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3 Reasons Startups Are Vulnerable to Fraud

There’s a lot you need to worry about as an entrepreneur. Can you hire the right team and get the equipment, materials, or data to execute your vision? Is it scalable? Is it even really that good of an idea in the first place? Your nascent business may be the victim of a supply shortage, bear market, or plain old fashioned bad luck, but the last thing you’re probably worrying about is your startup being a victim of fraud. Well, you might want to change that. A new study by the Harvard Business Review shows that startups are uniquely susceptible to fraud. But why? Bad Actors The HBR study simulated sales calls from associates to purchasers and sellers, and when participants were told that their counterpart was working for a startup, they tended to engage in more deception during the call. Two thirds of the faux buyers and almost three in four sellers opted to deceive who they believed to be a startup, compared to just half who thought they were dealing with a mature firm or were given no information about their counterparts. So why would ersatz sales associates endeavor to take advantage of a startup? Rogue Startups: Certainly, some of this was due to the reputation garnered by some startups as rulebreakers themselves — is it against the rules to deceive a deceiver? But researchers found some other, more relevant causes as well. Inexperienced Employees: While counterparts behaved in exactly the same manner towards every sales associate participant, the participants surveyed believed that the person on the other end of the line was less experienced if they were told they were working for a startup. “In other words, participants used the newness of the counterpart’s employer as proxy for the counterpart’s experience – and adapted their behavior accordingly,” according to HBR. Smaller Partner Pools: Mature firms can sift through a multitude of offers from both buyers and sellers. New businesses? Not so much. “Compared to more mature firms, the pool of potential business partners is considerably smaller for startups,” according to researchers. “Thus, many cannot afford to turn…

Top 5 Workers’ Comp Questions for Small Biz Owners

As a caring small business owner, you want to take good care of your employees. And you have a legal obligation to make sure they’re safe and taken care of if they are injured on the job. You likely just pay into your state’s workers’ compensation insurance fund automatically, but is that all you need to worry about? Here are some of the biggest questions small business owners have about workers’ comp: 1. If an Employee Is Injured, What Should a Business Do? Your legal obligations as a business owner may extend beyond just kicking in for workers’ comp tax. These obligations may vary depending on the size and kind of business you’re running, and will probably include a thorough investigation and report of the incident. 2. What Type of Injuries are Covered by Workers Comp? Workers’ compensation insurance is designed to cover the healthcare costs and missed income if an employee is injured on the job. But which injuries qualify? Generally speaking, workers’ comp covers pre-existing conditions that are aggravated by current work, diseases stemming from exposure in the workplace, injuries incurred on-the-clock (this includes meal and rest breaks), and mental and physical strain and stress. 3.Employee Safety: What Are My OSHA Obligations? Some of your legal obligations will include maintaining safe working conditions for your employees under Occupational Safety and Health Administration guidelines, which can mean anything from requiring the proper footwear to keeping extensive records of occupational injuries and illnesses. 4. Legal to Discipline an Injured Employee? What if an employee was violating a company safety rule or policy at the time of an accident? Can you punish them the same way you would had they not been injured? The answer is a definitive “maybe.” Employers, however, need to be careful any discipline is not considered retaliation by the OSHA. 5. What Are Death Benefits and Who’s Entitled to Them? Hope for the best, prepare for the worst, as they say. And in a worst-case scenario of worker injury, a spouse, children, or other dependents may be entitled to insurance payments. Here’s what you need to know.…

Is a Restaurant Liable for a Customer Choking on Food?

Choking is one of the leading causes of accidental deaths, accounting for over 5,000 deaths in 2016. Unblocking an airway within minutes can be the difference between life, death, and extremely impaired quality of life. When choking occurs, time is of the essence, and it’s a natural human instinct to want to help. If choking occurs in a restaurant, must the staff help, and if it doesn’t, is the restaurant liable? Does Restaurant Staff Owe a Duty of Care to Customers? A restaurant’s duty of care to its customers is established by state law, and therefore will vary from state to state. But generally, businesses are required to provide their customers, who are invitees, with a safe environment, and therefore this would require some level of help to a choking customer. At a baseline, states would require a call to emergency services. Failure to do so would create liability for the restaurant. But does it go any further? Must staff do more than call 911? Is There a Duty to Perform the Heimlich Maneuver? Courts generally do not place such a high duty of care on anyone to the point of creating an undue burden. In the case of choking, most states compare statistics on the number of choking incidents, the number of meals served, and the widespread costs incurred by the food industry on certifying servers in First Aid. Based on these analyses, most courts have held that there is no duty to remove, or attempt to remove, or assist removal of the food from the choking victim’s throat. What If Staff Helps, but Hurts the Customer? Most restaurants try to hire people that have big hearts, as they make for caring, compassionate servers that patrons adore. Unsurprisingly, many of these good-hearted servers might rush to the aid of a choking victim to try to help. It’s quite possible, even for the well-trained medic, that a rib or two gets broken when trying to perform the Heimlich, or perhaps scratch a trachea when attempting to remove food. Under the Good Samaritan Law in most states, including California, a person…

