Monthly Newsletter Library Archives

“Lawyer on Contingency Fee?” – Who “Swallows” the Expenses?

Published on June 4th, 2019 by Alan L. Sklover

Sklover Working Wisdom Law Justice Scale

 
“Be careful who you trust – The devil was once an angel”

– Unknown

ACTUAL CASE HISTORIES: Wendy hired an attorney to represent her in a lawsuit against a former employer. Her agreement with the attorney said that attorney would represent her on a “contingency” basis, meaning that the attorney would be paid only if the lawsuit was successful, and then he would be entitled to 1/3 of the proceeds.

The lawsuit was settled for $90,000, and so Wendy expected that she would receive $60,000 (that is, 2/3 of $90,000), and the attorney would get $30,000 (that is, 1/3 of $90,000). It turned out that the lawyer got his $30,000, but Wendy only received $40,000. How come? The other $20,000 went to pay the expenses of litigation.

Les also hired a lawyer to represent him in a lawsuit against his former employer. He also agreed to a 2/3 split for Les and 1/3 split for the lawyer. The case was, unfortunately, dismissed in favor of the employer. So, the lawyer got nothing, and Les got nothing . . . but Les did receive something a few weeks later: a bill for $25,000 for the expenses of the lawsuit. How come? That is what the attorney’s retainer provided for, unbeknownst to Les. Les even lost money on his “contingency fee” case.

In both cases, each of the lawyers’ retainer agreements provided that the client was responsible for the expenses of the lawsuit, whatever that came to. Sad, because it might have said something different if Wendy and Les had noticed it, and asked to change it.

“Clients beware.”

LESSONS TO LEARN: In any relation involving money, it is important to the success of the relation to enter into a clearly written and fully understandable agreement on all of the terms and conditions of the relation. Nowhere is that more important than in the attorney-client relation.

A lawyer’s retainer agreement is a contract, and should be no less clear and no less understandable than any other contract; maybe more so, especially if they anticipate lawsuits, which can be heavily burdened by costs and expenses.

“Contingency Fee” means “A fee comprised of a percentage of payments received, if any.” While you might think that it suggests “payments received after expenses are taken off the top,” it does not say that. It says nothing at all about costs and expenses.

Costs and expenses of a lawsuit commonly include: (a) Court filing fees; (b) process server fees; (c) expert witness fees; (d) Court reporter costs; (e) photocopying costs; (f) messenger and postage costs; (g) costs related to obtaining medical, government and school records; (h) transcript costs; and lots, lots others. In some cases, they end up being in the many tens of thousands of dollars. And, as noted above, if you lose your lawsuit, you just might also have to pay your employer’s legal costs. BIG OUCH!!

The need to raise – and clarify – this issue early on is important. So many clients get mentally and emotionally distracted in the process of hiring legal counsel; others get intimidated. This particular point often gets lost in the process, but is an important one to focus on before the onset of the attorney-client relation.

WHAT YOU CAN DO: When hiring an attorney, make sure you understand the attorney’s retention agreement. Especially if you are considering hiring an attorney on a “contingency” basis, make sure you understand who “swallows” the expenses. Don’t just focus on the possible amount of money to come your way; focus, too, on the amount of money that may leave your wallet, related to expenses.
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Did You Know That . . . Employer-Paid Moving Expenses are Now Taxed as Employee Income?

Published on May 8th, 2019 by Alan L. Sklover

Sklover Working Wisdom Tax Relocation Expense Reimbursement

. . . Yes, the 2018 “Tax Reform” law in the U.S. made employer-paid and employer-reimbursed relocation costs – even when your moving is requested by the employer – income to the employee, and thus taxed to the employee? Yikes!

We all should know that wages, salary, bonuses and employer-granted grants of stock are “income” to the employee, and thus subject to taxes to be paid by the employee.

Some of that changed in the U.S. this year due to our “friends” in Congress, and their so-called “Tax Reform” law that lowered taxes on the wealthy.

