Developing a Robust Compliance Program Can Protect from Litigation from Internal Sources

Developing and maintaining a robust compliance program is critical for businesses to protect themselves from potential litigation arising from internal sources, such as employees or management. Understanding the importance of a comprehensive compliance program is essential to safeguarding a business’ financial and legal interests, ensuring that operations are conducted in accordance with relevant laws and regulations.

The Role of a Compliance Program

A compliance program is a structured set of policies, procedures, and practices designed to ensure that companies and their employees adhere to legal and ethical standards. A robust compliance program serves as a first line of defense against internal risks by promoting a culture of accountability and transparency within the organization. It helps prevent misconduct, detect violations early, and respond effectively to any issues that arise, thereby reducing the likelihood of litigation.

Key Components of a Robust Compliance Program

1. Clear Policies and Procedures: The foundation of any compliance program is a set of well-defined policies and procedures that outline the company’s expectations for ethical behavior and legal compliance. These should cover a wide range of areas, including workplace safety, anti-discrimination, harassment prevention, data privacy, and financial reporting. Policies should be easily accessible to all employees, written in clear language, and regularly updated to reflect changes in laws or business practices.
2. Training and Education: Regular training programs are essential to ensure that employees understand their responsibilities under the compliance program. This includes not only initial onboarding training but also ongoing education on topics such as regulatory updates, ethical conduct, and specific risks relevant to the company’s operations. Training should be tailored to different roles within the organization, ensuring that all employees, from front-line workers to senior management, are equipped to comply with applicable laws and policies.
3. Internal Reporting Mechanisms: A key aspect of a compliance program is the establishment of effective internal reporting mechanisms. Employees should have a clear and confidential way to report concerns or potential violations without fear of retaliation. This can include anonymous hotlines, secure online reporting tools, or direct access to compliance officers. Encouraging employees to report issues internally allows the organization to address problems early, before they escalate into legal disputes.
4. Monitoring and Auditing: Regular monitoring and auditing of compliance activities are crucial for detecting potential issues and ensuring that the program is being implemented effectively. This includes conducting internal audits of financial transactions, reviewing adherence to safety protocols, and assessing the effectiveness of training programs. Audits should be conducted by independent personnel or external experts to ensure objectivity and thoroughness.
5. Enforcement and Discipline: A robust compliance program must include clear enforcement mechanisms for dealing with violations. This means having a consistent and fair disciplinary process in place that holds employees accountable for misconduct. Disciplinary actions should be well-documented and applied uniformly across the organization to prevent claims of unfair treatment or discrimination, which can lead to litigation.
6. Leadership Commitment: The success of a compliance program depends heavily on the commitment of the organization’s leadership. Senior management must lead by example, demonstrating a strong commitment to ethical conduct and compliance with laws and regulations. This includes allocating sufficient resources to the compliance program, regularly communicating its importance to employees, and actively participating in compliance initiatives.

Benefits of a Robust Compliance Program

Implementing a comprehensive compliance program offers several key benefits that can protect companies from internal litigation:

• Litigation Prevention: By proactively addressing potential issues and promoting a culture of compliance, companies can prevent internal disputes from escalating into costly litigation. Employees are more likely to resolve concerns internally if they trust that the organization takes compliance seriously.
• Legal and Financial Protection: A strong compliance program helps ensure that everything operates within the bounds of the law, reducing the risk of legal violations that could result in fines, penalties, or lawsuits. This not only protects the company’s finances but also its reputation.
• Improved Employee Morale and Retention: A workplace culture that prioritizes ethical behavior and compliance fosters a positive work environment, leading to higher employee morale and retention. Employees who feel valued and respected are less likely to engage in misconduct or file lawsuits against the company.
• Enhanced Operational Efficiency: Compliance programs help streamline operations by establishing clear procedures and reducing the likelihood of disruptions caused by legal disputes or regulatory investigations.

Ongoing Maintenance and Review

A compliance program is not a one-time initiative but an ongoing process that requires regular maintenance and review. Internal teams should work closely with legal counsel and compliance officers to continually assess the program’s effectiveness and make necessary adjustments. This includes staying informed about changes in laws and regulations, updating policies and training materials, and addressing any new risks that arise.

