Wednesday, November 28, 2012

Guest Post: When and How to Revise Your Anti-Harassment Policy

Below is a guest post from Steven Burrell, an HR expert.  I believe some of our readers will find this information useful:   

If an employee files a harassment lawsuit, it can spell doom for a small business just starting out that doesn't have much money. And even for larger companies, it means taking time and resources away from other parts of the business in order to deal with the problem.

But what is workplace harassment, exactly? Contrary to popular belief, someone doesn't have to be specifically targeted or discriminated against to sue. Any actions, behavior, conduct, or statements made about or to a person or group that creates a work environment deemed "uncomfortable" can be considered harassment. Oftentimes when a claim of workplace harassment is put forward, it is done so in conjunction with one claiming a "hostile work environment."

With such a wide umbrella covering the things that could potentially be considered harassment, most businesses today include a policy about harassment in their handbook and outline what is considered unacceptable behavior in a broad and all-encompassing manner. Many even include training for new employees on the rules and put out educational material to help them better understand the policy and the repercussions.

But even if you have a policy, that doesn't mean that you can sit on your laurels. Here are several reasons you might want to revise your current policy.

The law has changed. Many companies model their policies after local and national laws on workplace harassment, but if you have had your policy in place for a long time, it's quite possible that updates to the law have made it obsolete. It is of vital importance that you always stay up-to-date on any alterations to the law, because one small omission could end up being the thing that takes a huge bite out of your company coffers.

You've had an incident. No company wants to have to deal with a situation where one of their employees feels uncomfortable at work, but sometimes it happens. If you are in the middle of dealing with an incident of harassment or recently went through one - whether or not it turned into a lawsuit - it's probably a good time to look at your existing policy and see if there is anything that you can clarify or strengthen. This way, you're not only protecting yourself, but your employees from having to go through a similar situation.

To go above and beyond. One of the best ways to avoid a lawsuit is to make sure that your policy on harassment not only meets the requirements of the law, but exceeds them. In fact, it can be quite valuable to even state in the text of the policy that the company holds its employees to a higher standard than the current laws, and that conduct and comments don't have to violate the law in order to violate company policies. This way, it can be easier for you to handle things in-house when an employee says they feel harassed without it escalating into a full-blown legal claim.

For example, some lawyers use the mere evidence that you disciplined an employee or had them go through counseling to prove that there was harassment that violates the law, but if your policies go beyond what the law requires, this can be difficult to prove.

If and when you do decide to make a change to your current harassment policy, don't just go into it blindly and start altering the wording. Consult with a lawyer who has expertise in this area. You need legal professionals crafting the language in the statement so that it's airtight - both for clever attorneys who try to come in and parse your words in order to help their client sue the company, and for employees looking for a way to argue that they didn't know their behavior was wrong.

About the Author:
Steven Burrell has been writing about business solutions and human resources for many years. Click here to read more about how employee assessment testing can benefit your business.

This blog is for general informational purposes and represents only the views of Steven Burrell, the author of the post.  It is not a legal advice.  

Monday, November 26, 2012

Duty of Loyalty of Corporate Directors

Directors of a corporation, whether it is a Delaware or a New York corporation or a corporation formed in another state, have certain duties towards their corporation and its stockholders. These duties are called fiduciary duties and they comprise of a duty of care and a duty of loyalty. Several courts also include the duty of good faith and fair dealing, while others treat it as a subset of the duty of loyalty.

Generally, so long as directors comply with their fiduciary duties, their decisions are protected by the business judgment rule, which assumes that directors have acted on an informed basis, in good faith and in the best interests of the corporation. When the business judgment rule applies, the courts will not second-guess the decisions made by directors and will not hold them personally liable even if the decision turned out to be the wrong one.

There are situations when the business judgment rule does not apply, and the courts analyze the Board decisions with greater scrutiny. Typically, this happens in cases of the company sale, or if the approval of a transaction was made by interested directors, or if the company adopted defensive tactics that were not proportionate to the threat posed to it.

Today, I want to focus on the duty of loyalty (remember, the business judgment rule will not protect a director who breaches the duty of loyalty). The duty of loyalty requires directors to act in good faith and in the best interests of the corporation, and put the corporation’s interests above their personal interests. This also means that directors must abstain from any conduct that would harm the corporation. The subset of duty of loyalty is the duty of good faith and fair dealing that requires that directors “act at all times with an honesty of purpose and in the best interest and welfare of the corporation.”

The duty of loyalty prohibits self-dealing and taking of corporate opportunities by directors unless the disinterested directors agree to it. Most often, the breach of duty of loyalty may occur when there is:
  • a conflict of interest (a director has an interest in the opportunity presented to the corporation); 
  • taking of a corporate opportunity (using the opportunity that should have been presented to the corporation); 
  • competing with the corporation (without disclosing it); 
  • misappropriating corporate assets (using corporate assets for non-business purposes); 
  • egregious conduct (acting in bad faith).  
Just recently, on October 1, 2012, the Delaware Court of Chancery held that a director violated his duty of loyalty to the corporation because through his actions he consciously harmed the corporation. (Shocking Technologies, Inc. v. Michael, et al., C.A. No. 7164-VCN (Del. Ch. Oct. 1, 2012)). In this case, Shocking Technologies, Inc. sued Simon Michael, its director, because Michael tried to dissuade the company’s only potential investor from investing in the company. Michael also shared confidential company information with that same investor. In particular, Michael used the company’s dire need for financing to coerce other directors into meeting the investor’s demands, while at the same time coaching the investor not to agree to invest unless it received better terms, including a board seat. Importantly, Michael disclosed to the potential investor that it was the only potential investor at that time, which negatively affected the company’s bargaining position. The Court held that Michael breached the duty of loyalty because he was not acting in the best interests of the corporation (which was to obtain short-term financing), and actually his disclosure of confidential information was to the company’s detriment. The full opinion is available here:

Directors of all companies, whether public or private, should regard the duty of loyalty very seriously. In Delaware, unlike the duty of care, liability for breaching the duty of loyalty cannot be contractually limited, and directors may not be indemnified for breaches of duty of loyalty involving bad faith. In the next blog posts, I would like to take a closer look at the duty of care as well as the question of when the corporation’s corporate veil (i.e., limited liability) can be pierced.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.