Under previous tax law, payment OR reimbursement of most of an employee’s job-related moving expenses were not subject to income taxes or employment taxes (such as Medicare or Social Security.)

However, under last year’s so-called “tax reform” legislation, employers now must include all moving expenses – whether paid by the employer OR reimbursed by the employer – in the employee’s income that they report annually to the IRS.

Employees are warned to take this change into account when considering whether to accept a relocation request, as moving oneself, or an entire family, can be awfully expensive, and doubly so when the amount paid or reimbursed by the employer is also subject to taxes.

You may want to request that your employer (or prospective employer) not only pay for or reimburse you for your relocation costs, but also agree to “Gross Up” that amount that is, also pay you what you will need to pay in taxes, to make up that “tax difference” to you. Alternatively, to “repay” you in some way to address this new tax burden on you.

If you are not familiar with the concept of “Tax Gross Up,” look for our upcoming newsletter to be entitled “Tax Gross Up: What Does That Mean?”

“Knowledge is leverage. Forewarned is forearmed. Look before you leap.” That’s our motto at SkloverWorkingWisdom.com.

[Written and transmitted May 8, 2019.]

(Please note: This email newsletter does not constitute legal or tax advice; for such advice or counsel, you need to consult a lawyer or tax adviser. In addition, laws change, and that includes the present tax law noted above, and, so, reliance upon this email newsletter must take these warnings into account.)

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© 2019 Alan L. Sklover. All Rights Reserved and Strictly Enforced.

“#MeToo is Now #YouToo, Too” – Dignity for one requires dignity for all

Published on March 19th, 2019 by Alan L. Sklover

Sklover Working Wisdom MeToo Movement

 
“Gender equality is a human fight, not a female fight.”

– Freida Pinto

ACTUAL CASE HISTORY: Gerald, a sales team supervisor, regularly made jokes about sex in team meetings, was known to often touch female team members “by accident,” and held private meetings with female sales team members in his office, with the door closed.

Two female team members were rumored to have complained to HR of Gerald’s habits, their discomfort with it, and then simply seemed to “disappear,” that is, they did not return to work on Monday morning, without any of the sales team members hearing from them that either had a new job elsewhere.

Tom, a male sales team member, was called into HR, where he was met by an outside attorney working for the company, who insisted on interviewing him. The interview, which lasted almost two hours, seemed to focus on what Tom observed, and – quite surprisingly to Tom – why he did not report his observations to HR, as is now required by new company policies, about which he was not aware.

Barbara, Gerald’s supervisor, was also interviewed by an outside attorney for the company, and the questions asked to her focused – to her surprise – on what she had done to train her teams on anti-harassment policies and practices, and to regularly assess the quality of the work environment of her reports, as is now required by new company policies about which she was not aware.

Cary, who headed up Human Resources for the Sales Division, was also interviewed by the investigator, whose many questions focused – to Cary’s surprise – on what training and ongoing assessment he had initiated of the employee morale of Sales Division employees, as is now required by new company policies of which he was not aware.

New thinking, new limits, new policies, new expectations, new accountabilities, new risks, new consequences. There are a lot of new things to learn and keep in mind.

LESSONS TO LEARN: The #MeToo Movement has been something of an earthquake in the workplace, and it continues to have a wide variety of “aftershocks.” These “aftershocks” are not only what you see, hear or read about. It’s something less visible, more visceral. It’s about what is no longer acceptable, no longer tolerated, no longer joked about, no longer without substantial consequence. It’s not about a law; it’s more about what is simply not tolerated. It seems to be one of those epic steps forward in societal norms that, hopefully, will never be reversed.

The #MeToo Movement has clarified that freedom from abuse at work is something human right, a right to be free from a kind of deep humiliation, physical intimidation, outright fear and human exploitation. This web post covers just one of its many facets: how it has grown from a laugh-laden phenomenon to one that can not only ruin your career, but even put you in jail. It is serious, and needs to be taken seriously.

