Paying Workers from Start to Finish

Q: My employees complain that they should be paid for traveling to job sites, computer startup time, and other time when they are not actually doing work. Are they right?

A: With ongoing minimum wage discussions and a proposal to double the overtime eligibility threshold (thus increasing the number of workers who would be entitled to overtime pay, regardless of being classified as “salaried”), more employers are getting concerned about tracking hours accurately. You typically do not need to pay employees the moment they leave their house, but failing to pay them for downtime during their continuous workday can inadvertently create a basis to be sued for unpaid wages, minimum wage violations or overtime violations.

The general rule is that employees should be paid from the time they start their first work activity until they finish their last work activity, with work activities including those steps other than normal commuting that are primarily for the benefit of the employer. Waiting, walking, and traveling between job sites in between the first and last work activity are part of the continuous workday and are typically compensated (except for meal breaks). But the commute at the beginning and end of the day, or arriving at a time of the employee’s discretion and waiting for a first work activity, is typically not compensated, even if employees are carpooling and discussing work-related issues, traveling in employer-supplied vehicles, or transporting work equipment from home. An exception can exist when an employee has an unusual assignment to travel to another city for work.

Time checking voicemails, reading emails, developing an employer-required plan or route for the day, completing required paperwork, or loading or stocking equipment can all be compensated, along with the starting up of a computer. Some employees take advantage of the computer startup trigger by turning on their computer and spending several minutes getting coffee and socializing. Employers might eliminate these extra minutes of compensation time by requiring such personal activities to take place before the power button is pressed.

Employees who are required to arrive at a location at a specific time and then wait for assignments begin their work day at latest at the specific time the waiting begins, except that under some circumstances this time might not be compensable if the employee is free to use the time for personal purposes. Employees who are required as an integral and indispensable activity to put on specified protective clothes on the employer’s premises start their work day at latest when they start to put on those clothes.

The employer is also liable for off-the-clock work time if the employer knew or should have known that the employee was working. For this reason, employers are often best advised, where feasible, to have clear employee policies prohibiting work and access to work emails outside of normal hours.

To be sure, it is recommended that employers track the hours of any employee who either is paid hourly, does not clearly fall within one of the legal exceptions to overtime pay (not covered in this article), or could feasibly work enough hours that he falls below the minimum wage.

Clearly, there are pitfalls awaiting employers. A review of employee manuals and time tracking procedures with a qualified professional is wise.

Published as part of my law firm’s biweekly column in The Ledger here.

Dealing with Dissenting Shareholders

Q: How do I address dissenting non-majority shareholders who disrupt operations and threaten litigation if I don’t buy them out at an inflated price?

A: When you hold shares in a publicly traded company, you are free to sell those shares on the open market. But that luxury is not available for “closely held” businesses, where disputes can more easily become detrimental to operations.

Luckily for the majority (i.e. controlling) shareholder or shareholders, that dissent should not disrupt operations during the ordinary course of prudent business because the minority is simply outvoted. But minority shareholders can shake things up when, for example, the company is going through a merger or sale of business assets, the controlling shareholders are acting illegally or wastefully, or a deadlock in voting occurs. The first of these three scenarios can give rise to the right to be bought out, whereas the remaining scenarios give rise to the more dangerous remedy of dissolving the corporation. If a dissenter seeks to dissolve, the lifeline for those who remain in control is to elect to purchase the shares of the dissenting shareholders at fair value.

With regard to the right to be bought out (“dissenters’ rights”), as to closely held corporations of 10 or fewer shareholders, the dissenter often obtains payment based on an appraisal and his share of the company.

For example, a shareholder who owns 30 percent of the corporation, or 30 of the 100 shares, would be entitled to $30,000 if the appraised value of the business is $100,000. Generally, this would be the maximum the minority shareholder could receive absent a court determining that misconduct by the controlling shareholders would dictate greater compensation.

The reality is that 30 percent of the shares of a company are usually worth less than 30 percent of the appraised value of the company, at least to an outsider. If you were to buy into a company for 30 percent, you receive a right to profit distributions but no control over the direction of the business. Buying 51 percent is often substantially more valuable than buying 49 percent because of control.

Also, shares in closely held corporations typically face a much more limited market of buyers than shares in publicly traded companies.For that reason, should the dissenters suffer a discount for lack of control and marketability when being bought out? For the specific dissenters-rights scenario above (with 10 or fewer shareholders), a Florida statute prohibits such discounts. But the discounts are at least arguably available for corporations with more shareholders or in the dissolution context mentioned at the end of the first paragraph.