Caught on Video Shoplifting From a Cashierless Store: Is This Traffic Cam 2.0?

A customer walks into a store and only sees merchandise. No cashier. No security cop. And about 30 cameras watching his or her every move, using behavioral data, to decide if that customer will buy, steal, or forego that candy bar. Cashierless stores are the next brainchild in the marriage between self-automation and artificial intelligence. Amazon has opened a few of its cashierless stores, Amazon Go, earlier this year. These stores use a turnstile that quickly calculates all the products in your basket and automatically charges your credit card. Standard Cognition is the latest entry, but uses a different model in its cashierless stores, dubbed Standard Market. There’s no special turnstile, shelf sensors, RFID or packaging changes. The only thing brick and mortar stores need to do is install a bunch of cameras on the ceiling, which appeals to many smaller businesses. These cameras record when customers pick up an item and will only charge for it if the customer doesn’t put it back on a shelf before leaving. It is nearly impossible to steal anything, unlike the turnstile, which can be avoided, as many subway station managers know. But the AI Will Know If You Tried The artificial intelligence built into the cameras can predict if someone is going to steal something, based on behavioral data. According to Michael Suswal, the company’s co-founder and chief operating officer, “We learn behaviors of what it looks like to leave. If they’re going to steal, their gait is larger, and they are looking towards the door.” If the program believes a shopper is trying to steal something, it will alert a worker, who is to address the customer and politely ask if they need any help. There are two distinct legal benefits of this system. The first is it eliminates any racial profiling, since the program is looking at behavior and not skin color. Second, there are no privacy concerns since no biometric data is collected, including facial recognition. All shopper analytics collected for fine-tuning the AI is completely anonymized. If a Customer Debates a Charge, Have They Already Been Deprived of…

Boring Company Gets Approval for Garage-To-Hyperloop Elevator Shaft

No, not like an unexciting company; like the Boring Company, Elon Musk’s serendipitously-named tunneling company. The same company that just got approval from the Hawthorne City Council to build a shaft from a local residence that would go down to part of the company’s tunneling laboratory, a shaft that would one day house an elevator which could lower a car down into the tunnel without leaving the garage. Pretty exciting stuff, right? From Space to Sub-Surface According to the Beach Reporter, the residence recently purchased by The Boring Company is in an industrial neighborhood abutting a one-mile underground tunnel it already built beneath a street near its SpaceX headquarters. The new elevator garage appears to be a prototype that would connect cars to an underground hyperloop. “But as part of its approval,” according to the paper, “the company agreed not to open the test elevator to the public or to have cars move in and out of the garage from the street. Cars would enter the tunnel from the SpaceX campus, move through the tunnel and on to the garage and then back to SpaceX, so the test process would not create additional traffic on the street.” It’s unclear whether the proposed hyperloop would decrease overall traffic, or just move it from above ground to under. Boring, Bogging Down Ars Technica has a breakdown of how The Boring Company’s tunnels would be better than existing tunnel technology: The company asserts that it can dig tunnels more quickly and efficiently than has been the case in other tunnel projects, in part because of the tunnel design. Vehicles in the tunnel would be transported on electric skates. Without internal combustion engines chugging away, tunnels would be smaller, as ventilation is less of an issue. An autonomous electric skate would also, theoretically at least, reduce accidents and traffic within the tunnel. While permitting for such projects can be complicated, especially in California, the City Council in this case agreed to waive requirements under the California Environmental Quality Act and approved the proposal rather quickly. “What we want to do is show proof of…

