How Not to Do Website Terms of Use

Client: Hi Paul, we need website terms of use and a privacy policy. We want to save money, so we’ve copied the terms of use and privacy policy for XYZ company, which has a similar product. Please review it for us so we can post it when we launch next week.

Me: [facepalm repeatedly]

This is the classic and all-too-common scenario, and it’s completely the wrong way for a startup to do their website terms of use and privacy policy. First, it’s blatant copyright infringement. Just swapping out your company name for their company name isn’t exactly going to fool anyone.

Second, just because XYZ has a similar product, or operates in roughly the same space, doesn’t mean that they operate exactly how you operate in every single respect. Nor does it mean that their policies and practices will suit your tastes. So unless you plan on copying all of XYZ’s internal policies and practices and operating procedures, much of what is in that terms of use and privacy policy simply won’t be an accurate reflection of your company.

Third, who’s to say that the terms of use or privacy policy that you copied from someone else’s website is any good? It could be a hot mess. They could have copied their terms of use from some company that’s completely unrelated in every way.

As the CEO of a startup, your job is much bigger than just writing software code. You have to run the company. That means putting the time into things like what will go into your terms of use, and developing information collection and handling practices that are accurately reflected in your privacy policy. You have to be intentional about this. When you just send me a terms of use that you copied from someone else, I’m going to push back, and ask you to describe your business model and practices. If you can’t do that, it tells me you haven’t put the time into it yet.

This is an important process, and you cut corners at your risk, and the risk of your investors. Terms of use, if done right, form a binding contract between your company and its customers, a contract that favors you and puts your company in a strong position. Done poorly, and you’re litigating with a customer in a court in Fairbanks, Alaska in February. Privacy policies are increasingly important as states like California, with 38 million residents, pass more and more restrictions on how you can collect and use customer data. You don’t just face the risk of class-action lawsuits, you also have to worry about FTC investigations and fines. Spending your time and money to do things right from the start will save you money, time, and headaches down the road.


California Minimum Wage Increases

California employers should take note of the following minimum wage increases that took effect on January 1, 2020:

Statewide: $13 per hour, regular and tipped employees

Alameda: $15 per hour, regular and tipped employees

Belmont: $15 per hour, regular and tipped employees

Cupertino: $15.39 per hour, regular and tipped employees

El Cerrito: $15.37 per hour, regular and tipped employees

Los Altos: $15.40 per hour, regular and tipped employees

Mountain View: $16.05 per hour, regular and tipped employees

Oakland: $14.14 per hour, regular and tipped employees

Palo Alto: $15.40 per hour, regular and tipped employees

Redwood City: $15.38 per hour, regular and tipped employees

San Jose: $15.25 per hour, regular and tipped employees

San Mateo: $15.38 per hour, regular and tipped employees

Santa Clara: $15.40 per hour, regular and tipped employees

Sunnyvale: $16.05 per hour, regular and tipped employees


New California Independent Contractor Law Takes Effect January 1

Several months ago, the California Supreme Court established a new test for determining whether a worker should be classified as an employee or an independent contractor. Now that test will be enshrined in law on January 1, 2020, as the California legislature has passed AB-5.

Here is the standard classification test under the new law:

A worker will be considered an employee, rather than an independent contractor, unless the hiring entity can demonstrate all of the following:

  1. The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the work and in fact
  2. The person performs work that is outside the usual course of the hiring entity’s business
  3. The person is customarily engaged in an independently-established trade, occupation, or business of the same nature as that involved in the work performed

A couple of points are worthy of emphasis. First, the presumption is that a worker is an employee. That is the default classification. Second, as I pointed out in my earlier post on the subject, a lot of companies are going to get hung up on the second prong – that the worker must be performing work outside of the usual course of the hiring entity’s business. So delivery companies like Fedex and UPS are going to have a hard time classifying delivery drivers as contractors, and software companies like Google and Facebook are going to have a hard time classifying software developers as contractors.

As you might expect, the lobbyists were working hard on this bill, and there are a lot of exceptions. One of the biggest exceptions is for business-to-business contracting relationships. The standard test will not apply if all of the following are satisfied:

  1. The business service provider is free from the control and direction of the contracting business in connection with the performance of the work, both under the contract for the work and in fact;
  2. The service provider is providing services directly to the contracting business, rather than to customers of the contracting business;
  3. The contract is in writing;
  4. If the work is performed in a jurisdiction that requires the service provider to have a business license or business tax registration, the service provider has the required license or tax registration;
  5. The service provider maintains a business location that is separate from the business or work location of the contracting business;
  6. The service provider is customarily engaged in an independently-established business of the same nature as that involved in the work performed;
  7. The service provider actually contracts with other businesses to provide the same or similar services and maintains a clientele without restrictions from the hiring entity;
  8. The service provider advertises and holds itself out to the public as available to provide the same or similar services;
  9. The service provider provides its own tools, vehicles, and equipment to perform the services;
  10. The service provider can negotiate its own rates; and
  11. Consistent with the nature of the work, the service provider can set its own hours and location of work.

Finally, there are a number of exemptions based on occupation. Here are some examples:

  1. Physicians, surgeons, dentists, podiatrists, psychologists, veterinarians
  2. Lawyers, architects, engineers, private investigators, accountants
  3. Securities broker-dealers or investment advisors
  4. Direct sales salespersons
  5. Certain professional services – marketing, human resources administrators, travel agents, graphics design, grant writers, payment processing agents, licensed estheticians, licensed electrologists, licensed manicurists, licensed barbers, licensed cosmetologists, freelance writers

Please note that for some of these occupation-based exemptions, there are additional requirements that must be met. If you need further information on how a worker should be classified, please contact us.



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New California Law Requires Disclosure When Using A Chatbot

Beginning on July 1, 2019, a new California law will require websites that use chatbots to clearly disclose that it is a bot communicating online, and not a person.

The use of online chatting with ecommerce and other types of websites is becoming more widespread on a daily basis. Online chat tools allow potential customers to ask questions about products and services and get answers on a real-time basis. These tools also enable companies to address service and support issues on a real-time basis. I’ve used these tools to get help from wide spectrum of websites, ranging from the Delaware Secretary of State, when I needed guidance on a corporate filing on behalf of a client, to Goulet Pens, when I dropped an expensive fountain pen and needed guidance on a replacement nib.

The new California law makes it “unlawful for any person to use a bot to communicate or interact with another person in California online, with the intent to mislead the person about its artificial identity for the purpose of knowingly deceiving the person about the content of the communication in order to incentivize a purchase or sale of goods or services in a commercial transaction or to influence a vote in an election.”

However, there’s no liability if the person using the bot discloses that it is, in fact, a bot. The disclosure must be “clear, conspicuous, and reasonably designed” to inform persons that they are communicating with a bot. While the law doesn’t provide any more specific information on how a disclosure can comply with that standard, we can look to some general principles and Federal Trade Commission (FTC) guidelines that have evolved over the past few years. For example:

  1. Placement and prominence of the disclosure
  2. How close the disclosure is to the related claim
  3. Whether the disclosure can be avoided
  4. Whether other parts of the advertisement distract from the disclosure
  5. Whether the language is understandable


Considering that more than 39 million people live in California, it is highly likely that some California resident is using your website, no matter where your company is based, and no matter whether you sell to businesses or consumers. Consequently, we strongly recommend that all companies that sell goods or services and that use online chat tools comply with the California law. As mentioned at the top, this law goes into effect on July 1, 2019.

CBDs May Not Be As Legal As You Think

UPDATE: Since the passage of the 2018 Farm Bill, industrial hemp is now legal to cultivate, provided it is cultivated in compliance with a state or tribal regulatory program. Hemp has also been removed from the Controlled Substances Act and from the definition of marijuana. That being said, the status of CBDs derived from hemp is still in doubt. And to be specific, as stated below, it is illegal to sell consumable products that contain CBDs (for example, seltzer water, beer, wine, food) or make health claims about products containing CBDs. In addition, due to the uncertain status of CBDs, companies that sell CBD products may have difficulty finding banking services.


There may be regulations on how CBDs can be sold. For example, Indiana has a very strict product labelling law. CBD products must bear a QR code, which when scanned directs the consumer to detailed information, including the product’s batch number, expiration date, ingredients, and independent lab analysis. CBD products sourced from another state with a Farm Bill program may not be packaged properly for sale in Indiana. Retailers who fail to comply face fines of up to $10,000, and could lose their retail license.

Another state-specific wrinkle is California. While medical and adult-use marijuana are now legal in California, the state Department of Public Health has ruled that CBDs, even if sourced from industrial hemp, cannot be added to any food or beverage product, whether for human or pet consumption. So forget about that CBD beer, or chewing gum.

Note, also, that the federal Food and Drug Administration (FDA) has taken the position that it is illegal to “introduce or deliver for introduction into interstate commerce any food (including any animal food or feed) to which THC or CBD has been added.” Consequently, while the DEA may not pursue sellers of food/beverage products containing CBDs, the FDA is another matter. The FDA also has sent cease and desist letters to CBD manufacturers and sellers that have made medical claims about CBD products.

If you’re confused, don’t feel bad. It’s very confusing. The bottom line is, if you are going to be involved in this industry, whether legal cannabis or CBDs, make sure you do your homework.