Beware! The “Other” Side of the LSRP Program

transcript

Beware! The “Other” Side Beware! The “Other” Side of the LSRP Programof the LSRP Program

Edward HoganDavid HarmonCharles Miller

John Lushis, Jr.John Vanarthos

Pat Collins

The material provided herein is for informational purposes only and is not intended as legal advice or

counsel.

Balancing the Risks, Balancing the Risks, Responsibilities and Responsibilities and

Obligations of the LSRPObligations of the LSRP

Edward Hogan

What Is New?What Is New?

• LSRP Role in Site Remediation

• New Business Dynamic: 3 Parties– Client– Environmental Consulting Firm– LSRP

How Do You Manage?How Do You Manage?

• LSRP Role– Training– Contract– Insurance– Use of Corporate Form

How Do You ManageHow Do You Manage

New Business Dynamic• Contract

– 3 Parties

• What happens when the LSRP leaves Environmental Consulting Firm?– For current clients: Someone loses a client!– For former clients: Who keeps the files?

Protecting Your Protecting Your BusinessBusiness

• Corporate Succession

• Employee Handbooks and Employment Policies

Keeping Key EmployeesKeeping Key Employees

Agreements with Employees/LSRP and Non-compete Issues – Protection of Company

Assets and Retention of Talent

David Harmon

Retention, Protection and Retention, Protection and EnforcementEnforcement

COMPETITION

CUSTOMERS

COURTS

TRADE SECRETS,CONFIDENTIAL/PROPRIETARY

INFORMATION, FILESAND RECORDS

EMPLOYEES

COMPANY

Take Your Employment Take Your Employment TemperatureTemperature

Ask the following questions regarding the LSRP, your employees and your business:

Who? What?

Why? How?

Ask These Questions Ask These Questions While Considering the While Considering the

Importance of:Importance of:• Protecting company assets and

customer relationships, retaining key employees, and safely engaging the LSRP.

Who? What? When?Who? What? When?• WHO does my company need? From whom does the company need

protection and ongoing loyalty?

Executive, LSRP and rank and file employees privy to trade secrets and confidential/proprietary information, including customer relationships. Protection from competitors is critical.

• WHAT can we do to keep key people and protect the company from theft of data, confidential and proprietary information and interference with employee, consulting and customer relationships? What happens when the LSRP leaves or completes the engagement?

Create binding contracts that impose reasonable restrictions on activity both during and after the employment and consulting relationships.

• WHEN does this come into effect?

Put agreements into effect at the commencement of employment and/or consulting arrangements. Or, for employees make them concurrent with reviews and increases in compensation/benefits.

WHY? – Just a Few WHY? – Just a Few Reasons:Reasons:

• Costs/losses incurred by companies.• Increase of theft by employees during recession.• Security of company assets and retention of files.• Provide protection from competitors poaching

employees and theft of information and relationships.• Put your employees and the competition on notice

and create right to bring claims against departing employees/LSRP for breach of contract and against your competition for tortious interference with your contracts.

How? How?

• Create agreements.• Provide adequate consideration to

make sure the agreements are enforceable.

• Create employment practices and policies that dovetail with your agreements.

• Enforce those agreements.

Agreements with Agreements with Employees and Employees and

ConsultantsConsultants• Employment Agreements/Consulting Agreements (key

executives, LSRP)

• Confidentiality/Non-disclosure Agreements• Non-solicitation Agreements (Non-poach/raiding)

• Non-interference Agreements• Non-competition Agreements (reasonable in scope, duration and

geography)

• Non-disparagement Agreements (including “no kiss and tell” covenants)

• Return of Materials Agreements • Invention Assignment Agreements (Work for Hire)

Retention, Protection and Retention, Protection and EnforcementEnforcement

COMPETITION

CUSTOMERS

COURTS

TRADE SECRETS,CONFIDENTIAL/PROPRIETARY

INFORMATION, FILESAND RECORDS

EMPLOYEES

COMPANY

Professional Liability Professional Liability Insurance- and BeyondInsurance- and Beyond

Charles Miller

Commercial General Commercial General Liability Insurance Liability Insurance

• Cover bodily injury and property damage claims

• Exclude coverage for professional liability claims

• Exclude coverage for pollution claims

Professional Liability Professional Liability InsuranceInsurance

• Generally claims-made policies

• Retroactive date- KEY!

• Unique LSRP issues

Pollution Legal Liability Pollution Legal Liability InsuranceInsurance

• For the site owner• Protects insured against unanticipated losses

associated with pollution conditions arising from:– Unknown contamination (existing from past

incidents but not yet discovered)– New issues from known contamination (i.e. new

regulatory requirements)– New pollution releases

SRRA SRRA

Why worry with LRSP issuing RAO?• DEP has up to 3 years to audit RAO• Can audit beyond 3 years if:

– Undiscovered contamination is found on RAO site– Board conducts investigation of LSRP– LSRP has had license suspended or revoked

N.J.S.A. 58:10C-25

SRRASRRA

• DEP can rescind RAO if remedial action may no longer protect public health and safety

N.J.A.C. 7:26C-

LSRP Risk ManagementLSRP Risk Management• Limitation of liability clause in contract

• Re-evaluate insurance

• Carefully prepare PL application

• Review policy and endorsements

• Maintain PL coverage – with retro date!

