Matthew Kenney

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Archives for July 2019

Internships and the Law

Posted on: 07.31.19 | by Matthew Kenney

The issue of unpaid internships is a challenging aspect of business administration. In theory, internships provide a good opportunity for new job entrants. In practice, internships can land a company in legal trouble. Here is the key thing to remember: Under the law, your company cannot be the “primary beneficiary” of the relationship.

Legal principles behind unpaid internships in the USA date to 1947 when the Supreme Court articulated six rules employers must follow. The federal law applicable to internships is the Fair Labor Standards Act (FLSA) of 1938.

Do you see the problem? The laws were written during the Roosevelt and Truman Administrations. The FLSA has been amended several times across the decades, but we still see areas where the law is not harmonized with the market. Internship law is one of those areas.

The world has changed rapidly, but our internship laws have evolved slowly. This has proven problematic. Government has largely left the company/intern relationship to the market, which has resulted in exploited interns and lawsuits.

Today’s courts look to the following guidelines set forth by the Department of Labor, based upon Supreme Court precedent, to establish whether the company is the primary beneficiary, thus violating federal law:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship. (Source: US Dept. of Labor, 2019).

Businesses hiring unpaid interns primarily to save money would likely be in violation of guidelines #2, #3, and #4.

If your company is sued by a former intern, his/her lawyer will ask your HR Manager during deposition: “Was your primary motive to save money?” If the HR manager says “yes”, your company will likely lose that lawsuit.

Courts will look at the facts of each case and weigh the factors differently. The legal issue isn’t whether your company can benefit from the use of interns. The issue is whether your company is calling an employee an intern (to avoid paying wages).

Damages to a company from a successful employment claim may include double wages for the former intern, plus attorney’s fees. Inevitably, tax consequences and bad publicity will follow the verdict.

If you’re a business owner thinking about “bringing on interns” to save labor costs, you should think differently. Internships are not about you. Nor are they about your company, customers or profitability. Internships are about students. Your primary motive should be helping students. An ancillary benefit to your company is fine, but benefiting the company cannot be your primary motive.

If using internships as part of your business strategy, be sure to have a policy drafted by a business lawyer, who tailors the policy to Florida court decisions on the topic. Internships are an area where not knowing the law can cause a lot of problems.

(c) Copyright 2019. Matthew G. Kenney. All Rights Reserved.

Understanding Entrepreneurs

Posted on: 07.23.19 | by Matthew Kenney

While a Doctor of Business Administration student, I became frustrated during a class. My classmates were defining “entrepreneurs” broadly. I recall one classmate saying “I’ve been working with entrepreneurs for 25 years, they are all paranoid control freaks”. As an entrepreneur, I was a bit offended. But I was also curious. Was my classmate correct?

As any good doctoral student would, I researched the topic of entrepreneur personality deeply. I wrote a paper entitled “Psychographic Segmentation of the Self-Employed”. With the help of Dr. Art Weinstein (my professor and leading scholar in the field of market segmentation), we published the article in the New England Journal of Entrepreneurship.

Our research found entrepreneurs can be classified into groups. Some are altruists, others have parental relationships with their firms, some are exemplars with a talent for commerce, and some are motivated primarily by a need for control. At the very least, companies should not market to small business owners as one market. Rather, as a large market with multiple market segments.

Recently, Dr. Weinstein and I learned our article is among the most downloaded articles in the journal’s history. It’s been downloaded by thousands of people at leading companies and universities globally, and cited by numerous scholars.

My motive in writing the article was to prove education is the best cure for prejudice. Having influenced others to respect the differences between entrepreneurs, whether that influence occurs in a classroom of boardroom, is rewarding for a business educator.

However, as a lawyer there is a different benefit: Better understand entrepreneurs. An attorney who understands a client’s motives is better positioned to help the client succeed. Not every entrepreneur wants a huge business, or to build a global empire. Some just want to make a difference in their communities. Some want a lifestyle business that serves their desires, not a business that consumes their lives. That’s why I start discussions with new entrepreneurs with a simple question “What do you want from this business?” Once that question is answered, it is easier to choose the best legal structure moving forward.

Beware of Counterfeiting

Posted on: 07.14.19 | by Matthew Kenney

By some estimates, the cost to legitimate brands from counterfeiting is $1.8 Trillion annually. The cost of this intellectual property theft to American companies has been estimated at $600 Billion annually. Small Business owners are increasingly seeing their products knocked-off and sold on e-commerce platforms.

If you are a small business owner, it’s important to take the issue of counterfeiting seriously. Federal law provides remedies for victims. For example, if your registered trademark is violated — the remedy can be up to $150,000 per infringement. Courts can also order a defendant to pay your attorney’s fees; and pay punitive damages etc. 

If your company is a victim of counterfeiting, a business lawyer can help you understand your rights; and notify the proper authorities. Your lawyer will then likely connect you with a litigator. While it can be challenging to collect money from foreign manufacturers, plaintiffs may sue the US retailers and web-sites that facilitated the crime. Think about it: E-commerce billionaires, their employees and investors are profiting from the sale of counterfeit goods on their websites. Is that fair?

While buying counterfeit goods is not considered a crime, re-selling them is a crime. It’s a crime even if the re-seller does not know the goods are counterfeit. There is a Latin maxim: Ignorantia juris non excusat. Ignorance of the law is not an excuse. If you sell counterfeit goods, you’re breaking the law. Period.

Trademark and patent infringement are strict liability crimes. Intent does not matter. The act is what matters. A business owner has a responsibility to maintain the integrity of his or her supply chain. The criminal penalties for selling counterfeit goods can range up to $2,000,000 and 15 years in jail. Therefore, it’s a good idea to make sure anyone with purchase authority within your company knows the consequences of buying counterfeit goods.

Lastly, business owners have to understand: Counterfeiting is not a victim-less crime. Behind counterfeit goods there is nothing but greed, human suffering and environmental destruction. Nothing good comes from counterfeiting. It’s a scourge on society and commerce.

(c) Copyright 2019. Matthew G. Kenney

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