In a recent decision that strengthened contractual freedom in the employment arena, the Virginia Supreme Court held that a partially-performed employment contract was not enforceable after the employee tried to renegotiate it. This decision, Bennett v. Sage Payment Solutions, Inc., affirms the Fairfax County Circuit Court judgment, which upheld a jury verdict finding that the employee repudiated the contract four months into its year-long term.
The case involved an executive, Robert Bennett, who was promoted to the position of President of Sage Payment Solutions, Inc. in February 2008. At that time, Bennett signed an Executive Employment Agreement agreeing to a $360,000 salary, a one-year employment term, and a one-year non-compete following termination of employment. Nevertheless, four months later on June 7, 2008, Bennett sent an email to Sage demanding a salary increase to “the $1 million range,” or else he would begin looking for other employment. Bennett further asserted that, unless his demand was met, the clock would start running at that point on his one-year non-compete clause.
When this demand was rejected, Bennett continued working in the job for several months while looking for other employment. During that time, Sage sought to end his employment, prompting Bennett to claim that Sage’s conduct constituted a termination of employment and entitled him to severance benefits. Sage denied that it was terminating his employment and asserted that Bennett’s demand constituted a resignation without “good reason” under the contract, for which severance was not available. Sage ultimately ended Bennett’s employment on September 30, 2008.
Bennett then filed suit to collect severance benefits under his theory that Sage discharged him and violated the Agreement. Sage originally defended the case on the grounds of Bennett’s resignation and then, before the close of Bennett’s case, sought leave to amend its answer to add a “repudiation” defense. The Supreme Court allowed Sage to raise the defense at that time since the supporting facts were not a surprise to anyone, especially since Bennett’s own testimony just provided at trial supported the repudiation defense.
The Supreme Court upheld the jury instruction which stated:
If you find that Mr. Bennett repudiated or rejected the Executive Employment Agreement by conditioning his performance of his duties on the Company’s acceptance of such changes beginning in May 2008, then you may not find [Sage] liable for breach of contract for its subsequent rejection of his demand for severance pay.
The Court thus relied on the evidence that Bennett rejected the terms of his contract – a move by Bennett to impose new provisions mid-term – to find that continuous performance under the terms of contract had been repudiated. By rejecting Bennett’s efforts, this decision aids employers in resisting employee efforts to renegotiate terms during performance, when the employee may have more bargaining leverage due to the employer’s need for continuity.Read More
It is infrequent that a losing plaintiff in a racial discrimination case is ordered to pay the legal fees incurred by the defendant, but it is an ever-present risk for plaintiffs who proceed to trial with very weak evidence of discrimination. Forcing the plaintiff to pay the fees of the defendant is rare because it is typically limited to egregious circumstances. However, a judge in the Eastern District of Virginia recently found the plaintiff’s continued pursuit of a Title VII claim was so baseless that sanctions against the plaintiff were justified.
In Farmer v. Navy Federal Credit Union, the plaintiff alleged race-based discrimination and retaliation arising out of a series of clashes that she had with a co-worker. The workplace disputes eventually led to the plaintiff being counseled by her supervisor, which culminated in an expletive-filled outburst by the plaintiff who immediately turned in her security badge and left the premises. After the employer moved to terminate the plaintiff based on her outburst and refused to allow her to return to work, she sued for racial discrimination.
After discovery was completed, and before summary judgment, the judge explained to the plaintiff’s attorney that the plaintiff was unlikely to win her case, particularly in light of the plaintiff’s contention that the employer was unreasonable and exhibited racial discrimination in not letting the plaintiff return to work after the plaintiff’s episode of improper workplace behavior. But despite having been warned by the judge that the case seemed to lack any merit, and after apparently being informed by her attorney that it was possible for the court to impose sanctions for pursuing a groundless claim, the plaintiff chose to proceed with her lawsuit.
Predictably, the court granted summary judgment in favor of the plaintiff’s former employer and the employer then sought to recover the attorneys’ fees that it was forced to incur in defending itself against the employee’s baseless claims. The court granted the employer’s request for attorneys’ fees and ordered the plaintiff to pay for $34,000 in expenses the defendant incurred after the plaintiff had been warned of the weakness of her claim.
The case is a strong reminder to plaintiffs that even though a racial discrimination claim may seem like it has a good foundation at the outset, discovery may later reveal facts that undercut the claim. Plaintiff must proceed cautiously and consider the possibility that voluntary dismissal may be warranted based on newly-discovered facts. If plaintiffs give in to the temptation to press forward to trial even when the facts are against them, they may find themselves paying for that mistake.Read More
Low-value claims by employees against their former employers under the Fair Labor Standards Act (“FLSA”) are sometimes more about the attorney’s fees for the employee’s lawyer and less about compensating the employee for the alleged injury. Consider, for example, an FLSA claim asserted by a former employee seeking unpaid wages or overtime compensation in an amount less than $1,000. If there is a significant risk that the employer may be found liable for that amount at trial, and little risk of similar suits in the future, the employer may prefer to simply settle the claim rather than litigate the matter. However, the employer will likely discover that the employee is not willing to settle for anywhere near the value of the claim. Instead, the employee is likely to demand at least three times the amount at issue, and possibly much more, based on liquidated damages, costs, and attorney’s fees available under the FLSA, thus vastly increasing the cost of settlement and possibly sinking any deal to resolve the lawsuit.