• If closing business, purchase ERP/tail

• Pollution coverage for property owner

Key Person InsuranceKey Person Insurance

How much?

Formula or salary multiple?

Push for a realistic value

Limited Liability by Limited Liability by Corporate FormalitiesCorporate Formalities

John Lushis, Jr.

Why Form an Entity? Why Form an Entity? • Forming an entity affords the LSRP liability protection in the

event a problem arises (e.g., litigation) and specifically protects the LSRP’s personal assets (e.g., house, bank accounts, etc.).

• While liability insurance affords the LSRP protection, without an entity, the LSRP could still have personal liability if damages exceed the amount of the insurance proceeds, the matter is excluded from policy coverage or a dispute arises with the insurer.

• Forming an entity is relatively inexpensive; i.e., the benefits substantially outweigh the costs.

What Entity?What Entity?

• Several different entities can provide liability protection.

• The entity typically formed is a corporation (stockholders), a limited liability company (members) or a limited partnership (limited partners and general partner). A general partnership is not preferred because the general partner is liable for the obligations of the partnership.

• Selection of entity will depend on various factors, most notably tax considerations for the particular LSRP, the nature of the assets owned by the LSRP (e.g., land and buildings vs. personal property) and the degree of sophistication of management (e.g., sole member vs. Board of Directors).

Documents: CorporationDocuments: CorporationArticles of Incorporation• Sometimes referred to as the “corporate charter” these

documents specify the corporate name, address, the term of existence, and the type and number of shares of stock issued. This is filed in the Secretary of State’s Office in Trenton.

By-laws• These documents outline the manner in which the Corporation

is to be governed and contain provisions relating to directors and officers and their responsibilities, meetings, and voting. Directors are selected by the stockholders and officers are selected by the Board of Directors. Naming directors and officers is critical.

Documents: CorporationDocuments: Corporation

Shareholders’ Agreement• This document outlines rights and obligations with respect to the

purchase and sale of shares in the event a stockholder desires to sell his interest, terminates his employment, dies, becomes disabled or becomes involved in a legal proceeding such as bankruptcy or divorce. Specifically, the agreement will specify who has the right to purchase and at what price.

Documents: Limited Documents: Limited Liability CompaniesLiability Companies

Certificate of Organization• Similar to the Articles of Incorporation and filed in Trenton.

Operating Agreement• This document outlines the governance of the company and

also contains provisions relating to buy-sell rights similar to those found in a shareholders’ agreement.

Documents: Limited Documents: Limited Liability CompaniesLiability Companies

Operating Agreement (continued)• LLCs can be managed in one of two ways: by all of the

members or by one person who is designated as a manager. The manager’s responsibilities are specifically outlined in the Operating Agreement (e.g., right to execute contracts, open bank accounts), but certain extraordinary transactions will require approval by a certain percentage of all members (e.g., sale of the company).

• LLC requires less documentation to form than a corporation

Documents: Limited Documents: Limited PartnershipPartnership

Certificate of Partnership or Formation• Similar to the Articles of Incorporation and filed in Trenton.

Partnership Agreement• This document outlines the governance of the partnership and

also contains provisions relating to buy-sell rights similar to those found in a shareholders’ agreement.

• A limited partnership has at least one general partner. Because of liability concerns, the general partner is often a limited liability company that owns 1% partnership interest and the members of this limited liability company are the limited partners.

ComplianceCompliance

Complying with the provisions of governing documents is critical to avoiding potential arguments that the entity is not legitimate.

Corporate MaintenanceCorporate Maintenanceand Tune Upand Tune Up

John Vanarthos

I.I. Operating as a Operating as a CorporationCorporation1. Governing Bodies

• Shareholders• Board of Directors• Officers

2. Documenting Corporate Action• Authorizing Resolutions• Delegations of Authority for Officers/Key Employees

3. Meetings• Annual/Periodic Meetings

4. Proper Record Keeping• Minute Book/Stock Ledger

5. File Annual Report With Department of Treasury

Note: These Requirements Apply to All Corporations Regardless of

Size/Number The Formalities Really Matter Failure to Comply Creates Risk of Losing Corporate Shield From

Individual Liability

II.II. Corporate MaintenanceCorporate Maintenance1. NMM Corporate Tune-Up

• Review and update corporate book/stock ledger• Limited liability and indemnification provisions• Defining the Role of the LSRP

Conflict of Interest Issues Limit Company Liability for LSRP’s Legal Responsibilities

