Watch or listen to the interview here: https://www.crowleylawllc.com/podcasts/protecting-your-tech-business-with-alix-rubin/
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Introduction to the Podcast
Philip Crowley: Welcome to the From Lab to Patient Garage to Market podcast with your host, Phil Crowley. In each episode, we will discuss professionals serving the tech startup market and the various issues of importance to those companies. You can find this show on all the major platforms. Including YouTube, LinkedIn, Facebook, Apple podcasts, Spotify, and on our website, Crowleylawllc.com. Now here’s the host of From Lab to Patient, Garage to Market, Phil Crowley.
Meet Alix Rubin: Employment Law Expert
Philip Crowley: Hello and welcome. Thank you very much for tuning into our podcast. I have the pleasure of speaking today with my colleague and friend Alix Rubin. Alix focuses on protecting employers from disgruntled employees so that everybody can get back to business.
She is focused on employers, but also helps founders and [00:01:00] senior executives who are selling their companies to other companies in terms of protecting their interests. And so I thought it would be really helpful for our potential startups and people considering, technology startups to understand some of the issues about which they should be thinking with an expert who can help shed some light on that.
Alix, welcome to the podcast.
Alix Rubin: Bill. Thank you for having me.
Philip Crowley: Well, you know, everybody gets to where they are for a reason. And as you well know, the area of law is very varied. And I think it’d be interesting to understand why did you choose employment law as opposed to some other area?
Alix Rubin: Well, it actually goes way back to law school.
I was at the University of Pennsylvania Law School. I participated in the law clinic, [00:02:00] where we, we were able to service clients who did not have a lot of money to pay for legal services as a law student. So, you know, obviously, I had to be under the supervision of a law professor who had the license to practice law at the time.
I didn’t. I was just a law student, but my very first case was an employment discrimination case. And that’s what really piqued my interest in employment law. And I just continued on with that.
Philip Crowley: Terrific.
The Importance of Hiring Employees Correctly
Philip Crowley: And you’ve had a very successful career over the years. You know, founders of businesses may not really think of themselves as employers.
They think of themselves as having colleagues around them, but they really do have to hire people and hire independent contractors. Could you give us some of your knowledge about what’s the strategic and the right way to think about hiring employees for a [00:03:00] business?
Alix Rubin: Sure. Of course. So, I will emphasize you’re always better off hiring employees versus independent contractors.
And I know you’re going to ask me more about that later. But regarding employees, when you’re interviewing potential employees, you want to make sure that your questions are job related. That you’re not asking about religion or politics, that you’re not asking about any type of what we call a protected characteristic, age, race, religion, disability. Disability is a little special and needs to be job related. You want to make sure that the potential employee can do the job.
So you ask them, are there any restrictions on you doing this job? Is there any reason why you can’t do this job? You don’t want to ask them what year they graduated high school, because that will clue you into how old they are, right? You don’t want to ask them if they have children or plan to have children male or female.
Because you don’t want to necessarily know these things, because then [00:04:00] it could be used against you if you don’t hire that person. The claim would be that you didn’t hire me because I’m a member of that particular protected class. Another tip that I will give you is.
Conducting Background Checks and Protecting Your Business
Alix Rubin: Do a background check, but make sure you follow the rules for background checks.
There are very specific rules and it varies somewhat from state to state. New York has specific rules. New Jersey does too. You cannot ask for criminal background information or do a criminal background check. Until in New Jersey, after your first interview. I think it’s important because you want to be able to prevent violence in your workplace and you want to know if the person has a history of violence.
If in the last 10 years, and that’s the parameter that this person has been involved in some type of criminal act, or if they’re dealing with your company’s monies. Well, you want to do a credit background check as well. You want to know if they [00:05:00] committed fraud or embezzlement or anything like that. Very important and then the 3rd thing is you want to protect your intellectual property, your confidential information. So, if you do hire them, have them sign a confidentiality agreement, and perhaps even a non solicitation agreement.
Navigating Non-Compete Agreements
Alix Rubin: You don’t want them to steal your employees or your customers during or after they leave and also possibly a non competition agreement.
I do want to emphasize that the Federal Trade Commission just finalized its rule and just published it in the Federal Register in 2024, banning all non competes throughout the United States. Now, this rule doesn’t go into effect until September of 2024. There’s 120 day waiting period. And as of this date, it’s being challenged in court.
