Steps for software developers to protect legal rights

I was contacted recently by a potential client who has been working on a software product in his free time with a friend.  The software would assist his current employer, but he did not develop it at work.  In this situation it is important to take several steps.

1) Ensure that you own all rights to the software

Because this software is somewhat related to the work of the Client's current employer, it is very important to confirm that the Client's employer has no rights to the software.  I would check the Employment Agreement or offer letter that the Client was given when they were hired.  The Employee Handbook may also clarify what rights the employer would have.  It will be important to document that the Client did not use any software, code, or other resources or equipment of the employer when developing the software.  This is important to confirm for the other person working on the software also.

2) Create an Entity

It is very important to create a Nebraska entity like a limited liability company (if you live in Nebraska or want to base a company here) to limit liability of the individuals involved in creating the software.  For more information on why entities are important, check out our earlier blog post here.  You can see our earlier post on the steps required to create an entity here.

3) Assign the software to the Entity

The software itself should be conveyed to the Nebraska entity by the individual owners.  This is important so that any liabilities and rights related to the software are held by the entity and there is clarity on how profits and ownership rights are held.

4) Create an Operating Agreement

Because two people are involved, it is very important to clarify that the entity owns the software (and any inventions, rights, or moneys that result from it).  The entity would be the one to enter into any contracts to commercialize the product.  For more information on the key provisions in a Nebraska Operating or Management Agreement, and why they are important check out our earlier blog post on this topic here.

5) Protect the Invention

Software may be protected by a Copyright or Patent.

Why Is Software Patent or Copyright Protection Important?

A software patent or copyright is a legal way to protect your software source code, idea, or invention.

Every software developer or company has to choose between patent and copyright. Some decide they want both. To make the choice, you have to think about what you're protecting. Are you protecting the code itself, or are you protecting the software idea and the process? Getting a patent versus registering a copyright are very different processes and might also change what you want to do with your software.

Software counts as intellectual property (IP.) IP is an original work that isn't tangible, but that is valuable. Lots of avenues, including copyright and patent, exist under the law to protect IP.

Both patents and copyrights protect software from theft under the law. Each one protects a different part of the software. Patents protect the idea, while copyright protects the written code. The advantages and disadvantages of both go beyond simple legal protection. Software patents, for example, are difficult to get. Copyright, on the other hand, might not protect your software the way you need.

The difference between copyright and patent is an old conversation. The Supreme Court has been dealing with this since 1879. The Baker v. Selden case of 1879 dealt with that difference. The court's decision described the difference between these two legal protections.

In 1976, the House Committee on the Judiciary wrote a report that went with the Copyright Act passed in the same year. In that report, the committee said that copyright doesn't prevent people from using the ideas you talk about in your copyrighted work. That includes the process that results from using computer code.

Copyright is for original works, like songs, books, and software code. A copyright protects what's known as the "expression" of your work. Copyright protects your software code from someone else copying it and using it without your permission. The U.S. Copyright Act details how this protection works.

When you hold the copyright to a work, you can:

• Make copies
• Distribute the work (like selling it)
• Make "derivative works" (like translations or abridgment)
• Share or perform the work in public

The Copyright Act of 1976 adds an exception to these rights. If someone wants to use a copyrighted work for educational or nonprofit purposes, they can.

Original software is automatically copyrighted under international law. Software counts as a "literary work" under U.S.C. § 101 of the Copyright Act. Whoever created the software has the copyright. You don't have to apply for anything or file anything for that to be true.

A copyright lasts for the lifetime of the author, plus 50 years in many countries, and 70 years in others, including the United States. As soon as your work is in "fixed and tangible form" it is automatically copyrighted.

However, officially registering copyright with the U.S. Copyright Office and the Library of Congress is a good idea. It gives you more legal protection in case someone tries to steal your software or use it without your permission. It usually only takes three months, and is $500 or less to have a lawyer do it for you.

Registering your copyright is inexpensive (much less than $1,000) and usually takes only a few months.

