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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.

The legal issues against rideshare companies Uber and Lyft keep mounting in California, as we have discussed before on this blog. Although Baker & Associates is not involved in these cases, the developments highlight critical issues of which employers must be aware. Many of the legal concerns began when California lawmakers passed Assembly Bill 5, which established new requirements for the classification of employees versus independent contractors. However, new lawsuits have posed trouble for these companies as well. NEW LAWSUIT ADDED TO OTHERS AGAINST LARGE RIDESHARE COMPANIES Both Uber and Lyft are now facing a new lawsuit. Recently, the California Labor Commissioner filed a lawsuit claiming these companies engaged in wage theft. These allegations of wage theft may relate to the legal matters over AB5 compliance, but the companies could face even more consequences. The Labor Commissioner aims to recover payment for misclassified drivers. The risk of repaying lost wages, as well as the legal penalties for wage theft, could be steep for these companies. EMPLOYERS BEWARE: WAGE THEFT CLAIMS CAST A WIDE NET Most employers make sure they take great care when it comes to the financial aspects of their business – especially their income and wages. They know that even the smallest mistakes in finances can lead to serious legal issues. However, employers must be especially careful to avoid wage theft claims. And according to the California Department of Industrial Relations, wage theft can encompass many actions, including but not limited to: Failing to reimburse employees for business costs; Not providing or allowing meal breaks or other required breaks; Failing to pay bonuses or promised vacation time; Deducting pay or paying workers less than minimum wage; and Taking employee tips. It is even more important for employers to be conscious of these matters now, in the complex circumstances created by the COVID-19 pandemic. For example, employers must still reimburse employees for business expenses even if they are working remotely. Failing to do so could result in considerable financial penalties for the employer. MAINTAIN FINANCIAL DOCUMENTATION The best way employers can proactively protect themselves in these cases is to keep a detailed record of all financial matters. Many accounting and pay systems are automated nowadays, but employers should still ensure they keep track of all payments through these systems to mitigate the risks of potential legal claims.

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.

Finances are often a priority for both employees and employers. That is why one of the most common issues employers face often involve wage and hour claims. Whether employees claim they did not receive proper pay for their overtime work, or that they experienced pay discrimination, these complaints can be complicated for employers. Employers could face even more scrutiny – and legal penalties – if a new bill becomes law. NEW WAGE AND HOUR REPORTING PROPOSED FOR EMPLOYERS In an effort to reduce the rate of wage discrimination, Senate Bill 973 would alter California employers’ obligations when reporting pay data. The bill would require private employers with more than 100 employees under them to report wage and compensation data to the California Department of Fair Employment and Housing (DFEH). Employers will be required to report this data annually by March 31 starting in 2021. And each year, this report must include information regarding: Specific job categories Employees’ race or sex The employee’s earnings The total hours they worked The DFEH would have the authorization to conduct an investigation and submit employers to legal consequences if they find discrepancies in these reports. As of September, the bill is likely to become law, as it passed the state legislature. Now it only needs Gov. Newsom’s signature. PRECISE PAY-EQUITY AUDITS ARE ESSENTIAL Laws like SB 973 tend to increase the risk of employers facing considerable fines or even litigation – especially if they are not careful to comply with new and current laws. Therefore, all employers should take care to: Review the new requirements of the bill; Reassess their recordkeeping policies; and Conduct proactive and thorough pay-equity audits. Pay audits are essential, but employers must take them seriously. They must ensure they have valid, legal reasons if there are any differences in an employee’s wage. Wage and hour disputes might be some of the most common sources of employment litigation, but employers can reduce the risks they face if they take care to analyze their pay practices and policies closely and ensure they comply with state and federal laws and requirements.

