Contract Forum Selection Clauses Are Critical When Doing Business with Out-of-State Companies
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In the event of a contract dispute, litigating the matter in Virginia has its advantages to Virginia businesses – Virginia litigation limits travel expenses to out-of-state jurisdictions, provides familiarity with judges and opposing counsel, and assists in the prevention of inconsistent application of laws to your business contract. However, the only way to ensure that you have the “home team” advantage is to incorporate a forum selection clause in your business contract.
A forum selection clause provides the particular location where any and all lawsuits relating to the contract will be litigated, and is critical when doing business with out-of-state vendors, customers and other business partners. If your business contract is silent with respect to where such disputes will be resolved, you may find yourself litigating in far away places.
Two recent cases involving eBay highlight the importance of a forum selection clause - Tricome v. eBay, Inc. and Universal Grading Service v. eBay Inc. In both cases, eBay business users attempted to sue eBay in their home jurisdiction on the East Coast. In response to the litigation, eBay moved to transfer the cases to Santa Clara County, California, based on the forum selection clause contained in the User Agreement between eBay and the plaintiffs. The Judge found that eBay could name the forum in its contracts with users and that the users assented to this jurisdiction when they clicked on the box acknowledging the terms and conditions of the User Agreement; thus, eBay prevailed and successfully forced these plaintiffs to litigate on its home turf.
If you are a Virginia business, you should make sure that all of your business contracts contain a forum selection clause that designates a Virginia court (preferably in the city or county where your office is located) as the forum for litigation.
Teaming with a Large Company to Pursue Government Contracts? Watch Your Small Business' Intellectual Property!
In the current recessionary economic climate, there is one customer that is arguably still spending a lot of money to receive goods and services – the U.S. federal government. For many small businesses trying to team with government agencies, the best approach may be to team with a larger company that can supplement your small business' skill sets, and provide leverage and credentials you may not yet have acquired. In pursuit of these contracts, it is vital to pay attention to your small business’ intellectual property (patents, trademarks, copyrights, trade secrets).
By encouraging teaming of large government contract firms with small businesses, government agencies can benefit. Government agencies fulfill their goal in carrying out the principal tenet of the original Small Business Act (1953) – to encourage and develop small business growth. By consolidating their buy requirements with a single contractor, government agency buyers of goods and services can reduce their administrative burden, program management costs and risks, all while expanding opportunities for small business that result in overall increased competition and the fostering of innovation.
So, what’s in it for the large firms? Well, both small and large companies benefit from teaming. While a small company can tap its larger counterpart’s knowledge, experience and purchasing power, the larger firm gains access to small business set-aside opportunities. For example, by partnering with Service-Disabled Veteran Owned Small Businesses (SDVOSB), large firms can access one of the hundreds of monthly set-aside contracting opportunities for which they would otherwise be ineligible to compete. Also, partnering with a small business can enhance a large business’ relationship with various federal contracting agencies as many struggle to meet their set-aside goals. The mutually beneficial relationship of the teaming arrangement results in a highly-efficient and diversified team capable of winning new business and providing excellent customer service to the government.
Regardless of the mechanics of a large government contractor-small business teaming arrangement, smaller firms – simply because they are small and are eager for new business – have to be vigilant about their intellectual property rights. For example, unbeknownst to many small, high-tech firms is that Section 52.227-11(k)(3) of the Federal Acquisition Rules makes it illegal for a large firm to require a small business it is partnering with on a government contract to give up any IP rights as a precondition to working on the contract. Thus, there is a statutory framework that levels the playing field in negotiations with large firms. This statutory level playing field, however, only applies to patent rights. For a small firm’s innovations protected by trade secret, copyright or trademark, extra vigilance is required when negotiating such agreements to preserve these forms of IP rights.
