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Covenants Not To Compete
COVENANTS NOT TO COMPETE by E.J. Leverett Jr., Ph.D., CPCU, CLU, Peter Shedd, J.D., and James Trieschmann, Ph.D., CPCU, CLU Abstract: When an agency is sold, frequently an agreement is signed that limits the rights of the seller to compete with the buyer of the agency. These covenants not to compete have serious tax and legal implications, which are not discussed in this article. The sale of an agency is a complex transaction, and the allocation of the purchase price to the various segments of the sales contract increases the need for careful negotiation. Any sales contract should include a specific dollar figure allocated to goodwill, fixed assets, the book of business (expirations), and the covenant not to compete. How these allocations are made in the contract have considerable impact on the taxes owed by the buyer and the seller, and consequently on the agency's value. Each of these allocations could be the subject of a separate article; this article is concerned only with the allocation and enforceability of the covenant not to compete. DEFINITION A covenant not to compete (sometimes referred to as the 'noncompetition agreement') is, in essence, an agreement that restricts the seller's right to compete with the agency sold. The buyer negotiates for this covenant to get an adequate opportunity to win the loyalty of the agency's existing customers. The seller may agree to this restrictive agreement, albeit hesitantly, to facilitate the sale of the agency. These bargaining positions place the buyer and seller in adversarial roles, which can lead to a court action. Such litigation is typically the result of the buyer and seller taking opposite positions with respect to the enforcement or taxation of a covenant. A finding that a covenant not to compete is invalid can devastate the agency purchaser's ability to conduct business. In addition, such a finding can create adverse tax implications to the buyer and seller. This article highlights areas of covenants not to compete, about which the parties should be aware. TAX IMPLICATIONS Rules involving the tax treatment of covenants not to compete are simple as long as the parties understand the tax treatments of such covenants and goodwill. Goodwill is considered a capital asset, and the seller is permitted to treat the amount assigned to goodwill at favorable capital gains rates. Unfortunately, the buyer is denied any tax deduction because goodwill is thought to have an indeterminable useful life. On the other hand, any consideration that the seller receives in return for agreeing not to compete must be treated as ordinary income. The buyer can capitalize the amount of the purchase price allocated to the non-competition covenant and is entitled to a tax deduction for the life of the covenant. From this brief explanation of the differing tax treatments, the seller and buyer will have opposite interests when negotiating the sale. If the buyer is to prevail, a reasonable amount of the purchase price must be allocated to the covenant not to compete, and the covenant must be reasonable in all aspects. If an excessive amount is allocated or if the covenant is improperly drafted, that portion of the purchase price will be allocated to goodwill. The following segment of this article discusses some of the legal issues that help distinguish a covenant not to compete from goodwill. LEGAL ISSUES BETWEEN COVENANTS AND GOODWILL The goodwill of an agency generally represents the value of the agency as a going concern. The value depends on such factors as the ability of the seller to compete for the business (this requires good health and an age commensurate with competing) and whether the person continues with the agency at the same location. It also must take into account whether these people have the ability to service the account (separate files) and whether the agency is profitable enough to allow the payment of salaries. If the restrictive covenant is effective, it serves to guarantee the buyer's enjoyment of goodwill. The problem presented by differentiating between a non-competition agreement and goodwill is compounded by the vagueness of the standards that the courts have adopted. Among these standards are severability, economic reality, intent, valuation, refutation, and ancillary issues. Severability. The courts generally look favorably upon part of the sales price being allocated to a restrictive covenant only if they find that the covenant is severable from all other assets. The court must be convinced that the covenant was a separate item and actually bargained for between the buyer and the seller. If its purpose is to ensure the beneficial enjoyment of goodwill, the covenant is considered to be a nonseverable, nondepreciable asset. This severability standard has come under criticism because of the fundamental assumption that the covenant cannot be severed from goodwill. Indeed, the severability test conflicts with legal authorities. Corbin in Contracts indicates that the definition of a legally enforceable restrictive covenant is a close association with goodwill. In addition, Mertens in Law of Federal Income Taxation indicates that the function of the restrictive covenant is to protect the assets transferred and thus they cannot be severable. The application of a severability test therefore seems inappropriate. Economic Reality. The enforceability of the covenant depends on whether the covenant has been negotiated between the two parties and has a business reason for being in existence. In other words, courts have stated that there must be economic reality for the covenant's existence. Such covenants are enforceable only when the seller actually could compete with the buyer. For example, a terminally ill 85-year-old seller of an agency that has experienced a down-trend in its business for the past five years is not deemed to be in the position of actually competing with the buyer. Intent. Courts generally interpret contractual obligations in a manner to accomplish the perceived intent of the parties. If an agreement as written is contrary to the parties' intentions, it will not be enforced. If the intent of the agency's purchaser is to restrict the seller from competing unfairly and if such a covenant is agreed to by the seller and is clearly written, the covenant will be enforced to reflect this. Although the parties may clearly express their intent, their agreement to include a covenant not to compete must satisfy the economic need for the covenant, as stated in the preceding paragraph. Valuation. For any contract to be valid, there must be valid consideration. Consequently, a negotiated value of the covenant must be placed in the contract. There must be a valuable consideration; the amount allocated to the covenant must also be reasonable. Courts generally refuse to enforce a covenant in which the consideration allocated to the covenant grossly exceeds the value of the seller's agreeing not to compete. Consequently, the allocation of a large percentage of the purchase price to the covenant, even though the seller is willing to accept the allocation, could result in the courts rejecting the amount as unreasonable. Refutation. Courts in general have indicated that for a covenant to be enforceable, the time period of restraint must be reasonable, as must the territorial restriction. Furthermore, it must be reasonably concluded that the restrictive covenant is necessary to protect the buyer's interest. Consequently, the tax court would probably refute any covenant not worth the allocation amount, not negotiated, or not having a relationship to business reality. Ancillary Issues. To be enforceable, the covenant not to compete must be ancillary or incidental to a legal contract. In addition, it must be reasonable with respect to the time and place of the restrictions against competition. To prove that the covenant is reasonable, the buyer must demonstrate that the restraint placed upon the seller is no more restrictive than is necessary to protect the buyer. There also must be a showing that the covenant does not interfere unreasonably with the interest of the public. These additional issues are discussed below under the heading 'Construction of the Covenant.' Before discussing these issues, however, let's discuss the question of which party has the burden of proving the validity of the allocation of part of the purchase price to the covenant not to compete. BURDEN OF PROOF A noncompetition covenant that has not been allocated a value in the contract does not necessarily mean that a deduction cannot be taken. It is, however, a strong indication that no allocation was intended, and strong proof would be needed to overcome this omission. The courts have developed two rules in deciding the binding effects of a contractual allocation or its absence: the Strong Proof Rule and the Danielson Rule. Strong Proof Rule. In the case of Wilson Athletic Goods Manufacturing Company, 222 F.2d 355 (7th Cir. 1955), no dollar amount was allocated to the covenant. Wilson indicated that it would have been unwilling to purchase the business without the restrictive covenant, and it would not have paid the price it paid without the restrictive covenant. The court indicated that its responsibility was to determine the intent of the contracting parties, and that it was immaterial whether the contract did or did not define a specific valuation in the contract. This resulted in the Strong Proof Rule. The thrust of this rule was that 'strong proof' must be introduced to overturn or establish a dollar figure for the restrictive covenant. The crucial factor is whether the purchaser of the agency genuinely intended that an allocation be made for the restrictive covenant regardless of whether the allocation was specified in the agreement. The Strong Proof Rule was given further support in Schultz v. Commissioner of Internal Revenue, 294 F.2d 52 (9th Cir. 1961). Danielson Rule. The Danielson Rule is actually an extension of the Strong Proof Rule. The court, in Commissioner of Internal Revenue of Danielson, 378 F.2d 771 (3d Cir. 1967), indicated that it could not be bound by mere legal form. The Danielson Rule indicates that a party can challenge the tax consequences of an agreement only by presenting proof that would be admissible to alter that agreement or to show its unenforceability because of mistake, undue influence, fraud, or duress. In effect, the court applied contract law to determine whether the contract was valid and enforceable. The court's ruling seems to be in conflict with the economic reality test as well as the common law substance versus form doctrine. The commissioner advocated the adoption of the Danielson rule to ensure consistent tax treatment of both parties. Extension of the Danielson Rule would permit the IRS to examine the substance issue, but this rule prevents a party from disavowing negotiated business arrangements for tax reasons. CONSTRUCTION OF THE COVENANT A number of factors should be considered in the use of a covenant not to compete. First, there should be a need for the covenant other than for tax reasons. Second, the covenant should be separately negotiated between buyer and seller. Third, it should be reasonable. Fourth, the consequences of the failure of the covenant should be examined. Need For The Covenant. The first thing that should be examined in the need for a covenant is whether or not the restrictive covenants can be enforced considering the rules of