2. NMM Corporate Maintenance Program• Designed to help maintain corporate records on an ongoing basis

and include: Preparation of annual corporate consents Updates to corporate minute book throughout the year Acting as registered agent Guidance with filing of NJ Annual Report Meet with you once per year to discuss tax or business

planning concerns• Annual Fee of $350• Enrollment may be cancelled at any time

III.III. Corporate Succession Corporate Succession PlanningPlanning

1. Shareholder (Operating) Agreements• Restrictions on transfer or issuance of stock/equity• Buy/Sell Provisions

Upon death/retirement/termination Planning your exit strategy Planning for your partner’s exit

• Key-Person Life Insurance

2. Coordinating with Estate Planning• Permitted transfers to family members/trusts• Marital status

Business Continuity Business Continuity InsuranceInsurance

Charles Miller

Life InsuranceLife Insurance

1. Buy-sell agreement - set up by Owners.

2. Life insurance - fund the buy-sell.

Life InsuranceLife Insurance

Advantages• Maintains business intact• Provides heirs with prompt payment of

agreed-upon amount of cash• Avoids disputes between heirs and

surviving owners• Helps settle estate quickly

An insurance policy taken out by a business to compensate that business for financial losses that would arise from the death or extended disability of the member of the business specified in the policy.

To compensate the business for its losses and to facilitate business continuity when that key person is lost to the business

Death or disability would be a financial detriment to the company

What is covered?

1. Replacement costs

2. Lost profits

3. Shareholder protection

4. Guarantee coverage

No Excuses! No Surprises! – No Excuses! No Surprises! – Employee Handbook and Employee Handbook and

Employment PoliciesEmployment Policies

Pat Collins

Key IssuesKey Issues

• EEO – Discrimination Prohibited

• Anti-Harassment

• Employment At-Will

• Benefits/Payroll Administration

• Privacy Expectations

• General Work Rules

N.J. Law Against N.J. Law Against Discrimination (“LAD”)Discrimination (“LAD”)

N.J. Conscientious Employee N.J. Conscientious Employee Protection Act (“CEPA”)Protection Act (“CEPA”)

• Extremely liberal interpretation– Easier administrative process. No caps on damages.

• Lower thresholds than federal laws• Allows suits against individuals• Broader scope of protected classes under LAD• CEPA “Reasonable Belief Standard”

LAD• Applies to employers, individuals, and “any

person who aids, abets, or otherwise assists” in prohibited conduct.

• Makes it unlawful to refuse to buy from, sell to, license, contract with or provide goods or services to anyone on the basis of a protected class.

• Prohibits harassing conduct by third parties (Visitors, customers, vendors, LSRP’s).

CEPA• Applies not only to employees, but independent

contractors as well.

EEO – Non-Discrimination EEO – Non-Discrimination – –

Anti-Harassment PoliciesAnti-Harassment Policies• Written Policy Mandatory in NJ

– Presumed negligent without one

• Training of Managers Mandatory in NJ

• Risk Losing “Employer Defense”

• Employee Liability

• Good Business Practice

Employment At-Will Employment At-Will No ContractsNo Contracts

• Policy emphasized repeatedly• Introductory Disclaimer• At-Will Statement• Benefits Disclaimer• Codes of Conduct• Discipline & Termination• Signed Acknowledgement

Benefits/Pay PracticesBenefits/Pay Practices

• Disclaimer – “The Company reserves the right to amend or terminate any of these programs and to require or increase premium contributions toward any benefit programs in its discretion.”

• Benefit Explanations• Leaves• Pay Practices

– Safe Harbor Language • Hours of Work

– Employee Classification– Overtime Policy

Privacy ExpectationsPrivacy Expectations

• Confidentiality Issues

• Conflicts of Interest

• Company Property/Trade Secrets

• Employee Reference Requests

• Medical Information

• Company Investigations

Privacy ExpectationsPrivacy Expectations

• Drug and Alcohol Testing

• Searches

• Internet and Electronic Media

• Social Media and Networking– Cell phones, Blackberrys, Smartphones– Facebook, LinkedIn, Twitter

General Work RulesGeneral Work Rules•Moonlighting •Jury Duty •Emergency Procedures

•Personnel Files •Tuition Assistance •Office Supplies/Machines

•Office Hours •Dress Codes •Mail/Telephones

•Inclement Weather •No Smoking •Media Contacts

•Comp Time •Weapons •Inventions

•Direct Deposit •Violence •Gifts

•Performance Reviews •Solicitations •Customer Relations

•Vacations •Bulletin Boards •Arrests/Convictions

•Sick Days •Radios •Garnishments

•Holidays •Layoffs •Expenses

•Safety •Resignations •Language

•Workplace Injuries •Terminations •Nepotism

•Family Leave Issues •Exit Interviews •Grievance Procedure

•Military Leave •Office Searches •Open Door Policy

•Bereavement Leave •Visitors •Interns/Trainees

Question & Question & Answer SessionAnswer Session

Thank you for coming!