Fourth Circuit: A Court Cannot Overturn an Arbitrator's Construction of Business Contract
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Based on a recent decision by the Fourth Circuit Court of Appeals, business owners may want to think twice before including an arbitration clause in a contract. In the case of PPG Industries, Inc. v. Int’l Chemical Workers Union Council, the Fourth Circuit considered whether a reviewing court must defer to an arbitrator’s construction of a contract even when the court believes that the arbitrator construed the contract incorrectly. In a decision that may be of some surprise to business owners, the Fourth Circuit held that even if a court is convinced that the arbitrator committed serious error, a court cannot overturn the arbitrator’s decision.
In its reversal of the district court, the Fourth Circuit held that, except in “very limited” instances, a court has no right to determine the correctness of an arbitrator’s award when the parties to a contract have agreed that disputes should be submitted to arbitration. Once the arbitrator has ruled, then the court’s only function, with respect to that decision, is to determine “whether the arbitrator did his job – not whether he did it well, correctly, or reasonably, but simply whether he did it.” Unless the arbitrator ignores “the plain language of the contract,” a court cannot overturn a clearly erroneous award.
Although the PPG Industries, Inc. decision isn’t new law, business owners should pay it special attention. Over the past couple of years, I have had many clients request an arbitration clause in a business contract because they believe that it is a quicker and cheaper alternative to court litigation. While arbitration does have some advantages over litigation, those advantages come at a heavy price: the substantial risk of having no recourse for a bad or incorrect arbitration award.
In Virginia, where courts are renowned for their “rocket dockets”, business owners may want to think twice before inserting an arbitration clause into a contract. Without the advantage of a quicker resolution, it may be best to forego an arbitration clause in favor of permitting court litigation. Although courts and juries aren’t always perfect, at least you will have the option to appeal an erroneous decision.
IRS Announces Standard Business Mileage Reimbursement Rate for 2010
Employers should take notice that the Internal Revenue Service (IRS) has announced a standard business mileage reimbursement rate of 50 cents per mile for 2010. The business mileage reimbursement rate is used by many employers for computing the appropriate employee reimbursement amount in instances where an employee uses a personal vehicle for a work-related purpose. The new mileage reimbursement rate, which takes effect on January 1, 2010, represents a significant decrease from the rate set by the IRS in 2009 of 55 cents per mile.
Employers with an established personnel policy should update their employee handbooks by year-end to reflect this change. Those employers who do not have an established policy for reimbursing employees for business miles traveled in personal vehicles should consider instituting a mileage reimbursement policy for 2010 and adopting a good mileage log reimbursement form for employees.
Employers should consult the IRS website for more information on the mileage reimbursement guidelines.
FLSA Compliance of Employer Intern Programs
In today’s tough economic environment, employers are looking for creative ways to reduce their overhead. And, what could be more appealing than an unpaid intern who can assist with getting the work done? With this year’s financial crisis, there is no shortage of such labor for employers. Many people are willing to work for little or no compensation in order to prevent a big gap of employment or build a resume. However, unpaid interns can create legal troubles for the unwary business owner. Federal labor laws governing internships provide that the relationship has to benefit the intern more than the company. If it doesn’t, then the employer must comply with the Fair Labor Standards Act (“FLSA”) by paying minimum wages and possibly overtime.
As many employers already know, there are many advantages to using an intern. If you are faced with a tight budget for personnel, interns may help fuel growth for your company. But, you need to be sure that your main purpose for hiring an intern isn’t to avoid paying wages. The U.S. Department of Labor’s Wage and Hour Division outlined a list of criteria to determine whether a trainee or intern is an “employee” under the FLSA, and thus, must comply with Federal wage laws.
The following criteria provide guidance in evaluating internship programs for for-profit organizations, but it is important to note that each program is unique and must be carefully examined:
- the training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
- the training is for the benefit of the trainee;
- the trainees do not displace regular employees, but work under close observation;
- that the employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion the employer’s operations may actually be impeded;
- the trainees are not necessarily entitled to a job at the completion of the training period; and
- the employer and the trainee understand that the trainees are not entitled to wages for the time spent in training.