Copyright doesn't protect the idea behind the code. Title 17 U.S.C. §102(b) of the Copyright Act says that copyright doesn't protect "any idea, procedure, process, system, method of operation, concept, principle, or discovery."

Patent and Software Protection

A patent protects an invention or an original idea. Patents keep others from using or selling your invention, even if they haven't plagiarized actual parts of your software code. Copyright law's limitations has pushed many developers to seek patents for their software. The uptick in software patents began in the 1990s, and has escalated since.

Patents can be used to prevent other people from:

• Using your software
• Importing your software
• Selling your software

Large U.S. lawsuits resulting in millions or billions of dollars have happened over software patents. Big companies like Apple have sued for patent infringement and won.

The U.S. Patent Act gives Congress the ability to grant patents through the United States Patent and Trademark Office (USPTO). Software developers and companies more and more are using patents to protect their software from theft.

To qualify for a patent, your software needs to:

• Be new and original
• Be useful
• Have a "non-obvious" piece of code or function

Software patents are usually utility patents (instead of design or plant patents). That means they have to qualify as:

• A process
• A machine
• An "article of manufacture"
• A "composition of matter"
• An improvement on an existing utility

A patent lasts for 20 years. After that your software goes into the Common Domain. When you apply for a patent, you have to disclose the invention. That voids other ways you might protect yourself, such as keeping your source code a trade secret.

Considerations Outside of Patent Protection

If you decide not to apply for a patent, using NDAs (non-disclosure agreements) and other methods of secrecy help protect your software. You can have contractors, vendors, and employees sign NDAs.

Applying for a patent is very expensive. It can cost thousands to tens of thousands of dollars. From the day you file your patent application, it can take up to two years to receive your patent.

A good article with more information on the legal nuances between the two is available here.

Madathil Law Office LLC can assist Nebraska software developers with taking the right steps to protect their software.  Contact us today for a free consultation.

Angela Y. Madathil
Madathil Law Office LLC
angela@madathillawllc.com
1104 S 76th Ave
Omaha, NE 68124
T: 402.807.3174
https://www.madathillawllc.com/

Angela Madathil is a Nebraska business attorney, who can help create Nebraska entities, and draft Nebraska operating agreements, and assist Nebraska software developer.

Nebraska Software Attorney

DISCLAIMER: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. By visiting this website, blog, or post you understand that there is no attorney client relationship between you and Madathil Law Office LLC and website publisher. No information contained in this post should be construed as legal advice from Madathil Law Office LLC , or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

STEPS TO SET UP A NEBRASKA BUSINESS

Step 1. Decide on a Legal Structure
The most common legal structures for a small business are:

• sole proprietorship
• partnership
• limited liability company (LLC), and
• corporation

 There also are special versions of some of these structures, such as limited partnerships and S corporations. You’ll want to consider which Nebraska business entity structure offers the type of liability protection you want and the best tax, financing, and financial benefits for you and your business. You can check out our earlier blog post here on why entities are important.  We also have a blog post on the differences between a Nebraska LLC and a Nebraska S Corp available here.

Step 2. Choose a Name

For LLCs and corporations, you will need to check that your name is distinguishable from the names of other business entities already on file with the Nebraska Secretary of State (SOS). You can check for available names by doing a search on the Nebraska Secretary of State website here. You can reserve an available name for twelve months by filing an Application for Reservation of Name with the Nebraska Secretary of State (there are separate forms for LLCs and corporations). You can reserve a name for up to 120 days. There are also certain name requirements for LLCs and corporations (like including a word such as “LLC” for LLCs or “Company” for corporations). 

Sole proprietorships and partnerships in Nebraska have the option file a Trade Name Application with the Nebraska Secretary of State if they use a business name that is different from the name of the business owner (for a sole proprietorship) or individual partners (for a partnership). Nebraska Trade names expire after ten years.
If you plan on doing business online, you may want to register your business name as a domain name. In addition, to avoid trademark infringement issues, you should do a federal and state trademark check to make sure the name you want to use is not the same as or too similar to a name already in use. 

