In the many years I have been working as outside counsel to closely held businesses, one of the frequent pitfalls leading to costly litigation and operational conflicts is the failure of shareholders to adequately document and formalize their expectations, especially as it relates to minority shareholders.  The first question I ask when contacted by a business owner who is dealing with shareholder conflicts is “What does your shareholders’ agreement say?”  Unfortunately, too often, the answer is “What shareholders’ agreement?”   

Many small businesses are formed by a group of people who share a collective belief at the time of formation.  There are often unwritten understandings as to the division of roles within the business.  Almost universally, the expectation is that all of these founding shareholders will devote ongoing resources to the business.  Conflicts arise when those expectations diverge, when one shareholder fails to perform within the business, or even when a shareholder exits the company.   
 
When conflict does arise, mechanisms for resolution can be limited, complex and expensive.  Certainly a transfer of a non-performing shareholder’s stock seems like a simple straightforward course of action.  However,   in the absence of an agreement providing for transfer upon specified events, the business has no absolute right to remove a shareholder or force a transfer of the share ownership interest.  Even a shareholder who has ceased to be actively involved in the business continues to enjoy all of the rights attendant to the ownership of the shares: the shareholder need not come to work, need not contribute capital, need not pursue business opportunity in the name of the company.  Employment may end, but the right to enjoy distribution of profits does not, as long as share ownership persists.  As most small businesses are organized as subchapter “s” corporations, profits must be distributed in accordance with share percentage. 

Ownership of stock gives rise to all of the rights provided by statute.  Minority shareholders enjoy the right to obtain information about the performance of the company, attend and vote at shareholders’ meetings, and receive distributions of profits derived from corporate operations.  Minority shareholders can be an impediment to stock transfers, anchors against change and obstacles to capital expenditures. Such situations are a constant bone of contention among owners of small businesses. 
 
Of course, the best solution is an agreement that accurately reflects the understandings of the shareholders at the time the shares are assigned, or the company is formed.  Such agreements can provide clearly defined roles within the business, mandatory transfer upon termination of employment, death or disability, valuation mechanisms and provisions restricting transfer.  Adopting an agreement, at minimum, provides a foundation for the business relationship, and may provide a roadmap in the event of disagreement.    

In the absence of an agreement, a dispute with a minority shareholder requires careful management. The majority must take care to avoid vesting a minority shareholder with breach of fiduciary duty claims or shareholder oppression.   Compliance with corporate formalities is imperative. While there is no guaranty of continuing employment for a minority shareholder (with exceptions), distributions or profits in accordance with ownership percentages is required if the company has elected “s” corporation treatment.  Certainly, majority and employed shareholders may receive compensation for services rendered, but an artificial manipulation of corporate profits would certainly be relevant to a minority shareholder oppression claim.  

Pennsylvania Business Corporations Law provides little relief to a majority shareholder who continues to run a profitable business without the assistance of his or her minority shareholders. The statute provides no right to extract a non-performing shareholder against his/her will at any price, and provides no absolute right of liquidation. Even the nuclear option of judicial corporate liquidation requires that the complaining shareholder allege irreparable harm to the company; an allegation which may be impossible if the business is successful as a result of the majority’s efforts.

Formation of an appropriate and workable shareholders’ agreement requires legal representation; as does management of divergent goals between shareholders.  Owners of s corporations with minority shareholders would be wise to review their governing documents and take proactive steps to safeguard the future value of their shares, and avoid crippling and costly litigation. Antheil Maslow and MacMinn business attorneys are highly experienced in such matters and leverage a team of professionals in differing disciplines to navigate these complex waters.       

A recent article from NPR entitled “Trainers, Lawyers Say Sexual Harrassment Training Fails” got me thinking about employee training programs. Specifically, every employment lawyer will advise employers to provide training for employees regarding harassment and discrimination.  I would like to say that employers follow this advice in order to ensure a professional and safe workplace, but the truth is that employers provide training mostly because their lawyers advise them that training will bolster a defense in the event of a harassment claim.   This cynical approach to employee training is, I think, the reason why the experts cited in the article concluded that training is not working.  
 