If your company’s internship program does not satisfy all of the above criteria, your interns may be considered “employees” under the FLSA. Hiring an intern, which qualifies as an “employee” may cost your company thousands in unpaid wages and legal fines. So, how do you ensure compliance? Establish a written internship program outlining the terms and structure of the relationship in a way that the intern is receiving the full benefit of the learning experience, and ensure that your managers and other employees properly implement it.
Business Law News Bites
Here is a quick summary of some interesting blogs I have read this week on a variety of business law topics that may be of interest to Virginia businesses:
Brian Hill, of the Employer Lawyer Report, analyzes how Facebook’s new privacy controls will impact the employer-employee relationship. According to Hill, these new privacy control measures could make it more difficult for employers who use Facebook to monitor their employees.
Robin Roberts, of the Startup Lawyer Blog, provides some guidance on how equity should be divided amongst co-founders of a startup company. The primary method described by Roberts is to base the equity split on an assessment of the past, current, and future contributions of each co-founder. Regardless of the method used, Roberts advises that co-founders make the equity-split determination quickly and that they consider vesting founders’ stock over a period of time.
Joshua Heslinga, of the Virginia IP Law Blog, writes that it makes good business sense to enforce your patents before they are reexamined by the United States Patent and Trademark Office (USPTO). As Heslinga notes, the timing of a reexamination decision (where a patent is reexamined by a patent examiner to verify a patent’s validity) can be a crucial determining factor in the outcome of a patent litigation case. If a reexamined patent is determined to be invalid, then that will almost certainly result in the dismissal of a pending patent infringement litigation action.
Joel Greenwald, of the Overtime Advisor Blog, details potential issues an employer may face for having employees work through lunch. According to Greenwald, employers that require "non-exempt" staff (e.g., receptionists, data entry clerks, administrative assistants, secretaries, billing clerks, customer service representatives, etc.) to work during their unpaid break time could face substantial liability under the Fair Labor Standards Act (FLSA). Under the FLSA, non-exempt employees must: (1) be paid for every hour they work; and (2) have all hours worked count towards their potential overtime pay. The website for the Virginia Department of Labor and Industry has a good FAQ section on wage payment issues in Virginia.
Michael Stocker, of the Eyes On Wall Street Blog, discusses a proposed bill by Senator Christopher J. Dodd (D-Conn.), Chairman of the Senate Banking Committee, that would overhaul the U.S. financial system. Senator Dodd’s financial reform plan bill would, among other things, consolidate bank regulators, create a consumer financial protection agency, and impose new restraints on exotic financial instruments and credit rating agencies.
How Does Intellectual Property Affect Your Business?
In today’s knowledge economy, intellectual property (copyrights, patents, trademarks, trade secrets) can play a tremendous role in the success of a small or medium-sized business. By gaining a better understanding of trademarks, trade secrets, copyrights, and patents, and how they affect your business, you can effectively manage these tools and use them to your advantage.
Trademarks help you protect the name of your business, products and services. Perhaps the most important asset of any business is its name. Your business name and that of your products or services establish your reputation. Therefore, it is important to protect that name and reputation by applying for trademarks and registering them with the United States Patent and Trademark Office.
Trade secrets also play an important role in your business. Trade secrets include secret recipes, formulas, or manners in which you conduct your business. For someone owning a bakery or manufacturing a certain type of food, the recipe you use should be kept secret in order to ensure that no one can replicate your products. A trade secret can also be process that saves money over known processes.
Copyrights and patents generally relate to creations of the mind. Those in the service businesses will probably not require a patent or a copyright to do business, nor should they worry about the copyrights and patents of another. On the other hand, those who create or develop products for manufacture or sale will probably need to consider obtaining copyrights to protect their writings or other expressions of ideas and patents to protect and enforce their rights to manufacture, use or sell an improved product or service.