So we don’t know yet whether the rule will be permitted. And there are several exceptions to the rule, but, you still may be able to enforce [00:06:00] non competes at least for the next several months. So it’s something to consider as well, but only if it makes sense, like in terms of a sales or, you know, somebody who, you know, has knowledge of your company that it’s in their head.
It’s not like they’re stealing any confidential information, but it’s in, they know this stuff and they’re going to take it and use it to compete against their former employer.
Philip Crowley: Do you have any examples you can share with our viewers, Alix, of successful operations of non competition covenants?
Alix Rubin: Yeah, sure. So, let me think of the ones that got people into trouble, but, well, I mean, it was actually something that got my client into trouble.
So, um, but it was successful from the perspective of the other side. So the other employer. So my client hired. Hired a woman, um, and she, um, she had a noncompete with a [00:07:00] previous employer long service history with the previous employer. I won’t get into that, or the reasons why she left, but she didn’t tell my client that she had a noncompete.
So that’s something else for employers as well as employees to focus on. Those of you who are or may become employees, right? You need to tell your prospective new employer what your restrictions are and then see if you can work around them. So my client ended up being dragged into a lawsuit against his employee. Fortunately, the lawsuit was only against the employee.
He had to suspend her. I mean, that was my advice. He got dragged into the lawsuit. We had to submit to depositions as the owner of the company. Some of his employees had to be deposed as well. So cost the employer a great deal of money, even though he wasn’t a named defendant. But the other employer who brought the lawsuit was actually successful in terms.
She left my client. It bothered me because there were some [00:08:00] issues she had with a former employer, and that was why she left in the first place. She went back to work for him. So, the lawsuit ended, but the other employer won. For my client, it was just a great cost item and a lot of disruption of the business.
Philip Crowley: Well, I take from this as a tip for our viewers that it’s important to do some due diligence on your employees before they come to you and using the items that you mentioned is kind of a checklist of things to look at when you’re legally permitted to look at them. And also to keep in mind that, to the extent that employees
try to be employed by telling you all the secrets of their prior employer that they can give to you. Just think about what their actions will be when they move on from you to the next employer.[00:09:00]
Alix Rubin: Yeah. Phil, that’s an excellent point.
Tips for Firing Employees Legally
Philip Crowley: Now, uh, this is the process of hiring, but as we all know, companies grow, they change. Sometimes the skill set of the person is not significant or sufficient to keep them at the company and they have to be fired. What are some of the tips that you would give to employers to keep in mind when they’re thinking about having to separate employees?
Alix Rubin: Sure – So, first of all, make sure you document behavior that could lead to an employment termination. Because that way you protect yourself, if you do get sued or potentially threatened with a lawsuit. I also highly recommend severance agreements. In most instances, it doesn’t have to be a huge amount just as long as the employee agrees to it.
Right? And depends on the level of [00:10:00] employee we’re talking about and how long they’ve been with your company. But I do recommend it, because in the severance agreement, you’re basically paying the employee money not to sue you. Now, some people think, well, wait a minute, is that legal? Is that bribery? No, it isn’t.
It’s actually legal. It’s called consideration for signing an agreement saying that I won’t sue you for anything that may have happened while I was employed. Now, if something happens after the fact, well, that wouldn’t be covered. So that’s what I highly recommend. I do want to mention just a couple of reasons that you could use legitimately to fire somebody for obviously something really egregious that would harm your business that they’ve done, whether it’s fraud, theft, embezzlement, forgery, some type of criminal activity again, that could affect or negatively impact your business or its reputation, any [00:11:00] type of really egregious discrimination, harassment, or retaliation against other employees.
And of course, any type of violence that occurs in the workplace or against other employees. Poor performance, certainly, but I do recommend and again, you must document this type of behavior. If you’re not going to fire them right away that performance definitely has to be documented and usually, it’s not like somebody makes one mistake and you fire them.
Right? You know, usually you really want to give people a chance to correct their mistakes. To improve their performance and put them on, but document it, put them on what we call a performance improvement plan, but have very clear objectives and very clear things that they need to accomplish within a certain period of time.
And if they don’t improve, well, then at least you’ve got that record. They tried but they still didn’t comply. And so then we had to let [00:12:00] them go. Insubordination is another. You know, it’s another good reason to fire somebody, right? I’m not following your company’s policies. Well, the first thing is, you need to have policies and let me say written policies in the first place before you can accuse an employee not following them. And then make sure that you train your employees on those. They are then aware of them and they sign off that they received the policies or an employee handbook. Finally, look, this happens. A lot of businesses, you know, maybe you overhired, maybe when business was really great.
