THE POWER OF DOCUMENTS

WHEN TO DISTRUST YOUR EMPLOYERS

PROBLEM PEOPLE AT WORK

 

 

Advice on the Job . . .

 

WHEN TO DISTRUST YOUR EMPLOYERS
 

There are certain situations where employees should be wary of trusting their employers. The spectacular collapse of Enron and the exposure of its extensive misrepresentations to employees is a graphic illustration of why there are situations where employee distrust is appropriate.

 

In ancient times, sirens were sweet singing enchantresses, part woman, part bird, who enticed sailors to their doom by distracting them so that their boats crashed on rocks surrounding their island. Today corporate sirens sing songs of stock options, promotions, and wealth and power. When things feel very heady and seductive or you feel that “quickening of the spirit,” it may be time for a reality check. You may be not seeing the deadly rocks lurking just below the water line.

 

Situations where employees need to be particularly on guard for misrepresentations from their employers include:

  • Recruitment statements; 

  • Commission promises;

  • Promises by start-up companies;

  • Companies involved in upcoming sales or mergers;

  • Companies with financial problems;

  • Companies with excessively greedy corporate cultures.

 

 

 

Recruitment

 

Recruiters naturally tend to be Sirens. Companies are eager to get the best help they can. In this process, there is a natural tendency to downplay corporate problems and to over-state the benefits of employment. Where companies are not particularly ethical puffing or effusive opinions can turn into misrepresentation.

 

If you are recruited based on a misrepresentation, you may have a legal remedy. One problem with a fraud claim is proving that the statements were intentionally or recklessly false when made. Remember, too, opinions generally don’t count, only fraudulent facts. Verbal or written promises may be enforceable in many states without a formal contract if the employee relies on the promise in accepting a position. However, if the promise is too vague, it will not be enforceable. The following are examples of recruiting promises that are NOT likely to give rise to enforceable legal claims:

  •  “You should be able to make millions in the future selling our widgets.”

  •   “Based on your track record, you should have a great future with our company.”

  •  “The sky is the limit with respect to your earning potential here.”

  •   “This is a wonderful career opportunity.”

  •  “You will have job security here.”

  •  “As soon as we can our stock incentive plan prepared, we will be providing you with stock options.”

By way of contrast, depending on the state in which you reside, the following types of promises, if broken or knowingly false, and made by an appropriate corporate representative may be enforceable:

  • “You will have a guaranteed job here for a year, absent some economic disaster.”

  • “We will pay you a bonus of 50% of your salary if you are still employed after 12 months.”

  • “You will not be terminated without cause.”

  • “Our product is already in production and we have over 10,000 customers who have already contracted to purchase our new product so you should do very well here on our commission plan.”

  • “The company is making a commitment to the new division for a minimum of three years so you don’t need to worry about the division being shut down prior to that time period.”

  • “You will receive 10,000 stock options within 90 days at a guaranteed strike price of $3.00 per share to vest immediately.”

Avoiding Problems from Recruitment Misrepresentations
  • Be careful of rosy promises. You will want to believe them because they make you feel good. Stay skeptical;

  • If you are dealing with a new company or a new division, be careful;

  • Check out the financial condition of the company independently;

  • Be particularly suspicious about the possibility of uninformed representations by corporate recruiters. Check out these representations with company managers before you rely on them;

  • Confirm in a friendly writing any promises or other statements you rely on. This includes promises of job security and financial arrangements;

 Be wary of:

  • Representations about the company’s financial condition;

  • Promises relating to future bonuses, options, and other benefits;

  • Promises relating to any special terms and conditions of employment;

  • Promises relating to corporate commitment to any new department or division for which you are recruited.

  • When you confirm the promise, recite your concerns on which you are relying and what you are giving up. For example indicate, “Your promise that the Company will not close the new division for at least the next 12 months is very important to me because I am requiring my family to relocate and that will cause considerable hardship.” Or specify, “Your promise that I will not be terminated without cause prior to the vesting of my options is key to my taking this position because I am leaving a secure position and forfeiting valuable stock options that would otherwise vest in 60 days to take this job with you.”