When the #MeToo movement expanded in 2017, employers faced a sharp increase in sexual harassment complaints and cases. The trends of this movement demonstrated a common risk for employers: if one person comes forward with a complaint, many more will likely come forward as well. This risk not only manifests with similar claims, but any sort of legal dispute can open the door to other lawsuits or serious issues. Essentially, if one complaint develops into a lawsuit, it can cause a ripple effect that employers could face. MCDONALD’S IS A PRIME EXAMPLE OF THE RIPPLE EFFECT The recent legal issues stacked against McDonald’s are a clear example of the lawsuit ripple effect employers are especially prone to face. The company has faced compounded legal issues, including: Several McDonald’s employees joined the #MeToo movement and went on strike in 2018. They claimed they experienced persisting sexual harassment at work. As we briefly discussed in a recent blog post, McDonald’s also took legal action against the former CEO for having inappropriate relationships with subordinate employees. Now, most recently, CNBC reports that 50 franchisees are suing the company for racial discrimination. These cases might not seem inherently related. However, the discovery of one infraction can quickly lead to other issues. Soon, other employees feel they can come forward. If even one complaint gets out of hand, employers suddenly face increased scrutiny. And this can quickly lead to legal disputes having a considerable ripple effect for the company. EMPLOYERS MUST BE AWARE OF THIS RISK This prospect of a ripple effect is one of the most critical reasons why employers must take action immediately if they face complaints from employees. California employers must respond to complaints effectively so they can: Prevent complaints from developing into something bigger; Mitigate the risk of a ripple effect; and Minimize the impact ripple effect litigation could have on the business’s finances. Identifying and mitigating risks is critical, especially if employers face complaints from employees. To protect the business’s reputation and future, they must ensure they respond properly to prevent a ripple effect of legal issues.

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.

When property owners claim they found defects in the construction or remodel of their home, it is common for them to try to hold the contractor liable to repair them. However, the builders are not the only parties who could be responsible for a construction defect. Property owners might also try to blame the architect. Architecture firms must prepare for this risk, but they also must be aware: when could they face legal action over a construction dispute? IT TYPICALLY DEPENDS ON THE CONTRACT It is important to note that the architect’s liability for construction defects often depends on the contract. Since written contracts are required in California for construction projects, there will be a written record of the architect’s responsibilities – whether between the owner and the architect or the contractor and the architect. The contract should define the architect’s scope of work and responsibilities regarding a particular project, such as: The timeline and procedure of the project; What services the architect must provide; and The process for payment. SO, WHEN COULD ARCHITECTS FACE LIABILITY? If the contract lacks an outline of an architect’s responsibilities or liability, architecture firms could face legal issues stemming from: The design itself; Failure to find defects during inspections; or Noncompliance with the city or state codes. Essentially, if a defect results from architects failing to fulfill the responsibilities specified in the contract, then they could face liability. Even if there are no errors in the design, any issues pertaining to the architect’s responsibilities could lead to possible claims. Like any construction defect case, issues in the design or other concerns might not appear until later, i.e., “latent defects.”  Architecture firms should ensure they keep careful documentation of their designs, inspections and any issues of note from each project. Firms should also consult an experienced attorney to protect their best interests and minimize the risks they face.

As a result of the pandemic, many California businesses have transitioned their employees to work remotely. Some physical workplaces have since opened up, but many more are maintaining a remote work policy for the foreseeable future. For many businesses, the ability of their employees to work from home has been very helpful during this time. However, it also involves a considerable risk – namely to a business’s intellectual property. As we discussed in a previous blog post, the economic situation created by the pandemic could lead to a wave of trade secret litigation. What can business owners do to tailor their trade secret protection to this new landscape of work? 1. REEVALUATE THE PROTECTION PROGRAM Every business owner should have a trade secret protection program in place that covers essential aspects of security, including: The identification and access to trade secrets; Regulation of how and when employees use trade secrets; The establishment of confidentiality agreements; and Exit procedures to safeguard trade secrets. 2. RECONSIDER SECURITY The process of securing trade secrets changes in the digital world compared to the physical workplace. When employees – and even supervisors – work from home, business owners must ensure they review their security. It might be necessary to: Require all employees to use a virtual private network (VPN); and Send out reminders to improve security for personal home networks and Wi-Fi. Business owners might feel like they do not have much control over their security when everyone works remotely, but they must take steps to reclaim control through increased security measures. 3. REQUIRE NEW COMPLIANCE TRAINING Generally, business owners should require annual compliance training to reaffirm that employees understand the business’s trade secret security policies. However, business owners should arrange a new training for employees under these new circumstances. Business owners must be flexible. They must always be prepared to adjust their trade secret protection program as necessary to improve security and prevent legal risks.

