Tag: Employment Law

How the Supreme Court Skirted ADEA Issues During Reductions in Force and What Must be Done to Fix It

Congratulations to the Fall 2010 National Law Review Student Legal Writing Contest Winners Charles “Chip” William Hinnant III and John Erwin Barton of  the  Charlotte School of Law. 

Jack Gross was born in 1948, and grew up in Mt. Ayr, Iowa.[i] His father was an Iowa Highway Patrolman and his mother was a 3rd grade teacher.[ii] Throughout his childhood and into his adult life, health issues defined Mr. Gross.[iii] He developed chronic ulcerated colitis, and as a result underwent multiple operations involving the removal of his colon, and a part of his large intestine.[iv]When he graduated from Drake University with a B.S. in Personnel Management, he weighed 87 pounds.[v]

Upon graduating Mr. Gross went to work for Farm Bureau as a claims adjuster, eventually becoming the highest volume adjuster in the company.[vi]He stood out for his outstanding contributions, earned many professional designations, and began teaching classes to other employees.[vii]Mr. Gross’ exceptional work performance and contributions to his company were reflected in his annual reviews, which were in the top 3-5% of his company for 13 consecutive years.[viii]Yet, notwithstanding Mr. Gross’ improbable story, in 2003, all claims department employees over the age of 50 with a title of supervisor and above were demoted on the same day.[ix]Mr. Gross was replaced by a person he had hired who was in her early forties, did not have the required skills for the position as stated on the company job description, nor his breadth of experience.[x]Mr. Gross would later file an age discrimination lawsuit pursuant to the Age Discrimination in Employment Act (ADEA)[xi]in federal court, and the rest as they say, is history.

On June 18, 2009, the Supreme Court of the United States decided Gross v. FBL Financial Services, Inc.,[xii] which simultaneously held that mixed-motive theories are never proper in ADEA cases and that a plaintiff bringing a disparate-treatment claim pursuant to the ADEA must prove that age was the “but-for” cause of the challenged adverse employment action.[xiii] In effect, the Gross holding abrogated the mixed-motive theory presumably applicable to ADEA cases established inPrice Waterhouse v. Hopkins,[xiv]and led to a celebrated victory for employers to the detriment of older, ADEA protected employees just like Jack Gross, the prototypical individual that the ADEA was created to protect.

While Gross has considerably heightened the burden placed upon ADEA plaintiffs, particularly given the near universal absence of direct evidence of age discrimination in ADEA cases,[xv] its holding imposes a logically impossible burden upon ADEA plaintiffs in Reduction in Force (RIF) cases that the Supreme Court seems to have not contemplated given that Gross did not involve a RIF.[xvi] In short, during a RIF, an ADEA plaintiff always loses.  In order to correct this logical inconsistency, either the Supreme Court must grant certiorari to an ADEA RIF case to affirmatively correct its mistake, or Congress must pass legislation limiting the holding of Gross to non-RIF scenarios, if not all ADEA cases.

How Gross Prevents an ADEA RIF Plaintiff from Ever Prevailing at Trial

Gross prevents an ADEA RIF plaintiff from ever prevailing at trial because an employer will always be able to claim that a legitimate, non-discriminatory reason for the adverse action taken against the employee exists. Inherent in any RIF are financial troubles that force an employer to terminate some of its employees in an effort to remain in business; as a result, the courts have recognized that a RIF is a legitimate business justification for an adverse employment action.[xvii]

Consequently, prior to Gross, when an employer utilized a RIF as a legitimate business justification for an adverse employment action, the plaintiff was required to make an “additional showing” that age was a motivating factor in their termination in order to prevail using a mixed-motive theory of discrimination.[xviii]

However, because Gross simultaneously eliminated the mixed-motive theory as a viable option for ADEA plaintiffs and heightened the requisite showing necessary for a plaintiff to prevail from age as a “motivating-factor” of the adverse employment action to age as the “but-for” cause of the adverse employment action, such an “additional showing” can neverbe made under the law as it is currently interpreted.

Because an employer will always be able to claim that a RIF constitutes a legitimate business reason for termination, under Gross, a plaintiff cannot ever offer evidence that “illegal … motives … were the ‘true’ motives”[xix]for the adverse employment action taken against them.

As a result, an ADEA RIF plaintiff can never prove that “but-for” their age, the employer would not have initiated the adverse action against them given the ever-present excuse of a RIF. Thus, while Gross is detrimental to all ADEA plaintiffs, it is particularly prejudicial to ADEA plaintiffs whose adverse action is a result of a RIF, as it creates a logical impossibility for these plaintiffs to everhave a chance of prevailing against their employer.

What the Supreme Court Can Do to Fix the Gross Problem

The Supreme Court can and needs to fix the Gross problem and the confusion it has created for lower courts by granting certiorari to an ADEA RIF case and explicitly stating that mixed-motive theories are and must be applicable to ADEA RIF cases, and that evidence of age discrimination can be considered a “motivating factor,” rather than the “but for” cause, of illegal age discrimination within the burden shifting framework articulated within McDonnell Douglas Corp. v. Green.[xx]

As of this moment, the lower district and circuit courts are confused as to the application of Gross and its relationship with the McDonnell Douglas prima facie case and burden-shifting framework. Furthermore, this confusion is certain to increase as more RIF and non-RIF ADEA cases are filed in the near future as a result of the current economic recession, and as the unworkable nature of theGross holding in ADEA RIF cases is further exposed. Notably, post-Gross ADEA cases are relatively few and far between at the time this article is being written; however, early signs support the contention that the lower courts are not in conformity with how to interpret Gross.