See Case Study: Erica Confirms Her Offer

 

See Case Study: Mia’s Contract

 

See Case Study: Oliver Turns Down a Job

  

See Case Study: Rachel Repels the Sirens

 

 

 

Commission Promises

 

Sirens prey on employees who are in line to receive exceptionally large commission income. If your company or manager is greedy, they may try to take your commission away from you if they can get away with it. This is likely to occur where:

  • There is an exceptionally large, record-breaking sale that was not anticipated by management;

  • Where management discriminates and feels uncomfortable with a female and/or minority or other “outsider” earning a large income;

  • Where management does not perceive significant future value of your efforts relative to their obligation to compensate you. This occurs where the company perceives you have successfully developed most of the new business in your territory and that you are being compensated under your plan primarily by future commissions from repeat business rather than from the initial commission derived from the first sale from the customer. This also happens where the salesperson has landed a particularly large single client whom the company believes will continue to buy a large volume product without requiring a continuous relationship with the particular salesperson involved;

  • Where the sales person has larger income than his or her manager;

  • Where the salesperson quits or is terminated;

  • Where the company is shaky financially.

If your employer is refusing to pay you a commission to which you believe you are entitled, you should consult an attorney. Various state statutes often provide special remedies for employees who are denied payment of wages and often commissions fall within the definition of wages. Moreover, you should have a remedy for a breach of contract.

 

Remember, if you get in a dispute over wages, this will probably not endear you to your employer. If you wish to dispute a commission payment with your employer it is probably wise to consider a future plan to pursue your career elsewhere.

Protecting Your Commission
  • Read carefully and save any written policies concerning commission payments. Pay particular attention to any provisions concerning the payment of commission after your termination;

  • Confirm in writing any verbal statement by management concerning the payment of commissions;

  • Don’t get too greedy. If the commission on a deal appears excessive, consider renegotiating the deal with your employer;

  • Employers often figure that once a solid client base is developed, the salesperson is now dispensable. Terminating the salesperson can be a means of saving expense to the company and meeting aggressive budget targets and/or as a means of converting additional commission income from the pocket of the salesperson to the pocket of the manager. A prelude to this is often one’s manager becoming excessively involved in personally dealing with your client. If your compensation depends on future commissions, be sure that you either can trust your employer or that you will continue to be perceived as indispensable;

  • Do not sign a non-compete agreement that will keep you held hostage to your current employer.

See Case Study: Oliver Turns Down a Job

 

 

 

 

The Start-Up Company

 

Sirens also like start-up companies. Because the owners of start-up companies often don’t have the ability to compensate their employees fairly, they give promises instead. In new businesses, owners frequently tell almost every employee, that they are “key” and that they will be able to share in future profits when the company is successful. These promises are made to ensure that the employees will continue working in a dedicated fashion without much compensation.

 

Based on promises from the owner/founders, employees who are part of the original team are often willing to work long hours with minimum compensation, expecting that there will be future rewards including significant equity ownership when the company is successfully launched. More often than not, the employees of start-up companies have unrealistic expectations, fueled by even more unrealistic promises from the owners/founders. When and if the company does become successful, employees may bitterly discover that they are not, in fact, needed any longer and that they will not see any share of the corporate profits.

 

If you are involved in a brand new business, beware of promises from the controlling owners. Common promises include:

  • You will own a share (or greater share) of the company;

  • (If you are in sales), you will receive commissions in future years for repeat business from the customers you develop now;

  • When the company is sold or goes public, you will have valuable stock options;

  • You will be a partner in the business;

  • You will receive much greater compensation in the future;

  • You are essential to the success of the company and you will be assured of a job here as long as the company is successful.

More often than not with new companies, these promises are empty. Although the owner is usually sincere when the promise is made, circumstances, greed and venture capitalists usually conspire to render it very unlikely that these promises will be honored. If you find yourself employed or considering employment with a start-up business, you should NEVER believe a verbal promise such as the one above. Here is a situation where the promise should always be reduced to a written contract drafted by an employment attorney. If the owner won’t do that, beware. AT THE VERY LEAST, confirm these promises in writing.

 

In writing these promises up as a contract or in a confirming letter, you really need help from an attorney. Many of these kinds of promises will not be enforceable even in writing if they are not done in a legally correct way. For example, promises of stock grants or stock options are meaningless without appropriate stock agreements in effect. Promises of job security may be nullified if there is not a term in the employment agreement or if there is “at will” language in the agreement or in other corporate documents (See Power Paper Section earlier). Some of these promises require a certain level of specificity and details to be enforceable.

Why Founder Promises Often Turn Out to be False (Even When Made by Your Best Friend):

  • Differences naturally arise between the owner and other founders as you work together. These differences make it less likely that the owner wants you to own part of his business.

