Drinker Biddle Labor & Employment Lawyers Ranked in Chambers USA 2013

Congratulations to the Labor & Employement group lawyers and practices who were recognized as leaders in their field in  Chambers USA 2013.  Those lawyers who were recognized include Labor & Employment group co-chair Tom Barton (Band 3) and Florham Park partners John Ridley (Band 1) and Lynne Anderson (Band 3).

Sources said about the New Jersey practice (Band 2), “They were eloquent and responsive to a tee. Everyone has been extremely helpful”.  When asked about John Ridley, one client commented “He is a seasoned litigator and has been doing employment law for so long that he is a real asset”.  Another interviewee praised Lynne Anderson for her ability to “remain calm amid the nastiness of litigation.”

When asked about Tom Barton, one client commented  “Smart, creative and practical” and “tries to find a solution for his clients.”  And when commenting on the Pennsylvania practice (Band 4), a client noted ” They’ve been great – their approach to litigation has been very reasonable and measured.  They’re not overly aggressive – they’re very logical and pragmatic.” 

The lawyers of the Labor & Employment group help make up the more than 60 lawyers from many of Drinker Biddle & Reath’s 16 practice groups that were recognized in the Chambers USA 2013 edition.

Whistleblowing May Not Be Limited to Claims About Employer Wrongdoing in New Jersey

By: Jerrold J. Wohlgemuth

The New Jersey Conscientious Employee Protection Act (“CEPA”) was designed to protect whistleblowing employees who have the courage to stand up to illegal or wrongful conduct by their employer.  As the courts have consistently held, the initial focus in a typical CEPA case is on the whistleblower’s prima facie case burden to establish that he/she had an objectively reasonable basis to believe that the employer did something wrong by either violating a law or engaging in conduct incompatible with a clear mandate of public policy.

In an unreported opinion issued in March 2013, however, the United States District Court for the District of New Jersey found that CEPA can be implicated even where there is no claim or contention that the employer did anything wrong.  In Stapleton v. DSW, Inc. (2013 U.S. Dist. LEXIS 38502), the plaintiff employee believed that a store customer was mistreating her young child by, among other things, not changing her dirty diaper, and decided to “blow the whistle” on the customer by turning her in to the New Jersey Division of Child Protection and Permanency (the “Division”) out of concern for the child’s health and wellbeing.  The plaintiff employee gave the customer’s name and address to the Division after obtaining that information from the customer’s transaction with the store.  In doing so, the plaintiff violated the company’s perfectly lawful policy prohibiting the unauthorized disclosure of confidential customer information.  When the employer learned of what had happened, it discharged the plaintiff for violating its non-disclosure policy, and she filed suit under CEPA.

Not surprisingly, the company moved to dismiss the lawsuit on the grounds that the plaintiff was not a protected “whistleblower” because she did not allege that the company had done anything wrong or illegal.  Indeed, the plaintiff had blown the whistle on the customer, not the company.  This is where it gets interesting.  In denying the company’s motion, the District Court noted that CEPA not only protects employees who object to illegal activity, but also those who refuse to follow a policy or practice which they reasonably believe is incompatible with a clear mandate of public policy.  Unlike most CEPA cases, the court in Stapleton focused on the conduct of the employee – not the employer – and concluded that she was protected under CEPA by virtue of the fact that she acted pursuant to the public policy that encourages individuals to report child abuse.  In this circumstance, the court determined that the company’s policy prohibiting the disclosure of the customer’s identity was incompatible with the State’s clear mandate to protect the health and welfare of children, and that the plaintiff was therefore engaged in protected “whistleblowing” under CEPA when she refused to “participate in” or follow that policy in order to help the Division identify the customer.

While the court’s CEPA analysis is subject to debate – there was no allegation that the employer had engaged in wrongful or illegal conduct – the plaintiff would appear to have a claim for wrongful discharge in violation of public policy where the New Jersey Child Protection Law provides immunity to employees reporting child abuse, and the New Jersey courts have held that employer policies on confidentiality must yield to matters of child safety.  Nevertheless, this opinion should serve as a caution to employers and counsel alike that the courts often take an expansive view of the protections provided under CEPA.

Unpaid Internships – Training Programs or a Lesson in Class Actions?