Step 3. Create Your Business Entity

• Sole proprietorship: To establish a sole proprietorship in Nebraska, you don’t need to file any organizational documents with the state. 
• Partnership: To create a general partnership in Nebraska, you don’t need to file any organizational documents with the state. Although not legally required, all partnerships should have a written partnership agreement. A partnership agreement is of paramount importance if there is ever a dispute among the partners. To form a limited liability partnership (often used by professionals), you must file a Statement of Qualification with the Nebraska Secretary of State. 
• LLCs: To create a Limited Liability Company in Nebraska, you must file a certificate of organization with the Nebraska Secretary of State. You can file the certificate online; and a paper form is available here. You will also need to appoint a registered agent in Nebraska for service of process.  You also must publish a notification in a legal newspaper (see the statute here for more detailed instructions). In addition, while not required by law, you also should prepare an operating agreement to establish the basic rules about how your Nebraska Limited Liability Company will operate. The operating agreement is not filed with the state. 
• Corporations: To create a corporation in Nebraska, you must file articles of incorporation with the Nebraska Secretary of State. You can file the articles online; no paper form is available. You will also need to appoint a registered agent in Nebraska for service of process. Although not legally required, you also should prepare bylaws to establish your corporation’s internal operating rules. Bylaws are not filed with the state. S Corporations must also file IRS Form 2553.

Step 4. Licenses and Permits

Tax Registration. If you will be selling goods in Nebraska, you must register with the Nebraska Department of Revenue (DOR) for a sales tax permit. If you will have employees in Nebraska, you must register with the DOR for employer withholding tax. For both types of registration, you can use Form 20, Nebraska Tax Application.

EIN. If your business has employees or is taxed separately from you, you must obtain a federal Employer Identification Number (EIN) from the IRS. Even if you are not required to obtain an EIN, there are often business reasons for doing so. Banks often require an EIN to open an account in the business’s name and other companies you do business with may require an EIN to process payments. You can get an EIN by completing an online application on the IRS website. There is no filing fee.

Regulatory licenses and permits. These cover areas such as:

• health and safety
• the environment
• building and construction; and
• specific industries or services.

For regulatory licenses and permits issued by the state, check theBusiness Licensing Resources section of the nebraska.gov website. For information about local licenses and permits, check the websites for any cities or counties where you will do business.
Professional and occupational licenses. These cover people who work in various fields. In many cases, you can get the basic licensing information by going to the Professions & Occupations section of the Nebraska Department of Health and Human Services (DHHS) website. For professions not listed on the DHHS website, such as doctors, lawyers, accountants, architects, and engineers, you’ll need to check the website for the state regulatory board for your profession (for example, the Nebraska Board of Engineers and Architects or the Nebraska Clerk of the Court).

Step 5. Business Location and Zoning

You’ll need to pick a location for your business and check local zoning regulations. That includes if you work from home. You may be able to find zoning regulations for your town or city by checking municode.com.

Step 6. Taxes and Reporting

Nebraska taxes every kind of business. 
Sole proprietorships. Pay state taxes on business income as part of their personal state income tax returns (Form 1040N).
Partnerships. Partners pay state taxes on partnership income on personal tax returns. In addition, some partnerships also must file Form 1065N, Nebraska Return of Partnership Income.
LLCs. Members pay Nebraska state taxes on their share of LLC income on personal tax returns. In addition, the LLC itself must file a biennial report with the Nebraska Secretary of State in odd-numbered years. Nebraska Limited Liability Companies are taxed as corporations must also file a state corporation tax return. 
Corporations. Shareholders must pay states taxes on their dividends from the corporation. A shareholder-employee with a salary also must pay state income tax on his or her personal state tax return. Moreover, the corporation itself is subject to Nebraska corporation taxes. Finally, corporations must file a biennial report with the Nebraska SOS in even-numbered years. The reporting requirement includes paying a corporate occupation tax.

If you have employees, you must also deal with state employer taxes.
And, apart from Nebraska taxes, there are always federal income and employer taxes. Check IRS Publications 334,Tax Guide for Small Business, and 583, Taxpayers Starting a Business, available at irs.gov.