Developing and maintaining a robust compliance program can create a solid foundation for legal and ethical operations, significantly reducing the risk of litigation from internal sources and protecting long-term success.

To ensure your compliance program is comprehensive and tailored to your company’s unique needs, the Employment and Labor group at Wagner, Falconer & Judd is here to help. Our team of experienced attorneys and HR Professionals can work with you to assess, develop, and enhance your compliance strategies, providing the legal expertise needed to protect your business from internal risks. Contact us today to take your compliance program to the next level and safeguard you from costly litigation.

Addressing defaults and outlining remedies within contracts is crucial for protecting businesses from financial risk. For finance teams, it is essential to ensure that these provisions are robust and clear, providing them with the necessary tools to respond effectively in the event of a customer’s default.

A default occurs when a party fails to fulfill its contractual obligations, such as making timely payments or or adhering to the terms of a lease or purchase agreement. To mitigate the financial impact of a default, contracts should include late or missed payments, failure to maintain insurance, or unauthorized use of equipment. By clearly defining what constitutes a default, the dealer can act swiftly and decisively when a breach occurs.

Once a default is established, the contract should provide a range of remedies to protect the businesses’ financial interests. Common remedies include the right to repossess any equipment, acceleration of payment obligations (where the full amount due becomes immediately payable), and the imposition of late fees or interest on overdue payments. The right to terminate the contract and recover damages, including the cost of retrieving and refurbishing the equipment, should also be clearly articulated.

To further strengthen these protections, finance teams should ensure that contracts include provisions for legal fees and costs, allowing the dealer to recover expenses incurred in enforcing the contract or pursuing legal action. Additionally, contracts should specify that any waiver of a default or delay in enforcement does not constitute a waiver of the dealer’s rights under the contract, preserving the dealer’s ability to enforce the agreement in the future.

It is also important to include dispute resolution mechanisms, such as arbitration or mediation, which can provide a more efficient and cost-effective means of resolving conflicts without resorting to lengthy litigation. These mechanisms should be clearly outlined in the contract, along with the steps required to initiate them.

Finally, finance teams should work closely with legal counsel to ensure that default and remedy provisions are tailored to the dealership’s specific needs and are compliant with applicable laws. Regular review of contract templates and updates in response to changes in the law or business practices is essential for maintaining effective protection.

On January 1, 2024, the Corporate Transparency  Act (CTA) came into effect, marking a significant step in the fight against money laundering, tax fraud, and terrorism and funding. This new law mandates the collection of beneficial owner information (BOI) for over 30 million small businesses across the United States. Here’s a breakdown of what the CTA entails and how it affects your business.

What is the Corporate Transparency Act?

The CTA is a federal law aimed at enhancing transparency in corporate ownership. By requiring a business to report information about their beneficial owners, the CTA seeks to prevent seeks to prevent illicit activities such as money laundering, tax evasion, and financing of terrorism.

Key Definitions

Reporting Company- This refers to any corporation, limited liability company, or similar entity that is created by filing a document with a secretary of state or any similar state office.

Beneficial Owner- An individual who owns at least 25% of the reporting company or has substantial control over the reporting company.

Company Applicant- The person who filed the document to create the reporting company. If multiple people were involved, it includes the person primarily responsible for directing the filing.

Reporting Requirements

Existing Companies- If your reporting company was created before January 1, 2024, you are required to provide information about your beneficial owners.

New Companies- For companies created on or after January 1, 2024, you must report information about your beneficial owners and company applicants. However, a reporting company created after January 1,2024, does not need to report its company applicants.

Identification of Company Applicants- Companies required to report must always identify at least one company applicant, but no more than two.

Filing BOI Reports

All companies subject to the CTA musts file a BOI report with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury.

Penalties for Non-Compliance

Non-compliance with the CTA carries severe penalties:

Civil Penalty: $500 for each day the violation continues

Criminal Penalty: Up to two years of imprisonment and a fine of up to $10,000 for providing false information or failing to comply with the CTA.

Exemptions for Large Operation Companies

Some companies are exempt from the CTA requirements. To qualify for exemption, an entity must meet all the following conditions:

• employ more than 20 full-time employees in the United States
• have an operating presence at a physical office within the United States
• Filed a federal income tax return in the U.S. for the previous year showing more than $5 million in gross receipts or sales

The CTA introduces important changes for small businesses, aiming to foster greater transparency and accountability. It’s crucial for businesses to understand these new requirements and ensure compliance to avoid significant penalties. For more detailed guidance or assistance with your BOI report, please contact Wagner, Falconer & Judd.