  • You may be indispensable at the beginning of the operation of the company, but quite dispensable at a later date. In fact, the very same skills that make you invaluable originally (flexibility, creativity, willingness to forego salary in exchange for doing “meaningful” work) often mean that you will not fit in when the company becomes more established;

  •  Vague promises of stock options or “equity ownership” mean little until actually awarded;

  • Even if you have a great relationship with the original owner, he or she may not be in control later on. As the business grows, the company usually needs more investment capital. The capital comes at a price. Angel investors give way to venture capitalists. Venture capitalists often make it easy for owners to commit to unrealistic short-term financial goals. When these goals cannot be met within the time frame specified and a further capital infusion is required, the outstanding shares are dramatically devalued. Bingo, the venture capitalists end up in control;

  • The owner doesn’t really want to give up his power, money and control to you if he doesn’t have to.

    See Case Study: Lonny’s Founder Folly Experience

 

 

 

Start-Up Divisions of Existing Companies

 

This variant of a start-up involves a new division of an old company. Employees are often lulled into this situation by being led to believe they can rely on the financial stability of the old company when they make a career move into a new division. This is not always the case.

 

Often new divisions are, like other kinds of start-ups, under-capitalized. Moreover, recruiters often misrepresent the commitment of the parent company to the new division. Frequent misrepresentations include:

  • Glowing statements about financial strength or financing;

  • Statements that their parent company is committed to backing them until they get off the ground;

  • Statements that their product is fully developed (or that all the defects have been worked out) and ready for production when, in fact, additional development time is required);

  • Statements about future bonus plans, profit-sharing and stock options;

The motivation for these misrepresentations is often strong. Like the start up companies, the young companies need talented strong employees in place to achieve their goals (and sometimes to secure additional financing from investors), yet are not usually in a position to compensate them adequately for the risk involved.

 

It is wise to proceed very carefully before accepting an offer to work with a company or division without an established track record. The following are some things you may want to explore first: 

  • Do not accept representation that the financing is actually in place. Check the documents for yourself. Question different people;

  • Travel to your new work site and inspect it carefully. Try to talk to employees who do not have a financial interest in the company and who are not promoters or recruiters. Judge for yourself how ready the company is to commence production;

  • Remember, a new company backed by a large successful corporation may not mean much. If earnings are down for the parent corporation or if the parent requires capital for some other priority, the parent may suddenly terminate all funding for the new company, despite prior verbal assurances to the contrary;

  • Check out the history of the key principals in the new company;

  • Get your promises in writing or if that is not possible, confirm them in writing;

  • Try not to overly rely on the future success of the company for the first few years. Keep other career options open. Remember production schedules and marketing plans for start-up companies are often unrealistic.

    See Case Study: Oliver Turns Down a Job

  

 

 

 

Sales and Mergers    

 

The Sirens are almost always at work when the management of your company is in transition. When companies are in the process of being sold and the management and control of companies is being negotiated, false promises to employees are common. Companies in the negotiation process tend to be very nervous about employees abandoning ship because, generally, the company’s value is based on it being sold as a going concern with a full complement of experienced employees.

 

In fact, once the company is sold, the new owner will probably make significant changes to management within the first year. But -- and this is crucial -- the new owner does not want employees deciding this for themselves. In order to get top value for the business, the prior owner needs to prevent existing managers from bolting prematurely. You see the problem.

 

Owners and corporate officers are usually protected by contractual terms negotiated for them during the sale of the business, but everyone else is usually unprotected. It is common for companies involved to try to reassure employees with general statements like the following:

  • The value of this company is its employees. You have nothing to worry about;

  •  We are not planning any changes in management;

  • We do not want to make any changes;

  •  We want to work together to make this company grow.

Don’t believe these statements. Remember, most companies are purchased by owners who believe they can significantly increase profits by managing the company in a different way. Moreover, as a result of the high price paid to the old owners in the sale, the company often has significant new debt that is not related to improving or increasing production. This debt makes it much more difficult for the company to have a healthy balance sheet. As a result, the new owner is likely to be less interested in long-term goals and in product quality. Short-term financial goals may be paramount. This is even truer where the new owner overpaid for the Company.

 

Immediately following a merger or sale, employees will often see the following changes: 

  • The workforce may be significantly reduced;

  • Long-term older employees with good benefits are particularly likely to be reduced. Age discrimination is particularly rampant after a corporate sale or merger. New management, once they are sufficiently familiar with the operation of the company (generally within the first year), will often terminate employees with old loyalties, traditional ways of operating, and expensive benefits;

  • Existing employees may be required to do more work;

  • Salaries may be frozen and benefits eroded;

  • Younger employees may be hired;

  •  Managers from the acquired company may be replaced with employees from the new parent company;

  • Employees may be asked to focus on short term financial and budget goals;

  • Managers who are product quality oriented may be frustrated by lack of corporate support and resources. 

