Rhodes v. Comcast

Case: Rhodes v. Comcast Cable Communications Management, LLC, No. GLR-14-1824 (District Court of Maryland, August 17, 2016)

Issues: Title VII, Hostile Work Environment, Retaliation

Court Holding: The Court denies defendant’s motion for summary judgment on plaintiff’s Title VII claims.

Employment Counsel: A motion for summary judgment on Title VII hostile work environment claim will be denied if a plaintiff can provide evidence of discriminatory conduct that is sufficiently severe, pervasive or of such a humiliating nature as to interfere with an employee’s work performance. In regards to a retaliation claim, temporal proximity between employee’s protected activity and employer’s negative action gives rise to inference of prima facie case of discrimination.

Case Summary:

This summary focuses on the Title VII claims discussed in this case. From May 2007 through August 2012, plaintiff, Rylinda Rhodes worked as a dispatch representative for Comcast. Throughout her employment at Comcast, Rhodes described experiencing extreme sexualization in her work environment and specific sexually hostile actions directed at her.  Rhodes’ male coworkers used profane and vulgar language, described sexual acts and body parts, and took pictures and manipulated images of female breasts.  Despite Rhodes’ repeated complaints to her supervisor, her coworkers’ behavior persisted. Around August 2011, one of her coworkers grabbed her breasts and later, the same coworker lewdly referenced “missing” them. In May 2012, Rhodes informed a Comcast supervisor she could not return to work due to her coworkers’ vulgarity. Although Comcast said it would investigate her complaints and offered her a position at a different location, it did not offer to reimburse relocation expenses and Rhodes declined the offer. She refused to return to her original employment location and was eventually terminated. She subsequently filed Title VII discrimination claims against the company and Comcast moved for summary judgment.

Title VII prohibits discrimination based on sex and in retaliation for opposing such discriminatory practices. In order to substantiate a hostile work environment claim, Rhodes must show that “the offending conduct (1) was unwelcome, (2) based on her sex, (3) was sufficiently severe or pervasive to alter the conditions of her employment and create an abusive work environment, and (4) was imputable to her employer.”  A workplace is judged as objectively hostile “from the perspective of a reasonable person in the plaintiff’s position” who assesses the circumstances by considering the following factors: the frequency and severity of the conduct, the extent to which it reasonably interferes with the employee’s work, and whether the conduct goes beyond a “mere offensive utterance” and is physically threatening or humiliating.  Conduct can include coworker’s discussions about sexual practices even if such discussions are not directed at the plaintiff.  

In this matter, Comcast argued and presented evidence that it was unaware of the harassment but, the Court pointed out that the evidence presented by Rhodes could establish a hostile work environment. Due to the contradictory evidence presented by both parties, the Court denies Comcast’s motion for summary judgment on this matter.

To establish a Title VII retaliation claim, a plaintiff must demonstrate “(1) that she engaged in a protected activity, (2) that the employer took an adverse action against her, and (3) that a causal relationship existed between her protected activity and the employer’s adverse action.”  The plaintiff must present a prima facie case of discrimination by a preponderance of the evidence.”

In this case, since “temporal proximity between the adverse employment action and the employer’s knowledge of the protected activity ‘gives rise to a sufficient inference of causation to satisfy the prima facie requirement,’” the Court concluded that there was temporal proximity between the time of Rhodes’ complaints and Comcast’s failure to relocate her into a different position. The court held that this court create an inference of causation.  Since Rhodes satisfied the prima facie requirement, the burden shifted to Comcast to provide a “legitimate, nondiscriminatory justification” for its decision to terminate Rhodes. The Court held that based on the evidence presented, Comcast had not yet overcome this burden and denied it’s motion to dismiss the Title VII retaliation claim.

For additional information about this case or other employment law matters, please contact Merritt Green at mgreen@gcpc.com or (703)556-6505.  Mr. Green leads General Counsel, P.C.’s Employment Law Practice and has been representing employers (and occasionally employees) for over 18 years.

 

March 2, 2017 0

Hair Club for Men v. Ehson

Case: Hair Club for Men, LLC v. Ehson, No. 1:16-cv-236 (E.D. Va, District Court for Eastern VA, May 6, 2016)

Issues: Preliminary Injunction for Breach of Contract, Violation of Non-Compete & Non-Solicitation Clauses, Misappropriation of Trade Secrets and Confidential Information, Wrongful Interference with Contract, Tortious Interference with Contractual Relations, and Unjust Enrichment.  

Court Holding: The Court denied plaintiff’s request for an injunction to prevent defendants’ from engaging in hair replacement services because it found that the plaintiff is unlikely to succeed on the merits of its claims against the defendant.  

Case Summary: From 2011 to 2014, Ehson (defendant) was employed by Hair Club for Men (plaintiff). At the outset of her employment, she signed a non-compete and confidentiality agreement. In 2014, Ehson opened her own spa that treated individuals for hair loss. Plaintiff claimed breach of contract and sought injunctive relief.

Legal Standard: In order to obtain an injunction, a plaintiff must establish that “[1] he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.” Since the Court denied the injunction on the grounds that Plaintiff would unlikely prevail on the merits of its claim and is unlikely to demonstrate irreparable harm. The court declined to address the third and fourth factors.   

  1. Likelihood of Success of Claim: The Plaintiffs presented the following five claims against Ehson:

(1) Breach of Contract:

(a) Non-compete: Defendant claimed that the non-compete was overly restrictive.  In order for a non-compete to be enforceable, the “employer must show that the “restraint [1] is no greater than necessary to protect a legitimate business interest, [2] is not unduly harsh or oppressive in curtailing an employee’s ability to earn a livelihood, and [3] is reasonable in light of sound public policy.”  Since the disputed contract prevented Ehson from “engag[ing] in the business of hair replacement, on [her] own account or becom[ing] interest[ed] in such business…in any relation or capacity whatsoever,” the Court refrained from enforcing the non-compete because several aspects of the clause, including the definition of “business” and types of future positions Ehson was allowed to hold, were overly broad and vague.

