Chicago Business Lawyer Blog

Now that we have just gone live with a redesigned website and established new Chicago and Deerfield offices for our business law practice, as well as started this blog, we're about to commence a marketing initiative to our clients, colleagues and friends. Just a note to say that this blog's design currently reflects a basic standard template. It will have a new look complementary to the website in the very near future. (By the way, if you have any comments or suggestions for improving the website, please contact us.)

As Toyota's president prepares to testify before Congressional committees tomorrow, it is a good time to consider some basic principles when businesses learn of possible defects, safety risks or violations of law. The Toyota vehicle acceleration recalls and similar reports present a good case study. Apart from the underlying vehicle design, performance and correction issues, Toyota now faces even more attention, not to mention potential sanctions, over its handling of and response to the situation.

For example, the automaker has received subpoenas from several federal agencies that will review its approach. And, an internal presentation touting a Toyota's team success in minimizing corrective measures required by NHTSA and realizing huge costs savings has come to light, raising questions about priorities in the response. So, this story quite possibly will turn into another installment of: "what did they know and when did they know it" or "was the cover up worse than the crime?"

It may well turn out that Toyota has acted completely appropriately in responding to defect and safety concerns. Just like UFO sightings, it's not as if every consumer complaint has merit. And, it is reasonable to respond in a measure fashion when it is not clear exactly what is going on.

In any case, my experience with scores of regulatory, health and safety matters has led to a few basic starting guidelines. The old saying "safety first" still rings true. Take the initiative with potential problems and regulators and be proactive. And, do not put anything in writing in an unprivileged setting that you do not want to see on the front pages next month or next year.

In essence, although there always is an imperative to avoid unneeded expenditures, usually it is better to deal with potential safety problems as quickly and effectively as possible. In addition to putting human welfare over the bottom line, it's a basic quality matter and brand management. These problems usually only get worse and more expensive to address over time. Dealing with them upfront sends strong, positive messages to all constituencies: customers, employers, suppliers and regulators. In the long run, taking short cuts leads to illusory savings.

All that said, it is not always easy to decide what the right course of action is and it is important to have full and frank discussions when there is a crisis or potentially damaging or expensive problem. The purpose of the attorney-client privileges is to promote those types of internal conversations and reviews, by shielding certain (even potentially embarrassing) communications with counsel from disclosure. But, when a privilege is not applicable, and even when they are keep safety first in mind, executives and managers always should ask themselves whether they would want that PowerPoint slide, memo or email to be presented in a courtroom before sending it around.

Our Chicago and Illinois business lawyers are experienced in regulatory and risk management matters and would be happy to discuss this topic in further detail.

Companies in the Chicago area should be aware that federal, Illinois and other authorities are taking closer looks at whether individuals performing services for them are properly treated as independent contractors instead of employees. Because misclassification as an independent contractor generates less tax revenue and governments are facing severe budget pressures, enforcement officials are now are more likely to question employer determinations.

For example, the New York Times reports that the Obama administration's 2010 budget anticipates raising an additional $7 billion from more aggressive policing of business practices involving independent contractors, including for fines and penalties. Among other things, the article notes that the recession has made it less likely for workers to object or file complaints about misclassification. Likewise, it probably has been more tempting for companies to avoid an employee classification because they avoid employment tax, unemployment insurance, worker compensation, benefit, minimum wage, overtime and other obligations.

Deciding the appropriate class is not always easy. The Internal Revenue Service provides guidance and advises that a careful examination of the worker situation is needed, focusing on: behavioral control, financial control and the relationship of the parties.

The former refers to looking at who directs how work is conducted, as opposed to the results. Financial control involves the extent to which the worker is responsible for expenses, investments and losses and determines how payments are made. The latter goes to other factors pertaining to the degree of independence, such as whether the services are related to essential, ongoing, everyday needs of the business, whether the worker provides his or her own tools and whether the worker provides services to others. In short, the more the worker looks just like regular employees, the less the worker looks like an independent contractor.

