December 2

DO ONLINE LEGAL FORMS DELIVER ON THEIR PROMISE TO SAVE YOU TIME AND MONEY? PART II: WHAT DO YOU GET WITH AN ONLINE “LEGAL” FORM?

Image for Legal FormsIn Part I of this series, we explored the enforceability and trustworthiness of online legal forms and learned that there is more to effective and enforceable documents than nice-sounding language. This post discusses the services provided by online legal form providers (other than allowing you to download a standardized document that may or may not be legal, enforceable, or applicable to your situation).

What Services Do Online Form Providers Offer? 

The terms and conditions of the top online legal forms providers make clear that, despite the implication that you can “Do it Yourself” with their forms, even they recognize that legal judgment is also needed in order to ensure that the “form” language you are purchasing makes sense for how you intend to use it.

One online form provider provides documents that they say they will guide you through, claiming:

These legal documents, forms and letters make it simple for you to create legally-binding agreements at no cost. Whether you’re documenting a deal, forming a business, or doing something as simple as selling a car, you’ll find free legal documents for almost any need.

But, they end this claim by acknowledging they can’t provide legal advice or exercise judgment:

And if you have any questions about our online documents or forms, we’re always happy to connect you with a lawyer to make sure everything is legal.

In other words, the form provider will not, in any way, guarantee that “everything is legal,” but offers to connect you with an unknown lawyer for that purpose. Despite this offer, their terms and conditions provide that this site is not a ‘lawyer referral service’ and does not provide legal advice or participate in any legal representation. So, the headlines promise free legally-binding agreements, legal_formsbut the fine print makes clear that a lawyer’s judgment would be valuable to determining whether the forms they sell are right for you.

Another popular online form provider contains numerous forms, but does not help business owners determine whether the forms will work for them or what modifications may be needed based upon the specific facts. They also make clear in their terms of use that they do not provide legal guidance or advice, but merely that they can provide “access to” unnamed independent lawyers who may or may not know about the law in your jurisdiction and who may or may not be reliable, trustworthy, or effective:

Communications between you and LegalZoom are protected by our Privacy Policy but not by the attorney-client privilege or as work product. LegalZoom provides access to independent attorneys and self-help services at your specific direction. We are not a law firm or a substitute for an attorney or law firm. We cannot provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defenses, options, selection of forms or strategies.

LawDepot’s terms of use contain similar disclaimers, despite ubiquitous use of the word “Free” and implications that you can DIY the legal forms.

Wouldn’t it be simpler and less risky to just ask a lawyer? If you do not know any business lawyers (other than me, of course), ask friends and business colleagues who they recommend.

What is the harm of using an online form without legal guidance?

In addition to the potential exposure to legal liability and possible unenforceability discussed in Part I of this series, a very common and likely problem that is often discovered too late by some who use online legal forms is that the form language, while perfectly fine for some uses, does not fit their particular situation.

A form document is like a specialized kitchen gadget – it might be great for its intended use, but attempting to use it in other ways will yield disappointing results. My Cuisinart food processor is great for spiralized vegetables, but if I tried to cook those vegetables withdlc-xpn-cuisinart-20-cup-food-processor-popupit, I’d end up with a pile of raw veggies. It simply wasn’t made for that purpose.

Similarly, a given legal form may have language that is great for a particular situation, but if the facts of your situation do not perfectly match the one for which it was prepared, it will not make sense for you. And misuse of online legal forms can have far more disastrous consequences than misuse of a Cuisinart, including unenforceability and possible exposure to liability for language that is not permissible in connection with the type of transaction for which you’re attempting to use it.

Even if the only consequence for using an online legal form is that it doesn’t make sense, was that form really worth it?

Disclaimerfine print Covering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.

September 1

DO ONLINE LEGAL FORMS DELIVER ON THEIR PROMISE TO SAVE YOU TIME AND MONEY? PART I: BUYER BEWARE

fine printIn our digital information age, “online” is the first place many of us go with a tricky question like, “What year did Elvis enter the Army?” (A: 1958) or “Are there alternatives to the ‘Cone of Shame’ for my pooch who just had surgery?” (A: Yes – in fact, there are many good alternatives; my dog liked the ProCollar™ best). How about “What form of business entity should my new company take and which documents should I use to create and manage the entity?” (A: It depends. Only by applying legal knowledge to multiple factors can this be answered.)

EXTRA! EXTRA! READ ALL ABOUT IT:
Unenforceable Online Legal Form Exposes Company to Potential Liability

No business owner wants to see its company name in such a headline. But, that is precisely the type of outcome the small experiment I just conducted could have led to.13619765-young-newsboy-holding-up-a-newspaper

In order to speak intelligently about online legal forms, I obtained one. To protect the not-so-innocent, I’ll withhold the name of the form provider and will not share their proprietary information here.

Here’s my take on the form agreement the site allowed me to generate:

I obtained a non-compete agreement that was ostensibly meant for use in my state. The agreement was well-formatted and had good-sounding legal language in it. But, the agreement is unlikely to be enforceable in most circumstances and could expose a company using it to legal liability.

First, the agreement completely lacked legal consideration (at least as to current employees), but I was allowed to create it anyway. The site also made no distinction between using the form with current employees vs. new employees or with high-level vs. lower-level employees. The site made no mention of the possibility that forcing current employees (especially lower-level ones) to sign this or face termination could expose my company to a claim of wrongful termination.

Let’s face it, non-compete agreements with employees are enforced only in a narrow band of circumstances as it is. These circumstances are based upon the reasonableness of its provisions and the employee’s role within the company. Despite that, this form generator allowed me to insert a limit of 5 years and a 500 mile radius and did not require me to specify the role of the employee who would be signing it. Not only is it highly unlikely this form would be enforced, but just using it could be construed as unconscionable or an unfair trade practice, leading to liability for the company.

The form generator allowed me to input information without any guidance or parameters. It did not warn me that my choices would not be enforceable or may expose me to legal liability.

Instead of providing legal judgment to guide me, the online form provider merely disclaimed that it was providing any legal advice and allowed me to DIY to my own detriment (thankfully, the form I created will never see the light of day).

Can Online Legal Forms Be Trusted?

I was skeptical of agreements created by these forms providers to begin with; it turns out my skepticism was warranted. The above anecdote aside, are any online legal forms valid and enforceable? I believe it’s safe to say there are some that are.  The difficulty isn’t necessarily with the form agreements themselves, but with the context in which they are used.

There is a lot of stock language available online for little or no money, much of it conveniently packaged together in forms. Unlike the form agreement I created, much of it is likely valid and enforceable.

But, of all available legal language out there, which is right for your situation? If you use a form agreement you find online, do you understand what all of it means? Is there language in the form that should be excluded (or additional language that should be added) so that the agreement makes sense for your situation? The answers to these questions depend on factors that can’t be answered by stock form providers.

While online research can be very helpful to finding answers to simple questions for which there are discrete answers (Elvis. Army. 1958.), it cannot exercise the judgment necessary to determine which contract language, out of the vast universe of available options, will work in a particular situation. Exercising legal judgment is what lawyers do every day.

Running contract questions past a business lawyer typically costs far less than entering into agreements that may not provide what you expect them to. If you don’t know a trusted business lawyer in your area, ask around.

The rest of this series on online legal forms will discuss the legal advice provided by online form providers and the pitfalls of uninformed use of standardized language.

Disclaimerfine print Covering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.

July 5

HOW DID HOBBY LOBBY BRING A CIVIL RIGHTS CLAIM AND WHAT’S A CLOSELY-HELD CORPORATION, ANYWAY?

Hobby LobbyMost of us generally understand that the Bill of Rights and civil rights legislation stemming from it applies to protect individuals against governmental overreach, whether that be in the form of an attempt to suppress our speech, religious freedom, right against unreasonable search and seizure, or other civil rights. And most of us understand a corporation to be a legal entity that is separate from its owners/shareholders.

So, how did Hobby Lobby, which is a corporation, successfully assert a right under the Religious Freedom Restoration Act – a civil rights statute?

The answer to that question lies in the peculiarities of closely-held (or close) corporations, which are far more closely associated with their individual owners than corporations with more shareholders. When many people hear the term “corporation,” they immediately think of large amorphous entities that have many shareholders, employees, and perhaps locations. However, there are a large number of corporations (recent statistics suggest 90% of U.S. corporations) that are “closely held,” which means they have far fewer owners than the large amorphous corporations that may come to mind when we hear that term. As the Supreme Court put it in its decision, “the free-exercise rights of closely held corporations thus protects the religious liberty of the humans who own and control them.”

The reason closely-held corporations are so closely-connected with their individual owners is because, by definition, there are very few owners.  Often, these people are family members, but that is not a requirement in any jurisdiction I’m aware of (if it is a requirement in your favorite jurisdiction, let me know). What is required is that there be very few owners. This differs from the vast majority of publicly-traded corporations, which can have dozens, hundreds, thousands, or even millions of owners called shareholders.

Other restrictions and requirements may also apply to closely-held corporations, including the method of valuation for tax purposes and certain restrictions on transfer of the stock of the corporation. State laws vary, as do the bylaws of the corporations, so it is not possible to state with certainty the constraints applicable to all closely-held corporations, but these are some of the key differences between closely-held corporations and other corporations.

In the Hobby Lobby case, the U.S. Supreme Court held that protecting the free-exercise rights of closely-held corporations protects the religious liberty of those who own and control the companies, rejecting the argument that owners of companies forfeit protections afforded to them as individuals when they organize as corporations.  The Court also stated that corporate law, which is almost exclusively governed by state law, can resolve the conflicts between the rights of business owners of such corporations and the rights of those companies’ employees and others.