Madathil Law Office LLC
angela@madathillawllc.com
https://www.madathillawllc.com/
1104 S 76th Ave
Omaha, NE 68124
T: 402.807.3174

Angela Madathil is a Nebraska business attorney, who can help create Nebraska entities, and draft Nebraska operating agreements.

DISCLAIMER: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. By visiting this website, blog, or post you understand that there is no attorney client relationship between you and Madathil Law Office LLC and website publisher. No information contained in this post should be construed as legal advice from Madathil Law Office LLC , or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

Nebraska Limited Liability Company (LLC) versus S Corporations

That is a complicated question to answer.  The basic considerations are limiting the owners liability legally, governance issues, and the tax concerns.  I would suggest that you speak to an accountant about the tax implications.  (If you do not have an accountant you can call Kevin Furey who is an accountant in Omaha at (402) 895-5050).  

If you are getting income from the LLC it can be helpful to have it be taxed as an S corporation because money that comes out is not automatically assessed the higher self employment taxes.  Money coming out of an S corporation (or an LLC electing to be treated as one) can be taxed at the lower rate of capital gains rather than self employment income.

Benefits of an LLC

- The creation is not treated as a taxable event (as it would be for a corporation)

- No limits on the number of people or entities that can own interests (as there would be with a corporation)

- There would be a step-up in basis with an LLC upon the death of a member (not the case with an LLC).  

- Converting into a corporation later is possible (if you create as a corporation now, you cannot later go back to being an LLC).

-S corporations cannot be owned by C corporations, other S corporations, LLCs, partnerships or many trusts. 
- LLCs are allowed to have subsidiaries without restriction.

Formalities 

- S corporations face more extensive internal formalities. LLCs are recommended, but not required, to follow internal formalities.
- Required formalities for S corporations include: Adopting bylaws, issuing stock, holding initial and annual director and shareholder meetings, and keeping meeting minutes with corporate records.
 - Recommended formalities for LLCs include: Adopting an operating agreement, issuing membership shares, holding and documenting annual member meetings (and manager meetings, if the LLC is manager-managed), and documenting all major company decisions.

Differences in management
- Owners of an LLC can choose to have members (owners) or managers manage the LLC. When members manage an LLC, the LLC is much like a partnership. If run by managers, the LLC more closely resembles a corporation; members will not be involved in the daily business decisions.
- S corps have directors and officers. The board of directors oversees corporate affairs and handles major decisions but not daily operations. Instead, directors elect officers who manage daily business affairs.

Other differences
- Existence. An S corporation’s existence is perpetual, but some states require LLCs to list a dissolution date in the formation documents. Certain events, such as death or withdrawal of a member, can cause the LLC to dissolve.
- Transferability of ownership. S corporation stock is freely transferable, as long as IRS ownership restrictions are met. LLC membership interest (ownership) typically is not freely transferable—approval from other members is often required.
- Self-employment taxes. S corporations may have preferable self-employment taxes compared to the LLC because the owner can be treated as an employee and paid a reasonable salary. FICA taxes are withheld and paid on that amount. Corporate earnings after payment of the salary may be able to be treated as unearned income that is not subject to self-employment taxes. 

angela@madathillawllc.com
https://www.madathillawllc.com/
1104 S 76th Ave
Omaha, NE 68124
T: 402.807.3174

DISCLAIMER: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. By visiting this website, blog, or post you understand that there is no attorney client relationship between you and Madathil Law Office LLC and website publisher. No information contained in this post should be construed as legal advice from Madathil Law Office LLC , or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

KEY PROVISIONS IN COMMERCIAL LEASES

When you make the decision to rent commercial space for your Nebraska business, the considerations involved go far beyond location, term, and rent. If you fail to to take into account a number of other important issues, or to consider the detailed terms of your lease, it can come back to haunt you with devastating consequences for the continued viability of your business.

You should always retain and consult with an experienced Nebraska commercial real estate lawyer before signing any commercial lease or agreeing to any terms. Boilerplate legal documents are rarely a good solution. Your Nebraska business is unique; your legal documents should be unique as well. As you are evaluating your options for your business’s new home, here are some crucial issues that you should keep in mind as you make your decision:

Photo from here.

