Chicago Business Lawyer Blog

A recent lawsuit filed in Chicago alleges that giant cell phone company Motorola misappropriated trade secrets on technology that allows cellular networks to track emergency callers.

This lawsuit comes down to employment issues that Chicago small businesses deal with all the time.

This is especially true with technology start-ups because of how intense the competition is and how high-impact the development of new technologies can be. In this global economy, new technology is perhaps the most valuable asset a company can have. Being able to create something that completely changes the face of business or consumer products can be very profitable.

But it can also be easily pilfered by employees who leave the company and take the company's trade secrets with them. This is why a small business start-up must consult with an experienced Chicago small business attorney.

Many small business owners are so concerned with office space, financing, registering the business and other important first-step acts that they don't consider the implications of structuring employment contracts, establishing policies and handbooks and making sure there are provisions to ensure employees don't steal company secrets when they leave.

In this case, Lemko Corp. alleges, an engineer that created technology that allows emergency callers from cell phones to be detected by law enforcement went to Motorola because she had "access to and knowledge of Lemko's trade secrets," according to a lawsuit filed in Chicago.

The engineer left Lemko, the lawsuit states, and then was hired by Motorola, which then incorporated the technology into its phones. The giant cell phone company, which is being acquired by Google Inc., allegedly destroyed computer files showing that it used Lemko's computer code. The engineer was fired in 2008, Bloomberg reports.

Lemko is asking for compensation for the loss of royalties as well as unspecified damages. The company alleges the engineer should have known or did know that she would be using her former company's trade secrets in creating the technology for Motorola.

Trade secrets are a major factor in making sure a business is successful and they can be illegally stolen through a variety of means. Trade shows can lead to leaked secrets, but employees tend to be a major source of this type of theft. A strongly worded and appropriately written employment contract can ensure that employees don't run off with important details or intellectual property that belongs to the company.

Intellectual property includes branding, trade secrets, and other developed ideas that a company relies on in order to thrive. An experienced Chicago business litigation attorney can help companies implement these secrets and protect them from outside businesses. From trademark registration to protecting those secrets along the way, this is one area of business that can't be taken lightly.

In this ultra-competitive market, companies must do all they can to protect what is theirs and what they have developed through their own hard work. Letting employees take this technology and carry it to competitors can have a crippling effect on a small business.

Continue reading "Motorola Sued By Lemko For Trade Secret Theft in Chicago" »

Groupon is facing the possibility of a class-action employment lawsuit in Chicago amid allegations of unpaid overtime by sales reps, according to Crain's Chicago Business.

Chicago business attorneys can often help growing companies avoid the common pitfalls of employment law. Whether wage and hour disputes, sexual harassment or discrimination issues, consulting an experienced law firm can ensure a company's growing human resources department is on solid legal footing. In some cases that could involve drafting employment agreements or determining executive compensation, in other cases it could be as simple as ensuring the employee handbook properly and legally addresses issues like the Family and Medical Leave Act.

In this case, a former Chicago sales rep filed a lawsuit against Groupon in U.S. District Court. She left the company's employment last month. She is seeking retroactive overtime plus 2 percent in damages. The suit claims the 3-year-old company didn't pay enough, failed to pay overtime, and violated other wage laws.

The suit seeks class-action status on behalf of all employees who may not have received proper overtime pay. It's the latest legal setback for the Chicago-based company, which sells daily deals via Internet coupons. The company's initial public offering is on hold and it's facing multiple lawsuits over whether it's e-mailed coupons violate the consumer protection laws that regulate gift cards. The company has a workforce of nearly 10,000 -- including about 4,800 sales reps.

About 1,000 U.S. reps are paid $32,500 a year plus commissions. The lawsuit accuses the company of failing to pay overtime until last spring when management discovered the problem. The company reportedly promised to calculate and pay overtime owed, but that never happened. By some estimates, reps are owed as much as $5,000 each, which could amount to a $2 million payout by the company.

These are not issues unique to Groupon. Too often, startup companies minimize the need for sound legal advice for far too long. They see it as an expensive line-item and not an investment. As the legal woes at Groupon illustrate, sound legal advice now can save a company from dealing with expensive legal headaches in the future.

For its part, Groupon has brought in new management to address the growing pains. While the company's massive sales force is hurting its bottom line (the company has yet to turn a profit), it is also seen as a barrier to entry for other companies.

The Wall Street Journal reports that Groupon is downplaying the suit's significance, saying similar suits have been filed against Cisco, Salesforce, Nortel and others.

The Journal reports the fast-growing company has reported revenue of $1.5 billion this year, compared to $131.5 million during the same period last year.

