An Experiment in Online Services
Do the legal documents you buy through legalzoom or other websites save you time and money or are they a lawsuit in waiting?
My article will answer that question for you!
A couple of weeks ago I was at a Minnesota bar association event. While there, the other attendees and I got into an interesting discussion about a topic that has many lawyers up in arms: on-line legal services like legalzoom.com. These sites offer legal documents like wills and trusts and partnership agreements for a low, fixed price. We agreed to do an experiment. Greg Luce of the Minnesota State Bar Assocation would buy a will on legalzoom.com and have an attorney look it over to judge its quality. He also agreed to blog about his experience and has already posted a video about it as well.
Instead, I agreed to purchase through another website, lawdepot.com, an employment agreement and judge its quality. I practice mostly in employment law, so this was a choice suited to my area of expertise. I spent only $15.00 for my agreement. After reviewing the agreement, I determined that you get what you pay for.
Here is the article:
The Hidden Dangers in Using Legal Documents Found on the Web
Lawyers are up in arms these days over websites like legalzoom.com, an online legal document service that drafts documents like wills and trusts and partnership agreements for a fixed, low price. Stores like OfficeMax and Office Depot sell legal forms and documents as well. You simply fill in your specific information and voila, you are ready to go. No appointments with a lawyer, no expensive bills to pay and no hassle. Attorneys see these services as a threat, luring away clients, at a time when few firms can afford to lose any.
So I decided to do an experiment. I went to lawdepot.com, a site similar to legalzoom.com, to judge the quality of the documents the site provides. Because I practice employment law, I went to the Business and Human Resources section of the site. For only $15.00, I purchased an employment contract. It seems like a good deal at first. I inserted the details of the imaginary employee I was going to hire: position, salary, start date and length of employment, as well as the governing law (Minnesota). I created the position of a legal assistant with an annual salary of $35,000. I was also allowed to choose if I wanted a non-compete agreement, a probationary period and if I wanted to retain the right to terminate the employee for a “permanent disability.” It seemed easy enough and if I didn’t know any better, I would probably agree with other users of the site, one of whom declared, “I started using your service by downloading a non-compete form for employees. I was so impressed . . . and I now feel like I have everything in order.” So what type of agreement did this person, and did I, get? Want a hint? You get what you pay for.
Violation #1: Minnesota Overtime Provisions
In the section of “Employee Compensation,” I found a curious provision about overtime. The contract states:
The employer agrees to permit a reasonable degree of flexibility in work hours. In cases where extra time is worked in a day or week, the employee agrees to take equivalent time off in place of overtime pay within three months, unless there is an express agreement to pay overtime rates.
First of all, not all employers want to or can provide flexibility in the work schedule. A receptionist has to be at work when the office opens or a factory worker when the plant opens. Stating that the employer will be flexible is a bad idea unless that is really the case. The risk is that someone would print up and use the document without really checking out whether all the provisions fit his specific situation and if that flexibility is not given, be liable under the agreement.
Second, according to this provision, an employer can choose when to pay overtime, can provide paid time off in lieu of overtime and only has to pay overtime if there is an express agreement to do so. That is a lawsuit waiting to happen. Like the agreement in general, it seems like a good deal unless you know better. Both the federal and state Fair Labor Standards Act (FLSA) allow an employer to grant time off at the rate of 1 ½ hours for each hour worked in lieu of overtime but only for public employees. Minnesota law states that the “state of Minnesota or a political subdivision” may do so, Minn. Stat. § 177.25, while federal law states that a “public agency which is a State, a political subdivision of a State, or an interstate governmental agency” can. 29 U.S.C. 207(o)(1). Private employers are prohibited from granting time off in lieu of overtime and instead must pay it when due, or risk violating the law. An employer who follows this provision of the lawdepot.com employment contract would be unwittingly led to believe that overtime doesn’t have to be paid and that time off can be granted instead. How sorry he would be when that lawsuit is filed for failure to pay overtime or when the Department of Labor comes knocking.
Another concern about this provision is that it makes no reference to when overtime is paid. Minnesota law establishes the right to overtime when an employee works more than 48 hours in a workweek and applies to all businesses (with the applicable exceptions), while the federal FLSA provides overtime when an employee works more than 40 hours in a workweek but only applies to businesses that have a gross annual revenue of more than $500,000 (with its many exceptions as well). It isn’t an option for an employer whether to pay according to Minnesota or federal law, and the site does not explain this, as an attorney would. In addition, no express agreement has to be in place to establish the right of an employee to earn overtime.