Training is a “check the box” activity:  the employer gets to say that it provided training, in the event of a claim.  The employees are required to attend in order to keep their jobs, and so they attend and zone out.  The article accuses employees of going through the motions, but employers probably are too.  The lawyers told them to train, so the employer is training. 

Here’s what I’ve learned:  the serious offenders, those who engage in serial harassment, inappropriate relationships or even assault, are going to engage in that behavior no matter what training you provide.  An employee who lacks the insight to know that certain behaviors are unacceptable (everywhere, really) will not have an epiphany during mandatory employee training.  One-on-one training often helps in these situations, but not always, and not fundamentally (that is, the employee will know what to do to stay employed, but will not really care that the behavior was inappropriate).

Having said that, I want to be clear, employers should provide training – it is good risk management for certain employers.  But, perhaps it should be a more sincere activity on both sides:  employers should consider more interactive training, smaller groups and individualized training for departments.  They should also engage in a healthy evaluation of their workplace culture prior to planning the training. 

Further, if the goal is prevention of harassment, hostile work environment claims or other unacceptable workplace behaviors, training is not always the answer.  Instead, employers should remember that culture comes from the top.  If officers, supervisors and managers maintain professionalism, it sets the tone.  It might be valuable to warn and provide one-on-one training to managers who do not demonstrate professional behavior, but in the end, appropriate workplace behavior should be a qualification for any leadership role. 

No lawyer will ever advise an employer not to provide training, but perhaps it is time to be more thoughtful about what training looks like for specific employers.  Avoiding litigation cannot be the only goal, or the training will never work.  We can work with employers to come up with a training plan that complies with the law, and is appropriate for their business.

Although the weather is just starting to change to cooler temperatures, the holiday season is fast approaching.  Holiday displays are up, holiday music is already playing and even the pre-Black Friday sales have started.   It seems that with the warmer temperatures well into the fall, the holidays have snuck up on us all.  While it is easy to get wrapped up in the spirit of the  season, if you have minor children and a custody agreement or order, it is time to take a look at your custody documents  and give some thought to what lies ahead in the next several weeks.
 
Before you make plans with your children, it is important to see what the holiday schedule is for this year.  Which days of the holidays are your children with you, what times are they with you, and who is responsible for transporting the children?  It is important that you know the answers to all of these questions.  Take out your custody agreement or order now and look through the schedule for Thanksgiving through New Year’s.  If you have questions, now is the time to ask your attorney, not on Thanksgiving morning.  We all know that a lot of advance planning occurs for the holidays, and family gatherings are scheduled.  If it is important to you that your children celebrate with you and your extended family, you want to be sure to make your plans around when you have physical custody of the children.  Knowing the details of the holiday schedule now will enable you to make plans based upon the custody schedule and keep everyone happy, which should result in a more peaceful holiday for you.    

By Patricia C. Collins

Reprinted with permission from the October 24th edition of the The Legal Intelligencer © 2017 ALM Media Properties, LLC. All rights reserved.Further duplication without permission is prohibited.

In Zuber v. Boscov’s, United States Court of Appeals for the Third Circuit, No. 16-3217, the Third Circuit reversed a decision of the Eastern District of Pennsylvania that dismissed an employee’s claims under the Family and Medical Leave Act (“FMLA”) and common law on the basis of a compromise and release agreement signed by the employee to settle his workers’ compensation claims. 

The timeline is important to the Court’s determination.  Zuber was injured at work on August 12, 2014.  He filed a workers’ compensation claim and went out on leave, returning to work on August 26, 2014.  His employment was terminated on September 10, 2014.  On April 8, 2015, Zuber signed a Compromise and Release Agreement to settle his workers’ compensation claims.  On July 9, 2015, Zuber filed his FMLA claims against Boscov’s.