What does the Hobby Lobby decision have to do with your business?

Probably not much, but here are a few things:

1. Only if your corporation is closely-held is it even relevant.  If it is not, nevermind the decision – it does not affect you right now and is unlikely to lead to other decisions that will affect you.

2. If your corporation IS closely-held AND the owners have a religious objection to funding certain contraceptives (only 4 of the 20 contraceptives covered by ObamaCare were at issue), you may well opt out of funding them.

3. Otherwise, be aware that nothing has changed regarding religious accommodation or discrimination. Your rights as an owner are protected, but so are your employees’. There is nothing in this decision that would allow you as the owner of a closely-held corporation (or any business entity, for that matter) to discrimination against employees under the guise of a religious belief or practice.  In addition to protecting the rights of Hobby Lobby’s owners, the Court held that “the Government has a compelling interest in providing an equal opportunity to participate in the work force without regard to [a protected class], and prohibitions on [discrimination] are precisely tailored to achieve that critical goal.”

The bottom line is that the Supreme Court has now held that owning a for-profit corporation with very few shareholders, particularly one organized specifically as a “closely held” (or close) corporation, can allow owners the ability to retain and enforce rights based upon their personal beliefs, much like not-for-profit corporations have been able to do for many years.  Whether that is a good, bad, or neutral thing I leave to the reader. This is just what it is.

– Amy Salberg, Esq., B2C Lawyer

fine printMy own fine print: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.

 

June 13

ETHICAL AUTHENTICITY: THE SECRET INGREDIENT

I have been told by more than one client that I was the “secret ingredient” to getting a sticky commercial deal done when the other side’s lawyer created unnecessary roadblocks (apparently not realizing that his or her client also had an interest in getting the deal done).

What do I do that’s so special? First, I listen to my clients. Novel concept? Apparently. Some attorneys seem to have an interest in giving the false appearance of having done something by adding unnecessary language to a contract that is well-drafted in plain English and sufficiently protective of both sides’ interests. This desire to appear busy seems to override their desire to help their clients achieve their goals.

In a similar vein, it appears many attorneys want to appear to be prolific in their blogging by having others do their work for them, ignoring the misrepresentation inherent in such an undertaking. cooking spices ingredients

The Secret Ingredient in this Blog
My “secret ingredient” in this blog is one I did not realize was special until I read about lawyers doing otherwise – I write all of the blog posts myself. Like it or lump it, what you see is what you get. Just as it appears I may be relatively unique in helping clients reach their goals by removing (not erecting) roadblocks, it appears I’m relatively unique in writing my own blog posts. Unlike many blog posts ostensibly written by lawyers, the posts on this blog are the product of my own analysis and personality. To do otherwise strikes me as ethically questionable and unfair to the audience.

Yeah, it would be far easier for me to farm out content, but that would mean it’s not my writing. And, if it’s not my writing, how can potential clients and referral sources trust it to represent my thought process, personality, or legal acumen? If I’m going to present the posts as my own, the content should be mine.

I’m not saying attorneys can’t ask assistants to do some background research, pull together references, or contribute to the graphics and formatting of a blog (by all means, delegate what can be delegated), but to be considered as having been authored by the attorney, I think the attorney has to take an active part in preparing the final product for publication.

This desire to be ethically authentic is why there aren’t more blog posts – or why there are sometimes gaps between them. While my goal is to publish at least one post per week, there are times when other commitments – work, family, or community involvement – prevent me from taking the time necessary to write a post in a given week. And, unless I happen to have another post ready in the hopper, that means no post gets published that week. I’m committed to being both honest – if I say I wrote it, I wrote it – and equally committed to being accurate, which means that preparing posts takes time.

Client Work, Community Involvement, and Gaps Between Posts
5-16-15 LawGirl Serving
LawGirl Serving Food at Super Hero Fish Fry to Benefit The Volunteer Center of Washington County 5-16-14
There are times when client needs preclude preparing blog posts for a time. While some of my recent gaps between posts can certainly be attributed to this, other gaps are the product of the fact that I’ve been having a great time getting more involved in my local community since leaving the big firm downtown (that’s downtown Milwaukee, for those who didn’t read the “about” page) and moving it to my home town. From the Chamber of Commerce to board positions to Rotary and various volunteer and sponsorship opportunities, my involvement in the community has been at once very rewarding and time-consuming. But, I wouldn’t have it any other way.

And, when there are pressing client needs – especially from those clients who have proven themselves to be great clients in the long term – I rearrange my schedule in an effort to take care of what they need as efficiently as possible, while maintaining my effectiveness as a legal advisor. When it comes to litigation, there are times when all bets are off and 95% of my time and energy needs to be given to one case – like, during a jury trial, right before a motion hearing that has the potential for ending the case, or in the midst of preparing the documentation for a business sale or purchase.

This is why , unlike many other blogs written by lawyers, my posts are not always on a regular schedule. I don’t apologize for this, but thought it only right to let you know that this blog is authentically me and that, sometimes, that means I’m not as prolific in my writing as I’d like to be. You’re welcome.

– Amy Salberg (Yes, Really, It’s ME!)

UPDATE 6-26-14: Apparently, I’m not alone in believing the practice of ghost law blogging is unethical. This post from Kevin O’Keefe of “Real Lawyers Have Blogs” claims that there is general consensus that lawyers having their blog posts ghost written is unethical.

June 7

CAN YOU GET YOUR CUSTOMERS TO AGREE NOT TO PROVIDE NEGATIVE REVIEWS OF YOUR BUSINESS?

shhh stock-footage-shhh-girl-puts-fingers-to-lips-shallow-depth-of-fieldSetting aside for a moment whether you should ask your customers to agree not to provide negative reviews of your business as a business practice (that is a discussion all its own), the question before us is whether such an agreement is likely to be enforceable as a legal matter.

Our last post discussed the issue of online defamation by non-customers and what can be done about it. Now we are going to address your ability, as a business owner, to prevent customers from providing negative reviews of your business by getting them to agree not to do so.

Non-disparagement Clauses

This type of clause is called a “non-disparagement clause” and it is fairly common in settlement agreements in connection with litigation and  in agreements relating to the purchase of a business (asset purchase/stock purchase agreements). It goes something like this:

Party A agrees not to make any disparaging statement, either orally or in writing, regarding Party B, the business, products, or services of Party B, or any of Party B’s shareholders, directors, officers, employees or agents, especially its lawyers, who all Parties agree are most excellent.

Okay, so I made that last clause up, but the rest of it is fairly typical of such agreements. Again, these clauses are typically used in settlement agreements or stock or asset sale/purchase agreements (agreements to purchase a business). They are generally enforceable in connection with such agreements.

Some enterprising business owners (and, possibly, their lawyers) have decided to test the waters as to whether such a clause might be enforceable outside the context of litigation or a business purchase, adding clauses like this to service agreements or other contracts with customers.

With the ubiquitousness of online review systems such as Yelp, amazon.com reviews, Annie’s List, rip-off.com, tripadvisor.com, and various other specialty review services, together with the tendency of people to be more nasty online than they are in person and the inability or unwillingness of the online review sites to adequately police the reviews for accuracy, it is understandable why a business owner might want to prevent such reviews by having their customers agree not to provide them.  But, is such an agreement enforceable against a customer who violates it?

A couple of  issues I see regarding the enforceability of such clauses in a web site disclosure or as part of a contract with a consumer are:

1. Is there sufficient “consideration” to support a finding that there was a valid and enforceable agreement not to disparage? Consideration is basically the “this” one side gives for the other side’s “that.” The three basic elements of a contract  – the things that make a contract a contract – are offer, acceptance, and consideration.

2. Can a customer be held to contract language regarding something arguably unexpected in fine printconnection with the transaction at issue, especially if that language is buried in fine print and is not a material part of the transaction? By the same token, if this type of language becomes more common (thus, more expected), will that make it more likely to be enforceable?

3. Will such a clause be considered “one-sided” when the other side is a consumer (who the business may have far less likelihood of disparaging)? If it is one-sided, that could contribute to a claim that the clause is unconscionable and, therefore, unenforceable against the consumer.

Surely, there are other issues that arise in connection with non-disparagement clauses in consumer agreements, but these are a few that immediately come to mind and deserve attention.

Let’s look at some examples

Let’s say you’re a service provider – perhaps a dentist, media specialist, travel agent, or accountant – and you have a service agreement with your clients that contains provisions regarding the type of service you will provide, at what cost, and on what terms. Let’s say that agreement contains a clause that prohibits your clients from providing negative reviews of your business. Can they be held to that agreement?

What if the customer is purchasing something from you online and the agreement to enter into the transaction has a bunch of legalish language no one ever reads that includes a non-disparagement clause among the information regarding returns, exchanges, and the like? Can your customer be held to the agreement not to provide a negative review?

The Case of Aster Dental

The first example above – a service provider with a service contract containing a nondisparagement clause – is roughly the fact scenario at issue in the case of Robert Allen Lee v. Stacy Makhnevich and Aster Dental, out of New York.  Dr. Makhnevich – a dentist – included in her contracts with patients a provision that prevented disparagement of her practice under the Federal Copyright Act. This was actually pretty clever because the Copyright Act affords her more remedies and protection than state defamation laws, which are generally protected by the safe harbor provisions of the Digital Millennium Copyright Act.