Let’s look at Richmond-based company, Reynolds Metals Company (recently acquired by ALCOA). The company, now commonly known for its food storage supplies and containers, was founded in 1919 by R.S. Reynolds, as tin foil supplier for cigarette and candy companies. Shortly after its creation, the company turned its sights towards using thin aluminum foil for food storage. By 1926, Reynolds Metals was producing the first high-speed, gravure-printed foil, aluminum bottle labels, heat-sealed foil bags for foods and foil-laminated building insulation paper. Since then, the company has invented countless food storage devices and has become a household name in America. It currently holds hundreds patents and has a plethora of trademarks and trade secrets. These patents, trademarks, and trade secrets protect Reynolds® brand innovations. Without doubt these patents, trademarks, and trade secrets have aided Reynolds in the success in establishing itself and positioning it among America’s successful companies.
Should You Use LegalZoom to Incorporate a Startup Business?
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One question that I am frequently asked by prospective clients is whether it is best to use an online incorporation service like LegalZoom or to retain an attorney to incorporate a startup business. My answer is always the same: if you are looking to form a startup business -- such as a limited liability company (LLC), an S-corporation (S-corp), or any type of business entity -- your best bet is to retain an attorney instead of relying on LegalZoom or other similar online legal document preparation services.
Although LegalZoom is a viable alternative for the preparation of some legal documents, it is not the best option for entrepreneurs looking to start a new business. First, LegalZoom cannot provide legal advice. It can only provide “self-help services at your specific direction.” Most entrepreneurs looking to start a new business need individualized advice from an attorney. They not only need to understand the incorporation process, they also need assistance with a host of other legal issues that accompany starting a new business including the hiring of employees, reviewing and negotiating leases, and drafting business contracts.
Additionally, LegalZoom uses a standard online questionnaire to determine what should go into the incorporation documents that it prepares for you. However, given that incorporation documents (e.g., Bylaws, Operating Agreements, etc.) are the foundation for the operation of your business, an attorney is often needed to ask important questions regarding various business contingencies and intricacies. For instance, although I may start the process of forming an LLC with a basic set of questions to the client, I always have hundreds of “what if” questions based on the initial answers provided by the client. The client’s answers to my litany of additional questions are essential to my determination of what to include in the incorporation documents or whether other legal documents are necessary to effectuate the client’s goals.
The process of starting a new business is much like the process of building a new house: you want it done right the first time around! Although it may be tempting to cut a few corners and save some money with a legal document preparation service, it is worth your while to retain an attorney to ensure that you are building a solid foundation for your new business. For startups in Virginia, a great resource for obtaining basic information on the incorporation process can be found at the website for the State Corporation Commission.
The Genetic Information Nondiscrimination Act Requires New Employment Posters for Businesses
As of No
vember 21, 2009, businesses are required to display a new federal poster in the workplace which reflects the requirements of the Genetic Information Nondiscrimination Act (“GINA”). GINA was signed into law in May 2008 to address concerns over the use of genetic information in the health insurance industry and the acquisition and use of such information by employers. Proponents of the law urged that this legislation will allow Americans to freely undergo genetic testing for diseases, such as cancer, heart disease, and mental health conditions without fear of losing their job.
GINA regulations apply to all private, state, and local government employers with 15 or more employees. Some states already have genetic information nondiscrimination laws, but the terms and application of those laws vary greatly. Pursuant to GINA, businesses may not intentionally acquire genetic information from applicants, employees or even former employers (with very limited exceptions). In addition, the law prohibits employers from using this type of information for any decision regarding the terms of employment, including hiring, firing, and promotion decisions.
The new “Equal Opportunity is the Law” poster is available on the EEOC website in English, Spanish, Arabic and Chinese. This poster also reflects the 2008 amendments to the Americans with Disabilities Act. To obtain free copies of other federal required posters, you should contact the U.S. Department of Labor at (202) 693-0200 or visit DOL’s website.
While GINA seeks to encourage increased genetic testing, which will make it more likely for researchers to come up with lifesaving therapy for disease, its application may catch businesses by surprise. Most companies assume that the law doesn’t apply to it because they don’t actively collect genetic information on their employees or applicants. However, the law defines genetic information broadly and includes information on illnesses obtained through family histories. Thus, it could be problematic to the company that has such information and inadvertently uses it.
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