The Tenth Circuit explicitly states that Gross has created some uncertainty regarding burden shifting in the ADEA context.[xxi] The Jones decision discusses in detail the application of Gross to McDonnell Douglas and clearly states that the court will not overturn their prior decisions applying the burden-shifting framework to ADEA claims.[xxii]

Furthermore, the Sixth Circuit attempts to reconcile Gross’ “but for” language with the burden shifting test in McDonnell Douglas.  By applying similar language from the application of Title VII in McDonnell Douglas, that “where there is a reduction in force, a plaintiff must … show that age was a factor [emphasis added] in eliminating his position”[xxiii]the court attempts to pigeonhole the two decisions together.  The use of the language “a factor” instead of “the factor” in the Johnsondecision enunciates the line that the court has drawn between “but for” causation of age discrimination and age being a “motivating factor” in determining whether illegal age discrimination is afoot.

The Ninth Circuit on the other hand, has essentially followed Gross to the letter.[xxiv] In the McFadden decision, the Ninth Circuit holds alongside the Supreme Court and agrees that the McDonnell Douglas burden-shifting framework does not apply to ADEA claims, and that a plaintiff must carry the burden of persuasion throughout the case.  Therefore, no burden shifting occurs, and causation must be “but-for.”

These cases, et al., are the first evidence of post-Gross confusion, and illustrate the growing problem facing the lower courts as well as plaintiffs soon to bring mixed-motive age discrimination cases involving RIFs. Some circuits and district courts continue to apply theMcDonnell Douglas burden-shifting framework and will consider whether age was a “motivating factor” of an adverse employment action, while others require a heightened burden of proof that age was the “but for” cause of an adverse employment action. Such varying interpretations of Gross will inevitably lead to circuit splits, the absence of uniformity in the application of federal law, and a future Supreme Court decision to clean up the mess.

Thus, the Supreme Court should grant certiorari to an ADEA RIF case and seek to dispel the impossible burden it has placed upon RIF plaintiffs.

What Congress Can Do to Fix the Gross Problem

Congress can fix the Gross problem by enacting legislation that limits the scope of the Gross decision to non-RIF ADEA cases, or, in the alternative, to all ADEA cases by explicitly stating that the mixed-motive theory articulated in Price Waterhouse v. Hopkins,[xxv] as well as the burden shifting framework articulated in McDonnell Douglas Corp. v. Green,[xxvi] are fully applicable to ADEA cases.

As this article is being written, both houses of Congress have responded to theGross problem by proposing bills entitled the “Protecting Older Workers Against Discrimination Act,”[xxvii] the stated purpose of which are “to amend the Age Discrimination in Employment Act of 1967 to clarify the appropriate standard of proof.”[xxviii] While these bills clearly reflect Congressional understanding of the harm that Gross causes ADEA plaintiffs, their current language as well as their present place in the legislative process creates foreseeable problems that should be swiftly resolved.

First and foremost, both bills are presently tied up in Committees.[xxix]As a result, amidst a nationwide economic recession resulting in numerous corporate RIFs as discussed infra, plaintiffs filing age discrimination lawsuits while in post-Gross, pre-Congressional action “purgatory” will be left without a remedy.

Second, because such “purgatory plaintiffs” will likely exist given the current economic recession, Congress should seek to include retroactive language in the proposed bills in an effort to afford these plaintiffs a remedy. Currently, no such retroactive language exists in either bill proposal.[xxx]

Third, the proposed bills as presently written include no language recognizing theGross problem’s disproportionate and logically impossible burden it places on ADEA RIF plaintiffs, as opposed to the more classic, non-RIF ADEA plaintiff.[xxxi]While it may be reasonably presumed that general language that disavows the Gross decision’s applicability to ADEA cases would prevent its application to ADEA RIF plaintiffs as well, there is no sense in leaving any provisions of these bills subject to judicial interpretation.

The role of Congress cannot be understated in fixing the Gross problem, and while it has taken the proper initial steps to remedy the subversion of federal law thatGross represents, timeliness, retroactivity, and precision in language choice to guarantee the protection of ADEA RIF plaintiffs soon to be effected is essential in ensuring that the rule of law is upheld.  As Justice Ginsburg famously stated in another recent travesty of judicial interpretation in the employment context,[xxxii]“the ball is in Congress’ court.”[xxxiii]

Why Fixing the Gross Problem Matters Now More than Ever

A survey of ADEA charges filed with the EEOC from 1997 to 2009 indicates that in 2008 and 2009, more ADEA charges were filed with the EEOC than in any other fiscal year in the 12-year sample size.[xxxiv]Furthermore, a tremendous increase in ADEA charges is glaringly apparent from 2007 to 2008.[xxxv]While no known data exists to support the contention, it can be reasonably inferred that such a substantial rise in ADEA charges filed with the EEOC is a byproduct of the ongoing economic recession in the United States.

As this article is being written and during the time period reflected in the EEOC charge data, numerous corporate employers, all of which are subject to the protections of the ADEA, are reducing their workforces in droves in an effort to reduce operating costs and maintain profit margins. To name a few that can be quickly found with a simple Google search, the health insurer Humana,[xxxvi] the discount retailer Target,[xxxvii] the drug manufacturers Sanofi-Aventis,[xxxviii]Eli Lilly,[xxxix]and Bristol-Meyers Squib,[xl] the oil giant Shell,[xli] the healthcare giant Cardinal Health,[xlii]and the telecommunications provider AT&T,[xliii]are all reducing their workforces during the current economic recession.

With every RIF that takes place between now and the moment that either the Supreme Court or Congress act to eliminate the applicability of the Gross decision to ADEA RIF cases if not ADEA cases as a whole, multitudes of ADEA protected plaintiffs adversely effected by a RIF that may or may not have a compelling case for illegal age-motivated discrimination against their employer, will ultimately be denied the legal protections afforded to them under federal law.[xliv]

Above all else, the Supreme Court, Congress, and the readers of this article must remember that people like Jack Gross are exactly those that the ADEA was meant to protect.  Now, the Supreme Court has to fix its mistake, or Congress must do it for them.

 

[i]Testimony of Jack Gross:  Hearings Before the Senate Judiciary Comm., 111thCong. (2010).

[ii]Id.

[iii]Id.

[iv]Id.

[v]Id.

[vi]Id.

[vii]Id.

[viii]Id.

[ix]Id.

[x]Id.

[xi]29 U.S.C.A 621 (1967)

[xii]129 S. Ct. 2343 (2009).

[xiii]Id.

[xiv]109 S. Ct. 1775 (1989).

[xv]See Generally, Desert Palace, Inc. v. Costa, 123 S.Ct. 2148 (2003).

[xvi]See 129 S.Ct. 2343 (2009).

[xvii]See Hardin v. Hussmann Corp., 45 F.3d 262 (8th Cir. 1995); Coleman v. Quaker Oats Co., 232 F.3d 1271 (9th Cir. 2000).

[xviii]See Hardin v. Hussmann Corp., 45 F.3d 262 (8th Cir. 1995).

[xix]NLRB v. Transp. Mgmt. Corp., 103 S. Ct. 2469, 2473 (1983).

[xx]93 S. Ct. 1817 (1973).

[xxi]Jones v. Okla. City Pub. Schs., 617 F.3d 1273, 1278 (10th Cir. 2010).

[xxii]Id.

[xxiii]Johnson v. Franklin Farmers Cooperative, 378 F. Appx. 505, 509 (6th Cir. 2010).

[xxiv]McFadden v. Krause, 357 F. Appx. 17 (9th Cir. 2009).

[xxv]109 S. Ct. 1775 (1989).

[xxvi]93 S. Ct. 1817 (1973).

[xxvii]H.R. 3721, 111th Cong. (2009), 2009 FD H.B. 3721 (NS) (Westlaw), See also S. 1756, 111th Cong. (2009), 2009 FD S.B. 1756(NS) (Westlaw).

[xxviii]Id.

[xxix]Id. (H.R. 3721 presently rests in the Subcommittee on Health, Labor, Employment, and Pensions, while S. 1756 presently rests in the Committee on Health, Education, Labor, and Pensions.)

[xxx]See http://www.govtrack.us/congress/billtext.xpd?bill=h111-3721 andhttp://www.govtrack.us/congress/billtext.xpd?bill=s111-1756

[xxxi]See Id.

[xxxii]Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 127 S. Ct. 2162 (2007)

[xxxiii]Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 661, 127 S. Ct. 2162, 2188 (2007) (Ginsburg, J., Dissenting).

[xxxiv]http://www.eeoc.gov/eeoc/statistics/enforcement/adea.cfm (24,582 charges were filed in 2008 and 22,778 charges were filed in 2009.)

[xxxv]Id. (Only 19,103 charges were filed in 2007.)

[xxxvi]Catherine Larkin and Alex Nussbaum, Humana Plans to Reduce Workforce by 1,400 This Year, Bloomberg Businessweek, Feb. 17, 2010,http://www.businessweek.com/news/2010-02-17/humana-plans-to-reduce-workf…

[xxxvii]Scott Mayerowitz and Alice Gomstyn, Target Among the Latest Chain of Grim Layoffs: Major Companies From Communications to Retail Layoff 40,000; More Americans Lose Jobs, ABC News, Jan. 27, 2009,http://abcnews.go.com/Business/CEOProfiles/story?id=6731375&page=1

[xxxviii]Linda A. Johnson, Sanofi-Aventis to Reduce US Workforce by 1,700, The Boston Globe, Oct. 8, 2010,http://www.boston.com/news/health/articles/2010/10/08/sanofi_aventis_to_…

[xxxix]Eli Lilly to Reduce Workforce, United Press International, Sept. 14, 2009,http://www.upi.com/Business_News/2009/09/14/Eli-Lilly-to-reduce-workforc…

[xl]Ellen Gibson, Bristol-Myers to Cut 3% of Workforce to Reduce Costs, Bloomberg Businessweek, Sept. 23, 2010,

http://www.businessweek.com/news/2010-09-23/bristol-myers-to-cut-3-of-workforce-to-reduce-costs.html

[xli]Shell To Layoff Workforce To Reduce Cost, Energy Business Review, April 30, 2009, http://utilitiesnetwork.energy-business-review.com/news/shell_to_layoff_…

[xlii]Press release, Cardinal Health, Cardinal Health to Reduce Workforce to Respond to Economic Conditions, (March 31, 2009.)

http://cardinalhealth.mediaroom.com/index.php?s=43&item=295 (

[xliii]AT&T to reduce workforce by 12,000, San Antonio Business Journal, Dec. 4, 2008,

http://www.bizjournals.com/sanantonio/stories/2008/12/01/daily29.html

[xliv]See the Age Discrimination in Employment Act at 29 U.S.C.A 621 (1967)

Charles “Chip” William Hinnant III and John Erwin Barton © Copyright 2010

New York Joins Other States in Suing FEDEX for Misclassification of its Ground Division Drivers as Independent Contractors

This week’s featured blogger at the National Law Review is Richard J. Reibstein of Pepper Hamilton LLP. Richard provides some great analysis of the FedEx issues related to the classification of it’s drivers as independent contractors. 

A year ago, the Attorneys General of New York, New Jersey, and Montana issued a joint statement that they intended to sue FedEx Ground for misclassifying drivers as independent contractors instead of employees.  Now, the second of those two Attorney Generals has done so when New York Attorney General Andrew Cuomo recently  filed a lawsuit against FedEx Ground on behalf of the State of New York.

The New York lawsuit was filed the same week as the Attorney General of theMontana, Steve Bullock, announced that his office settled its driver misclassification claims against FedEx Ground for $2.3 million.  The New York lawsuit also follows by two months the filing of a similar misclassification lawsuit by the Attorney General of  Kentucky, Jack Conway, and comes three months after the Attorney General of Massachusetts, Martha Coakley, settled its driver misclassification claims against FedEx Ground for $3 million.

Cuomo’s lawsuit (New York State v. FedEx Ground Package System, Inc.) was filed in the New York Supreme Court for New York County. It alleges that, by classifying its drivers as independent contractors, FedEx’s Home Delivery unit fails to provide its drivers the rights afforded to “employees” under New York’s labor laws, which includes the Unemployment Insurance, Workers Compensation, Wage Payment, and Overtime laws.  According to the complaint filed in court, Cuomo alleges that “FedEx has the power to control, and does in fact control, almost all aspects of its drivers’ work” including “hours, job duties, routes, and even clothing.”  There are reportedly over 700 drivers in the Home Delivery unit.  (Click “More” for “Takeaway” below)

Unlike FedEx’s Ground Division, its Express Division treats its drivers as employees, affording them rights under the state and federal labor laws.

Over sixty class action caseshave been brought against FedEx Ground under state and federal laws; many of those cases have been consolidated in a federal court in Indiana.  While FedEx Ground has won some important court battles in the past two years, it has lost a number including a California class action case in which it was required to pay $30 million in damages and legal fees.

FedEx Ground also defended itself against an IRSaudit over the misclassification issue.  Within the past year, the IRS withdrew a $319 million citation against FedEx Ground for unpaid federal employment taxes, penalties, and interest under the “safe harbor” provisions of the Revenue Act of 1978.  That “safe harbor” provision would be eliminated if Congress passes the “Fair Playing Field Act of 2010.”  Another independent contractor bill, the Employee Misclassification Prevention Act, is currently pending in Congress.  Eighteen states have passed laws cracking down on independent contractor misclassification in the past three years.

Takeaway: The New York lawsuit against FedEx Ground further demonstrates that misclassification has substantial legal consequences.  Regardless of the outcome of the New York case, defending enforcement actions and class action lawsuits is costly.  FedEx’s experience has led many companies, which utilize the services of a significant number of independent contractors, to take proactivesteps designed to enhance independent contractor compliance. Those steps are discussed by the author in an article found athttp://www.pepperlaw.com/publications_article.aspx?ArticleKey=1769.

Copyright © 2010 Pepper Hamilton LLP

You've Got Mail (and a Lawsuit): Mobile Communication Devices and the Wage and Hour Pitfalls they Present

From the National Law Review’s guest bloggers at Steptoe & Johnson PLLC – Thomas S. Kleeh provides more details on both the opportunities and the headaches for employers that smartphones provide: 

These days, it’s hard to imagine life without some form of mobile communication device attached to our ear, hip, or thumbs.  Blackberries, iPhones, Droids and the like are as much a required fashion accessory as a productivity tool nowadays.  As such, employees have long since abandoned the traditional complaints about being issued employer-required “cell phones.”  The texts, social networking, games and other apps — not to mention the distraction a properly loaded smartphone can provide for a fussy child in the backseat — make the “constant contact” with the office bearable.

However, that “constant contact” can lead to headaches for employers.  A variety of potential liability sources lurk around the corner after employees are issued mobile communication devices.  An easy example is the personal injury lawsuit that often follows when an employee negligently texts or talks on a phone while driving.  Another often overlooked concern, however, can be found in the wage and hour venue.

One of the best aspects of this era of Blackberries and iPhones is the instant communication it provides, allowing simple questions and responses to be dispatched with a few clicks of the thumbs.  But what if the person on the other end of that email, instant message, or text is a non-exempt employee entitled to overtime compensation for any and all hours worked beyond 40, or an exempt employee who otherwise performed no work during the workweek?  In those cases, each short email or text might eventually be costly.

Non-exempt employees who are required to carry a mobile communication device as part of their job duties and who use the device for job-related matters during non-work hours are arguably entitled to compensation for that time.  A City of Chicago police officer recently filed a purported class action lawsuit making that very claim.  Similarly, exempt employees who perform no work during a workweek generally are not entitled to receive pay for that workweek; but if an exempt employee is required to check e-mail during the workweek, that electronic activity might constitute working time, thus entitling the employee to receive his or her salary for the entire week.  Resolving litigation involving wage and hour claims (voluntarily through settlement or involuntarily at the hands of a jury) can be very expensive with liquidated damages and attorney’s fees at stake in addition to any unpaid wages.  Plus, the “paper” trail created through the email or text traffic can make a litigious employee’s claims easy to prove.

What can employers do?  One option includes establishing a policy prohibiting employees from using mobile communication devices for work purposes while off-duty.  (Of course, if an employee violates that policy, the time spent working must be compensated, but the offending employee can be disciplined for violating the policy).  Another (dreaded) option is to recall all those employer-issued fashion accessories – no matter how fussy employees’ children might get.  Regardless, employees’ use of their smartphones for work purposes needs to be on Human Resources’ and Risk Management’s radar.

© 2010 Steptoe & Johnson PLLC All Rights Reserved

The Danger of NLRB Changes to the Union Election Process

This week’s featured guest bloggers at the National Law Review are from Steptoe & Johnson PLLC.  John Merinar Jr. highlights some of the issues with some of the changes the National Labor Relations Board (“NLRB”) is contemplating such as electronic voting: 

Now that the mid-term elections are over, conventional wisdom is that the “card check” bill – also known as The Employee Free Choice Act – is not going anywhere in Congress.  Employers are right to celebrate this news, and to feel a sense of relief that such a disastrous step on the part of our legislature seemingly has been averted.

However, the celebratory mood should be tempered somewhat by the realization that employers are not out of the woods just yet.  Instead of waiting for Congress, the National Labor Relations Board (“NLRB”) is contemplating making some changes of its own to the union election process, and the ideas the NLRB has voiced are cause for concern.

One of the changes that the NLRB has been contemplating is switching from the current method of voting by secret ballot to electronic voting and voting over the internet.  The problems encountered with electronic voting in general elections have been well documented over the last several years.   There is no reason to think that the NLRB would find it any easier to make the transition to electronic voting than the people who run general elections did.

More importantly, there is no real reason to take on the change in the first place.  The move towards electronic voting in general elections was driven by the desire to obtain faster and more accurate results where hundreds of thousands, and in some elections, millions of voters cast ballots.  The number of voters in union elections is so small in comparison that the same rationale for change does not apply.

More troubling is the suggestion that internet voting might be a substitute for the conventional method.  As proof, look no further than the situation where an employer wins an election by an overwhelming margin.   In that situation, it would be apparent that many employees who signed authorization cards prior to the campaign actually voted for the employer when they had the benefit of confidentiality.  Undeniably, one of the reasons for that was the fact that these employees would cast votes at an independent polling place monitored by the NLRB.  They would vote in a booth protected by a curtain, fold the paper ballot, and stuff their folded ballots into the ballot box.  In short, they are given every assurance that their votes will be secret.  Without a secret ballot election, employees might end up with a union which they did not really want.

For example, if electronic voting were adopted, it’s not hard to imagine union organizers looking over voters’ shoulders as they vote on line.   Worse, it’s also not hard to imagine union organizers working hard to defeat passwords, disrupt service, and otherwise work to frustrate the right of every voter to have the opportunity to cast one ballot, and to do so secretively.

Sometimes the elaborate steps which NLRB representatives take to assure an employer, employee and union that the conventional method of voting is absolutely secret and not susceptible to tampering seem overdone, but the truth is there is no substitute for the confidence those steps give to everyone participating.  Employers depend on that level of confidence because only then can employees freely express their positions.  Employers should be very, very wary of suggestions from the NLRB that the time has come to consider alternatives which do not inspire that same degree of confidence.

© 2010 Steptoe & Johnson PLLC All Rights Reserved

The Legal Implications of Employers Providing Employees Smartphones

Whether employees want  phone and mobile access to email and  the internet  or employers want their employees to have access, smartphones seem to be the ‘must have’ business accessory these days.   As with many technologies, the lawsuits come in quicker than companies can draft and enforce policies related to the technology. 

Lately we’ve been seeing a whole wave of Employment / Privacy Right Smartphone articles at the National Law Review.

For a General Overview of the Human Resource / Risk Management Issues Related to Smartphones:

You’ve Got Mail (and a Lawsuit): Mobile Communication Devices and the Wage and Hour Pitfalls they Present by Thomas S. Kleeh of Steptoe & Johnson PLLC.

Are You Calling, E-mailing or Texting Employees While They Drive? You May Want to Reconsider by David J. Carr of Ice Miller LLP

For Department of Transportation / State Law Guidelines Related to Texting While Driving or Distracted Driving:

Department of Transportation Prohibits Drivers of Commercial Vehicles From Texting While Driving by David L. Woodard and Louis B. Meyer III of Poyner Spruill LLP.

Distracted Driving Policies: Improve Safety and Limit Exposure by Anne B. Ellison of Dinsmore & Shohl LLP

New Kentucky Law Bans Texting While Driving by Michael J. Henry of Dinsmore & Shohl LLP

For Overtime Pay Issues and the Fair Labor Standards Act (FSLA) Issues Related to Smartphones:

Company-Issued Smartphones and the FLSA: Keeping Employees Connected May Have Its Price by James R. Carroll and Shawn M. Staples of Much Shelist Denenberg Ament & Rubenstein P.C

Curtailing the After-Hours Use of Blackberries by Non-Exempt Employees by Trent S. Dickey and David H. Ganz of Sills Cummis & Gross P.C.

Overtime Lawsuit for Use of PDA’s Hi-Lights Potential Liability for Off-Duty Electronic Communications by David J. Lampe of Dinsmore & Shohl LLP

For the Use of Smartphones and Employer  Liability Related to Eavesdropping:

Beware the Allure of Smartphone Technology: Recording Others without Consent May Get You in Serious Trouble by Anne E. Larson of  Much Shelist Denenberg Ament & Rubenstein P.C

Georgia Voters Approve Dramatic Changes to Employment Restrictive Covenant Laws

This week’s featured blogger at the National Law Review is Jon M. Gumbel of Ogletree Deakins.  Jon writes about how this month’s elections in Georgia approved a measure which would amend the Georgia constitution to dramatically alter the law as it pertains to employee non-compete, customer non-solicitation, confidential information and similar contractual provisions between Georgia employers and their employees. 

The long-awaited and often debated results are in! On Tuesday, November 2, 2010, Georgia voters decided (quite convincingly) to amend the Georgia Constitution, which allowed for the previously passed House Bill 173 to become law (now O.C.G.A. §13-8-50, et seq.). This new statute dramatically alters the law as it pertains to employee non-compete, customer non-solicitation, confidential information and similar contractual provisions between Georgia employers and their employees. The new law became effective on November 3, 2010 and as such, is deserving of prompt attention by Georgia employers.

Until November 2, Georgia’s restrictive covenant laws were governed by published court decisions issued by a wide variety of Georgia judges and based on an even wider variety of specific factual situations, creating a somewhat muddled, very complex and highly unpredictable area of the law. Furthermore, as this case law developed over the past 60 plus years, Georgia courts applied an increased level of scrutiny to employee restrictive covenants, making Georgia one of the most difficult states in which to enforce such covenants. For example, Georgia courts previously required employers to undertake the extremely challenging task of tailoring restrictive covenants executed at the onset of the employment relationship to the employee’s post-employment competition restrictions. In addition, Georgia courts would automatically invalidate a customer non-solicitation provision upon the finding of one technical problem within a noncompete covenant and vice versa. Finally, Georgia courts would not, under any circumstances, modify an otherwise unenforceable covenant so as make it reasonable in the court’s eyes and therefore, enforceable (the “blue penciling” process).

The new statute specifically states Georgia’s new public policy favoring enforcement of these agreements and provides specific guidelines for drafting enforceable agreements. For example, the new statute expressly authorizes a more general description of prohibited, post-employment activities, thus mitigating the requirement that such covenants be narrowly tailored at the onset. The new statute eliminates the prior rules invalidating one covenant based on the unacceptable language of another separate covenant within the same contract. Perhaps, most significant is the new statute’s specific approval of blue penciling, the practice by which Georgia courts are allowed to modify and enforce an otherwise unenforceable covenant.

It is important to note that this new statute only applies to restrictive covenants executed on or after the date the statute was passed – November 2, 2010. The previous, more rigorous legal standards will still apply to agreements entered into before that date. Re-drafting restrictive covenants in line with Georgia’s new statute may be the best option for many Georgia employers. However, Georgia employers should consult with counsel to determine whether they can benefit from this new law. This is especially true when it comes to covenants contained in more complex management and executive agreements that are tied to more generous severance or other compensation plans or those associated with the sale of a business.

Update! For more recently posted information about this topic, please see:  Important Notification Regarding the Effective Date of The New Georgia Restrictive Covenant Statute

© 2010, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

About the Author:

Jon M. Gumbel has concentrated his practice in the field of management labor and employment law since 1987.  He has represented employers with respect to litigation and other employment law disputes involving race, gender, age, religious, and disability discrimination claims under Title VII, the ADEA, the ADA, the FMLA, and comparable state laws.  Jon has also represented employers with respect to their employment litigation matters involving pregnancy discrimination, breach of compensation agreements, breach of non-compete agreements, breach of fiduciary duty, joint employment, wage and hour matters, OSHA citations, and wrongful discharge laws.  Finally, Jon has represented numerous employers with respect to ERISA claims/litigation including those involving health, disability and pension claims.  404-881-1300 /www.ogletreedeakins.com

 

Nondisclosure Agreements (NDAs): Not Just a “Standard Form.”

James M. Singer of Pepper Hamilton LLP is the featured guest blogger this week at the National Law Review.  James provides some great reminders about NDA’s Non-Disclosure Agreements. 

Many business transactions start with a nondisclosure agreement (NDA).  Often, one of the first deal points to be negotiated is whose “form” NDA will controls.  However, it’s common for both parties to overlook the fact that there is no “one-size-fits all” form NDA.

Before entering into an NDA, each party should examine the terms to ensure that the agreement makes sense for the party’s business.  Each party should ensure that the agreement adequately protects its own information, while not going so far as to subject the party to confidentiality procedures that can create issues down the road.

Issues to consider when entering into an NDA include:

  1. Nature of the disclosure: Are you more likely to be the discloser or the recipient of confidential information?  If your client will be a discloser, then a strong agreement may benefit the client. If you will only be the recipient, then you might seek a less stringent agreement.
  2. Duration of the confidentiality obligation: Some NDAs require information to be kept confidential forever. Others have a more limited term, such as 2 to 3 years.  A long term is valuable if the disclosure involves proprietary manufacturing processes, chemical compositions, or similar information.  However, if you are disclosing information that will become publicly known anyway — such as design details for a soon-to-be-sold product, or information that will be published in a patent application — then a term greater than 2 or 3 years may only benefit the other party.
  3. Consistency with corporate procedures: Each party should review the terms of the agreement to ensure that the agreement does impose obligations with which it cannot comply.  For example, if you need to disclose the information to contractors who aren’t employees, be sure that the agreement permits that.   I’ve also seen NDAs stating that all individuals who will have access to the information must sign a confidentiality agreement that specifically refers to  the NDA.  Will you require your employees to sign a new agreement that specifically refers to this agreement?  When faced with this type of obligation, consider whether or not you are prepared to comply.
  4. Purpose / Non-use clause: It’s standard for an NDA to prohibit the recipient from disclosing the information.  However, does it also restrict the recipient from internally using the information for its own benefit?  Does it clearly limit the purpose for which the recipient can use the information?  “Purpose” clauses are often filled in after all other terms are negotiated.  Parties should take care so that the purpose clause is as carefully drafted as any other clause.

These are just a few areas that parties should consider before signing a confidentiality agreement.  Rather than simply signing an ‘off the shelf” form, each party should carefully review the agreement with its attorneys to ensure that the document fits the business need.

Copyright © 2010 Pepper Hamilton LLP

About the Author:

James M. Singer is a partner in the Intellectual Property Practice Group of Pepper Hamilton LLP.  A registered patent attorney, Mr. Singer provides strategic counseling that helps businesses identify, acquire, license, protect and maximize the value of intangible assets.  Mr. Singer is the author and co-author of several publications, and he publishes IP Spotlight, a blog about topics relevant to the intersection of business and intellectual property law, at http://www.ipspotlight.com/. He also is a frequent public speaker on issues relating to technology and the law, and is recognized in Intellectual Asset Management (IAM) Licensing 250: The World’s Leading Patent and Technology Licensing Lawyers 2010. 412-454-5023 /www.pepperlaw.com

Law Firms' Diversity Progress Stalls in Recession

The National Law Review’s Business of Law guest blogger this week is Vera Djordjevich of Vault Inc. Vera describes the findings of a recent Vault / MCCA Minority Corporate Counsel Association  survey which show  how law firm’s efforts to diversify have slowed down dramatically during these challenging economic times.  Read On:      

Law firms had been making steady, if slow, progress in diversifying their ranks.  Recent data collected by Vault and the Minority Corporate Counsel Association (MCCA), however, suggests that some of the profession’s advances have come to a virtual standstill.

This spring, as part of the annual Law Firm Diversity Survey, more than 260 law firms, including many of the largest and most prestigious law firms in the country, completed a detailed questionnaire on their diversity initiatives, programs and demographics. The results have been released in the Law Firm Diversity Database.

The data reveals how the economic crisis has affected law firm hiring, promotion and retention as a whole, and particularly highlights its impact on attorneys of color. While everyone felt the recession, the survey data suggests that minorities were, as many have feared, disproportionately affected.

Among the survey’s major findings:

Law firm hiring declined across the board

While it’s clear that law firm jobs are far scarcer now than they were two or three years ago, the data shows just how dramatic the change has been. For example, the size of the 2L summer associate class dropped by some 20 percent since 2008. In addition, far fewer of those summer associates were offered permanent positions than in the past: whereas nearly 93 percent of 2Ls were offered jobs in 2007 and 87.83 percent received offers in 2008, just 72.85 percent of 2Ls received permanent offers in 2009. Law firms also cut back drastically on the recruitment of experienced attorneys, with lateral hiring falling by more than 40 percent from 2008 levels.

Minority recruitment fell

Law firms have been primarily relying on increased minority recruitment to diversify their populations. What’s particularly troubling about the latest survey data is that not only did the overall number of attorneys hired drop in 2009, but also the percentage of those attorneys representing racial/ethnic minorities fell.

In fact, recruitment of minority lawyers declined at all levels — from law students to lateral attorneys. Of all lawyers hired in 2009 (including starting associates as well as laterals), less than 20 percent (19.09 percent) were minorities; a considerable drop from 2008 (21.77 percent) and 2007 (21.46 percent). And the 2009 2L summer class had the lowest percentage of minority students of the last three years: 25.19 percent (compared to 25.66 percent in 2008 and 25.91 percent in 2007).

Looking at specific racial groups, the most notable decline in hiring was among African-American students. In 2007, 7.32 percent of 2L summer associates were African-American; in 2009, that percentage fell to 6.42 percent. The percentage of Asian American 2Ls also declined, from 12.83 percent in 2007 to 11.74 percent in 2009. Meanwhile, the number of Hispanic students and multiracial students (those who identify with two or more races) inched upward a few tenths of a percent.

Minority lawyers continue to leave in high numbers

Meanwhile, as the number of minority lawyers entering firms has decreased, the number of minority lawyers leaving firms has increased. This is especially striking with respect to minority women. At every level of associate, the percentage of minority women who left their firms (voluntarily or through layoffs) has increased by at least two percentage points since 2007. For example, of third-year associates who left in 2009, 16.64 percent were minority women (compared to 13.98 percent in 2008 and 14.36 percent in 2007). In 2007, 12.83 percent of fourth-year associates who left their firms were minority women; by 2009, that number had climbed to 15.46 percent.

Overall, minority men and women represent 20.79 percent of attorneys who left their firms in 2009 — even though they represent just 13.44 percent of the overall attorney population at these same firms. Moreover, for the first time in three years, the percentage of minority attorneys hired was lower than the percentage of minority attorneys who left. In other words, firms are losing their minority attorneys faster than they can replace them.

Retention becomes more critical as recruitment drops

Given the likelihood that law firm recruiting will not return to pre-recession levels any time soon, there’s a danger that even a one-time drop in minority recruitment could have a long-term impact on overall law firm populations. In order to fend off this risk, firms will need to put greater effort into retention and professional development. Retention has long been a problem among large law firms, but the new economic reality makes progress in this area critical. More effective mentoring and mentoring, better monitoring of attorneys’ progress, overcoming unconscious biases, and ensuring that all have equal access to significant opportunities will help law firms build, and maintain, a talented and diverse workforce.

© 2010 Vault.com Inc.

About the Author:

Vera Djordjevich is senior law editor at Vault.com, where one of her areas of focus is diversity in the legal profession. She oversees the research and publication of information about law firm diversity initiatives and metrics for the Vault/MCCA Law Firm Diversity Database. She also edits Vault.com’s content related to law practice in the UK and co-authors Vault’s law blog, which provides career news, advice and intelligence to the legal community. Prior to joining Vault, Ms. Djordjevich was an editor at American Lawyer Media and practiced law in a small litigation firm in New York. She has a law degree from New York University School of Law and a bachelor’s degree from Stanford University.  www.vault.com / 212-366-4212

Buy-Sell Agreements: Considerations for Funding a Buy-Out

The featured bloggers at the National Law Review for this upcoming week are from the Chicago Law firm of Funkhouser Vegosen Liebman & Dunn Ltd. Partner James F. Growth and Michelle L. Wolf-Boze highlight some of the issues involved with buying out the owner of a business.  

You and your partner(s) have nurtured and grown your business to become a critical piece of your families’ and employees’ financial futures, and now you want to assure that it can survive and prosper when you are gone. One of the issues that keeps many business owners up at night is how their loved ones and their companies will fare if they or one of their partners leaves the business unexpectedly.

A company unprepared for the sudden loss of an owner-manager risks considerable organizational upheaval and financial hardship that can threaten its survival.  Privately-held, owner-managed businesses in particular depend on the leadership and efforts of their owners. If one of the owners dies, becomes disabled, or for some other reason ceases to fulfill her role as employee/manager, equity owner, or both, her remaining partners likely will need to replace her services.

In order to be in the best position to weather this potential storm, business owners often need to include, as part of their estate planning and business succession planning, what is known as a “buy-sell agreement.” A buy-sell agreement is an agreement among the company’s owners that provides the terms for transition of ownership upon an owner’s departure from the company. Preparation and agreement among the owners on the structure and terms of this document can make all the difference in ensuring an effective transition of the business following the death, disability, retirement or other departure of an owner-manager.

One of the big hurdles owners often face in structuring a buy-sell agreement is determining how the purchase of a departing owner’s interest will be funded without bringing in a new owner. Generally, there are three potential funding sources for the internal buy-out of a departing owner’s interest: 1) company cash, 2) the remaining owners’ non-company resources, and 3) insurance proceeds.

For many businesses, however, available cash is in short supply, and owners are unable or unwilling to count on borrowing or drawing upon other personal assets to finance a buy-out. Therefore, owners often turn to insurance products for these events. For example, to address a possible death, companies will purchase life insurance on the life of each owner with death benefits payable to either the company or the surviving owners. These benefits would then be paid to the deceased owner’s family in exchange for his equity in the business.

While the life insurance option solves the liquidity problem, many business owners find it has some unattractive drawbacks. Chief among them, many entrepreneurs are troubled by the idea that their families will receive only the proceeds of insurance, the premiums for which were paid out of the cash flows of their companies, in return for their equity in the businesses they worked so hard to build. They see that the end result is the same as if they had purchased the life insurance themselves (using the same dollars that would have been used by the company to buy the insurance), named their family members as the beneficiaries, and given their equity to their business partners. There are also tax issues that can result in a family paying more in estate taxes than they receive for the business in this scenario. For these owners, it is not acceptable to have their families, in effect, receive nothing for their equity if they die before they can either sell their companies or implement a succession plan.

Instead, owners may prefer to purchase and hold life insurance policies through tax-advantaged vehicles (such as irrevocable life insurance trusts) in amounts that are based on their families’ financial needs, rather than the estimated values of their businesses, and to use “seller financing” for a separate redemption of their ownership interests out of the cash flows of their businesses over a period of time following their deaths.  In this financing arrangement, the purchaser of the departing owner’s interest would make installment payments of the purchase price, plus interest, to the owner or the owner’s family over a number of years, and the family’s need for immediate cash would be satisfied through separate life insurance.

Regardless of your preferences for funding the buy-out of an owners’ interest, planning for the untimely exit from your company of you or one of your partners is critical. A carefully designed buy-sell agreement can provide valuable clarity and piece-of-mind for all of the stake-holders in an owner-managed business. Careful planning can minimize the tax costs while providing financial security for all owners’ families.

© Copyright 1999-2010, Funkhouser Vegosen Liebman & Dunn Ltd. All rights reserved.

About the Authors:

Jim Groth joined Funkhouser Vegosen Liebman & Dunn Ltd. upon his graduation from Northwestern in 1992 and is a member of the Firm.. Jim has extensive experience in mergers, acquisitions, divestitures, multinational business combinations, international trade transactions, international taxation issues, securities transactions, complex litigation including securities fraud litigation, labor and employment and various types of business financing transactions.312-701-6830 /www.fvldlaw.com

Michelle Wolf-Boze  joined FVLD after graduating from Law School. Since joining the firm, Michelle has gained experience in estate planning and administration, commercial real estate and general corporate matters. Michelle has represented both tenants and landlords in drafting and negotiating commercial leases for retail, office and industrial space. Michelle has also drafted a variety of corporate and employment-related agreements.312-701-6819 /www.fvldlaw.com


 

Testing the Limits of Applicant Testing

The potential legal pitfalls of job applicant testing are illuminated by the National Law Review’s featured blogger Sarah L. Hinkle of Steptoe & Johnson PLLC.  Read on:  

Many employers believe that applicant testing – skills, personality, or honesty testing, for instance – is an easy way to screen out undesirable job candidates. Besides, all employers want highly skilled, easy to work with, honest, and sober employees … and what better way to rate a candidate than to subject him or her to a test, right? Not so fast! Applicant testing is fraught with potential legal pitfalls, and caution must always be exercised before engaging in any kind of applicant testing.Anchor

For example, while tests can be very effective tools for finding qualified applicants, employers must be aware that some tests or selection procedures can violate state and federal anti-discrimination laws. Worse, this can occur even if the employer does not intend to do so, such as when a “neutral” test or other selection procedure disproportionately excludes people in a particular group by race, gender, national origin, religion, disability, age, or any other protected classification, unless the employer can justify the test or procedure by showing that it is “job-related and consistent with business necessity.”

The seminal case examining the unintentional “disparate impact” discrimination found in some testing techniques is Griggs v. Duke Power Co., 401 U.S. 424 (1971). In Griggs, the employer instituted a requirement that applicants at a power plant must either have a high school diploma or pass a general intelligence test in order to be hired. The Court found that the requirement was discriminatory because the employer could not show that the requirement bore a “demonstrable relationship to successful performance of the jobs for which it was used.” The full text of Griggs, by the way, can be found at: http://www.law.cornell.edu/supct/html/historics/USSC_CR_0401_0424_ZO.html

Keep in mind that pre-employment screening which merely has a discriminatory impact isn’t the only type of applicant testing employers need to be careful with. Certain other pre-employment testing may be found unlawful regardless of intent, such as requiring medical examinations of applicants before providing them a conditional offer of employment.

With due caution in mind, consider the following when deciding whether to begin using or continue using pre-employment testing procedures:

  1. Most obviously, but also most importantly, never use testing or any other selection procedure for the purpose of “weeding out” members of a protected class.
  2. Do not casually adopt testing procedures, and make sure decisions regarding testing are made at high levels of your company after consulting with counsel.
  3. Make sure that any tests or selection procedures that you use are valid and reliable. That is, make sure that the test actually measures components or characteristics that are necessary for the job position, that the test is truly useful in predicting success on the job, and that it yields consistent results. Do not assume that a test-maker vendor’s supporting documentation is entirely accurate – do your own investigation as well.
  4. Be vigilant as to changes in job requirements so that you know when you need to update test specifications or selection procedures.
  5. Accommodate people with disabilities by modifying the test or testing conditions or eliminating the testing requirement if necessary.
  6. Do not rely solely on tests for making decisions about candidates; use them as one component of your overall selection procedure.

If an employer remembers the above tips when evaluating current testing practices or when considering implementing new selection procedures, it will go a long way towards making sure the company gets a passing grade of its own.

© 2010 Steptoe & Johnson PLLC All Rights Reserved

About the Author – Sarah L. Hinkle:

Sarah Hinkle focuses her practice in the areas of labor and employment law.

304-262-3542 / www.steptoe-johnson.com