Under Florida Whistleblower Act, Whistleblowers Require "Good Faith Belief" Of Violation NOT "Actual Violation" Of Law, Rule, Or Regulation

The tide in Florida appears to have turned. Whereas, the case law initially and largely concluded that the Florida private-sector whistleblower act ("FWA"), Fla. Stat. 448.101 et seq., requires an objection to an ACTUAL violation of a law, rule, or regulation, White v. Purdue Pharma, Inc., 369 F. Supp. 2d 1335, 1337 (M.D. Fla. 2005), Charlton v. Republic Svcs. of Fla., L.P., 2010 U.S. Dist. LEXIS 54124, 2010 WL 2232677, *3 (S.D. Fla. 2010), two very recent federal court decisions have followed the Florida Fourth District Court of Appeals, in concluding that “all that is required [under the FWA] is that the employee have a good faith, objectively reasonable belief that her activity is protected by the statute." See Bonnafant v. Chico's FAS, Inc., 2014 U.S. Dist. LEXIS 57849 (M.D. Fla. Apr. 25, 2014). See also Hernandez v. Publix Super Mkts., 2014 U.S. Dist. LEXIS 49062 (S.D. Fla. Apr. 9, 2014). Both Bonnafant and Hernandez approvingly cited the 9-month old decision in Aery v. Wallace Lincoln-Mercury, LLC, 118 So. 3d 904 (Fla. 4th DCA July 31, 2013).

In Aery, the 4th DCA ruled that the plaintiff-employee had established a prima facie case of retaliation under the FWA. The Court provided that “it was not necessary that Aery provide his employer with statutory and case law citations to support his claim of illegal conduct.” It was not necessary that there be an actual violation of a law, rule, or regulation. Rather, in order to receive protection under the FWA, the plaintiff-employee was only required to report conduct that he reasonably believed was illegal.

Aery is Florida’s first appellate court pronouncement concerning the standard of proof required in a FWA case. As such, prior federal court decisions requiring an ACTUAL violation of a law, rule, or regulation are now likely unpersuasive. Indeed, under principles of stare decisis, Florida federal court cases addressing the FWA in the wake of Aery are likely constrained to follow Aery. The Hernandez Court noted as much:

"But, as noted by Hernandez, Aery is the only Florida intermediate appellate court to have addressed the standard of proof in a FWA claim. As a federal court applying state law, the Court is ‘bound to adhere to decisions of the state’s intermediate appellate courts absent some persuasive indication that the state’s highest court would decide the issue otherwise.’ [citations omitted]. Furthermore, the Supreme Court of Florida has held that ‘decisions of district courts of appeal represent the law of Florida unless and until they are overruled by this Court.’ [citation omitted]. No persuasive authority has been cited that the Florida Supreme Court would decide this issue differently than the court did in Aery."

In sum, the ruling in Aery has now been buttressed by the very recent decisions in Bonnafant and Hernandez. Plaintiff-side employment law practitioners should now likely have a decidedly lower threshold to satisfy at summary judgment and, more significantly, a lesser burden to meet at trial and through carefully and appropriately crafted jury instructions. Defense-side employment lawyers will likely continue to press for the ACTUAL VIOLATION requirement. However, it would appear that black-letter concepts of civil procedure will demand that dispositive legal rulings and jury instructions follow the REASONABLE GOOD FAITH standard espoused by Aery and followed by Bonnafant and Hernandez.

Supreme Court Rules Presumptively Mooted Individual Claim Precludes Named Plaintiff From Pursuing Collective Action Under FLSA -- But Expressly Fails To Address the Predicate Question Whether An Unaccepted OJ For Full Relief Moots An FLSA Claim

Today, the United States Supreme Court ruled that a named plaintiff in a purported FLSA collective action cannot continue to litigate the collective action after her claim is resolved/mooted.  See Genesis Healthcare Corp. et al. v. Symczyk, 2013 U.S. LEXIS 3157, No. 11-1059 (April 16, 2013).  While that might make sense if the plaintiff voluntarily elected to conclude the litigation; that is not what happened in the underlying litigation.  In Symczyk, the plaintiff did not agree to resolve her claim.  To the contrary, the employee-plaintiff did not accept the employer-defendant's offer of judgment pursuant to Fed. R. Civ. P. 68.  However, because the plaintiff-employee, in the lower courts, appears to have accepted as true the unresolved legal principle -- that an unaccepted offer that fully satisfies a plaintiff's claim is sufficient to render the claim moot -- the United States Supreme Court "assume[d], without deciding that petitioners' Rule 68 offer mooted respondent's individual claim."    

