MINNEAPOLIS -- Employment contracts, especially the unwritten kind,
generate "lots of litigation," based on the experience of
Minneapolis attorney Todd Wind.
He described cases to delegates at the Star Tribune Travel Trade
Show last month:
One employee in a management post sued her employer claiming
she held a 10% ownership of the agency.During pre-employment interviews, the owner talked of a
long-term potential ownership share for this person, but the
employee "heard" the promise of a 10% ownership. Wind said the
agency owner won but wound up paying "a lot" in attorney's
fees.
Another agent sued an employer claiming she was promised a
lifetime position. The claim was based on the owner's remark in a
social situation saying that "as long as you perform, you have a
job."With lines like that, Wind said, and owner could create an
employment contract for life. In this case, the agency owner won,
but that is no guarantee for other such claims.
Another agent sued an owner claiming to have been lured away
from a previous job with a promise that previous benefits would be
matched.The owner denied this, adding he did not even know what those
benefits were. The agency won, "but it was not cheap to defend this
through trial," Wind said.
He described these situations to illustrate a key legal risk
facing agencies: claims of breach of contract. In a seminar titled
Personnel Issues and Their Legal Implications, he listed a number
of other major risks, as follows:
Wind said agents are liable for the acts of their agents,
Including contractors. The agency is responsible if its agents
misrepresent facts.Also, he said, there is an increasing problem with contractors
"playing games" with airline ticketing rules. It is the agency that
will be liable for the debit memos, he said.
To mitigate risk involving the contractors, he advised, have the
contractors use their own business cards that say they are
"affiliated with" your agency. Thus, he said, the principal is
disclosed and it is harder for a client to sue the agency if the
independent counselor made an error.
Also, he said, the agency can obtain an indemnity from
contractors, which means the agency could sue the contractor for
reimbursement if the agency faces a claim and losses due to a
contractor's error.
Noncompete agreements can protect an agency from the sudden
departure of staffers who set up shop across the hall and call all
the agency's clients.He cited a real, so-far unresolved situation in which an agency
was purchased on a Friday. Agents who were not being kept on staff,
over the weekend, opened an agency and contacted the customers.
"On Monday, the buyer had no customers," Wind said. While "it
looks bad, it looks as if no one did anything wrong" because, after
the Friday close, those staffers were not bound to either owner. If
buying or selling an agency, he said, "you want to tie up the key
people to keep the business."
He said most states recognize noncompete agreements, but their
enforceability depends on the terms. It is best to restrict an
employee's options to as narrow a geographical area as possible and
to two years or less.
Such contracts must be offered at the beginning of employment.
If presented to existing staff, those staffers must get a pay raise
or new title for signing the document.
The pact should include a provision, he said, that says the
employee won't take business from the agency's customer list.
Attach the list to the agreement, and have the staffer initial it,
he said.
Without noncompete agreements, he said, the agency's only case
against a newly competitive former staffer might be allegations of
stealing trade secrets, and it is very difficult to make a case
that customer lists are trade secrets.
Trade secrets, he said, could include corporate bid formats,
rebate and fee structures, client profile data, override details or
preferred-hotel books. In noncompete pacts, Wind said, list the
things you consider to be trade secrets.
Finally, he said, when interviewing a competitor's employee, ask
if the person is subject to a noncompete agreement.
The consequences of an IRS payroll audit "can be huge" if
independent contractors are reclassified as staff, which occurs 95%
of the time, he said.The key is "how do you treat your contractors?"
The contractor must control the "means and manner of
performance" except you can require them to abide by industry rules
like those imposed by airlines, he said.
In addition, Wind said, he recommends having contractors pay for
some services or facilities used in the agency. "They need to have
some risk of profit or loss," he said. Independent agents must have
a contract covering a defined period of time.
Finally, Wind said, "have independent contractors purchase their
own errors and omissions insurance or purchase an endorsement from
your policy."
Wind said he is seeing "a lot of sexual harassment" allegations
these days, and, he warned, an employer can be liable for the
harassment even if unaware of the actions. There is one defense, he
said, if the alleged action does not have an adverse employment
impact on the accuser.But managers can be proactive, he said, in these ways:
1. Have a policy that encourages staffers to come forward with
problems. Invite them to go to someone other than their
supervisors, if necessary.
2. Let it be known that harassment will not be tolerated.
3. Train supervisors to understand what constitutes harassment
and what are the consequences if policy is violated.