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When employers face employment claims, they should know that they also face significant legal risks. Dealing with the claim itself can be time-consuming and expensive, but companies can also face a barrage of bad press coverage if these claims become public as well. However, these are not the only risks that could put the business in jeopardy. As a recent case illustrates, companies could also face legal disputes with the shareholders of their company. REPORT: SHAREHOLDERS TAKE LEGAL ACTION AGAINST PINTEREST Throughout 2020, Pinterest faced a number of discrimination claims from individuals at all levels of their business, with several complaints from their employees and their former chief operating officer. And the company’s shareholders compounded these legal cases by adding their own in December. Pinterest’s shareholders filed a lawsuit against the company, executives and the board of directors, claiming that they failed to: Address illegal workplace biases and actions Monitor issues of unequal pay Prevent a toxic culture of racial and sexual discrimination Uphold their fiduciary duty to investors The claims state that the defendants were aware of these issues but did not act to resolve them. PROMPT ACTION IS ESSENTIAL TO AVOID THIS RISK Shareholders reserve the right to sue directors of the company if they cause harm to the business – and, in turn, the shareholder’s investment in the business. Employers must be proactively aware of this risk. Any issues that could harm the businesses could lead to shareholder disputes that could develop into litigation. This often only spells greater losses for businesses on top of the other legal issues they face. Employee claims are a common risk that business owners face, but there are steps they can take to reduce the harm they cause to the overall business. Business owners should: Ensure their employee handbook and policies comply with California law Make sure they adhere to those policies Respond efficiently and effectively to employee complaints and reports A consistently fair and prompt response can help avoid larger legal issues with the employees themselves, as well as ensuing shareholder disputes in the long run.

Consumers play a large role in a company’s success. That is why it is one of the primary goals of businesses to keep consumers happy, so they come back and help the business grow. However, consumers are not always easy to please. On occasion the smallest mistake or oversight could lead to complaints that pose a considerable risk to a business’s reputation and success. WHAT ARE SOME OF THE MOST COMMON CONSUMER COMPLAINTS? As many people – business owners and consumers alike – would guess, the number one consumer complaint pertains to vehicles. As of 2017, some of the other common consumer complaints included: False advertising or defective products in the retail and sales industry; Failure to deliver or deceptive business practices in internet sales; and Defects, improper work or failure to complete a job in construction. There are times when these complaints do not amount to much. There is either no evidence to support the complaint or it is not a legal violation. Even so, complaints from consumers are often made public knowledge. Therefore, business owners should not overlook any type of complaint. COMPANIES MUST BE PREPARED TO RESPOND TO COMPLAINTS Consumers must follow a specific process when filing a complaint. After collecting evidence for their complaint, they must first reach out to the seller or company with an official complaint letter. If California companies do not respond to these complaints properly or efficiently, it increases the risk that consumers will file a lawsuit. Whether the lawsuit is in small claims court or it becomes a civil suit, litigation is not often something that business owners want to risk or have to devote company resources to oppose. This is why it is critical for all business owners, whether they own a construction company or a manufacturing plant, to have policies and practices in place to: Establish a process to handle complaints Monitor and track complaints proactively Resolve issues and complaints effectively It is also helpful to review the most common complaints and the business practices to avoid similar complaints in the future and ensure the practices comply with state and federal law. Not every consumer will walk away happy. However, as with any other business matter, owners must formulate strategies to handle all risks before they become larger issues that put the business in jeopardy.