By: Kate S. Gold and Elena S. Min

Summer is quickly approaching, and eager students are lining up for internship opportunities, some of which may be unpaid.  The whole topic has caused a firestorm of news stories lately – including an NYU students’ petition to remove unpaid internship postings from the campus career center, and an auction by an on-line charity website for a six week unpaid internship at the UN NGO Committee on Human Rights (the current bid is $26,000).  Do unpaid internships run afoul of federal and state minimum wage laws?  The answer potentially is yes, but given recent successful challenges to class certification, employers now have useful guidance in developing defense strategies against such claims.

Last week, in Wang v. The Hearst Corporation, U.S.D.C. S.D.N.Y. Case No. 12-CV-00793, the court denied class certification in a case brought by interns at various Hearst-owned magazines.  The interns challenged Hearst’s practice of classifying them as unpaid interns, allegedly to avoid minimum wage and overtime laws under the Fair Labor Standards Act (“FLSA”) and New York state law.  The court found that the plaintiffs could not satisfy the commonality requirement for class certification.  While plaintiffs could demonstrate a corporate-wide policy of classifying proposed class members as unpaid interns, the nature of the internships varied greatly from magazine to magazine.  The court noted there was no evidence of a uniform policy among the magazines regarding the interns’ specific duties, training, or supervision.

Days later, attorneys for the defendant in Glatt v. Fox Searchlight Pictures Inc., U.S.D.C. S.D.N.Y. Case No. 11-CV-06784, made a similar argument to defeat class certification in a case in which Fox interns challenged their unpaid status under federal and New York state minimum wage and overtime laws.  In that case, the interns worked on the sets of different films or were based out of corporate offices, and weren’t governed by a centralized policy or procedure.  The defendant in Glatt argued that class certification should be denied because of the lack of a uniform policy.  While the court in Glatt has not yet ruled, these two cases suggest that, although claims by unpaid interns may persist, plaintiffs may find it increasingly difficult to sustain them as class actions.

In light of these cases, now is a good time to review the rules for internships.  According to the Department of Labor, internships in the for-profit private sector will be viewed as employment relationships for which the FLSA minimum wage and overtime rules will apply, unless the intern is truly receiving training which meets six criteria:  (1) the internship is similar to training that would be given in an educational environment; (2) the internship experience is for the benefit of the intern; (3) the intern is not replacing employees and works under close supervision; (4) the sponsor of the intern does not derive immediate benefit from intern’s activities and at times, its operations may actually be impeded; (5) the intern is not entitled to a job at the conclusion of the internship; and (6) the sponsor and the intern understand the intern is not entitled to wages for the time spent in the internship.  As of 2010, the California Division of Labor Standards Enforcement (“DLSE”) relaxed the multi-factor test it previously applied and now uses the same criteria as the DOL.

While the Hearst ruling is good news for employers, the case did not address the merits of the interns’ claims and does not mean employers can relax their compliance efforts.  If an employer improperly classifies an internship as “unpaid,” the employer could be liable for failure to pay minimum wage and overtime, penalties for failure to provide meal and rest breaks, as well as potential liability for violations of anti-discrimination and anti-harassment laws that apply to employees.  The bottom line is that employers should apply the DOL/DLSE six-factor test and if their internships do not meet the criteria, the interns should be paid at least minimum wage.

Editors note: Be sure to check out Kate’s guest blog post for thewrap.com on the use of interns by entertainment and media companies.

Federal Appeals Court Rejects NLRB Union Poster Rule

By: Mark D. Nelson

The U.S. Court of Appeals for the D.C. Circuit recently held that the National Labor Relations Board’s (Board) rule that required employers to post a new notice that promoted the right to unionize (sometimes referred to as the NLRB union poster rule) violated employers’ free speech rights under Section 8 (c) of the National Labor Relations Act.

The Board issued the highly controversial rule in August of 2011 that required employers to post the new notice.  Employer groups soon challenged the rule, arguing that the rule exceeded the Board’s authority to enforce the Act.

The Court noted that Section 8(c) of the Act gives employers the right to communicate with employees about union representation as long no threats or promises of benefits are made.  The right of free speech, the Court stated, also includes the right to be silent.  The Board’s notice posting rule forced employers to communicate with employees about union representation and made it an unfair labor practice if an employer did not comply, which the Board cannot do.