Wage and hour compliance is an essential aspect of operating a business. It’s not just a legal obligation but a critical component of maintaining a fair and equitable workplace. Failure to comply with wage and hour laws can lead to significant financial penalties, damage to your company’s reputation and costly litigation. This post will provide an overview of wage and hour compliance, focusing on the Fair Standards Act (FLSA) and state laws like the Minnesota Fair Labor Standards Act (MFLSA).

Federal Standards: The Fair Labor Standards Act (FLSA)

The FLSA is the cornerstone of federal wage and hour regulations. It sets the baseline standards for several key areas, including:

Minimum Wage: The FLSA establishes a federal minimum wage, which is currently $7.25 per hour. However, many states, including Minnesota, have set higher minimum wages. For instance, Minnesota’s minimum wage is higher than the federal standard, and employers in Minnesota must pay the state rate. (Always be sure to review your local and state laws.)

Overtime Pay: The FLSA requires that non-exempt employees receive overtime pay at 1.5 times their regular rate for any hours worked over 40 in a workweek. This standard applies across the country, but states can impose stricter rules.

Recordkeeping: Employers are required to maintain accurate records for employee’s hours worked and wages paid. This includes details like the employee’s full name, social security number, address, birth date (if under 19), gender, occupation, time and day when workweek starts, hours worked each day, and total hours worked each week.

Youth Employment: The FLSA also sets restrictions on the employment of minors, limiting the hours they can work and the types of jobs they can perform. These provisions are designed to protect the educational opportunities of minors and prohibit their employment in jobs under conditions that may be detrimental to their well-being or health.

State-Specific Standards: The Minnesota Fair Labor Standards Act (MFLSA)

While the FLSA sets the baseline for wage and hour laws, state laws like the MFLSA can impose additional requirements. Employers must comply with both federal and state regulations and apply the standards that are most favorable to employees.

Overtime Pay: Unlike the FLSA, which requires overtime pay for hours worked over 40 in a workweek, the MFLSA mandates overtime pay for hours worked over 48 in a workweek. However, this does not mean that employers can ignore federal overtime requirements. If an employee is covered by both the FLSA and the MFLSA, the employer must pay the employee according to the standard that benefits the employee the most.

Minimum Wage: You state’s minimum wage may be higher than the federal minimum wage and vary depending on the size of the business. Employers must pay the higher state minimum wage if they are subject to both federal and state laws.

Additional State Requirements: Be aware that state’s also may have additional specific requirements. For example, Minnesota law requires meal and rest breaks, payment of wages upon termination, and protections for certain types of leave. Specifically, MN law requires that employees be given enough time to eat a meal during a shift that is eight hours or longer. Employers must be aware of the nuances to ensure full compliance. We recommend working with trusted legal counsel to ensure your follow all city, state, and federal laws.

The Importance of Compliance

The consequences of non-compliance with wage and hour laws can be severe. Employers who fail to meet these obligations may be subject to:

Back Wages: Employers may be required to pay employees any unpaid wages that were owed under law.

Liquidated Damages: In cases where violations are found to be willful, employers might be liable for liquidated damages, which can double the amount of back wages owed.

Attorney’s Fees and Court Costs: Employers found in violation may also be responsible for paying the employee’s attorney’s fees and court costs.

Reputational Damage: Beyond the financial impact, wage and hour violations can seriously damage an employer’s reputation, making it difficult to attract and retain top talent.

Staying Compliant: A Proactive Approach

Given the complexities of wage and hour laws, especially when considering both federal and state requirements, it is crucial for employers to take a proactive approach to compliance. This includes:

Regular Audits: Conduct regular audits  of your payroll practices and recordkeeping procedures to ensure compliance with all applicable laws.

Employee Training: Ensure that your HR team and management are fully trained on wage and hour laws and understand the importance of accurate recordkeeping and fair pay practices.

Staying Informed: Wage and hour laws are subject to change, so it’s important to stay informed about any updates to federal or state laws that may affect your business.