Business partners do not always see eye to eye. Sometimes these differences have simple solutions; they might even help partners to grow and develop their business. However, there are some disagreements that can strain the partnership – and jeopardize the business. Disagreements over expenses, draws, operations or intellectual property can quickly lead to legal issues or litigation. In fact, intellectual property is a frequent source of such disputes, and these conflicts can be particularly complex for business partners. THE PRIMARY ISSUE: WHO OWNS IT? Most often, the partnership disputes that erupt over intellectual property revolve around the question of ownership. Does the company own it, or does one partner own the rights to use the intellectual property? This generally depends on two factors: Who created the intellectual property; and When they created it. Usually, intellectual property rights belong to the person who created it – especially if one partner created it before they formed the business. However, if the business partners created it together, it belongs to the business. ADDRESS OWNERSHIP AS SOON AS POSSIBLE The issue of ownership can often develop into a dispute when business owners wish to dissolve their partnership. One partner might claim they own the intellectual property and wish to use it in their future ventures. This could: Hinder the other partner’s future ventures or their current business Lead to larger legal disputes, such as trademark misappropriation or theft lawsuits Litigation becomes a serious risk if the ownership of intellectual property is not clear. This is why it is critical to establish ownership rights at the beginning of the partnership, or when partners create intellectual property. DOCUMENTATION IS NECESSARY Maintaining careful records is a fundamental rule of the business world. Therefore, California business owners should ensure that they: Document the details: Keep a written record about the creation and use of intellectual property. For example, business owners should note when they created it as well as who was involved in its development. Establish ownership: Business owners must address ownership of any intellectual property created and used during the partnership in the partnership agreement. Recording this information might not always prevent a dispute, but it can help mitigate disputes and inform strategies to reach a resolution for both partners.

It is a common risk that former employees will go to work for competitors at some point in their careers. After all, they often have specific experience and education related to one industry. Even though this is a common risk, some competitors might actively search for talent in other companies and try to take it for their own. Poaching employees is a common issue businesses face, but could it lead to legal disputes? A RECENT CASE HIGHLIGHTS DISPUTES OVER EMPLOYEE POACHING CNN reported that the vehicle manufacturer Tesla recently filed a lawsuit in California courts claiming one of their competitors, Rivian, poached employees from them. Moreover, the lawsuit claims that these former Tesla employees: Took confidential documents and sent them to personal accounts; and Violated non-disclosure agreements. Rivian denies these claims. The issues in this lawsuit stem from the claim that Rivian poached employees… is that actually illegal? RECRUITING TALENT FROM COMPETITORS IS NOT ILLEGAL Despite the term, poaching employees is not technically against the law. Talent happens to be a significant source of competition between business competitors. After all, star employees can make a big difference in how the business operates and, in turn, achieves success. However, poaching employees becomes illegal in a few situations. Tesla’s claims illustrate some of these situations, which include: If the circumstances constitute a breach of contract; If competitors wrongfully interfere with the terms of an employment contract; and If employees steal or misappropriate a company’s trade secrets or other confidential information. Poaching employees might not be illegal, but business owners should be aware that instances of poaching often significantly increase the risk of disputes or other legal issues. Business owners must be proactive against the risk of talent poaching. They should review California’s laws regarding unfair competition and take the proper post-employment procedures with all employees in an effort to secure their trade secrets and protect their business.

When business owners discover an intellectual property violation by another company, such as a competitor infringing on their trademark, they often move to take immediate legal action. After all, trademark infringement could cause serious damage to their business. Even if business owners file a lawsuit, what if the other business continues infringing on the trademark? This could cause even more damage. One step that business owners should consider in these circumstances is obtaining an injunction. WHAT IS AN INJUNCTION? An injunction is a court order that forces an individual or entity to stop an offending action or take remedial action to prevent further harm to the business. While it is typically complex and time-sensitive to file, successfully seeking this extraordinary relief can help protect the business and reduce the risk of damage if owners face litigation over: Breach of contract or confidentiality agreements Trademark infringement Trade secret misappropriation It is wise for business owners to obtain a preliminary or temporary injunction before the investigation begins and the lawsuit moves forward. Business owners can obtain permanent injunctions as well. However, this is often a step that owners can take after they resolve matters through litigation or alternative dispute resolution. HOW CAN BUSINESS OWNERS OBTAIN AN INJUNCTION? Seeking an injunction can be a critical protective measure for business owners. However, there are a few requirements business owners must fulfill to obtain this court order. Generally, owners must show: The continuance of this act committed by the other party would cause considerable harm to the business; Their need for an injunction does not jeopardize the other company or public interest; It would be difficult for the business to obtain compensation or relief from this action; and The plaintiff is likely to win if they proceed with the case, whether in or out of court. Injunctions can be incredibly helpful when business owners face the risks involved with a lawsuit, but they must ensure they understand all of the guidelines and requirements to obtain an injunction under California law.