And now there’s a downturn. Business is slow and you need to lay off some people for financial reasons. That’s okay. As long as you don’t lay off a disproportionate number of people in protected [00:13:00] categories, black, Hispanic, disabled, women, older, younger, that kind of thing.
You want to make it sort of equivalent across the board in terms of those characteristics and also, especially in the case where it sounds almost counterintuitive, but especially in the case where it’s an external condition, it’s no fault of the employees. Experiencing some financial difficulties, give them severance. You’re still gonna save money on their salary in the long run, but give them some severance, some time to find another job and still get, you know, have some severance payments. Those are my recommendations.
Philip Crowley: All right, well, that sounds like a lot of practical advice, Alix, because under the rule that we grew up with, which is you are an “employee at will”, which means the [00:14:00] employer can fire you at any point in time for any non discriminatory reason. But the thing that I really appreciate about your advice is how to set things up from a planning perspective to minimize the chance that you get sued. And if you do get sued, that you have a really robust defense against any claim that you did something that was inappropriate. So I think that is very important to do.
Understanding Exempt vs. Non-Exempt Employees
Philip Crowley: You know, there’s been a lot of talk about the difference between exempt and non exempt employees. Can you explain a little bit about what the difference is and what the big economic impact on companies is of that classification?
Alix Rubin: Yeah, absolutely. So, I’m going to start off with the economic impact because again, there was just a recent rule by the Department of Labor, and [00:15:00] this is on a national basis that increased the salary threshold for exempt employees. So beginning July 1st, you cannot be an exempt employee. Or an employee cannot be classified as exempt.
Meaning they’re, they are not entitled to overtime. They could work a hundred hours a week. You don’t have to pay them any more than the salary they’re already receiving. but they have to be earning it least as of July. This July 1st, 2024. It’s currently $35,568 a year. It doesn’t sound like a lot. As of July 1st, it goes up to $43,888.
And then as of next January 2025, it goes up to $58,656. It’s a huge increase. I believe it’s about a 65 percent increase. That’s if I did the math, right? From 35 to 58. That’s a big jump. They’re doing it in increments. So, New [00:16:00] York City, it doesn’t matter. It doesn’t affect New York City.
The threshold is already higher than what the federal level will be next year. It’s already at $62,400. so, New York City, and I know some other jurisdictions may also be higher, like, probably San Francisco. Although I don’t practice in California, but, there’s also going to be a 3 year adjustment to the federal standard based on the 35th percentile of earnings in the lowest wage census region, but there will be an increase.
Like every three years, almost automatic. It’ll be based on economic conditions. So, let’s go back. Who is covered otherwise? How is it determined under the law that an employee is exempt from earning overtime pay? And just to refresh people don’t understand what overtime pay is. Overtime pay means that any, any employee, any non exempt employee who works more than 40 hours in [00:17:00] any work week is entitled to one and a half times their base hourly rate for those additional hours. So if they’re earning, let’s just say, 20 an hour. And they work 41 hours, then they get 30 for that additional hour. Right, 20 plus 10. Um, so to qualify as exempt from that, you can work any number of hours in any work week. You have it’s there are 3 times there’s a duties test.
There’s a salary basis task, and then there’s what I just talked about, the salary threshold task. The duties task is, is that you have to be either an executive, administrative, or professional, or outside sales employee.
Alix Rubin: Executive means you supervise at least two employees, and you may, and you use your independent judgment to make decisions that affect the company as a whole.[00:18:00] Administrative is a little trickier and that’s usually where employers get in trouble because administrative, you don’t have to be a supervisor, but you do have to make independent decisions about things affecting the company as a whole, and that could be a little tricky.
Professional is usually pretty easy to determine. It’s attorneys, physicians, um, anyone with an advanced degree that is using that advanced degree and then outside sales is usually pretty easy is an outside salesperson, not an inside. Um, then their salary basis, they have to qualify for the exemption if they meet the duties tests, and I believe duties tests are really the most important ones.
And it’s not just based on their job description, it’s based on what they actually do. Now granted, job descriptions should reflect what the employee actually does, but it’s still based on what they actually do. Salary basis just means they have to be paid on a salary basis. And you [00:19:00] don’t deduct from your salary because they worked a shorter workday, right?
Because maybe the next week they’ll work more hours. There, there are some exceptions for that, obviously vacation time, time off, sick time, et cetera. But then they use that time and then the minimum salary, which we just talked about, which is going up, as of July 1st 2024. Um, so what do.