(b) Non-solicitation clause: The court held that Plaintiff’s non-solicitation clause was also overbroad. Some Virginia courts have upheld non-solicitation contracts that limit the restriction to those “clients who were contacted, solicited, or served by [the employee] while he was employed by [the employer],” but this Court held that the provision was overly broad because it required Ehson to “know all of the customers that have been invoiced by Hair Club, at any Hair Club location, in the two years prior to her departure.”

(2) Misappropriation of Trade Secrets & Confidential Information: To establish trade secret misappropriation, a plaintiff must prove both that a trade secret (1) exists and (2) that the defendant misappropriated it. To constitute a trade secret, the following factors must be met: “(1) independent economic value; (2) not known or readily ascertainable by proper means; and (3) subject to reasonable efforts to maintain secrecy.”  Plaintiff’s allege that the following were protected trade secrets:

(a) Pricing Information: A price list can be a trade secret when it is “qualitatively different from a standard price list” and is “not even made available to customers,” but Plaintiff’s did not make the argument that its price list fell under this description.

(b) Marketing Information: The claim was deemed unlikely to succeed because Plaintiff’s did not provide information on how it endeavored to keep its marketing strategies secret or how it believed Ehson misappropriated its marketing strategies.

(c) Client Information:  Ehson claimed that since she obtained the client’s contact information “directly from the clients themselves,” she did not misappropriate the client list.  The Court found Ehson’s claim persuasive and held that this constituted an “independent development of a contact list.”   

(d) Technique: Plaintiff argued that its hair replacement techniques were unique. In response, Ehson argued that Plaintiff’s techniques were found on outlets like YouTube. The Court did not accept the Plaintiff’s argument.  

(3) Wrongful Interference with Contract & Prospective Business Advantage: In order to prevail,  the plaintiff most demonstrate: “(1) the existence of a business relationship or expectancy, with a probability of future economic benefit to plaintiff (2) defendant’s knowledge of the relationship… (3) a reasonable certainty that absent defendant’s intentional misconduct, plaintiff would have continued in the relationship… and (4) damage[s].”  The Court held that the Plaintiff had may be able to prevail on this claim. The Court reasoned that a central aspect to Plaintiff’s business is building and maintaining its client base. The Court further reasoned that it is “probable that Hair Club’s clients would have continued to patronize Hair Club for maintenance services and thus continued to provide economic benefit.”

(4) Tortious Interference with Contractual Relations:  In order to esblish that there was interference with a contractual relationship, there must be “existence of a valid contractual relationship or business expectancy.” Since the Court doubted whether Ehson’s and Plaintiff’s non-compete and non-solicitation contract was enforceable, it held that it was unlikely that Plaintiff prevail on this claim.

(5) Unjust Enrichment: The Court was unpersuaded that Ehson was unjustly enriched by Plaintiff’s for two reasons: (1) Plaintiff did not argue that it conferred a benefit on the defendant and (2) under Virginia law there shall be no contractual relationship for an unjust enrichment claim to succeed. In this case., the parties had a contractual relationship.

  1. Likelihood Plaintiffs Will Suffer Irreparable Harm: The Court held that the injuries were not irreparable because monetary damages would adequately compensate the Plaintiff for the type of harm alleged.

For additional information about this case or other employment law matters, please contact Merritt Green at mgreen@gcpc.com or (703)556-6505.  Mr. Green leads General Counsel, P.C.’s Employment Law Practice and has been representing employers (and occasionally employees) for over 18 years.

February 27, 2017 0

12th Anniversary Message to Clients

Dear Clients and Friends,

This week, on December 13th, General Counsel, P.C. celebrated our 12th Anniversary.  This would not be possible without the trust, support and loyalty of our clients and friends.  Thank you.

Personally, as I trust most of you have also experienced over the past 12 years, there have been countless challenges, many victories, and occasional losses.  I hope that these experiences have helped me grow as a business owner and legal advisor.

I often tell clients (and other GCPC attorneys) that as attorneys, our responsibility is to serve our clients.  We must understand and proactively protect our clients’ interests.  We must actively communicate.  We must consistently strive to do our best to serve and satisfy our clients to the best of our abilities.  I sincerely hope that we always accomplish this goal for our clients.

When I started General Counsel, P.C. 12 years ago, I was fortunate to have 5 clients leave my prior firm with me.  They were taking a chance since they were leaving a large national law firm to continue working with a start-up solo practitioner.  My gratitude to these 5 original GCPC clients cannot be understated.  They were the foundation of the firm.  And, I am proud to state that each of these 5 clients remain General Counsel, P.C. clients.

It is this long term client relationship built on trust, support and service that I hope we can build with all General Counsel, P.C. clients.  Yes, there are sometimes challenges, but I hope that our dedication to service and absolute client satisfaction will continue to build the foundation of client relationships.  If we ever do not satisfy such expectation, please never hesitate to contact me immediately.

Finally, if you have not had the opportunity to review our revamped website recently, here is a link:  www.gcpc.com.  We continue to serve our clients with 4 primary practice areas:  (1) employment; (2) corporate; (3) litigation; and (4) government contracts.

In closing, thank you again.  General Counsel, P.C. would not be able to celebrate 12 years without the support and loyalty of our clients and friends.  I wish each of your success in your business and personal pursuits.  And, if we can ever be of service, please contact us.