Business partners usually establish an agreement in which they divide responsibilities, whether they are financial or managerial duties. Partners also share a set of duties under the law. WHAT IS A PARTNER’S FIDUCIARY DUTY? Business partners hold a fiduciary duty to their business and their partnership. Put simply, this duty requires business partners to make decisions and act in the best interest of the business partnership. California law clearly outlines the obligations included within this duty. General partners have: A duty of loyalty: Of course, business partners would expect each other to have a sense of loyalty to the business. However, this specific duty means partners should not work against the interests of the business or compete against it. This includes placing the business’s interests above one’s own interests. A duty of care: This obligation requires partners to offer and maintain the best possible service to the partnership. Therefore, partners must avoid acting negligently or in any way that knowingly violates the law. Essentially, partners should always act in good faith. In many cases, the partnership agreement also includes these responsibilities. Even if it does not, California law still requires partners to uphold these duties. WHAT ACTIONS CAN BE TAKEN IF PARTNERS BREACH FIDUCIARY DUTIES? Breaches of a partner’s fiduciary duty often manifest as: Omitting financial information in certain records; Taking opportunities from the business for their personal gain; Making decisions in favor of a conflict of interest; or Even, in extreme cases, engaging in insider trading. In a partnership, any of these actions can feel like a betrayal. They can also result in significant losses for a company – which are primarily financial. Partners who breached their fiduciary duties are liable for the damages the business suffered as a result of that breach. The other partners who suffered from the breach can file a legal claim to recover damages over: The breach of the fiduciary duty itself; or Any resulting breach, such as a breach of contract. Regardless, they should ensure they follow any guidelines the partnership agreement provides for them in the event of a dispute. Disputes involving a breach of fiduciary duty can be complex. Business owners facing such a case should consider consulting an experienced business attorney so they can determine how to manage the dispute – and the damage caused – while protecting the future of their business.

Businesses depend on their brand. Everything business owners do is to build that brand, and in turn, trust in their company. Unfortunately, legal disputes and litigation often put the all-important brand in jeopardy. SHORT-LIVED DISPUTES CAN HAVE LONG-LASTING EFFECTS Reputational damage is one of the most serious risks businesses face. This is because business owners only have so much control over their reputation. They can build their brand with painstaking care, but a business’s reputation stems from what others – consumers and other business entities – think of them. That is why facing claims of discrimination or breach of contract can have a significant impact on: The trust established with customers; The relationships with partners or shareholders; Partnerships or relationships with other businesses and entities. These negative impacts can also directly affect the business’s value and financial success in the long run. As we discussed in previous blog posts, this risk is exponentially higher in the digital age than it has ever been before. News of any disputes or complaints can quickly spread in the media and undermine a business’s reputation and brand name. Even if the dispute is resolved quickly, the impact on the business’s brand and relationships can be lasting. HOW CAN YOU CONTROL REPUTATIONAL DAMAGE? It is difficult to control the business’s reputation, especially in today’s world. However, business owners can take action to protect it. Business owners should: Carefully monitor their company’s presence on the internet, especially when it comes to what consumers are saying about their business; Create a plan of action to protect the reputation in the event of a lawsuit; and Connect directly with consumers and business entities if a lawsuit threatens the business’s reputation to reassure them. The goal of protecting a business’s reputation is also one reason why many business owners strive to negotiate and resolve disputes outside of the courtroom. As of now, California business owners can still enforce arbitration agreements, since a judge put a hold on Assembly Bill 51’s ban. However, business owners should not rely on that ban alone. They must ensure they approach any dispute with great care and strategy to preserve their brand and reputation.

