Legal Services

Arbitration…What Is It and Are Those Clauses Enforceable?

Arbitration simply means your dispute is submitted and decided by a panel of one or three individuals (the arbitrators) for a final and binding determination (the award).  The panel acts much like a judge in a court of law.  Similarly, the dispute is submitted to the arbitrators much like a trial.  For example, the attorneys present opening and closing arguments, witnesses, experts and other testimony, weigh evidence and other information provided and then render an award enforceable in court.

            The arbitrators are considered a neutral party and provide the parties with a set of rules under which the arbitration will be conducted. 

            Typically, arbitration clauses are included in contracts and the issue is discussed before either party performs.  The arbitration clause negates either party’s ability to file a suit in court regarding the business relationship or contract term.  Once the contract is signed, the arbitration clause is enforceable.

            An arbitration clause should tell you the rules which you must arbitrate under as well as where the arbitration will take place and the service provider (AAA—American Arbitration Association, BBB—Better Business Bureau, JAMS—Judicial Arbitration and Mediation Services, Inc.).  The service provider will set the fees.

            As compared to a trial court, the rules of evidence do not typically apply in an arbitration thereby making the process less formal and stressful.  The arbitrator is able to weigh the evidence presented and determine if any information is repetitious or irrelevant.  Moreover, most arbitrations do not require the use of an attorney thereby allowing parties to represent themselves.  Be advised, however, that the arbitration rules should be reviewed to ensure that attorney representation is not necessary.

            Besides the benefits of an informal proceeding, arbitrations are typically much cheaper than trials.  They do not last as long and the parties do not have as much preparation and discovery beforehand.  The arbitrator may grant any award which is enforceable in a court of law.

            Finally, arbitration should not be seen as an unwanted beast but rather an opportunity for a business to get a fast cost effective remedy to a problem.

Drugs And The Workplace…What Are Employers To Do?

Many service employers wrongly believe that substance abuse is a problem with safety-sensitive industries which require the operation of heavy machinery, vehicles and tools.  Of course, much attention is given to those industries to ensure a safe work environment; however, much attention should also be given to those service industry jobs, too, since those service industries are the largest employers in this country.  Moreover, the general services industry usually gives employees access to financial records, maintain confidential information or are heavily involved in the company’s plans and ideas.  Mistakes due to drugs have huge consequences for employers.  So, what are employers to do? 

            Simply put, employers must have workplaces that are alcohol and drug free and have employee manuals that address the situation and consequences for such use.

            The U.S. Department of Labor published statistics based on a 1996 US Department of Health and Human Services Substance Abuse and Mental Health Services Administration study. 

Service Category	Current Illicit Drug Use (%)	Past Year Illicit Drug Use (%)	Current Heavy Alcohol Use (%)
Business and Repair Services	11.1	19.8	9.7
Finance, Insurance, Real Estate	5.4	14.6	4.5
Personal Services	10.3	19.3	5.8
Professional and Related Services	4.2	11.05	3.1
Public Administration	3.7	8.8	7.2

          Small and large businesses alike must have a drug free policy in place to ensure that mistakes due to drug involvement can be avoided or at least reduced.  One first step is simply to develop an employee manual with a specific section that addressed drugs in the workplace.  That employee manual should address drug testing and the procedure to follow.  The Department of Labor strongly recommends that before any drug-testing program is implemented, an employer have a written policy that is shared with all employees and clearly outlines why drug-testing is being implemented, prohibited behaviors and the consequences for violating the policy. If drug testing is used, it should only be one component of a comprehensive program that also includes training for supervisors on signs and symptoms of substance abuse, education for employees about the dangers of substance abuse and some form of assistance or support for employees who may have problems with alcohol and other drugs.
The moral of the story is that employers cannot close their eyes to the situation and recognize that drugs in the workplace are serious.  With a well written employee manual, an employer can reduce the risks of mistakes and liabilities to customers, other employees and the company overall. 

On the Job Injuries in Texas…Who Pays?

You do.  You will pay either by paying workers’ compensation insurance premiums or risking your own funds to pay for an employee’s injuries.  Injuries are inevitable, but armed with some knowledge of the law, you may be able to prevent any large damage to your pocketbook.  So, what does workers’ compensation mean and what does it cover?

            In 1913, Texas adopted a workers’ compensation system to provide medical care and lost wage reimbursement to employees injured in the “course and scope” of employment.  Evidence of an employer’s fault is not necessary—Texas is a no fault state.  Texas is also the only state that allows employers to “opt-out” of the workers’ compensation system and become a non-subscriber (about 37% of all Texas employers).