Build-out. Most often, the space to be rented will require significant work to make it suitable and desirable for your business.  You of course will want to spend as little as possible on the build-out so you will want to negotiate a significant tenant improvement allowance.  In a “turn-key” build-out, the landlord covers all of the costs of the improvements and factors those costs into the agreed-upon rent. Alternatively, the landlord can agree to contribute a set amount to the build-out.  Either way, you need to ensure that you maintain as much control over the build-out process as possible.

Use Provisions. Use provisions within commercial leases are designed to prevent similar or competing businesses from renting and occupying nearby space in the same building. This is obviously more of a concern for retail space, but it is important that your efforts are not undermined by other leases, and that you have ensured that all of your intended uses for the space are allowable under the lease terms.

Assignment and Subletting. At some juncture, you may wish to assign or sublet your space to a third-party. Commercial leases almost always require that the landlord give prior approval before you can do so. Make sure that the landlord cannot unreasonably withhold its consent to a sublease and be careful to note that you will still likely be fully liable for all rents even if the lease is assigned or property sublet to another party.

Property and Facility Maintenance. It is critically important to define which party is responsible for maintaining the building and its interior. Although it may seem obvious that a landlord is in charge of repairing things like broken HVAC systems and leaking roofs, other items aren’t so clear-cut. If you bear the cost of new carpeting, shelving, and electrical wiring, is the landlord still obligated to fix these items if something fails? What if you install new signage? Who is responsible for repair costs pays for broken neon in one of the sign’s letters? These are all items that have the potential to create serious and costly conflicts if not addressed in the commercial lease agreement.

Gross v. Net Rent. Just like airlines tag on all kinds of fees on top of the base fare, your true monthly rental costs could be hidden if you don’t pay attention to whether you are signing up to pay “gross” or “net” rent. Gross rent is the rent calculated inclusive of all building costs. Net rent is the rent calculated excluding building costs. Make sure you understand what costs you will be on the hook for every month.

Default: Notice and Opportunity to Cure. You don’t want a technicality or an unexpected delay in making a rent payment to be an excuse for terminating your lease. You should seek to include provisions allowing for notice of default and an “opportunity to cure” before the landlord may begin exercising remedies.

These are just a handful of the issues that you need to consider as you engage in one of the most fundamental and impactful choices you can make for your business. With so much riding on the terms of a commercial lease, don’t make the mistake of thinking that form documents or your experiences as a residential tenant are sufficient to protect all that you have worked for. Meet with an experienced an Omaha Nebraska commercial real estate lawyer who can provide you with the guidance and peace of mind that will allow your business to thrive in its new home.

Angela Madathil: Omaha Commercial Real Estate Lawyer

I invite you to learn more about how I might be able to help you with your business or real estate questions, issues, and concerns. Please give me a call at (402) 807-3174 or fill out my online form to arrange for your free initial consultation. I look forward to meeting with you.

angela@madathillawllc.com
https://www.madathillawllc.com/
1104 S 76th Ave
Omaha, NE 68124
T: 402.807.3174

DISCLAIMER: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. By visiting this website, blog, or post you understand that there is no attorney client relationship between you and Madathil Law Office LLC and website publisher. No information contained in this post should be construed as legal advice from Madathil Law Office LLC , or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

Nebraska Eviction in Lancaster County

If you own rental property in Lincoln and Lancaster County, Nebraska you might have had to deal with an eviction.  If you have not been through the process yet, the general process is set out below.  The process is based on the Nebraska Landlord Tenant Act, which is available here.

Notice
If the eviction is based on a breach of the lease because the tenant has failed to pay rent, you will need to do a three day notice of failure to pay rent.  An example of a three day notice to quit is available here.

The notice could also be for breach of another condition.  If the condition can be remedied the tenant should be given a chance to fix it.  If the breach is of a provision related to activity that is not allowed to occur, no fix is available.  So the tenant has thirty (30) days to vacate the premises.  This is pursuant to Nebraska Statute 76-1431

The notice should be left in the tenant's mailbox and one taped to the tenant's door.