The puzzling part, of course, is that the Supreme Court expressly declined to address this critical predicate question -- whether an unaccepted offer of judgment pursuant to Fed. R. Civ. P. 68 for full relief of an individual's FLSA claim could moot the claim and collective action. 

The four-Justice dissent, penned by Justice Kagan, sharply criticized the majority decision's blind acceptance of the lower court's assumption that an unaccepted OJ for full relief moots an FLSA claim.  Justice Kagan expressed incredulity at the Court's majority decision -- "[t]he Court today resolves an imaginary question, based on a mistake the courts below made about this case and others like it."  Justice Kagan noted further: 

When a plaintiff rejects such an offer -- however good the terms -- her interest in the lawsuit remains just what it was before.  And so too does the court's ability to grant her relief.  An unaccepted settlement offer -- like any unaccepted contract offer -- is a legal nullity, with no operative effect.  As every first-year law student learns, the recipient's rejection of an offer 'leaves the matter as if no offer had ever been made.'  Nothing in Rule 68 alters that basic principle; to the contrary, that rule specifies that 'an unaccepted offer is considered withdrawn'  Fed. R. Civ. P. 68(b). 

While the Majority decision may be true -- an individual who resolves her individual claim may not continue to press a collective action under the FLSA -- its decision to "assume, without deciding, that petitioners'  [unaccepted] Rule 68 offer mooted respondent's individual claim" results in that predicate and critical issue being left unresolved and with the Circuit Courts remaining in conflict or without binding precedent.  Compare Weiss v. Regal Collections, 385 F.3d 337, 340 (3rd Cir. 2004) with McCauley v. Trans Union, LLC, 402 F.3d 340, 342 (2nd Cir. 2005).  See also Zinni v. ER Solutions, Inc., 692 F.3d 1162 (11th Cir. 2012) ("We need not decide whether an offer of full relief, even if rejected, would be enough to moot a plaintiff's claims.")

Eleventh Circuit Addresses Undocumented Alien, Individual Liability, and Damages Issues Under FLSA

On March 6, 2013, the Eleventh Circuit Court of Appeals in Lamonica et al. v. Safe Hurricane Shutters, Inc. et al., 2013 U.S. Dist. LEXIS 4599 (11th Cir. Mar. 6, 2013), addressed three critical issues pertaining to FLSA claims.  Each of the three rulings provided greater coverage and damages than those argued by the employer-appellant. 

First, the Court ruled (again) that undocumented aliens are "employees" within the meaning of the FLSA.  Citing Patel v. Quality Inn S., 846 F.2d 700, 706 (11th Cir. 1988).   In so doing, the Court rejected the employer-appellant's contention that an intervening U.S. Supreme Court decision, Hoffman Plastic Compunds, Inc. v. NLRB, 535 U.S. 137 (2002) (holding that the NLRB cannot award backpay to undocumented aliens terminated in violation of the NLRA) overruled Patel and barred FLSA claims by undocumented aliens.  The Court reasoned that the NLRA and FLSA had materially different purposes and a ruling as to the NLRA could not be applied to FLSA claims.

Second, the Court reiterated the required analysis when determining individual liability under the FLSA.  The Court rejected the employer-appellant's contention that individual liability is limited to corporate officers.  The Court reasoned: "a supervisor's title does not in itself establish or preclude his or her liability under the FLSA . . . "  The Court then reasoned that the occasional, as opposed to consistent, exercise of control over employees may be sufficient to create individual liability under the FLSA.  The key question, the Court noted, is whether the individual exercised substantial control over matters related to the company's FLSA obligations. 

Finally, and significantly, the Court addressed the proper damage calculation for misclassification cases; an issue that has divided the district courts within Florida and the Circuit Courts of Appeals around the country.  The Court provided:

[T]he fluctuating workweek method is not the only or even the default method for calculating damages when an employee is paid a weekly salary.  In fact, it is conceptually subsumed within the broader rule that 'if the employee is employed solely on a weekly salary basis, the regularly hourly rate of pay, on which time and a half must be paid, is computed by dividing the salary by the number of hours which the salary is intended to compensate . . . Consequently, 'where the employee is paid solely on a weekly salary basis, the number of hours the employee's pay is intended to compensate -- not necessarily the number of hours he actually works -- is the divisor.' [citation ommitted] 

The Court then found no error with the jury's finding that the weekly salaries for the plaintiff-employees were intended to compensate them only for fourty hours of work, despite the fact they worked fluctuating hours for the same weekly salary.

