When Your New Year’s Resolutions Entail Letting Go of an Employee
 
 Welcome back to Pointers! We hope you all had a great holiday season and are looking forward to a strong and productive year 2011.
 
For many businesses however, the last days of 2010 signaled the closing of the fiscal year, along with the annual performance assessment of their employees. So it’s not uncommon to start the new year with new resolve to either downsize or let go of less productive employees. If hiring the right person is never easy, it’s still a breeze compared to having to terminate an employee.
 
Fair employment practices are governed by federal, state, and local laws. Thus, a proper employment agreement must factor in many legal and statutory considerations so that termination does not open up the floodgates to private lawsuits for wrongful dismissal. Employee contracts also minimize the risk of discrimination claims that might be brought by the many government agencies governing employer/employee relations. (See the US Department of Laborand the Washington State Department of Labor & Industrieswebsites to learn more about government agencies charged with protecting and enforcing workplace rights.)
 
In Washington State, as in most US jurisdictions, the basic principle is that employment is “at will” (unless the parties agreed to a specific term, e.g. one year). This means in essence that both employer and employee may terminate the employment at any time without any reason, cause, or even notice. However, an employer cannot discriminate in exercising its rights to terminate, subject to some exemptions for small businesses, as discussed below.  In reality, when an employer intends to terminate an employee for lack of performance or any other reason, it’s strongly recommended to prepare accordingly by thoroughly documenting the causes for termination and the process followed. As always, companies can minimize the downstream risk of litigation by a combination of careful contracting and best practices.
 
Clear contracts. Both the job offer and the employment contract should explicitly state that the employment is "at will and that either party is free to terminate the employment without cause or noticel." The employment contract should also contain other basic terms of employment: salary, vacations, benefits and the like. Benefits not yet in existence should not be referenced in the contract, or, at the very least, be conditioned upon actual implementation (E.g. “Employee shall be entitled to benefit from Company’s health benefit plan after 90 days of continued service, subject to the availability of such a plan at any given period”…)
 
Best practices.  Employee agreements should always set forth clear performance goals. Where feasible, objective metrics, such as weekly or monthly assessments against performance goals, are a great way to document an employee’s performance or lack thereof. Clear and well-communicated policies, such as employee handbooks and company policy memos, demonstrate an employer’s good faith efforts to inform employees about how to succeed in their jobs. However, when things just aren't working with an employee, several options are available to the employer, based on the particular situation as well as how the employee is likely to react:
 

• Friday afternoon termination with immediate effect. The element of surprise is the main advantage of this option. It reduces the risk that a disgruntled employee will do or say things she might later regret or that disrupt other employees. It also  act as a  preemptive strike by avoiding for instance that  as an employee who sees the writing on the wall might sudenly go on sick leave or suddenly "declare" a handicap in bad faith. On the downside, this method could damage company morale if the employer is perceived as disrespectful, arbitrary or paranoid.
• Termination with notice in lieu of severance.   Very similar to a layoff, this approach is typically caused by a need to downsize or eliminate positions, rather than a lack of individual performance, although it could be either. It can feel more respectful to employees and makes for better transition. However, there’s always the risk of creating bad blood if the person lingers too long. In a worst case scenario, a disgruntled employee might misappropriate trade secrets or other confidential information before termination. See the October issue of POINTERS for an in-depth discussion of trade secrets.
• Termination with immediate effect, with severance. Although not required, an employee severance generally allows the employer to demand the employee sign a full separation agreement and release of all claims in exchange for a severance package.  As with termination with immediate effect, this approach buys an element of certainty that there will be no subsequent claims of wrongful dismissal or discrimination. On the other hand, severance is an additional expense for company that is not required by law. Furthermore, it could embolden an employee to be more aggressive and demand more than what is being offered in good faith.

 
Exceptions for small businesses - Discrimination. It goes without saying that a discrimination charge can lead to costly and time-consuming lawsuit, not to mention negative press.  However, in a small business setting, company morale and personality fit are especially important, and entirely subjective. Accordingly, most Washington anti-discrimination laws (with the exception of gender-based wage discrimination) do not apply to employers with seven or fewer employees, and they do not cover religious or sectarian non-profit employers in general. Note that Washington’s anti-discrimination protection goes beyond the Federal Equal Employment Opportunity laws (including Title VII of the Civil Rights Act of 1964), which covers employers with 15 or more employees.
 
Unemployment insurance considerations.Reasons for termination may impact an employer’s unemployment insurance premiums. The more ex-employees are eligible for unemployment, the more expensive the premiums will be for the employer, although those costs are not linear. In order to be eligible for unemployment in Washington, the requirements are simple: employees must have worked 680 hours in the previous year and earned wages in Washington, and they must be physically able, available, and actively seeking a job. Employees who were laid off for lack of work are usually eligible for unemployment. Eligibility is subject to agency determination where an employee voluntarily quits his job, was fired, suspended or placed on a leave of absence. In order for a terminated employee to be denied coverage, a showing of "good cause" (such as theft, embezzlement and the like) is often required. An employer must be prepared to show evidence of employee misconduct – not just an error in judgment, a one-time mistake, or simple poor performance.
 
