September 23, 2021

Small-Business Guide: Tips for Small-Business Owners to Avoid Employee Lawsuits

Jeffrey Herold, who owns West Coast Trends in Huntington Beach, Calif., does not subscribe to this belief. His company, which makes golf bags, luggage and related accessories, and averages $10 million to $15 million in annual sales, has faced three employee lawsuits alleging wrongful termination since Mr. Herold founded it in 1990. Confidentiality agreements preclude him from discussing the first two.

When the third suit was filed in 2010, he said, he was wiser. He vowed to fight all the way to trial, if necessary. “It didn’t make good business sense to settle,” he said. “We did nothing wrong.”

The litigation followed a period in 2008 when West Coast, like many small businesses, was forced to downsize as the recession deepened. Mr. Herold said annual sales had dipped 35 to 40 percent. To keep the company afloat, he laid off 14 people, about 30 percent of his staff, including one of two national sales managers, John Keller.

In court documents, West Coast stated that Mr. Keller’s performance had declined before his termination. As a result, Mr. Herold said, he reduced Mr. Keller’s sales commission by 25 percent the month before his termination. Before that, Mr. Herold said, Mr. Keller was warned about his productivity and Internet use.

Two years after his termination, and following unsuccessful attempts to obtain a settlement from Mr. Herold, Mr. Keller filed a lawsuit against West Coast and three of its employees.

Mr. Keller’s complaint included an allegation that, in terminating him, West Coast had breached an “implied” employment contract providing that he could be terminated only for “good cause.” But most of his case rested on “a mere convenient coincidence,” West Coast said in court papers.

Days before his scheduled termination, West Coast said, Mr. Keller had placed a call, an apparent “pocket dial,” from his cellphone to West Coast’s other sales manager, Josh Miller. In his complaint, Mr. Keller asserted that Mr. Miller had initiated the call and that it had been connected accidentally by Mr. Keller’s phone. In either case, once the line was open, Mr. Miller heard Mr. Keller in mid-tirade against West Coast and its employees. As Mr. Keller went on, Mr. Miller pulled West Coast’s chief operating officer into the room. He, in turn, had an assistant join them to take notes.

In his complaint, Mr. Keller claimed that his overheard comments, not his performance or the economy, had led to his termination. He asserted that West Coast and its employees had invaded his privacy by eavesdropping on his conversation and used what they heard improperly. He sought damages of more than $1.2 million, including compensation for lost earnings and statutory violations regarding the eavesdropping counts, as well as an unspecified amount in punitive damages.

After depositions revealed the nature of Mr. Keller’s eavesdropping claims, which Mr. Herold called “comical,” Mr. Herold remained determined not to settle. Having employment practices liability insurance that covered his legal expenses strengthened his resolve.

The case went to trial in early 2012 and got as far as jury selection. Eventually, however, Mr. Keller indicated a willingness to accept a statutory settlement offer of $25,000 that West Coast had extended before the trial began, even though the settlement’s 30-day expiration date had passed. After Mr. Herold responded that the offer had indeed expired, Mr. Keller began to drop his settlement demands incrementally until they reached $10,000. At that point, the judge urged the parties to settle, for efficiency’s sake.

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Buying a Trump Property, or So They Thought

Far from the New York City towers that bear his name, in cities like Tampa, Fla., and Philadelphia, house hunters clamor to buy into his developments, sometimes exhausting credit lines and wiping out savings for a chance to own a piece of his gilded empire.

But as Mr. Trump, who is weighing a bid for the White House, has zealously sought to cash in on his name, he has entered into arrangements that home buyers describe as deliberately deceptive — designed, they said, to exploit the very thing that drew them to his buildings: their faith in him.

Over the last few years, according to interviews and hundreds of pages of court documents, the real estate mogul has aggressively marketed several luxury high-rises as “Trump properties” or “signature Trump” buildings, with names like Trump Tower and Trump International — even making appearances at the properties to woo buyers. The strong indication of his involvement as a developer generated waves of media attention and commanded premium prices.

But when three of the planned buildings encountered financial trouble, it became clear that Mr. Trump had essentially rented his name to the developments and had no responsibility for their outcomes, according to buyers. In each case, he yanked his name off the projects, which were never completed. The buyers lost millions of dollars in deposits even as Mr. Trump pocketed hefty license fees.

Those who bought the apartments in part because of the Trump name were livid, saying they felt a profound sense of betrayal, and more than 300 of them are now suing Mr. Trump or his company.

“The last thing you ever expect is that somebody you revere will mislead you,” said Alex Davis, 38, who bought a $500,000 unit in Trump International Hotel and Tower Fort Lauderdale, a waterfront property that Mr. Trump described in marketing materials as “my latest development” and compared to the Trump tower on Central Park in Manhattan.

“There was no disclaimer that he was not the developer,” Mr. Davis said. The building, where construction was halted when a major lender ran out of money in 2009, sits empty and unfinished, the outlines of a giant Trump sign, removed long ago, still faintly visible.

Mr. Davis is unable to recover any of his $100,000 deposit — half of which the developer used for construction costs.

Another casualty: his admiration for Mr. Trump, whose books and television show Mr. Davis had devoured. “I bought into an idea of him,” he said, “and it wasn’t what I thought it was.”

Alan Garten, a lawyer for Mr. Trump’s company, said that, regardless of what Mr. Trump himself or any marketing materials had suggested, his role was disclosed in lengthy purchasing documents that buyers should have carefully scrutinized. But in an interview, Mr. Garten acknowledged that, “without a lawyer, it can be difficult” to understand such documents. He suggested that the housing market collapse, not Mr. Trump, was the cause of their troubles.

“They are people who lost money and are looking for somebody to blame,” Mr. Garten said.

Mr. Trump’s Midas touch as a businessman, sometimes real, other times perceived, is central to his presidential aspirations, which have become increasingly hard for Republicans to ignore, even as some of them cringe at his blunt remarks and boastfulness. In the next month, he is scheduled to visit two key primary-season states, South Carolina and Iowa, as he further tests the waters. “I have made myself very rich,” he said recently, sitting in his palatial suite at the Trump International Hotel in Las Vegas. “And I would make this country very rich.”

But regardless of whether Mr. Trump ultimately seeks the presidency, his attempt to promote himself as a savvy financial manager who can lead America out of its economic rut is bringing new scrutiny to his own business practices.

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