December 16, 2016 0

Employment Law: Changing Requirements for White Collar Overtime Exemption on Hold

Employment Law: Changing Requirements for White Collar Overtime Exemption on Hold

Introduction

As we told you earlier, the general rule for the white collar overtime exemption was subject to an overhaul this year, with the changes scheduled to go into effect December 1, 2016.  Specifically, the minimum salary level for exempt employees was scheduled to rise from $455 per week, or $23,660 annually, to $921 per week, or $47,892 annually.  The new rule also allowed for salary adjustments every three years.  

Legal Posture

On Tuesday, November 22, 2016, U. S. District Judge Amos Mazzant II issued a preliminary injunction in response to an Emergency Motion for same filed by the State of Nevada and 20 other states.  

In their Emergency Motion for a Preliminary Injunction, the states questioned the lawfulness of the Final Rule, whether the Department of Labor had the authority to promulgate the rule, and whether the automatic update provision complied with certain requirements.  

Preliminary injunctions are fairly rare.  In order to prevail on a motion for a preliminary injunction, the plaintiffs must establish four things, as follows:

  • There is a substantial likelihood of success on the merits;
  • There is a substantial threat to the plaintiffs that they will suffer irreparable harm without the injunction;
  • That the injury threatened outweighs the damage that might be caused by an injunction; and
  • That the injunction does not disserve the public interests.

Likelihood of Success on the Merits

After an analysis of the statutory language governing the white collar overtime exemption, the Court ruled that Congress, not the Department, has the authority to make determinations about raising the minimum salary level.  Consequently, the Court found the plaintiffs would likely be successful on the merits.

Substantial Threat of Irreparable Harm

The plaintiffs argued the implementation of the law would have irreparable harm on the states.  They offered, for example, the state of Kansas’ Department of Children and Families, and the Department of Corrections, both of which had over 50% of their employees affected by the rule.  Plaintiff argued, and the Court agreed, that the budget constraints of these departments were such that they would not be able to increase salaries per the law.  This could lead to lay-offs, which would impact public safety considerations.

Balancing the Injury Against Potential Damage Caused by the Injunction

Plaintiffs argue the substantial sums that would be spent under the rule would not be recoverable if the rule went into effect.  They also argue the rule could impact government services, would cause administrative disruptions, would result in employee reclassifications or terminations, and general harm to the public.  The Court notes that there is little to no harm to the defendant if the rule is delayed, and thus finds on balance, the plaintiffs’ potential injuries tip the scale in favor of the plaintiff.

The Public Interest

The Court noted that due to the rapidly approaching effective date, the Court did not have time to “render a meaningful decision on the merits.”  Because of this, a preliminary injunction would provide the Court the time to review the case more completely.

Conclusion

In light of the above, the Court has issued a nation-wide injunction, prohibiting the implementation and enforcement of the modifications to the white collar overtime exemptions.  

Of course, we at General Counsel, PC will keep you apprised of new developments as they occur.  

You can read the court’s decision in its entirety here.

November 28, 2016 0

Employment Law: Court Determines Gov’t Contractor’s Non-Compete Unenforceable

Case: RLM Commc’ns, Inc., v. Tuschen, No. 14-2351 BL 244020, 41 IER cases 971 (4th Cir. July 28, 2016)

Issue: Non-Compete Agreement Determined to be Unenforceable Because Overly Broad

Court Holding: In litigation between two competing government contractors, Fourth Circuit affirmed district court’s summary judgment against plaintiff.  Former Employee and her new employer did NOT violate non-compete agreement or other obligations because, in part, non-compete was overly-broad and, as such, unenforceable.

Employment Counsel: Employer’s MUST make sure that its non-compete / non-solicitation agreements are narrowly written to protect the legitimate interest of the business.  If not, they will not be enforceable.

Case Summary: The plaintiff, RLM Communications, Inc. (“RLM”) is a government contractor that specializes in cyber security, information technology, and information assurance.  The defendant, Amy Tuschen (“Tuschen”), worked for RLM for six years managing an information-assurance contract with the U.S. Government. She resigned about a year before this contract was due to expire and joined a competitor, eScience and Technology Solutions (“eScience”).  Prior to departing, Tuschen copied several files related to the contract that she managed onto a CD, which she allegedly provided to her successor at RLM.  Initially, RLM did not object to Tuschen’s resignation and new job.  However, when RLM learned that eScience planned to bid against RLM on a government contract similar to the one Tuschen had managed at RLM, RLM filed lawsuit against Tuschen and eScience.

 

RLM’s filed a suit in North Carolina that included multiple claims against Tuschen and eScience, including breach of Tuschen’s non-compete and confidentiality agreements, misappropriation of trade secrets, conversion, tortious interference with contractual relations and unfair and deceptive trade practices, and civil conspiracy.  The district court granted summary judgment on all claims to Tuschen and eScience.  RLM filed an appeal. The appeals court upheld the district court’s decision based on the following analysis:

  1. Non-compete. The court concluded that Tuschen did not violate her noncompete agreement. It found that the agreement itself was overly broad and therefore invalid because it prohibited direct and indirect participation in similar businesses. In relevant part, Tuschen’s noncompete prohibited her from “directly or indirectly” participating in a business similar to RLM and located in the same geographical area.  Specifically, the non-compete provided:

While I, the Employee, am employed by Employer, or for 1 years/months afterward, I will not directly or indirectly participate in a business that is similar to a business now or later operated by Employer in the same geographical area.  This includes participating in my own business or as a co-owner, director, officer, consultant, independent contractor, employee, or agent of another business.

The court concluded that this language created a “restriction on Tuschen’s future employment that is largely unmoored from RLM’s legitimate business interests,” and could be read as preventing Tuschen not only from working with a competitor in a similar position to the one she held at RLM, but also from doing any other job, such as mowing lawns, working as a realtor, etc., for any business that provided similar services.  As such, it was unenforceable.