Zuber’s Complaint alleged that Boscov’s interfered with his FMLA rights by failing to notify him of his rights and by failing to designate his leave as covered by the FMLA.  He also alleged that Boscov’s retaliated against him for exercising his rights under the FMLA and for asserting a workers’ compensation claim under Pennsylvania common law. 

Boscov’s moved to dismiss the Complaint on the basis of the Compromise and Release Agreement, and the Eastern District of Pennsylvania agreed.  The district court found that the Compromise and Release Agreement was a general release meant to waive all claims, including the FMLA and common law claims.  The district court opined that the release include “broad, all-encompassing language” relating to the work injury claim and its “sequela.”  Specifically, the district court noted that the use of the words “sequela whether know or unknown at this time” broadened the scope of the release.

In so doing, the district court relied on two cases:  Hoggard v. Catch, Inc., No. 12-4783, 2013 WL 3430885 (E.D. Pa. July 9, 2013)(Kelly, J.) and Canfield v. Movie Tavern, Inc., No. 1303484, 2013 WL 6506320 (E.D. Pa., Dec. 12, 2013)(Baylson, J.).  In Hoggard, the release in question recited that it “completely resolves all claims and issues arising out of the claimant’s injuries….”  The Hoggard court found that this language resulted in release of all employment claims against the employer which arose from the work injury, including wrongful termination claims.  In Canfield, the release in question recited that it released all “workers’ compensation claims….”  Because it was specifically limited to workers compensation claims, the Canfield court found that the release did not waive the employee’s employment law claims. 

In reversing the district court to find that the Zuber release did not release the employee’s FMLA and common law claims, the Third Circuit analyzed the phrase “sequela, whether known or unknown at this time.”  The Third Circuit found that the release was unambiguous of its face, and refused to review parol evidence.  The Third Circuit noted that the word “sequela” means “suit,” and that the language of the release thus was intended to waive his work injury claims and any “work injury claim” suit.  The modifier “its” before the word “sequela” renders the release limited to the workers’ compensation claim.  Further, the Court noted that the agreement to forfeit any damages claims was also modified by the phrase “work injury claims.” 

Interestingly, the Third Circuit also based its determination on the “structure” of the release.  Elsewhere in the document, the agreement recited that its purpose was to resolve the work injury claim, and that it was a release of the employee’s workers compensation claims.  Given this language, the Third Circuit reasoned, the release paragraph could not be read as a general release.  Accordingly, the Third Circuit held that Zuber did not waive his FMLA and common law claims.

The issue of the impact of Compromise and Release Agreements in the context of later wrongful termination claims is a common one.  The Third Circuit’s opinion, read with the opinions in Hoggard and Canfield, suggests that courts will meticulously review the agreement under general contract principles to determine whether there was a waiver of broader employment law claims.  The interesting thing about the Zuber opinion is that both the district court and the Third Circuit engaged in this meticulous review of the language and came up with a different answer. 

Likely, this results from the procedural posture of workers compensation claims.  Those claims proceed on a completely separate track than any statutory or common law termination claims, and the issues are narrow:  wage loss and medical expenses as a result of a work injury. Further, the workers compensation settlement is sometimes reached while the wrongful termination suit is pending.  An unintended result to a challenge to a Compromise and Release Agreement (for example, a finding that a release is limited where one party intended it as general) might result from the procedural posture of both cases, error, or lack of precision in drafting.  Courts will have to unravel imprecise language without reference to that context. 

The Zuber opinion highlights the importance of clarity and consistency in a release.  The issue of whether or not a release is a “general” release should be discussed, agreed to, and recited in the release.   In the context of settling workers’ compensation claims, this might require discussing with the client any common law or statutory employment claims, and, for the employer, a discussion regarding the possibility of future claims.  The opinion in Zuber reflects that it will be difficult to predict what a court will do with particular language in the agreement.  

Patricia Collins is a Partner with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on commercial litigation, employment and health care law. To learn more about the firm or Patricia Collins, visit www.ammlaw.com.  

