REPORT FROM COUNSEL

SUPER LAWYERS 2002

Each year, The Journal of Law and Politics sends out nomination ballots to attorneys throughout Minnesota. Attorneys then nominate their colleagues who they feel are deserving of being named SUPER LAWYER. This year, over 18,000 ballots were mailed out. Henningson & Snoxell, Ltd. congratulates seven of its attorneys who have been honored and selected as Super Lawyers. Their selection reflects the firm's commitment to excellence in client service and community service.

L. David Henningson practices in the areas of business organizations, nonprofit organizations, corporate, business, commercial and employment law. In addition to practicing law, he has owned businesses in retail, restaurant, agricultural and consumer services. He also served as an adjunct professor of Economics and Business Law.

James E. Snoxell focuses his practice in the areas of business & commercial law, business organizations and employment law. He works closely with business and corporate clients by advising them of business and corporate law issues and working with clients with any special legal needs.

Steven M. Graffunder practices in all areas of commercial and residential real estate, construction law and banking law. He is a Real Property Law Specialist certified by the Minnesota State Bar Association and works closely with the firm's clients concerning all of their real estate needs.

Jeffrey A. Berg represents clients in all areas relating to family law. He helps clients through the difficult process of divorce and is an experienced mediator. Jeff also practices in the area of employment law dealing with discrimination and harassment issues, non-compete agreements, contract disputes and wrongful termination.

Mark V. Steffenson is the head of the firm's Litigation Department and practices in the area of business and commercial litigation focusing on areas such as contract disputes, employment law, product liability claims, and shareholder, partnership, and franchise disputes. He represents clients in arbitration, mediation, and in state and federal court.

Richard J. Krambeer represents clients in all areas of domestic and family law. He has been a guest lecturer several times at the Minnesota Family Law Institute, and is a frequent lecturer on aspects of family law to various civic and church groups.

FAIR LABOR STANDARDS ACT

The Fair Labor Standards Act (FLSA) is the source of minimum wage, overtime pay, recordkeeping, and child labor standards affecting over 100 million private sector and governmental workers. To be covered by the FLSA, an enterprise must have employees whose work has at least an indirect connection to interstate commerce. In most cases, a firm must do at least $500,000 in business annually to be covered, although some entities, including hospitals, schools, and governmental agencies, are subject to the FLSA regardless of volume of business.

The FLSA is far-reaching, but it does have its limits. For example, it does not require pay for vacations, holidays, severance, or sickness, nor does it mandate meal or rest periods, holidays off, or vacations. When an employee is fired, the FLSA does not require a discharge notice, a reason for the discharge, or immediate payment of final wages. Assuming the employee is at least 16 years old, the FLSA also does not limit the number of hours in a day, or days in a week, that an employee may be scheduled to work.

Wages and Overtime

Workers covered by the FLSA currently are entitled to the minimum wage of $5.15 per hour and overtime pay that is at least one and one-half times their regular rate of pay after 40 hours of work in a workweek. Some minimum wage exceptions apply under specific circumstances to disabled workers, full-time students, workers under 20 in their first 90 days of employment, tipped employees, and student-learners. Wages required by the FLSA must be paid on the regular payday for the covered pay period. Employers cannot effectively reduce the wages of their employees below amounts required for the minimum wage or for overtime pay by making deductions from paychecks for such items as shortages, required uniforms, and tools of the trade.

Exemptions

For the FLSA to apply, there must be an employment relationship that is distinct from other arrangements, such as hiring an independent contractor. Even when it does apply, the FLSA contains many specific exemptions. The exemptions may be from overtime pay, from both the minimum wage and overtime pay, or from child labor provisions. Doubts about application of an exemption generally are resolved against the employer. Employers should scrutinize the exact requirements for an exemption before assuming it applies.

Some of the employees exempted from the overtime pay requirement are commissioned sales employees whose earnings average at least one and one-half times the minimum wage for each hour worked and certain computer professionals who make at least $27.63 per hour. Examples of workers exempted from both the minimum wage and overtime pay include employees of certain seasonal and recreational establishments and white collar employees in executive, administrative, professional, or outside sales positions who are paid on a salary basis.

Child Labor

The child labor provisions in the FLSA are meant to protect the educational opportunities of children and to prohibit their employment in unhealthy or dangerous jobs. The FLSA restricts hours of work for those under 16 and lists hazardous occupations that are too dangerous for young workers. The rules vary with the age of the worker and the occupation. At age 18, an employee is no longer covered by federal child labor rules.

Enforcement

For private businesses, the main enforcer of the FLSA is the federal Department of Labor's Wage and Hour Division. Its representatives conduct investigations either on their own initiative or in response to complaints. The Secretary of Labor can sue to force compliance and to recover unpaid minimum and/or overtime wages, plus an equal amount as liquidated damages. If such a suit has not already been filed, an employee can bring a private action for the same remedies, plus attorney's fees and court costs. Willful or repeated violations of the minimum wage or overtime requirements can result in civil money penalties or criminal prosecution. Aiming at the fruit of underpaid or illegal labor, the FLSA has a "hot goods" provision that prohibits anyone from shipping, offering to ship, or selling in interstate commerce any goods produced in violation of the FLSA.

STARTING A BUSINESS? GET AN EIN.

A new business must get a nine-digit employer identification number (EIN) from the Internal Revenue Service if it either pays wages to one or more employees or files pension or excise tax returns. An EIN is like a Social Security number for a business. It is used when filing a federal tax return, as well as for correspondence with the IRS or the Social Security Administration.

