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Business Law Blog

The Tremendous Value of Setting up Employment Policies and Procedures

By:  Santiago J. Padilla, Esq.

Effective and efficient employment policies and procedures can offer tremendous value to a company. However, if a company fails to implement effective policies and procedures and/or fails to strictly comply with the policies and procedures, these failures could be very costly to the company.

For example, if a company does not have effective progressive discipline policies and procedures, it may be very difficult and extremely costly to terminate the employment or change the terms and conditions of employment of an employee that falls within a class of persons that may be protected by federal or state law. Taking this example, further, assume that the company would like to terminate the employment of a woman employee who is over 40 years of age because the employee has incurred in several performance deficiencies. Yet, if the company failed to promulgate effective progressive discipline policies or failed to implement such policies, the termination of the woman employee may result in the employee filing a charge of discrimination that would need to be defended.

Specifically, without having documented progressive discipline assessed on an employee that has performance deficiencies, the company may not be able to meet its burden of proof that there was a non-discriminatory reason for terminating the employment of the employee. In particular, under Title VII of the Civil Rights Act of 1964 (the law which protects employees in the workplace), in order for an employee to establish a prima facie case of employment discrimination, the employee need only show that (a) she is within the class of persons that are protected by the law (e.g., a woman over the age of 40), (b) she performed her job competently (which she will be able to show because of the lack of progressive discipline), and (c) the company terminated her employment or she suffered adverse employment action (e.g., a demotion, cut in salary, reprimand, or termination). However, the important point is that once the employee establishes a prima facie case of discrimination, the burden of proof shifts to the employer to demonstrate that the employee was discharged or was subjected to adverse employment action due to a non-discriminatory reason. See McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-04, 93 S. Ct. 1817, 1824-25, 36 L. Ed. 2d 668, 677-78 (1973); Maynard v. Bd. of Regents of the Div. of Univs. of the Fla. Dep't of Educ., 342 F.3d 1281, 1289 (11th Cir. 2003) (following McDonnell Douglas to address race discrimination under Title VII). However, without documentation showing progressive discipline, this may be difficult if not impossible to prove.

Moreover, if the company seeks to commence progressive discipline with that employee, without having applied the same policies to all employees, the employee will most likely be able to show that the company treated her differently than other employees because of her protected class.

Therefore, the company may not be able to terminate the employee and, if it does, then may be subject to a charge of discrimination which it may not be able to defend effectively.  As such, promulgation and implementation of comprehensive employment policies is extremely important for any company to effectively manage its employment relations.

Over Sixteen Thousand Disney Employees to be paid for Violations of Minimum Wages

By: Santiago J. Padilla, Esq.

Violations of the minimum wage and overtime pay provsions are occurring in every sector, including large and small companies. Earlier this year, the U.S. Department of Labor found violations of the minimum wage, ovetime and recordkeeping provisions of the Fair Labor Standards Act (the "FLSA") by two subsidiaries of The Walt Disney Co., resulting in back wage payments of over $3.8 million to over 16,000 employees.

The specific violations included the deduction of a uniform expense that caused the hourly rates of some employees to fall below the federal minimum wage, as well as the failure to compensate employees for certain pre-shift work.

Under the FLSA, the minimum wage in Florida is $8.10 per hour. This is greater than the Federal minimum wage of $7.25 per hour. The minimum wage applies to most employees in Florida, with limited exceptions including tipped employee (who must be paid a minimum cash wage of $5.08), some student workers, and other exempt occupations.

Commissioned Employees may be Entitled to Overtime Compensation

By: Santiago J. Padilla, Esq.

Many employers believe that employees paid on a "commission basis" are not entitled to overtime compensation. In fact, many companies in South Florida (including the Miami and Fort Lauderdale areas) pay their employees on a commission basis and contend that such workers need not be paid overtime compensation, regardless of whether they work over 40 hours per week, because they are paid on a "commission basis". However, this may be a violation of Federal law.

Specifically, under the Fair Labor Standards Act (the "FLSA"), which is the federal law that governs wages and hours, all non-exempt employees are required to be paid $7.25 for every hour that they work, and $10.88 for every hour that they work over 40 hours per week. Non-exempt employees in Florida are entitled to receive $8.10 per hour and $12.15 per hour for all hours over 40 worked per week. Most employees are non-exempt unless a specific exemption applies to them.