The digital world of commerce and business is growing every day. And over the last few years, third-party marketplaces that market catalogues of products from many different sellers have increased in popularity and use. Many businesses – large and small – often see these catalogues as an advantage to get their product out to consumers. Amazon is the epitome of this, as they allow competitors and small businesses to sell their products through their site. However, this model seems to be putting Amazon in a tough spot as they grapple with legal claims of liability. COURT FINDS AMAZON LIABLE FOR THIRD-PARTY PRODUCTS Baker & Associates is not involved in this case, but business owners must be aware of the lawsuit’s developments – and what they could mean for their own business. In a monumental ruling, California’s Fourth District Court of Appeals determined that Amazon could be held liable for defective products from third-party sellers. In this recent case, the plaintiff claimed she bought a replacement laptop battery through Amazon, though the battery was from a third-party seller under the name “E-Life.” The plaintiff stated the battery exploded and caused serious burns when she used the computer. When she filed a claim against Amazon, the online retailer reported it did not distribute, manufacture or sell the product. Therefore, they were not liable. However, the California Court of Appeals disagreed. In the ruling, the Court determined that Amazon played a significant role in the sale of the product, as the company: Provided the product listing; Stored it in an Amazon-owned warehouse; and Shipped it with Amazon packaging. Amazon successfully avoided liability in past cases like this one, but this decision could change that. Even with Amazon’s plan to appeal, this ruling establishes a precedent that could open the company – as well as other online retailers – to a considerable risk of more lawsuits and significant consequences. WHAT SHOULD BUSINESS OWNERS DO? Business owners know they could be held responsible for defective products they manufacture and sell. However, this ruling could substantially increase the liability businesses face, especially if they partner with third-party sellers. And businesses of all sizes, including retail giant Walmart, are taking steps into the e-commerce world. Business owners considering this step should ensure they take great care when participating or collaborating in third-party marketplaces. They must consider the risks involved in this most recent ruling and make sure they proactively evaluate the liabilities they could face before making this move.

Most business owners take great care to prevent legal disputes. However, it is almost impossible to totally eliminate all their risk; it’s simply the reality of running a business. Even so, there are ways that business owners can protect themselves while resolving legal disputes. For example, one critical factor to protect the business is to secure a confidential settlement agreement. WHO IS SUBJECT TO CONFIDENTIALITY IN THESE CASES? There are often many parties involved in the process of resolving a business dispute. This can make it challenging to keep certain matters confidential from the public – including their consumer base and other business affiliates. So, business owners often wonder how they can protect their business when settling damaging disputes or claims. In many cases, making a settlement agreement confidential can help. The confidentiality clause applies to all parties involved in the case, including: Plaintiffs; Defendants; and Attorneys or counsel. With such a clause in place, none of the parties listed above can discuss either the dispute or the settlement of the matter. This not only keeps the details of this case between the relevant parties, but it can also protect businesses from landslide of similar claims. CONFIDENTIALITY IS NOT ALWAYS A POSSIBILITY In 2018, California lawmakers and Gov. Jerry Brown passed a law that bans the use of such agreements in employment disputes involving: Sexual harassment or assault; Discrimination based on sex; or Retaliation for reporting sexual harassment. This ban applies in all these cases, regardless of whether the parties resolved the dispute in or outside of court. Understanding the benefits – as well as the limitations – of a confidential settlement agreement is critical, especially when business owners face the risk of a legal dispute.

As the business world ventures further into the digital world, doing business theoretically becomes easier and more convenient for businesses and consumers. However, as business increases online, so do the regulations. Every California business owner is probably now familiar with the California Consumer Privacy Act (CCPA). The law requires business owners to inform consumers how they will use their personal information and give them the option to opt-out of any such uses. If they do not comply with this requirement, business owners could face serious fines and legal consequences. And as a recent case demonstrates, these consequences might only increase if a security breach puts consumer data at risk. SECURITY BREACHES ALREADY POSE A SERIOUS RISK FOR BUSINESSES A 2016 report from CNBC found that in 93% of data breaches where information was stolen, the breach occurred in mere minutes. It may only take a few minutes to breach and steal information, but these incidents can cause serious damage to businesses: IBM reports that a data breach costs businesses $3.92 million on average; Hackers could steal intellectual property and jeopardize business practices; and Data breaches involving consumer data also put the business’s reputation at risk. When security breaches involve consumer data, businesses could also face legal consequences. We discussed this in a past blog post, regarding the federal lawsuit against Amazon and their partnership with Ring. However, it seems that the risk of litigation is only increasing with the CCPA. RECENT CASES: THE RISK OF LITIGATION EXPONENTIALLY INCREASED UNDER THE CCPA Although Baker & Associates is not involved in this case, it is important to highlight it. Business owners must understand the risks they face. The retail giant Walmart Inc. is facing a class-action lawsuit under the CCPA after a hack put consumer data at risk. The proposed case claims that consumers could suffer significant damages, especially if hackers share their personal information on the dark web. It seems that this issue is not unique to Walmart. Several businesses are facing lawsuits after security breaches. And with the new requirements under the CCPA, it does not seem that the high risk of lawsuits will decrease anytime soon. BUSINESS OWNERS: TAKE SECURITY MEASURES SERIOUSLY Business owners understand the importance of maintaining a high level of security, both in-person and in the digital world. With this increased risk of litigation, business owners must ensure they revisit their cybersecurity strategies to protect their business.