Growing one’s business in a new venture can be exciting, as it allows businesses to diversify and increase sales as well as their consumer base. And in the current circumstances created by COVID-19, many businesses are getting creative on this front. They are moving fast with temporary or long-term ventures to meet changing consumer demands. MANY COMPANIES QUICKLY PURSUING NEW VENTURES For example, retail giant Walmart Inc. is partnering with the Tribeca Film Festival to create the Walmart Drive-in. Many other companies have also expanded their products to include masks and hand sanitizer to meet the increased consumer demand for these products in only a short amount of time. These ventures, like the Walmart Drive-in, might only be temporary. Regardless, business owners must be diligent and take care to measure the risks before moving forward, so they do not put their company in jeopardy or even face litigation. THREE STEPS TO TAKE IN SUCH VENTURES There are more than three steps business owners must take when pursuing ventures that carry their company’s name. In these cases, it is often wise for business owners to consult an experienced business attorney throughout the process to protect the business’s interests. However, these three steps include some of the most critical issues business owners should evaluate in these ventures, including: Preparing operations: Inc. Magazine points out that one of the most common risks businesses face in new ventures is that they are ill-prepared to operate them. This could involve preparing the product or service, planning how to make decisions, hiring the proper staff and providing them with the proper training, having adequate funding, and planning for risks. Ineffective management of such new ventures can cause significant issues. Know the market: When expanding into a new area, business owners must ensure they understand what consumers expect in this market. For example, Walmart might be partnering with the Tribeca Film Festival, which is familiar with the movie market, but it is still an area outside of Walmart’s business as usual. Failing to deliver expectations in a new market can put businesses at risk of financial losses. Consider the brand: New ventures and growth can be good for a business’s brand, but it can also put it at significant risk. Business owners should take measures to protect the integrity of their brand as consumers have come to know it. This also often requires business owners to take steps to protect any intellectual property they might share in these ventures with new partners.

Trade secrets play an important role in the business world, regardless of a business’s size. Whether it is a particular process, technology or even a recipe, trade secrets help to individualize the business and their products. Therefore, business owners need to protect their trade secrets to preserve their business’s success and prevent complicated litigation. This could be more important in the coming years, as a new report speculates that litigation over trade secrets could spike. WHAT IS THE CAUSE OF THIS POTENTIAL RISK? COVID-19 has led many companies across the nation to close their doors, furlough employees or even cut down on staff permanently. In turn, this means that employee mobility has increased, and likely will continue to. As businesses furlough or lay-off employees, they begin to search for new jobs. This is a natural cycle, but a report found that increased employee mobility can correlate with an increased risk of trade secret theft or misappropriation – which could lead to an increase in litigation. Employees might use knowledge from their previous employers in a new position or even to start their own business. This has happened before in the economic crisis between the years of 2007 and 2009: During the crisis, there were roughly 770 to 1,100 lawsuits over trade secrets filed; and After the crisis, from 2013 to 2015, that number increased to between 7,000 to 9,000 cases. This precedent could serve as a warning that the risk of litigation could indeed spike again. BUSINESS OWNERS SHOULD ACT NOW TO PROTECT THEIR TRADE SECRETS When it comes to trade secrets, business owners likely already have strict policies in place to protect them. However, with the potential risk businesses could face in the coming years, they must review these policies. Business owners should: Properly label confidential information; Train employees how to handle trade secrets; and Reinforce cybersecurity measures. If business owners do face trade secret litigation, they must still take action to protect their trade secrets. If a case goes to court, the California Uniform Trade Secrets Act requires business owners to reasonably identify their trade secrets before discovery. Of course, there are measures in place to protect trade secrets from the public record, but business owners must still be vigilant at every step.

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.