  1. Confidentiality Agreement. RLM claimed that Tuschen breached her confidentiality agreement when she copied confidential files onto a CD without permission. The court, however, noted that this action would only constitute a breach if it was outside the scope of her professional duties. Tuschen testified that she only copied files in order to give them to her successor and so ease his transition into the job. RLM could offer no contradicting evidence to her testimony. Therefore, the court affirmed summary judgment as to this claim because RLM failed to provide sufficient evidence that Tuschen breached her confidentiality agreement by both copying information without permission and for reasons other than the furtherance of her professional duties to RLM.
  1. Misappropriation-of-trade-secrets. RLM claimed that Tuschen created a copy of the CD to share confidential information with eScience. The court reasoned that multiple interpretations of North Carolina’s misappropriation statute can “produce a rule sufficient to resolve the case: “When an employer brings a misappropriation claim against an employee, admitting that the employee had authorized access to its trade secrets at all relevant times, the employer must raise an inference of actual acquisition or use of trade secrets to survive summary judgment.” Applying this rule, the court rejected RLM’s misappropriation-of-trade-secrets claim because RLM authorized Tuschen to have access to its trade secrets, and it did not establish that she ever accessed them without proper authorization. Moreover, the court dismissed RLM’s claim that an “unexplained leap in technical capacity” permited an inference of misappropriation in this case because the only evidence of such a leap was eScience’s unsuccessful bid for the government contract.
  1. Tortious Interference with Contractual Relations: Citing Peoples Sec. Life Ins. Co. v. Hooks, the court concluded that summary judgment was appropriate on RLM’s tortious interference claim because “competition in business constitutes justifiable interference in another’s business relations” and in the present case, there was no evidence that eScience was motivated by malice or anything other than normal competition in its dealings with Tuschen. 322 N.C. 216 (N.C. 667).  
  1. Other Claims: The court affirmed summary judgment on RLM’s conversion claim using its misappropriation-of-trade secrets analysis. Similarly, it dismissed RLM’s remaining claims of unfair and deceptive trade practices and civil conspiracy, reasoning that those claims relied on analysis that the court had already found meritless.

For additional information about this case or other employment law matters, please contact Merritt Green at mgreen@gcpc.com or (703)556-6505.  Mr. Green leads General Counsel, P.C.’s Employment Law Practice and has been representing employers (and occasionally employees) for over 18 years.

 

October 5, 2016 0

Pregnancy Discrimination: EEOC vs. Dimensions Healthcare Sys., No. PX15-2342

Pregnancy Discrimination: EEOC vs. Dimensions Healthcare Sys., No. PX15-2342

Case:  EEOC vs. Dimensions Healthcare Sys., No. PX15-2342 (D. Md. Sept. 2, 2016).

Issue:  Pregnancy Discrimination

Court Holding:  Employee provided sufficient evidence to defeat employer motion for summary judgment.

Employment Counsel:  Telling employee that she did not get promotion because “you were on maternity leave for a while,” will likely expose employer to pregnancy discrimination liability.

Case Summary:  In a September 2, 2016 decision, the Maryland U.S. District Court denied summary judgment for Dimensions Healthcare System in a case brought by the EEOC.  When discussing why female employee did not receive promotion, manager allegedly stated: “Well, like I said, he had a management background.  Plus, you were on maternity leave for a while.”  When reading this statement, it is easy in hindsight to realize that if actually stated, saying that an employee did not receive a promotion because she was on “maternity leave for a while,” was incredibly foolish and likely will cost the employer (or its insurance company) significantly. 

A plaintiff may survive summary judgment by establishing her Title VII discrimination claim either through direct and indirect evidence of discriminatory animus, or through the burden-shifting framework of McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973).  Under the direct method of proof, “[t]o avoid summary judgment, the plaintiff must produce direct evidence of a stated purpose to discriminate and/or [indirect] evidence of sufficient probative force to reflect a genuine issue of material fact.” Rhoads v. FDIC, 257 F.3d 373 , 391 (4th Cir. 2001).  

Under the burden-shifting framework, the plaintiff must establish a prima facie case of discrimination by a preponderance of the evidence. Then, the burden shifts to the defendant who [*6] must articulate a legitimate, nondiscriminatory reason for the adverse employment action. If the defendant offers a legitimate reason, the burden shifts back to the plaintiff to demonstrate that the reason offered by the employer is false. See McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973).

To establish a prima facie case, a plaintiff must present facts upon which a jury could conclude that, more likely than not, the defendant’s failure to promote was motivated by sex discrimination. More specifically, the plaintiff must produce sufficient evidence to show that: 1) plaintiff is a member of a protected class; 2) defendant had an open position for which she applied or sought to apply; 3) plaintiff was qualified for the position; and 4) plaintiff was rejected for the position under circumstances giving rise to an inference of unlawful discrimination. See Evans v. Techs. Applications & Serv. Co., 80 F.3d 954 , 959-60 (4th Cir. 1996).

In this case, the District Court determined that the plaintiff had presented sufficient evidence to survive summary judgment under both the direct evidence and the burden shifting tests.   The case will now proceed to a jury trial or, more likely than not, the parties will reach a settlement.

For additional information about this case or other employment law matters, please contact Merritt Green at mgreen@gcpc.com or (703)556-6505.  Mr. Green leads General Counsel, P.C.’s Employment Law Practiceand has been representing employers (and occasionally employees) for over 18 years.

September 30, 2016 0

NEVER Purchase a Business without Advice of Expert Corporate Law Attorneys

NEVER Purchase a Business without Advice of Expert Corporate Law Attorneys

This article will help you to better understand the ins and outs of when you decide to Purchase a Business.