File a Complaint for Restitution
This means you are asking for the court to return the premises to you.  You can and should ask for attorneys fees.  You will need to file an Affidavit with the Complaint talking about how the three day notice was served.  The lease agreement and notice will need to be on the door.  Nebraska Statute 76-1441 sets out what must be included.

File a Pracipe for Summons
The Lancaster County Court will issue a Summons letting the tenant know of the hearing.  The Summons will normally set the hearing for fourteen (14) days after the Summons is issued.   An example Pracipe for summons is available here.  You will likely want to ask that the Lancaster County Sheriff serve the Pracipe.  Make sure to immediately call the Lancaster County Sheriff after filing the Pracipe to pre-pay the service fees.  You can contact their office at (402) 441-6500.

Hearing on Restitution
The initial hearing which is set will likely be about the failure to pay rent, or the other breach of the lease which caused the notice. If an extensive evidentiary hearing is necessary the Judge will likely set the case for a later hearing date. However, you should have evidence available about the rent that is due.  If the tenant does not show up the Judge will issue a Writ of Restitution indicating that the tenant is ordered to leave the premises.

Writ of Restitution

A Writ of Restitution directs the Lancaster County Sheriff to remove the defendant and restore the premises to the plaintiff. It is the policy of the Sheriff's Office to execute such writs by attempting to obtain voluntary compliance from the defendant in a fashion which minimizes any unnecessary hardship. In the absence of compliance, the Sheriff's Office will execute the writ by removing the occupants personally and/or by changing the locks on the premises. The Office will remove personal property only when specifically directed to do so by court order.

The Writ of Restitution must be executed within ten days of issuance. Because of this relatively narrow window, it will be executed without delay.  Service will not be made, however, until the plaintiff has deposited sufficient funds with the Sheriff's Office to cover the reasonably anticipated costs and fees.  So again, you should contact the Lancaster County Sheriff's office to pre-pay the service fees.  To expedite the process, the plaintiff should provide a contact name and phone number. More information is available from the Lancaster County Sheriff's website here.

If you are a landlord in Lincoln, Nebraska you may want to speak to an attorney about handling your eviction.  Contact Madathil Law Office for a free initial consultation. 

Angela Y. Madathil

Madathil Law Office LLC

Nebraska Landlord-Tenant Eviction Attorney

angela@madathillawllc.com

https://www.madathillawllc.com/

T: 402.807.3174

DISCLAIMER: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. By visiting this website, blog, or post you understand that there is no attorney client relationship between you and Madathil Law Office LLC and website publisher. No information contained in this post should be construed as legal advice from Madathil Law Office LLC , or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

Confidentiality Provisions in Severance Agreements are Enforceable

Many employers include confidentiality provision in their severance agreements. However, they worry about whether confidentiality provisions are enforceable. According to a recent case, they are enforceable.

The case of Hallmark Cards, Inc. v. Murley, 703 F.3d 456 (8th Cir. 2013), supports employers seeking to enforce such confidentiality provisions. In Hallmark Cards, the employer sued its former vice president of marketing, who received a severance package of $735,000 after her position was eliminated due to a corporate restructuring. The jury found that the former employee had breached the confidentiality provision of the severance agreement by disclosing Hallmark’s confidential information to her new employer, a competitor. The jury awarded Hallmark Cards the full value of the severance package and the employee’s compensation paid by her new employer. The former employee appealed.

On appeal, the former employee argued that she had complied with some provisions of the severance agreement and therefore she should not have to pay back the full severance amount. The former employee also argued her former employer was not entitled to any of her compensation from her new employer.

Hallmark argued that it was entitled to the full amount of damages awarded because the only reason the new employer paid her compensation was because she provided the new employer with Hallmark’s confidential information.

The Eighth Circuit Court of Appeals upheld the jury’s award of a full refund to Hallmark of its $735,000 severance payment, but held Hallmark was not entitled to the award of the former employee’s compensation from her new employer. The court rejected the former employee’s argument that Hallmark got some value for the severance agreement and thus was not entitled to get all of its severance payment back. The Eighth Circuit reasoned that the confidentiality provision was the primary purpose of the agreement and that the language of the agreement clearly indicated that preserving confidentiality was a priority.