Business owners work hard for what their company has achieved. Everything from the purpose of the business to the carefully cultivated clients is a valued and protected asset for entrepreneurs. Even the logo or branding represents a hard-fought victory full of symbolism, dedication, pride – and perhaps most importantly crucial brand identity and value. Consequently, when another company or individual misappropriates these important assets, either intentionally or not, it can seem like a direct attack on the livelihood of the business. Upon learning of such a misappropriation, the business owner should retain an attorney to write an impactful cease-and-desist letter to the offending party identifying the unlawful conduct and demanding that they immediately stop. CEASE-AND-DESIST LETTER BASICS There is an art to writing a cease-and-desist letter. Too strong, and it may incite resistance which may result in having to file a lawsuit to enforce your rights. Too weak and it will likely be ignored. Firmly encouraging compliance and cooperation rather than seeking punitive remediation if often preferred. For example, in 2012, the popular whiskey brand Jack Daniel’s sent a cease-and-desist letter to an author who used a likeness of their whiskey label as a cover for his book. Instead of immediately threatening legal action, the liquor mogul politely asked him to change the cover for the next printing. They even offered to help pay for a redesign. The author immediately acquiesced, declining the extra funds and making the changes. LEGAL COUNSEL PROVIDES A PROFESSIONAL EYE The Jack Daniel’s approach may not work for every company. Those looking for a more professional voice can hire a local lawyer familiar with intellectual property law. An attorney can draft a professional letter that lays out legal claims clearly and concisely.

When you hire someone new, it can be difficult to know how things will work out. Some employees are fabulous – hardworking, smart and get along well with your team. Others, not so much all the time. Maybe they aren’t so great at following rules and directions, or they don’t mesh well with your other employees. As a business owner, it’s important that you know how to deal with difficult employees while also protecting yourself and your business. Here are some tips to bring into your next employee situation: WRITE DOWN EVERYTHING It’s so important to make sure that you get documentation of problems you have with an employee and how you deal with it. Keep all emails or texts and write down key points from any conversations that you have with them about the issues. Document all incidents and if the issues persist. Even if you think the problem will be solved with a simple talk, having everything documented will be extremely helpful if things don’t get resolved or escalate. GO BACK TO YOUR COMPANY POLICIES When you started your business, you probably made policies and specific processes to help in instances like this. If you’re having an issue with an employee, lean on those policies. You can always kindly remind your employee of the agreement that they made upon getting hired. If things continue and you think disciplinary action may need to be taken, be sure to follow your stated processes carefully to protect your company. OFFER CLEAR AND CONSTRUCTIVE FEEDBACK It can be easy to talk about what an employee is doing wrong, but a good leader is able to help employees correct their behavior. Help them understand what to do differently and how they can improve. KEEP IT PROFESSIONAL Difficult employees can be frustrating to deal with. It’s easy to get overwhelmed by bad behavior, but it’s important to keep your own actions professional. Try to look at the situation calmly and objectively so that you can best understand what is going on and how to resolve it. Don’t talk about the issue with anyone who doesn’t need to be involved. Talking about employees with other employees is one of the quickest ways to escalate the situation. Don’t let a situation with a difficult employee have a negative impact on your business. If the situation persists, seek legal advice to ensure that you are keeping your company safe.