Enter patient Robert Allen Lee, who provided Dr. Makhnevich with a one-star review on various sites. The dentist contacted the sites to have them remove the review at the same time threatening Mr. Lee with daily fines under the Copyright Act.

Mr. Lee did not take this lying down, but initiated litigation against the dentist to seek a declaration from the court invalidating the nondisparagement clause. The dentist sought to dismiss the action with some fancy arguments I won’t bore you with – what’s important is that the court did not agree and allowed the suit against her to move forward.  What happened next?

desert tumbleweedNot a darned thing. It appears this dentist just disappeared. Perhaps it is because none of her patients – or at least those who provided online reviews – seemed to like her. Her lawyer even withdrew from the case, citing an inability to locate his client. While the case appears to remain open, it is unclear what will happen at this point.

Kleargear and how NOT to Enforce a Nondisparagement Clause

The second example above – a clause hidden in online legalese – was raised in the case of Palmer v. Kleargear, which was filed in Utah federal court and is still pending. While the case has not yet been fully decided, the writing is on the wall and this is a good example of bad facts making bad law.

Here’s what happened in a nutshell: John Palmer ordered some stuff through Kleargear, had some problem with the order (apparently never receiving what he ordered). His wife, Jen, posted a review on ripoffreport.com after getting no satisfaction with the company (one moral of this story for businesses is to improve customer service to avoid such problems in the first place, but I digress).

The Palmer’s transaction and negative review cobweb-6-790363happened in 2009. More than 3 years later, Kleargear sent a letter to the Palmers requiring that
they take down the offending review and stating that the Palmers had violated the online nondisparagement clause contained in the Kleargear.com website’s terms and conditions. The letter also informed them that the penalty for the breach was $3,500.

Kleargear’s position in this case has so many problems, it’s not yet clear klear whether the has any implications for others, except as a cautionary tale about how not to try to enforce such clauses.  In addition to the fact that good customer service might have prevented the whole issue, Kleargear’s most bone-headed mistake here was to try to enforce a nondisparagement clause against people who could not have been subject to it even if it were otherwise enforceable. See, the nondisparagement clause at issue was added to Kleargear’s website after the Palmers’ ill-fated transaction and negative review. So, Kleargear is wasting this litigation testing their online nondisparagement clause on a transaction that was not even subject to it.  Oops.

Next, Kleargear completely failed to show up in the case the Palmers filed against them in Utah federal court, leading to a default judgment against it. The only thing left is for the judge to determine what damages to award the Palmers.

What now?

Litigation is costly. This likely contributes to the fact that there have been very few cases either seeking to enforce or challenge the enforcement of non-disparagement clauses in agreements between businesses and consumers (the easiest thing for consumers to do is remove the offending post, rather than challenge the clause’s validity). And those cases that have been filed have gone nowhere.

But, it is worth keeping this on our radar screen because more businesses are including nondisparagement agreements in an effort to protect their reputation and more consumers are writing and relying on these online reviews. I don’t think it’s a stretch to prognosticate continuing development of the law relating to these clauses. As the law develops, some of the issues I raised above may be addressed by courts considering such clauses.

In the mean time, if you wish to try to adopt such a clause, you will want to run it by a lawyer who is experienced in the business side of consumer law (which happens to be my sweet spot).

– Amy Salberg, Esq., B2C Lawyer

fine printMy own fine print: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.
May 31

YELP: FREE SPEECH OR ANONYMOUS DEFAMATION? WHAT CAN A BUSINESS DO ABOUT NEGATIVE ONLINE REVIEWS?

customersThere you are minding your own business, trying to serve your customers well and reap the benefits of positive word-of-mouth advertising when suddenly an anonymous reviewer posts a very negative (and very anonymous) review of your business on Yelp or another online forum. You don’t know whether this is a competitor seeking to get an unfair advantage, someone with a personal beef against you, or just someone with too much time on his hands trolling cyberspace, but you know it is not a legitimate review.

What can you do about it?

This was the question a carpet cleaning service in Virginia found itself asking.  Hadeed Carpet Cleaning, Inc. in Virginia was the subject of some negative reviews on Yelp, which were posted anonymously.  Hadeed sought to sue the unknown reviewers for defamation on the theory was that they had not even been its customers, thus making their reviews untrue and defamatory.

But, because Yelp’s reviews are anonymous, Hadeed first had to get the names of the anonymous reviewers.

Hadeed issued a subpoena on Yelp under Virginia’s “unmasking” statute (Va. Code § 8.01-407.1), which allows allegedly defamed persons to try to obtain information from third-parties about the identities of anonymouspeople who made the defamatory statements over the internet.  Yelp objected to the subpoena, arguing that complying with it would result in a violation of the posters’ right under the First Amendment to speak anonymously.  Hadeed won the case and the appeal.

There is no First Amendment right to commit defamation.

In ruling in favor of Hadeed in Yelp, Inc. v. Hadeed Carpet Cleaning, Inc., 752 S.E.2d 554 (Va. Ct. App. 2014), the Virginia Court of Appeals first had to determine whether the First Amendment (which was Yelp’s defense) even applied. After all, Yelp and Hadeed are both private actors; the  First Amendment prohibits the government from engaging in action that would abridge the freedom of speech. In deciding that the First Amendment does apply, the Court cited the fact that a subpoena is a court order, which can constitute state action that is subject to the limits imposed by the First Amendment.

In its ruling, the Court also relied on another fundamental principle under the First Amendment: the First Amendment does not protect defamatory speech.

The Court reasoned as follows:

If we assume that the Yelp reviews of Hadeed are lawful, then the John Does may remain anonymous.  But if the reviews are unlawful in that they are defamatory, then the John Does’ veil of anonymity may be pierced, provided certain procedural safeguards are met.

The Court found that Virginia’s unmasking statute provided sufficient procedural safeguards to protect legitimate speech under the First Amendment. It also found that Hadeed had demonstrated that the postings on Yelp’s website may be defamatory (thus, unlawful), having shown “that it had a legitimate, good faith basis for its belief that the reviews [were] defamatory” by “establish[ing] that it had no record of having provided services to the posters.”

Bearing in mind that the defense to defamation is truth (i.e., if a factual statement is true, it is not defamatory),  the anonymous posters forfeited this defense by lying about their relationship to Hadeed.   In fact, as the Court forcefully stated, “it is clear . . . that if the Doe defendants were not customers of Hadeed, then their Yelp reviews are defamatory.” The Court explained why false statements deprive the speech of First Amendment protection:

Generally, a Yelp review is entitled to First Amendment protection because it is a person’s opinion about a business that they patronized, but this general protection relies upon an underlying assumption of fact: that the reviewer was a customer of the specific company and he posted his review based on his personal experience with the business. If this underlying assumption of fact proves false, in that the reviewer was never a customer of the business, then the review is not an opinion; instead, the review is based on a false statement of fact—that the reviewer is writing his review based on personal experience. And there is no constitutional value in false statements of fact.

Who’s Afraid of Virginia  . . . Law?

While this case is good news for Hadeed and other Virginia businesses who are victims of anonymous defamation, the decision was dependent upon a Virginia state law that specifically allows for ways to determine the identity of anonymous online users. There is no parallel federal law and, if your state does not contain a law that would allow businesses to obtain the identities of anonymous reviewers, it could be very difficult for you to figure out who to sue. In which case, you may wish to contact your legislator.

Yelp has sought review of this decision by the Virginia Supreme Court, but the Court has not yet decided whether to accept review.


fine printCovering my bases
: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.

photo credit for masked man: freedigitalphotos.net/images/Crime_g406-Hacker_p64688.html
May 28

FROM THE “WHO DID THIS, ANYWAY?” FILE: WISCONSIN NOW PROHIBITS EMPLOYERS FROM REQUESTING EMPLOYEE PERSONAL SOCIAL MEDIA PASSWORDS.

Blog Pic - WI CapitolIn what strikes me as a solution in search of a problem, Wisconsin law was recently changed to prohibit employers from “request[ing] or requir[ing] an employee  or applicant for employment, as a condition of employment, to disclose access information for the personal Internet account of the employee or applicant or to otherwise grant access to or allow observation of that account.” While I’m guessing that some employer somewhere in the state requested this information at some point (or someone just imagined they might do it some day), I am not aware of any employers who actually requested employees’ private social media passwords.

With all the hype about this new employee privacy right, I think it’s important for employees and employers alike to realize that employers still have many rights when it comes to social media, IT, and what employees may do on the employer’s time and equipment.

What does the new law prohibit?

Wisconsin employers cannot request or require user name and password information (among other security information) that protects access to fingerprintemployees’ personal Internet accounts. The law prohibits any adverse employment action based upon an employee’s refusal to provide the information or exercise of his or her rights under the statute. The penalty for violation isn’t significant – up to $1,000. However, if an employee is discharged or otherwise discriminated against in violation of this law (or an applicant not hired in violation of the law), a complaint may be filed with the Wisconsin Department of Workforce Development’s Equal Rights Division (ERD). It will be handled like any discrimination complaint by ERD, with the possible remedy being the same one afforded in discrimination cases:  making the discriminated-against employee whole. This can mean significant liability for the employer, so it’s advisable to comply with the law.

What rights do EMPLOYERS have regarding employee use of social media?

It seems many employees operate under the mistaken notion that their work e-mail account and devices provided by the employer are private. Not so. In fact, as this law reiterates, if the employer supplied or paid employee at computerfor (in whole or in part) the IT device used for electronic communications, the employer may require employees to provide access to the device (including requiring user names and passwords necessary to access the device). This also applies to account services provided by the employer (again, including user names and passwords).

