Network: November 1992
Just How Liable Are We?
Your article on the company that was held responsible for an accident caused by a drunken salesman (In the Office, August 1992, [Article link]) got me wondering: When people drink a few beers in the parking lot after work, is the company liable? And if an employee worked overtime and fell asleep while driving home, could a company be held liable if that person causes an accident?
"Wherever a company could have controlled alcohol consumption, the company may be liable," according to Janet Albers, a lawyer with Rosemary Macedonio & Associates, in Cleveland. That includes employees' drinking in the company's parking lot, even when the company did not serve the drinks. Ronald Beitman, a Falmouth, Mass., lawyer, agrees: "More courts have been willing to extend liability to employers than to homeowners or other social hosts," because of the master-servant relationship between employer and employee.
No case is cut-and-dried. Laws vary by state, and circumstances of individual cases figure heavily in their outcomes. In Bruce v. Charles Roberts Air Conditioning (Arizona, 1990) the company was not held liable for an employee who caused an accident after drinking on company premises, because, the court stated, drunken driving was not the type of conduct for which he was employed. Yet in Otis Engineering Corp. v. Clark (Texas, 1983) the company was held liable because the employer had escorted an intoxicated employee to his car and allowed him to drive away.
Albers and Beitman advise companies to take immediate action if they discover employees are drinking on company property. Post a notice and send a copy to all employees stating that anyone who drinks alcoholic beverages on the premises will be disciplined or dismissed. Smart companies will do that before such drinking becomes a problem. Also, if you ever have parties with alcohol on-site, you might reconsider your policies.
In the case of an employee working overtime and falling asleep on the way home, the company could indeed be held liable. Last year an Oregon jury decided such a case in Faverty v. McDonald's. An employee at a Portland McDonald's restaurant volunteered to work overnight and into the next day. At 8:21 a.m. he decided he was too tired to continue, and his supervisor let him go. On the way home, the employee had a car accident and was killed. The jury determined that McDonald's had been negligent in letting the employee work such long hours and awarded his family $400,000 in damages. The mother of the employee filed a $10-million wrongful-death suit; McDonald's is appealing the decision. (See The American Lawyer, September 1991.)
Federal labor law suggests standards for reasonable lengths of overtime, but state law may be more stringent. Consult your state labor department for information about state overtime laws.
Apples and Oranges
Our company pays commissions based on salespeople's meeting or exceeding past sales levels. We just acquired a small company with a complementary product, an account base, and repeat sales. The former owners did not, however, keep track of their true sales. We're combining the two products and the two sales forces. How can we set up a commission structure that will be fair and consistent with our current policy until we get better numbers for the new products?
National Sales Manager
There's no simple way to establish a compensation plan without true sales figures. With estimated figures, you run the risk of over- or under-compensating salespeople. Warren Culpepper, president of Culpepper & Associates, an Atlanta sales-and-marketing-consulting firm (see "Commissions That Smooth Out Sales," Sales and Marketing, July 1991, [Article link]), suggests zero-basing commissions -- that is, paying only salary for now and waiting to get a clearer picture of salespeople's performance. "It sounds as if the sales force of the acquired company was salaried, so delaying the move to commission-based compensation for a little while shouldn't be a problem." That does not mean delaying a new compensation plan for an entire year. Depending on the sales cycle, it may take just a few months.
After you establish a sales-compensation plan, the key is to make it adaptable, so you don't have to rework it every year. Jim Leavy, president of Snap Software Group, a $50-million sales-automation-software company in Manchester, N.H., recommends you base commissions on profits rather than sales -- especially since you now carry several products with different profit margins. You want salespeople working hardest on what earns you the most. Base the plan on a percentage so that revising a salesperson's compensation requires only changing the sales goals.
If you think the sales force will balk at zero basing, you could estimate. "Talk to the people who are closest to the action," Leavy advises. By involving them, you avoid the resentment that a system imposed from above might breed. Salespeople should have a pretty good idea of what their true sales numbers were. It wouldn't hurt to ask the secretary of the sales department, too, for a less biased opinion.