the local governing laws. If local laws are such that it would be extremely difficult or impossible to enforce the restrictive covenant, the only reason for having one would be for taxes. Under these circumstances, it is almost certain that such an agreement should be rejected. Since local laws (including state statutes and community ordinances) can have a profound impact on noncompetition agreements, a complete understanding of these local laws is essential. The advice of local counsel can be invaluable. The second issue that must be considered is whether the seller is a risk to the buyer if the covenant is broken. The seller must have the ability to compete, or the covenant itself is a tax covenant rather than a restrictive covenant. An insurance agent, as a rule, would have a fairly high degree of ability to compete. This ability can be reduced, however, by old age or other factors. Even if competition is possible, consideration must be given to the consequences of using the former agency name, the files, and other such items that would enable the seller to compete. For example, an 86-year-old man who is terminally ill and whose insurance files are in a jumble is unlikely to compete with anyone. Consequently, it is unlikely that a covenant not to compete is needed. The enforceability of a covenant under such circumstances is not great. The third consideration is whether or not the value of the purchased business would be reduced if indeed the seller did compete. The buyer of the agency should attempt to evaluate the benefits and cost over a period of time, and what the lost earnings would be if a covenant were not obtained from the seller. For example, would the value of the business be reduced if the seller or one or more shareholder/employees competed for the insurance business? If this projected reduction in value is determinable, it is a good approximate value to allocate to the covenant in the sales contract. However, this valuation is obviously complex and thus difficult to determine. There seems to be a great misunderstanding on the part of the seller or producer leaving an agency concerning his ability to transfer the existing business to a new competitor to be established by the seller. Research has demonstrated that persons competing for the business never are successful in moving anywhere near as much of the business as they think they will be able to move. This comes as a result of apathy on the part of the customer, tight markets, and re-underwriting of risks that are renewable with the existing company but not necessarily eligible as new business to another company. After examining the desire and ability of the seller to compete, the remaining provisions of the contract should be considered. For example, if the seller can compete and wants to, negotiations for the covenant should occur. Negotiation. If a covenant not to compete is to be a part of the sales contract, discussions about it should take place as early as possible in the negotiations. When the validity of restrictive covenants comes before a court, the court will look for evidence that the covenant and the price allocated to that covenant were bargained for on a separate basis and took place early in the discussion of the sale. The absence of discussions of a covenant not to compete during the negotiation process is a reasonable indication that the covenant was not dealt with separately by the individual parties. This conclusion is further strengthened if the purchase price is established before consideration of the covenant or if the contract is later amended to provide such a covenant. Consequently, if the buyer can indicate that the subject of the covenant was introduced at the inception of negotiations and was bargained for until it was included in the final agreement, the buyer should be able to satisfy the intent requirement. A second factor to consider is the specific dollar value that should be assigned to the covenant not to compete. The buyer should offer what under all the circumstances appears to be a reasonable price for this covenant. Buyers always will be required to satisfy the economic reality test, particularly when they are being asked to justify an express allocation to the covenant in the sales agreement. An absolute dollar figure should be allocated to the covenant not to compete rather than an arbitrary percentage of the purchase price. If the figure allocated to the covenant is based on a single year's commission -- (1) a percentage of renewal premiums bought from the seller, (2) a percentage of annual fees, (3) or the fair market value of land and buildings-it is evident that the buyer and seller did not separately bargain for the covenant. Under such conditions, the covenant has a significant probability of failure. The third item that must be dealt with in the negotiation is making certain that both parties understand the tax consequences of allocating part of the purchase price to a restrictive covenant. The fact that one or both parties may be ignorant of the tax effect is not normally determinative. However, the courts have cited a buyer's or seller's tax ignorance as reason to alter a specific allocation to reflect the substance of the transaction. It is dangerous to count on a court to reform the contract because of the parties' ignorance. If the contract is reformed, the amount assigned to the covenant is removed and applied to goodwill, and the unfavorable tax treatment to the buyer may be devastating. The fourth item of concern deals with tax reporting. The one item drawing the most careful scrutiny from the IRS is the inconsistent reporting of a sales transaction for tax purposes. Both the buyer and the seller should agree to report the transaction for tax purposes in a manner consistent with the sales contract provision. If this is not done, both the buyer and the seller could be drawn into unexpected litigation over the matter. The sales contract should provide at least some protection against this by specifying the respective party's tax treatment. In addition, the agreement should provide a basis for recovering any cost resulting from the IRS disallowing the contract's tax treatment. Reasonableness. Most jurisdictions will reject the covenant not to compete if it unduly restricts the right to a person's livelihood. This is a difficult proposition because each contract has its own unique qualities. The agreement must be reasonable in its protection of the purchaser and the remaining members of the business. The covenant should: 1. Be reasonable in point of time 2. Be reasonable in the area of restraint 3. Be necessary to protect goodwill 4. Not be an undue burden to the promisor 5. Not be against public policy The civil court determining the enforceability of a restrictive covenant may examine each of these five points to determine if the contract is reasonable to both parties and to the general public. Unique outside factors may come into play in the area of product, type of service, employee's contact with customers, and other goodwill factors. Time. The time restriction in the covenant usually is stated in years. What is reasonable is determined by the courts in each specific case, since the amount of time buyers need to be free from competition by the seller varies greatly. As guidelines, it would appear that anything beyond five years has high probability of being declared unreasonable, although some documented circumstances have allowed a 10-year restriction. Four years is more likely to be accepted than five years. Three years is more likely to be accepted than four years. Currently, it appears that the courts are tending to accept and set the norm at three years. A two-year restriction period is better than three in regard to enforceability and a 13-month period is perhaps even better yet. The 13-month period is not really as short as it seems because it effectively gets the parties through two policy-renewal periods. A caveat: Each case is distinctive, since it has its own set of circumstances. Territory. Whether the restriction is reasonable in the area of restraint is a more difficult question for the courts to determine. The area of restriction is usually described in a mile radius or a county area. In determining what would be fair to both parties, two additional factors must be considered. The first is the population of the area of restraint. If the agency is located in a rural area, having a large restricted zone may be justifiable- for example, a 50-mile radius. On the other hand, if the agency is located in a metropolitan area, a 50-mile radius is likely to be declared unreasonable, since it would be quite possible for an insurance agent to return to the business on the opposite side of the city and never come into contact with the customers served by the other agency. The court is likely to determine that the population is sufficiently large to solicit new business without affecting the business that was sold. The amount of business done in the restricted area should also be considered. If an agency does its business in a centralized location, there is no justification for restricting a large area, where no business is done, just in the hopes of soliciting business at some point in the future. The courts would probably declare this tactic unreasonable and against public policy. A piracy agreement and a privacy agreement can reasonably and effectively take care of the competitive problem. The piracy agreement restricts a person's activities dealing with specific customer files that were sold to the buyer, and the privacy agreement indicates that the seller would tell no one about the customers. These agreements reasonably dispose of the territory issue. Protection Of Goodwill. Any restrictive covenant should be in place because it is needed to protect the goodwill that goes with an agency. If the restriction is there solely for tax purposes, it is not likely to be upheld. Items of goodwill such as the name, location, people in the agency, profitability of the agency, and availability of the files from which to work are factors to consider. If the person cannot or has no desire to compete, there is no reason to have a restrictive covenant. Furthermore, there's no need for one if there is no goodwill in the agency. Undue Burden. Does a restrictive covenant place an undue burden on the promisor? No court is going to place an unreasonable restriction on a person's right to make a living. By the same token, courts will not permit unfair competition for something that was properly negotiated, for which a price was paid, and which contains reasonable constraints. Therefore, to hamstring a seller because the buyer has an economic advantage is a fact that can be used later to refute the covenant. Public Policy. The restrictive covenant should not violate the interest of the public or antitrust laws. If it prevents the public from getting the benefit of fair competition, it is unlikely to be upheld. Restrictive covenants are not designed to allow an agency to have a monopoly and charge unjust fees for its services. If the covenant is a restraint to fair trade, it will be ruled void and unenforceable. Consequences Of Failure. No matter how carefully a restrictive covenant is drawn, certain circumstances will cause it to be unenforceable. This situation cannot be avoided entirely. The task, therefore, is to draw the contract in the best manner possible considering the five factors mentioned in the 'reasonableness' section above. The consequence of a contract's being