As a general matter, employers have not before been held accountable for harassment at the workplace of which they were not aware. So, if you did not complain, you had no effective right, and your abuser had no effective responsibility. That seems to be changing, and employers are increasingly concerned about the cost of being caught unaware. . . Yes, it’s a dollar and cents issue, too. Employers are no longer ignoring #MeToo issues, but are now seeking to prevent them, with their own interests in mind.

Employers, managers and colleagues are all increasingly being held responsible for not doing something to stand up, and face down, those who harass at work. According to a recent Bloomberg Law report, law firms are being hired to engage in a record number of investigations into employee harassment complaints. There has also been a sharp increase in the number of employers who are conducting preventive training to prevent workplace harassment in the first instance, and to come up with better ways of handling it if and when it does rear its head.

The lesson is clear: things are changing, and they require thoughtful consideration of how you need to adapt with those changes, or be confronted with potentially career-ending “news.” There is no simple, universal “rulebook” but an evolving one that gives every employee good reason to keep her or his mind wide open for what and how the new workplace requires of employees.

If you are not convinced, just look at what has happened to so many CEO’s, so many famous and wealthy men like Mr. Weinstein, Mr. Cosby, Mr. Lauer, Mr. O’Reilly, and so many others who were blind, oblivious or overconfident about their ability to avoid the new accountability that is @MeToo.

WHAT YOU CAN DO: Having worked on workplace harassment issues for many years, the following 10 points are among those that would be best kept in mind. They are steps that are among those I would suggest all employees consider doing to be, and to be perceived as, part of the solution, and not be, or be wrongly perceived to be, part of the problem:
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“Umbrella Negotiating” – Best Response to Private Equity “Hurricane Tactics”

Published on February 5th, 2019 by Alan L. Sklover

Umbrella Negotiating Sklover Working Wisdom

 
“I am no longer afraid of the storms for I am learning how to sail my ship.”

– Louisa May Alcott

ACTUAL CASE HISTORIES: Kalisha, 44, had worked for six years as the Financial Controller of a St. Louis-based, family-owned lighting distributor. After three generations of family ownership, during which the staff grew from two to 150, the grandchildren-owners received an inquiry from a Private Equity firm about their interest in possibly purchasing the company. With assurances that each grandchild would likely make many millions of dollars when, three to five years later, the “re-invigorated” company was to be sold. It didn’t take long: they decided to “cash out.”

Pretty soon, the Private Equity firm, their lawyers and their accountants began reviewing the company’s financial records, bank statements, leases, employment agreements, all as part of their “due diligence,” upon which their formal “offer” would be based.

It did not surprise anyone when the company’s owners called for a meeting of the company’s executive team to announce what was happening. At that meeting, the overall message was clear: “This is a great opportunity for everyone. There will be bonuses, there will be stock ownership, and this will be a golden opportunity for everyone . . . So long as you stay on board, work hard, help make the company a greater success, we might just make enough money to never work again.” Wow.

Then, four months later, without warning, the management team were called into a conference room, given documents to review, and told they needed to be signed by the next morning. Each executive received six documents, some one page long, some tens of pages long, each nearly impossible to understand due to their dense legal wording, multiple definitions, and confusing cross references. When some people asked for a chance to have their attorneys look them over, they were sternly warned, “What are you going to do? Don’t you trust us? Don’t ruin this for everyone.” To make a long story short, everyone signed, and no one ended up happy.

As Private Equity investors increasingly assemble “private equity” – meaning investments from college endowments, individual investors, pension funds, and religious organizations – this scenario is playing itself out scores of family-owned companies each day.