The Court's decision makes clear that in every FLSA misclassification case a fact question will need to addressed as to what the salary was intended to compensate (40 hours, some greater number of hours, or any and all hours over 40).  The determination of this fact question will have a profound impact on damage calculations in every FLSA misclassification case. 

Tax Time -- Employment Lawsuit Attorneys' Fees Payments

Tax issues are complicated.  As an employment lawyer, one of the issues that arises in virtually every case (pre or post suit) is whether the payment of attorneys' fees by the employer-defendant directly to the employee-plaintiff's lawyer is income to the employee-plaintiff and, if so, whether the employee may treat such a payment as a below or above the line deduction. 

The IRC and case law, while opaque, seem to provide that: (1) the payment of attorneys' fees directly to employee-plaintiff's lawyer is income to the employee-plaintiff; and (2) the payment, however, may be treated as a dollar-for-dollar above the line deduction. 

While I am not a tax lawyer and don't provide tax advice to my clients, I encourage my clients to consult with their tax advisor and to ask their tax advisor about the 2004 American Job Creations Act of 2004.  Specifically, while attorneys' fees may be included in gross income (and memorialized through a Form 1099), 29 USC § 62(a)(20) and 29 USC § 62(e)(18)(ii) appear to provide a dollar-for-dollar above-the-line deduction for attorneys' fees paid in connection with a claim involving a violation of law: "regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits . . .."   See http://codes.lp.findlaw.com/uscode/26/A/1/B/I/62. 

The November 2006 Journal of Accountancy, discussing the aforementioned provisions provided:

Discrimination claim. Section 62(a)(20) covers many claims. Section 62(e) defines 'discrimination,' but goes beyond traditional discrimination. It applies to any civil rights claim as well as to a broad spectrum of employment-related claims, including any employment-related legal claim under federal, state, common or local law. This includes cases of age, gender or racial discrimination. Section 62(e)(18)(ii) says it includes any actions 'regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits... any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.' On its face the statute seems to cover almost any employee vs. employer litigation.

See http://www.journalofaccountancy.com/Issues/2006/Nov/NewRulesNewRuling.htm. 

At least one IRS Revenue Ruling appears to have interpreted this dollar-for-dollar above-the-line deduction as broadly as this author and as contemplated by the Journal of Accountancy and applied the deduction to attorneys' fees incurred in obtaining pension benefits.  See http://www.irs.gov/pub/irs-wd/0550004.pdf.

Well regarded and oft-published tax lawyers have opined that 62(e)(18)(ii) provides a "catchall" for all true employment claims arising out of the employment context.  http://woodporter.com/Publications/Articles/pdf/Attorney_Fee_Deduction_Problems_Remain.pdf. 

With all of this said, we believe that a tax advisor should be utilized in connection with the treatment of income taxes when attorneys' fees are paid in connection with a lawsuit settlement.

Eleventh Circuit Rules: Liquidated Damages Not Mandatory in FLSA Retaliation Cases

In Moore et al. v. Appliance Direct, Inc. et al., 2013 U.S. App. LEXIS 3047 (11th Cir. February 13, 2013), the Eleventh Circuit Court of Appeals addressed the question of first impression -- whether a district court is required to add liquidated damages to the judgment in an FLSA retaliation case where the defendant did not show he was acting in reasonable good faith.  The Eleventh Circuit reviewed the text of 29 U.S.C. 216(b) and concluded that while successful unpaid minimum wage and overtime claims require liquidated damages if a defendant cannot show reasonable good faith, there is no such requirement in retaliation cases.  The Court's reasoning relied on the difference in statutory language between the first sentence of 216(b) -- dealing with unpaid minimum wage and overtime claims -- and the second sentence -- added in 1977 to provide a private right of action for retaliation claims.  Specifically, the Court held: 

In reviewing the cases cited by Plaintiffs and Pak, the briefs and oral argument of counsel, and the clear language of the statute, we join the Sixth and Eighth Circuits in holding that the second sentence in section 216(b), which allows such damages 'as may be appropriate to effectuate the purpose of the retaliation provision', creates a separate, discretionary, standard of damages for retaliation claims.  We therefore hold that the retaliation provision of 29 U.S.C. 216(b) gives the district court discretion to award, or not to award, liquidated damages, after determining whether the doing so would be appropriate under the facts of the case.  