thrown out by the courts is that the amount allocated to the restrictive covenant will be transferred to goodwill, with its differing tax ramifications. As a result, a depreciable item suddenly becomes nondepreciable. If the deal was structured on the basis of the tax consequences given by the covenant, the failure can be devastating to the buyer. It is not uncommon for a court to find some of the provisions of the restrictive covenant to be an unreasonable restraint of trade. Depending on the applicable state laws, a court may have the option of throwing out the entire contract, or it may have the discretionary power to reform the contract to make its terms reasonable. An example of reformation took place in the case of Alexander and Alexander (A&A) v. Drayton, 278 F.Supp. 824, 830 (E.D.Pa. 1974). A&A had precluded Drayton from competition within a 100-mile radius of three major cities for a period of 10 years. Drayton, who was 52 years old, would have to wait until he was 62 to compete, and the court found that to be unreasonable. What's more, the court found that the 100-mile radius restriction from three different major cities was unreasonable and limited it to a single city, Philadelphia, for a period of two years. The court further reformed the contract by stating that it would enjoin Drayton from disclosing the names of the customers and the expiration list to the new employer. These lists were deemed to be trade secrets and were entitled to protection by the court. The power of courts to reform an overly broad covenant not to compete is based on state law. Some states allow their courts the discretionary power of reformation; other states require that such covenants be declared unenforceable. Even when courts can reform a covenant, it is the prerogative of the court to reform the CONTRACT, and the buyer must bear that in mind. It is more likely that the court will view unreasonable provisions as grounds to refuse to enforce the contract in its entirety. CONCLUSION No set of circumstances guarantee the viability of a covenant not to compete. It must be drawn carefully, based on the various factors discussed here. It should be reasonable in time and scope and have economic reality. A seller who signs a negotiated covenant not to compete should be restricted from unfairly competing for that business-but should not be expected to give up the ability to make a living for an indefinite period of time. A time frame of two to three years (concerning the customers that were sold or the agency's customer list) and a restriction on revealing the customers to anyone is the proper direction for a valid and enforceable covenant not to compete. Both parties should understand clearly the tax consequences of a restrictive covenant so that no party is in an unfair position. Reformation is possible, but it is the sole prerogative of the court. The best recommendation for any party (buyer or seller) that wants to draft a covenant not to compete is to seek adequate professional advice.

Covenants Not To Compete
  COVENANTS NOT TO COMPETE by E.J. Leverett Jr., Ph.D., CPCU, CLU, Peter Shedd, J.D., and James Trieschmann, Ph.D., CPCU, CLU Abstract: When an agency is sold, frequently an agreement is signed that limits the rights of the seller to compete with the buyer of the agency. These covenants not to compete have serious tax and legal implications, which are not discussed in this article. The sale of an agency is a complex transaction, and the allocation of the purchase price to the various segments of the sales contract increases the need for careful negotiation. Any sales contract should include a specific dollar figure allocated to goodwill, fixed assets, the book of business (expirations), and the covenant not to compete. How these allocations are made in the contract have considerable impact on the taxes owed by the buyer and the seller, and consequently on the agency's value. Each of these allocations could be the subject of a separate article; this article is concerned only with the allocation and enforceability of the covenant not to compete. DEFINITION A covenant not to compete (sometimes referred to as the 'noncompetition agreement') is, in essence, an agreement that restricts the seller's right to compete with the agency sold. The buyer negotiates for this covenant to get an adequate opportunity to win the loyalty of the agency's existing customers. The seller may agree to this restrictive agreement, albeit hesitantly, to facilitate the sale of the agency. These bargaining positions place the buyer and seller in adversarial roles, which can lead to a court action. Such litigation is typically the result of the buyer and seller taking opposite positions with respect to the enforcement or taxation of a covenant. A finding that a covenant not to compete is invalid can devastate the agency purchaser's ability to conduct business. In addition, such a finding can create adverse tax implications to the buyer and seller. This article highlights areas of covenants not to compete, about which the parties should be aware. TAX IMPLICATIONS Rules involving the tax treatment of covenants not to compete are simple as long as the parties understand the tax treatments of such covenants and goodwill. Goodwill is considered a capital asset, and the seller is permitted to treat the amount assigned to goodwill at favorable capital gains rates. Unfortunately, the buyer is denied any tax deduction because goodwill is thought to have an indeterminable useful life. On the other hand, any consideration that the seller receives in return for agreeing not to compete must be treated as ordinary income. The buyer can capitalize the amount of the purchase price allocated to the non-competition covenant and is entitled to a tax deduction for the life of the covenant. From this brief explanation of the differing tax treatments, the seller and buyer will have opposite interests when negotiating the sale. If the buyer is to prevail, a reasonable amount of the purchase price must be allocated to the covenant not to compete, and the covenant must be reasonable in all aspects. If an excessive amount is allocated or if the covenant is improperly drafted, that portion of the purchase price will be allocated to goodwill. The following segment of this article discusses some of the legal issues that help distinguish a covenant not to compete from goodwill. LEGAL ISSUES BETWEEN COVENANTS AND GOODWILL The goodwill of an agency generally represents the value of the agency as a going concern. The value depends on such factors as the ability of the seller to compete for the business (this requires good health and an age commensurate with competing) and whether the person continues with the agency at the same location. It also must take into account whether these people have the ability to service the account (separate files) and whether the agency is profitable enough to allow the payment of salaries. If the restrictive covenant is effective, it serves to guarantee the buyer's enjoyment of goodwill. The problem presented by differentiating between a non-competition agreement and goodwill is compounded by the vagueness of the standards that the courts have adopted. Among these standards are severability, economic reality, intent, valuation, refutation, and ancillary issues. Severability. The courts generally look favorably upon part of the sales price being allocated to a restrictive covenant only if they find that the covenant is severable from all other assets. The court must be convinced that the covenant was a separate item and actually bargained for between the buyer and the seller. If its purpose is to ensure the beneficial enjoyment of goodwill, the covenant is considered to be a nonseverable, nondepreciable asset. This severability standard has come under criticism because of the fundamental assumption that the covenant cannot be severed from goodwill. Indeed, the severability test conflicts with legal authorities. Corbin in Contracts indicates that the definition of a legally enforceable restrictive covenant is a close association with goodwill. In addition, Mertens in Law of Federal Income Taxation indicates that the function of the restrictive covenant is to protect the assets transferred and thus they cannot be severable. The application of a severability test therefore seems inappropriate. Economic Reality. The enforceability of the covenant depends on whether the covenant has been negotiated between the two parties and has a business reason for being in existence. In other words, courts have stated that there must be economic reality for the covenant's existence. Such covenants are enforceable only when the seller actually could compete with the buyer. For example, a terminally ill 85-year-old seller of an agency that has experienced a down-trend in its business for the past five years is not deemed to be in the position of actually competing with the buyer. Intent. Courts generally interpret contractual obligations in a manner to accomplish the perceived intent of the parties. If an agreement as written is contrary to the parties' intentions, it will not be enforced. If the intent of the agency's purchaser is to restrict the seller from competing unfairly and if such a covenant is agreed to by the seller and is clearly written, the covenant will be enforced to reflect this. Although the parties may clearly express their intent, their agreement to include a covenant not to compete must satisfy the economic need for the covenant, as stated in the preceding paragraph. Valuation. For any contract to be valid, there must be valid consideration. Consequently, a negotiated value of the covenant must be placed in the contract. There must be a valuable consideration; the amount allocated to the covenant must also be reasonable. Courts generally refuse to enforce a covenant in which the consideration allocated to the covenant grossly exceeds the value of the seller's agreeing not to compete. Consequently, the allocation of a large percentage of the purchase price to the covenant, even though the seller is willing to accept the allocation, could result in the courts rejecting the amount as unreasonable. Refutation. Courts in general have indicated that for a covenant to be enforceable, the time period of restraint must be reasonable, as must the territorial restriction. Furthermore, it must be reasonably concluded that the restrictive covenant is necessary to protect the buyer's interest. Consequently, the tax court would probably refute any covenant not worth the allocation amount, not negotiated, or not having a relationship to business reality. Ancillary Issues. To be enforceable, the covenant not to compete must be ancillary or incidental to a legal contract. In addition, it must be reasonable with respect to the time and place of the restrictions against competition. To prove that the covenant is reasonable, the buyer must demonstrate that the restraint placed upon the seller is no more restrictive than is necessary to protect the buyer. There also must be a showing that the covenant does not interfere unreasonably with the interest of the public. These additional issues are discussed below under the heading 'Construction of the Covenant.' Before discussing these issues, however, let's discuss the question of which party has the burden of proving the validity of the allocation of part of the purchase price to the covenant not to compete. BURDEN OF PROOF A noncompetition covenant that has not been allocated a value in the