Harvey Weinstein’s conduct is irresponsible, atrocious and potentially criminal, but that’s not the point of this blog.  Instead, I would like to take the opportunity presented by Weinstein’s case (and the many others in the news this year) to talk about reporting and remediating workplace harassment. 

Weinstein is the next in a line of prominent men accused of decades of harassment.  It appears that at places like Fox and Miramax, and now Amazon, harassment by the boss was a feature of workplace culture.  How did responsible employers allow this to continue?  Did the women not complain?  Did the employer bury the accusation?  Didn’t anyone know?  There is some evidence that the answer to all of these questions is yes:  the women felt that they could not complain, the employer buried the accusations with financial settlements, and many knew and did not raise any red flags out of fear or intimidation. 

The other common theme in these cases is the kind of harassment that took place:  abuse of position, arrogance about complaints, “quid pro quo” promises, and intimidation. 

Employers should consider their policies and practices to ensure a workplace free from this conduct.  Serial harassers poison the culture of the workplace and hurt the bottom line.  A recent article in the Wall Street Journalnoted the impact on the workplace of “rude” employees.    Imagine the impact of intimidating, harassing executives who abuse their power?  If employers have a serial harasser in a leadership position, it is time to face the music and address the behavior.

Employees should have an easy means of complaining.  Policies should allow employees to “go around” the harassing superior in order to make the complaint, and the harasser should not be included in decision making regarding the complaint.  Employers should avoid overly formal complaint procedures or reliance on form over substance.  Employers should conduct professional, confidential investigations, and farm the investigation out to a third party if necessary. 

It is important to note that settlements are not a license to keep a harasser employed.  The employer still has knowledge of the harasser’s bad behavior, and steps should be taken to avoid repeated incidents.  Those steps might include termination of important employees. 

A common theme in these high-profile cases is that the conduct started (and thus the culture was created) in a “different time” when these workplace protections were not in place.  That’s absurd.  Title VII became law in 1964, and employers should pride themselves on operating a modern workplace, compliant with laws that have been on the books for decades. 

So, how modern is your workplace?  Do you have a serial harasser?  Are you burying complaints to protect an executive?  Do your employees have a safe, easy way to make complaints to an independent person?  AMM can help employer develop a common sense policy that protects your business and your employees. 
 
 

 …At least until there is another overtime update.

 Let’s review the history of these regulations.  Prior to leaving office, President Obama’s Department of Labor significantly revised the salary requirements in order for certain classifications of employees to qualify for exemptions from overtime pay under the Fair Labor and Standards Act (“FLSA”).  The DOL increased the salary minimum to qualify for an exemption from approximately $23,000 to approximately $47,000.  Small employers and nonprofits scrambled to find a way to comply with the new regulations by the compliance deadline of December 1, 2016.

 On November 22, 2016, the United States District Court for the Eastern District of Texas issued an injunction against the implementation of those rules.  Small employers and nonprofits breathed a sigh of relief and tabled their new policies and employee classification changes. 

 Between November 22, 2016 and August 31, 2017, much happened in the Eastern District of Texas and the Fifth Circuit.  Appeals were filed, extensions of time to file briefs were granted, and the Department of Labor, now led by President Donald Trump, revised its position on these rules.  President Obama’s DOL had argued that the new regulations were a proper exercise of DOL’s rule making, and the President’s executive, powers.  President Trump’s DOL argued that while the DOL and the President were within their rights to establish and revise a salary requirement, they would not defend this particular salary requirement.

 On August 31, 2017, the Eastern District of Texas agreed, essentially, with the Trump DOL.  The Court found that while the DOL is free to set and revise a salary requirement, this particular salary requirement was not enforceable. 

 The good news is that the salary requirement set by the Obama DOL was so high as to present a significant financial and operational burden for small employers and nonprofits, and this ruling eliminates that concern.  However, the ruling leaves this DOL, or any DOL, free to revisit the salary requirement.  In other words, we will all take this ride again sometime in the future. 

 Employers should continue to ensure compliance with the existing rules, and check back in with AMM for any future changes to the salary requirement.