What Should an Employer Do?
In the right circumstances, the employer may be able to extinguish the employee’s right to obtain an award of attorney’s fees and effectively settle the case for the true value of the claim. However, to do so the employer must tread carefully to avoid the possibility that the employee may be deemed a prevailing party entitled to an award of attorney’s fees under the FLSA. Rather than engaging in typical settlement discussions, which typically involve payment of fees to the employee’s attorney, the employer should consider the whether to simply tender payment of the wages that the employee claims to be owed, plus an equal amount in liquidated damages, all the while denying liability. By doing so, the employer may be able to undercut the employee’s right to an award of attorney’s fees.
This strategy was recently tested and upheld in the Eleventh Circuit Court of Appeals in the case of Dionne v. Floormasters Enterprises, No. 09-15405 (07/28/2011). There, the employer obtained dismissal of the employee’s FLSA claim after rendering the action moot by denying liability in its pleadings but simultaneously tendering a check to the employee for $3,000.00, which was double the amount of unpaid wages claimed to be owed. Once the action was dismissed, the employee sought an award of thousands more in attorney’s fees, arguing that he was a prevailing party because the employer tendered all of the damages sought in the complaint. The federal district court disagreed and was affirmed by the federal court of appeals. The court of appeals reasoned that only a court order altering the legal relationship between the parties could render an employee a prevailing party under the FLSA and create an entitlement to attorney’s fees. For example, a dismissal that incorporates the terms of a settlement agreement between the employer and employee would alter the legal relationship of the parties and entitle the employee to attorney’s fees. But since the employer simply tendered payment without otherwise altering the parties’ legal rights, the employee was not a prevailing party and thus not entitled to attorney’s fees.
Under the right circumstances, tendering payment in an attempt to moot an employee’s FLSA action may be an effective way of minimizing potential liability and reducing litigation costs; however, the strategy may not be effective in all circumstances. To determine whether the strategy is appropriate in any particular case, you should contact a skilled labor law attorney.Read More
Under the Family and Medical Leave Act of 1993 (FMLA, or the “Act”), eligible employees are entitled to take up to 12 weeks of unpaid leave during any 12-month period, without fear of losing their job. If an employer violates its employee’s FMLA rights, the employee can usually sue the employer in federal court to recover monetary damages (including lost wages & benefits, liquidated damages, and possibly attorneys’ fees). See 29 U.S.C. § 2617; 29 C.F.R. §825.400(c).
Last month, however, the United States Supreme Court carved out a significant exception to an employee’s “right to sue” under the FMLA. In Coleman v. Court of Appeals of Maryland, 566 U.S. ___ (2012), the Court held that the states cannot be sued by state employees for denying FMLA “self care” leave. That is, when a state instrumentality or public agency denies leave to a qualified employee for “self care” of a serious medical condition, they cannot be sued for this FMLA violation (even though an equivalent private employer most certainly could).
In reaching its decision, the plurality (consisting of Chief Justice Roberts, Justice Thomas, Justice Alito, and Justice Kennedy, who wrote the opinion) pointed to the controlling principle of “sovereign immunity,” which holds that states are immune from suits for damages, unless they choose to waive such immunity. A key exception to this principle exists where Congress abrogates the states’ immunity under the 14th Amendment’s “enforcement” provision — though, as the Court has held previously, Congress “must make its intention to abrogate unmistakably clear[.]“ Nevada Dept. of Human Resources v. Hibbs, 538 U.S. 721 (2003).
The Hibbs case had dealt with practically the same issues as those facing the Court in Coleman: state employees wanted to sue their employer (the state of Nevada) for violations of the FMLA. However, the employees in Hibbs were being denied “family leave” (leave to care for a family member with a serious health condition) under 29 U.S.C. § 2612(a)(1)(C), rather than “self-care leave” under 29 U.S.C. § 2612(a)(1)(D). The Hibbs Court identified a clear nexus between denial of “family leave” and traditional gender discrimination, since it was generally understood that female workers would be the ones more likely to leave work and care for their family member(s). Acknowledging that female government employees had a constitutional right not to be discriminated against on the basis of sex, the Hibbs Court reasoned that state employees needed the “protection” that accompanied the right to sue the state for monetary damages if and when an FMLA violation occurred.