What do you do if you have exempt employees who are making less than the 43, 000 start, you know, that, because that’s the threshold that I’m going up in July. That will be raised to in July. What do you do? Do you raise your salary to that level or do you reclassify them as non exempt? And you really have to do a thorough analysis to figure out, well, how much, how many hours per week do they work over 40?
If not, if they don’t work, if they typically only work a 35 or 40 hour week, you don’t have to worry about it. They could be a non exempt, you’re not going to have to pay overtime. Doesn’t really matter. [00:20:00] If they do typically work more than 40 hours a week, then you have to make that mathematical calculation.
You know, am I going to save more money paying them overtime or increasing their salary? You also have to be careful because people think because people often look at it as a demotion. Like, I’m an exempt employee. That’s a higher level employee. Now you demoted, quote unquote, demoted me to being not exempt.
When actually it could advance extended because now they can earn overtime, but I don’t make them realize we haven’t changed your job duties. We haven’t changed your position. This is not a demotion. It’s really it’s because the logic, right? So, communication is really important. You can also, you know, see if you can reduce the overtime in your company, but look, once an employee works overtime.
They have to pay them if they’re not exempt. Um, it’s going to change your record keeping because non exempt employees, you have to keep track of their hours. And you could just, you could be penalized by the government if you don’t, just, just for that, even if you’re [00:21:00] paying them for it. Although if you don’t keep track, you’re probably not paying them correctly.
And just keep in mind that the fines and penalties are pretty high.
Philip Crowley: Thank you for that, Alix. I’d just like to take just a moment now to acquaint our viewers with Crowley Law. We are a boutique law firm that’s really passionate. about helping life sciences and other technology entrepreneurs realize their dreams to take great ideas from the laboratory bench to the patient’s bedside or from the garage to the marketplace to improve the lives of thousands or millions of people.
I’m a former physicist. I’ve spent over 30 years on the board of trustees of Stevens Institute of Technology in Hoboken, New Jersey, a wonderful STEM school, science, technology, engineering, mathematics, and understand the difficulties and really the hard work that [00:22:00] founders particularly have to put in to create ideas and then market them.
And we view it as a privilege to be able to help those founders and those companies succeed in the marketplace. So if you have questions about commercializing technology, please give us a call at 844 256 5891. That’s 844 256 5891. You can reach us at info at CrowleylawLLC.com. And if you put in the subject line, uh, Rubin, R U B I N, we’ll arrange for a complimentary call with the team member to discuss your particular issues, the issues that are keeping you up at night.
The Pitfalls of Independent Contractors
Philip Crowley: Alix, I’d now like to get back to you and ask [00:23:00] you about some of the pitfalls you mentioned earlier that you want to avoid having independent contractors. And I wanted to explore why is that?
Alix Rubin: Yeah. Okay. That’s a great question, Phil. So, in New Jersey, what’s called the ABC test applies to determining whether a worker is an independent contractor or an employee.
And it’s a really strict test. They’re only ABC, there are only 3 factors and, in order for a worker to be classified properly as an independent contractor, they have to meet all 3. And usually the biggest pitfall is a company hire someone to do work for their business that is really part of their core business.
So you’re a technology company and you hire someone to do something in the technology field that is your business. That can’t be an independent contractor. [00:24:00] You fail the test right there. It has to be outside your core business. But if you’re hiring a lawyer, for example, an attorney or a bookkeeper, Or, you know, somebody that’s outside your core business, well, that’s fine.
They also have to own their own business to be an independent contractor and LLC is usually enough. That’s okay. By owning their own business, they’re not just working for you, they’re working for other businesses too. And then you might get into issues of competition, right, and sharing of, you know, again, you can have confidentiality agreements with independent contractors, but you really can’t have non competes, because they’re supposed to have their own business working, most likely in the same industry, if that’s what it means.
Philip Crowley: I have a question, Alix, with respect to independent contractors. Why would an employer find it advantageous to have an independent contractor as opposed to an employee?
Alix Rubin: Yeah, that is a good [00:25:00] question. And I’m sure most of you out there know this, perhaps, but I will answer that because it’s advantageous.
Well, and sometimes it’s advantageous to the worker too. It’s advantageous to the employer because you don’t have to pay payroll tax, right?. You don’t have to pay unemployment tax. You don’t have to pay Social Security or Medicare.
None of those withholdings that come normally with “employee” status. There are the employer obligations and then the employee obligations. And that’s why often workers like that too, because they just get paid and then it’s between them and their tax attorney or accountant as to how much tax they pay on their earnings.