When using electronic communications devices provided by the employer,  the employer may restrict which sites are accessed on the device. The same is true when the employee is using the employer’s network, time, or other resources. Think of it as a property rights issue – if the property is the employer’s, the employer has the right to say who uses it and how it is used.

What About the Employer’s Proprietary Information?

If an employee transfers confidential or other proprietary information maintained by the employer to his or her personal account without the employer’s authorization, the employer may discipline the employee for this. That information belongs to the employer (or its clients, if the employer is maintaining the information for them) and the Internetemployer is well within its rights to restrict access to it. It is helpful if the employee handbook or employment agreement directly references this, too.Employers may also require employees to provide access to the employee’s personalInternet accounts IF the employer “has reasonable cause to believe that activity on the employee’s personal Internet account relating to” alleged transfers of information or other employment-related misconduct has occurred.

Violation of a work rule specified in an employment handbook is one type of misconduct for which the employer may demand access. This is yet another good reason to have a carefully-drafted, legally-compliant employee handbook prepared (or, at least, reviewed) by an attorney familiar with your business.

If an employee or applicant for employment posts information online (say, compromising photos on facebook), an employer is also perfectly within its rights to access information that can be obtained without access information or that is available in the public domain. In other words, if the applicant or employee is naive enough to post something they would not want their employer to see, that information can and will be used against them. And, why not?

So, the bottom line on this is that not much has changed for most people – but, if you’re an employer who previously requested access to your employee’s personal Internet accounts, stop that right now.

Disclaimer fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.

May 26

WHO DOESN’T LOVE A CONTEST? STEP RIGHT UP! DON’T BE SHY!

Cards by Steve A Johnson via Flickr Some Rights Reserved
Cards by Steve A Johnson via Flickr Some Rights Reserved

Are you considering running a promotional contest for your business through a social media platform? Excellent! What fun! Who doesn’t love a contest? You’ll just want to be sure the contest doesn’t cause your business more trouble than it’s worth. And, really, it shouldn’t – as long as you play by the rules.

In addition to the rules of whichever social media platform* you are using, the Federal Trade Commission (that’s “FTC” in government-initialism-speak) has specific online marketing rulesthat (it has recently confirmed) apply to social media contests.

In its recent letter to high-end shoe retailer Cole Haan, the FTC described how its online marketing rules apply to contests conducted by businesses through social media. Lucky for us – and thanks to Cole Haan for sticking its neck out first – we now have a road-map for compliance with the FTC Act in creating online contests.

Just a Wandering Sole . . .

NOT Cole Haan Shoes
NOT Cole Haan Shoes

In a contest called “WanderingSole,” Cole Haan asked people to create Pinterest boards using images of Cole Haan shoes along with pictures of their “favorite places to wander.”  The most creative entry got a $1,000 shopping spree. Sounds like a great promotion with a meaningful prize and a chance to see interesting photos taken around the globe. Until our pals in the government got involved . . .

According to the FTC, the Pinterest boards constituted an endorsement of Cole Haan’s products. What’s wrong with that? Nothing. The problem lay in the fact that the incentive for contestants to provide these endorsements was not solely that they loved the shoes and wanted the whole world to know it – rather, (it could be argued that) the chance to win a $1,000 shopping spree had something to do with the contestants’ willingness to take pictures of their shoes in exotic places.

And even the financial incentive to take foot fotos would not have gotten the FTC’s interest but for the fact that, without some sort of disclosure, those who saw the contestant-created Pinterest boards might not have reasonably expected that there was sucOh,_the_Places_You'll_Goh a financial connection. In other words, those viewing the endorsements may just have thought, “Gee, these people really love Cole Haan shoes. And they GO places with them. Hmmm . . . I wonder if I’ll go places if I wear Cole Haan shoes?” . . .  or something like that. Cole Haan had required contestants to use the #WanderingSole hashtag, but the FTC found that this did not amount to an effective disclosure of the material connection between Cole Haan and the contestant. *shrug* It was worth a shot.

In any event, the FTC’s problem with the contest was that Cole Haan did not require contestants to disclose that the contestant-created Pinterest boards endorsing Cole Haan’s products were motivated by a financial incentive – what the FTC calls a “material connection” – between Cole Haan and the contestants.

Where Do We Go (Wander?) From Here?

Now that the FTC has publicly spoken on the issue of social media contests, it might not be the worst idea in the world to listen to what they had to say. See, in business-woman-listening-hand-to-ear-concept-businesswoman-listen-to-something-smiling-happy-suit-beautiful-multicultural-30242429choosing not take enforcement action against Cole Haan (lucky them!), the FTC explained that it had not publicly addressed this issue before, letting Cole Haan off the hook (except as a cautionary tale). But, now the shoe is on the other foot – er, so to speak. Now that the FTC HAS publicly spoken on the issue, when it next comes across a nifty online contest that isn’t clearly disclosed as such, it may very well point back to this one and say, “Hey! You were warned.”

How to apply this in real life? If your contest requires contestants to endorse your product or service to be eligible for the prize, be sure that the fact that that the contestant’s endorsement was motivated by a chance to win a prize is made clear in the form of the contest entries. One way this might be accomplished is to require contestants to post their entries to your chosen social media platform under “Contest Entries” or similar language (as long as they are not otherwise accessible without this connection being clear). Another way might be to require them to include hashtags such as #contest or #contestentry.

The precise method of compliance with the FTC Rule will depend upon your specific facts. As always, I can’t and don’t provide legal advice to non-clients. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.

– Attorney Amy Salberg, B2C-Law – The Law of the Marketplace

*Here are links to the rules of some of the more popular social media platforms for online contests:

Pinterest rules.

Facebook rules.

Twitter rules.

 

 

February 15

HEY, WILLY WONKA! BE CAREFUL WITH THOSE “GOLDEN TICKET” PRIZE PROMOTIONS.

Willy Wonka Golden TicketHave you ever thought about the fact that Willy Wonka’s “Golden Ticket” prize promotion was more likely to land him with a heavy fine (or, possibly, in jail) than it was to land Charlie in the Chocolate Factory? As detailed in this story from imore.com, Steve Jobs learned about the legal barriers to just such a scheme in time to avoid the cost of engaging in it to promote sale of the iMac with his own Wonkatistic fantasy tour of Apple for the millionth iMac purchaser.

Bottom line: Use prize promotions at your own risk. It’s a gamble.

See, in America, EVERYTHING (just about) is regulated, including seemingly innocuous activities like raffles and prize promotions. So, before starting such a promotion, it may be wise to determine which laws apply to you, then review the relevant laws and consider whether your proposal is likely to cost you more in legal fees to defend you in court than it gains you in sales. Better yet, contact an experienced attorney familiar with B2C law who can help you determine which laws to apply to your facts and provide you with actual legal advice (unlike this post, which is purely for informational purposes – see disclaimer below).

There are many laws that may apply to your proposal, depending upon where and how you intend to conduct the prize promotion, including federal mail laws and various state laws.

Mail Crimes – Not Just for Ponzi Schemes

Under a federal law borne out of early-20th-Century-America’s anti-gambling sentiment, it’s a CRIME to transport or carry in interstate commerce or use the U.S. Mail to send materials that concern any lottery, gift enterprise, or similar scheme offering prizes dependent in whole or in part upon lot or chance.  Here, lottery means any scheme or promotion which, on paying some consideration, offers a prize dependent in whole or in part on chance (including schemes that are lawful under any state’s law).

Sidebar: Consideration is a legal term that refers to something of value being promised or given in exchange for something else. In contracts, both parties must give some consideration – often, that means one party is giving or promising to give money and the other is giving something else up, such as time in an employment contract, goods in a sales agreement, or the use of money in a loan agreement.

The “paying a consideration” element of the federal law is one reason you see “no purchase necessary to win” as a disclaimer on games of chance (state laws are another reason – see below). But, this is just a starting point and I’m NOT saying that the “no purchase necessary” disclaimer is sufficient to make a prize promotion legal – there are other types of “consideration” that could implicate the law and, as with most things in law, the answer to whether you can do it legally will depend upon all of the facts and circumstances, which differ on a case-by-case basis.

There are also state laws to consider . . . .

State Laws Governing Prize Promotions

Most states have laws regulating gambling and games of chance; many have laws specifically governing commercial prize promotions. Because reviewing 50 states’ laws is beyond the scope of this post, I’ll take just one state – Wisconsin – as an example. Why Wisconsin? Because it’s where I live, it’s where a lot of my clients do business, and, as we say at my alma mater, when you say Wis-con-sin, you’ve said it all.

Unless you are a fellow Wisconsinite, the laws in your state very likely differ, but this discussion may help you identify the types of laws to look for.

Wisconsin has laws regulating everything from guessing contests to selling with pretense of prize, referral fees, and prize promotions – most of which fall under consumer protection and fair trade practices regulations; the gambling prohibition falls under Wisconsin’s criminal code. While I could go into tribal compacts, casinos, and state lotteries here, my purposes is not to exhaust the subject of gaming and lotteries or even to talk about whether such laws are a good thing, but to provide food for thought to small business owners who may be considering certain types of promotions for their businesses. What you do with this thought food is up to you; your situation-specific facts will affect the ultimate analysis. I’m just bringing it to the table.