By contrast, the Court was not persuaded that the “self-care leave” at issue in Coleman was linked to any “pattern of state constitutional violations,” and determined that “self-care leave” (unlike “family leave”) was not administered according to gender differences or deep-rooted stereotypes. Whereas the Court had said in Hibbs that 29 U.S.C. § 2612(a)(1)(C) was primarily aimed “to protect the right to be free from gender-based discrimination in the workplace,” the Coleman Court decided that 29 U.S.C. § 2612(a)(1)(D) arose out of a concerns for “illness-related job loss” and illness-based discrimination. As such, the Court held that denying anyone the protection of such leave still does not constitute discrimination, and certainly did not warrant a drastic remedy like abrogating Maryland’s sovereign immunity from lawsuits.
Four justices dissented to the Court’s Opinion. Writing for the dissent, Justice Ginsburg said that “the self-care provision…validly enforces the right to be free from gender discrimination in the workplace.” Justice Ginsburg pointed out that the majority’s logic would “provide job-protected leave for a woman to care for a newborn, but not for her recovery from delivery, a miscarriage, or the birth of a stillborn baby.” According to the dissent, the FMLA’s provision concerning “self-care leave” has the same statutory aim as the rest of the Act: “to make it feasible for women to work while sustaining family life.” Nevertheless, the law is now clear: while states can be sued for denying FMLA “family leave” to their employees, they cannot be sued for denying similar “self-care leave.”Read More
Most employers would not think that there is anything unlawful about telling their employees to refrain from making “offensive, demeaning, abusive or inappropriate remarks” in social media. Similarly, most employers would think that instructing employees not to “reveal non-public company information on any public site” is a smart thing to do. However, the National Labor Relations Board, in its most recent memo summarizing its recent social media cases, found these and other statements by employers to be unlawful.
The NLRB’s concern is that such policies might lead employees to believe that they will be terminated if they engage in protected activity, such as organizing a union or complaining about working conditions. The NLRB’s basic rule is that unless a company’s social media policy explicitly restricts Section 7 protected activities, it will only be unlawful if (1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights. While this rule is easily stated, as the above examples suggest, its application in specific cases is often counterintuitive. Even the most innocently intended statements may land an employer in hot water with the NLRB.
In the first of the examples above, the NLRB found a social media policy unlawful since it exhorted employees not to make “offensive, demeaning, abusive or inappropriate remarks” online. The NLRB said that an employee could reasonably construe the policy as proscribing a broad spectrum of communications that would include protected criticisms of the employer’s labor policies or treatment of employees.
In the second example, the NLRB found that a prohibition against revealing non-public company information on any public site encompasses topics related to Section 7 activities, such as financial performance of the company and employee compensation.
What can employers do to help avoid the possibility of being found in violation of the law? Here are a few tips:
- Avoid overbroad social media policies. Write the social media policy in the narrowest manner possible.
- Whenever possible, use specific examples of the type of behavior that would violate the company’s social media policy and be sure that these examples do not suggest a limitation on any protected activity.
- Simple caveats that the social media policy will not be construed as violating Section 7 of the National Labor Relations Act are ineffective.
- When drafting social media policies, ask yourself: “Is there any way that this might be construed as limiting an employee’s ability to organize or complain about working conditions?” If so, narrow the policy so that it cannot be construed as restricting protected activity.
Although much of the NLRB’s concerns about social media policy are implausible, the NLRB’s recent focus on social media policies is something that employers must carefully consider. Since the NLRB’s reasoning is not always intuitive, it is wise to have your company’s social media policies reviewed by an attorney before the NLRB comes calling.Read More
Unlike Virginia, Maryland law allows courts in that state to “blue-pencil” or selectively delete terms in a non-compete to make it enforceable. In a July 11, 2011 decision, however, the Maryland Federal Court blue-penciled a non-compete and still found that it was facially overbroad and unenforceable because it did not define “competitors”. The case is SNS One, Inc. v. Hage, and concerned a non-compete clause that an IT government contractor, SNS One, Inc., made its employees sign barring them from going to work forany competitor in the industry for one year after employment.
SNS One subcontracted to SAIC to staff SAIC’s IT services contract with the U.S. Army, the Geospatial Research Integration Development and Support (“GRIDS”) Contract. SNS One hired Todd Hage as an associate to provide IT services and assigned him to the GRIDS Contract. Within a few months, SAIC terminated its Subcontract with SNS One and hired away Todd Hage to service the Army directly. SNS One sought to enforce its non-compete against Hage to prevent him from accepting SAIC’s offer to continue working on the contract for SAIC.
The covenant not to compete between SNS One and Hage prohibited Hage for one year from becoming “employed by, connected with, participat[ing] in, consult[ing] or otherwise associat[ing] with any other business, enterprise, or venture that is the same as, similar to, or competitive with [SNS One].” Early in the litigation, Hage filed a motion for summary judgment, asserting that the non-compete was overly broad and unenforceable. In response, the court used Maryland’s blue-pencil rule to delete the words “same as” and “similar to” from the non-compete, so that it only prohibited Hage from activity “competitive with [SNS One].” The court asserted that the clause could thus only be enforced against competitors of SNS One.