Furthermore, a similar concern regards exempt and non-exempt employees. Overtime is paid only to non-exempt employees. It is often complex and difficult even for judges and lawyers to determine which employees are exempt and which are non-exempt. There is often no clear-cut answer. The agreement does not bring up these important distinctions. Thus, an employer is left to choose whether it thinks a position is exempt, based on the job title and the employer’s perceptions of whether overtime should be paid, and to choose whether it should pay according to Minnesota or federal law. It doesn’t work that way. The laws state when whether state or federal law must be followed, or when an employee is entitled to overtime. Unless an employer is conscientious about researching its legal obligations, its risk unknowingly violating its employees’ rights by purchasing and using in its business the lawdepot.com document.
Violation #2: Potential Disability Discrimination Claims
This provision made my mouth drop. I find it hard to believe that a site that claims to have its documents created and maintained by lawyers would include such a provision, which reads: “The Employer has the sole option to terminate this Agreement in the event the Employee, during the course of this Agreement, becomes Permanently Disabled.” Permanently Disabled is defined as:
[When the employee], during the term of this Agreement, because of ill health, physical or mental disability or for other causes beyond the Employer’s control, she will have been continuously unable or unwilling or will have failed to perform her duties under this Agreement for 60 consecutive days, or if, during any year of the term of this Agreement, the Employee will have been unable or unwilling or will have failed to perform her duties for a total period of 120 days, irrespective of whether or not such days are consecutive.
Wow. The Family and Medical Leave Act (FMLA) requires an employer with 50 or more employees to provide 12 weeks of unpaid, job-protected leave to an eligible employee who has a serious medical condition. According to the lawdepot.com document, an employee who has taken just 2/3 of a FMLA leave (60 days) is defined as “permanently disabled” and can be terminated. Terminating an employee who is on FMLA because the employee is still not able to return to work because of the disability or medical condition is illegal. Following this provision of the document would also be a lawsuit waiting to happen. The other definition of “permanently disabled” (unable to work 120 days, irrespective of whether or not such days are consecutive) is also very likely in violation of both state and federal disability laws.
The Minnesota Human Rights Act and the Americans with Disabilities Act require an employer with 15 or more employees to provide a “reasonable accommodations” to an employee with a disability who is able to perform her job with or without a reasonable accommodation. It is widely agreed that short-term leave can be considered a reasonable accommodation. Thus, when an employee has finished his or her FMLA leave and is still unable to return to work, the employer should consider whether additional leave can be granted as a reasonable accommodation. Courts have stated that an additional 12 weeks of leave may be a reasonable accommodation in these cases. To automatically terminate an employee because she cannot return at the end of the 120 days would likely lead to a claim of failure to accommodate under state or federal law.
In addition, it could happen that an individual returns from 12 weeks of FMLA leave and then takes intermittent or additional leave as a reasonable accommodation. However, according to this provision, an employer could legally terminate that employee if those absences total more than 120 days during the year. This goes against both federal and state anti-discrimination laws. Terminating the employee as allowed by the provision would also be risking a lawsuit.
Really Bad Idea #1: Employer’s Right to Modify Benefits
The lawdepot.com employment contract establishes the right to only one week of paid vacation per year. It does not limit the employer’s obligation to pay out unused vacation time at the time of resignation or termination, which any good employment lawyer would recommend that a client insert into an employment agreement. The contract also includes the following provision regarding an employer’s right to modify employee benefits:
“All benefits provided by the Employer are in the Employer’s sole discretion and are subject to change, without compensation, upon the Employer providing the Employee with 60 days written notice of such changes to the benefits.”
The agreement allows the employer to modify the benefits provided the employee with 60 days written notice. While written notice is always recommended, 60 days needlessly hinders an employer’s ability to modify the employment relationship which, under the terms of employment at-will, can be done at any time and without prior notice. While such a provision is certainly not illegal, like the provision regarding overtime or termination in case of permanent disability, it is not good legal advice and not a good business practice. This provision was one that was automatically included in the agreement.
Really Bad Idea #2: Terms of Non-Compete Provision
Non-compete agreements are so in fashion these days. In keeping with this trend, lawdepot.com allowed me to select a non-compete provision for my employment contract. Of course no consideration was given to the fact that the position I was going to fill was a legal assistant, a position for which a non-compete would be irrelevant. Few law firm clients follow a legal assistant to another firm. Regardless of this, I chose to subject my imaginary employee to a 3-year non-competition provision, according to which the employee agrees not to be “directly or indirectly involved with a business which is in direct competition with the particular business line of the Employer.” The site gave me the choice of making the non-compete in effect for up to 5 years. However, it didn’t allow me to choose a geographic extension for the non-competition. Thus, according to the non-compete agreement in my lawdepot.com employment contract, my fictitious legal assistant cannot work for a competing law firm anywhere in the world for 3 years after leaving my firm. Clearly, such a provision would be unenforceable.