contract does not necessarily mean that a deduction cannot be taken. It is, however, a strong indication that no allocation was intended, and strong proof would be needed to overcome this omission. The courts have developed two rules in deciding the binding effects of a contractual allocation or its absence: the Strong Proof Rule and the Danielson Rule. Strong Proof Rule. In the case of Wilson Athletic Goods Manufacturing Company, 222 F.2d 355 (7th Cir. 1955), no dollar amount was allocated to the covenant. Wilson indicated that it would have been unwilling to purchase the business without the restrictive covenant, and it would not have paid the price it paid without the restrictive covenant. The court indicated that its responsibility was to determine the intent of the contracting parties, and that it was immaterial whether the contract did or did not define a specific valuation in the contract. This resulted in the Strong Proof Rule. The thrust of this rule was that 'strong proof' must be introduced to overturn or establish a dollar figure for the restrictive covenant. The crucial factor is whether the purchaser of the agency genuinely intended that an allocation be made for the restrictive covenant regardless of whether the allocation was specified in the agreement. The Strong Proof Rule was given further support in Schultz v. Commissioner of Internal Revenue, 294 F.2d 52 (9th Cir. 1961). Danielson Rule. The Danielson Rule is actually an extension of the Strong Proof Rule. The court, in Commissioner of Internal Revenue of Danielson, 378 F.2d 771 (3d Cir. 1967), indicated that it could not be bound by mere legal form. The Danielson Rule indicates that a party can challenge the tax consequences of an agreement only by presenting proof that would be admissible to alter that agreement or to show its unenforceability because of mistake, undue influence, fraud, or duress. In effect, the court applied contract law to determine whether the contract was valid and enforceable. The court's ruling seems to be in conflict with the economic reality test as well as the common law substance versus form doctrine. The commissioner advocated the adoption of the Danielson rule to ensure consistent tax treatment of both parties. Extension of the Danielson Rule would permit the IRS to examine the substance issue, but this rule prevents a party from disavowing negotiated business arrangements for tax reasons. CONSTRUCTION OF THE COVENANT A number of factors should be considered in the use of a covenant not to compete. First, there should be a need for the covenant other than for tax reasons. Second, the covenant should be separately negotiated between buyer and seller. Third, it should be reasonable. Fourth, the consequences of the failure of the covenant should be examined. Need For The Covenant. The first thing that should be examined in the need for a covenant is whether or not the restrictive covenants can be enforced considering the rules of the local governing laws. If local laws are such that it would be extremely difficult or impossible to enforce the restrictive covenant, the only reason for having one would be for taxes. Under these circumstances, it is almost certain that such an agreement should be rejected. Since local laws (including state statutes and community ordinances) can have a profound impact on noncompetition agreements, a complete understanding of these local laws is essential. The advice of local counsel can be invaluable. The second issue that must be considered is whether the seller is a risk to the buyer if the covenant is broken. The seller must have the ability to compete, or the covenant itself is a tax covenant rather than a restrictive covenant. An insurance agent, as a rule, would have a fairly high degree of ability to compete. This ability can be reduced, however, by old age or other factors. Even if competition is possible, consideration must be given to the consequences of using the former agency name, the files, and other such items that would enable the seller to compete. For example, an 86-year-old man who is terminally ill and whose insurance files are in a jumble is unlikely to compete with anyone. Consequently, it is unlikely that a covenant not to compete is needed. The enforceability of a covenant under such circumstances is not great. The third consideration is whether or not the value of the purchased business would be reduced if indeed the seller did compete. The buyer of the agency should attempt to evaluate the benefits and cost over a period of time, and what the lost earnings would be if a covenant were not obtained from the seller. For example, would the value of the business be reduced if the seller or one or more shareholder/employees competed for the insurance business? If this projected reduction in value is determinable, it is a good approximate value to allocate to the covenant in the sales contract. However, this valuation is obviously complex and thus difficult to determine. There seems to be a great misunderstanding on the part of the seller or producer leaving an agency concerning his ability to transfer the existing business to a new competitor to be established by the seller. Research has demonstrated that persons competing for the business never are successful in moving anywhere near as much of the business as they think they will be able to move. This comes as a result of apathy on the part of the customer, tight markets, and reunderwriting of risks that are renewable with the existing company but not necessarily eligible as new business to another company. After examining the desire and ability of the seller to compete, the remaining provisions of the contract should be considered. For example, if the seller can compete and wants to, negotiations for the covenant should occur. Negotiation. If a covenant not to compete is to be a part of the sales contract, discussions about it should take place as early as possible in the negotiations. When the validity of restrictive covenants comes before a court, the court will look for evidence that the covenant and the price allocated to that covenant were bargained for on a separate basis and took place early in the discussion of the sale. The absence of discussions of a covenant not to compete during the negotiation process is a reasonable indication that the covenant was not dealt with separately by the individual parties. This conclusion is further strengthened if the purchase price is established before consideration of the covenant or if the contract is later amended to provide such a covenant. Consequently, if the buyer can indicate that the subject of the covenant was introduced at the inception of negotiations and was bargained for until it was included in the final agreement, the buyer should be able to satisfy the intent requirement. A second factor to consider is the specific dollar value that should be assigned to the covenant not to compete. The buyer should offer what under all the circumstances appears to be a reasonable price for this covenant. Buyers always will be required to satisfy the economic reality test, particularly when they are being asked to justify an express allocation to the covenant in the sales agreement. An absolute dollar figure should be allocated to the covenant not to compete rather than an arbitrary percentage of the purchase price. If the figure allocated to the covenant is based on a single year's commission -- (1) a percentage of renewal premiums bought from the seller, (2) a percentage of annual fees, (3) or the fair market value of land and buildings-it is evident that the buyer and seller did not separately bargain for the covenant. Under such conditions, the covenant has a significant probability of failure. The third item that must be dealt with in the negotiation is making certain that both parties understand the tax consequences of allocating part of the purchase price to a restrictive covenant. The fact that one or both parties may be ignorant of the tax effect is not normally determinative. However, the courts have cited a buyer's or seller's tax ignorance as reason to alter a specific allocation to reflect the substance of the transaction. It is dangerous to count on a court to reform the contract because of the parties' ignorance. If the contract is reformed, the amount assigned to the covenant is removed and applied to goodwill, and the unfavorable tax treatment to the buyer may be devastating. The fourth item of concern deals with tax reporting. The one item drawing the most careful scrutiny from the IRS is the inconsistent reporting of a sales transaction for tax purposes. Both the buyer and the seller should agree to report the transaction for tax purposes in a manner consistent with the sales contract provision. If this is not done, both the buyer and the seller could be drawn into unexpected litigation over the matter. The sales contract should provide at least some protection against this by specifying the respective party's tax treatment. In addition, the agreement should provide a basis for recovering any cost resulting from the IRS disallowing the contract's tax treatment. Reasonableness. Most jurisdictions will reject the covenant not to compete if it unduly restricts the right to a person's livelihood. This is a difficult proposition because each contract has its own unique qualities. The agreement must be reasonable in its protection of the purchaser and the remaining members of the business. The covenant should: 1. Be reasonable in point of time 2. Be reasonable in the area of restraint 3. Be necessary to protect goodwill 4. Not be an undue burden to the promisor 5. Not be against public policy The civil court determining the enforceability of a restrictive covenant may examine each of these five points to determine if the contract is reasonable to both parties and to the general public. Unique outside factors may come into play in the area of product, type of service, employee's contact with customers, and other goodwill factors. Time. The time restriction in the covenant usually is stated in years. What is reasonable is determined by the courts in each specific case, since the amount of time buyers need to be free from competition by the seller varies greatly. As guidelines, it would appear that anything beyond five years has high probability of being declared unreasonable, although some documented circumstances have allowed a 10-year restriction. Four years is more likely to be accepted than five years. Three years is more likely to be accepted than four years. Currently, it appears that the courts are tending to accept and set the norm at three years. A two-year restriction period is better than three in regard to enforceability and a 13-month period is perhaps even better yet. The 13-month period is not really as short as it seems because it effectively gets the parties through two policy-renewal periods. A caveat: Each case is distinctive, since it has its own set of circumstances. Territory. Whether the restriction is reasonable in the area of restraint is a more difficult question for the courts to determine. The area of restriction is usually described in a mile radius or a county area. In determining what would be fair to both parties, two additional factors must be considered. The first is the population of the area of restraint. If the agency is located in a rural area, having a large restricted zone may be justifiable- for example, a 50-mile radius. On the other hand, if the agency is located in a metropolitan area, a 