During the litigation, however, SNS One repeatedly refused to name companies considered to be its competitors. This ultimately cost SNS One the enforcement of the non-compete, because it left interpretation of the clause at its broadest—applying to all competitive companies in the industry, with no direct/indirect, geographical, or market niche limitation.
When Hage again moved for summary judgment later in the case, the court granted it, refusing to enforce the clause as overly broad. It cited Maryland law requiring that a non-compete be “narrowly tailored” to the minimum breadth necessary to protect a company. Even though the court acknowledged “that SNS One, a subcontractor, has an interest in preventing employees from jumping ship to work for prime contractors such as SAIC,” it found that SNS One failed to “identify its competitors” or otherwise present facts to the court to show that “an industry-wide restriction” was necessary. Prior cases on the scope of non-competes have upheld clauses which were “reasonably related to the interest in protecting a loss of business and of good will” by applying only to direct competitors, or only to competitors for a “specific market ‘niche.’”
The court further found that Hage’s work was not unique or otherwise specialized, and that the non-compete was not necessary to prevent the solicitation of customers or to protect proprietary information. Had SNS One used greater specificity in its non-compete, however – even by identifying SAIC by name, for example – chances are it would have been better able to enforce the non-compete even against a lower-level employee like Hage. When a non-compete is specific, it is much easier to show why it is needed to protect good will and prevent loss.Read More
In Virginia, as in many states, employees are considered to be at-will, meaning that either party may terminate the employment relationship at any time and for any reason. However, the Virginia Supreme Court has carved out a narrow exception to at-will employment when the termination of employment violates Virginia’s public policy. As a recent case shows, courts are very hesitant to enlarge the exception to at-will employment.
In the 1985, the Virginia Supreme Court first recognized that employers could not avoid liability for wrongful termination of an at-will employee if the employee’s termination violates public policy. However, Virginia courts have concluded that the exception to at-will employment arises in only three circumstances. First, an exception to at-will employment may exist where the employee’s termination violates a public policy enabling the exercise of the employee’s statutorily created right. Second, an exception to at-will employment may exist where the public policy violated by the employer was explicitly expressed in a statute and the employee was clearly a member of the class of persons directly entitled to the protection enunciated by the public policy. Lastly, an exception to at-will employment exists where the employee’s discharge was based on the employee’s refusal to engage in a criminal act.
In Williams v. Commonwealth of Virginia, the Eastern District of Virginia recently refused to allow a claim for wrongful discharge to proceed because the plaintiff had not adequately pled sufficient facts to establish the at-will employment exception. In Williams, the employee claimed that she was terminated from her position at the State Board of Elections (“SBE”) because of complaints she made to the Commonwealth’s Fraud, Waste and Abuse Hotline to report perceived improprieties with respect to the SBE’s procurement process. The employee claimed that the State Employee Fraud, Waste, and Abuse Hotline, which was created pursuant to an Executive Order, embodies the relevant public policy that was violated by her termination.
The court rejected the employee’s claim, noting that Virginia courts have construed the exception to at-will employment very narrowly. The court held that the plaintiff did not allege that her termination was related to her exercise of a statutorily created right, she did not argue that the defendants violated a public policy expressed in a statute where she was a member of a protected class (indeed, she alleged only a violation of public policy expressed in an executive order), and she did not allege that her discharge was a result of her failure to engage in criminal conduct. Since the claim did not neatly fit into any of these three criteria, the court refused to extend the public policy exception to at-will employment to encompass the facts of the plaintiff’s case and it dismissed the claim.
The Williams case is a reminder of the extraordinary difficulty of successfully establishing an exception to at-will employment in Virginia. Courts will construe such claims very narrowly and even the slightest deviation from the previously-established exceptions to at-will employment will likely result in dismissal.Read More
MARYLAND’S JOB APPLICANT FAIRNESS ACT PRESENTS A POTENTIAL MINEFIELD FOR UNWARY EMPLOYERS
In most states, employers can run a credit check on applicants for employment, subject to applicable federal law on background screening. Recently, however, the State of Maryland enacted legislation barring this practice for most employers in Maryland. The Maryland Job Applicant Fairness Act (“JAFA” or “Act”), enacted April 12, 2011, prohibits employers from utilizing a person’s credit reports or credit history in (1) determining whether to hire or fire an employee or (2) using credit reports or credit history as a basis for determining employment compensation or the terms, conditions, or privileges of employment. Effective October 1, 2011, the JAFA makes employers who willfully or negligently violate the Act subject to penalties of up to $500 for an initial violation and up to $2,500 for a repeat violation
Several exceptions exist that still allow some employers to continue using credit reports in making employment decisions. For example, certain financial institutions or registered investment advisors may continue to use credit reports as a basis for hiring or firing employees. Maryland employers may also still request or use an applicant’s or employee’s credit report or credit history if:
(a) the applicant has received an offer of employment and the credit report or credit history will be used for a purpose other than making a hiring or firing decision or determining compensation or the terms, conditions, or privileges of employment; OR
(b) the employer has a bona fide purpose for requesting or using information in the credit report that is substantially job related and disclosed in writing to the employee or applicant.