            A benefit of nonsubscriber status is simply that it saves the employer the cost of workers’ compensation insurance; however, the negative quickly follows.  Simply stated, the nonsubscriber employer is not safe from common law negligence claims brought by employees (lawsuits) and are legally deprived of their common-law defenses.  A very specific procedure must be followed to opt out of the system.

            A nonsubscriber loses its immunity from a lawsuit and if during a lawsuit an employee proves the company’s negligence was the proximate cause of the injury, the employee may recover damages.  The nonsubscriber in the suit cannot assert traditional common law injury defenses like contributory negligence or assumption of the risk to name a few.  In other words, the employer nonsubscriber at trial cannot argue that the employee should have seen the danger and known better or that they were partly responsible for the damages.

            In a lawsuit, a nonsubscriber may be responsible for damages to the employee including mental anguish, pain and suffering, lost-earning capacity and punitive damages.  A damages figure could be large and bankrupt your company.

            As you may also know, a negligence claim as would be asserted against the nonsubscriber could be asserted within two (2) years (statute of limitation) after the injury. 

            So, as you can assume, the pitfalls could be huge for a nonsubscriber if the employer is not careful.  Prior to deciding whether or not to opt out as a nonsubscriber analyze the type of business that you perform and whether your business would subject you to on the job injuries.  Obviously, if you operate an auto mechanic shop riddled with inherent dangers, you will likely have someone injured.  Nonetheless, as with all big decisions like this, consult a qualified professional and understand all your risks and choices.  This article is simply meant to be a general overview of the workers’ compensation structure in Texas. 

 

So you want to fire an employee…Read this First!

     At least once a week, I get a call from a client that asks about terminating an employee and as you can assume, I am usually involved at the last minute.  Normally, the employee has done some egregious acts or has violated an “unwritten” rule at the office or has been late everyday since they started.  Most employers are confused about when the can fire someone.  The general answer is Texas is an employment at will state and so absent some age, race or gender discrimination, an employer can terminate an employee any time.  However, I must qualify that answer with a few questions that an employer must ask first:

1. Is the employee working under a contract?

      While Texas is an at-will employment state, the existence an employment contract changes the employment dynamic.  More than likely, the contract details how an employee can be terminated (for cause) and what amounts, if any, must be paid to the employee. You must look to the contract to determine what rights and responsibilities the parties (employer and employee) have.

2. Does the employee have a basis for claiming that the termination is discriminatory?

      As stated above, Texas does recognize very distinct protected classes that must be considered prior to termination.  Be sure that the employee cannot later claim that they were terminated solely because of their age, race or gender.  It is best to have an employee manual and document any infractions of that manual.  In the manual, it should state that infractions could lead to termination.  The process should also be well defined.

      In addition, you must familiarize yourself or your human resources department with various statutes including Title VII, ADA, ADEA, IRCA, FMLA and USERRA.

3. Does the employee have a basis for claiming that the termination is retaliatory?

      An employee may have a cause of action if the termination was retaliatory for something they have done or something that happened to them while employed.  For example, has the employee filed a worker’s compensation claim recently, asked to perform an illegal act, complained about harassment and/or discrimination or recently complained about alleged illegal conduct?  Any of these circumstances may change the strategy and answer to terminating the employee.

4. Has the basis for termination been consistently applied to others?

      An employer must take active steps to remain neutral and enforce the rules fairly and evenly.  The best way to ensure fairness is to have a well drafted and concise employee manual that describes all duties and responsibilities as well as consequences for failing to meet expectations.  The manual should also describe the process for termination. For example, many companies will offer warnings and then written warnings.  And, upon the third like infraction, the employee is terminated. 

      Finally, I would suggest that the employer take active steps upon terminating an employee to avoid any risks.  The employer should:

1. Conduct an exit interview;
2. Do not comment about the legality of any employee’s actions and don’t disclose anything to anyone who does not “need to know”;
3. Control access to the network computers, email, internet and phone system;
4. If any trade secrets have been revealed, be sure to get them back and take active steps to avoid release of that confidential information to anyone who does not need it;
5. If there is a threat upon termination or any vague inference of violence, have the employee escorted off company grounds by the police or security;
6. If you offer a severance, get a signed release of claims;
7. Consider allowing the employee to resign;
8. Pay out any earned pay as soon as possible including any personal time off or earned vacation.  (Remember that Texas has a six day requirement for wages owed to an employee).

 

            With all that said and followed, you still may be in a position to pay unemployment benefits or even face a suit after termination.  The overwhelming advice is to be fair and document what your employees and company as a whole does.  That paper may come back to save you significant funds. 

Piercing the Corporate Veil… We Have All Heard About That but What Does It Mean To My Pocketbook?