50-mile radius is likely to be declared unreasonable, since it would be quite possible for an insurance agent to return to the business on the opposite side of the city and never come into contact with the customers served by the other agency. The court is likely to determine that the population is sufficiently large to solicit new business without affecting the business that was sold. The amount of business done in the restricted area should also be considered. If an agency does its business in a centralized location, there is no justification for restricting a large area, where no business is done, just in the hopes of soliciting business at some point in the future. The courts would probably declare this tactic unreasonable and against public policy. A piracy agreement and a privacy agreement can reasonably and effectively take care of the competitive problem. The piracy agreement restricts a person's activities dealing with specific customer files that were sold to the buyer, and the privacy agreement indicates that the seller would tell no one about the customers. These agreements reasonably dispose of the territory issue. Protection Of Goodwill. Any restrictive covenant should be in place because it is needed to protect the goodwill that goes with an agency. If the restriction is there solely for tax purposes, it is not likely to be upheld. Items of goodwill such as the name, location, people in the agency, profitability of the agency, and availability of the files from which to work are factors to consider. If the person cannot or has no desire to compete, there is no reason to have a restrictive covenant. Furthermore, there's no need for one if there is no goodwill in the agency. Undue Burden. Does a restrictive covenant place an undue burden on the promisor? No court is going to place an unreasonable restriction on a person's right to make a living. By the same token, courts will not permit unfair competition for something that was properly negotiated, for which a price was paid, and which contains reasonable constraints. Therefore, to hamstring a seller because the buyer has an economic advantage is a fact that can be used later to refute the covenant. Public Policy. The restrictive covenant should not violate the interest of the public or antitrust laws. If it prevents the public from getting the benefit of fair competition, it is unlikely to be upheld. Restrictive covenants are not designed to allow an agency to have a monopoly and charge unjust fees for its services. If the covenant is a restraint to fair trade, it will be ruled void and unenforceable. Consequences Of Failure. No matter how carefully a restrictive covenant is drawn, certain circumstances will cause it to be unenforceable. This situation cannot be avoided entirely. The task, therefore, is to draw the contract in the best manner possible considering the five factors mentioned in the 'reasonableness' section above. The consequence of a contract's being thrown out by the courts is that the amount allocated to the restrictive covenant will be transferred to goodwill, with its differing tax ramifications. As a result, a depreciable item suddenly becomes nondepreciable. If the deal was structured on the basis of the tax consequences given by the covenant, the failure can be devastating to the buyer. It is not uncommon for a court to find some of the provisions of the restrictive covenant to be an unreasonable restraint of trade. Depending on the applicable state laws, a court may have the option of throwing out the entire contract, or it may have the discretionary power to reform the contract to make its terms reasonable. An example of reformation took place in the case of Alexander and Alexander (A&A) v. Drayton, 278 F.Supp. 824, 830 (E.D.Pa. 1974). A&A had precluded Drayton from competition within a 100-mile radius of three major cities for a period of 10 years. Drayton, who was 52 years old, would have to wait until he was 62 to compete, and the court found that to be unreasonable. What's more, the court found that the 100-mile radius restriction from three different major cities was unreasonable and limited it to a single city, Philadelphia, for a period of two years. The court further reformed the contract by stating that it would enjoin Drayton from disclosing the names of the customers and the expiration list to the new employer. These lists were deemed to be trade secrets and were entitled to protection by the court. The power of courts to reform an overly broad covenant not to compete is based on state la

Safety With Video Display Terminals
INFORMATION DATE 19920217 DESCRIPTION USDOL Program Highlights, Safety with Video Display Terminals TOPIC Video Display Terminals SUBJECT Safety with Video Display Terminals ABSTRACT Information is provided about possible safety and health problems associated with video display terminals (VDTs). Some concerns include high-voltage electricity, ergonomics, and noise. But the greatest interest is in whether extreme low-frequency fields or higher-frequency radiation fields emitted by VDTs pose any problem, particularly for pregnant women. U.S. Department of Labor Program Highlights Fact Sheet No. OSHA 92-24 SAFETY WITH VIDEO DISPLAY TERMINALS The Occupational Safety and Health Administration (OSHA) is often asked about possible safety and health problems associated with video display terminals (VDTs). Some concerns include high- voltage electricity, ergonomics, and noise. But the greatest interest is in whether extreme low-frequency fields or higher- frequency radiation fields emitted by VDTs pose any problem, particularly for pregnant women. OSHA has no standards that apply specifically to video display terminals or to extreme low-frequency electric and magnetic field exposure. However, OSHA does have standards to protect employees against overexposures to radiation, noise, and electrical hazards. RADIATION: The National Institute for Occupational Safety and Health (NIOSH), the U.S. Army Environmental Hygiene Agency, and others have measured radiation emitted by VDTs. The tests show that levels for all types of radiation are below those allowed in current standards. In fact, some measurements show radiation levels so low that they cannot be distinguished from general environmental radiation (background radiation). Currently, OSHA has no reliable information that any birth defect has ever resulted from a pregnant woman working at a video display terminal. However, the possible effects of radiation or extreme low-frequency fields from VDTs on pregnancies continue to concern employees. Therefore, NIOSH and others are currently conducting major studies to thoroughly investigate any potential problems. NOISE AND ELECTRICAL HAZARDS: It is unlikely that noise exposures in a typical office setting, even in an office with a pool of VDTs, would exceed OSHA standards. However, a cluster of high-speed printers without sound screens could produce some questionable noise levels. Noise levels should be kept within comfortable limits. Sound sources that are unacceptably noisy should be shielded by sound-absorbent screens or hoods or placed in a separate room. Absorbent materials such as acoustical ceiling tile, carpets, curtains, and upholstery also can cut noise. OSHA has a number of electrical requirements applicable to VDTs. The equipment must be properly installed, used, and grounded to ensure employee safety. PHYSICAL DISCOMFORTS: Video display operators sometimes report eye fatigue and irritation, blurred vision, headaches, dizziness, and pain or stiffness in the neck, shoulders, back, arms, wrists, and hands. These problems usually can be corrected by adjusting the physical and environmental setting where the VDT users work. The relation of the operator to the keyboard and the screen, the operator's posture, the lighting, and the background noise should be carefully examined to prevent discomfort. LIGHTING: Work stations and lighting should be arranged to avoid reflections on the screen or surrounding surfaces. Light should be directed so that it does not shine into the operator's eyes when the operator is looking at the screen. Normal office lighting can be supplemented by individual 'task lighting' at a work station if necessary. Task lighting enables operators to adjust lighting to their individual preferences. GLARE: Glare can result from light reflecting on a VDT screen or shiny keyboard. Anti-reflective screen treatment can be added to a VDT screen, and later model keyboards usually have an anti-glare matte finish. To avoid glare, display screens may be placed near a window so the line of sight between eye and screen is parallel to the window surface or the windows can be shielded to reduce excessive sunlight. Walls painted with a nonreflective medium-to-dark paint can minimize glare. WORK STATION DESIGN: An individual work station should provide the operator with a comfortable sitting position sufficiently flexible to reach, use, and observe the screen, keyboard, and document. Some general guidelines to minimize fatigue include: Posture support: The seat and backrest of the chair should support a comfortable posture permitting occasional variations in the sitting position. Chair height and backrest angle should be easily adjustable. A foot rest may be necessary for short individuals. Arms: When the operator's hands are resting on the keyboard, the upper arm and forearm should form a right angle. The hands should be in a reasonably straight line with the forearm. Long or unusually high reaches should be avoided. Armrests should permit periodic support as needed. Legs and feet: The chair height is correct when the entire sole of the foot can rest on the floor or footrest and the back of the knee is slightly higher than the seat of the chair. This allows the blood to circulate freely in the legs and feet. Adjustment of screen position: Screens which swivel horizontally and tilt or elevate vertically enable the operator to select the optimum viewing angle. Work station surface: The table or work station should suit the kind of task to be done. It should be large enough for any reference books, files, telephone, or text and also permit different positions of the screen and keyboard. Adjustable surface height is an advantage. Eye and screen: The topmost line of the display should not be higher than the user's eyes. The screen and document holder should be the same distance from the eye (to avoid constant changes of focus) and close together so the operator can look from one to the other without excessive movement of the neck or back. The incline of the document holder should be adjustable. Legibility is a prime consideration in selecting a display screen. This also applies to document selection. Legibility factors to be considered include: symbol size and design, contrast, and sharpness. Adjustment of the keyboard: A movable keyboard is a plus. It can be arranged to suit the type of work and the need to consult documents or notes. TASK CONSIDERATIONS: The type of task performed on a VDT influences the development of fatigue. Therefore, in designing a work station, the type of tasks a worker does should be considered when placing the screen and keyboard. Whatever the task, it is desirable for the operator to have some 'job control'-the opportunity to pace the work, add mini-breaks, or change positions. This is one of a series of fact sheets highlighting U.S. Department of Labor programs. It is intended as a general description only and does not carry the force of legal opinion.