Nothing’s withdrawn. The downfall is that when the government determines that this person is truly an employee and not an independent contractor, it comes down on the employer to pay those back taxes and back withholdings, plus interest, [00:26:00] plus penalties for having misclassified that or that individual.
And often, It’s interesting how it works sometimes, because the individual initially wants to be an independent contractor for that very reason, because they’re not paying taxes either, at least not initially, having those withholdings taken out of their income. But when they stop working for your company, somebody whispers in their ear, Oh, you’re entitled to unemployment.
Well, actually, it’s an independent contractor, you’re not. And so they go and apply for unemployment, and that’s how the Department of Labor finds out that they were misclassified or may have been misclassified. And then they do an investigation, costs the company money, and perhaps even more money and back taxes and then if they didn’t pay overtime when they should have, there could be that issue as well, plus all the penalties and interest.
I did want to just mention the third factor.It’s [00:27:00] control over when the worker performs the work, and if the employer has a lot of control over their hours. You know, where they do the work, whose equipment they use, all of that. That’s the other factor that would mean that this is really an employee.
Key Policies and Procedures for Founders
Philip Crowley: Alix, can you give us a kind of a quick list of the key policies and procedures? Because you mentioned having policies and procedures and training on policies and procedures. What are some of the key policies and procedures that founders should think about putting in place, even if they kind of try to find some reliable source of policies and procedures, just at least so that they can have something in place.
Alix Rubin: Sure, sure. So the basics would be you need to have an overtime [00:28:00] policy. You need to have, um. We need to have electronic communication and social media policy. We need anti discrimination, non harassment policies in particular, and included in that policy, a robust complaint and investigation process.
I know we’re going to talk a little more. I mean, that those were the points I was going to make about. On the subject of how to prevent a hostile work environment, how to prevent harassment and discrimination in your workplace, or at least protect yourself. If it does happen that you took all reasonable measures.
To prevent it from happening, I think those are among the key policies, but also, I mean, you need to follow legal requirements. New Jersey and New York have paid sick leave laws. We need to follow those laws, so you should have a paid time off policy that. Whether you choose to, you know. incorporate sick time with vacation time and personal time or have them separate.
[00:29:00] Just make sure you’re following the law when it comes to sick time.
Philip Crowley: Sounds like it’s gotten much more complicated over the 10 to 20 years. There are mandates at the federal level, there are mandates at the state level, there are mandates at the local level, particularly if you are an employer in the city of New York.
Need some help and some guidance. How could they get in touch with you if they have questions?
Alix Rubin: Oh, sure. So you can email my office. I would say email my legal assistant at legal admin. At Alix Rubin law dot com. You see the spelling of my name up there. A. L. I. X. R. U. B. I. N. L. A. W. dot com. You can get advice on a lot of the things we’ve been talking about.
Actually, everything we’ve been talking about. I have logs on and videos on these issues on my website and that’s Alix Rubin law dot com. So if [00:30:00] you want to get more information, you can just go to my website. And look at that. And then there, uh, our, you could also call our office at nine seven three seven eight seven eight four four two nine seven three seven eight seven eight four four two.
We do strategy sessions at a minimal fee, just to see if we can help you, if you have just a question or two and get you on the right path. And then if you need more help, you know, we talked about, you know, what that would entail
Philip Crowley: super Alix. Thank you.
Conclusion and Contact Information
Philip Crowley: Well, this is certainly a complex area of the law, but founders need to pay attention to it.
They should have some help because I remember that old saying, an ounce of prevention is worth a pound of cure. And with, fines, interest penalties, [00:31:00] all those additional costs, attendant to noncompliance plus. distraction of the innovators from doing the business, from developing the intellectual property, that really make it important to pay some attention to this.
And as the company grows and develops to keep these things in mind so that they can be successful. Well, that’s it for this particular session. I want to thank Alix for this wonderful exposition of some of the key issues that surround employment law and hope that you’ve benefited from this. If you have, please feel free and we would appreciate it if you would like and subscribe to this podcast.
And we look forward to seeing you and helping you with topics like this in future podcasts. That’s it for today. Thank you. You’ve been tuning into the from [00:32:00] lab to patient garage to market podcast with your host, Phil Crowley. You can find this show on all the major platforms, including YouTube, LinkedIn, Facebook, Apple podcasts, Spotify, and more.
And on our website, CrowleyLawLLC. com. If you found this information helpful, please subscribe, like, leave a positive review and share with others.