The only "commission exemption" is what is called the "retail or service establishment" exemption pursuant to which retail establishments may pay their employees on a "commission basis" provided certain conditions are met. Under Section 7(i) of the FLSA, a "retail or service establishment" is defined as an establishment in which 75% of its annual dollar volume of sales of goods or services (or both) is not for resale and is recognized as retail sales or services in the particular industry. In order to use the commission exemption, the retail establishment must meet the following three conditions:

  • the employee must be employed by a retail or service establishment, and
  • the employee's regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked, and
  • more than half the employee's total earnings in a representative period must consist of commissions.

The typical problems include the fact that most employers who pay on a "commission basis" do not maintain an accurate record of the hours worked by the employees. However, in order to take advantage of the Section 7(i) "retail exemption" as indicated above, the employer must maintain accurate records of hours worked each workday, hours worked during each workweek, and earnings and wages paid. Without maintaining this information, the employer cannot claim the exemption under the FLSA.

Therefore, if the employee that is paid on a "commission basis" works over 70 hours per week and the employer fails to maintain accurate records of the hours work and, as such, is unable to meet the test set forth above, then the employee may be entitled to overtime compensation for all hours worked over 40 during each workweek.

Recent Presidential Executive Order on Immigration will not have Immediate Impacts

By:  Santiago J. Padilla, Esq.

On April 18, 2017, President Trump signed a new Executive Order, "Buy American and Hire American" which appears to target several immigration programs used by U.S. businesses.  For example, in the "Hire American" portion of the order, President Trump is directing the Department of Labor, the Department of Justice, the Department of Homeland Security, and the Department of State to review the current laws with respect to the H-1B professional employee program and suggest changes so that the most skilled and highest paid positions will be given priority.  President Trump also directed the federal agencies to review all employment based visa programs to crack down on fraud and abuse in order to protect U.S. workers.
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Nevertheless, the American Immigration Lawyers Association ("AILA"), of which I am a member, stated that the changes suggested by President Trump will not have immediate impacts because the changes suggested would require legislative action or rulemaking and it would take time to go through the necessary processes.

The Importance of Legal Counsel in All Corporate Activities

By: Santiago J. Padilla, Esq.

Most business persons understand the valuable role of a legal professional in important transactions that are entered into by a company. Indeed, most companies will engage an attorney if a lawsuit is filed against the company, if the company is purchasing real estate, or if the company is acquiring another business. However, in this blog I suggest that companies should engage and involve legal counsel in all of the day-to-day activities of a business in order to make sure that its practices and procedures not only comply with the law, but also give the company a competitive advantage in the marketplace. Indeed, in my experience, most very successful companies have either an inside general counsel or maintain a fairly close relationship with outside counsel who plays the role of a corporate general counsel.  If done properly, this suggestion will be cost-effective and productive for the company for the following reasons, among others.

First, by working with an attorney on the day-to-day activities, a company can develop an invaluable strategic partnership, where the attorney's knowledge of the company deepens with each new activity. This "institutional memory" will serve the company in future transactions as well as in litigation involving the company. This type of knowledge enables the attorney to respond more effectively to day-to-day issues and proactively identify and resolve problems.

Second, while outside general counsel will not be an expert on all legal aspects, he or she can be the liaison with the experts that may be needed in a particular area. In fact, the attorney is in the best position to identify when a legal expert is needed and in what capacity. This is very much like a general physician who after reviewing the patient's vital signs and symptoms, refers the patient to a specialist, such as a neurosurgeon or cardiologist.

Many companies simply hire a law firm or attorney when the need arises and on an ad hoc basis. However, this type of practice could lead to operational inefficiencies because no one person will have a full grasp of the legal matters of the company. This practice also creates gaps in the depth of "institutional knowledge" of the outside counsel.