Workplace Fire Safety, 1
INFORMATION DATE 19910815 DESCRIPTION USDOL Program Highlights on Workplace Fire Safety SUBJECT Workplace Fire Safety ABSTRACT OSHA standards require employers to provide proper exits, fire fighting equipment, emergency plans, and employee training to prevent fire deaths and injuries in the workplace. Some of the requirements include building fire exits, portable fire extinguishers, fire suppression system and a fire prevention plan. U.S. Department of Labor Program Highlight Fact Sheet No. OSHA 91-41 WORKPLACE FIRE SAFETY Fire safety is important business. National Fire Prevention Week is intended to focus on the importance of fire safety in the home, in schools and at work. But workplace fire safety is the Occupational Safety and Health Administration's (OSHA) principal focus and saving lives and preventing injuries due to fire is a key concern. There is a long and tragic history of workplace fires in this country. One of the most notable was the fire at the Triangle Shirtwaist Factory in New York City in 1911 in which nearly 150 women and young girls died because of locked fire exits and inadequate fire extinguishing systems. History has repeated itself recently in the fire in Hamlet, NC, where 25 workers died in a fire in a poultry processing plant. It appears that here, too, there were problems with fire exits and extinguishing systems. When OSHA conducts workplace inspections, it checks to see whether employers are complying with OSHA standards for fire safety. OSHA standards require employers to provide proper exits, fire fighting equipment, emergency plans, and employee training to prevent fire deaths and injuries in the workplace. Building Fire Exits Each workplace building must have at least two means of escape remote from each other to be used in a fire emergency. Fire doors must not be blocked or locked to prevent emergency use when employees are within the buildings. Delayed opening of fire doors is permitted when an approved alarm system is integrated into the fire door design. Exit routes from buildings must be clear and free of obstructions and properly marked with signs designating exits from the building. Portable Fire Extinguishers Each workplace building must have a full complement of the proper type of fire extinguisher for the fire hazards present. Employees expected or anticipated to use fire extinguishers must be instructed on the hazards of fighting fire, how to properly operate the fire extinguishers available, and what procedures to follow in alerting others to the fire emergency. Only approved fire extinguishers are permitted to be used in workplaces, and they must be kept in good operating condition. Proper maintenance and inspection of this equipment is required of each employer. Where the employer wishes to evacuate employees instead of having them fight small fires there must be written emergency plans and employee training for proper evacuation. Emergency Evacuation Planning Each employer needs to have a written emergency action plan for evacuation of employees which describes the routes to use and procedures to be followed by employees. Also procedures for accounting for all evacuated employees must be part of the plan. The written plan must be available for employee review. Where needed, special procedures for helping physically impaired employees must be addressed in the plan; also, the plan must include procedures for those employees who must remain behind temporarily to shut down critical plant equipment before they evacuate. The preferred means of alerting employees to a fire emergency must be part of the plan and an employee alarm system must be available throughout the workplace complex and must be used for emergency alerting for evacuation. The alarm system may be voice communication or sound signals such as bells, whistles or horns. Employees must know the evacuation signal. Training of all employees in what is to be done in an emergency is required. Employers must review the plan with newly assigned employees so they know correct actions in an emergency and with all employees when the plan is changed. Fire Prevention Plan Employers need to implement a written fire prevention plan to complement the fire evacuation plan to minimize the frequency of evacuation. Stopping unwanted fires from occurring is the most efficient way to handle them. The written plan shall be available for employee review. Housekeeping procedures for storage and cleanup of flammable materials and flammable waste must be included in the plan. Recycling of flammable waste such as paper is encouraged; however, handling and packaging procedures must be included in the plan. Procedures for controlling workplace ignition sources such as smoking, welding and burning must be addressed in the plan. Heat producing equipment such as burners, heat exchangers, boilers, ovens, stoves, fryers, etc., must be properly maintained and kept clean of accumulations of flammable residues; flammables are not to be stored close to these pieces of equipment. All employees are to be apprised of the potential fire hazards of their job and the procedures called for in the employer's fire prevention plan. The plan shall be reviewed with all new employees when they begin their job and with all employees when the plan is changed. Fire Suppression System Properly designed and installed fixed fire suppression systems enhance fire safety in the workplace. Automatic sprinkler systems throughout the workplace are among the most reliable fire fighting means. The fire sprinkler system detects the fire, sounds an alarm and puts the water where the fire and heat are located. Automatic fire suppression systems require proper maintenance to keep them in serviceable condition. When it is necessary to take a fire suppression system out of service while business continues, the employer must temporarily substitute a fire watch of trained employees standing by to respond quickly to any fire emergency in the normally protected area. The fire watch must interface with the employers' fire prevention plan and emergency action plan. Signs must be posted about areas protected by total flooding fire suppression systems which use agents that are a serious health hazard such as carbon dioxide, Halon 1211, etc. Such automatic systems must be equipped with area pre-discharge alarm systems to warn employees of the impending discharge of the system and allow time to evacuate the area. There must be an emergency action plan to provide for the safe evacuation of employees from within the protected area. Such plans are to be part of the overall evacuation plan for the workplace facility. This is one of a series of fact sheets highlighting U.S. Department of Labor programs. It is intended as a general description only and does not carry the force of legal opinion. This information will be made available to sensory impaired individuals upon request: voice phone, (202) 219-6666.