If the company where you work is being sold or is under consideration for sale, here are some things to consider:

  • If it’s not in writing, don’t believe it. If you receive any promises that are going to rely on, confirm them in writing;

  • Negotiate for job security before or immediately after the company has been sold and you still have leverage because new management has not yet taken over;

  • Be realistic. Aggressively check out the job market for other possibilities.

See Case Study: Sean Is Not Deceived in His Company's Acquisition

 

 

 

 

Companies in Financial Trouble

 

When companies are in financial trouble, the Sirens sing loudly, Enron is the most recent dramatic example.

 

 In the old days, if your company was struggling, you generally knew about it and could factor that in your planning. Today, with New Age Accounting, your previously seemingly huge and secure employer can close the door tomorrow and file for bankruptcy. Pensions invested in company stock become worthless. You can find yourself terminated without notice, severance, pension or legal claims against the company. That’s tough.

 

How can employees best protect themselves when they suspect their companies are in trouble? Here are some suggestions:

  • Work on early detection concerning your company’s true financial prospects so you can get out before your company goes out;
  • Don’t rely on your employer's assertions about its financial condition;
  • Know your legal rights.

Early Detection

 

Without question, you are better off if you can detect that your company is in trouble and leave before it leaves you. This is not necessarily very easy to do. Failing corporations generally attempt to look like successful businesses right until the very end, hoping that a piece of new business or a large receivable will come in and stave off creditors. This deception may be critical to their continuing operation to reassure employees, banks, insurance companies, creditors and shareholders of their financial soundness.

 

Besides obvious signs that your employer may be in big financial trouble such as the existence of unpaid taxes or judgments, creditors calling, or delays in meeting payroll, pay attention to the following: 

  • Efforts to bring in new business partners;

  • Significant reduction in purchasing of new inventory or in necessary capital expenditures;

  • Delays in developing or bringing anticipated new products to market;

  • Sudden changes in high level management;

  • Overly aggressive accounting practices;

  • Significant sales of stock by upper management. 

Don’t forget to do your own simplistic evaluation of the strength of the company business based on common sense. Consider:

 

The Market

 

Is the market for your company product currently healthy? Is there some reason to suspect the market for your company product is going to decrease? Is there any reason why competition will not increase in the future? Is there or will there be a new competitive product that could be superior? Is the market getting saturated? Are consumer/business needs or tastes changing or likely to be changing in the future in a way that will impact your company’s business? Are patents expiring? Are corporate customers having financial problems with their business?

 

Cost and Profit

 

Is the cost of production going to increase significantly because of an increase in price of raw material? Is the company likely to have to decrease product price to successfully compete because of lower production cost of competitors elsewhere in the world? Does the company seem to be lax in cost or spending controls particularly with respect to expenditures and compensation for senior management? Is there excessive compensation for senior management? 

 

Corporate Growth

 

Is the company over-expanding into areas where they lack expertise or market share or where there is no synergy with their core business? Do you work at a company that has grown exceptionally fast? Is fast growth a fundamental mantra of the company?

 

Remember, what goes up very fast can also go down very fast.

 

Corporate Financial Records

 

Is the company generally conservative with respect to its accounting methods? Is there pressure to exaggerate corporate sales?

 

Your Own Situation

 

Are you being rewarded enough to compensate for the risk you are assuming with your company? Will you be all right if your company fails?

 

Don’t Rely on Management Promises

 

Above all, if you suspect your company may be in bad condition, do not trust reassurances or rosy pictures painted by management. You must make your own evaluation of the situation.

 

The sorriest situation occurs when a new employee unwittingly wanders into the storm on his own ­ i.e., leaves a secure position to take a new job with a troubled company. Companies with financial problems often recruit new employees to replace employees leaving the sinking ship to acquire new high-level managers and other talent in the hope that these employees will pull them out of their troubles. In this process, companies may conceal their true financial condition to the new employees they induce to come to work there. Beware! If you are being recruited by another company that makes an offer that is too good to be true, it may be!

 

Be particularly leery of compensation packages that are very heavily weighted with respect to future bonuses and stock options. Insist on seeing financial statements and try to find an independent knowledgeable source of information about the financial condition of the company. Obviously, once a company files bankruptcy, even if you have a contract, enforceable promise or viable discrimination claim, unless there is insurance, there are not likely to be any corporate proceeds available to pay the claim.