Determining whether an employer has a bona fide purpose for requesting the information is likely to generate substantial future controversy. According to the Act, employment positions in which the employee may have access to confidential business information will support a finding the employer has a bona fide purpose of using information contained in the employee’s credit report. Since most employers believe that there are unique aspects of their businesses that must remain confidential to ensure a competitive advantage, it may be predicted that many employers will try to take advantage of this exception. After this law goes into effect, expect courts to grapple with the breadth of this “bona fide purpose” exception and struggle to interpret the statute in a way that prevents the exception from swallowing the rule.Read More
In recognizing the enforceability of non-competition and non-solicitation clauses, a federal court in Marylandhas barred an employee from working for a former employer’s direct competitor. The case is General Parts Distribution v. St. Clair, 2011 U.S. Dist. LEXIS 145055 (2011).
During his employment with General Parts, the employee signed non-competition and confidentiality agreements and a Covenant Not to Solicit/Not to Disclose. These agreements prevented the employee from working for a competitor of General Parts within a 15-mile radius of its principal location for 1.5 years after conclusion of his employment, and from disclosing General Parts’ customer lists or soliciting business from it during the same period. Apparently undeterred by these agreements, the employee left General Parts and began working for a direct competitor within the restricted area.
Shortly after, General Parts filed a Complaint and a motion for a temporary restraining order (“TRO”) and preliminary injunctive relief alleging breach of contract and violation of the Maryland Uniform Trade Secret Act. In granting its motion for TRO, the Court held that General Parts had successfully shown that (1) it is likely to succeed on the merits; (2) it is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in its favor; and (4) an injunction is in the public interest.
Oftentimes the first prong of this standard is the most difficult for a plaintiff to establish, but the court held that General Parts had made a clear showing that it was likely to succeed at trial on the merits concerning all of its claims. The plaintiff established solicitation because the former employee admitted that he had contacted at least one General Parts’ customer following his resignation. The plaintiff established competition because several General Parts’ customers inquired about the employee’s departure and subsequent employment. The restrictive covenants were enforceable because their duration (1.5 years) and geographic scope (15-mile radius) were reasonably limited to protect General Parts’ business.
Outside of the written agreements, the plaintiff also established a likelihood of success in its misappropriation of trade secrets claim because Maryland law recognizes customer lists as trade secrets if (1) they derive independent economic value, and (2) the employer takes reasonable efforts to maintain their secrecy. The court was persuaded by General Parts’ argument that it made “reasonable efforts” to protect the confidentiality of its customer lists by executing the restrictive covenants. Accordingly, General Parts’ motion for TRO was granted, and the employee was forbidden from continuing to work for its current employer.
This case evidences the very real consequences of violating non-competition or non-solicitation clauses, which should not be taken lightly. In fact, the mere existence of these clauses is sometimes enough to establish a claim of misappropriation of trade secrets even if the restrictive covenants are overly broad and unenforceable under contract law.Read More
In a case highlighting the challenges to plaintiffs in showing individual discrimination in a reduction in force (RIF), a large company providing consulting services to the transportation industry prevailed over the age discrimination claims of a 57-year-old female employee that it terminated as part of a restructuring. The employee, who worked as a high-level management consultant concerning trade to North Africa and the Middle East, claimed that the company discriminated against her in the reduction of force based on her age and gender. Nevertheless, the U.S. District Court for the District of Columbia granted summary judgment to the employer on all of the employee’s claims. The case is Barnett v. PA Consulting Group, Inc., Civil Action No. 04-1245 (BJR) (D. DC, Oct. 14, 2011).
The plaintiff claimed that her employer violated the Age Discrimination in Employment Act (“ADEA”) and the District of Columbia Human Rights Act (“DCHRA”) in terminating her employment. It was undisputed that the plaintiff was a tireless employee who worked hard, produced great work, and covered her costs. Given her exceptional performance, the plaintiff asserted that her termination could not have been motivated by anything other than discriminatory motives. The company, in turn, offered a legitimate non-discriminatory reason for the termination, stating that the plaintiff’s consulting services did not fit with the transportation group’s focus, as shown by her own complaints during her employment.
