On Tuesday, July 13, 2010, Attorney Allison DePaola participated in a “Social Web In Business” panel discussion as part of “Social Web Week CT – 2010” in New Haven, Connecticut. The panel discussion was moderated by Lisa Miksis, publishing editor of Zip06 and included the following participants: • Chris Bartlett – from followcb.com, local writer, blogger, public speaker & seasoned business owner and entrepreneur • Ann Nyberg – of TV News Anchor, WTNH-TV, and founder of anniemame.com, social media & CT business advocate • Sherry Boyd- aka the Retail Goddess, Independent Retail Advisor and advocate for Moms4MedMod • Chef Daniel Lanzilotta – well known foodie and owner of the Mindful Chef and well-versed in use of online media tools • Allison DePaola, Esq. – local attorney versed in the area of Social Media in Business Each of the participants shared their insight as to how Social Media has impacted or changed business and how business flows, and the importance of implementing Social Media in a business frame work. The group discussed examples of the ways in which Social Media can help businesses grow and engage their customers and other businesses in the future. Allison highlighted the legal considerations of Social Media with regards to Advertising/Marketing, Employment Issues, Data Privacy and Security, and Intellectual Property. Also discussed was the impact Social Media may have on growing our Connecticut economy. “Connecticut gets it and will set an example we are rebuilding from the bottom up, social media is helping us to do that. Many more will now prosper because of events just like this put together by volunteers all of whom are working at answers thru this “I’ve been laid off-afraid I’m going to be laid off-or having to reinvent myself” times in which we are living.” – Ann Nyberg

To view a segment of the handout provided along with the presentation, click here.

Many thanks to the #swct crew for coordinating this program and inviting Allison to speak at this event.

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During employment, many key employees inevitably gain access to a vast amount of information that is both unique and valuable to a business.  This information can include customer lists, potential client lists, processes and operations information, trade secrets, or other important information that has been acquired by the business over time.  For many businesses, it is necessary for key employees to utilize this information to build relationships with current and potential customers and to work with and access this information on a daily basis during employment. 

But what happens when employment ends?  How do you, as a business owner, prevent a key employee from taking this unique and valuable information when he or she leaves your business?  Moreover, how do you prevent a key employee from sharing this information with a competitor employer, or using this information to directly compete with you and your business?

The answer depends largely on whether you are just now hiring the key employee, or whether the key employee is currently employed at your business.  While it is best to speak with an attorney to determine which agreements, it any, are appropriate for your business, here is a brief overview of three frequently recommended documents: 

When hiring new employees, the following three clauses and/or contracts can be preventative solutions to these potential problems.  Depending on your business’s activities and operations, it may be advisable for you to have one or a combination of the following three documents:   

(1)  Non-Compete Clause or Non-Compete Agreement.  Inserting a Non-Compete Clause in a contract for employment or having an employee sign a Non-Compete Agreement (Contract) prevents a key employee form working in your company’s industry or business practice area for a specified time period and within a specified geographic area after he or she leaves employment with your company.  The specified time and geographic limitations must be “reasonable.”  What is “reasonable” varies depending on the industry and business practice area, so it is advisable to consult with an attorney when drafting a Non-Compete Clause or a Non-Compete Agreement. 

(2)  Non –Solicitation Clause or Non-Solicitation Agreement: A Non-Solicitation Clause in a contract for employment, or having an employee sign a Non-Solicitation Agreement (Contract) prevents an exiting employee from soliciting your other employees and/or customers for a period of time after he or she leaves your company.  This helps protect your business interests in retaining employees that you have invested time and resources to train, or customers who your business has developed a relationship with, It does so by prohibiting the exiting employee from attempting to entice other employees or customers to also leave your company. 

(3)  Confidentiality Clause or Confidentiality Agreement: A Confidentiality Clause in a contract for employment, or having an employee sign a Confidentiality Agreement (Contract) prevents a key employee from disclosing sensitive company information, such as customer lists and related information, company processes or operations, or trade secrets or future company strategies. 

When dealing with current employees, the question of whether an employer can require existing employees to sign Non-Compete Agreements or Non-Solicitation Agreements as a condition to continued employment has not been clearly answered by the Connecticut Courts.  It is often required that some form of valid “contractual consideration” be given to the employee in exchange for the employee signing the Non-Compete or Non-Solicitation Agreement. 

In many circumstances, requiring an existing employee to sign a Confidentiality Agreement as a condition to exposing them to confidential information within the office is an acceptable practice.  Again, it is advisable to consult an attorney to determine the legality of these Agreements and Clauses for your specific business in your specific business situation.