Recently, a client arrived at our office:

  • On his last leg.
  • In Debt.
  • Humiliated.
  • Scared
  • Facing Divorce over a business mistake.

Why?

Two years ago, he put his family’s savings into an LLC formed on one of those online ‘form your company and save money’ websites, and bought a retail company to fulfill the husband’s life long dreams of self-employment through owning a business – all without ever contacting a Corporate Law Attorney for guidance or advice.

What could go wrong?

This man contacted a business broker and a few months later purchased a retail store selling the latest fad in sugary foods.

Almost immediately, the business was in trouble. The first month’s revenue was less than half of what he expected based on the financials the Seller provided during “due diligence” review.  

He never asked a Corporate Law Attorney to examine the business and financial documents provided by the Seller or even review the purchase agreement.

What Happened?

As the hole got deeper the new business owner struggled to maintain the business and realized the mathematical fact that the business was insolvent – INSOLVENT!  

Just two years earlier this man was a well-respected professional with significant savings seeking an acquisition opportunity. He invested Several HUNDRED THOUSAND dollars to buy a Company without any outside advice.

As they shut down the business and negotiated a Lease Termination, the Client learned that the Sellers provided the Landlord with monthly revenue numbers that were consistently half of the revenue numbers provided to the Client during negotiations.  Suspecting fraud, he contacted General Counsel, P.C. (experts in Corporate Law) for advice.  It took a lawsuit and over a year of negotiations to get a reasonable settlement for our Client.

What Could have been?

The cornerstone of an experienced Corporate Law Attorney’s due diligence review as a buy-side advisor is to examine and scrutinize the financial statements for accuracy.  In addition, we interview the accountant to ensure there are no procedural or accounting irregularities.  

The central issue in the acquisition of a business is the Allocation of Risk between the buyer and seller. Our transaction documents are drafted to identify any liabilities and address them in advance.  As you can imagine, our Client presented us with a deal document that could have been written on the back of a napkin – stains and all.

The financials are the scoreboard of any business and the entire basis for determining the value; there are simple multipliers setting the value based on the Financials.  If the reported numbers are not correct the entire transaction should be abandoned.  In this case, due to an “accounting problem,” the Seller could not provide up to date financials before closing – to a good Business Attorney, this is a major RED FLAG.  If this Client had contacted General Counsel, P.C. just 15 minutes before closing the transaction, this disaster would have been avoided.

In just 30 minutes we diagnosed what happened to this family – to the trained Business Attorney it was obvious – it would have saved him over a year of anxiety and several additional thousands if he had sought guidance.

If you are considering buying a business, contact an experienced business attorney at General Counsel, P.C.  Richard Trimber can be reached at:  rtrimber@gcpc.com or (703) 556-0411.

Decide what you want your company’s future to be and call Richard Trimber at General Counsel, P.C. for a free consultation and fitness checkup on your company’s operations, stress points, structure, HR Policies and Procedures (strategic HR with training plans) and team needs so you can grow a great business – a living company that can survive and thrive in the future. 

General Counsel P.C. has the expertise, skill and–the real key–unique experience of running companies as C Level Executives that makes a difference when advising our clients on: (i) structuring operations for efficiency and legal protection (which means more value); (ii) administration (not just overhead but value added elements); and (iii) Sales/Marketing (proper incentive based compensation causing the behavior that drives results!).  

September 23, 2016 0

Wells Fargo False Accounts Scandal

Wells Fargo False Accounts Scandal

Poor Culture, Misaligned Incentives and Massive Fines… Lessons for Businesses of Every Size

Many of the employees felt pressure to sell customers multiple products or services… to stay in their jobs or earn bonuses tied to sales goals… branch employees met with their managers several times a day to report their progress on meeting cross-selling targets…” – Article in the Wall Street Journal, September 14, 2016, found here: http://www.wsj.com/articles/wells-fargo-ceo-defends-bank-culture-lays-blame-with-bad-employees-1473784452

Wells Fargo was caught falsifying accounts to meet sales goals for cross-selling products to customers and paid a $185 million fine.

I will not be surprised if we find that this is not the only issue inside of the bank that comes to light.  At the core of this type of behavior is a cultural corruption and mis-alignment among the company, employees and incentives.

The Peg Bundy Business Model

Years ago on an episode of “Married with Children” the character Peg Bundy got involved in a home based business selling make-up to her neighbors.  Peg made an off handed comment to her friend that ‘while the make-up isn’t very good… every time I order more they send me a check…’  Later in the episode Al Bundy gets the bill for all the orders and explains to Peg that her behavior is how they are ‘rocketing to the poorhouse…’

Peg was not incentivized to sell the make-up, instead she was incentivized to order more make-up because that is how she earned money in the venture.

Likewise, the incentive structure at Wells Fargo was not to service customers, rather it drove improper cross-selling and has cost Wells Fargo a great deal in actual and reputational capital.

Wells Fargo CEO John Stumpf contends that “There was no incentive to do bad things,” in connection with the scandal, the results suggest otherwise.     

How About Your Business?

I once participated in a meeting with a Sales Director who was asked – ‘How do your sales managers earn bonuses and commissions? How do they earn their commissions and bonuses?’  His answer:  “I have no idea.”  Would you be surprised to learn that the company had stagnated growth for five years and over 100% turnover on its sales team?  This sales leader had no idea what incentives motived employee behavior.  I wondered: How could he lead?  He was removed him from the position on the spot – the company grew 15% in the following year as a result of a revitalized marketing and sales team.

Alignment

As you can see in the WSJ Article, Mr. Strumpf “feels accountable” for what happened.  Well, leadership is always, completely accountable for what happens inside an organization because leadership sets the strategy, culture and compensation plans that drive the behavior that determines results.

