Retaliation For Court Testimony Results In $3.99 Million FLSA Verdict

A federal jury has awarded a former LAPD police officer almost $4 million dollars for the retaliatory discharge he allegedly suffered after providing testimony in another FLSA lawsuit.  http://www.latimes.com/news/local/la-me-lapd-20101102,0,195126.story.  The former police officer, Richard Romney, provided testimony in a failure-to-pay overtime case in January 2008.  On the heels of his testimony, the LAPD opened an investigation into Romney, claiming his testimony in court established he, himself, was violating LAPD policies on overtime.  The Chief of Police recommended Romney be terminated for his alleged violation of overtime policies and Romney was eventually terminated.  The jury apparently rejected the LAPD's proffered reason for Romney's discharge, concluding that Romney was terminated for his protected activity under the FLSA.  While there is some uncertainty as to whether the amount of the verdict will withhold scrutiny, there is no doubt Romney provides a cautionary tale for employers contemplating disciplining employees who engage in protected activity.

RBC Reduces Compensation For Low-Producing Financial Advisors

Registered Rep is reporting that RBC Capital Markets is reducing the payout for certain of its financial advisors ("FA").  Specifically, FAs who have been in the securities industry for five or more years and are generating $175,000 to $300,000 in gross production will be effected by the changes to RBC's compensation plan.  http://registeredrep.com/news/rbc_chops_payout/.  The move is the just the latest attempt by a broker-dealer or bank to demand increased productivity and hasten low-producer departures.  According to a RBC Regional Director, RBC advisors who produce $200,000 to $225,000 in annual revenue will have a payout reduction from 34% to 25%.  Advisors who produce $225,000 to $250,000 will have a payout reduction from 34% to 28%. Advisors who produce $250,000 to $300,000 will have a payout reduction from 37% to 34%.  In Florida, generally these Advisors are at-will employees.  Accordingly, RBC may modify its compensation plan at any time and for any reason.  With that said, RBC will not be permitted to retroactively apply its new production grid to commissions already earned.  Such action would violate Florida, and most state, wage and hour laws.

Goldman Sachs Subsidiary Successfully Enjoins Departing Analyst From Sharing Information With UBS

AYCO CO LP, a unit of Goldman Sachs, has successfully obtained a preliminary injunction, enjoining a former analyst from sharing information with his new employer UBS Financial Services.  The lesson simple -- when a financial services professional is transferring from one firm to another it is imperative that she obtain legal counsel concerning restrictive covenants and make certain that: (1) the broker protocol, if applicable, (2) all enforceable contractual commitments, and (3) all common laws, including trade secret laws, are complied with.  Failure to comply with the broker protocol and/or a suggestion of misappropriation of trade secrets or breach of a restrictive covenant can have extremely deleterious effects on both the transitioning employee and receiving firm.  In this matter, the transferring group had a trailing 12 months' commission and fees in excess of $3 million and $558 million in client AUM.  http://www.onwallstreet.com/news/ubs-goldman-sachs-ayco-2667905-1.html.  An injunction that limits the management or transfer of this type of business can have a very significant impact on employee compensation and the receiving firm's perception of its new employees.  Further, if a departing broker violates a restrictive covenant or the common law without the receiving firm's knowledge, it is likely the transferring employee will suffer an adverse employment action; perhaps even finding himself without his former or new job. 

Substantial Threat of Disclosing Trade Secrets Warrants Injunction Prohibiting Employment with Competitor

In Bimbo Bakeries USA, Inc. v. Chris Botticella, 2010 U.S. App. LEXIS 15314 (3rd Cir. July 27, 2010), the Third Circuit Court of Appeals affirmed the issuance of a preliminary injunction where the former employer established there was a substantial threat that its former executive would disclose trade secrets.

In Bimbo Bakeries, the executive at issue was a Vice President of Operations for the company who had access to unequivocally confidential information concerning long term strategies, operating costs, and customer negotiations.  The executive accepted employment with a competitor, Hostess, and then remained employed by Bimbo Bakeries for another two months while waiting to earn a bonus.  Importantly, the Court noted that while employed by Bimbo Bakeries the executive engaged in unusual use of his computer and was determined to have accessed multiple confidential files in rapid succession without seemingly reading the documents in the ordinary course.  A computer forensic expert verified the access, but could not confirm downloading and/or copying.  Significantly, the executive did not have a restrictive covenant preventing him from working for Hostess.  Furthermore, Hostess required that the executive sign an "Acknowledgement and Representation Form" to assure Hostess that the executive did not have any confidential information from former employers and would not use any confidential information in his capacity at Hostess.

Critically, the District of Pennsylvania and the Third Circuit Court of Appeals both ruled that, notwithstanding the fact there was no non-compete and there was the Hostess Acknowledgment, the executive was enjoined from working for the competition.  The courts both ruled that it is proper to grant a preliminary injunction -- enjoining employment -- to prevent the threatened disclosure of trade secrets where there is a "sufficient likelihood, or substantial threat, of a defendant disclosing trade secrets." 

The Third Circuit concluded that the harm of enjoining someone from earning a living may be warranted where it is "necessary to prevent greater irreperable harm from befalling another party."  Mindful of the harm to the executive, the Court noted, however: "if the Court holds [after a trial on the merits] that Bimbo is entitled to relief, the Court should fashion a remedy appropriate to protect Bimbo's trade secrets without unduly imposing on Botticella's right to pursue his chosen occupation."

 Bimbo Bakeries provides a couple of valuable lessons:

• An employee contemplating resigning for another opportunity who remains on the former company's payroll after accepting a job offer creates certain optical problems.  Specifically, in terms of potential breaches of fiduciary duty and duty of loyalty, as well as garnering new confidential information while planning to depart for the competition, will be frowned upon by a reviewing court.  The Bimbo Bakeries court referenced the time employed by Bimbo Bakeries with a job offer from Hostess with some concern.  If a bonus is in jeopardy, given the timing of a departure, negotiate the bonus from the new employer.

• When an employee, particularly an executive employee, leaves an employer, his or her computer and phones will be meticulously reviewed by a computer forensics company.  While an employee should never take any confidential or trade secret information, the reality that such conduct will be identified by the former employer should be a further reason not to engage in such misconduct.  Further, the proof of such conduct will lead to the imposition of injunctive relief and can form the basis for affirmative claims under federal and state law.

Supreme Court Rules ERISA Fee Claimants Only Need Achieve Some Degree of Success And Need Not Be "Prevailing Parties" To Obtain Attorneys' Fees

In an emphatic 9-0 decision, the United States Supreme Court ruled that an ERISA fee claimant under 29 U.S.C. 1132(g)(1) need only obtain some degree of success as opposed to being a "prevailing party" under the court's Buckhannon precedent.  See Hardt v. Reliance Standard Life Insurance Co.,   http://www.supremecourt.gov/opinions/09pdf/09-448.pdf. 

In Hardt, Reliance denied Ms. Hardt's request for Long Term Disability ("LTD") benefits.  Ms. Hardt filed a claim under ERISA, alleging that Reliance wrongfully denied her benefits.  At the summary judgment stage, the District Court concluded that Reliance had failed to review all of the necessary medical evidence and, therefore, the benefits denial was not based on substantial evidence.  The District Court, however, did not issue a ruling.  Rather, the court remanded the case for Reliance to reconsider all of the medical evidence and act on Ms. Hardt's application for LTD.  Ultimately, Reliance awarded Ms. Hardt LTD.  Hardt then filed an application for attorneys' fees pursuant to 1132(g)(1).  The District Court awarded Hardt fees.

Reliance then appealed the fee award, arguing that Ms. Hardt was not a "prevailing party" under the United States Supreme Court precedent of Buckhannon in that there was (1) no enforceable judgment on the merits, or (2) no court ordered consent decree.  The Appeals Court agreed and vacated the award of attorneys' fees.

The United States Supreme Court in Hardt unanimously rejected the Appeals Court analysis and found that the award of attorneys' fees was appropriate.  Specifically, and significantly, the Court ruled that ERISA has two different fee shifting provisions.  The first, not at issue, 1132(g)(2), governing actions to recover delinquent employer contributions to multi-employer plans provides that fees be awarded only to prevailing parties.  Quite differently, 1132(g)(1), the provision at issue, only requires that the court use its discretion to determine whether either party is entitled to attorneys' fees.  The Court went on to rule that under Ruckelshaus v. Sierra Club, 463 U.S. 680, 694 (1983), the proper standard for fee shifting provisions providing discretion to the court is whether the fee claimant obtained "some degree of success."  The Court then ruled that Ms. Hardt had obtained more than some degree of success and was entitled to attorneys' fees under 1132(g)(1). 

This critical new ruling by the High Court should make ERISA claims much more enticing to plaintiffs' counsel as a plaintiff who effects change, as opposed to obtaining a judgment, may now be entitled to an award of attorneys' fees under ERISA.

Jury returns $250 Million Punitive Damages Verdict in Gender Class Action Against Novartis

A federal Jury in Manhattan handed down a $250 million punitive damages verdict against drug maker Novartis. http://www.bloomberg.com/apps/news?pid=20601100&sid=aIFrBtReIhKs.  This, just two days after the jury returned a verdict in favor of the 5,600 member class of female employees on all three counts of gender discrimination.  The class alleged, and the jury found, that Novartis discriminated against female employees in the terms and conditions of their employment, including disparate pay and promotional opportunities.  The staggering punitive damages award s believed to represent 3% of Novartis' 2009 net income.

DOL Issues Guidance On Internship Programs And Compliance With The FLSA

In April, the Department of Labor issued a Fact Sheet: Internship Programs Under The Fair Labor Standards Act.  http://www.dol.gov/whd/regs/compliance/whdfs71.pdf.  The Fact sheet provides guidance to assist in determining whether an intern for a "for-profit" private sector employer must be provided with minimum wage and overtime pay under the FLSA.  The DOL has identified six factors that must be considered when determining whether an internship or training program is legitimate and, therefore, interns need not be compensated:

1.  The internship, even though it includes actual operations of the facilities of the employer, is similar to training which would be given in an educational environment;

2.  The internship is for the benefit of the intern;

3.  The intern does not displace regular workers and is closely supervised by existing staff;

4.  The employer derives no immediate advantage from the activities of the intern and may, in fact, be impeded by the presence of the intern;

5.  The intern is not entitled to a job at the end of the internship; and

6.  There is an understanding that the intern is not entitled to wages for the time at the internship.

Common illegitimate "internships" involve unpaid positions where the "intern" is engaging in the operations of the business.  Where a student is asked to file, perform clerical work, or assist customers, the intern is providing productive work for the benefit of the employer and should be compensated.  Conversely, where the intern is shadowing rank-and-file employees and learning as opposed to working, that individual will likely be considered a legitimate intern, who need not be paid minimum wage or overtime.

Dukes v. Wal-Mart -- Ninth Circuit Approves Largest Gender Class Action in U.S. History

On Monday, the long running Dukes v. Wal-Mart gender class action, first filed in 2001, was approved as a class action by a 6-5 vote of the en banc Ninth Circuit Court of Appeals in California.  As a result, Wal-Mart now faces the potential for an over one million member gender class action challenging Wal-Mart's pay and promotion practices.  The certified class involves female Wal-Mart employees employed in any of Wal-Mart's domestic retail operations since December 26, 1998.  The en banc decision was the third finding that certification was proper and followed the District Court's 2004 and three judge panel's 2007 findings that class certification of the potential 1.6 million member class was proper.  Pay disparity, promotional discrimination, and gender inequity in all terms and conditions of employment will now be pressed by lead counsel on behalf of the largest gender discrimination class in United States history.

Court Dismisses Brokers' Complaint Alleging That Citigroup Promissory Notes Are Unconscionable

In a stern opinion, District Judge Lewis Kaplan rejected all of the arguments asserted by six former Citi brokers and dismissed their complaint seeking to unwind their promissory note obligations to Citi. See Banus v. Citigroup Global Markets, Inc., 2010 U.S. Dist. LEXIS 40072 (S.D.N.Y. Apr. 23, 2010). The decision is significant in that it challenged Citi's promissory note/up front compensation program on a global basis as unconscionable and against public policy. The Court rejected those contentions. Moreover, the Court ruled that whether or not the underlying arbitrations should be stayed in favor of a putative class action litigation, based on FINRA Rule 13204, rested in the capacious discretion of the arbitration panel. The Court ruled it was not error by one arbitration panel to deny a stay in favor of the putative class action challenging the enforceability of the Citi up front compensation program. The long and short of this decision may well be that challenging the legitimacy of an up front compensation program -- on a global basis -- may not succeed given that the brokers have the opportunity to review the documents, consult with a lawyer, consider alternative options, and take and spend the money. However, and most significantly, individual challenges to up front compensation claims still remain viable. Individual claims, such as (i) whether a broker was fraudulently induced to join a firm, (ii) whether a broker was provided with that which she was promised, (iii) whether a broker was treated and compensated in the manner contemplated, and (iv) whether the broker was subject to a material alteration of employment still remain legitimate ways to challenge up front compensation claims asserted by financial institutions.

Societe Generale Trader Arrested for Misappropriating Trade Secrets

Yesterday, April 19, 2010, a former Societe Generale Group quantitative analyst was arrested in New York for allegedly misappropriating the company's proprietary computer code related to its high frequency trading system. The arrest provides several valuable lessons for employees. First and foremost, the misuse and/or misappropriation of a company's proprietary information is against company policy and may lead to civil litigation, BUT IT IS ALSO criminal and may lead to prison time. Second, proprietary trading systems are incredibly valuable to financial services companies and will be guarded and aggresively protected. While the FBI was involved in this matter, the escalation was probably based on the fact it involved the company's very profitable trading system. The FBI may not have been summoned and involved had the misappropriation involved an individual employee's client list. The long and short of this situation is that whether or not there are restrictive covenants, company policies, or written agreements, it is simply unlawful and criminal to take a former employer's property. It cannot and should never be done and the consequences of such action are much graver than being a civil defendant in an employment dispute.

New Jersey Supreme Court Protects Employee's Privileged E-Mail Communications on Company Computer

The New Jersey Supreme Court recently handed down a significant decision addressing whether a company e-Mail policy can trump the attorney-client privilege between an employee and her personal attorney hired to sue the company for employment discrimination. See Stengart v. Loving Care Agency Inc., A-16-09. The court ruled the company could not and ruled the employee was entitled to invoke the privilege with respect to e-Mails she authored and received from a company computer via a personal password protected e-Mail account. The Court provided:

"even a more clearly written company manual -- that is, a policy that banned all personal computer use and provided unambiguous notice that an employer could retrieve and read an employee's attorney-client communications, if accessed on a personal, password-protected e-mail account using the company's computer system -- would not be enforceable."

The Court went further. The Court ruled that the company's attorneys violated ethics rules by not returning the e-Mails without reviewing them. New Jersey's high court has remanded the case to the trial court to determine whether disqualification of the company's law firm is required given its review of the privileged e-mails.

Bank of America/Merrill Lynch Sued For Gender Discrimination

Investment News is reporting that Bank of America Merrill Lynch is on the receiving end of a gender discrimination class action. Three female financial advisors are alleging that the finanical institution discriminated against female registered employees with respect to account distributions, pay, and sales support. The plaintiffs are alleging that female registered employees were treated like "second class citizens". This is the latest class action lawsuit to be filed against a financial services business. And, comes on the heels of a number of multi-million dollar settlements of similar class action claims. Bank of America, through a spokesperson, denies it has done anything improper.

Summary Judgment in Age Case Reversed Because of Refusal to Allow Deposition of Chairman of the Board

In Marisco v. Sears Holding Corp, 2010 Fed App. 0191N (6th Cir. March 25, 2010), the Sixth Circuit Court of Appeals reversed a grant of summary judgment to Sears Corporation. The reversal was premised on the fact that the District Court refused to allow the deposition of Sears' Chairman Eddie Lampert. The Court concluded that Mr. Lampert's testimony could have borne out whether he had animus towards older employees. The Court remanded the case to the district court to continue proceedings and to allow the deposition of Mr. Lampert. The case is significant because corporate defendants tend to reflexively insulate senior management from depositions and discovery. In Marisco, the Court of Appeals ruled that when a senior executive has information that may lead to admissible evidence, that executive must be made available for deposition.