There are a number of ways to value a business, including by looking at the total value of the assets of the business or by applying a multiplier to the earnings or earning potential of the business. The applicable method varies greatly depending on the circumstances.

The tips above will assist in negotiating with dissenting shareholders and in determining the likely outcome of litigation. If negotiation is unsuccessful and your business faces uncontrolled disruption, taking control by pursuing remedies in court with the advice of counsel may be the next step.

Published as part of my law firm’s biweekly column in The Ledger here.

Duties Vary for Nonprofit Directors

Q: As a new member of a nonprofit’s board of directors, what liabilities am I undertaking?

A: Volunteer directors govern and manage the nonprofit organization and make decisions about its activities, policies and affairs. Even if management is delegated to, say, a paid executive director, directors must still supervise the organization’s affairs to satisfy their fiduciary duties to the organization and the public.

The duty of loyalty requires directors to avoid transactions in which they would have a material financial interest and not to put their own interests ahead of the organization. The duty of care requires directors to act reasonably and prudently to avoid foreseeable risks. Directors also have a duty to comply with investment standards and invest in good faith.

To avoid director liability under Florida law, directors must act in good faith, with reasonable and prudent care to avoid foreseeable risks, and in what the directors reasonably believe to be the best interests of the organization.

While a director is unlikely to be on the hook for an accidental slip and fall at the nonprofit’s campus entrance, directors are susceptible to claims for financial wrongdoing (including misuse of grant money, failure to identify improper spending, and commingling of assets), tax violations (including failure to deposit payroll or property taxes or failure to file necessary tax returns), and failure to inquire about questionable conduct of a few directors and officers. Although a director should actively and diligently get involved in reviewing budgets and other financial data, directors may reasonably rely on information, reports, and financial statements provided by any reliable and competent officer or employee or board committee, legal counsel or accountant.

Of course, self-dealing or criminal acts are not protected. Nor is a director protected if he personally and directly injures someone, guaranties a loan or other debt on which the nonprofit defaults, or commingles nonprofit and personal funds.

The lines are not always clear. Nonprofits should therefore invest in insurance for their volunteer directors and officers. To protect themselves and the nonprofit, directors should work to prevent and decrease liability for the organization, including establishing employment-related policies and developing a system for determining consistent and uniform application of those policies.

Published as part of my law firm’s biweekly column in The Ledger here.

A JD over an MBA?  Only if you love the law.

In this story in the University of Michigan Law School‘s Law Quadrangle, we see how a law degree (as opposed to an MBA) was a key move to help the WebMD CEO get to where he is today.  While I am happy to see a fellow Michigan Law grad having such success, readers should be wary of thinking JD over MBA if their goal is to enter the business world.  This grad was working at the megafirm Latham & Watkins and was approached by a client to make the jump to business from law.  But if you are pounding the pavement looking to “enter” the business world, waving a JD may cause potential employers to ask two questions: (1) whether this applicant overqualified, and (2) why this applicant doesn’t have a law job.  Do your legal skills give you a leg up over someone without a JD?  Absolutely.  But you need to like the law if you are going to pursue a JD, rather than thinking that 3 years, some loans, and a piece of paper will make you into a business mogul.  You may find yourself putting that legal theory to use in a real law job before your business break comes.

Read more about “The Downsides of a J.D.”, including overqualification and at least one commenter’s thought that law school thinking is not conducive to business thinking TaxProf Blog here.

States Fight Over GMO Labeling Laws

Q: How is safety of genetically modified organisms/foods (“GMOs”) affecting food labeling laws?

A: This is National Public Health Week, and one public health issue infecting the news is GMOs.

The question of whether genetically engineered foods are safe isn’t that simple. Genetic engineering is merely a method of production; it does not, in itself, make food more or less safe.

Genetic improvement of plants has occurred for thousands of years. A science of crossbreeding and hybridization of plants has existed for well over a century, giving us a variety of foods rarely questioned as to safety.

But crossbreeding can create bad results as well, and only scientific improvements over many years change a trial-and-error process into precise engineering.

Genetic engineering makes food production more efficient, and using modern engineering in a laboratory, rather than crossbreeding in the field, does not make food unfit for human consumption. For that reason, engineered and non-engineered foods are subject to the same safety and labeling requirements. But because engineering new crops with differing proteins or nutrient (or “anti-nutrient”) levels could have adverse impacts if left unchecked, federal agencies like the Food and Drug Administration, Department of Agriculture and Environmental Protection Agency work together to regulate these crops and pesticides used on them. The FDA can impose penalties and remove foods from market that pose public health risks or that contain unapproved food additives.