Consulting with Legal Counsel

Navigating the complexities of wage and hour laws can be challenging, especially for businesses that operate in multiple states or industries with specific regulations. To ensure compliance and protect your business from potential liabilities, it is highly recommended to work with trusted legal counsel who can provide expert advice tailored to your specific situation.

Your legal counsel can help you understand your obligations under both federal and state laws, identify potential areas of risk, and implement best practices to mitigate those risks. By partnering with experienced employment law attorneys, you can confidently navigate the complexities of wage and hour compliance, allowing you to focus on what matters most-growing your business. 

Jean-Paul Sartre put it best: “Nothing has changed, and yet everything is different.”

As you may know, the FTC proposed a nationwide ban on non-compete agreements which was set to go into effect on September 4, 2024. Now, the Northern District of Texas has struck down the rule nationally. This decision is a major blow to the FTC’s rule, but not its end.

What happened?

In July of 2024, the Texas court issued a preliminary injunction that only extended to the parties of the present lawsuit and chose not to address whether a national injunction was necessary. On August 20, 2024, the Texas court held that the FTC did not have the statutory authority to issue such a rule and that doing so was arbitrary and capricious. The court further explained that the rule needed to be set aside at the national level because of the Administrative Procedures Act (APA). We anticipate that the FTC will file an appeal to the 5^th Circuit in short order.

What’s changed?

As Mr. Sartre put it, nothing. However, this does not mean that non-compete agreements are back on the menu for everyone. Many states have banned non-competes, and this ruling does not affect those state laws. It is up to you as an employer to make sure that you are still complying with your state’s laws while the FTC rule is in limbo. You should reach out to employment counsel if you have concerns or questions about whether you are properly complying with your state’s applicable laws.

What’s different?

With the Supreme Court of the United States’ recent decision regarding “Chevron deference” and the FTC’s likely appeal of this ruling down in Texas, there is a good chance that this case could be headed to the Supreme Court. As a result, we may see further changes to the agency state and executive powers in the near future. The legal landscape is different.

What now?

If you have not taken any steps to come into compliance with the FTC’s rule, you’re in luck! You can keep doing what you’ve been doing for a little while longer as the FTC pursues its appeal.

If you decided to take early action and issue FTC compliant notices to your employees and former employees, you should consult your employment counsel to determine how best to resolve the situation. Unwinding the clock may be impossible, but there are other ameliorative steps that you can take depending on the specific circumstances.

Regardless of how you have prepared for the FTC rule, this is a great time to review your restrictive covenants and focus your attention on the things you aim to protect: business information and relationships.

Estate planning might seem like a task best suited for later in life, but it’s actually a critical step for anyone who wants to ensure that their affairs are managed according to their wishes, both during their lifetime and after their death. This planning involves more than just deciding who will inherit your assets; it’s about making comprehensive decisions that will minimize stress and confusion for your loved ones, protect your legacy, and give you peace of mind.

Managing Your Affairs During Your Lifetime

One of the primary aspects of estate planning is managing your affairs while you’re still alive. This includes setting up directives that allow trusted individuals to make financial and healthcare decisions on your behalf if you become unable to do so. These arrangements can prevent a great deal of uncertainty and ensure that your wishes are followed.

For instance, durable power of attorney allows someone to handle your financial matters if you’re incapacitated, while a healthcare directive (or living will) lets you specify your preferences for medical treatment in situations where you cannot communicate them yourself. These tools not only protect your interests but also relieve your loved ones from the burden of making difficult decisions during emotional times.

Distributing Your Estate After Your Death

Another critical element of estate planning is determining how your assets will be distributed after your death. Without a will or a comprehensive estate plan, state laws will dictate the distribution of your estate, which might not align with your wishes. By creating a will or a trust, you can specify exactly how and to whom your assets will be distributed, whether it’s to family members, friends, or charitable organizations.

Additionally, proper estate planning can help minimize taxes and other expenses, ensuring that your beneficiaries receive as much of your estate as possible. This process can include setting up trusts, designating beneficiaries, and even making gifts during your lifetime to reduce the taxable value of your estate.

Minimizing Problems for Your Loved Ones

One of the greatest gifts you can give your loved ones is the gift of clarity. Estate planning allows you to clearly communicate your wishes, which can prevent disputes and legal battles among family members after your death. By taking the time to outline your desires in detail, you reduce the risk of misunderstandings and the potential for costly and time-consuming probate proceedings.

Key Decisions in Estate Planning

When engaging in estate planning, there are several key decisions everyone should make:

• Who Will Administer Your Estate?
  • You need to choose a trustworthy executor or personal representative to administer your estate. This person will be responsible for settling your debts, distributing your assets, and ensuring that your wishes are carried out.

• Who Will Serve as Guardian of Your Children?
  • If you have minor children, it’s crucial to designate a guardian who will care for them if something happens to you. This decision should be made carefully, considering both the potential guardian’s ability to provide for your children and their willingness to take on this responsibility.

• Making Your Healthcare Wishes Known
  • Your healthcare directive should clearly state your preferences for medical treatment, such as whether you want life-sustaining measures if you’re terminally ill or permanently unconscious. You should also design a healthcare proxy-someone you trust to make medical decisions on your behalf.

• Addressing Financial and Healthcare Matters While You’re Living
  • Beyond healthcare directives, you should also have a durable power of attorney to manage your finances if you become incapacitated. This ensures that your bills are paid, your investments are managed, and your financial interests are protected, even if you’re unable to oversee them yourself.

Estate Planning is about more than just passing on your wealth; it’s about ensuring that your legacy is preserved, your wishes are honored, and your loved ones are protected. By taking the time to plan your estate, you’re not only securing your own peace of mind but also providing a clear and thoughtful guide for your family during difficult times. No matter your age or the size of your estate, now is the time to start planning for the future.

Minnesota has experienced unprecedented levels of flooding this summer. Some businesses have shut down or limited operations because of the historic flooding. Businesses impacted by natural disasters may need to make temporary or permanent changes to their workforce due to the financial stress or lack of work caused by a national disaster. There are a few cost-saving measures that businesses can implement to blunt the effect of a natural disaster and start the path to financial recovery. Furloughs, layoffs, and reductions in force provide businesses with a possible solution. It is important, however, that businesses understand the differences between these three cost-saving measures and their legal implications.

What is a Furlough?

A furlough is when an employer requires employees to work fewer hours or take unpaid time off for a certain period of time. For example, an employer can reduce full-time employees’ hours to 30 hours a week or require employees take multiple weeks off of unpaid leave. Employers commonly use furloughs when they have financial issues or lack of work for employees. An employer should use a furlough when the employer wants to avoid terminating employees and intends to bring back employees to their regular work schedules. Furloughs, however, may turn into a layoff if an employer later decides not to recall employees and instead end the employees’ employment.

Employers must be aware of whether furloughed employees are non-exempt or exempt employees. Exempt employees must receive their full predetermined salary for any week where the exempt employee performs any work without regard to the number of days or hours worked. This is important because an employer deducting from an exempt employee’s pay, or reducing the exempt employee’s pay, based on the number of hours worked during a furlough will cause an employee to lose their exempt status. Employers can avoid this issue by requiring exempt employees to take at least one week of leave, or take other weekly increments of leave, because employers are not required to pay exempt employees for any workweek that an exempt employee did not perform any work. However, employers need to ensure exempt employees are still paid at least minimum wage to avoid employees losing their exempt status.

Furloughed employees normally stay on the employer’s payroll but still may be able to collect unemployment benefits. Furloughed employees may lose employer-provided benefits. Employers should therefore review their benefit plans and be aware of whether reducing employees’ hours or requiring periods of unpaid time off will cause employees to lose their benefits, which may require employers to send COBRA notices to the furloughed employees.

What is a Layoff?

A layoff is a temporary separation of employment due to lack of work or financial issues. The term “layoff” is used when employees’ temporarily end due to no fault of the employees, and the employer hopes or plans to recall employees back to work. Lad off employees do not stay on payroll and often lose employer-provided benefits but normally receive unemployment benefits. Employers should familiarize themselves with their benefit plans before laying off employees to see if a layoff will trigger any requirements by the employer, such as sending COBRA notices to the laid off employees.

Reduction in Force

A reduction in force (RIF) is when an employer permanently eliminates a job position within the company with no intention of filing the position with new hires. A layoff can turn into or be similar to a RIF if the employer permanently decides not to recall the laid off employees. A RIF causes employees to go off payroll and lose employer-provided benefits, but they can normally receive unemployment benefits.