Broker Dealer GunnAllen Not Doing Business By FINRA Directive

Broker-dealer GunnAllen has been informed by FINRA that it cannot transact business for its clients. As a consequence, hundreds of its registered employees will likely be looking for new employment and a new broker-dealer to house their client accounts. FINRA has indicated GunnAllen cannot transact business because of a net capital violation. This event marks yet another employer having business and/or financial difficulties leading to unemployed registered financial advisors. Reductions in force, mass layoffs, and business liquidations have led to a historic unemployment rate, a significant portion of which has hit the financial services industry. It is hopeful that many of these registered representatives will be able to quickly find work so as not to create financial harship for them or uncertainty for their clients.

Middle District of Florida Rejects Constructive Discharge Claim

Often times employees resign their position because they believe that the workplace is intolerable. The employe then attempts to assert discrimination and/or retaliation claims identifying the "forced resignation" (or constructive discharge) as the actionable adverse employment action. These claims are incredibly difficult to establish and a recent decision bears this point out.

In Bozarth v. Sunshine Chevrolet-Oldsmobile of Tarpon Springs, Inc., 2010 U.S. Dist. LEXIS 25881 (M.D. Fla. March 19, 2010), the plaintiff, Jessica Bozarth, attempted to assert pregnancy discrimination and FMLA retaliation claims. The plaintiff's claims were premised, in large part, on an alleged constructive discharge. The plaintiff claimed that she could not tolerate the discrimination and retaliation in the workplace and that her resignation gave rise to claims under Title VII and the FMLA. In rejecting this claim, as a matter of law, the Court noted that to sustain a constructive discharge claim, the claim "must be so intolerable that a reasonable person would be forced to quit." The Court noted that while the plaintiff identified a numer of discrete events and testified she felt humiliated, she had failed to satisfy the significant threshold for a constructive discharge claim. Indeed, the Court ruled that an unwanted transfer, an unwanted change in pay, an offensive remark, and a change in job duties failed as a matter of law to establish a constructive discharge.

In sum, constructive discharge claims are difficult to plead and prove. An employee must establish frequent and significant discriminatory conduct for the Court to seriously entertain such a claim.

Eleventh Circuit Follows Gross in ADEA Case and Reverses Summary Judgment

In Mora v. Jackson Mem. Found., Inc., 2010 U.S. App. LEXIS 3668 (11th Cir. Feb. 23, 2010), the Eleventh Circuit Court of Appeals followed the recent United States Supreme Court decision in Gross v. FBL Financial Service, 129 S. Ct. 2343 (2009) and, applying the "but for" age standard, reversed a grant of summary judgment to an employer in the age discrimination case. Critically, the Court recognized that because there was a factual dispute as to whether an ageist comment was made [the alleged bad actor denied the comment was made], the issue and case should have been submitted to a jury. The Court reiterated the oft-cited standard that all inferences should be drawn in favor of the plaintiff-employee and remanded the matter for trial.

EEOC Publishes 2009 Charge Statistics

Recently, the Equal Employment Opportunity Commission ("EEOC") issued statistics for employment discrimination Charge filings in 2009. See eeoc.gov/eeoc/statistics/enforcementcharges.cfm. Perhaps surprisingly, the total number of discrimination charges filed with the EEOC -- 93,277 -- receded from the historic high -- 95,402 --filed in 2008. Employment discrimination Charges alleging discrimination based on disability and retaliation, however, increased substantially year-over-year. With the passage of the the ADA Amendments Act of 2008, effective January 1, 2009, it would appear disability discrimination claims in the workplace will continue to increase in the near term. For more information about 2009 Charge filings, please visit www.bucksteinlaw.com.

FLSA Collective Action Compelled to Arbitration

Within the last few days, a Southern District of New York Judge granted a commodity broker's motion to compel arbitration of a putative FLSA collection action against the firm. See Arrigo v. Blue Fish Commodities, 09-Civ-07518. There should be little doubt at this point that FLSA collective action complaints may be the proper subject of a properly prepared motion to compel arbitration. Indeed, that proposition is true even if the arbitration forum prohibits class actions, as opposed to collective actions. For that point, see Chapman v. Lehman Brothers, a Southern District of Florida case handled by the author of this Blog, holding that NASD n/k/a FINRA Rules do not preclude arbitration of FLSA collective action claims. See Chapman v. Lehman Brothers, Inc., 279 F. Supp. 2d 1286 (S.D. Fla. 2003).