The Eighth Circuit held, however, that Hallmark was not entitled to be put in a better position than it would have been in if the former employee had not breached the severance agreement. Accordingly, Hallmark was not entitled to the former employee’s compensation from her new employer.

Conclusion

The Hallmark Cards case shows employers can enforce properly drafted confidentiality agreements in severance agreements. To have the best chance for success, employers should have their attorneys draft or review the confidentiality provisions prior to giving the severance agreement to the employee, and then call their attorneys if they obtain evidence that a former employee has breached the confidentiality provision.

If you are a Nebraska employer or employee wondering about whether a confidentiality provision can be enforced, contact Madathil Law Office today for a free consultation.

Angela Y. Madathil

Madathil Law Office, LLC

Nebraska Business and Employment Lawyer
Serving clients throughout Nebraska

Image from here.

angela@madathillawllc.com

https://www.madathillawllc.com/

T: 402.807.3174

DISCLAIMER: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. By visiting this website, blog, or post you understand that there is no attorney client relationship between you and Madathil Law Office LLC and website publisher. No information contained in this post should be construed as legal advice from Madathil Law Office LLC , or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

Client Won Unemployment Appeal - Lapse in Judgment was Not Misconduct

Angela Madathil recently represented a client who appealed a Notice of Determination which assessed a 14-week benefit disqualification because the Nebraska Department of Labor determined the client had been fired under disqualifying conditions, meaning that she was fired for misconduct pursuant to Neb. Rev. Stat. 48-628(1), (2).

My client was a department manager at a local fast-food restaurant.  She was working the morning shift when a customer called and started cussing about how the restaurant had forgotten his burritos.  My client then repeated back to another employee that they had forgotten this customers f*cking burritos.  It may not have been a great decision to restate the cuss words.  However, my client was attempting to help the other employee to understand the situation in case she was more familiar with the customer.  The employee indicated she was not familiar with the customer, and later reported the incident to management.  The customer hung up at that point.  The call lasted about 12 seconds.  The management of the restaurant decided to terminate my client for violating company policy which does not allow for any foul language.

Nebraska Unemployment Law provides for a disqualification from benefits if an individual is discharged as a result of misconduct connected with his or her work.  The Nebraska Supreme Court has defined misconduct as behavior evidencing

(1) wanton and willful disregard of the employer's interests,

(2) deliberate violation of rules,

(3) disregard of standards of behavior which the employer can rightfully expect from the employee, or

(4) negligence which manifests culpability, wrongful intent, evil design, or intentional and substantial disregard of the employer's interests or of the employee's duties and obligations.  Douglas Cty. Sch. Dist. 001 v. Dutcher, 254 Neb. 317, 576 N.W.2d 469 (1998).

I pointed out to the Administrative Law Judge that "“As a general rule “[p]oor judgment, inability to cope with situations, and occasional incidents of non-deliberate failure to precisely follow established rules and procedures do not constitute the kind of willful and deliberate misconduct that will disqualify an employee from receiving unemployment benefits as provided by law.”  Meyers v. Nebraska State Penitentiary, 280 Neb. 958, 966 (2010).   While everyone would have preferred if my client had not repeated back any of the foul language, her poor judgement did not rise to the level of misconduct that barred her from receiving unemployment benefits. 

If you were terminated in Nebraska and you need help in a hearing to determine if you are eligible for Nebraska unemployment benefits, contact Angela Madathil, and Madathil Law Office for a free consultation. 

Angela Y. Madathil
Madathil Law Office, LLC

Nebraska Unemployment Attorney
Serving clients throughout Nebraska

In Omaha
1625 Farnam Street #830
Omaha, NE 68102

In Lincoln
285 South 68th Street Place, Suite 322
Lincoln, NE 68510

Nebraska EmploymentAttorney

angela@madathillawllc.com

https://www.madathillawllc.com/

T: 402.807.3174

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