California Gun Stores Can Advertise Handguns, Court Rules

For almost 100 years, giant neon signs reading “GUNS GUNS GUNS” were perfectly legal for California firearm retailers, but “No handgun or imitation handgun, or placard advertising the sale or other transfer thereof, shall be displayed in any part of the premises where it can readily be seen from the outside.” That was until this week, when a federal judge ruled the handgun ad ban is an unconstitutional restriction on commercial free speech rights. So, what led to the ruling and what’s next for gun dealers in the Golden State? Protected Expressions and Substantial Interests Commercial speech from businesses isn’t afforded quite the same protections under the First Amendment as, say, political speech by persons. And the government can regulate and restrict commercial speech in certain instances. As the U.S. District Court in this case noted, there is a four-part test to determine whether restrictions on commercial speech pass are constitutional: Whether the expression concerns lawful activity and is not misleading; Whether the asserted governmental interest is substantial; Whether the regulation directly advances the governmental interest asserted; and Whether it is not more extensive than is necessary to serve that interest. Both sides in this case conceded the answer to the first two questions was yes: Buying guns is legal, therefore advertising gun sales is lawful, and images of handguns are not misleading; and the State of California had a substantial government interest in reducing gun violence and gun suicide. Advancing Interests and Speech Restrictions The court, however, was pretty skeptical when it came to California’s claims that the ban on handguns in ads advanced those interests. “The government may not restrict speech,” Judge Troy Nunley wrote, “that persuades adults, who are neither criminals nor suffer from mental illness, from purchasing a legal and constitutionally-protected product, merely because it distrusts their personality trait and the decisions that personality trait may lead them to make later down the road.” The court was especially unconvinced by California’s expert witnesses, who failed to demonstrate that “impulsive handgun purchases result in impulsive handgun suicides,” and that bans on handgun images would be any more…

Is It Legal to Ask for Service Dog Papers?

The quick answer is yes, but it’s inconsequential. The American Disability Act (ADA) prohibits both public and private businesses from discriminating against people with disabilities. In so doing, these businesses are required to allow people with disabilities to bring their service animals onto their premises wherever customers are allowed to go. Sometimes it is confusing if an animal is a pet or a service dog, and a business owner may wish to ask for documentation establishing that it is, indeed, a service dog. Is this legal? Absolutely. But that won’t always help. No Papers, No Problem It’s easy for business owners and patrons alike to be confused regarding an animal’s “service” status, especially at businesses that have clear “No Pets” policies. After all, some, but not all, service animals wear special collars, harasses, or vests. Some, but not all, are licensed or certified, and actually have certification papers. You can legally ask if the animal is a service dog animal required because of a disability. And you can even ask for the animal’s service papers. However, since certification isn’t necessary for an animal to be a service animal, papers cannot be a condition for allowing the animal in. And in case you were wondering, disabled people are not required to carry documentation of their medical conditions or disabilities. So although it is legal to ask for service dog papers, it really doesn’t matter. Note, however, that service animals are not pets. Businesses are not required to abandon their “No Pets” policy. But they must make exceptions for service animals. No Service, Big Problem If a business refuses to admit a service animal for no justifiable reason, the business is in clear violation of the ADA. Justifiable reasons include: The animal’s behavior poses a direct threat to the health or safety of others Allowing a service animal in the business results in a fundamental alteration to the nature of the business (such as a barking dog in a movie) Local and state health department regulations are trumped by the ADA, a federal law. So unless the animal is disrupting the establishment’s…

Small Business Owners: Beware the Frivolous Lawsuit

It’s a lawsuit so frivolous that some are theorizing the case is spoofed — an attempt to force legislators to pass tort reform laws that would hinder a person’s ability to bring lawsuits in the first place: A couple McDonald’s customers in Florida sued the burger chain, claiming they were charged for cheese on their Quarter Pounders, even though they didn’t want it. Whether their legal beef is legit, whether they’re just looking for a quick settlement, or whether the whole thing is a false flag operation designed to make consumer lawsuits look bad, we may never know. We all know that dealing with legal issues is just part of the cost of opening a small business. But there are ways to prevent frivolous litigation before it starts, and mitigate the harm it can do to your bottom line if it does. Here’s a look: 1. 3 Legal Tips for Dealing With Frivolous Lawsuits Against Your Small Business Of course, any lawsuit filed against your company is going to feel frivolous or without any factual basis. But you’ll want to confirm that first. Investigate the matter fully, that way when you respond to the suit, you’ll have all the accurate info you’ll need. You can file a motion to dismiss the lawsuit entirely, file your own counterclaims against the person or company that sued you, and possibly bar them from suing you (or other small businesses) in the future. 2. What to Do When Customers Threaten to Sue Your Business A threat of a lawsuit can be as damaging and as expensive as a lawsuit itself. (It can also be as frivolous.) And how you respond to that threat can be as important as how you would respond to a real lawsuit. Again, proceed with accurate information, and avoid making threats yourself. 3. How to Make Sure Your Business Can Withstand Lawsuits Sure, we’d like to advise you to just run a well-functioning, law-abiding, honest small business. But the fact is, good companies get sued, too. Investing in your public image — as well as a good insurance policy —…