On summary judgment, the Court dismissed the plaintiff’s claim because she failed to demonstrate that the company’s proffered non-discriminatory reason for terminating her was a pretext and not the actual reason for termination. The plaintiff asserted, inter alia, that the company lied about which executive made the decision to terminate her and that the company retained younger male employees who had lower performance scores than her. In rejecting these assertions, the Court ruled that the plaintiff presented no evidence to support them, and could not avoid summary judgment with unsupported allegations.
The Court also rejected the plaintiff’s argument that she was better qualified than the younger men, stating that this argument was irrelevant. In support of her argument, the plaintiff sought to rely on a D.C. Circuit Court decision (Aka v. Washington Hospital Center, 156 F.3d 1284 (D.C. Cir. 1998)) which held that a fact-finder may legitimately infer discriminatory motives by an employer in promoting a less-qualified employee over another because employers do not normally select less-qualified candidates. However, the Court pointed out that Aka was inapplicable because the company’s termination decision was based entirely on the nature of Plaintiff’s practice, and had nothing to do with performance factors. The Court held that it would defer to the company’s decision regarding which non-discriminatory qualities it relies on when reducing its force because it is not the Court’s role to second-guess the company’s business judgment.
In short, the Court dismissed the plaintiff’s claims because the company produced sufficient evidence of a legitimate non-discriminatory reason for termination, while the plaintiff did not present evidence that the company’s reason was a mere pretext. This case again underlines the importance of complete and accurate record-keeping by businesses.Read More
Employers may ask what recourse they have when an employee violates a non-compete or steals confidential client information and passes it to another company. As a recent Alexandria Federal Court decision demonstrates, employers have substantial and effective remedies. Alliance Storage Technologies, Inc. v. Engstrom. Civil Action No. 4:11-cv-46 (E.D.V.A., May 3, 2012).
In that case, Alliance Storage Technologies (Alliance) employed Bryan Engstrom as Worldwide Director of Sales for IT support and data storage for optical hardware. He had access to trade secrets regarding the products as well as the company’s current projects, marketing plans, dates of customer service contracts, and customer financial information. Alliance had required Engstrom to sign Confidentiality and Non-Compete agreements in order to maintain its trade secrets. Nevertheless, Engstrom downloaded thousands of files of trade secrets and resigned, taking up new employment with a competitor, Archive Data Solutions (ADS).
Alliance filed suit against Engstrom, his longtime girlfriend (who also worked at Alliance), and ADS for injunctive relief, breach of contract, breach of fiduciary duty, misappropriation of trade secrets, tortious interference, conversion, and conspiracy. Alliance presented evidence of $500,783.38 in lost business, lost time away from business, and lost value of trade secrets and goodwill. Additionally, under Virginia’s conspiracy statute, Va. Code § 18.2-499 et seq., Alliance asked for treble damages, attorneys’ fees and costs, and punitive damages.
Proof of damages requires detailed evidence in the form of affidavits, records, and testimony. Alliance claimed $500,783.38 in compensatory damages and yet the court granted only $66,252.15. The court declined to award damages for the plaintiff’s lost time away from business or the devaluation of its trade secrets and loss of goodwill, and granted only the direct loss of revenue from specifically identified client contracts at a 31.87% rate of profit.
The court held that Alliance met its burden of establishing the three elements of statutory conspiracy (concerted action; legal malice; and causally-related injury) and granted treble damages, but not punitive damages (Alliance moved for $350,000 in punitive damages for each defendant). Punitive damages require a showing of actual malice, a more difficult standard than legal malice, and the court found that Engstrom and his girlfriend appeared “to have been motivated by a desire to make money” rather than a desire to injure the Plaintiff which would constitute actual malice. $66, 252.15 trebled is $198,756.45. Alliance also recovered the costs of the suit, as allowed by Va. Code §§ 18.2-499-500, which amounted to $53,486.62.
Lastly, the court denied Alliance’s motion for a permanent injunction, but granted a temporary injunction for two years in which Engstrom and his girlfriend would be held to the terms of the Confidentiality and Non-compete agreements, requiring the return of stolen data and that they not compete within a 50 mile radius of any market area served by Alliance.
The decision of the Alexandria Federal Court reminds employers of the strict remedies that they can pursue when employees breach their legal duties and non-compete agreements.Read More
In a recent decision, the Federal Court of Appeals for the Fourth Circuit upheld a contract forcing a gas station owner to buy his gas from a certain oil company, despite the similarity of the agreement to an oft-unenforceable employment non-compete. In so holding, the Fourth Circuit distinguished between business owner restrictive purchase agreements and employee restrictive covenants, finding the former easier to enforce than the latter. The case is BP Products N.A., Inc. v. Stanley, et al., 2012 U.S. App. LEXIS 2909 (4th Cir. 2012).
