting is absolutely secret and not susceptible to tampering seem overdone, but the truth is there is no substitute for the confidence those steps give to everyone participating.  Employers depend on that level of confidence because only then can employees freely express their positions.  Employers should be very, very wary of suggestions from the NLRB that the time has come to consider alternatives which do not inspire that same degree of confidence.

© 2010 Steptoe & Johnson PLLC All Rights Reserved

The Legal Implications of Employers Providing Employees Smartphones

Whether employees want  phone and mobile access to email and  the internet  or employers want their employees to have access, smartphones seem to be the ‘must have’ business accessory these days.   As with many technologies, the lawsuits come in quicker than companies can draft and enforce policies related to the technology. 

Lately we’ve been seeing a whole wave of Employment / Privacy Right Smartphone articles at the National Law Review.

For a General Overview of the Human Resource / Risk Management Issues Related to Smartphones:

You’ve Got Mail (and a Lawsuit): Mobile Communication Devices and the Wage and Hour Pitfalls they Present by Thomas S. Kleeh of Steptoe & Johnson PLLC.

Are You Calling, E-mailing or Texting Employees While They Drive? You May Want to Reconsider by David J. Carr of Ice Miller LLP

For Department of Transportation / State Law Guidelines Related to Texting While Driving or Distracted Driving:

Department of Transportation Prohibits Drivers of Commercial Vehicles From Texting While Driving by David L. Woodard and Louis B. Meyer III of Poyner Spruill LLP.

Distracted Driving Policies: Improve Safety and Limit Exposure by Anne B. Ellison of Dinsmore & Shohl LLP

New Kentucky Law Bans Texting While Driving by Michael J. Henry of Dinsmore & Shohl LLP

For Overtime Pay Issues and the Fair Labor Standards Act (FSLA) Issues Related to Smartphones:

Company-Issued Smartphones and the FLSA: Keeping Employees Connected May Have Its Price by James R. Carroll and Shawn M. Staples of Much Shelist Denenberg Ament & Rubenstein P.C

Curtailing the After-Hours Use of Blackberries by Non-Exempt Employees by Trent S. Dickey and David H. Ganz of Sills Cummis & Gross P.C.

Overtime Lawsuit for Use of PDA’s Hi-Lights Potential Liability for Off-Duty Electronic Communications by David J. Lampe of Dinsmore & Shohl LLP

For the Use of Smartphones and Employer  Liability Related to Eavesdropping:

Beware the Allure of Smartphone Technology: Recording Others without Consent May Get You in Serious Trouble by Anne E. Larson of  Much Shelist Denenberg Ament & Rubenstein P.C

Georgia Voters Approve Dramatic Changes to Employment Restrictive Covenant Laws

This week’s featured blogger at the National Law Review is Jon M. Gumbel of Ogletree Deakins.  Jon writes about how this month’s elections in Georgia approved a measure which would amend the Georgia constitution to dramatically alter the law as it pertains to employee non-compete, customer non-solicitation, confidential information and similar contractual provisions between Georgia employers and their employees. 

The long-awaited and often debated results are in! On Tuesday, November 2, 2010, Georgia voters decided (quite convincingly) to amend the Georgia Constitution, which allowed for the previously passed House Bill 173 to become law (now O.C.G.A. §13-8-50, et seq.). This new statute dramatically alters the law as it pertains to employee non-compete, customer non-solicitation, confidential information and similar contractual provisions between Georgia employers and their employees. The new law became effective on November 3, 2010 and as such, is deserving of prompt attention by Georgia employers.

Until November 2, Georgia’s restrictive covenant laws were governed by published court decisions issued by a wide variety of Georgia judges and based on an even wider variety of specific factual situations, creating a somewhat muddled, very complex and highly unpredictable area of the law. Furthermore, as this case law developed over the past 60 plus years, Georgia courts applied an increased level of scrutiny to employee restrictive covenants, making Georgia one of the most difficult states in which to enforce such covenants. For example, Georgia courts previously required employers to undertake the extremely challenging task of tailoring restrictive covenants executed at the onset of the employment relationship to the employee’s post-employment competition restrictions. In addition, Georgia courts would automatically invalidate a customer non-solicitation provision upon the finding of one technical problem within a noncompete covenant and vice versa. Finally, Georgia courts would not, under any circumstances, modify an otherwise unenforceable covenant so as make it reasonable in the court’s eyes and therefore, enforceable (the “blue penciling” process).

The new statute specifically states Georgia’s new public policy favoring enforcement of these agreements and provides specific guidelines for drafting enforceable agreements. For example, the new statute expressly authorizes a more general description of prohibited, post-employment activities, thus mitigating the requirement that such covenants be narrowly tailored at the onset. The new statute eliminates the prior rules invalidating one covenant based on the unacceptable language of another separate covenant within the same contract. Perhaps, most significant is the new statute’s specific approval of blue penciling, the practice by which Georgia courts are allowed to modify and enforce an otherwise unenforceable covenant.

It is important to note that this new statute only applies to restrictive covenants executed on or after the date the statute was passed – November 2, 2010. The previous, more rigorous legal standards will still apply to agreements entered into before that date. Re-drafting restrictive covenants in line with Georgia’s new statute may be the best option for many Georgia employers. However, Georgia employers should consult with counsel to determine whether they can benefit from this new law. This is especially true when it comes to covenants contained in more complex management and executive agreements that are tied to more generous severance or other compensation plans or those associated with the sale of a business.

Update! For more recently posted information about this topic, please see:  Important Notification Regarding the Effective Date of The New Georgia Restrictive Covenant Statute

© 2010, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

About the Author:

Jon M. Gumbel has concentrated his practice in the field of management labor and employment law since 1987.  He has represented employers with respect to litigation and other employment law disputes involving race, gender, age, religious, and disability discrimination claims under Title VII, the ADEA, the ADA, the FMLA, and comparable state laws.  Jon has also represented employers with respect to their employment litigation matters involving pregnancy discrimination, breach of compensation agreements, breach of non-compete agreements, breach of fiduciary duty, joint employment, wage and hour matters, OSHA citations, and wrongful discharge laws.  Finally, Jon has represented numerous employers with respect to ERISA claims/litigation including those involving health, disability and pension claims.  404-881-1300 /www.ogletreedeakins.com

 

All About Financing the Startup Company -Starting a New Company These Days in Quite The Headwind…..

For those who may know and love us – The National Law Review is all about the start-up company as we were founded by a few “recessionaires” a few years back with elan resources and an ever growing brood of kids. 

In a world where folks are encouraging you to live your dreams and be all that you can be, we’ve come across very few concrete, actionable resources for small business financing.   We attended the SBA Workshops and even some financing resources designed for women entrepreneurs- while these resources offer much information – it’s somewhat disheartening when more than once it’s been suggested that you should be volunteering to teach there.

Accordingly, we’d like to give a shout out to some of the better resources we’ve come across recently which go beyond  having a balance sheet a marketing plan- for those who may be into that sort of thing: