Justin Cooke

May 27, 2014

We’ve been meaning to tell this story for a while.

A few years ago, an ex-manager from our company in the Philippines sued us for 1,800,000 pesos (over $40K USD). The series of events dragged out over the course of several years.

Here are some of the highlights:

  1. She managed and ran the early version of our company
  2. Unhappy with her work, she left the company of her own free will
  3. She filed a lawsuit
  4. Arbitration and the court case
  5. Appealed the Court (and Supreme Court?)
  6. Was arrested and put in a Philippines jail cell
  7. Swallowed pride
  8. Lessons learned

Here’s the story…

Background:

We didn’t set out with much of a plan to start a full-on company in the Philippines. We’d worked with a Virtual Assistant (VA) named Karen (not her real name) from Davao City in our mortgage company and had some success.

A few years later, while working for a local SEO company, we again found ourselves in need of some VA’s and reached out to Karen to see if she’d be willing to help out again. She was, so we began contracting with her to hire more agents and help with our growth.

Our staffing needs in the Philippines grew and we quickly found ourselves in a situation where we needed to set up an actual company so we could set up services, sign contracts, etc. Setting up a corporation was a long and fairly complicated process, so we opted for a sole proprietorship until we could create the corporation. The original business was established under Karen’s name and we switched everything over to the corporation a few months down the road.

Communication with Karen was relatively good while we were in the U.S. Everything seemed to be running smoothly, but our relationship was primarily with her and we had much less communication with the individual employees and agents in the company.

Eventually, Joe and I made a trip out to Davao to oversee the operation and to make some decisions on where to open an office, how to expand the team, etc. The meeting with Karen and the staff went well and all seemed to be in order. About a year later, Joe made the move out to the Philippines to oversee the company directly and to work closer with Karen and the rest of the staff.

Problems:

It wasn’t long after Joe arrived that we ran into problems. We noticed Karen was rarely showing up to the office, harder to get in touch with, and much slower responding to questions and requests. The staff was having problems with her as well—many were frustrated with their lack of access to Karen and began to grumble and complain about their manager.

She was one of the only agents on a salary and was paid significantly more than the rest of the staff (nearly five times what the entry-level agent was paid). The fact that she was no longer around was getting concerning.

I reached out to Karen via Skype and was finally able to get her to chat for a bit. She’d mentioned that she was having problems with some of the staff and the rumors going around, that she did not appreciate Joe’s management style, and that she was thinking about leaving the company. I asked her to stay on so that we could find some resolutions to these issues and she agreed to do so.

Meanwhile, it had gotten so bad for Joe that he had to resort to tricking her. He had one of the staff reach out to her and she agreed to meet up at the mall to sign some paperwork. Instead, Joe was there with the paperwork and to see if they could have a conversation.

Resolution:

We’d hoped things would improve after this but, unfortunately, they did not. When Karen mentioned she intended to leave the company once and for all, we decided not to fight her. Instead, we offered her an alternative that we considered more than fair.

We understood she was having some personal issues and offered her a 4-month break from work. We would pay her around 20% of her regular salary (around the same rate of our entry-level agents) for up to four months to deal with her issues. We wouldn’t require any work from her during that time and we agreed to allow her to come back at any point during that period if she felt comfortable doing so.

This was one of our first mistakes, I believe. While we felt we were being extremely generous with our offer, the proper way to handle this would have been to document the issues we were having with Karen and begin the process of removing her from the company.

It’s also true that our employment documentation with Karen was pretty shaky. While she was an incorporator with our company, she was also the first person we were in contact with here. She held the most senior position in our company and effectively ran everything. While our documentation with the employees was sound, the documentation on her position and role within the organization wasn’t nearly as clear-cut due to the messy nature of the transition between her sole proprietorship and the creation of the corporation in the Philippines.

While she complained pretty heavily about the employees and her relationship with Joe, she agreed to our offer via Skype.

Legal GavelLawsuit:

A couple of months after agreeing to the offer, we ended up with paperwork showing Karen had filed a complaint and suit via the Department Of Labor and Employment (DOLE) here in the Philippines. As it turns out, this is fairly common and the law is fairly protective of employees—usually to protect against abusive companies and unfair employee termination.

While there are plenty of instances where the DOLE complaints are both valid and protective of labor rights, there are also plenty of vampiric attorneys around willing to take on cases Pro-Bono if they smell a payday. Karen found one of her own and lawyered up.

The first step is arbitration, which is handled locally at the DOLE office. If the situation can’t be resolved there, we’re off to court for the next round.

We Win?

Both Joe and I arrived ready and prepared to face the issue with DOLE yet neither Karen nor her attorney were there. The meeting was rescheduled for a few weeks later and, again, nobody appeared on her behalf.

Note: We heard later this is a common tactic—the complainants will have a watcher around to see if you don’t show up. If you don’t arrive, they’ll text the attorney’s office and they’ll send a representative immediately to win a default judgment.

After the second meeting, we asked the arbiter to find in our favor and she agreed. Awesome—we win!

Not so fast…

The arbiter was not willing to find in our favor “with prejudice”. This meant Karen was free to file again with the same complaint in the future—and that’s exactly what she did.

The third time around she did show up with her attorney by her side. This is the first time we found out they were digging for a 1,800,000 Peso (41K USD) payday for wrongful termination.

We Win Again?

We knew a real court case was coming, so we began the process of documenting her position/employment and all communication we’ve had with her via email, Skype, and even our face-to-face meetings. During the course of documenting everything, we realized there there was nearly 127,000 PHP ($3K+ USD) unaccounted for in her possession when she went on leave.

While we had an attorney to help us with documents, filings, etc., we decided to seek out an attorney that has had experiences and cases regarding DOLE complaints and wrongful termination lawsuits.

In laying out our case with him, he felt that our strongest argument was regarding jurisdiction. Because she was an incorporator and held the highest management position in the company, he argued her complaint should actually be filed with the SEC and not DOLE. While we had tons of documentation regarding her intent to quit, her agreeing to our offer to take leave, etc., he felt our best case would be presented arguing jurisdiction as an a priori argument with some of the rest as added documentation.

Our lawyers both presented their cases and were allowed the opportunity to submit a rebuttal once they’d had a chance to review the other side’s argument. After a couple of months the decision was in—we’d won!

The courts agreed with our jurisdiction argument and recommended this was an SEC issue and not a DOLE issue. We knew there was a chance this may be continued, but felt pretty confident about our position and case.

We Lose

A few months later our attorney informed us the case has been sent to the Court of Appeals based out of Cagayan De Oro (CDO). The reason for the change of venue wasn’t clear to us, but our attorney presented the possibility that her attorney had connections there that may help her case.

Throughout all of this, we’d paid our attorney a considerable amount of money to keep up with all of the paperwork filings, court appearances, etc. Knowing Karen had pocketed business cash, that her attorney was free, and that we were paying through the nose was more than frustrating for Joe and I. Thinking we had the deck stacked against us in CDO, we became a bit distrustful of our attorney—could he be in league with the opposition? We went as far as consulting with another attorney that came highly recommended, but he assured us our attorney had an excellent reputation and we were in good hands.

Ultimately, our decision was in the hands of one of three judges at the Court of Appeals in CDO. The judge found in Karen’s favor—we’d lost the case at appeal.

The next step involved us handing over $1.8M to the Court of Appeals in escrow, to be held by them until our appeal with CDO could be determined. This was absolutely unacceptable to us. The fact that our attorney was asking for the cash to be sent to CDO seemed more than fishy at this point. We were pretty confident that any cash we deposited in escrow would undoubtedly be lost, either through legal means or otherwise.

If we lost again, we’d be out the cash and stuck bringing our case to the Supreme Court in the Philippines.

We made another mistake here—we ended all communication with our attorney.

We stopped returning calls from his office. We ignored requests. Unsure as to whether our attorney was in league with Karen’s attorney or not, we simply ignored the situation and continued to grow our business.

As it turns out, our attorney had scored us an opportunity. We didn’t have to put any funds in escrow and another judge was willing to review the case. With this new information, we were back onboard and in communication with our attorney. Unfortunately, we might have waited too long to get in contact—DOLE was ready to turn the screws on us.

Philippines PesosBanking Issues

Someone at DOLE didn’t take kindly to the courts reviewing the case. As soon as this happened, they immediately issued and implemented a freeze on our Philippines bank accounts. We typically use our PI bank account for operational expenses only and we got off easy with around 600K PHP ($14K USD) being frozen. That wasn’t the biggest issue. How would we continue to operate without proper banking?

Joe and I were livid. We immediately reversed the latest transfer to the PI account at around 200K PHP and stormed down to the bank, documentation in hand.

It wasn’t pretty—we demanded to speak with the bank manager and showed him documentation of the continued dispute with the courts (and a letter from them stating as much) along with the notarized documents from our accountant showing the “missing” money that Karen had taken from the company.

The bank manager was sympathetic, but said there was nothing he could do. The bank was worried about the pressure from both sides and the bank manager’s superiors told him they could not reverse the decision without a specific recommendation from DOLE. Not good for us—they had already decided to work around the court and put in the order to freeze the account.

How would we be able to pay our staff? Pay our bills?

Paying your staff here requires a bank account where you submit a sort of manual direct deposit into their cash cards. Most of our vendors and services were paid via check.

Our solution? Cash. Lots and lots of cash.

Our solution? Cash. Lots and lots of cash.

We couldn’t go through our current bank, as any deposits there would be swallowed up until we reached the $1.8M mark, so we were forced to use other banks, personal wires, and transfers. Our admin staff went into overdrive and had to count out exact payments to each of our staff by hand and down to the last centavo (.01 of 1 peso… or around 1/50 of one penny).

Joe found himself constantly in line at various banks or walking down to the money changers with U.S. dollars and coming back with a small backpack full of cash.

Not good…

Retaliation

We were ready to go nuclear with this, but wanted to check in with our attorney to review options. He wanted to fight this on three fronts:

1. File a criminal case of Estafa against Karen
2. See if we have any friendly hookups in DOLE that could authorize leaving this to the courts (and get our banking back)
3. Expedite our case in the courts (a win would negate the DOLE move/decision)

We filed the case and a bench warrant was issued based on the evidence. The court case was moving along again, but we were stuck with DOLE—they weren’t budging.

There was some leverage—a bench warrant was looming over Karen’s head—but we didn’t have the pull to get anything done about it and the police in Davao are generally more concerned with larger issues than white-collar crime and corporate disputes.

We don’t generally get involved with high-level locals and prefer to fly under the radar, but we do have some friends that are well connected. So we reached out to see if they could help and they put us in contact with a senior (ex) official that had some pull.

We made it very clear we weren’t willing to do anything outside of the legal framework, but asked him plainly if he would be able to help us enforce the bench warrant that had been issued against Karen. He was glad to help us out and, within a couple of days, they’d found her new address and had staked out her place to determine when she’d be home to make an arrest.

I was excited but nervous. We now had leverage and were fighting back. I got the text that they’d been to her house, but she wasn’t there. We think her neighbors informed her what was going on, she contacted her lawyer, and she ended up at the police station to turn herself in. We were in a much better position and knew her attorney would be reaching out soon.

So… we waited.

Settling

Karen’s attorney did reach out shortly after and was looking to settle. She was worried about her criminal court case and her attorney couldn’t convince her to fight both battles.

Still, there was a problem. We were looking at a few months before the judge and court would review our case, and we didn’t know how long it would take after that until this was completed and we had our bank accounts back.

Karen’s attorney had an offer: Drop the criminal case (we couldn’t really drop it, as it was criminal, but would could be less interested in pursuing, of course) and pay a total of 600K pesos, and we’ll have a deal.

Our first thought: F#%$ That.

All the hassle we’d been through was miserable and bad for business, but it was the PRINCIPLE of the issue that really burned us.

She had “misplaced” a significant amount of funds, her lawyer had pulled strings to get our bank account shut down, and we were scrambling to deal with all-cash transactions…now she wants us to pay her money? Absolutely not…

We thought about it for a while, and realized this was getting awfully expensive for us—not just in terms of actual cash frozen in our account, money paid to the lawyer, etc. Our team’s resources were heavily tied up with this and Joe and I were mentally and psychologically drained. Our options:

1. Fight this and continue to deal with the banking/cash issues for 4 – ? months
2. Pay an additional 100K pesos (They wanted 600K, but since we already had 400K frozen and Karen owed us the money from the Estafa case, that was all we had left to pay)

It crushed our spirits, but we agreed to fork over the money. Time to move on—we had to put this behind us.

Through arbitration, several courts, frozen bank accounts, and an arrest, we were finally finishing this up after several years of fighting. We hated the idea that we were settling, but in hindsight, we do feel it was the best decision for our business at the time.

Lessons Learned

1. Make sure your employment paperwork is in order

This can be difficult, especially when you’re just setting up the company/corporation, but it’s worthwhile to go back and clean up employment documentation once you’ve got things up and running. I don’t think this was a make-or-break issue for us here, but we’ve been very careful to ensure all of our employees since then have everything properly documented.

2. You have to trust your attorney

Joe and I don’t put much faith or trust in attorneys. Combine that with the crazy situation we had going on over here and this definitely hurt us. Avoiding our attorney probably gave DOLE enough time to freeze our bank accounts. Had we remained in contact, this is something we could have seen coming and stopped through the courts.

If you’re not completely confident in the attorney you’re working with then find somebody else. But at the end of the day, you have to have some trust that your attorney is representing you to the best of their ability.

3. Business Interests > Personal Pride

As painful and irritating as it was to bite the bullet and settle this, it was the best decision for our business. Joe and I despised the idea of giving Karen any more money. In fact, we’d discussed letting the entire corporation burn (and setting up a new one) just to avoid giving her anything.

At the same time, we realized this would harm our business and our focus much more than the cost of another 100K pesos. We were both feeling emotionally and psychologically drained—keeping up the fight would have cost us heavily in terms of growth and we determined it just wasn’t worth it.

The issue of Business Interests Vs. Personal Pride comes up often as an entrepreneur and in many various forms. It’s really important to weigh both paths and, where possible, choose that which is in the best interests of your business. It helps to keep in mind that you’re working on something bigger than yourself.

Final Thoughts

This wasn’t an easy story to tell. While you probably won’t be setting up a Philippines corporation or dealing with the Department Of Labor and Employment (DOLE) or the other government agencies and jurisdictions here, I do think there’s value in learning from some of the mistakes that we’ve made, whatever country you’re building your business in.

For additional business mistakes and lessons we’ve learned, you can also check out:

Business Lesson 1: Piss Poor Partnerships

Business Lesson 2: In Contracts We Trust

Have you had lawsuits or bench warrants issued (for you or someone else!) as you build your own empire?

Share your experiences below so we can all learn some valuable business lessons.

Photo Credit: Adam Jones


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Discussion
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  1. Jo Caps says:

    Reading your story breaks my heart… I am a Filipino and running an Outsourcing Company…guess what?!?!!? I am not spared of these DOLE/NLRC issues :( Having been an employee in the said Industry for like 15 years…I have learned how important documentations are and due process. But no matter how equipped we are, some agents/employees are just unbelievably ridiculous. We have agents who filed cases against us in DOLE for terminating their employment due to Performance and Attendance Issues…some even due to plotting Operation Sabotage and even plotting extortion against me! Atty fees are expensive but we just have to deal with it and allot a budget as such cases will not just go away. I honestly would rather pay up lawyers than to give money to these lazy opportunists.

    I am hoping NLRC would wake up one day and realize that they’re actually hurting the Philippine Economy by driving away potential investors because of protecting lazy employees.

    • Greg Elfrink says:

      Hey Jo,

      I’m sorry to hear abut this. That is terrible. It can be a really tough place to run a business because of everything you just mentioned.

      I hope it gets resolved for you in a timely manner

  2. l says:

    There is a lot of corruption but . If it happens again in Davao get a hold o f mAyor Duterte she and her father now president would not put up with this and vow to . Figh t tcorruption they are honest and fair and there is a whole department dedicated to protecting foreigners. My father in law was head of it for years and truly protected foreigners from scams and corruption.

  3. Louise Behan says:

    This is quite a story. I’d say a professional learned-over-a-period-of-time scam. If she put up that DTI sole proprietorship, then she was your contractor? She was solely responsible for any labor issues. What I couldn’t understand was, why did she file that case at all? She was not terminated technically because she owned the company. You were like investors, and should actually be protected. Well, I barely know the details, but over all, I find it wrong. I have done some virtual work as well in the past, in fact I could relate to it since I built a business up for some people from overseas as well. But they were successful and I passed them on to their real partner after doing all paper works. I do have my own business now and I work different time zones. One thing I used to tell my business friends though, NEVER TRUST anyone. Not even yourself. :-)

  4. Kris P. says:

    Sorry to hear your story. Sometimes you really have to go down the curved road (opposed to the presiden’t slogan daang matuwid or straigh road).

    Corruption is anywhere the even we locals couldn’t escape it. Looks like there’s an internal competition in the government “The biggest stealer!”

  5. Kenny says:

    I admire how you handled the situation. Also, the article was well written. Most importantly, I’m impressed that you concluded the story with lots of lessons.

  6. Rambo Ruiz says:

    Thanks for sharing your learnings from this awful experience you have had in my country. I must admit that there are lots of Karens around here and personally it makes me sad and not proud as for someone from the Philippines.

    I once managed a small team of VAs (from 2010 to 2014), and I have had few offers from the US, a partnership like what you and Karen had. Although promising, and I would love to partner with the bigger guys and who are more knowledgeable than me when it comes to running and putting this business to the next level, I will never ever deal with big stuff like this with people I have never met in person.

    And so yeah I agree with your first lesson up there in your list, to make sure that everything is on paper.

    Again thanks for the heads up Justine

    • Justin Cooke says:

      Thanks for the comment, Rambo!

      Just to be clear, we love the Philippines. My girlfriend of 5+ years is a Filipina, actually. My business partner and I travel around SE Asia quite a bit, but we always feel “at home” in the Philippines. (I’m writing this from Makati, actually – here to see the big fight this weekend!)

      These issues have definitely not turned me off from the entire country. We understand that it was one miserable person we were dealing with and that gov’t agencies and the legal system can suck anywhere…

      • Sally says:

        Hi Justin,
        I am some what in a similar situation in Philippines.
        Is it possible to talk to you before I go to court.
        Thank you,

  7. laura says:

    “Joe found himself constantly in line at various banks or walking down to the money changers with U.S. dollars and coming back with a small backpack full of cash.”

    Hah! Can’t imagine Joe doing anything like that..

  8. Reader says:

    Makes you not want to start a business in a country like that. All that corruption will sooner or later get some piece of you. Definitely corruption going on in all countries, but there is usually some level that at least during a review you will be able to pass the corruption part. In these cases money just buys you connections, I know the Philippines back in the days you would just pay some fee and they would let anything slip by easily…
    Hats off to you that you are still running a company there, if cost of labor goes up I would assume you will move on and rightfully so. Lesson learned, just outsource through odesk etc and pay by CC so you can always charge back end something like this cannot happen to you.

    • Justin Cooke says:

      Since writing this post, we’ve sold our outsourcing company and have shut down the corporation. Easier to just pay the employees directly without the actual company.

  9. Derick says:

    Ouch….. That sucks big time!

    I’m so sorry to hear about this.

    Thanks for sharing!

    Derick Downs

  10. Jamil says:

    OMG!!!

    I read every word of this story and really feel sorry for you guys but somehow I am angry at this ex-employee for taking you guys for a ride. I hope she won’t sue me for my comments, lol!!

    I like you guys. I would like to do business with you someday.

  11. Terry says:

    Welcome to the Philippines.

    I am in the US and have a few rentals. I am a casual and very trusting person, but have learned that in the rental business it is wise to leave a paper trail. Any communication of importance is always issued by letter, never verbally. All it takes is one bad apple to drag you through the coals.

  12. Brandon A English says:

    The main issue I’m dealing with right now is end-of-contract flight reimbursement bonus from the teaching position I’ve held in China for the past year. The only real benefit to losing all of your weekends and evenings for a year is that you’ll get paid holidays (only 10 days worth) and basically what amounts to a meager one-month salary bonus at the end. I have been fighting them on this issue for a few weeks now (my local supervisors) and they’ve put the task of getting this sorted out off onto me. So, I have to be the one doing all the paperwork gathering, emailing and phone calling to the head office in Beijing. This is my 3rd contract position in China and I have to say that it is frustrating to say the least.

    I feel your pain on the “they’ve got connections” issue, because I’ve been through a surprise divorce and her family made sure that 1) I didn’t know about it in advance and 2) she got the high-priced, connected lawyer complete with the feminist judge. There was literally nothing I could do because I wasn’t rich and my connections were in another town. It’s a long story, but reading your story really makes my heart go out to you. I know full well how you must’ve felt as you went through all of this, especially in another country. You guys are incredibly positive and even more than that: you are very big for how you handled it all and for sharing it here on your site. +10 for transparency!

    Keep up the good work, fellas!

  13. Michael says:

    I can feel your pain, dealing with bureaucracy is the worst. Especially in a country like the Philippines.
    The corruption levels, threat of violence that’s just scary.
    Couldn’t you just prevent all this by settling early or threatening to file a counter suit against her? Sure she was in the wrong, stole funds, demanded more funds for nothing, but legal battles are almost never worth it in the end.

    • Settling early might have worked — they wanted around 500k PHP. We thought that was a lot back in 2010, looks like we could have saved a lot of money and heartache!

      I don’t believe a counter suit would have worked because her lawyer would have got nothing and all his “friends” would have made it difficult for us. Heck, we put her in jail and they still wouldn’t drop the suit. The lawyer had his fangs out and wanted blood, plus knew he could get it.

      • Michael says:

        So, would you say it was a very rare, individual case, or should people considering to go to the Philippines to set up an office expect to have to deal with things like these? As i was actually considering this for a time.

        • Anyone going on the radar — having an office, a corporation, and more than 10 employees or so — should be concerned. Everyone I know here who has those things, has had issues with DOLE or the NLRC. It’s just a fact of life. Have your paperwork right and access to a good lawyer you can trust.

          If you have less than 10 employees, fly under the radar. Use PayPal or oDesk to pay people directly and if you really need an office, try to rent desk space at a call center. There are plenty that have desks free and would be able to do dry seat leasing.

  14. vic says:

    After reading this horror story it’s easier to understand why these problems are often settled with a few hundred dollars and a couple masked guys on a motorbike.

    Living in the Philippines as a foreigner can lead to a sense of being untouchable. Besides near rockstar status with the ladies, we are also treated with favoritism in everyday situations. Inflated ego? Check. It’s easy to start thinking the rules don’t apply to you — and at worst, you can talk or pay your way out of just about anything. It’s become cliche at this point, but this really is the wild west. It’s almost unfathomable that something requiring considerable contemplation and organization — like a lawsuit — could actually exist in all this chaos. Thanks for the sobering reminder.

    • Justin Cooke says:

      There’s a scary thought, Vic.

      You’re right – some deals ARE done that way, but it’s definitely not anything we want to be even remotely involved in or connected with, heh.

      It is the Wild West out here, that’s true. I’d say, though, that if you’re here living a relatively normal life, you don’t get that feeling of this place being “unreal” like some of the visitors we know. For them, it doesn’t feel like the real world.

  15. Eric Savina says:

    Hello Justin,

    I had several bad experiences while working in the Philippines. Most of the times, there was someone behind the employee pushing him or her to file a lawsuit (even without merit). Sometimes it was a family member, other times an union.

    I learnt from these experiences that unions in the Philippines do not care about the employees and that 90% of the cases will be in favor of the employee at the arbitror level. Unfortunately, the money involved in pushing to the next step is often higher than the employee’s claims and the labor arbitrors know that.

    “Fun” story that happened to me more than 10 years ago: I was in the office of the labor arbritor. He quickly dismissed the claims of the employee and asked her to leave his office. He then opened his drawer, pulled a gun from it and told me that this is the way he would have handled this case back when he was working in the private sector… Needless to say, I was speechless and left his office promptly!

    Regards,

    Eric

    • Justin Cooke says:

      Hey Eric,

      For all the hassle this was, I’m still really happy we run a business in the Philippines. MOST of our experiences have been nothing but outstanding. That includes our current team, others looking to really expand entrepreneurship in the Philippines, etc.

      The labor arbitor with the gun….just…wow. That’s crazy sauce!

      One thing I left out of the story is that Karen’s boyfriend (now husband) actually showed up at the office with a gun. (Neither Joe nor I were there) He wasn’t exactly threatening with it, but he did pull it out and show some of the other people in the office…crazy stuff. We’re in the Wild West out here, man…could you imagine something like that happening in an office in Portland? #nope

  16. Tristan Mirasol says:

    That experience really sucked, and I feel sorry that it had to happen to you. Glad that you got through it though, with enough lessons to surely get you through the next challenges of your business. Hope all is better this time around!

    • Justin Cooke says:

      Thanks for the thoughts, Tristan.

      Yeah, we’re much better today when it comes to having our paperwork together. I doubt this issue could pop up again for us. (Although there are a ton of others things that could/will happen, I’m sure!)

  17. mikemikemikemikemike says:

    I’m sad that you guys had to give in to this sort of extortion, but I’m happy to see that you were able to make her life a living hell and she only got a fraction of what she wanted.

    • Justin Cooke says:

      I really think it was her lawyer still pushing at that point. The fear of jail had her worried – it was her lawyer that took it to the end, heh.

  18. sandaemc says:

    I am a Filipino and I agree with the corruption. My friend told me once used this kind of tactic (supreme court) to win. Basically, the lawyer got some money after the win. They’re cooking in there and it’s pervasive even in our government. I feel shame about this as I read the comment and also for other things I heard. This is one of the reason why I’m raising my kids the best as I can. So they can bring good changes here in the Philippines starting from themselves.

    Our culture is unique, there are just some bad parts that needs to be corrected.

    • Justin Cooke says:

      Hey man,

      There’s definitely some corruption here, but I should be clear and state that (aside from this issue) we’ve been surprised with how LITTLE of those kinds of things we’ve had to deal with here. Across the board, most government agencies, police, etc. have been plenty fair. (Even if a little slow and bureaucratic!)

      My business partner and I love the Philippines, Filipino people, and have many good things to say about our lives and business here.

  19. god says:

    wow, that was lengthy but i read the whole thing. a nasty experience for sure but nice write-up.

  20. Don Shelton says:

    Whew. Some tough lessons. In my real world work (managing my rental properties), I used to try and work with people like you did. It got me nowhere except screwed. Now we explain the rules up front, if they don’t live up to their end we follow through hard. I’m in court all the time and yes, I’ve had people put in jail. It bothered me some the first time or two, but not any more – they have to do a lot wrong to end up in that position. We document from the beginning for each lease, assuming it will end up in court, and so are ready if it happens. I still usually make one effort at straightforward chance of being nice (offer to waive a little owed if they pay the rest for example), but I just give the one chance and refuse to get into any back-and-forth (it just becomes a time-wasting argument). They almost never take my offer. There are certainly times when I have to decide to let a case go – there’s little chance of collecting – even though they’ve really ticked me off somehow. When I switched to this approach there were a few benefits 1) I felt a lot better. Instead of arguing with people, losing sleep or letting these jerks rent space in my head, we just tell it to the judge. The nonsense the other side is spouting tends to melt away in court. 2) I do collect more of what is owed me 3) I get into fewer of these situations overall by being hard up front. If they smell weakness, etc. There is a cost though 1) I had to learn the law as well or better than the attorneys I face. That wasn’t easy at all. A lot of hours. 2) Even now that I am experienced and have systems, it still takes time. Sometimes emotions still cause me to pursue something I should drop. I think the best lesson you learned was to be all business up front, but it’s a hard lesson!

    • Thanks Don, it’s good to know others go through this type of heartbreak as well. It just can be really distracting from the business and that is the major issue — larger than the money actually.

      Going through this process with employees make me think that services like oDesk are worth it. You pay hourly for the work they do and can cancel at any time. There are no contracts, benefits, etc to be worried about. When you are done with someone, you just walk away — if they want to go to court their technical “employer” is oDesk, not you.

      Not sure how this applies to the leasing business though, that is whole other can of worms. Good luck!

    • Brandon A English says:

      Don, your words sound just like the kind of advice I’d give someone before they decide to get married. It’s a freaking sad fact but true: you must remember to cover your arse BEFORE you ever need to, because it will be made to look bad by somebody at some point. There’s an old Chinese proverb: “A fool speaks and then reflects, but a wise man reflects and then speaks.” I believe that this is helpful advice for people who don’t want to live in hindsight. Sometimes, you just have to look a bit hard to people.

  21. Joel Fu says:

    Oh dear , sorry to hear that. We are planning to setup a BPO outfit in the Philippines as well. Wish us luck!

    • Justin Cooke says:

      Luck! There are some interesting corporate structures you can use to setup your corp here. We used these guys out of Manila. Not exactly cheap, but they know what they’re doing:

      http://www.syciplaw.com/

      • Edmund John says:

        It’s more fun in the Philippines!

        An interesting corporate structure is a ROHQ – shown here: http://www.flagtheory.com/ph/

        Would it have been possible to just leave the funds frozen while you settle and open up a new bank account?

        Great story to learn from, thanks for sharing.

        • That approach might work to lessen tax liability, but it won’t help with labor disputes as the come after your assets.

          We did open a new account at a different bank after this mess was ratified. However, the frozen funds were seized, in cash, by the judicial arm of the Department of Labor (DOLE) known as the NLRC (The National Labor Relations Commission). So, there was no use fighting, we weren’t getting that money back. I imagine it was split up among the lawyers and judges.
          Ah yes, it is in fact more fun in the Philippines!

  22. NobbyK says:

    I feel your pain, trust me. I have been through an almost similar situation with the main incorporator.

    Nothing financial mind you, but she has only become exposed in the lack of abilities as more staff have been employed. So I relieved her of most of her duties and handing them over to a new manager.
    This enraged her, and in her own words embarrassed her in front of other people. So it was OK for her to fail my business as long as it didn’t fail her fragile ego. More has come to light about how she is unwilling to accept change, and feels that because she has been there the longest, she deserves pay rises before everyone else.
    I now a have a great team, many of whom were going to leave before I appointed the new manager, but who are now staying because they believe in the future opportunities.
    The problem with these people is that they believe they are ‘owed’ yet have no concept of business. Most business in the Philippines is run corruptly and generally money will buy most things.
    And yet many will gladly take the money but get upset when you also expect them to actually show up to work for it.
    They want all the benefits and tax minimisation, and know more about that, than how an alarm clock functions in order to turn up at work on time. They want all the side benefits and time off, but don’t ask them to work a public holiday of which there are far too many.
    Yes – the Filipino people are nice, and yes, it may be somewhat cost effective to run a business there, but it can also be very stressful mentally draining. The constant non stop array of taxes and and fees to be paid is ludicrous. And it simply is not the haven everyone thinks it is.
    So why continue to do business there? Because yes – it is more cost effective. And The people in our team are good people. The team don’t want trouble makers in it as they know they are on a good wicket and prefer to have peace and harmony.
    Outsourcing as an industry is expected to grow in the Philippines, but the government needs to clean up it’s act and make investment far more enticing. Corruption needs to stop, and people need to think themselves lucky that some-one is prepared to invest local to give them a job.

    • Justin Cooke says:

      Hey Nobby – I hear ya.

      Did we not get into this much when you were here? Would have been an interesting story to share with you if we didn’t…maybe next time over a few beers, eh?

      I hear you regarding your manager/incorporator. I wonder if she was younger than some of the other employees? It’s amazing how much age/respect can come into play when it comes to employees and management here.

      Another thing – the “crab mentality” is often discussed and can come into play. When you have an employee that now finds himself/herself in charge of their peers, other feelings can get hurt, people can start talking about another, etc. Those types of things strike deep here in a very communal social structure – more than it’s easy for me to understand.

      Hope things are moving along well for you, man!

  23. faithjhung says:

    This is a sad story indeed. If I knew earlier, I could’ve helped. I know lots of people in the supreme court and they could’ve helped without much thoughts (I stay in the philippines).

    • Justin Cooke says:

      It was shocking to us that our case actually had a chance to be heard at the Supreme Court, actually. Glad it didn’t have to go there, though – happy (now) to have dropped it and be able to walk away + move on. Thanks for the offer of support, though, even if it’s a bit late. :-) Appreciate it!

  24. Daniel Christian says:

    I heard something on this last year and it was definitely enough for me to try and shore up my documentation, contracts, progressive counselling, etc. Thanks for telling the story.

    • Justin Cooke says:

      Yo, man.

      Did we never talk about this with you in detail? Yeah – was a pretty rough ordeal. Happy to discuss over beers with you sometime in the next couple of weeks.

      How’s the outsourcing company coming along? Haven’t seen you in a while – everyone tells me you’re head-down and focused on work right now. #rockon #hustling

      • Daniel Christian says:

        Ya, I will give you guys an update by email. We are real happy with our growth. The night shift is a grind, but I feel it’s really paying off in growing a nice sustainable business.

  25. While I certainly hope to never find myself in a similar situation, I think there are a lot of valuable lessons here. Thanks for sharing that story – really interesting to read.

    • Justin Cooke says:

      Thanks for the comment, Eric!

      Yeah – I’m not sure I see too many readers getting sued in the Philippines, but I’m hoping there are still some lessons there beyond the particular situation we went through, hehe.

  26. San Diego Sight says:

    wow thats heavy! the price of owning a business sometimes! Its easy not to think of that stuff sometimes and that its all sunshine

    What was the reasoning for 41K anyways, unorganized?

  27. JakubHanke says:

    Terrible story! I’m glad it did not take you down. Good luck in the future

  28. Asher Aw says:

    Wow, thanks for sharing your story. This is indeed a tragedy and a case of “being nice doesn’t pay off”… in fact, you can say you got ripped off. A huge one.

    Is it a culture to give someone a break and get paid for it though? Yours or Philippines?

    • Justin Cooke says:

      Thanks, Asher.

      I’m not really sure about the paid break. We thought we were going “above and beyond” here with an extended paid break. It was our plan to settle her down and get her back on track. Looking back, it probably would have just been better to fire her for cause after documenting the reasons. :-(

  29. Daniel says:

    Guys, what a terrible story! So good is part of the past now. I am wondering if this unveils risks for the ones that uses VA’s from Philippines. Any thoughts on that?

    • Justin Cooke says:

      Hey Daniel,

      I think that foreigners who hire VA’s as contractors or via oDesk are just fine – these aren’t the types of things that would be a problem for them at all. Our problem was going the proper route in setting up a Philippines corporation – that puts us at risk in the Philippines.

      Still – if you have direct hires in the Philippines it probably makes sense to spell out the agreement in writing. Not so much for legal reasons, but to properly set expectations and make sure both sides understand what they’re getting.

      • Daniel says:

        Thanks Justin! Yes, I think is always a very good idea to put things in ink to avoid any expectations problem in the future.
        Cheers!

  30. G.Parker says:

    Oh wow guys. I feel really sorry for you. What a waist of time! Time that could be better spent on developing a strong business. Also, this is an interesting example of how third-world countries such as Philippines are taking the worst from countries such as U.S. (Suing people to make money – what a shame!)

    • Justin Cooke says:

      While it’s nice that the Philippines and the US have had such a close relationship and have gotten together well culturally over the years, a litigation culture is definitely not something they should be modeling! hehe

  31. Jimmie Tolbert says:

    Hi Justin,
    Thank you for sharing your story. I am sure it was a very frustrating period in your life. I really think you guys made the best decision in settling case. The sad thing is while operating in a foreign , odds are heavily stacked against you. Overall, moving on was the best for your business.

    • Justin Cooke says:

      Thanks, Jimmie, and I think you’re right. Glad we were finally able to move on and put it behind us – as frustrating as it was at the time, heh.

  32. Scott says:

    Similar, landlords in China often trick foreigners out of their last months rent and deposit. They purposefully buy homes foreigners are likely to rent, banking on them returning to their home country and not returning their deposit. Happened to me once and according to my land lord it was okay because “he was a doctor.” We went back and fourth seemingly forever. In the end it was silly to even try to get the rent back, as it wasn’t only around $800. It just wasn’t worth the trouble. The lesson learned is don’t deal with people you haven’t met in person and certainly don’t deal with them if you feel they have a motive. I’m not sure if this next point makes sense, but I feel you should also take into account how the person portrays themselves and if “things add up or not.” For example, I noticed lots of sketchy people in China will drive a $200,000 car and wear $3 dress shoes, or something similar.

    • Justin Cooke says:

      Hey Scott,

      I dunno – we’re almost always forced to deal with or do business with people we haven’t met in person. If we stuck to that rule, we wouldn’t do much business. (Or we’d be stuck flying around the world to meet with and shake hands with potential buyers/sellers all the time)

      I think everyone has a motive, but you’re on to something, I think. Make sure that both parties have leverage. (REAL leverage) If you’re not able to protect yourself (same goes for the other party) how strong can an agreement really be?

      • Scott says:

        Very good point. I guess the post just brought up some bad feelings from the past. I had flash backs and everything lol.

        Within reason, do your best to know who you are getting into bed with. In my case, I was lazy,very naive and paid the price. I should of spent another week or two to find a nice landlord.

        Speaking of paying the price, I think thats kinda the deal with living in Asia or up and coming countries. They might be cool and very affordable, but at some point someone is going to take advantage of you.

        At least you guys didn’t lose your business. A buddy of mine opened a bar in Hangzhou, China with a local businessmen. According to him, you need a citizen to open up this type of business, or most likely he was lazy and didn’t protect himself. After making a personal investment, built up the business to where it was profitable,followed by his business partner kicking him out and he legally couldn’t do anything about it, as the business wasn’t in his name.

        Hope that wasn’t too dark and gloomy lol I feel I should point out that I love living in Asia.

        • Dr. Niche says:

          One of my friends lost two clinics in Indonesia dealing with a “local partner.” Business is up and running smoothly, then the local business partner kicks out the foreign partners and brings in employees. Totally screwed…

        • Justin Cooke says:

          Ack – getting kicked out of your own business by a local partner really does sound like a nightmare!

          I love living in Asia too, but you can definitely put yourself in crappy situations if you’re not careful. It’s hard enough to do business in your own country, but there are so many more risks when you’re doing business abroad, dealing with other cultural differences, etc.

  33. McSpike says:

    A classic story involving workers from a country where effectiveness is
    not a priority. Not one at all. A classic story where one runs a company
    remotely. One should never do that. An owner or a person with high
    stakes in the company should be present from day 1. Soon as they feel
    your absence the fun begins. I’ve been through that, lost nearly $70k
    that way, only it was much quicker and it involved no legal battles and
    shit. It only involved workers and a manager that would rather cut
    corners for pocket change rather than bank big with us in the long run.
    Just backwoods redneck mentality. If you deal with those, NEVER EVER do
    it remotely. They will screw you even while you are there, but it costs
    way more if you aren’t there. Even if you think your manager is to be
    trusted and whatnot, forget it. Their way of thinking, the way they were
    raised, the culture they were grew up in will soon start to show
    results in your bank account. And that goes for all the countries in this world that are infected with poor, ineffective, lazy workforce culture.

    • Justin Cooke says:

      I agree that it sucks when you’re dealing with people that have a short-term mentality and don’t see the long-ball strategy, but I hesitate to put that on the entire country of nearly 100 million people.

      The majority of our staff and the people we’ve worked with here (and in other countries) would never dream of putting us (or others) through this kind of crap.

      I think we should be careful about making sweeping generalizations when we’ve had issues with specific or certain people of a particular group. You may end up seeing correlations that just aren’t there…

      • McSpike says:

        True, out of 100M people I bet my ass you can get a decent bunch of
        those who get it. For sure! And out 1G Indians you can find a lot that
        will code for Microsoft, but truth be told, go on freelancer.com and try
        your luck with them there. Tried 3 times as if 2 times wasn’t enough.
        Never again.

        As you also figured out you need to be there 100%
        and know how far to go with one eye closed. You also need to take their
        culture into account. You can go through the wall with a western
        mentality of doing things or you can “beat them” at their game. In my
        case it was our honest part of employees that told me over the phone
        that our manager didn’t even show up in the office that day while she
        told me over the phone 5 minutes earlier she just left the office. The
        case of Karen surely reminded me of that scenario, lol.

        Long term
        you save money with lower wage costs, but short term it costs time,
        money and energy to vet the masses that come to work at your place.

        Been
        talking to people who have employees and are present in Philippines as
        well as met westerners that did business in the country I was ripped
        off. I heard same stories, so yours didn’t surprise me, but it sure did
        bring back memories :)

        • Justin Cooke says:

          I love your point regarding being short-sighted by trying to save cash. Some of our most expensive mistakes have been trying to save money by going cheap! lol

  34. Quinton Hamp says:

    #3 has got to be the hardest.

    And I mean the HARDEST lesson. Ever.

    It doesn’t matter if your supplier is a @#!$ retard. Or if someone screwed over your friend. You simply can’t lash out without counting the monetary and psychological costs and trying to accomplish a compromise.

    I know I’ve put myself in bad places because of failing to respect #3.

    Thanks for the story. Learned a lot. Glad you guys weren’t the ones in jail… or getting mugged. Next time I see Joe with a backpack, I’m totally taking him down.

    • Justin Cooke says:

      Hey Quinton,

      I absolutely agree, man, and it seems to be a lesson that every entrepreneur has to deal with sooner or later. The worst is that this problem will come in all different shapes and sizes – you never know where you’ll have to swallow your pride and do what’s best for the business, even if it’s extremely painful.

      Definitely a “Hot Money” Magnotti move with the backpack full of cash! :-)

      • The word is out, guess I’ll have to hire an army of imperial guards next time I change money! ;-)

        Seriously though, it was scary the first few times. I did everything from varying my schedule to telling no one where I was going and even switching taxis. In the beginning at least I was super paranoid.

  35. Hi

    Glad to hear its behind you and settled.

    Time to move forward and up (as you are im sure).

    fcuk them and do better paperwork next time i guess..

    regards

    • Justin Cooke says:

      Thanks, Steve.

      Yep – definitely happy to have moved on from this, but thought there were some valuable lessons worth sharing out of the situation/experience, heh. Crazy stuff, right?

      • Hi

        Yes it really is the “law” can be an arse and not see through sensible eyes at times.

        One reason i love the web visa via the real world is the way we can organise a company with less paperwork and in fact more control. plus no sick pay etc. Which i have no issue with other when they are no genuine..

        Steve

  36. Steven Rogge says:

    I lived in Manila for a few years, a few years ago. One thing for sure is that it is hard to trust people there due to all the corruption. The fact that your a US Citizen makes you guys a target for everyone including attorney’s who want to squeeze every peso out of you. They all think that just because we are Americans, we are automatically rich. I would have packed my bags and said fuck this country at the first sign of a law suit and flew to Thailand or Brazil and set up shop. I think the Philippine people are nice and it’s a nice country, but the corruption there makes it hard to let down your guard and be nice back to many. It’s a shame you guys had to go through all that. I think as a result, your business is now stronger though. Good luck.

    • Justin Cooke says:

      Thanks, Steven!

      There is quite a bit of corruption in the Philippines, unfortunately. To be fair though, aside from this issue we’ve been awfully lucky and haven’t dealt with it much at all. In fact, we were surprised overall with how LITTLE there was for us to deal with, but we’ve always kept our heads down and stayed out of local issues for the most part too.

      Thanks, man.

  37. Mark Mason says:

    By the way– I thought FOR SURE this story was going to end with Joe eating bread and water in a PI prison. I even thought of a name for the movie — AdSense Redemption — or maybe AdShank Redemption.

    • Justin Cooke says:

      Hahahaha – that would NOT be a pretty picture!

      I actually saw one of the jail cells they had here when I went with my GF to report a missing laptop (recovered later). We were at the police station and I took a peek in – not good!

  38. Ashley says:

    It sounds like your lawyer was very good! He was able to put the screws to her and get a fast settlement.

    • Justin Cooke says:

      Hey Ashley,

      I wished we wouldn’t have ended communication with him – that caused us more trouble, I think.

      It was our friends and their connections that turned the criminal/legal screws, although our lawyer definitely helped on the civil side of things.

  39. Mark Mason says:

    Wow guys. This is quite a story. So glad this is behind you.

    I understand as a PI company you are bound by the DOLE rules — and they are famous/infamous as you noted.

    What do you think about those of us with small US companies that are paying “contractors” in PI directly from the US for VA work? I know you are not an attorney, but what are your thoughts about risks based on what you know.

    I have been under the assumption that since US companies are by definition “in the US” and the work is being done on a contract basis (“not an employee”) that the risk for DOLE related problems is very low.

    Thoughts?

    Thanks!
    Mark

    • Justin Cooke says:

      Hey Mark,

      Yes – a Philippines corporation is bound by DOLE rules/requirements, but as a foreign corp with PI contractors, my educated guess is that you’re just fine – I don’t think you’d have this issue whatsoever.

      Still – it’s a good idea to get compensation and the plan in writing – even if just by email and acknowledgement. Not so much for legal reasons, but to properly set expectations and avoid disappointment. (Things like whether you give Christmas bonuses, 13th month, benefits, etc.)

      As you mentioned, I’m not a lawyer – gotta pay your own to be sure. :-)

  40. seth says:

    were you trying to sell your business during this period? I remember you listed your company for sale in the market place.

    • Justin Cooke says:

      Hey Seth,

      Lol, no – this was handled and settled well before we mentioned selling our outsourcing company. This was all wrapped up in the second half of last year. Even still, we were open to disclosing with serious potential buyers all the same. This is something we’ve discussed privately with friends, peers, etc. – just not publicly up until now.

  41. Gary Shouldis says:

    Ouch! And I thought my grumblings with one of my freelancers was a headache! Glad to hear things worked out in the end, I’m sure the business and personal experiences gained will be far more valuable in the future for you guys than what you ended up having to pay……that’s the way it works for good guys like you too! Cheers

    • Justin Cooke says:

      Thanks, Gary.

      Yeah, it all worked in the end, thankfully. Definitely learned some lessons here, though. :-)

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