Legal Obligations & Consideration

Volunteers

Deciding which employees to lay off or to include a RIF often involves tough choices for employers. To ease an employer’s burden, an employer can ask for employees to voluntarily be laid off or included in a RIF. One way to incentivize volunteers is for the employer to offer a severance package. Employers can also ask employees to voluntarily take early retirement.

Implementing Objective Criteria to Enforce a Layoff or RIF

However, an employer looking to perform a layoff or RIF will likely have to make its own decision on which employees to layoff or include in a RIF. It’s imperative that employers develop objective criteria to determine how to select employees for a layoff or RIF to avoid or prevail against discrimination claims and retaliation claims. Common selection criteria include seniority, employment status (full-time and part-time or exempt and non-exempt), skill-based, merit based, and job position. Employees may try to argue the layoff or RIF was discriminatory because it had a disparate impact on a protected class-such as race, ethnicity, sex, gender, age, etc.-or argue they were retaliated against for engaging in protected activity, such as making a whistleblower claim, taking Family and Medical Act Leave, or taking Minnesota Earned Sick and Safe Time Leave. Employers implementing objective criteria to select employees for a lay off or a RIF will greatly minimize the employer’s liability risk in a discrimination claim or retaliation claim. Employers must simply be able to show that the employees selected for a layoff or RIF would have been chosen regardless of their protected class status or recent engagement in protected activity.

Severance Agreements and the Older Worker Benefit Protection Act

Additionally, employers can protect themselves by asking employees to sign a severance agreement before being laid off or subject to a RIF. A severance agreement is a contract where an employee agrees to waive and forego many potential legal claims they may have against the employer usually in exchange for a sum of money that the employees is not otherwise entitled to receive. In other words, an employee agrees not to sue the company in exchange for receiving payment and such payment is in addition to any earned wages or earned commissions the employer is already owed. Both Minnesota and federal law require that a severance agreement to be enforceable but there are some noteworthy requirements to be aware of. A Minnesota employee, regardless of age, always has 15 days to rescind a severance agreement after signing it. If a Minnesota employee is at least 40 years old, then the federal Older Worker Benefit Protection Act (“OWBPA”) requires that an employee must also have at least 21 days to consider signing the severance agreement; the 15-day rescission period remains the same. furthermore, the OWBPA requires the consideration period be extended from 21 days to 45 days if there are at least two employees subject to a layoff or RIF; again, the 15-day rescission period remains the same. When two or more employees are subject to a layoff or RIF, the employer must give written notice of the following information to each adversely affected employee:

• the class, unit, or group of all individuals selected for the layoff or RIF
• the eligibility factors used to select employees for the layoff or RIF
• time limits of the layoff (if applicable)
• the job titles of all employees selected for the layoff or RIF
• and the ages of all employees selected for the layoff or RIF

Worker Adjustment and Retraining Notification Act

Finally, large employers may also be subject to the Worker Adjustment and Retraining Notification (“WARN”) Act. If an employer has at least 100 full-time employees or at least 100 employees who, in the aggregate, work at least 4,000 hour per week (not including overtime), then the employer must comply with the WARN Act when:

• the employer permanently or temporarily (at least 30 days) closes a plant that causes at least 50 full-time employees to permanently or temporarily lose their jobs
• the employer conducts a mass layoff that causes at least 33 percent of full-time employees, or at least 50 full-time employees, to lose their jobs, be laid off for more than six months, or have their work schedule reduced by more than 50 percent during each month of a six-month period.

Employers subject to WARN generally must give a 60-day advance notice to the following parties; all the affected employees or their collective bargaining representative; the Minnesota Department of Employment and Economic Development; and to the chief elected official of the unit of local government within which such closing or layoff is to occur. The 60-day notice requirement, however, can be shortened if a plant closing or mass layoff is caused by “business circumstances that were not reasonably foreseeable.” A natural disaster would likely qualify as an unforeseeable event that allows employers to substantially shorten the 60-day notice period.

The flooding in Minnesota and the surrounding areas this summer has inflicted significant hardships on employers but there are options available that employers can implement to ease the burden. WFJ is here to help. Please contact us if you have any questions about furloughs, layoffs, or RIFs.