In-Pack Prize Promotions: No Purchase Necessary

If Willy Wonka had allowed people an opportunity to receive Golden Tickets without purchasing a Wonka Bar, his scheme may have been okay (at least in Wisconsin). Wisconsin law [sec. 100.16] prohibits selling with a pretense of a potential prize (which would make the Golden Ticket scheme illegal), but it contains exceptions for in-pack prize promotions where no purchase is necessary to get a chance to win (as long as several other conditions set forth in the statute are also met).

Raffles – For Non-Profits Only

In this suitably tongue-in-cheek treatment of a proposed change to Wisconsin law to carve certain rubber duck races out of the general prohibition on gaming (under an elaborate regulatory scheme and subject to a licensing requirement), the bloggers at Lowering the Bar provide a 30,000 foot view of Wisconsin law governing gaming and raffles.  A closer view at Wisconsin’s “Bingo and Raffle Control” statute shows that, as a general matter, non-profits are the only entities permitted to conduct raffles in Wisconsin – and then only with a license and subject to many qualifications. “Raffle” is definedas “a game of chance in which tickets or calendars are sold and a drawing for  prizes is held.”

Conclusion

If you wish to promote your business with some type of prize, be sure that promotion complies with applicable state and federal laws because being brought up on charges of illegal gaming is likely not the type of exposure you wanted for your business.

Disclaimer

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.

February 4

ONLINE PRIVACY, DO NOT TRACK, AND THE “POST-COOKIE” WORLD: NEW GUIDANCE FROM THE IAB

115562673_03b7fceea6_nEven as website owners and operators struggle with how to comply with recent changes to the law governing Online Privacy Policies, changes to the underlying technology are in the works, bringing about the so-called “Post-Cookie World” and begging the question of how to adapt your online privacy policy to meet this new technology. I won’t pretend to understand the intricacies of cookie or post-cookie technology; my concern is drafting online privacy policies for my clients that adequately address whatever technology is currently in vogue and understanding just enough of it to do so.

In an effort to understand the underlying technology just enough to be dangerous (and glean some drafting principles that may follow from it), I recently came across guiding principles for developing cookie replacement technology published by the Interactive Advertising Bureau (“IAB”) entitled “Privacy and Tracking in a Post-Cookie World.” In developing its guiding principles, the IAB begins by “Imagining a world where HTTP cookies were never invented” and suggests that, in developing alternatives to the cookie for tracking consumers, it is important to bear in mind what the consumer wants.  In my experience dealing with regulators who have no concept of something being outside their regulatory authority (particularly with consumers complaining to them), the IAB is correct that a proactive approach could keep the regulatory wolves at bay:

With consumer concerns comes the very real prospect of regulatory intervention. Regulators are taking a close look at current practices and considering legislation to address consumer demand for increased transparency and choice, such as the FTCs recommendation for a “Do Not Track mechanism. As the appetite for intervention grows, the digital advertising industry faces increasing operational and compliance costs as regulatory measures become reality. To avoid these burdens on all sides, the industry is searching for solutions that can ease consumer and regulator concerns while proactively addressing current state management needs. Major browsers have also used “Do Not Track” settings (Internet Explorer) or are considering blocking all third party cookies (Firefox) as a mechanism for showing alignment with consumer’s concerns. .

Recognizing the burden of compliance with existing privacy policy initiatives such as California’s new rule relating to “Do Not Track” disclosures in online privacy policies (discussed here) and the critical role of consumer needs and concerns, the IAB suggests considering guiding principals such the following in considering and developing alternatives to the cookie:

  • Provide consumers with a single privacy dashboard where they can see what is stored about them and where it is stored.
  • Provide consumers a universal privacy view where they can read about them, and where, across all domains and services (a place where they can say yes or no to everyone).
  • Provide consumers with comprehensive control over the sharing of their private information (allowing them to opt-in, modify, purge, or opt-out of data collection or transfer, across all parties).
  • Allow consumer preferences to persist across their entire Internet experience (across all domains, apps, services, browsers, etc.)
  • Provide a simple and easy way for consumers to identify those actors who do not comply with their wishes.

The white paper outlines other principles from the perspective of publishers, content creators, and industry third parties. For the truly geekly among us, have at it. For the rest of us, what is significant is the recommendation that consumer preferences play a major role in the successor to the cookie, which may give us all more control over our online privacy and may ultimately render certain provisions of online privacy policies (including the “Do Not Track” disclosure) moot (the consumer will be in the driver’s seat). In the meantime, as new technologies develop, it is important for us to consider whether and how these new developments may impact the language of those policies.

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.

 

January 27

WHY BAD EMPLOYEE BEHAVIOR NEEDS TO BE PUNISHED

Man gropes female colleague; man sues their employer.  That’s the basic story line from a recent backsidescase out of Pennsylvania, where an EMT named Mitchell was accused by a colleague (Witt) of touching her in seriously inappropriate ways (grabbing her buttocks and getting dangerously close to even more private areas). Upon determining that Witt’s claim had merit, the city of Pittsburgh, for which they both worked, fired Mitchell. That was the right course of action . . . wasn’t it? Yes and no.

Here’s the problem: Mitchell was a 61 year-old black man who claimed disparate treatment in this firing, pointing to a situation where two paramedics, who were younger and white, had each struck a patient and received suspension (not termination) as a result. According to the U.S. District Court for the Western District of Pennsylvania, striking a patient is of “comparable seriousness” to groping a co-worker. So, in being only suspended (not fired), the white employees were treated more favorably than Mitchell, leading to employer liability for disparate treatment based upon membership in a protected class.

Moral of the story: Equally Punish All Employees Who Seriously Misbehave at Work – Probably by Firing Them (Who Wants These Guys Around, Anyway?)

Was the city in a no-win situation or are there things it could have done to protect itself? Both.

By the time Mitchell’s situation came to light, the city had already let some comparably bad acts by younger white employees go relatively unpunished. So, by that time, it was in somewhat of a no-win situation. Had it not acted on Witt’s claims against Mitchell, Witt may have had a case against the city. But, by acting on her claims the way it did (after not having acted on comparably serious claims against others), it was Mitchell who had the case.

The take-away from this case is to treat employees the same with regard to not only hiring and advancement, but adverse employment actions as well. And, the simplest way to avoid being in a no-win situation like this is to not allow any employees to get away with such bad acts. That way, you’re sure you are them the same regardless of their membership in any racial, gender, age or other protected classification. These demographic characteristics are completely irrelevant to an applicant’s or employee’s ability to do the job, so I can’t think of a logical reason you would want to use these characteristics in any hiring, advancement, firing, or other employment-related decision in any event.

fine print

Covering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.westbendlaw.com.

January 23

RECORD RETENTION POLICY: WHY IT IS IN YOUR COMPANY’S BEST INTEREST TO HAVE ONE

Bunch of Papers by Seiichi Kusunoki - Visual Maintenance*
Bunch of Papers by Seiichi Kusunoki – Visual Maintenance*

There are good legal and practical reasons for your company not to hold onto every document that comes across its proverbial desk. There are also good reasons not to destroy documents too hastily. Instead,  you can adopt a well-considered record retention policy that dictates which documents are retained, for how long, and when to destroy them. Working with your legal counsel to draft the policy will help ensure the proper timeline for document destruction and help you avoid legal headaches.

First Things First – What is a Record?

Records include essentially all documents created or kept by the business in paper (or other tangible format) or electronic form. This includes paper-based documents, e-mails, electronic files and programs, desk calendars and appointment books, photographs, plans, maps, diagrams, and various other vehicles for the transmission of language, images, plans, and numbers.            

Some records kept by typical businesses include:

  • Tax Records
  • Personnel Records
  • Contracts (with suppliers, customers, and others)
  • E-mail
  • Board and Board Committee Materials
  • Marketing and Sales Documents
  • Trade Secrets

Why Not Just Keep Them All?

You can’t have everything. Where would you put it?

– Stephen Wright

There is a good practical reason not to keep them all – document storage can get expensive. Even if you do it electronically, which is significantly less space-intensive (and easier to search later, if properly indexed), there is a cost to keeping all of your documents for all time.

Also, the longer a document remains around, the longer it has the potential to cause trouble. And, you do not always know which documents are most likely to cause trouble – if you did, you would not have allowed that document to be created in the first place. We have all heard stories about embarrassing e-mails or other documents used against the company that kept it – sometimes at a great financial and reputational cost. Had those documents been destroyed on a set timetable under a valid record retention policy, it is possible they never would have been uncovered.

You may want to keep documents out of the hope that a particular document might exonerate you from allegations of wrongdoing or help you prove your case. This could happen. But, there are ways to mitigate this concern. First, your document retention policy should account for the statute of limitations for actions you are likely to bring so that you avoid destroying documents that may be relevant to such cases (see the section below on spoliation for more on not destroying documents once litigation becomes likely). Also, when you are the defendant in an action, the other side has the burden of proof.

Thus, while it is possible a destroyed document might exonerate you from wrongdoing alleged by another, they need to prove their case first – and they have the obligation to produce all documents they have in their possession or control in connection with the litigation. So, if there is an exonerating document that both sides have, they have a legal duty to disclose it or risk being found liable for spoliation themselves. Plus, if you really do have such a gem of a document, consider retaining it in a file of documents that are not subject to destruction – or are on a much longer timeline than others.

Why Have a Formal Policy for Retaining and Destroying Documents?

There are myriad reasons to have a formal record retention policy. First, it keeps everyone on the same page. Your employees will know what is expected of them and you will have a benchmark against which to compare their performance in the category of document retention and destruction.

Also, having policy that describes not only when but how the documents are to be destroyed can help with your data security obligations. If you have documents that contain sensitive customer information, you want to be sure that the record retention policy expressly states that they will be destroyed in a secure manner.