For these reasons, an FDA official recently told Congress that “we are confident that [genetically engineered] foods in the U.S. marketplace today are as safe as their conventional counterparts.” But despite that position, at the state level we have seen efforts to require labeling of products containing GMOs, including a bill in Vermont set to go into effect in July.

It is critical to our interstate commerce system to have consistency in labeling rules across the country, and some believe that requiring GMO labels fuels a war against scientific efforts that make food more abundant and less expensive without inherently affecting safety. Thus, there are now efforts in Congress to preempt state-level labeling efforts and instead make GMO labeling voluntary, while at the same time requiring the FDA to conduct safety reviews for new plant varieties before market.

Published as part of my law firm’s biweekly column in The Ledger here.

Animal Protection Staying in Spotlight

Q: It appears animal cruelty is on the rise. What laws are in place to protect these animals?

A: For years, compassion for animals and anger toward abuse have been triggered by circus elephant acts, killer whales in confinement and greyhound races. But, partly because the law allows these exhibitions, only recently have we heard of changes, such as Ringling Brothers voluntarily retiring its elephants.

The Florida Legislature continues to expand protections for animals, including this month by taking a look at bills to protect greyhounds and horses involved in racing, with some lobbying groups trying to make greyhound racing unprofitable.

An extensive set of animal cruelty laws exist, primarily protecting livestock, dogs, and cats from the more horrifying stories we have heard recently, like animals being tied to railroad tracks or hung to death. A “zombie cat” allegedly buried alive was taken into possession by an animal welfare organization.

While individuals could be accused of theft for taking another’s pet away regardless of suspected abuse, Florida allows certain organizations (in addition to law enforcement) to have an agent appointed for that purpose. When an animal is seized, a court hearing follows to determine whether the animal will be returned.

With limited exceptions, animal cruelty includes allowing any “unnecessary or unjustifiable pain or suffering.” Tormenting, starving, and mutilating all fall within this term and are at least a first-degree misdemeanor (up to $5,000 fine/one-year imprisonment) and as much as a third-degree felony (up to $10,000 fine/five years’ imprisonment) for repeated, intentional acts, acts that result in death, or being any part of dog fighting (breeding, training, owning, promoting, betting, attending, or otherwise ). Additional specific offenses prohibited by law include keeping a dog confined without exercise, abandoning in a public place, lassoing of horses for entertainment or sport, engaging in simulated bullfight exhibitions, allowing others to be exposed to a known contagious animal, and artificially coloring an animal under 12 weeks of age.

Contact animal control or other local law enforcement if you suspect animal cruelty is occurring in your neck of the woods.

Published as part of my law firm’s biweekly column in The Ledger here.

Liability for Dogs Fills a Chapter

Q: What is my liability if my dog bites someone?

A: While each year only one or two Floridians die from dog bites, some 500 state residents could go to the hospital with injuries. In what is hopefully not a signal that the Legislature thinks dogs are inherently dangerous nuisances, a whole chapter of Florida Statutes has been created covering damage by dogs.

Some of the provisions are more unusual than others, such as that it is lawful to kill a dog roaming over the country if that dog is known to have killed sheep. (Please think twice before assuming a loose dog in your neighborhood fits this definition.)

The most talked-about provision is the “dog bite statute,” which generally pegs the pet owner with responsibility for his dog biting anyone who is not trespassing. One exception or reduction to the owner’s liability may exist if the bitten person negligently provoked the dog in a way that the person should have known would lead to a bite.

Also, where the owner posts a conspicuous sign at his home reading “Bad Dog,” he might be able to limit or eliminate his liability for bites (except where those bites are of children younger than 6 or where the owner has acted negligently, which could include failure to supervise children). Of course, the owner should not expect to get such protection if he tells his party guests to ignore the yard sign’s warning.

Despite a common misconception otherwise, Florida does not have a “one free bite” rule allowing owners insulation from liability when their dogs have not shown prior dangerous tendencies. However, dogs deemed “dangerous” or under investigation by animal control authorities are subject to heightened standards (that might differ from county to county) and strict criminal penalties for owners of such dogs who do in fact bite.

One final point: Reduce your worries by verifying that your homeowners insurance covers your dog’s bites.

Published as part of my law firm’s biweekly column in The Ledger here.

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