Are High-Pressure Sales Tactics Ever Illegal?

High pressure sales tactics aren’t only illegal, they’re bad for business. Overpromising, misrepresenting your products, or misrepresenting your customers can get you into a lot of hot water. Before you use these strategies chasing your next quota, think about the legal ramifications. Bait-And-Switch Bait and switch is a dishonest, and often illegal, form of sales and marketing. Companies will market one product at a low price, baiting customers to come into a store, but may not carry sufficient inventory of it. When customers come in to buy that advertised product at the advertised price, high-pressure sales associates will either switch the product they are hustling, usually at higher margins, or they will say that they are out of stock of the advertised product, but they have a similar product for a comparable price, again usually at higher margins to the company. As tempting as this is, companies should not do it. This is fraud, and actionable under most states’ consumer laws, including California. Misrepresenting Your Product As great as you think your product may be, make sure that your salespeople aren’t overpromising what it can actually do. Doing so creates fraudulent misrepresentation. If your salespeople make false claims about a product’s ability, whether in writing or verbal or even through silence, you could be liable for fraud. Of special note – ignorance is no excuse in this case. Sometimes salespeople don’t exactly know what the product they are selling actually does, or doesn’t do. But if the salesperson is even reckless in their representations, that can be fraudulent too. Misrepresenting Your Customers We’ve all had it happen to us. A door-to-door salesperson comes by to sell something, and tells you your neighbor two doors down just bought the product from him. It sounds convincing – he even calls your neighbor by name. You think a lot of that neighbor, so you buy the product. You then call the neighbor only to find out they turned the salesperson down cold. This too is fraudulent misrepresentation, but of a different kind, and is illegal as well. The standard remedy for fraud is…

California Pool Hall Would Rather Close Than Become ADA-Compliant

The Americans with Disabilities Act requires that public accommodations must provide reasonable modifications in their policies, or procedures for those with disabilities and remove structural, architectural, and communication barriers when such removal is “easily accomplishable and able to be carried out without much difficulty and expense.” The Act also allows a private person to bring a lawsuit to enforce these requirements. And while increasing access for disabled persons is essential, even the best intentions can be manipulated for personal gain. That’s what Mike Murphy, owner of Jointed Cue Billiards in Sacramento, California, thinks is happening. The pool hall was sued by Scott Johnson, a quadriplegic attorney who claims the location is not ADA-compliant. Rather than upgrade the facilities or settle with Johnson, however, Murphy is closing the 50-year-old pool hall down. No Benefit to the Disabled Community “He’s using that as an advantage to benefit himself,” Murphy told the Sacramento Bee. “Nothing this guy ever does is to benefit the disabled community. He’s using (the law) to benefit himself.” According to the paper, Johnson is listed as a plaintiff in over 2,000 federal ADA lawsuits — all filed in the same district that includes Sacramento — and routinely settles with defendants out of court for $4,000 to $6,000. His attorney Russell Handy, however, pushed back on Murphy’s characterizations: “The fact that the ADA was passed 28 years ago and that businesses still flagrantly violate the law is frustrating to him and many persons who use wheelchairs for mobility,” Handy said. “As for making money for himself — Mr. Johnson has never stated this as a primary motivation but I cannot help but believe that it is gratifying to Mr. Johnson that he is compensated for his effort and for the infringement upon his civil rights.” Murphy also claims that, while many disabled persons — including those in wheelchairs — have been able to access the pool hall facilities, Johnson has never been one of them. Handy alleges that Johnson has eaten lunch at the attached restaurant. Not Getting Anything So why not just bring the Jointed Cue up to code?…

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