 

Know your Legal Rights

 

A company can file for bankruptcy under either Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code. If your company files under Chapter 7, your company is closing its doors forever. If your company files under Chapter 11, it can, if creditors allow, work out a plan to limit its indebtedness and then reorganize itself and continue in business.

 

While you don’t have many meaningful rights with a failing company, you do have some. These include:  

  • If your company has more than 100 employees and has a layoff of 50 or more employees at one facility, they are required under federal law (the Worker Adjustment and Retraining Notification Act) to give employees 60 days notice before a layoff absent an “unforeseen business event.” This right is only important if your company is still in business;

  • If you continue as an employee while the company is undergoing its reorganization in Bankruptcy Court, you have a priority right to be paid your wages;

  • If you are terminated and your company files bankruptcy, you have a priority right to be paid unpaid wages and any accrued vested bonuses. This right has priority over other bankruptcy claims by creditors;

  • While most legal claims are extinguished in bankruptcy, some are not. Fraud and claims involving corporate wrong doing may not be extinguished;

  • If you are terminated as a result of your company’s failure, you have the right to unemployment payments.

See Case Study: Ethan Escapes a Deceptive Employer

 
 
 
Companies That Run on Greed

 

Some companies run like they are desperate, regardless of the reality. Although their bottom line may be fine, these companies operate with unrealistic profit expectations. This may occur while the company is undergoing a major transition. Perhaps there has been a major change in the industry. Perhaps there is new management. Perhaps there has just been a change in the incentive plan for top executives.

 

In any event, the focus suddenly becomes short-term profits above other goals. Employees are expected to work excessively long hours. Benefits are trimmed back. Sometimes employees are given incentives to exaggerate sales. Layoffs and reorganizations may be chronic. The company may outsource work to foreign employees and/or outside contractors.

 

Other signs that characterize companies with corporate cultures that stress short-term greed goals include:

  • Managers become bean counters and bean-counting a pervasive corporate value;

  • Older and long-term employees, especially those with large salaries or benefits, are treated poorly in the hopes of forcing them to quit;

  • Employees who use benefits (i.e. those with significant medical problems or family members with significant medical problems) are treated poorly;

  • Employee compensation is tied to unrealistic performance goals.

     

    Survival Advice

     

    These companies are not nice places. You should consider finding other employment. Also, if you are a long-term employee, remember these types of companies are breeding places for Age Discrimination. Younger and new employees may well thrive in these companies, but long-term experienced employees are prone to sudden dismissals. Consider the following advice:

  • Find another job.

  • Accept the changes in the company. This is not the place it used to be and it’s not likely to ever change back. Either look for work elsewhere or if you really want to keep your job, accept that you may have to work harder for less money permanently. There will be no reward for past sacrifices, loyalty or dedication.

  • To avoid being laid off, try to position yourself within the company to stay as close and as indispensable as you can to core revenue production. If you think the company considers you too highly paid, consider volunteering for a decrease. In any case, be careful about complaining about general work conditions. Be supportive of management regardless of how you feel.

  •  If you are an older employee, look out for evidence of age discrimination. Pay attention to comments from management such as, “We need fresh blood”; “We need energy”; “Only hire new graduates”; “We don’t want to hire someone with too much experience”; “The average age of our workplace is a problem;” “Our benefits are too expensive”; “We need to look at the potential for future development in our candidates for promotion (or in ranking for a potential RIF).” Network with other older employees who are being forced out, befriend them, find out if they feel they are being treated unfairly, and be sure to keep contact information after they leave the company. Pay attention to the ages and situations of the individuals being hired vs. those being rejected. Also pay attention to those individuals being retained and those being terminated.

  • If you think you are being treated differently than other employees because of your age, consult an experienced employment attorney. Remember, knowledge never hurts and going to see an attorney and bringing a lawsuit are two different things. You can visit with an attorney and get helpful advice and your company may never be the wiser. This is not a do it yourself deal. You need to be very savvy and for this you need help. Don’t wait until you’re fired.

  • If you are being treated badly because of taking legitimate medical leave, FMLA leave or vacation time, consult an experienced employment attorney. Don’t wait.

  • Consider whether you may have an overtime issue. Employees may be classified wrongly as exempt to avoid being paid overtime. If you are not a management or professional employee, you are probably entitled to time and a half if you work over 40 hours a week. Consult your State Department of Labor or a private attorney. 

See Case Study: Jonah Gathers Evidence