Continue reading "Chicago Tech Startups: Employment Issues are Avoidable with Sound Legal Advice" »

I'm not sure if it's just a coincidence, but lately I have had several consultations all of a sudden with pairs of individuals who were assessing leaving their current jobs either to start a new business in a related industry or move to a competitor or similar firm. They were smart to review their obligations and risks of legal action by their employers because of each of these clients had signed what is often referred to as a "non-compete" or a "non-competition agreement."

Technically, these kinds of contracts usually go by a variety of names, such as a "confidentiality and nonsolicitation agreement" or "proprietary information and inventions agreement" or some variation thereof. In fact, only a minority of proprietary agreements with employees actually say that competition is prohibited. Instead, the primary aims of such contracts is to (1) establish ownership of employee work product, (2) provide for no unauthorized disclosure or use of employer trade secrets or other confidential information, (3) prevent soliciting of established company clients for a similar new employer and (4) prohibit inducing other employees of the company from leaving. Often, such obligations will be effective for from six to 18 months from the last date of employment.

Now, as a practical matter, one or more of these types of obligations may well have the effect to limiting competition for some period of time. Generally, most states are reluctant to enforce an outright ban on employees joining a competitor in some capacity. After all, an individual generally should have an opportunity to make a living in the same industry that he or she has been working in. However, courts are very willing to allow a company to protect its intellectual property, including inventions and trade secrets, and customer relationships that it created substantially from scratch.

Accordingly, employees need to be careful and think through their potential risks and liabilities before they make a move. A complicating factor is that no-competes and other proprietary agreements tend to be very broadly worded and one-sided in favor of the employer. So, even the most innocuous new business or job arguably may inherently involve the use of IP developed in part at a previous employer or involve dealing with some of the same customers.

While every case has to be reviewed in light of the particular company, job, customers and non-disclosure agreement terms, here are a few basic questions to consider the likelihood of employer enforcement action:

• Have you been working on developing secret new products, services or methods?


• Did you have any work-related inventions?


• Are you a very senior level employee?


• Are any other employees going to the same place as you at about the same time?


• Are you going to a competitor?


• Will you be doing substantially the same function or work?


• Will you be calling upon or working with any of the same customers or suppliers?


• Does your new situation have the potential to result in lost business or opportunities for your employer?


• Does the company have any history of suing departing employees?

The more your answers to the above questions were "no," then the less likely it would seem a lawsuit would be expected. As always, this blog entry is for general informational purposes only; consult with an attorney before making any decision regarding this subject.

Jeremy A. Gibson is an experienced intellectual property attorney and has drafted numerous proprietary agreements and handled a variety of non-compete and similar enforcement situations in Chicago, Illinois and surrounding areas. Our Illinois business lawyers are available to meet with you in offices around the region, including Chicago, Deerfield, Naperville, Northbrook, Oakbrook, Rosemont, Schaumburg and Skokie. Just contact us anytime.

Given the increasingly competitive nature of the job - and college and graduate school admissions - markets, students and graduates often want or feel the need to gain experience in the field of their interest by taking unpaid internships. There are even firms that advertise assistance in procuring such stints. Similarly, employers can find it both good and good for them to offer such opportunities. (On a personal note, I can say that my (paid and unpaid) internships were great steppingstones and provide great memories.)

As always, there's a catch. Employers should be alert as labor authorities are escalating scrutiny of work-based training arrangements. However tempting it is to say that no good deed goes unpunished, there is a potential concern that internships can present an issue under the federal Federal Labor Standards Act ("FLSA"). If an intern looks and acts basically like an employee, and not much like a student, then it probably is illegal to not pay him or her, as reported in a recent New York Times article.

Federal guidance on the subject provides a relatively stringent test for concluding that no wages are required: "The U.S. Department of Labor Wage and Hour Division established criteria based on U.S. Supreme Court interpretations of the FLSA for determining whether work is employment or training. In general, persons performing work will be deemed to be trainees not covered by the FLSA if all of the following criteria are met:

• the training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;

• the training is for the benefit of the trainees or students;

• the trainees or students do not displace regular employees, but work under their close observation;

• the employer that provides the training derives no immediate advantage from the activities of the trainees or students; and on occasion the employer's operations may actually be impeded;

• the trainees or students are not necessarily entitled to a job at the conclusion of the learning experience (though employers may offer jobs to students who complete training); and

• the employer and the trainees or students understand that the trainees or students are not entitled to wages or other compensation for the time spent in training (though a stipend may be paid for expenses).

In the event that any one of these criteria is absent, the work performed by the student will likely constitute employment subject to the provisions of the FLSA." [Emphasis added.]

Accordingly, even though the probability that an unpaid internship not intended to take advantage of an intern ever would lead to a wage claim is low, care should be taken to make sure that there are substantial educational aspects to the experience. Further information is available from the Wage and Hour Division. And, of course, do not hesitate to contact our Chicago business and employment lawyers for assistance.

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.