LESSONS TO LEARN: The commonplace understanding of employment agreement negotiation is a rather simple, three-step process: (i) first, the employer provides the employee with a draft document; (ii) then, the employee and his/her lawyer look it over, (iii) finally, the employee’s lawyer and the employer’s lawyer discuss, and negotiate, mutual concerns. With few exceptions, that is not how Private Equity investors and owners operate today with companies they purchase in order to sell.

With few exceptions, Private Equity investors (a) buy, (b) change, and (c) resell companies over three to five years. They are not long-term investors. They seek the best possible return for their investors and themselves, and do anything and everything they can think of to do just that.

The problem is this: to do so, they often promise the sky, and make sure the “papers” provide little or nothing of that. Instead, they tend to (a) reduce employee overhead (meaning salary and benefits), (b) manage to avoid paying out “suggested” promised bonuses and stock or other forms of equity, and (c) make sure that the agreements that they require employees to sign provide them the right to do just those things. Generally speaking, over time, they will bring in their own executives whose job is to sell the company, not to run it. They have no loyalties; they have only greed, and the legal help to get them what they want. Unless wisely resisted.

Do they want anyone to know or understand what they are signing? No. And they are good at it. Remember: (a) Buy, (b) change, (c) sell, within three to five years. And to do so they engage in what I call “hurricane tactics.”

“Hurricane Tactics” are what I call the use of seemingly overwhelming force, in an atmosphere of near-blindness, by among other things a “blizzard of papers,” so that the course of events proceeds this way: (1) rather vague assurances are made to employees of great opportunity and fortune, provided the employee agrees to remain and work hard for several years, however (2) without any solid commitments being made to ensure the employer fulfills those vague assurances. Instead (3) the agreements are chock full of provisions by which the employer is enabled to avoid and evade any commitments, of any kind, to the employee.

A. What are these “Hurricane Tactics?”

    1. Lack of Clarity: The use of words, phrases, definitions and dense, complicated language an experienced employment attorney has a devil of a time understanding. There is simply no good reason to draft legal documents no one can understand; only bad reasons. (See the next section: The documents almost always say, one way or another, that if there is anything unclear in the documents, the “Management” has full and final say about what it means);

    2. “Unlimited Leeway”: Provisions in the agreements that give to employers the sole, final and unreviewable decisions – like “sole and unreviewable discretion” – as to what a document means, or what constitutes “reasonable,” “promptly,” “bad faith,” “adequate performance,” “cause” and “misconduct,” to name just a few, making those words and phrases essentially meaningless;

    3. “Subject-To” Provisions: Phrases that make the employment-related agreements “subject to” other documents that are not provided for review, such as the Limited Liability, LLC Operating, or Shareholders’ Agreement. Others, such as the “Award Agreement” for stock or options are often not even drafted yet. “Subject to” means that this document is subservient to other documents, and that those other documents govern and control in the event of any inconsistency, conflict or dispute. But it is almost always the case that you have no right to change those other documents, and they do, without telling you. (See the next section.)

    4. “Incorporation by Reference” of Other Documents that are Changeable Unilaterally: As examples, the three agreements noted in the preceding agreement are controlling, and each of them provide that they can be modified at any time, without notice. So, if an employee is provided 2% of the company’s shares, these documents can permit 10 million new shares to be sold, making the employee’s ownership not 2% of the company, but 0.00002 percent. So these “incorporated by reference” documents can make the one you are signing essentially meaningless.

    5. Coercion by Last-Minute Lateness (“Don’t be the one who spoils this for everyone.”) Perhaps most cynical of all, the practice of providing the employees only a day or even just hours, to review several documents consisting of hundreds of pages, and no real opportunity to even find or retain an attorney, to request changes or otherwise negotiate.

In one instance, my client was given only 30 minutes to sign several documents, and only the signature pages of the agreements were given to her to sign; the substance of the agreements were not provided, so she had no idea what she had agreed to. For Private Equity investors, that means “Mission Accomplished.”