In addition, having a set schedule for destroying documents will help avoid an argument that you destroyed documents that may be relevant to future litigation.

A Word on Spoliation

Your company has a legal duty to preserve records that may be relevant to a particular legal dispute once you become aware of the likelihood of the dispute.  If you destroy documents once you become aware of a likely legal dispute, you may be found liable for spoliation, which can mean that the court or jury is allowed to draw a negative inference from the absence of the document. In other words, they can assume that the document supported the other side’s position.

Destruction of documents consistent with a formal document retention policy can provide good evidence to refute a spoliation claim. If you have a document retention policy that calls for the destruction of documents on a certain timetable, the risk that documents that happened to be destroyed shortly before you became aware of likely litigation will be held against you is decreased significantly.

Components of a Record Retention Policy

There are at least three categories of records that should be addressed in a company’s Record Retention Policy:

1. Legal Reasons. Those records the company is required to keep by law, whether that is a law that applies to a particular industry or a general legal obligation.  One of the general legal obligations relevant to this category is records relating to likely or pending litigation (see the section on “Spoliation” above).

2.  Business Reasons. Records the company wants to keep for business reasons. These are documents the company finds valuable for reasons other than legal obligation.

3. No Reason. Documents that are not necessary for legal or business reasons are subject to destruction. This includes those documents that have outlived their usefulness from a legal or business standpoint.

The policy should set forth the timeline for destruction of the documents in each category and the company should ensure that its employees adhere to that timeline.  One way to do this is to automate document destruction for electronic records.  If you do this, keep in mind the cautions about spoliation above and ensure that there is a way to turn off the automation quickly when you learn that litigation is likely. Consult with an attorney licensed in your jurisdiction regarding which documents to stop destroying and when.

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.westbendlaw.com.

*Image courtesy Visual Maintenance, © 2011 by Seiichi Kusunoki,  some rights reserved.

January 21

OFFICEMAX AND THE COST OF DE-PERSONNEL-IZING PERSONALIZED MARKETING LISTS

OfficeMax, a photo by RetailByRyan95 on Flickr.
OfficeMax, a photo by RetailByRyan95 on Flickr.

Collecting tons of detailed information about potential customers in order to target your marketing to them seems like a good idea at the time . . . . And, it well may be. But, OfficeMax has a cautionary tale for all of us about the risks of cutting the human element out of marketing.

As reported by numerous news outlets, including  the Los Angeles Times and The Huffington Post, OfficeMax used information gleaned from a third-party provider of customer mailing lists to address an envelope to a father who had tragically lost his child with the designation “daughter killed in car crash” on the line of the address block following the father’s name. Can you imagine receiving such a letter after the heartache of losing a child?


There may be very good reason to automate tasks associated with mass marketing. But, this story demonstrates why there needs to remain a human element in your efforts.  At the very least, a human needs to review whatever algorithms or other magical formulae are used by your marketing software to avoid Mailing during WWIIhaving your company’s name associated with a significant gaffe. OfficeMax will undoubtedly be able to move past this (no doubt quicker than the grieving father), but your small company could suffer more significantly if you do not have either yourself or someone very trustworthy – with demonstrated attention to detail – intimately involved in your marketing efforts.

While there are possible legal causes of action associated with such a distasteful gaffe, my point isn’t so much about legal liability as it is about reputational risk. (It may be possible to prove intentional or negligent infliction of emotional distress, but sustaining such a cause of action would require just the right/wrong set of facts.)  Regardless, BAD publicity is the last thing you want from your marketing efforts.

Let OfficeMax’s well-publicized snafu convince you not to completely automate customer communications, especially if your database saves sensitive information along with general contact information. Instead, make sure a real live human being has close oversight over your marketing, to ensure appropriate personalization of the efforts and avoid costly mistakes fostered by automation.

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.westbendlaw.com.

January 20

MATCHING FARM PRODUCT SUPPLY AND DEMAND IS EASIER THAN YOU MAY THINK

The specialized farm-to-consumer marketplace is growing in popularity, but both farmers and consumers still sometimes have difficulty finding each other. Direct marketing through farmers markets and local word-of-mouth is one way to for producers and customers to match up.  FarmMatch.com is another way.

FarmMatch.com is a map-based online matching service that helps buyers and sellers of farm products in the U.S. easily locate one another, providing free advertising for those selling farm products (including farms, buying clubs, farmers markets, and restaurants) and allowing consumers to locate and communicate with multiple providers regarding the products they want to purchase. Because it is map-based, it is easy for consumers to find local producers.

But, FarmMatch.com is more than just a link between existing producers and consumers. It is also a handy way for consumers to let producers know which types of products they are demanding – which, in turn, allows producers to rise up to fill that demand.

If you’re a farmer or food producer, putting yourself on the map provides you with free advertising to a targeted audience. If you’re a consumer, you can find great sources of high-quality local food and let producers know what you want.

Consumers who want to buy locally-produced meat, vegetables, fruit, honey, dairy, or other farm products can find those products on  Farm Match.com .   By setting up a consumer profile, the consumer plays at least two important roles in the local food system:

  1. Consumer participation lets local producers know which products consumers wish to purchase (increasing the likelihood that a supplier will rise up to fill that demand).
  2.  Numbers matter to policy makers seeking re-election; this is a way to show them that their constituents really do want food freedom. By populating the Farm Match map with demand-side information, consumers are telling policy makers that they want the government to stop hindering them from being able to choose which farm products they can purchase and from whom.

To participate in this free matching service, simply visit Farm Match.com and create a profile. If consumers wish to keep their identities private, they may do so.

January 19

HOW TO AVOID BECOMING AN ACCIDENTAL CREDITOR

SuckerIf you’re playing a poker game and you look around the table and can’t tell who the sucker is, it’s you.

– Paul Newman

Don’t be suckered into giving your customers credit – unless you intend to be a creditor, which requires complying with the large number of consumer credit laws that apply to credit transactions with consumers.  Otherwise, you could find yourself on the wrong side of an expensive life lesson in the form of a regulatory action or  consumer lawsuit for failing to comply with those laws.

Is it really possible to accidentally grant credit to a consumer?

Yes, it is possible to become an accidental creditor. This can happen if you regularly allow your customers to pay in installments or if you impose a late fee that is couched in terms of “interest.” (See this post for more on how to charge late fees legally.) This stems from the definition of “creditor” under federal law, which defines a creditor as someone who:

 . . . regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.

Similarly, the Truth in Lending Act’s definition of “credit” includes “the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.”

What Does it Mean to “Regularly” Extend Credit?

A careful reader will note that the definition of “credit” includes someone who “regularly” extends credit. What does this mean?  Federal law defines it as extending credit more than 25 times in a calendar year.

If it takes 25 transactions in a year to be considered a creditor, how can someone accidentally become one? Let’s do the math: if a merchant or service provider allows just two customers each month to pay her back in installments, she’s just one transaction away from becoming a creditor.

Also, it is possible to be a creditor under state law even if you do not fit the definition under federal law. In this case, you may not need to comply with the federal law (although you might, if the state law incorporates the federal law), but you’ll need to pay attention to the laws in your state, which may include the need to obtain a lending license.

The safest course of action is, of course, to avoid the issue by not extending credit to any of your customers. But, the reality is, sometimes merchants and service providers want to be helpful to their customers and allow them to pay over time. If you want to allow any of your customers to defer payment or need advice on how to charge a late fee without worry, check with a consumer finance attorney who can advise you as to the laws applicable to you.  While many attorneys have generalized knowledge, those of us who are well-versed in consumer finance law are a relatively rare breed, so be sure to ask the attorney about her experience with consumer finance laws. This will help you avoid being punished for your good deed and help prevent the need for her services later – in court. It is far less costly to seek the advice of an experienced attorney up front than to pay her to defend you in court.

I Do Not Allow Customers to Pay Over Time – I’m Safe, Right?

Not necessarily.  Another way to become an accidental creditor is to charge interest (or a late fee that looks like interest) when customers are late in paying what they owe. See this post for more on charging late fees without opting into consumer finance laws.

Bottom line: tread softly whenever you’re considering allowing customers to pay for your goods or services over time. Be mindful of the possibility of becoming a creditor if you do so. If you do become a creditor, there are numerous things you’ll need to be aware of, from licensing to compliance with an entire alphabet soup of consumer lending laws (TILA, ECOA, FCRA, GLB, etc.). All of which is fine, if you’re ready for it. But, be sure to talk with an experienced consumer finance attorney if you decide to do this because there are plenty of mine fields for the unwary.

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.westbendlaw.com.

 

 

January 16

IT’S OFFICIAL: “NATURAL” IS STILL A MEANINGLESS MARKETING TERM

imageThe FDA recently reaffirmed the meaninglessness of the term “Natural” in food marketing and labeling, in its January 6 letter to 3 separate courts considering false advertising claims against food manufacturers for dubious use of the term. The FDA’s unwillingness to settle the issue has a long and storied past, as summarized below.

“Natural” is the single most frequently-used marketing claim on U.S. food products, despite the fact that it is virtually meaningless. I think its general appeal and brevity make it an enticing word for food marketers, particularly on the package label, which is prime real estate. Brevity is not only the soul of wit – it is the soul of marketing. Coupling this with a history of defying definition, the term “Natural” stands in a category by itself when it comes to ambiguous and misleading terms used on food labels.      