Occupational Safety And Health For Federal Employees
INFORMATION DATE 19890216 DESCRIPTION USDOL Program Highlights-Occupational Safety and Health for Federal Employees SUBJECT Occupational Safety and Health for Federal Employees ABSTRACT This fact sheet deals with Occupational Safety and Health for Federal Employees. It tells of responsibilities for agencies and employees as well as their rights. U.S. Department of Labor Program Highlights Fact Sheet No. OSHA 89-20 OCCUPATIONAL SAFETY AND HEALTH FOR FEDERAL EMPLOYEES The Occupational Safety and Health Act of 1970 was designed 'to assure so far as possible every working man and woman in the Nation safe and healthful working conditions and to preserve our human resources. ' There are more than 3.1 million federal civilian employees in more than 100 departments and agencies across the country. Each year thousands of these employees are injured, made ill, or die in work-related incidents. For example, in fiscal 1988, more than 165,000 occupational injuries and illnesses occurred, involving civilian federal employees. Beyond the human implications of these statistics, this takes its toll on the American taxpayer. Chargeback billings of federal agencies arising from the injuries and illnesses suffered by federal employees totaled more than $1.1 billion in 1988. To focus on this problem, Section 19 of the Act specifically charges the head of each federal agency with the responsibility to 'establish and maintain an effective and comprehensive occupational safety and health program which is consistent with the standards' set by OSHA for private sector employees. That broad mandate is further defined by Presidential Executive Order 12196 which identifies the responsibilities of the agencies and the role of the Secretary of Labor in developing, implementing, and evaluating such programs. The Secretary of Labor also has been assigned broad responsibilities under Section 19 of the Act. Department of Labor regulations (Title 29 Code of Federal Regulations Part 1960) spell out in detail the responsibilities of the Secretary of Labor and of the heads of other federal agencies under the Act and the Executive Order. This fact sheet summarizes provisions of Section 19 of the Act, Executive Order 12196, and Part 1960 of Title 29, so that federal employees and managers may be informed of their rights and responsibilities under the Act. Agency Responsibilities: To furnish to employees places and conditions of employment that are free from recognized hazards that are causing or are likely to cause death or serious physical harm. To set up procedures for responding to employee reports of unsafe and unhealthful working conditions. To acquire, maintain, and require the use of approved personal protective equipment and safety equipment. To inspect all workplaces at least annually with participation by representatives of employees. To establish procedures to assure that no employee is subject to restraint, interference, coercion, discrimination, or reprisal for exercising his/her rights under the agency's safety and health program. To post notices of unsafe or unhealthful working conditions found during inspections. To assure prompt abatement of hazardous conditions. Employees exposed to the conditions shall be informed of the abatement plan. Imminent danger corrections must be made immediately. To set up a management information system to keep records of occupational accidents, injuries, illnesses, and their causes; and to post annual summaries of injuries and illnesses for a minimum of 30 days at each establishment. To conduct occupational safety and health training programs for top management, supervisors, safety and health personnel, employees, and employee representatives. Employee Responsibilities: To comply with all OSHA and approved agency occupational safety and health standards. To comply with agency policies and directives relative to the safety and health program. To use personal protective equipment and safety equipment provided by the agency. Rights of Employees and their Representatives: To participate in their agency's safety and health program. Employees shall be authorized official time to participate in the activities provided by Executive Order 12196, 29 CFR Part 1960, and the agency's safety and health program. To have access to agency safety and health information including data on hazardous substances in agency workplaces. To comment on standards their agency proposes that differ from OSHA standards. To report and request inspections of unsafe or unhealthful working conditions to the appropriate officials, including the Secretary of Labor. However, the Secretary of Labor encourages employees to use agency procedures for reporting hazardous conditions as the most expeditious means to achieve abatement. For more information, call OSHA's Office of Federal Agency Programs at (202) 219-6091. This is one of a series of fact sheets highlighting U.S. Department of Labor programs. It is intended as a general description only and does not carry the force of legal opinion.

Amended Powered Platform Standard
INFORMATION DATE 19901212 DESCRIPTION USDOL Program Highlights-Amended Powered Platform Standard STANDARD NUMBER 1910.66 SUBJECT Amended Powered Platform Standard ABSTRACT More modern job safety requirements to protect workers on powered platforms used in window washing and maintenance operations on high rise buildings were announced by OSHA earlier. The revised standard permits the use of alternative stabilization systems for the powered platforms. New requirements were added for training and protection against falls; and existing requirements were clarified and updated. The coverage of the standard also was expanded to include activities taking place in interior installations such as atriums. About 7,000 window washers and more than 1,000 exterior building maintenance workers who work on powered platforms are affected by the revised requirements. U.S. Department of Labor Program Highlights Fact Sheet No. OSHA 90-34 AMENDED POWERED PLATFORM STANDARD More modern job safety requirements to protect workers on powered platforms used in window washing and maintenance operations on high-rise buildings were announced by the Occupational Safety and Health Administration in 1989. The revised standard permits the use of alternative stabilization systems for the powered platforms. New requirements were added for training and protection against falls; and existing requirements were clarified and updated. The coverage of the standard also was expanded to include activities taking place in interior installations such as atriums. About 7,000 window washers and more than 1,000 exterior building maintenance workers who work on powered platforms are affected by the revised requirements. SCOPE Covers powered platform installations permanently dedicated to interior (e. g. atrium) or exterior building maintenance of a specific structure or group of structures. Does not apply to suspended scaffolds (swinging scaffolds) used to service buildings on a temporary basis and covered under Subpart D Walking-Working Surfaces) of the OSHA General Industry standards nor to suspended scaffolds used for construction work and covered under Subpart L (Ladders and Scaffolding) of OSHA's Construction Industry standards. Building maintenance covers, but is not limited to, such tasks as window cleaning, caulking, metal polishing and reglazing. BACKGROUND The previous OSHA standard, adopted in 1971, required that all platforms be stabilized by direct attachment to continuous guide rails in the building facade, whenever the building height exceeds 130 feet or 396 meters. For less tall buildings, continuous guide rails were not required by the previous rule, but the platform had to be equipped with building face rollers and angled suspension wire ropes, which would hold the platform against the building facade. During the years immediately following promulgation of the 1971 standard, most high-rise buildings were designed with straight building facades, which were adapted readily to the continuous guide rail requirements. In recent years, however, architects have been designing some buildings with multiple vertical planes, setbacks, and complicated corners, for aesthetic reasons or to conserve energy. Energy costs, for example, led to smaller and fewer windows, projecting awnings, and recessed windows to provide insulation from outside temperatures. These design changes make it difficult, costly, or impossible to use continuous guide rails on many building facades. As a result, the new designs for high rises have led to development of new types of stabilization systems for powered platforms. The revised OSHA standard will permit use of two additional alternative stabilization systems: (1) The button system which employs a vertical line of buttons set into a building wall. The platform contains two vertical bar guides at each end of the platform. As the platform traverses the building, the bar guides engage the buttons and lock the platform to the building. (2) The intermittent tie-in system which uses lanyards that secure the suspension wire ropes to anchors set into the building wall. The building anchors are set at fixed intervals (usually from 30 to 50 feet); and the adjustable lanyards are designed to produce enough tension below the tie-in point to secure the platform against the building facade. APPLICATION Except for Appendix D, standard applies to all permanent installations completed after July 23, 1990. Major modifications to existing installations completed after that date are also considered new installations under this section. EXISTING INSTALLATIONS Permanent installations already in existence and completed before August 27, 1971 must comply with requirements for inspections, maintenance, employee training, and personal fall protection in the revised standard. If installed after August 27, 1971, and before July 23, 1990, such permanent installations must comply with requirements for inspections, maintenance, employee training, personal fall protection, and Appendix D, which addresses design requirements of the revised standard. STABILIZATION SYSTEMS The building stabilization system must be: (1) a continuous stabilization system using guide rails or (2) an intermittent stabilization system with building anchors no less than three floors or 50 feet apart vertically, or (3) a button guide stabilization system or (4), in the case of a building where the suspended platform is not more than 130 feet (or 39.6 meters) above a safe working surface, a system using angled roping and building face rollers. ENGINEERING REQUIREMENT Structural supports, tie-in guides, anchoring devices and any affected parts of the building included in the installation must be designed by or under the direction of a registered professional engineer experienced in such design. EMERGENCY PLANNING A written emergency plan describing the emergency procedures to be followed in the event of a power failure, equipment failure or other emergencies shall be developed and implemented. The employer must review with the employee those parts of the plan which employees must know to protect themselves in an emergency. TRAINING Employees who operate working platforms must be trained to recognize and prevent safety hazards; in required work procedures; and personal fall arrest systems. Written work procedures for the operation, safe use and inspection of the platforms must be provided for employee training, unless pictorial methods of instruction would improve employee communication. Training is to be done by a competent person. PERSONAL FALL PROTECTION Employees on working platforms also shall be protected by a fall arrest system meeting requirements detailed in Appendix C of the standard. This is one of a series of fact sheets highlighting U.S. Department of Labor programs. It is intended as a general description only and does not carry the force of legal opinion.

