THIS ISSUE'S HEADLINES

General Assembly Seeks to Restrict Employers in Their Hiring and Pay Practices

Hashtag Your Ads: FTC Warns Instagram Influencers

Table Top Discussion for Succession Planning in a Closely Held Business

A Primer on Financing Options for Early Stage Companies Seeking Outside Investors


GENERAL ASSEMBLY SEEKS TO RESTRICT EMPLOYERS IN THEIR HIRING AND PAY PRACTICES

The Rhode Island General Assembly is poised to consider a new law that would prohibit prospective employers from asking candidates about their wage and salary history before making an offer of employment to them. The bill seeks to level the playing field between potential employees and employers so that employees would be free to negotiate and agree upon a wage or salary without their prior compensation setting an arbitrarily low basis for their new salary. On the flip side, however, the bill expressly permits potential employees to disclose their wage and salary history during negotiations. Therefore, if employees believe that their prior wage or salary will help them in negotiations, they are free to disclose that information to the prospective employer.

This bill provides candidates with substantial bargaining power because it allows them to use their wage and salary history to their advantage if they so choose. It also would outlaw a longstanding practice by many employers, which is contacting references or prior employers to verify a candidate’s salary and dates of employment. If this bill passes, Rhode Island employers will have to immediately adjust their vetting and hiring practices to avoid violating this new law.

The same bill also addresses an important issue involving unequal pay claims between men and women. Under Rhode Island law, seniority is one factor employers can consider when setting wages or salaries. However, this bill would prohibit employers from deducting pregnancy-related or family or medical leave from the seniority calculation. Employers will have to make sure that their seniority calculations are carefully made and do not penalize workers who may have been out of work for those legitimate reasons.

This bill is not all bad news for employers, however. The bill also creates a defense that employers can rely upon if they are accused of violating the bill’s restrictions. An employer will not be liable under this new law if it can show that within the last three years it “completed a self-evaluation of its pay practices in good faith and can demonstrate that reasonable progress has been made to eliminate wage differentials based on gender for equal work.” Therefore, employers should immediately begin thinking about performing this self-evaluation in order to address pay inequalities and to set up a defense they can use if they are sued. Even if this bill does not become law this legislative session, it is always a good idea for employers to regularly self-assess its pay and hiring practices to minimize the chances of a lawsuit or a labor investigation. For more information on this issue or other employment law or business matters, contact PLDO Partner Brian J. Lamoureux at 401-824-5100 or email bjl@pldolaw.com.

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HASHTAG YOUR ADS: FTC WARNS INSTAGRAM INFLUENCERS

Businesses know that their young customers aren’t reading newspapers, listening to the radio, or even watching cable television anymore. Instead, they’re consuming information and content through their smartphones and the Internet, and streaming their favorite shows from providers like Netflix and Hulu. Companies are adapting, creating Instagram profiles and Snapchat accounts that enable them to reach new age groups. Some enlist social media “influencers,” particularly on Instagram, to hawk their products. Those influencers run the gamut from big-time athletes and actors to small-time reality television stars. But whatever the reason for their star power, influencers offer businesses the allure of seemingly organic exposure: candid moments of a household name using a company’s perfume or herbal tea, shared with thousands or millions of followers.

It’s precisely that appearance of endorsement, without the standard trappings of an advertisement, which drew the eye of the Federal Trade Commission (FTC). Among other things, the FTC investigates violations of the FTC Act’s prohibition on deceptive advertising. For years the FTC has promulgated Endorsement Guides which offer a helpful framework to understand how endorsements and testimonials may be used in advertising. Recently, the FTC again made clear that the laws on deceptive advertising apply to advertising campaigns conducted over social media platforms like Instagram—both to the companies selling the products and the social media influencers carrying out the campaigns.

For the first time, the FTC recently sent out letters directly to social media influencers to remind them that if a “material connection” exists between an influencer endorsing a product and an advertiser, that connection must be disclosed clearly and conspicuously in the endorsement. In other words, if the influencer has a business or family relationship with a company, or receives a payment or free product for an endorsement of that company, there must be a clear disclosure of that fact. The FTC noted specific examples of disclosures that aren’t sufficient. For instance, including the hashtag “#sp” (meaning “sponsored post”) might confuse consumers unfamiliar with the term. Burying a “#ad” at the end of a long chain of hashtags might not suffice either. Instagram posts only display three lines of a caption, and users must select “more” to see the caption in its entirety. The FTC expressed concern that consumers who did not take this additional step would not know that an Instagram post was an ad.