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Risks can be presented when an employee uses social media to discuss your business’s activities and operations, your business’s other employees, or even you as an employer.  Risks can also be presented when an employee uses Social Media to discuss clients, potential clients, or current or potential business deals.  Consider the following:  

• Your employee is excited about a new client he or she is working on securing – can they Tweet about the client they might sign?
• Your employee is very upset that your office is not recycling newspapers – can he or she write a blog commenting on how environmentally un-friendly your business is?
• Your employee tweets: “@ServiceSam Crunch time! 1 hour left until big presentation but far from done.  My plan: wing-it and make stuff up as I go!

Your clients who follow Sam may not be too happy to hear your employees “wing-it” during presentations

• Your employee dislikes his or her co-worker or dislikes you as a boss – can he or she express these complaints on his or her Facebook profile?
• Can current employees use social media to recommend the work or employment of former employees?
• Your employee receives a new laptop from a network marketing program he or she participates in.  This program frequently sends the employee freebies and encourages the employee to blog, tweet, or post about the freebies.  Can the employee blog or tweet about this freebie on your business websites or blogs without mentioning that this is an “endorsement,” (as recommended by the FTC)? 

Despite these risks, social media can be an invaluable business and brand building tool if used properly.  A balance between the benefits and risks must be struck to carefully draft a Social Media Policy (or “Social Media Guidelines) that can minimize risks, can harmonize employees’ rights to freedom of speech with businesses’ rights to confidentiality and protection from employees posting about work related issues yet can concurrently preserve the positive uses of social media.  A Social Media Policy cannot impose so many restrictions that it paralyzes employees from communicating with the public and potential customers, or prevents employees from offering responsive customer service to current customers.  In many businesses, employees need access to social media just like they need access to phones and email.

Because the size, activities, and operations of every business are unique, your business’s Social Media Policy should reflect its unique characteristics in a way that optimizes the benefits of Social Media but sufficiently protects against the risks.  Additionally, your Social Media Policy should correspond with any other documents already signed by your employees, such as employment contracts, Non-Disclosure Agreements or Confidentiality Agreements, Internet Usage Policies, or Email Policies.  It is important to consult a knowledgeable attorney to discuss drafting a Social Media Policy that is right for your business. 

To get you started, here are some general topics to take into consideration when drafting a Social Media Policy or Social Media Guidelines:

• Define Social Media: Social Media includes any internet based media created and disseminated through social interaction.  Popular Social Media websites include Facebook, Twitter, MySpace, LinkedIn, and YouTube.  But Social Media doesn’t just end there; Social Media also encompasses personal and corporate blogs, interactive calendars, chats, and the like.
• Ensure that your Social Media Policy compliments and conforms to any existing employment contract, internet usage policy or email policy your business currently uses.
• Ensure that your Social Media Policy encompasses all stages of employment – from pre-employment to departure from employment.
• Consider including ways that encourage positive social media use or “social media training” to optimize employees’ use of social media.
• Inform employees as to the procedure you will follow when reacting to unfavorable social media postings or discussions. 
• Instruct employees that the misuse of social media can be grounds for discipline or termination.
• For some businesses, consider regulating employees’ access and use of only certain social media sites and forums for business related purposes.
• Consider regulating employees’ access and use of social media for business purposes or business and personal purposes during work hours. 
• Consider requiring employees with personal blog sites to post a disclaimer notification that the views expressed on his or her blog are those of the individual and not the business.
• Consider reinforcing the importance of employees submitting complaints to appropriate personnel rather than using social media to express dissatisfaction with the business.
• Instruct employees that they are not to use social media to discuss confidential or proprietary information.
• Instruct employees that they are not to use social media to discuss confidential or identifying information pertaining to clients.
• Instruct employees that they are not to use a business email address to register for social media sites or forums that they will access for purposes other than business.
• Instruct employees that they may not use social media to discuss false information about the business, its employees, customers, or affiliates.
• Instruct employees to use common sense and good judgment when using social media for business and personal purposes.
• Appoint someone within the business as the point of contact for overseeing the policy and answering questions regarding the policy.
• Write the policy/guidelines in plain English!  There is no need to complicate things; make the policy/guidelines easy to read and comprehend.  Use examples, when possible, but emphasize that examples are not comprehensive.  

For new businesses, Social Media Policies or Social Media Guidelines can be incorporated into Internet and Email Usage policies.  For existing companies with current internet and email usage policies, a separate Social Media Policy or separate Social Media Guidelines can be drafted and adopted by the business.