Signing Your Life Away
I'm planning to open a cabaret. When I talk to real-estate agents about leasing a building, they all ask for a personal signature. A lawyer told me that if I give them a signature, I'll be personally liable for the five years' rent, even if my company goes belly-up. That could mean up to $360,000, and it makes my business an all-or-nothing venture. Is a personal signature commonly required?
Federal Way, Wash.
Most landlords will request a personal signature or personal guarantee. It gives the landlord the right to sue a tenant who breaches the lease contract. While the law in most states favors tenants, it does require them to hold up their end of the deal. Unless you feel really confident about signing, don't do it. "If the business fails, the landlord will come after you for the full value of the lease," says Marisa Manley, president of Commercial Tenant Real Estate Representation, in New York City. (See "Learn to Walk from Leases," In the Office, July 1991, [Article link].) "He won't just shrug his shoulders."
You may be able to negotiate for less exposure to risk, especially where vacancy rates are high. "A start-up has few chips on the table," Manley says, but you could offer a cash security -- say, six months' rent -- in lieu of your signature and arrange for that security to shrink as you prove yourself, down to four months' rent after a year, and so on. Landlords will be more amenable to such a deal if their capital outlay is minimal. So you could also compromise on how much remodeling and build-out you ask the landlord to do, Manley says. "Very often a less creditworthy tenant can better negotiate a lease if it accepts the space as is."
Negotiating Real Estate Transactions (1988; $105) and Commercial Real Estate Lease: Preparation and Negotiation (1990; $105), both written by Mark A. Senn and published by John Wiley (800-225-5945), explain the commercial leasing process. Consult them and talk to a good broker or lawyer to make sure you understand your lease.
I plan to start a catalog. Could you recommend some resources? How did other catalogs start out?
There are two ways to start: big and small. Katie Muldoon, author of Catalog Marketin g (1988, AMACOM, 800-538-8100, $75), the leading book on the subject, advises the small, kitchen-table start-up to "start with a direct-response advertisement in a newspaper or a magazine and design a brochure to answer those ads." Muldoon also teaches a two-day seminar called Catalog Basics, offered three times a year in New York City by the Direct Marketing Association ($795; call 212-768-7277).
But Ruth Owades, president of Calyx & Corolla, a San Francisco catalog marketer of flowers that provides overnight delivery (see "Why Continuity Clubs Work," Sales and Marketing, August, [Article link]), disputes the kitchen-table concept. She argues catalog start-ups require at minimum $1 million in capital, four mailings each year, 200,000 catalogs in each mailing, 24 pages in each catalog, 75 items, and an average sale of $30. She also recommends you carry 25% of what you expect to sell for each item in inventory.
That kind of investment requires a surefire hit. Marshall Cordell, CEO of the Anatomical Chart Co., in Skokie, Ill., suggests instead starting the business with wholesale or retail sales. Cash flow permits you to take some risks, like the risks Cordell took when he bought his company, 22 years ago. Then, its product line comprised five charts, sold wholesale to Midwest doctors and medical schools. Now the company sells more than $10 million worth of anatomical paraphernalia, from skeletons to decorative pins in the shape of organs, most of it through the 1 million catalogs it mails each year. "I taught myself catalog marketing," Cordell says. "I began buying lists -- first doctors, then fitness centers. We built it one brick at a time, and now we have a skyscraper."
Anatomical Chart's established wholesale business underwrote those risks. "We already had the inventory," he points out, so one major cost was covered. The business also paid for some test-marketing: Anatomical Chart set up retail kiosks in shopping malls to determine if consumers wanted its old bones. When he knew they did, Cordell started small, selling by direct mail, and added products gradually until he'd built a catalog. n
-- Reported by Michael P. Cronin, Merritt T. Carey, Christopher Fontes, Andrew Macaulay, and Rachel S. Tsutsumi.