So, those are the fundamental elements of the “wind-in-your-face, rain-in-your-eyes” hurricane tactics. Is it possible to successfully negotiate against these “Hurricane Tactics?” Yes, it is, and I’ve found the best way is to use what I call “Umbrella Negotiating.”

B. So, What is this “Umbrella Negotiation?” Simply, focus on two things: (i) Firm Footing (what I call “Positional Leverage”) and (ii) one Document that Covers Everything (an “Umbrella Memo”). By those phrases, I mean the use of two concurrent strategies, (i) “positional leverage” before the hurricane arrives, and you are exposed to its unsettling and disorienting “elements” and (ii) preparation of one single – and rather simple – document that covers you regarding all other documents, in all events, just as a strong umbrella does in a hurricane.

“Positional Leverage” and “Umbrella Memos” are explained in greater detail below. Simply put, for now, it is being on your firmest footing, and projecting your points in the negotiation as soon and as clearly as you can.

“Umbrella Negotiation” serves to hold back the strong wind, protect against the furious rain, and permit you to both see what is going on around you, and to stand up to it, not getting overwhelmed, drenched or “hosed.” The elements of “Umbrella Negotiation” are explained below.

Is it easy? No, but with a little effort and energy, it’s not impossible, either. Is it effective? Yes, it can be very effective, and I truly believe it is the most effective way to address Private Equity “Hurricane Tactics.” Just as David defeated the more-powerful Goliath with a firm footing and a single, simple weapon, so too can you prevail in employment negotiations with Private Equity investors or owners.

WHAT YOU CAN DO: These are the “Umbrella Negotiating” steps that I employ in these circumstances and they are in my experience the most effective way to negotiate employment agreements of nearly every kind:
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Request a “Mental Health Day”? Do Not Use that Phrase

Published on January 15th, 2019 by Alan L. Sklover

 
“The frequent attempt to conceal mental pain increases the burden: It is easier to say “My tooth is aching” than to say “My heart is broken.”

– C. S. Lewis

ACTUAL CASE HISTORY: Last month an article entitled “How to Ask for a Mental Health Day” appeared in the Wall Street Journal, written by “Work & Life” columnist Sue Shellenbarger. Sue is a well known and well regarded writer on matters of “Work & Life.” I respect and admire her very much. On this subject, in my opinion, she was entirely wrong in her approach and conclusion on this subject.

When I saw the title of the column, I gulped; I said to myself, “She can’t be recommending people request ‘mental health’ days, could she?” When I read the column, I gasped; she seemed to be headed that way. When I finished reading her piece, I groaned; sure enough, she seemed to be recommending that people be “honest” and ask their managers for “mental health” days off when they were needed.

LESSON TO LEARN: While I fully recognize that there is a stigma attached to having a mental health illness, I also view the phrase “mental health day” to be both an inappropriate use of that phrase, and laden with several, substantial and entirely unnecessary risks.

Also, while I dedicate much of my life to improving the world we live in, I also recognize that it is almost always unwise to create or accept unnecessary risks in doing so. My view is that it is 100% unnecessary, unwise and potentially hazardous to your job, your career and your reputation to request a “mental health day” at work, as well as, in itself, a touch dishonest. So, “Just Don’t Do It.”

WHAT YOU CAN DO: Instead, let’s just deal with the issue before us: feeling angry, spent, cranky, even on the verge of tears? Not sure you will be able to hold onto your temper if you go to work? Ready to explode at a work colleague? I get it; I’ve been there. But in such events, I strongly urge you to never, ever ask for a “mental health day” at work. Here are my thoughts:
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Alan L. Sklover

Alan L. Sklover

Employment Attorney
and Career Strategist
for over 35 years

Job Security and Career Success now depend on knowing how to navigate and negotiate to gain the most for your skills, time and efforts. Learn the trade secrets and 'uncommon common sense' of Attorney Alan L. Sklover, the leading authority on "Negotiating for Yourself at Work™".

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