As you know, a Texas corporation is a well-recognized entity for its complete liability shield to its shareholders.  Unless a shareholder, director or officer (the “others”) is liable on some independent legal basis (i.e. personal tortfeasor or guarantor), such parties have no liability for corporate debts and obligations.  Of course, the courts have allowed in extraordinary circumstances to “pierce the corporate veil” and thus subject the others to personal liability.  Nonetheless, every business owner and shareholder needs to fully understand how this happens and how to avoid it. 

How does a Plaintiff pierce the corporate veil?

A Plaintiff, during a lawsuit, can assert various theories to the fact finder that request the Courts not place liability solely on the corporation but on the others.  Those theories are:

• Alter Ego Theory:

The Courts disregard the corporate entity when there exists such unity between the corporation and the individual that the corporation ceases to be separate and when holding only the corporation liable would promote injustice. The Texas Supreme  Court has stated that the evidence may include the degree to which the corporate formalities have been followed and corporate and individual property have been kept separately, the amount of financial interest, ownership and control the individual maintains over the corporation and whether the corporation has been used for personal purposes. 

• The Emergence of a “Sham to Perpetrate a Fraud”:  Tort claimants and contract creditors need only show the breach of some legal or equitable duty which the law declares fraudulent because of its tendency to deceive others to violate confidence or to injure public interest.
• De-Emphasis of Corporate Formalities:  You must have shareholder meetings per your Bylaws and prepare minutes, stuff the corporate book and represent your decisions as those made by the corporation.
• Single Business Enterprise:  The assets of affiliates of a corporation may be reached to satisfy the liability of the corporation if the and the affiliated constitute a “single business enterprise”
• Reverse Corporate Veil Piercing:  Sometimes a party will attempt to use the alter ego doctrine to characterize the assets of a corporation as the assets of its shareholder. 

How do you prevent someone from piercing the corporate veil?

First, if you are a corporation, that entity has nothing to do with your personal business.  By filing for a corporation, you have given birth to a new entity and it should be treated as such.  Failure to recognize the corporate formalities and to commingle personal and corporate interests may result in personal liability. 

The final advice is to have an attorney on your management team that can advise and discuss issues as needed.  Piercing the corporate veil is difficult; however, it is possible and scary.  The purpose of having a corporate entity is to preserve your personal assets.

The Houston Business Show is proud to Welcome Marc Krasney

Marc spent 8 years as a litigator with two different firms and as much as he enjoyed litigation and arguing in the courtroom, his true passion was counseling businesses about their business.  With that, he realized he needed to offer businesses a change from the traditional billing concept and think of a revolutionary way to connect businesses with his expertise without the surprise legal bills.  So, together with Phonoscope, he founded the Virtual In-House Counsel Program and opened his own law firm—The Krasney Law Firm.  Now, businesses can be connected with Phonoscope’s state of the art technology to Marc’s office.  Neither party has to travel to see the other as everything is truly virtual.  And, the best part is that the fees are monthly, charged to a credit card and the plans are tailored to fit the businesses needs.  Check out his website at www.HoustonVirtualLawyer.com. 

Besides the business focus, the Houston Virtual Lawyer program is expanding to also include referrals for all your legal needs.  With their large network of attorneys, The Krasney Law Firm can refer you to a reputable attorney and remains involved to ensure that you are protected and understand every step of the process.

In addition to being Houston’s Virtual Lawyer, he is President of Phonoscope Legal Services (PLS) which provides litigation support services to law firms utilizing the same virtual technology as in his law firm.  PLS provides court reporting, medical records retrieval and all types of printing services.  PLS is truly revolutionary as they are the only company in Houston offering virtual court reporting where all the parties do not have to travel to one place; instead, they are connected at the speed of light through Phonoscope.  PLS is a pioneer in this market and is truly doing its’ part to help save the environment.  Check out that website at www.PhonoscopeLegal.com.   

In 2006, he was chosen as one of Houston’s “Top Professionals on the Fast Track” by H Texas Magazine.  In 2007, Marc J. Krasney, was selected as Houston’s legal expert for the Houston Manufacturers Show on Phonoscope channel 11 or on the web at www.HoustonManufacturers.com. 

Marc is licensed to practice in all State Courts of Texas and the United States District Courts for the Southern and Eastern Districts of Texas.  He is a member of the American Bar Association, Houston Bar Association, and Texas Young Lawyers Association.  He is also a member of the University of Houston Small Business Development Center Networks’ Direct Business Assistance (DBA) program.  In addition, Marc serves on the Board of Directors for the Petroleum Club of Houston, Chairman of the Petroleum Club of Houston Entertainment Committee, and Past Chairman of the Petroleum Club of Houston International Committee.

Marc lives in Sugar Land with his wife and two Jack Russell Terriers.