In Minnesota, a non-compete agreement has to be reasonable in both geographic and temporal extension in order to be enforceable. Even if reasonable for these two terms, courts will also examine the nature of the position and the business interests at risk before determining whether it will enforce the non-competition agreement. There is no clear-cut rule of when a non-compete is reasonable. That being said, it is almost certain that no court would enforce a three-year non-competition on a legal assistant. It is too restrictive of an individual’s right to earn a living, an interest that courts are clearly concerned about protecting.
Really Bad Idea #3: Termination with “Just Cause”
An important tenet of employment in Minnesota and indeed in almost all states is at-will employment. Both the employer and the employee have the right to terminate employment without notice and without cause. Employment lawyers go to great lengths to preserve the employment at-will status in employment agreements and in employment manuals and also advise their clients to avoid written documentation or oral statements that would modify the at-will relationship. The lawdepot.com agreement avoids completely the issue of at-will employment, another piece of very bad legal advice contained in the document.
First, the website gave me the choice of making the employment indefinite, which is a principle of at-will employment, or for a set period of time (from 1 to 5 years). Few employment lawyers would recommend that employment be made for a definite period, other than for positions such as athletes, entertainers or perhaps or perhaps for other high-level positions, for the simple reason that it binds an employer’s hands and makes it more difficult to terminate an employee. And then to makes matters worse, the agreement allows the employer to terminate the employment relationship only with “just cause,” whether the employment is for a definite or indefinite period of time:
Where the Employee has breached any terms of the Agreement or where there is just cause for termination, the Employer may terminate the Employee’s without notice.
This too is a lawsuit waiting to happen. What exactly is just cause? Would poor performance that would allow an employee to collect unemployment benefits (incapacity or inability, for example) be just cause, or only more serious offenses like stealing on the job? Is coming to work late on one occasion just cause, or does tardiness have to be more frequent to be just cause? You can see the problems that a provision like this creates, as these are the type of issues that lawyers argue about. Moreover, if the employer terminates with notice, can it be without cause? That too is unclear from this badly written provision. It is always recommended that an employment agreement leave no doubt as to both parties’ unfettered right to terminate the relationship without cause and without notice and without incurring any liability.
Really Bad Idea #4: Employee’s Agreement to Work as a Consultant
The lawdepot.com employment agreement contains one other provision that isn’t unlawful but instead just isn’t a very good idea. The provision obliges the employee to make himself available to continue working for the employer as a consultant when the employee resigns from his position:
Should the Employee terminate her employment pursuant to this Agreement, and there is no constructive discharge, the Employee agrees to be reasonably available as a consultant for the purposes of maintaining any projects or development created while employed by the Employer . . . In her capacity as a consultant for the Employer pursuant to this paragraph, the Employee agrees to provide her present residential address and telephone number, as well as her business address and telephone number.
I wonder why any employer, or employee for that matter, would want to include such a provision in an employment agreement. First, an employee who resigns from a position usually does so because she has found another job that is more suitable or more challenging or that has better pay or better hours. The employee won’t want to continue working for her former employer. Second, the employer could risk a wage and labor dispute by paying who was only recently an employee as an independent contractor. The Department of Labor and the IRS pay careful attention to the classification of individuals, as many employers prefer to call and pay someone as an independent contractor for tax benefits, even though relationship is actually an employer-employee one. It is unlikely that this arrangement would be considered a true independent contractor relationship. Finally, employment at-will means that an employee can leave a job with no liability and no obligations to the employer, and this provisions seems to fly in the face of this principle as it requires an employee to do something for a former employer: be “reasonably available” after the termination of the employment relationship. If the employee does not make herself “reasonably available,” the question remains of that individual’s potential liability if the employer were to bring a claim and what would constitute being “reasonably available.” It is best to avoid such terms in an agreement when they can be a lawsuit waiting to happen.
This provision was another of those included as part of the employment contract and not one that I was allowed to choose whether I wanted to include it or not. As stated above, this appears to be legal advice given by the website, as it is recommending that the provision be in the agreement, by the simple fact that the drafters of the agreement have included it and given me, the user, no choice to exclude it.
In sum, the employment contract that I purchased on lawdepot.com was a mess. There were several provisions that were clearly illegal in Minnesota and likely to be illegal in other states, such as the overtime and the termination for “permanent disability” provisions. There were also several others that just shouldn’t be there, like the termination for just cause and the independent contractor provisions. The enthusiasm of the users of the sites is understandable, although naive. Unless you are trained in the law, you have no way of knowing just how bad the document is. I imagine that the users will be less than enthusiastic about the document they purchased for just $15.00 when an employee or former employee files a claim for wrongful termination, unpaid overtime or disability discrimination and the employer spends tens of thousands of dollars defending the claim, only to discover that the problems likely could have been avoided by paying an attorney a thousand dollars or so to draft an agreement that reflects the employer’s interests and the position at hand and does not violate the law.