Compliance and Accountability – Keys to Building Company Value

While the bank explains that the number of people involved is small 5,300 (with few, if any in senior management getting the ax) – it is telling that it was so wide spread and lasted for several years. The compliance department failed to check the accounts – even in the face of customer complaints and the only people held to account are line employees.  

Well, in middle market businesses there are no such protective barriers for Owners and Leaders.  Make sure your company has a culture focused on effective execution, focused on doing the right things well. Walk the halls of your business, find out what is happening at the loading docks and at the point of delivery of your services.  Leadership must hold itself accountable to set the example and hold others accountable before massive failures, fines or worse…

Decide what you want your company’s future to be and call Rich Trimber at General Counsel, P.C. for a free consultation and fitness checkup on your company’s operations, stress points, structure, HR Policies and Procedures (strategic HR with training plans) and team needs so you can grow a great business – a living company that can survive and thrive in the future. 

General Counsel P.C. has the expertise, skill and–the real key–unique experience of running companies as C Level Executives that makes a difference when advising our clients on: (i) structuring operations for efficiency and legal protection (which means more value); (ii) administration (not just overhead but value added elements); and (iii) Sales/Marketing (proper incentive based compensation causing the behavior that drives results!).  

September 18, 2016 0

Expansion of the Mentor-Protégé Program – Form Strategic Alliances

Expansion of the Mentor-Protégé Program – Form Strategic Alliances

Expansion of the Mentor-Protégé Program – Time to form Strategic Alliances

By Sharon O. Steele, Chair Government Contracts Practice Group

General Counsel, P.C. – www.generalcounsellaw.com

ssteele@gcpc.com (703)226-2719

The Small Business Administration (SBA) released the final rule concerning the long-anticipated expansion of the Mentor-Protégé Program.  The final rule creates a Government-wide mentor-protégé program open to all types of small businesses, i.e., Historically Underutilized Business Zone (HUBZone) small businesses, women-owned small businesses (WOSBs), service-disabled veteran-owned small businesses (SDVOSBs), and all small businesses.  Formerly, the 8(a) program was the only SBA program with a mentor-protégé program.  

The final rule amends the SBA’s regulations to implement provisions of the Small Business Jobs Act of 2010 and the National Defense Authorization Act for Fiscal Year 2013 (NDAA). In addition to expanding the mentor-protégé program across all small businesses, the final rule modifies the current 8(a) mentor-protégé program, clarifies the meaning of a joint venture, and implements new compliance requirements to approved joint ventures.   

As a result, it would behoove large businesses to begin making strategic alliances with small businesses as soon as possible, and for small businesses to seek out strategic partners as well.  Firms, both large and small, must be prepared for what could be a major shift in contracting practices.  Once the new program is fully implemented, participation in a mentor-protégé relationship may become the de facto price of admission for pursuing small business set-aside contracts.

This is welcome news for small and large businesses, as many more firms will be able to access the benefits of being a mentor and a protégé.  The impact will be very significant to the government contracting community.  The regulations could result in the expansion of SBA’s mentor-protégé from 389 eligible participants in the 8(a) program to over 2,000 potential participants in the new mentor-protégé program.  And, increased participation could result in protégé firms obtaining as much as $2 billion per year in federal contracts through the program.

The SBA also suggests that because the expanded mentor-protégé program will allow small businesses to compete for larger contracts and a greater number of contracts, it is probable that federal agencies will set aside more contracts for various types of small businesses.  

To help ensure adequate resources and quick enrollment for participants in the new, expanded program, there will be a unit set up within the SBA Office of Business Development solely devoted to processing mentor-protégé applications and assisting such ventures.

Mentor-Protégé Program

July 29, 2016 0

Government Contracting – SBA Final Rule – NDAA 2013 Changes

Government Contracting – SBA Final Rule – NDAA 2013 Changes

Back when the U.S. Congress was adopting the 2013 version of the National Defense Authorization Act (NDAA), it included directives to the Small Business Administration (SBA) to make changes to multiple rules pertaining to small business set-aside contracts and subcontracting.  On Monday, May 31, 2016, the SBA published final rules in the Federal Register implementing each of these changes.

The following are some of the most significant changes in detail.  All of the changes can be seen at: https://www.federalregister.gov/articles/2016/05/31/2016-12494/small-business-government-contracting-and-national-defense-authorization-act-of-2013-amendments.

Government Contracting - SBA Final Rule - NDAA 2013 Changes

Part I:  Work Performance by Small Business Concern.  

SBA’s final rule, Small Business Government Contracting and National Defense Authorization Act of 2013 Amendments, implements numerous changes to the requirements that ensures certain amount of work is performed by a small business concern (SBC).  This rule became effective June 30, 2016.

Key Changes

The current method of calculating compliance with the limitations on subcontracting requires the prime contractor to perform a certain percentage of work under a set-aside contract.

The FY2013 NDAA replaced this method with one that limits the percentage of the award amount received by the prime contractor that may be spent on subcontractors. Under this method, work done by “similarly situated” first-tier subcontractors does not count as subcontracted work for purposes of determining compliance with the limitation on subcontracting requirement.  To address concerns as to potential pass-through schemes, SBA is applying the limitations on subcontracting collectively to the prime and any similarly situated first-tier subcontractor, such that any work performed by a similarly situated first-tier subcontractor will count toward compliance with the applicable limitation on subcontracting.  But, any work that a similarly situated first-tier subcontractor subcontracts, to any entity, will count as subcontracted to a non-similarly situated entity for purposes of determining whether the prime/sub team performed the required amount of work.

The method for calculating compliance will continue to be based on the NAICS code assigned to the contract. The limits in the final rule are:

  • 50% for services
  • 50% for supplies
  • 15% for general construction, and
  • 25% for specialty trade construction.