The term “natural” does not connote anything about the nutritional value of the food to which it is attached. In fact, the foods most likely to be labeled “natural” are foods that are maximally processed, not the whole or minimally-processed foods to which many consumers believe the term more “naturally” applies.image

In an effort to capitalize on the popularity of organic foods, many food marketers couple the term “natural” with the term “organic.” But, the term “organic” has a legal meaning. The National Organic Program establishes standards for foods to be labeled organic. “Natural,” on the other hand, means very little.

There are no statutes, regulations, or industry standards regulating use of this term.  Indeed, the term has an extensive history of “almost” being defined by regulation, but not quite getting there.  Last year, this inaction by the FDA led a federal court to decline to refer a case to the FDA to determine whether products containing High Fructose Corn Syrup (HFCS) may be labeled “natural,” determining that doing so would be futile:

 [I]n repeatedly declining to promulgate regulations governing the use of “natural” as it applies to food products, the FDA has signaled a relative lack of interest in devoting its limited resources to what it evidently considers a minor issue, or in establishing some “uniformity in administration” with regard to the use of “natural” in food labels. Accordingly, any referral to the FDA would likely prove futile.

See May 10, 2013 decision of the U.S. District Court for the Northern District of California in Janney v. General Mills .  The January 6 FDA letter demonstrates what the Janney court already knew – the FDA’s long history of nearly, but not quite, defining the term continues to this day.

“Natural” History

1.     1974 – the FTC tried to define the term, but ultimately gave up.The first attempts to define the term “natural” did not come from the FDA (or even the USDA), but from the Federal Trade Commission (FTC), in 1974, under its charge to regulate false and misleading advertising. The FTC considered adopting a rule regulating use of the term “natural” so that it applied only to foods with only minimal processing and no artificial ingredients. But, the FTC discovered that it had taken on a daunting task, given the range of products to which the term could apply and the myriad stakeholders with an interest in ensuring either an ambiguous or a meaningful definition. When it terminated the effort in 1983, the FTC issued an official comment, explaining:

Quite aside from the significant difficulties that would be posed in enforcing this rule, a fundamental problem exists by virtue of the fact that the context in which “natural” is used determines its meaning. It is unlikely that consumers expect the same thing from a natural apple as they do from natural ice cream …. We should concentrate our resources on more serious consumer protection problems than addressing whether a claim that “milk is a natural,” is deceptive.

2.     1978 – USDA and FDA hop on board with the FTC in an effort to define the term and do no better than the FTC had done aloneThree agencies collaborated in 1978 in an effort to define the term: the Food Safety and Inspection Service (FSIS) within the USDA, the FDA, and the FTC. The agencies held public hearings on a variety of issues of joint concern, including whether to formally define the term “natural.”Though the FDA and FSIS tried to form policies governing the term, the agencies ultimately failed to issue a formal regulation. The term “natural” remained undefined.

3.     1990 – the Nutrition Labeling Education Act (NLEA) is adopted. Other issues took the agencies’ attention during the 1980’s, including regulation of nutrient content and other health-related claims, such as “low calorie,” “sodium free,” and similar terms. “Natural” moved down the list of priorities.In 1990, Congress enacted the Nutrition Labeling Education Act (NLEA), which in part gave the FDA power to define certain terms used in health- and nutrition-related marketing claims and explicitly directed the FDA to define certain terms (such as “light”), but “natural” was not one of these terms.

4.    1991 – FDA policy statement on “Natural”

In 1991, FDA published an “informal policy” in the Federal Register, defining “natural” to mean:

. . . that nothing artificial or synthetic (including colors regardless of source) is included in, or has been added to, the product that would not normally be expected to be there.

While this policy statement provides little guidance and does not have the force of law, there are some effects arising from its issuance. First, the FDA cannot punish parties who label their products in accordance with the policy.  In addition, the FDA must follow its determinations regarding the use of the term “until [they are] amended or revoked.” The FDA may, however, take action against those whose product labels violate the policy.

5.    2005 – 2007: FDA Stays the Course Although it seems to recognize the confusion wrought by failing to define the term, the FDA continues to resist defining the term through notice and comment rule making.  In 2005, the FDA’s response to a petition requesting a definition of the term, in which it referred back to the 1993 final rule following proposed rulemaking to define the term cited resource limitations in its decision not to propose a rule:

As we stated in the preamble to the January 6, 1993 final rule, after reviewing and considering the comments, the agency continues to believe that, if the term ‘“natural” is adequately defined, the ambiguity surrounding use of this term that results in misleading claims could be abated. However, as the comments reflect, there are many facets of this issue that the agency will have to carefully consider if it undertakes a rulemaking to define the term “natural.” Because of resource limitations and other agency priorities, FDA, is not undertaking rulemaking to establish a definition for “natural” at this time.

6.    Where are we now?

The January 6 letter from the FDA reaffirms the non-position on this issue that has been on its website for a long time:

From a food science perspective, it is difficult to define a food product that is ‘natural’ because the food has probably been processed and is no longer the product of the earth. That said, FDA has not developed a definition for use of the term natural or its derivatives. However, the agency has not objected to the use of the term if the food does not contain added color, artificial flavors, or synthetic substances.

So, we have a non-binding regulatory policy ambiguously defining a imageubiquitous marketing term. Seems likely to lead to litigation – and it has. As described in the history above, the only “authority” defining the term is an FDA policy statement issued in 1991—a policy statement a federal appeals court recently determined does not have the force of law. See Holk v. Snapple Beverage Corp., (2009). Despite a lot of litigation, no courts have determined what the term means or whether use of it is misleading in connection with foods containing certain ingredients, such as High Fructose Corn Syrup.

I think many of us are becoming more savvy at recognizing that these terms are mere marketing and mean nothing about the quality or ingredients included in the product. But, many more people still must be influenced (at least subliminally) by use of these ambiguous marketing terms, because they are still the most frequent terms used on processed food labels. All I can say to that is caveat emptor and that shopping locally and avoiding processed food are great ways to ensure that what you are eating is truly “natural.”

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.westbendlaw.com.

A final note: In preparing this article, I borrowed heavily from my own article from my blog at www.realfoodlaw.com.  I wanted to note this for anyone who may have noticed this and thought I did not give proper credit to the author. Borrowing from yourself is not plagiarism – it’s wise repurposing of material that required a significant investment of research time.

 

 

January 15

SHEDDING LIGHT ON THE IMPORTANCE OF HAVING AN ACCURATE PRIVACY POLICY

Brightest Flashlight2Goldenshores Technologies, LLC developed The Brightest Flashlight Free app, which allowed users to use their mobile devices as a flashlight by simultaneously activating all of the device’s
light sources. According to the FTC, this app was downloaded millions (tens of millions, actually) of times.  At the same time it was lighting up the user’s world, The Brightest Flashlight Free app was enlightening third parties to the user’s personal information, including precise geolocation and unique device identifiers. As described by the FTC:

While running, however, the application also transmits, or allows the transmission of, data from the mobile device to various third parties, including advertising networks. The types of data transmitted include, among other things, the device’s precise geolocation along with persistent device identifiers that can be used to track a user’s location over time.

All of which would be fine and dandy if the app had appropriately disclosed to users what it was doing, but the FTC says it didn’t – and filed a complaint against Goldenshores. According to the FTC’s complaint, Goldenshores told users in its privacy policy that personal information collected by the Brightest Flashlight Free app would be used by the company for various internal purposes, but “failed to disclose or failed to adequately disclose” that the app transmitted that personal information to third parties, including advertising networks.

The FTC’s complaint also alleges that the app’s end-user license agreement (EULA) provided “illusory choice” to users by giving users the option of accepting or rejecting the terms of the EULA while the app was actually collecting and transmitting personal information even before the user had a chance to make the choice.

Goldenshores entered into a settlement agreement with the FTC that requires it to delete any personal information collected via the Brightest Flashlight Free app prior to the settlement and prohibits it from further misrepresentations regarding the use of personal information. It also requires Goldenshores to adequately inform users of the extent to which users can control its collection, use, and Goldenshoresdisclosure practices relating to their data.  In addition, Goldenshores must provide “just-in-time” notice (i.e., notice provided immediately prior to the initial collection of  information and separate from any similar document) indicating how the information may be used and why, and requires Goldenshores to obtain “affirmative express consent” from its users within the just-in-time notice when geolocation information is collected.

The settlement agreement also mandates exactly what information must be disclosed to users through the just-in-time notice, including:

  1. That the app collects, transmits, or allows the transmission of, geolocation information;
  2. How  geolocation information may be used;
  3. Why the app is accessing geolocation information; and
  4. The identity or specific categories of third parties that receive geolocation information directly or indirectly from the app.

Finally, under the settlement agreement, Goldenshores will have the FTC watching it more closely for at least 10 years. Under the terms of the settlement agreement, Goldenshores is required to report various of its activities to the FTC and keep its records open to FTC scrutiny.  Having a regulator breathing down your neck is no fun – it is time consuming and stressful at best and can be very financially costly at worst.

In this case, the FTC seemed particularly distrustful of the company’s handling of geolocation information, but other personal information could be treated similarly in the right case. Indeed, this case may signpost the FTC’s enforcement priorities, which appear to include an expectation that a company’s privacy policy disclose the full range of a company’s data transmission practices, including not only overt promises about use of private information, but also omissions about the collection and disclosure of personal information from privacy policies.

All of which is to say, it is important to have accurate privacy policies, as discussed in greater detail in this post regarding current requirements for an online privacy policy.

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.westbendlaw.com.