The case involved an appeal by BP Products North America, Inc. (“BP”) from the Eastern District of Virginia district court’s award of summary judgment in favor of the defendants: Charles V. Stanley, Jr. (“Stanley”) and his business, Telegraph Petroleum Properties (“Telegraph”). BP had sued the defendants seeking to enforce a restrictive covenant in a deed which prohibited Stanley’s service station (located in Alexandria, VA) from selling fuel that was not BP-branded. The district court had granted summary judgment in favor of the defendants on the basis that the restriction was overbroad and unenforceable under Virginia law, and had also awarded the defendants their attorneys’ fees and costs. In a 2-1 decision, the Fourth Circuit Court of Appeals reversed the district court’s grant of summary judgment and vacated the fees award.
In 2005, Stanley signed a deed with BP to purchase the land upon which he had operated an Amoco station for many years. The deed contained certain restrictive covenants, particularly a Petroleum Restriction (“PR”) which prohibited Stanley from selling non-BP-branded gasoline at his station. Eventually, when BP’s regional distributor began selling gas to Stanley at prices the latter felt were “commercially unreasonable,” Stanley stopped selling BP-branded fuel and started selling AmeriGO fuel. BP ultimately filed suit in 2009 to enforce the terms of the PR; the defendants counterclaimed, seeking a declaration that the PR was overbroad and therefore invalid.
Following cross-motions for summary judgment, the district court ruled that the restriction on Stanley’s right to sell non-BP-branded fuel at the station was overbroad and unenforceable as written. BP then appealed, arguing that the district court erred in concluding that the PR was overbroad.
The appellate court concluded that the district court had improperly analyzed the PR under the incorrect test. Specifically, the district court had chosen to analyze the PR under a stricter test usually applied to non-compete covenants in employment contracts. See, e.g., Omniplex World Services Corp. v. U.S. Investigations Services, Inc., 270 Va. 246, 618 S.E.2d 340 (2005). On the contrary, the appropriate test in cases involving the use of land is the one discussed in Merriman v. Cover, Drayton & Leonard, 104 Va. 428, 51 S.E. 817 (1905). Under Merriman, a restraint on land use is valid and enforceable “where the restraint is limited and there is a valuable consideration to support it,” so long as “the restraint imposed is reasonable” and not against public policy. Merriman, 51 S.E. at 819.
While it acknowledged that covenants restricting the free use of land are not favored in Virginia, the Fourth Circuit reasoned that the PR afforded “fair protection” to BP’s interest without being “so large as to interfere with the interests” of the general public. The court determined that the intentions of the parties were clearly reflected in the deed, and noted that the PR was designed to secure Stanley’s “long-term commitment” by making sure that any gasoline sold on the Property would be BP-branded. Accordingly, the district court’s decision was reversed, and the case was remanded to EDVA for further proceedings.
In his dissenting opinion, Judge Henry Floyd pointed to the exact language of the PR, which he believed was much broader – and therefore, more restrictive – than was truly necessary to protect BP’s legitimate business interests. Whereas the majority (in Judge Floyd’s estimation) was willing to interpret the various terms and products listed in the PR within the context of BP’s overall goal(s), Judge Floyd felt the PR’s language was overbroad on its face, and its “sweeping” prohibitions were therefore unenforceable.
This case demonstrates the different tests applied to various non-competitive agreements in the business context. Where a restrictive agreement applies to business owners, rather than employees of a business, the courts are generally more likely to enforce the agreement.Read More
In January 2009, Sandra Perry, an employee of the Wicomico County Health Department, was denied a promotion for which she was told she did not meet the minimum qualifications. Three months later the Department laid her off from her position as an Agency Procurement Associate, but also assisted her in securing another position within the Maryland Department of Health and Mental Hygiene. However, the day after starting the new job, Ms. Perry filed a grievance claiming, not that she was wrongly laid-off, but that she was wrongly denied the promotion in January.
The Department denied Ms. Perry’s grievance stating that there was nothing illegal or unconstitutional done in denying her the promotion. In response, Ms. Perry filed a petition for judicial review by the Circuit Court. Maryland Rule 7-401 and 7-403 allow the judicial review of administrative agency action if the plaintiff claims that the agency harmed a substantial legal right by making a decision that was:
(B) Exceeded the statutory authority or jurisdiction of the agency;
(C) Resulted from an unlawful procedure;
(D) Was affected by an error of law;
(E) Was unsupported by competent, material, and substantial evidence;
(F) Was arbitrary or capricious; or
(G) Was an abuse of its discretion.
Md. Rule 7-403.
Before coming before the Court of Appeals, the Wicomico Circuit Court found that nothing in Perry’s complaint against the Department’s denial of the promotion amounted to a violation of state or federal law. Upon her appeal, the court noted that “Maryland Rule 7-403 does not provide administrative mandamus review for negligent actions” and even if the Department “was mistaken in determining that [Ms. Perry] was not qualified for the Agency Procurement Specialist II position for which she originally applied, such a determination would not be unconstitutional or illegal.” The court held that the Department’s decision to promote another applicant than Perry “was entirely discretionary.”