The final rule also makes clear that the cost of materials is excluded from the calculation and not considered to be subcontracted.

Penalties for Non-Compliance

SBA has implemented in the final rule the penalties listed in 15 U.S.C. 645(d) for concerns that violate the limitations on subcontracting requirement contained in the FY2013 NDAA.

Impact on Teaming

The impact of this new method of calculating limitation on subcontracting will be on the way that SBCs choose subcontractors and teaming partners. SBC prime contractors will likely look to target subcontracts to “similarly situated” entities so that those dollars subcontracted will not count against it, and will need to consider status carefully when identifying NAICS codes to assign to subcontracts.

FAR v. SBA Regulations

Between the time that this rule becomes effective and the time that the FAR Council revises the FAR solicitation provisions and contract clauses to marry up with the revised SBA regulations, there will be a period of uncertainty as to which calculation method will apply to procurements.  If a solicitation references the FY2013 NDAA language or new version of 13 C.F.R. § 125.6 but contains FAR 52.219-14 (NOV 2011), use the Q&A process to seek clarity as to how the agency intends to determine offerors’ compliance with the limitations on subcontracting requirement.

To the extent that an agency is using the new calculation method, consider seeking clarity from the agency as to how offerors must demonstrate independent contractors are similarly situated.  Will it be sufficient to merely state in the proposal that a SBC prime contractor will use ‘independent contractors’ and ensure compliance with the limitations on subcontracting provision?  Does an offeror have to separately identify its similarly situated independent contractors in its proposal?  Must an offeror have received certifications from its independent contractors as to size and status prior to proposal submission?  Will these independent contractors be registered on SAM with DUNS numbers and CAGE codes? 

Part II:  Prime Contractors’ Compliance with Subcontracting Plans.

The Small Business Administration’s (SBA) final rule, Small Business Government Contracting and National Defense Authorization Act of 2013 Amendments, implements changes that impact the proposal process which can involve planning and team selection months in advance of proposal submission, contractors need to focus on the new requirements now.

https://www.gpo.gov/fdsys/pkg/FR-2016-05-31/pdf/2016-12494.pdf

Notice to Named Small Business Subcontractors

One of the immediate action items for contractors arising out of the final rule comes from the new requirement that if a large prime contractor identifies a small business concern (SBC) by name as a subcontractor in a proposal, offer, bid or subcontracting plan, the prime contractor must notify the SBC in writing prior to such identification.

Increased Scrutiny on Prime Contractors’ Compliance with Subcontracting Plans

  1. The final rule is likely to lead to increased scrutiny of whether prime contractors are satisfying their small business subcontracting goals over the course of performance, pursuant to the requirements in 13 C.F.R. § 125.3.
  2. The SBA has established a “whistleblower” mechanism to allow potential subcontractors to report fraudulent activity or bad faith behavior by a prime contractor with respect to a subcontracting plan. 13 C.F.R. § 125.3(c)(9).
  3. The final rule lays out the process whereby Commercial Market Representatives (described in 13 C.F.R. § 125.3(e) as “SBA’s subcontracting specialists”) with a reasonable basis to believe that a contractor has made a false statement to the Government or prime contractor must report the matter to the SBA OIG.
  4. Section 13 C.F.R. § 125.3(f) is modified to include that contracting agencies must also perform evaluations of a prime contractor’s subcontracting plan performance, and that SBA’s evaluations of subcontracting plan performance are completed as a supplement to the contracting agency’s review.

Penalties for Failure to Demonstrate Good Faith Compliance Augmented

Currently, the failure to demonstrate a good-faith effort to comply with its small business subcontracting plan and/or to provide a written corrective action plan following receipt of a marginal or unsatisfactory rating regarding subcontracting plan performance can subject a contractor to liquidated damages. The final rule specifies that these two occurrences will now also place the contractor in material breach of the contract and the failure to demonstrate good faith must be considered in any past performance evaluation of the contractor, thereby impacting the contractor on future procurements. 

Part III:  Small Business Recertification.

 Small Business Government Contracting and National Defense Authorization Act of 2013 Amendments implementing the National Defense Authorization Act of 2013 (FY2013 NDAA) Amendments – a new recertification requirement that is triggered following the merger, sale, or acquisition of a firm that has submitted an offer as a small business concern (SBC).

https://www.gpo.gov/fdsys/pkg/FR-2016-05-31/pdf/2016-12494.pdf

A business or concern that represents itself as a small business and qualifies as small at the time of proposal submission is considered to be a small business throughout the life of that contract, unless a recertification requirement has been triggered.

The issue is that if a small business concern could submit a proposal with pricing, certify that it is small, and actually qualify on that date of proposal submission as small, should that small business be able to sell itself following proposal submission or contract award to a large business and allow the large business to benefit for up to five years of contract performance as a “small business”?  The SBA’s answer to that is no.  The SBA’s regulations as currently drafted require recertification in certain circumstances following a merger, sale, or acquisition but only once award has already been made.  In the final rule, SBA imposes new recertification requirements aimed at changes that occur within the window between proposal submission and contract award.

Current Recertification Requirements

The SBA determines the size status of a firm, including its affiliates, as of the date the firm submits an offer to the procuring agency that includes price. See 13 C.F.R. § 121.404(a).

Under the current SBA regulations, the SBA requires SBCs to recertify size status in two (2) circumstances. First, SBCs must recertify to the procuring agency within 30 days of an approved contract novation.  13 C.F.R. § 121.404(g)(1).  If it cannot recertify as small, the offeror must inform the procuring agency that it is other than small.  If the contractor is other than small, the agency can no longer count the options or orders issued pursuant to the contract, from that point forward, towards its small business goals.