Appliance Direct, 2013 U.S. Dist. LEXIS 3047, at * 23.

The Appliance Direct decision also reminds FLSA litigators of the standard for finding a corporate officer individually liable as an employer in a FLSA case:

A corporate officer is personally liable as an FLSA employer if he has 'operational control of a corporation's 'covered enterprise,' which may be involvement of the day-to-day operation of the company or direct supervision of the employee at issue. 

Appliance Direct, 2013 U.S. Dist. LEXIS 3047, at * 6.

Transitioning Registered Representatives -- Be Wary of Defamation and Tortious Interference

Registered Representatives ("RR") who manage millions of dollars are aggressively pursued and, if and when they depart, invariably attempt to transfer the clients and clients' assets they manage to their new firm.  The departed firms understandably work diligently to retain the assets under management ("AUM").  AUM = $$ for the departing firm, the receiving firm, and the RRs.  During this process, agents of the departing firm sometimes say things to the clients previously serviced by the departing RR in an effort to retain the clients/assets.  Conversely, sometimes departing RRs say things about their former firm or take actions in advance of departure that are inconsistent with common law duties and/or the Borker Protocol.  With regard to the former Firm's coduct, the question is always -- did the prior firm or its agents make untrue, malicious, or anti-competitive statements in an effort to harm the departing RR and/or retain the clients/assets.  If that occurred, the departing RR may have claims for defamation, tortious interference, breaches of contracts, and/or violations of industry standards, rules, and regulations.  These claims, because they involve a RR and a Member Firm, will usually be litigated before a FINRA arbitration panel in the geographic area where the RR last worked for the Member Firm. 

Recently, on February 12, 2013, the NY Post reported that a former RR sued his former employer/Firm, JP Morgan Chase, in NY State Supreme Court because he was allegedly defamed after he departed the firm.  See http://www.nypost.com/p/news/local/manhattan/no_madoff_zsF3i7XcWt6VSrkpQZPsUI.  The allegations of his complaint, Kolta v. JP Morgan Chase & Co., No. 650450/2013, suggest agents for his former employer claimed he was a Madoff-type of RR in an effort to retain clients and client assets.  An allegation that would likely be defamation per se.  While this case was filed in New York Supreme Court, it remains to be seen whether JPMorgan Chase will file a Motion to Compel arbitration before a FINRA arbitration panel.  We'll keep you posted about both the venue and substance of this case as it proceeds.

Damage Calculations In FLSA Misclassification Cases

In Fair Labor Standards Act ("FLSA") misclassification cases, the issue of whether to utilize a 1.5 multiplier to the regular rate for all hours worked over 40 or a .5 multiplier to the regular rate of pay (or Fluctuating Work Week ("FWW") calculation) continues to vex courts and result in divergent results.  The most recent decision on this topic, Blotzer v. L-3 Communications Corp., 2012 U.S. Dist. LEXIS 173126 (D. Az. Dec. 5, 2012), is a pro-employee result.  Blotzer held that a misclassified employee MUST receive 1.5 times the regular rate of pay for each OT hour.  The Blotzer court expressly rejected application of the .5 or FWW calculation, stating: "this Court is persuaded by the reasoning of those courts that have concluded the FWW method should not be applied in a misclassification case in light of the FLSA's remedial purpose."  The Blotzer Court went on to reason:

Application of the FWW method in a misclassification case is contrary to FLSA's rationale. The FWW method requires proof of a "clear mutual understanding" that: (1) the fixed salary is compensation for the hours worked each work week, whatever their number; and (2) overtime pay will be provided contemporaneously such that it fluctuates depending on hours worked per week. See 29 C.F.R. §§ 778.114(a) & (c). In a misclassification case, at least one of the parties initiated employment with the belief that the employee was exempt from the FLSA,

paid on a salary basis, and therefore not entitled to overtime. When an employee is erroneously classified as exempt and illegally being deprived of overtime pay, neither the fourth nor fifth legal prerequisites for use of the FWW method is satisfied. The parties do not have a "clear, mutual understanding" that a fixed salary will be paid for "fluctuating hours, apart from overtime premiums" because the parties have not contemplated overtime pay.

The Blotzer Court articulated the "perverse incentive" and profound and negative consequence of applying the FWW calculation in a misclassification case:

Application of the FWW in a misclassification case gives rise to a 'perverse incentive' for employers, because the employee's hourly 'regular rate' decreases with each additional hour worked. In fact, the difference between the FWW method and the traditional time-and-a-half method can result in an employee being paid seventy-one percent less for overtime over a given year . . .

Blotzer is in accord with several other District Court decisions.  See, e.g., Perkins v. Southern New Eng. Tel Co., 2011 U.S. Dist. LEXIS 109882 (D. Conn. Sept. 27, 2011) ("This court agrees with other district courts that have analyzed this issue and concludes that section 778.114 does not support the use of the fluctuating workweek method in the circumstances presented in this misclassification case."); In re Texas EZPawn FLSA Litig, 633 F. Supp. 395 (W.D. Tx. 2008) (collecting and analyzing cases and rejecting application of FWW calculation as inconsistent with remedial purposes of FLSA).

In Florida, there are two reported decisions that expressly address this issue.  Not surprisingly, and consistent with the split around the country, these two decisions reach diametrically opposed rulings.  Indeed, in Torres v. Bacardi Global Brands Promotions, Inc., 482 F. Supp. 2d 1379 (S.D. Fla. 2007), the Court ruled that the plaintiff, if misclassified, would only be entitled to a .5 premium for all overtime hours because the fixed salary provided to the employee provided his regular rate of pay for all hours worked.  Antithetically, in West v. Verizon Servs. Corp., 2011 U.S. Dist. LEXIS 5952 (M.D. Fla. 2011), the Court rejected application of the .5 calculation by analyzing and concluding the FWW method could not be invoked based on the facts of the case.

An extensive review of the case law suggests that there are no Federal Circuit Court of Appeals decisions rejecting the application of the .5 analysis to misclassification cases.  Conversely, there are several Federal Circuit Court of Appeals decisions (not including the 11th Circuit Court of Appeals) concluding it is proper to apply the FWW calculation to misclassification cases.  See, e.g., Desmond v. PNGI Charles Town Gaming, LLC, 630 F.3d 351 (4th Cir. 2011);  Clements v. Serco, Inc., 530 F.3d 1224, 1230-31 (10th Cir. 2008); Valerio v. Putnam Assocs. Inc., 173 F.3d 35, 40 (1st Cir. 1999); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1138 (5th Cir. 1988).  Similarly, Urnikis-Negro v. Am. Family Prop. Servs., 616 F.3d 665 (7th Cir. 2010), concluded that while the FWW calculation should not be utilized in misclassification cases, the proper calculation in a misclassification case is to provide a .5 multiplier to all hours over 40 that the parties agreed to work based on the United States Supreme Court decision, Overnight Motor Transp. Co. v. Missel, 316 U.S. 572 (1942).

Accordingly, whether to apply a 1.5 or .5 calculation to misclassification cases in Florida remains unclear and will require a factual analysis of the origin/motivation/nuances of the offer of employment and the agreement between the employer and employee as to how many hours the salary was provided to compensate.  For an employer to change a non-exempt position to exempt solely to circumvent the 1.5 multiplier for all hours worked over 40 will likely be met with a conclusion that the FWW and Missel are not applicable.

Wells Fargo Tentatively Settles Gender Discrimination Class Action

Registered Rep is reporting Wells Fargo has tentatively agreed to resolve a putative class action gender discrimination lawsuit for $32 million.  See registeredrep.com.  The lawsuit alleged, not unlike prior gender discrimination class actions against Merrill Lynch and Morgan Stanley, that Wachovia (now owned by Wells Fargo) discriminated against female financial advisors in a number of key terms and conditions of employment.   Specifically, the lawsuit alleged that Wachovia n/k/a Wells Fargo discriminated against female financial advisors in signing bonuses, forgivable loans, account distributions, assignment to teams, and partnership opportunities.  As part of the settlement, Wells Fargo will implement a wide array of policies and procedures, including modifying its existing account distribution policy.  Further, Wells Fargo will monitor data concerning up front signing bonuses, as female financial advisors had alleged that Wells Fargo discriminated against female financial advisors with regard to a number of issues pertaining to the provision and recovery of up front signing bonuses.  The settlement will affect female financial advisors who were employed by Wachovia and its successor Wells Fargo from March 17, 2003 through January 25, 2011.  Female financial advisors employed by Wachovia during this period may apply to participate in the claims administration process through April 25, 2011.

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.