IRS Form SS-4 is an application for an EIN, with information on how to apply by mail or by telephone. The IRS now has a toll-free telephone number for getting an EIN: (866) 816-2065. Taxpayers also can download forms from the IRS website at http://www.irs.ustreas.gov/.

LANDLORDS AND CREDIT CHECKS

Landlords are free to use credit reports in evaluating prospective tenants, but they must follow requirements set out in the Fair Credit Reporting Act (FCRA). A new guidance has been issued that describes how the FCRA applies to landlords and what the consequences are for noncompliance. The guidance focuses especially on a landlord's obligation to provide an applicant with an "adverse action notice" when adverse action is taken based on information in the applicant's "consumer report."

A consumer report is a compilation of information about a person's credit characteristics, character, reputation, lifestyle, and rental history. A report is covered by the FCRA only if it was prepared by a consumer reporting agency (CRA). The major credit bureaus are CRAs, as are many tenant-screening services and reference-checking services. If a landlord uses its own employees to verify personal, employment, and previous landlord references, the FCRA does not apply.

The most obvious adverse action that will trigger the notice requirement is outright denial of a rental application. Something short of that can also constitute adverse action so long as it is prompted by information in a consumer report. For example, a notice must be given to applicants who are required by the landlord to: have a co-signer on the lease; pay a deposit not required for other applicants, or an unusually large deposit; or pay rent that is higher than for another applicant.

The essential contents of an adverse action notice are established in the FCRA. The notice must contain the name, address, and telephone number for the CRA that supplied the report, a statement that the CRA did not make the rental decision and that it cannot give the specific reasons for that decision, and notification that the consumer has rights to a free report and to dispute the accuracy or completeness of information in the report. Even landlords for whom a consumer report played only a minor role in the decision to take an adverse action must give the notice to the applicant. A written notice is the best proof of compliance.

Landlords are well-advised to stay in compliance with all FCRA requirements, including adverse action notices, as the consequences for noncompliance can be significant. For lack of required notices, a landlord can be sued by individuals in federal court and made to pay compensatory damages, punitive damages if the violations are deliberate, and attorney's fees. Federal or state agencies can also sue landlords and get civil penalties. An isolated and inadvertent failure to send a notice, however, will not result in landlord liability if the landlord has reasonable procedures in place to assure compliance with the FCRA.

CASE BY CASE

Stolen Customer Lists

Home food service companies sell and deliver food products and appliances to their customers, many of whom later reorder more products. When a home food service company bought a customer list of one of its competitors, what might have been a competitive advantage instead became a legal headache. The list had been stolen and the food service company that bought it knew it was stolen.

The company whose list got into the wrong hands sued the purchaser of the list for misappropriation of a trade secret. Some courts have refused to recognize customer lists as protected trade secrets when they contain information that is readily available from public sources. The essence of a trade secret is that it has value because it is not easily ascertainable. The customer list for the home food service company was protected because of the time and effort that had been expended to identify particular customers with particular needs or characteristics. The defense that the list contained only information that was easily compiled was undercut by the fact that the defendant had paid a lot of money for it.

A state court found a violation of the law governing trade secrets. It ruled that monetary damages should be awarded to the plaintiff based on net profits earned by the defendant from improper use of the list. The court also barred the defendant from ever using the stolen list again.

CLICKWRAP AGREEMENTS

In the age of online commerce, "signing on the dotted line" has for many transactions evolved into "clicking on the `I agree' box." But the resulting "clickwrap" agreement may be just as enforceable in court as if the parties had solemnly written their signatures at the end of a paper contract.

In one case, a company paid thousands of dollars for sophisticated software. The company claimed that it was entitled not only to use the software but also to receive perpetual upgrades and support. As evidence of such a bargain, the company pointed to the purchase order for the transaction. The seller of the software countered by relying on a later clickwrap license agreement in the software itself that limited its liability to the price paid for the software.

The court ruled that the language in the clickwrap agreement that limited the seller's liability was binding. The buyer clearly had given its assent by clicking "I agree," just as if its representative had signed a standard contract. The only issue, according to the court, was whether clickwrap license agreements are an appropriate way to form contracts, and the court held that they are. The lesson from this case is that the click of a mouse can be the equivalent of the stroke of a pen.

Clickwrap agreements are no less enforceable than conventional contracts, but neither will they be recognized by courts if the basic elements of offer and acceptance are absent. From the early common law of England to American law today, promises become binding only when there is a meeting of the minds.

Another court had to resolve a dispute between visitors to a website who obtained a free software program that makes it easier to download files from the Internet. Someone wishing to download the free program would see at first only a "download" box but no reference to a license agreement. Only on the second screen was there an invitation to review and agree to a license agreement. A click on that invitation led to an unequivocal statement that the user must agree to the terms in the agreement before installing the software, and another click revealed the agreement in full. In short, visitors to the website were not required to indicate affirmatively their assent to the license agreement, or even to view the agreement, before downloading the software.

Individuals who had downloaded the software sued the provider because they believed that using the software caused private information about their Internet activity to be transmitted to the software provider, which was a violation of federal law. The court ruled that they were not bound by a clause tucked away in the license agreement that required arbitration of disputes in a specific location. From the user's vantage point, the software was like a free neighborhood newspaper at a supermarket counter, there simply for the taking. The provider of the "newspaper" could not impose contract terms on its taking without clearly requiring assent to the terms before a customer could take the paper.