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When it comes to incorporating, new business owners seem to think they know something others do not and want in on the mysterious benefits of incorporating in Delaware that only those “in-the-know” are aware of.  The truth is, that although incorporating in Delaware makes sense for large, publicly held corporations, it usually does not for the general partnerships, corporations, and limited liability companies that most business owners are establishing.  This is particularly so, since the smaller, privately held companies will primarily only be doing business in the state in which the owners, members or managers reside.   

A business-owner is not necessarily going to save any money in taxes by incorporating in Delaware.  For small businesses, it is likely your business makes money primarily from operations in the state in which you reside.  Therefore, you will pay your own state’s income taxes on this income.

Furthermore, while it is true that Delaware generally has lower incorporation fees, there are other fees associated with incorporating in Delaware if you don’t actually plan on doing business there.  Businesses must qualify to operate and do business in your state in addition to incorporating in Delaware. This prolongs the process and creates additional costs by having to file papers to operate as a “foreign” corporation in your home state.  Companies incorporated in Delaware and doing business elsewhere must also appoint a corporate agent to receive official notices in Delaware.  Though many companies and services operate as these corporate agents it does add additional cost.  There are also additional expenses each year regarding tax returns and filings.

There are times when incorporation in a state other than your own can make sense.  This is particularly so if you plan to expand rapidly into other states, take the company public or are looking to investors for capital outside of your home state.  In those instances it may be beneficial, and many attorneys or accountants will recommend either Delaware or Nevada. 

The advantages of incorporation in Delaware are that there are: lower incorporation and LLC formation fees; no state corporate income tax for companies operating outside Delaware; no minimum capital required for incorporation; one individual can hold all the corporate offices; shares owned by Delaware non-residents are not subject to Delaware personal income tax or inheritance tax; lower franchise fees; and the names of the initial directors need not appear in the public records.  Delaware also has a greater scope of corporate-themed legal authority should litigation arise involving your business. 

Nevada is another state known to have similar benefits to Delaware, such as: no state tax on corporate profits; stockholders do not have to appear on the public records; there is no state personal income tax; and there are no state franchise taxes.  However, as with Delaware and most other states, companies formed in Nevada will have to pay fees and register in the state(s) in which it is intended that the company operate.  Additionally, filing fees in Nevada are generally higher than in other states. 

The best recommendation for smaller partnerships, limited liability companies or corporations primarily doing business in the state in which the owners, members or managers reside is to incorporate in the same state where the business operations take place; your home state.  If you plan on significant rapid expansion into other states or are looking to find investors that wish to be anonymous it may make sense to look to incorporation outside your home state.

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A Buy-Sell Agreement (also known as a Buyout Agreement) is a binding contract between two or more owners of a business that sets forth what will happen if one of the owners dies, chooses to leave the business, or is forced to leave the business due to external circumstances.  A Buy-Sell Agreement can be a separate document or can be several legally binding clauses incorporated into an operating agreement or business partnership agreement.  The document, or clauses, set forth what will happen during various contingencies, such as:

• What events will trigger a buyout?  Common events that trigger a buyout include death, disability, retirement, or owner leaving the company willingly or unwillingly).

• Who can buy an exiting owner’s share of the business? Only current partners/shareholders, or outsiders?

• How will business determine the value and buyout price of the exiting business owner’s interest?

When should I enter into a Buy-Sell Agreement?

People usually enter into business ventures with people they like, who they get along with, and who share their long term business goals; no one ever enters into a business agreement intending for things to go sour. 

However, just like a pre-nuptial agreement guides the divorce when marriage ends, a Buy-Sell Agreement guides the buy-out of an exiting partner when the business partnership ends.  Even though the business venture may be entered into with the best of intentions by all partners, it is best to execute a Buy-Sell Agreement at the inception of the business venture.  

Even if you do not foresee a “business divorce” in the future, a Buy-Sell Agreement is an important contract to have because it also acts as a “business will.” 

• If a business partner suddenly dies, could his or her spouse or other family member become a business partner? Would you want to be business partners with his or her spouse or other family member? 

• What if the spouse or family member of the deceased partner does not want to operate the business with you, and demands a payout of the deceased partner’s share?  How should his or her share be valued and paid? 

• What monies, insurance or other funds will be used to pay the deceased partner’s share?

A Buy-Sell Agreement allows you and your business partners to address these questions and others in advance and set forth a plan of action as to how various contingencies will be handled.  If you are currently in business with a partner or partners, and do not have a Buy-Sell Agreement, it is advisable to execute such an Agreement.  

It is advisable to consult an attorney to discuss the various issues that should be addressed in your specific Buy-Sell Agreement to be sure the contract is tailored to your specific business partnership venture.

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