Relying on prior cases (Oltman v. Bd. of Physicians, 182 Md. App. 65 (2008) (holding that a former physician’s assistant had no protected property interest in his revoked certificate); Dozier v. Dep’t of Human Resources, 164 Md. App. 526 (2005) (holding that an at-will State employee had no protected property interest in continued employment)), the Maryland Court of Appeals ruled that Ms. Perry improperly claimed to have a substantial right to the promotion. “Having been given an opportunity to apply, offered an interview, and considered for the position, appellant did not gain any entitlement to the promotion.” The court required Ms. Perry to pay the costs of the suit.Read More
Several years of performance reviews touting an employee’s contributions and scope of responsibilities ultimately proved critical to the employer in defending against an employee’s Fair Labor Standards Act claim. In Altemus v. Federal Realty Investment Trust, an executive assistant sued her former employer under the Fair Labor Standards Act for unpaid overtime. Although the employer had categorized her as exempt from overtime under the FLSA, the plaintiff claimed that she was not exempt, that her administrative tasks accounted for a fairly small percentage of her time, and that about 80 percent of her time was spent performing personal work for the company’s CEO.
As proof that the plaintiff was properly characterized as exempt under the FLSA, the employer presented evidence of the employee’s extremely positive performance reviews, signed by the employee, in which the employer extolled the broad scope of the plaintiff’s responsibilities, described her as essential to the administration of all aspects of the business, and explained that she was given wide leeway to make decisions on her own.
The employee sought to counteract the praise heaped upon her in the performance reviews by arguing that her signature on the performance reviews only indicated her receipt of the review, not her agreement with the review. She also submitted an affidavit regarding the amount of time spent on administrative tasks versus personal tasks for the CEO. However, neither of these tactics was effective in convincing the court that she had more than a scintilla of evidence demonstrating her non-exempt status.
In rejecting the employee’s overtime claim, the court noted that the performance reviews reflected the high degree of independence and discretion enjoyed by the plaintiff, and her relatively high compensation – nearly twice that of other non-exempt assistants – further supported a finding of exempt status. Moreover, the court also noted that the employee’s high salary itself created doubt as to whether she falls within the scope of individuals intended to be protected by the FLSA. Although not dispositive, a high level of compensation is a strong indicator of an employee’s exempt status and therefore, according to the court, the plaintiff’s salary was further evidence of her exempt status.Read More
The legal implications that social media has on employees and employers is a still-evolving concept; however, courts are increasingly hearing more cases where employers may land themselves in hot water for making employment decisions based on an employee’s internet postings. In Bland v. Roberts, Civil Action No.: 4:11cv45 (E.D.V.A. Apr. 24, 2012), seven former employees of the Hampton Sheriffs’ Office sued the Sheriff of the City of Hampton, claiming, among other things, that the Sheriff wrongfully terminated their employment after learning that the employees were actively supporting his competitor during the Sheriff’s re-election year.
Of note was one employee’s claim that the Sheriff failed to reappoint him to his position in retaliation for the employee’s exercise of his right to freedom of speech. The particular employee ‘liked” the Sheriff’s opponent’s Facebook page, and argued that this was a constitutionally protected activity under the First Amendment. The employee claimed that once the Sheriff learned that he made a “statement” supporting the Sheriff’s opponent, the Sheriff retaliated against him by failing to reappoint the employee to his former position. However, the Court held that the mere “liking” of a Facebook page is not an expression of “speech,” and thus, does not merit constitutional protection. Accordingly, the employee could not prove that the Sheriff’s employment decision violated the employee’s First Amendment right to freedom of speech, and his retaliation claim was dismissed on summary judgment.
The Court did state, however, that there are instances where Facebook activity could qualify as constitutionally protected speech. To determine whether a public employee has stated a claim under the First Amendment for retaliatory discharge, the Court must determine three factors: (1) whether the public employee was speaking as a citizen upon a matter of public concern or as an employee about a personal matter or personal interest; (2) whether the employee’s interest in speaking upon the matter of public concern outweighed the government’s interest in providing effective and efficient services to the public; and (3) whether the employee’s speech was a substantial factor in the employee’s termination decision.
Writing a specific Facebook post, such a status message or commenting on another message can be constitutionally protected speech. For example, a federal court in Atlanta recently held that a Facebook post stating: “Who would like to hear the story of how I arrested a forgery perp [sic] at Best Buy online to find out later at the precinct that he was the nephew of an Atlanta Police Investigator” constituted an expression of speech about public concern that was covered under the First Amendment.
While simply “liking” a page may not be the kind of substantive statement that warrants constitutional protection, Facebook posts have been considered matters of public concern. Thus, in the new world of social media, public employees may have First Amendment retaliation claims if they believe an employment decision violated their right of freedom of speech in the online world.Read More