 

January 14

THE COST OF CARELESS ADVERTISING – FTC’S “OPERATION STEER CLEAR”

false advertisingOn Thursday, the Federal Trade Commission (FTC) announced settlements with various automobile dealers in “Operation Steer Clear,” which the FTC touts as a nationwide sweep of false advertising claims against dealers.

What standards did these auto dealers collide with?

The FTC alleged various misrepresentations in its complaints against the dealers (“alleged” because these cases were voluntarily settled, not adjudicated).  These alleged misrepresentations, inaccuracies, and false statements were found in printInternet, and video advertisements. Wherever you advertise, accuracy and compliance with various consumer protection regulations are advisable.

Many of the alleged violations were for statements that were obviously false, like advertising the vehicle for $5,000 less than the offering price or falsely asserting that consumers had won sweepstakes prizes they could collect at the dealership. Assuming the allegations are true, these merchants had to know their statements were untrue. I’m sure none of my readers commit that type of obvious misrepresentation, so I’ll focus on the advertising violations that are perhaps a bit more subtle.auto dealer

The more subtle (alleged) violations involved requirements found in federal leasing and financing laws – i.e., the Truth in Lending Act and its implementing regulations (Regulation M for consumer leasing and Regulation Z for consumer lending). Under these laws, when certain terms are contained in advertising (so-called “triggering terms”), other terms must necessarily also be included in the ad.

Standards for Advertising Credit-Related Terms

For advertising related to consumer credit, Reg. Z requires that, if ANY of the following “triggering” terms are advertised:

    • amount or percentage of down payment;
    • number or period of payments;
    • amount of any payment; or
    • amount of finance charge . . .

. . . then ALL of the following “triggered” terms must also be included in the advertisement:

    • amount or percentage of down payment;
    • terms of repayment; and
    • annual percentage rate (“APR) (and, if the rate may be increased after consummation, that fact).

Many of the automobile dealers caught up in Operation Steer Clear had triggering terms in their ads, but  failed to include the triggered terms.  This included dealers (allegedly) failing to disclose that the low monthly payments they advertised were temporary “teaser” payments that would go up quickly after purchase and dealers advertising reasonable monthly payment amounts without disclosing a $10,000 balloon payment at the end of the financing term.

Lessons for B2C Businesses

You may not be an automobile dealer, but this FTC enforcement action illustrates an important point for any B2C endeavor: those providing goods and services to consumers need to be aware of and compliant with the laws that apply to your particular industry, including laws relating to advertising, or risk costly enforcement actions from regulators or consumers.

Many businesses – from financial institutions to home improvement contractors – are subject to specific regulations that impact their advertising. It’s usually less costly to figure out how to comply with the law ahead of time than to defend against an alleged violation after the fact. Compliance requires both knowing which laws apply to what you do and doing what those laws require.

This is one of the primary services I provide my clients – determining which laws apply, then applying them to my clients’ specific facts to provide guidance on how my clients can avoid the headaches that come with non-compliance (I also defend them when non-compliance is alleged). That said . . . .

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.westbendlaw.com.

January 13

3 WAYS TO MAKE SURE CUSTOMERS WHO PAY LATE DON’T CREATE EVEN MORE HEADACHES FOR YOU

imageYou rightly expect your customers to pay their invoices on time. But, understanding human nature, you prepare for late payments by letting them know you will charge a late fee if they don’t pay on time.  You may ultimately end up bringing them to court. To make sure your righteous quest to get paid doesn’t end up getting YOU in hot water, here are three things you can do:

1. Be sure your contract with the customer provides for payment of a late fee. If you have not contracted for it, you may not be able to assess it. The customer has to know that paying late will result in extra fees.

2. Check your state law for limits on the late fee that may be assessed.

3. Be careful not to inadvertently bring the transaction under the requirements of your state’s consumer credit laws. This can happen primarily in three ways: 1) by assessing “interest” (as opposed to a late charge); 2) by setting up a payment plan; and 3) by continuing to allow the customer to incur charges on their account with you after they are in default.

It’s not possible to analyze these issues under all 50 states’ laws here, but to help illustrate how a business can inadvertently run afoul of state laws in imposing late fees, let’s look at the issues under the laws of one state – Wisconsin. I choose Wisconsin because it is my state and, therefore, both the best state and the state I know best.

Avoiding trouble when charging late fees in Wisconsin.

There are three primary issues to be mindful of in Wisconsin: 1) that you not inadvertently grant credit to consumers; 2) that there is a contractual basis for assessing the late fee; and 3) that the fee is within the limit allowed by statute.

I’m Not Granting Credit; I Just Want to Get Paid.

A business can get into hot water if it attempts to assess “interest” in connection with delinquent consumer accounts in Wisconsin because “interest” is a term used in credit transactions, not in transactions where what is owed is expected to be paid immediately. Under the Wisconsin Consumer Act (“WCA”), a transaction may be considered a “consumer credit transaction” if a “finance charge is or may be imposed.” (Wis. Stats. § 421.301 (10).)  The definition of “finance charge” includes “interest,” but does not include a late payment charge. Thus, use of the term “interest” could lend credence to an argument that the transaction at issue is a consumer credit transaction subject to the WCA (which, trust me, is a law you’d rather not subject yourself to if you can help it).

Thus, as a preliminary matter, it is probably safer to call it a “late fee,” “late payment charge” or “delinquency fee,” rather than “interest.”

Avoid Payment Plans

To further bolster the argument that you are not extending credit, you’ll also want to make clear to the customer that the entire amount is due and expected to be paid by a date certain in the very near future (net 15 or net 30 is fine). It is best not  to enter into a payment plan with consumers (at least not one that allows them to pay in more than four installments), and not to allow them to continue to add additional charges to their account until what they already owe is paid.

If you allow consumers to pay what they owe you in installments, and especially if you also add “interest,” you risk being subject to the WCA, including its steep consequences for non-compliance.

Be Sure the Consumer is Aware of the Penalty for Late Payment

If you want to obtain a charge for late payment, the customer should be given a notice or sign an agreement at the time a contractual relationship is established that payment is due by a specific date and that there is a penalty or late payment charge if payment is not received by that date. Make clear that the customer does not have the right to defer payment after the due date, but agrees to pay a charge for late payment if they do miss the deadline.

Keep it at 1% per month or less.

Unless there is another statute that expressly allows a higher rate for a particular type of transaction, the maximum rate of late fees in Wisconsin is 1% per month, or 12% per year. (Wis. Stats. §138.05.) A typical agreement concerning a late payment charge would be a statement on the sales slip or service agreement stating: “Payment is due within 30 days of sale. A 1% per month (12% per year) late payment fee will be assessed on any unpaid balance remaining after 30 days.”

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my web site – www.westbendlaw.com.

January 9

CAN A BUSINESS MAKE CONSUMERS ARBITRATE DISPUTES?

Question: Can a business make consumers arbitrate disputes the consumer may have with the business?

Answer: Only if the consumer agrees to it. But, this agreement may be done at any time.

arbclauseAlthough there is a federal law that supports the right to agree to arbitrate disputes – the Federal Arbitration Act – at  its heart, arbitration is a matter of contract. In order to have their disputes decided in arbitration, the parties to the dispute must agree to arbitrate it. This agreement often happens at the time the contractual relationship is formed, whether that is through a software licensing agreement, loan agreement, purchase agreement, service agreement, or some other agreement between the business and its customer. If there is no pre-dispute arbitration agreement, the parties can agree that the dispute should be decided in arbitration after the dispute arises.  One way or another,  for disputes to be decided in arbitration, the parties must agree to settle their dispute in the arbitration forum.

A word on what happens in arbitration: an agreement to arbitrate is merely an agreement that an arbitrator – not a judge or jury – will decide a dispute between the parties to the agreement. It affects only the forum and procedures that will apply to the dispute; it does not change the substantive law that will be applied by the arbitrator. All things being equal, the outcome of a dispute decided in arbitration should be the same as it would have been in court. It just may take less time, money, and stress to obtain it.

Full disclosure: One of the hats I wear in my law practice is as an fine printarbitrator. I can tell you from experience that you cannot make anyone arbitrate a dispute without their agreement to do so. I once dismissed a case initiated in arbitration because there was no agreement to arbitrate the particular dispute at issue. The parties in that case had agreed to arbitrate other types of disputes, but there was no agreement to arbitrate disputes of the type that was before me (and one of the parties did not wish to arbitrate that type of dispute), so I had no choice but to dismiss the case from arbitration and send the parties to court.

Despite their agreement to arbitrate their disputes with various companies, many consumers have challenged the ability of businesses to enforce those arbitration agreements. Of course, freedom of contract is a foundational component
handshakeof the American legal system.  For this freedom to have any meaning, contracts must be enforceable by their terms. Thus, an arbitration agreement must be enforced like any other agreement or the whole thing unravels. The Supreme Court agrees and has put to rest the vast majority of major objections to arbitration, leaving parties free to agree to arbitrate their disputes, as long as the contract is drafted in a manner that enhances its enforceability – being fair and clear are two harbingers of a good arbitration agreement.

The detailed attributes of a good arbitration agreement will be explored in later posts. Suffice it to say, if you think you might want to arbitrate disputes arising through your relationship with your customers, you’ll want to talk with an attorney who is knowledgeable about arbitration and arbitration agreements. She or he can advise you regarding the pros and cons of arbitration as applied to your particular business. And, if you decide to go for it, the attorney can prepare the agreement with an eye toward enforceability.

fine printCovering my bases: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my web site – www.westbendlaw.com.