It is possible to request a determination from the Internal Revenue Service regarding the correct status by filing Form SS-8.

For more detailed information or advice regarding independent contractor matters, contact our Chicago and suburban employment lawyers.

As a Chicago business lawyer licensed in Illinois, I have to attend a certain amount of Continuing Legal Education every two years. So, last week I went to brush up on security and privacy matters at a Chicago Bar Association seminar entitled, "Encryption for Lawyers."

It was an excellent reminder of the stakes involved not just for lawyers, but all business owners and managers in this age of ever increasing electronic data. First, many financial, healthcare and other companies are subject to specific security, breach notification and corrective action regulations through HIPAA and similar legislation designed to protect personally identifiable information ("PII"). Second, the potential opportunities for breaches are mind numbing when considering all the technologies we use: computers, flash and other external drives, email, cell and smart phones, WiFi and wireless routers, Bluetooth headsets and online or "cloud" services. Third, every week brings new stories of hackers, like that of Google's experience in China, or lost laptops.

Days could be spent on studying regulations, guidelines and best practices. For example, just think about keeping track of, much less, securing all the places you have data either residing or being transmitted. Volumes have been written just on how to delete and destroy data from disks and drives before disposal. (One speaker's tip: Super Glue works well to disable thumb drives.)

For now, the key takeaways from the seminar were: "Handle PII like it is cash" and "Encrypt your computers and drives." I want to emphasize the latter because, in addition to basic use of passwords, it provides the biggest bang for the buck. There are free or relatively inexpensive encryption programs that require a password in order to fully start your laptop or other device. Thus, this is a fairly simple way to protect everything in case of loss or theft, which greatly reduces your exposure to negligence or regulatory violation claims. And, generally speaking, laws requiring notice of PII breaches to employees and customers are not triggered if lost data was encrypted.

For more detailed information and advice regarding information security and privacy legal considerations, contact our Chicago and suburban business lawyers.

The scale of Toyota's recent defect and recall issues is staggering. And, so is the likely impact to sales and budgets. It is difficult to imagine how much Toyota and its relevant suppliers are spending on lawyers, experts, public relations consultants and the like. This probably will continue for years as lawsuits are filed and litigated.

Accordingly, there is no better time than now for virtually all businesses to assess and reconsider their risk management practices, including for product liability claims. In my experience, many, if not most, companies pay little attention to this because of the crush of everyday pressures.

The appropriate response of course will depend upon what the type of business; providing goods rather than services; serving consumers rather than businesses; manufacturing rather than distribution. More industrial or consumer types of businesses may need to monitor regulations, standards and closely. Some must carefully evaluate the quality processes of suppliers and their own operations. Others may benefit from looking for gaps in insurance coverages, such as those applicable to privacy, network or environmental risks.

No matter the client or business, some simple improvement to contracting methods usually is in order. Consistently following these few basic steps will significantly reduce potential exposure:

1. Keep warranties as narrow and short as reasonable and feasible. Care should be taken to not guarantee results, unintended uses, security or performance longer than three, six or twelve months.
2. Disclaim all warranties other than those expressly stated. Courts and statutes may find that implied warranties, such as those for merchantability or fitness for a particular purpose, apply if not waived in writing.
3. Limit liability to ordinary, direct damages, such as purchase price or out-of-pocket costs. Exclude liability for punitive or consequential damages, such as for lost profits or business interruption.
4. Cap total maximum liability for a transaction. For example, it may be appropriate to limit responsibility to $100,000 or $500,000 when providing a product or service costing significantly less than those levels.

These measures are common and usually acceptable. However, in some cases, federal or state law will override express disclaimers and require more favorable protections for consumers. And, regardless of contract provisions, sometimes accepting greater liability is needed to maintain a long-term business relationship with a customer. Still, overall, there usually is minimal downside to being conservative.

Our Chicago business lawyers are experienced in risk management measures and can help you quickly and affordably develop the approach right for your situation.