Second, where contract novation is not required, SBCs must recertify within 30 days of a transaction becoming final, or inform the procuring agency that it is other than small. 13 C.F.R. § 121.404(g)(2(i). If the contractor is other than small, the agency can no longer count the options or orders issued pursuant to the contract, from that point forward, towards its small business goals. Recertification is required in these circumstances:

(A) When a concern acquires or is acquired by another concern;

(B) From both the acquired concern and the acquiring concern if each has been awarded a contract as a small business; and

(C) From a joint venture when an acquired concern, acquiring concern, or merged concern is a participant in a joint venture that has been awarded a contract or order as a small business.

13 C.F.R. § 121.404(g)(2)(ii).

As drafted, these regulations do not expressly require recertification in situations where a proposal has been submitted but before award is made. Nor do these regulations require that an agency exclude an offeror from a procurement when a small business concern became “large” after the date required for self-certification.

The New Recertification Requirement on Small Businesses

In the final rule, the SBA adds a recertification requirement as 13 C.F.R. § 121.404(g)(2)(ii)(D).  Now, if the merger, sale or acquisition occurs after offer but prior to award, SBCs will have to recertify its size to the contracting officer prior to award.

The final rule also broadens the scope of required recertification in cases where contract novation is not required.

These changes became effective June 30, 2016.

Summary:  The NDAA FY2013 changes are wide ranging, amending SBA’s non-manufacturer rule and affiliation rules, and for the first time allowing joint ventures to qualify as small for any government procurement as long as each partner to the joint venture qualifies individually as small under applicable size standards.  Moreover, this rule becomes effective June 30, 2016. However, changes to the parallel FAR requirements are still needed for regulatory consistency and implementation.

If you have any questions or comments about the contents of this article, please contact General Counsel, P.C. – Government Contracts Practice Group.

Written by Sharon O. Steele, Chair of the Government Contracts Practice Group

 

July 29, 2016 0

Andy Baxter selected as a 2016 Virginia Super Lawyer Rising Star for Business Litigation

Dear General Counsel, P.C. Clients and Friends:

General Counsel, P.C. is honored to congratulate J. Andrew Baxter (“Andy”), who leads the firm’s litigation practice, on his selection as a 2016 Virginia Super Lawyer Rising Star within the Business Litigation category.

J-Andrew-Baxter

Andy is a trial attorney experienced in a wide range of litigation areas.  He provides counseling and risk management services that allow clients to avoid costly business disputes.  But, when necessary, he has the litigation and trial experience to fiercely advocate for clients.

If you or your business is faced with a potential dispute, Andy (and the GCPC litigation team) will be your advocate and defender.  Do not hesitate to contact him with any questions or if we can ever be of assistance.
Experience:

J. Andrew Baxter has spent his entire career as an attorney servicing clients in Northern Virginia and the District of Columbia. Mr. Baxter is a trial attorney experienced in a wide range of litigation areas, including Personal Injury, Business, Debt Collection and Intellectual Property. His current practice is focused on taking advantage of his extensive trial court experience to offer business and individual clients the benefits of a full-service law firm, with the individual attention offered by a small firm.

J. Andrew Baxter’s experience is in complex corporate and insurance litigation. Mr. Baxter has represented local and international companies in their creation, contract matters, trademarks, and lawsuits. Mr. Baxter has obtained sizable settlements and judgments for his clients, and has protected his clients’ assets from lawsuits. More importantly, Mr. Baxter has successfully provided counseling and risk management services that have allowed his clients to avoid costly business disputes and litigation.

J. Andrew Baxter is a graduate of Florida Coastal School of Law, where he earned his Juris Doctor and a Certificate in International and Comparative Law. Mr. Baxter also attended the Haifa Law Institute in Haifa, Israel, where he studied International Corporate Law, Comparative Law, and International Humanitarian Law. Andrew Baxter received his Bachelor’s degree in Music Composition and Performance from Valdosta State University.


J. Andrew “Andy” Baxter can be reached

General Counsel, P.C.
6849 Old Dominion Drive
Suite 220
McLean, VA 22101

Main: +1 703.556.0411
Direct: +1 703.226.2719
Fax: +1 888.222.6807
Email: ssteele@gcpc.com

 

April 25, 2016 0

General Counsel, P.C. Welcomes Sharon O. Steele To Lead GovCon Practice Group

Dear General Counsel, P.C. Clients and Friends:

General Counsel, P.C. is pleased to welcome Sharon O. Steele to lead the Firm’s GovCon Practice Group.

Sharon-O-Steele
Ms. Steele has a proven track record of effectively providing a broad spectrum of business-oriented, strategic legal advice to government contracting organizations. She has advised government contracting clients on procurement matters, compliance, technology licensing, export/import and international law, internal investigations. She has successfully counseled clients involved with multi-million dollar government construction claims and REAs. Ms. Steele has counseled clients with U.S. government contracts in the Middle East, Europe and Africa on matters involving False Claims Act, Foreign Corrupt Practices Act, FAR/DFAR compliance as well as internal DCAA/DCMA and procurement audit preparations and executions.
Ms. Steele has over 15 years of experience as a government contracts attorney. She previously held senior counsel and executive positions with leading government contractors such as Kellogg Brown & Root, SAIC and Time Warner Cable.


Ms. Steele has served as a Commissioner with the Loudoun County Economic Development Committee as well as a Board Member of the Loudoun County Housing Advisory Board.


Ms. Steele earned her J.D. from Pennsylvania State University – Dickinson School of Law and earned her B.S., from James Madison University.


Sharon can be reached at:

General Counsel, P.C.
6849 Old Dominion Drive
Suite 220
McLean, VA 22101

Main: +1 703.556.0411
Direct: +1 703.226.2719
Fax: +1 888.222.6807
Email: ssteele@gcpc.com

 

April 25, 2016 0

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