One real-life example could highlight the need of engaging corporate counsel in the day-to-day activities of a business. In this real-life example, a U.S. technology company commenced to build a niche for itself among certain high technology customers in Latin America. The company purchases computer parts and accessories from China and distributes them to companies throughout Latin America. In this example, the company began selling small orders of $10,000 to $20,000 to a particular customer in Colombia. These orders were generally placed with emails exchanged between the parties. After approximately 2 years, the Colombian company increased its orders and finally requested to purchase $900,000 of computer parts and accessories on credit. The U.S. company was excited about the prospect and filled the orders and shipped the parts and accessories. However, for some reason, the Colombian company failed to pay for the computer parts and accessories. Unfortunately, the U.S. company did not have a system or procedure in place for dealing with this eventuality. Specifically, the only recourse that the U.S. company had was to go to Colombia and file a lawsuit in Colombia to collect on its invoices.  However, this was an unnerving prospect because they quickly found that the deck was stacked against them in Colombia.  Of particular importance was that the U.S. could not sue the Colombian company in U.S. courts because the Colombian company argued that it did not have sufficient contacts with the U.S., which was actually true based on the facts of the case.

This could have been resolved by implementing procedures and practies that could have put the U.S. company in a better position.  Specifically, apart from the question of whether or not the company should have extended credit to the Colombian company, the use of order confirmation forms that contained language providing for exclusive jurisdiction, providing for arbitration or for some other method of dispute resolution in the U.S., could have resolved many issues that were faced by the U.S. company. This is precisely why I suggest that an attorney or general counsel of the company should be involved in organizing of opining on the effectiveness of the forms and procedures that a company uses in its daily transactions.

Do I Really Need a Lawyer to Purchase Real Property in Florida?

By: Santiago J. Padilla, Esq.

Many prospective clients ask me if a real estate lawyer is necessary to purchase a house or condominium unit. Invariably my answer is always an emphatic "YES." A simple example will demonstrate why I always say yes.

Let's assume that the buyer is seeking to acquire a house for a purchase price of $550,000 and will be taking out a loan for 80% of the purchase price, which means that the buyer will be paying at least 20% of the purchase price or $110,000 in cash in order to close the transaction. The real estate contract will naturally have a clause that the closing is subject to the buyer obtaining financing for the loan. However, one problem is that the current standard real estate contract that is used by real estate agents and brokers fails to adequately address the financing issue for several reasons.

One reason is that the current standard "as-is" real estate contract that realtors use, and which is approved by both the Florida Bar and the Florida Association of Realtors, contains a defective contingent financing clause. This "contingent financing" clause states that the closing is conditioned upon the buyer obtaining a Loan Commitment within a certain period of time. Therefore, if the buyer does not obtain a Loan Commitment within the period of time specified in the contract, then the buyer is relieved of his or her obligation to purchase the property and then receives a complete reimbursement of any good faith deposit that the buyer paid into escrow.  However, the contract fails to adequately address the issue of what happens if the buyer obtains the Loan Commitment, but for some reason cannot close on the purchase.

Continuing with the example, let's say that the parties sign the contract and provide for a closing to occur within 45 days and that the Loan Commitment must be obtained within 30 days. Let's further assume that the buyer makes a good faith deposit of $20,000 and obtains a Loan Commitment within the 30-day period indicated by the contract. Under the terms of the standard "as-is" contract, upon obtaining the Loan Commitment, the financing condition is met and the buyer is deemed to have waived the financing contingency, which means that if for some reason the buyer does not close on the purchase, then the buyer will lose the good faith deposit.

Yet, let's assume that prior to the closing, the bank informs the buyer that the bank's underwriting department requires that the buyer have at least 6 months of reserves in order to finalize the loan, which means that the buyer must have the equivalent of 6 months of monthly payments in the bank. If the buyer does not have any more money and cannot come up with the reserves required by the bank, then the buyer may not be able to obtain the loan to purchase the property and would lose his or her good faith deposit because the buyer has already waived the financing contingency according to the "as-is" contract.

The specific problem here is that the standard "as-is" contract provides that the financing contingency is waived upon receiving a loan commitment or soon thereafter. Therefore, what the contract needs to provide is that the purchase of the property is subject to the buyer actually obtaining the loan from the bank, including meeting underwriting approval and all other requirements of the bank. In the example above, if the buyer would have had an attorney negotiate the purchase contract and include a clause stating specifically that "this contract, and the buyer's obligation to close the transaction, shall be contingent upon the buyer actually obtaining a loan from the lender," then the problem would have been resolved. This is just one reason why I emphatically respond that a buyer should always have an attorney in order to purchase real property.

Employees who feel that they are being Subjected to a Hostile Work Environment Must Take Advantage of the EEO Procedures Implemented by Employer

By: Santiago J. Padilla, Esq.