 
Exit interviews. Before the employee walks out of the building for the last time, a wise employer will conduct exit interviews, during which post-employment obligations are reviewed with each employee. During these discussions, the employee is reminded of his continuing legal duties to his former employer, which were hopefully communicated at hiring and formalized in the employee contract. Contract clauses related to non-compete, nondisclosure, non-disparagement and so forth should be brought to attention. Providing a copy of that employee agreement during the exit interview is a best practice. If a separation agreement is to be put in place, it should be tendered during this interview, but the employee should be given the opportunity to retain counsel before signing.
 
New Years resolutions are can be initially painful:  trimming the fat with a healthy diet, speeding up one’s metabolism with a new exercise regimen, and dusting out the cobwebs.. Making a decision – and implementing that decision – to downsize and/or let go less productive employees is similarly painful. However, cleaning house will be much more painful unless well-crafted employee contracts are put in place in the front end, meaningful best practices exercised during the employer/employee relationship, and a careful process is followed at the termination period. Minimize your pain by enlisting the help of an attorney experienced in contracts specific to the needs of companies in the technology sector. If done right, this painful process might even turn into an opportunity for a fresh start for everyone concerned.   

 U.S. Supreme Court Rules In Highly Watched Omega vs. Costco Copyright - Grey Market Goods Case.  The U.S. Supreme Court has ruled on the important and closely watched Omega S.A. vs. Costco Wholesale copyright case centered on the availability of the first-sale doctrine defense to importation of copyright protected works made outside of the United States and imported into the U.S without permission of the copyright owner (which is otherwise prohibited absent availability of the first sale doctrine defense) - a type of 'grey market' good.  Patently-O, DEcember 13, 2010.
Attorneys Suspended For Misconduct In Nike IP Suit.  A federal judge has suspended three lawyers for conduct unbecoming of a member of the bar for allegedly helping the principal of a company commit perjury in a suit against Nike Inc. over golf club trade secrets. Law360, January 7, 2011
Supreme Court Patent Cases: Past And Pending. Historically, the U.S. Supreme Court has shown little interest in disputes over patent rights. In the last five years, however, the court has issued an unprecedented seven opinions on patent law that have significantly changed the rights accorded patentees. Three more opinions are likely to issue next year and companies should prepare for more changes. Law360, January 5, 2011
Microsoft, Abbott, Serious Bidness: Intellectual Property. Microsoft Corp., the world’s biggest software maker, infringed a patent on technology used to deter piracy, an appeals court ruled in a decision that may change how damages are calculated in future cases. Bloomberg, January 4, 2011
IP Legislation To Watch In 2011. While intellectual property lawyers are skeptical that Congress will pass legislation to revamp the patent system in 2011, they are keeping hope alive that lawmakers will make a move on legislation to stem the tide of false patent marking suits and a proposal to ramp up enforcement against online copyright infringers. Law360, January 1, 2011
Paul Allen revises patent suit against 11 tech firms. In his revised complaint filed yesterday, Allen alleges that 11 tech companies and retailers--Apple, Google, Facebook, Yahoo, AOL, YouTube, eBay, Netflix, OfficeMax, Office Depot, and Staples--are violating patents granted to him when he headed Interval Research, a small R&D firm that he started in 1992 and ran until it went out of business in 2000. CNET, December 29, 2010
More than 100 companies support i4i in Microsoft Supreme Court case. More than 100 companies signed a letter supporting software development firm i4i in a patent case against Microsoft that the U.S. Supreme Court will hear. i4i sued Microsoft for patent infringement in a $290 million case over an XML editing feature in Microsoft Word. Seattle Times, December 28, 2010
China and Intellectual Property. For years, Chinese officials have promised to improve their protection of intellectual property, but the infringement of copyrights, patents and trade secrets has, in many instances, gotten worse. New York Times, December 23, 2010   (Related: China's Li Keqiang Vows to Ensure Intellectual Property Protection.  Vice Premier Li Keqiang said China will strengthen intellectual-property protection amid criticism from foreign leaders. Wall Street Journal, January 7, 2011)

 

 Investors Get in a Lather Over Tech. Echoes of dot-com craze reverberate as money pours in to start-ups, with one big difference: profits. Financiers and investors are casting their gaze to Silicon Valley. Wall Street Journal, January 8, 2011
Start-Ups Try To Rise Above The Din At CES. Plenty of venture-backed companies are launching at the annual tech showcase - at no small expense to the companies or their investors. Wall Street Journal, January 7, 2011
Top 10 startup stories of 2010. Oh, what a year. There's been no shortage of news stories on the technology beat in 2010, from the rise of Android to the introduction of Microsoft's Kinect to EMC's planned purchase of Isilon for $2.25 billion. TechFlash, December 27, 2010
10 Signs Your Company Has Trade Secrets To Protect. Looking to give more work to your outside counsel in this down economy? An easy way to do this is to get embroiled in a trade secret case. There are precautions, such as conducting a thorough trade secret audit, that companies can take to avoid such a lawsuit. Or you can do nothing — your lawyers will thank you. Law360, December 23, 2010
Google: We need to be able to compete for the best startups. Perhaps it is a sign of the times, a symbolic changing of the guard in technology. But Google is on the defensive this morning, explaining its growing power in the technology world and why it must be permitted to continue its aggressive acquisition plans. TechFlash, December 15, 2010

  
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