So what should businesses and social media influencers take away from the FTC’s recent blizzard of “reminder” letters? If you are a social media influencer—even someone who serves as a brand “representative” just for the promise of occasional free product—be sure to disclose that fact in any caption to a social media post made for the company. Don’t bury your “#ad” at the end. And if you’re a business using social media influencers to promote your product, check up on sponsored posts and make sure the connection to your company is clearly disclosed. For more information on this issue or other legal matters, contact Attorney Samantha Clarke at 401-824-5100 or email sclarke@pldolaw.com.

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TABLE TOP DISCUSSION FOR SUCCESSION PLANNING IN A CLOSELY HELD BUSINESS

As trusted advisors to closely held business owners, our lawyers find that despite being motivated to transfer the business to the next generation, the founder has difficulty with the concept of not being in control. This is always a challenge. In order to accomplish the stated goal of transferring the business, it is necessary for counsel and their accountant to survey a multitude of issues, including the family dynamic, which is sometimes the most significant challenge. Minimizing the transfer costs, including federal and state income, gift, estate, and generation-skipping transfer taxes, is obviously most important; however, there are circumstances in which notwithstanding tax consequences, completing the transaction is essential to the long term health of the business.

One of the common goals for a business owner is a desire to treat their children equally. Achieving all of their goals requires significant planning in advance of the transfer. Tax considerations always play a significant role in the ultimate decision and strategy, and sometimes present obstacles to the transfer depending upon liquidity issues. However, with proper planning and a coordinated effort involving the tax advisor, it is possible to overcome these obstacles, while at the same time achieving the owner’s goals regarding the control and ownership of the business.

Often, the business is illiquid and represents the most significant asset in the owner’s estate. It is often also a primary vehicle of economic and emotional support for the family and will be the source of funds to pay estate taxes, debts of the business and family, as well as to provide for the support of the surviving spouse and other dependents in the family. The planning should be designed to transfer the business in an orderly manner to avoid the unfortunate circumstance of being forced to sell the business to meet liquidity needs, which never occurs at a predicted time.

The external forces that must be navigated include a poor economy or downturn in the business. However, many times the most challenging issues to overcome relate to internal forces such as lack of leadership or competence in the next generation, or internal strife by and among family members. Business owners generally focus on estate planning issues to avoid or minimize estate taxes in the event of an unanticipated death; however, our goal in representing the closely held business owner is to make certain that the focus also includes succession planning which is within their control. For more information about succession planning or other business matters, please contact Managing Principal Gary R. Pannone, who was named Rhode Island’s 2017 Lawyer of the Year by Best Lawyers for his business law practice, at 401-824-5100 or email gpannone@pldolaw.com.

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A PRIMER ON FINANCING OPTIONS FOR EARLY STAGE COMPANIES SEEKING OUTSIDE INVESTORS

It is a rare company that can fund its growth using only internal cash flow.  Start-ups and early stage companies can be particularly challenged because they often do not have access to either bank financing or venture capital, since both sources typically require several years of positive operating results before a company becomes a viable candidate for either.  However, there are options available. The most common is “convertible notes.” The reason convertible notes are so often used as the financing vehicle for start-ups and early stage companies is that they postpone the need to agree on the value of the company. Others include Simple Agreement for Future Equity or “SAFEs” and Keep It Simple Security or "KISSes."

PLDO Partner and veteran business attorney William F. Miller provides an overview of these three types of financing in his latest advisory, CONVERTIBLE NOTES, “SAFEs” and “KISSes” - A Primer for Early Stage Companies Seeking Outside Investors. The article explains the concept behind each financing option and describes certain considerations business owners and entrepreneurs should be aware of before making a decision. To contact Attorney Miller for further information about your organization or other business matters, email him at wmiller@pldolaw.com or call 866-353-3310.

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