Responding To Workplace Emergencies
INFORMATION DATE 19920218 DESCRIPTION USDOL Program Highlights, Workplace Emergencies STANDARD NUMBER 1910.38(a) TOPIC Workplace Emergencies SUBJECT Responding to Workplace Emergencies ABSTRACT Employers should establish effective safety and health programs and prepare their workers to handle emergencies before they arise. U.S. Department of Labor Program Highlights Fact Sheet No. OSHA 92-19 RESPONDING TO WORKPLACE EMERGENCIES Employers should establish effective safety and health programs and prepare their workers to handle emergencies before they arise. Planning Where required by the Occupational Safety and Health Administration (OSHA), firms with more than 10 employees must have a written emergency action plan; smaller companies may communicate their plans orally. (See 29 Code of Federal Regulation (CFR) Part 1910.38(a) for further information.) Essential to an effective emergency action plan are top management support and commitment and the involvement of all employees. Management should review plans with employees initially and whenever the plan itself, or employees responsibilities under it, change. Plans should be re-evaluated and updated periodically. Emergency procedures, including the handling of any toxic chemicals, should include: Escape procedures and escape route assignments. Special procedures for employees who perform or shut down critical plant operations. A system to account for all employees after evacuation. Rescue and medical duties for employees who perform them. Means for reporting fires and other emergencies. Contacts for information about the plan. Chain of Command An emergency response coordinator and a back-up coordinator must be designated. The coordinator may be responsible for plant-wide operations, public information and ensuring that outside aid is called in. A back-up coordinator ensures that a trained person is always available. Duties of the coordinator include: Determining what emergencies may occur and seeing that emergency procedures are developed to address them. Directing all emergency activities, including evacuation of personnel. Ensuring that outside emergency services such as medical aid and local fire departments are called when necessary. Directing the shutdown of plant operations when necessary. Emergency Response Teams Members of emergency response teams should be thoroughly trained for potential emergencies and physically capable of carrying out their duties; know about toxic hazards in the workplace and be able to judge when to evacuate personnel or depend on outside help (e.g. when a fire is too large for them to handle). One or more teams must be trained in: Use of various types of fire extinguishers. First aid, including cardiopulmonary resuscitation (CPR). The requirements of the OSHA bloodborne pathogens standard. Shutdown procedures. Chemical spill control procedures. Use of self-contained breathing apparatus (SCBA). Search and emergency rescue procedures. Hazardous materials emergency response in accordance with 28 CFR 1910.120. Response Activities Effective emergency communication is vital. An alternate area for a communications center other than management offices should be established in the plans, and the emergency response coordinator should operate from this center. Management should provide emergency alarms and ensure that employees know how to report emergencies. An updated list of key personnel and off-duty telephone numbers should be maintained. A system should be established for accounting for personnel once workers have been evacuated with a person in the control center responsible for notifying police or emergency response team members of persons believed missing. Effective security procedures, such as cordoned off areas, can prevent unauthorized access and protect vital records and equipment. Duplicate records can be kept in off-site locations for essential accounting files, legal documents and lists of employees relatives to be notified in case of emergency. Training Every employee needs to know details of the emergency action plan, including evacuation plans, alarm systems, reporting procedures for personnel, shutdown procedures, and types of potential emergencies. Drills should be held at random intervals, at least annually, and include, if possible, outside police and fire authorities. Training must be conducted initially, when new employees are hired, and at least annually. Additional training is needed when new equipment, materials, or processes are introduced, when procedures have been updated or revised, or when exercises show that employee performance is inadequate. Personal Protection Employees exposed to accidental chemical splashes, falling objects, flying particles, unknown atmospheres with inadequate oxygen or toxic gases, fires, live electrical wiring, or similar emergencies need personal protective equipment, including: Safety glasses, goggles, or face shields for eye protection. Hard hats and safety shoes. Properly selected and fitted respirators. Whole body coverings, gloves, hoods, and boots. Body protection for abnormal environmental conditions such as extreme temperatures. Medical Assistance Employers not near an infirmary, clinic, or hospital should have someone on-site trained in first aid, have medical personnel readily available for advice and consultation, and develop written emergency medical procedures. It is essential that first aid supplies are available to the trained medical personnel, that emergency phone numbers are placed in conspicuous places near or on telephones, and prearranged ambulance services for any emergency are available. Further Information More detailed information on workplace emergencies is provided in "How to Prepare for Workplace Emergencies" (OSHA 3088) available free from OSHA Publications, Room N3101, 200 Constitution Ave., N.W., Washington, D.C. 20210, telephone (202) 219-4667, or local OSHA offices. This is one of a series of fact sheets highlighting U.S. Department of Labor programs. It is intended as a general description only and does not carry the force of legal opinion.

Voluntary Safety And Health Program Management Guidelines
INFORMATION DATE 19910805 DESCRIPTION USDOL Program Highlights on Safety and Health Program Management SUBJECT Voluntary Safety and Health Program Management ABSTRACT Management Commitment and Employee Involvement calls for a worksite policy on safe and healthful work and working conditions clearly stated so that all personnel with responsibility at the site and personnel at other locations with responsibility for the site understand the priority of safety and health protection in relation to other organizational values. U.S. Department of Labor Program Highlights Fact Sheet No. OSHA 91-37 VOLUNTARY SAFETY AND HEALTH PROGRAM MANAGEMENT GUIDELINES The Occupational Safety and Health Administration (OSHA) has issued voluntary program management guidelines to encourage employers to do more than just comply with regulations to prevent occupational injuries and illnesses. Although compliance with the law, including specific OSHA standards, is an important objective, an effective program looks beyond specific requirements of law to address all hazards. It seeks to prevent injuries and illnesses, whether or not compliance is at issue. The language in these guidelines is general so that it may be broadly applied in general industry, shipyards, marine terminals, and longshoring activities regardless of the size, nature, or complexity of operations. Construction activities are not covered by this guideline because they are already covered under OSHA's construction standards. The guidelines, a distillation of successfully applied safety and health management practices, are advocated by safety and health professionals and consultants representing corporations, professional associations, and labor unions. The Guidelines The guidelines call for systematic identification, evaluation, and prevention or control of general workplace hazards, specific job hazards, and potential hazards which may arise from foreseeable conditions. The extent to which a program is described in writing is less important than how effective it is in practice. As the size of a worksite or the complexity of a hazardous operation increases, however, the need for written guidance increases to ensure clear communication of policies and priorities and consistent and fair application of rules. Major elements of an effective occupational safety and health program include: Management Commitment and Employee Involvement This calls for: A worksite policy on safe and healthful work and working conditions clearly stated so that all personnel with responsibility at the site and personnel at other locations with responsibility for the site understand the priority of safety and health protection in relation to other organizational values. A clear goal for the safety and health program and objectives for meeting that goal so that all members of the organization understand the results desired and the measures planned for achieving them. Top management involvement in implementing the program so that all will understand that management's commitment is serious. Employee involvement in the structure and operation of the program and in decisions that affect their safety and health, to make full use of their insight and energy. Assignment of responsibilities for all aspects of the program, so that managers, supervisors, and employees in all parts of the organization know what performance is expected of them. Provision of adequate authority and resources to responsible parties, so that assigned responsibilities can be met. Holding managers, supervisors, and employees accountable for meeting their responsibilities, so that essential tasks will be performed. Annual reviews of program operations to evaluate their success in meeting the goal and objectives, so that deficiencies can be identified and the program and/or the objectives can be revised when the goals and objectives are not met. Worksite Analysis This includes: Identification of all hazards by conducting baseline worksite surveys for safety and health and periodic comprehensive update surveys. Also included would be an analysis of planned and new facilities, processes, materials, and equipment; and another of routine job hazards. Regular site safety and health inspections, so that new or previously missed hazards and failures in hazard controls are identified. A reliable system to encourage employees, without fear of reprisal, to notify management personnel about conditions that appear hazardous and to receive timely and appropriate responses. Investigation of accidents and 'near miss' incidents, so that their causes and means for prevention are identified. Analysis of injury and illness trends over extended periods so that patterns with common causes can be identified and prevented.   Hazard Prevention and Control This calls for: Procedures that ensure that all current and potential hazards are corrected in a timely manner through engineering techniques where appropriate, safe work practices understood and followed by all parties; provision of personal protective equipment; and administrative controls, such as reducing the duration of exposure.   Safety and Health Training This includes training to: Ensure that all employees understand the hazards to which they may be exposed and how to prevent harm to themselves and other. Ensure that supervisors and managers understand their responsibilities and the reasons for them so they can carry out their responsibilities effectively. This is one of a series of fact sheets highlighting U.S. Department of Labor programs. It is intended as a general description only and does not carry the force of legal opinion. This information will be made available to sensory impaired individuals upon request: voice phone, (202) 219-6666.