The Court also rejected the Board’s rule because the Act’s six-month statute of limitations on unfair labor practices would not apply to an employer’s failure to post the notice.  It remains to be seen what the Board will do in response to the Court’s decision.

NLRB Issues Guidance on Lawful Confidentiality Language

By: Marion B. Cooper

On July 30, 2012, the NLRB (“Board”) issued a decision in Banner Health System dba Estrella Medical Center, 358 NLRB No. 93 holding, among other things, that the employer violated Section 8(a)(1) (which prohibits employers from interfering, restraining or coercing employees in the exercise of their rights), by restricting employees from discussing any complaint that was then the subject of an ongoing internal investigation.

To minimize the impact of such a confidentiality mandate on employees’ Section 7 rights, the Board found that an employer must make an individualized determination in each case that its “legitimate business justification” outweighed the employee’s rights to protected concerted activity in discussing workplace issues.  In Banner Health, the employer did not carry its burden to show a legitimate business justification because it failed to make a particularized showing that:

  • Witnesses were in need of protection;
  • Evidence was in danger of being destroyed;
  • Testimony was in danger of being fabricated; or
  • A cover-up must be prevented.

The Board concluded that the employer’s one-size-fits-all rule, prohibiting employees from engaging in any discussion of ongoing internal investigations, clearly failed to meet these requirements.

More recently, the NLRB’s Office of the General Counsel clarified the limits of how such policies could be drafted without running afoul of Section 7 in an advice memorandum released on April 24, 2013 (dated January 29, 2013).   The Region had submitted Verso Paper, Case 30-CA-089350 (January 29, 2013) to the Office of the General Counsel for advice regarding the confidentiality rule at issue and whether it unlawfully interfered with employees’ Section 7 rights.  Specifically, the Verso Code of Conduct contained this provision prohibiting employees from discussing ongoing internal investigations:

Verso has a compelling interest in protecting the integrity of its investigations.  In every investigation, Verso has a strong desire to protect witnesses from harassment, intimidation and retaliation, to keep evidence from being destroyed, to ensure that testimony is not fabricated, and to prevent a cover-up.  To assist Verso in achieving these objectives, we must maintain the investigation and our role in it in strict confidence.  If we do not maintain such confidentiality, we may be subject to disciplinary action up to and including immediate termination.

Reiterating that employees have a Section 7 right to discuss disciplinary investigations of their co-workers, the General Counsel’s Office found that the Verso Paper provision did not allow for a case-by-case analysis of whether or not the employer’s business justification for the restriction outweighed the employees’ Section 7 rights as required by Banner Health.  According to the General Counsel’s Office, the employer may establish this by presenting facts specific to a given investigation that give rise to a legitimate and substantial business justification for imposing confidentiality restrictions.

However, in footnote 7 of its advice, the General Counsel’s Office, after noting that the first two sentences of the Verso Paper rule lawfully set forth the employer’s interest in protecting the integrity of its investigations, surprisingly put forward a modified version of the remainder of the Verso Paper provision that it said would pass muster under Banner Health:

Verso may decide in some circumstances that in order to achieve these objectives, we must maintain the investigation and our role in it in strict confidence.  If Verso reasonably imposes such a requirement and we do not maintain such confidentiality, we may be subject to disciplinary action up to and including immediate termination.

Although this guidance is not binding, combining this language above with the first two sentences of the Verso Paper provision could certainly strengthen an employer’s argument that its intent was not to violate an employee’s Section 7 rights, but rather, to lawfully put employees on notice that if the employer “reasonably” imposes a confidentiality requirement, they must abide by it or face discipline.  However, employers must remain mindful that using a provision like this suggested does not obviate the need for the employer to engage in the particularized case-by-case determination of its substantial and legitimate business need that would permit it to impose confidentiality restrictions on the investigation.

WARN Act Liability And Private Equity Firms

By: David J. Woolf

Last month’s decision out of the Delaware District Court in Woolery, et al. v. Matlin Patterson Global Advisers, LLC, et al. was an eye opener for private equity firms and other entities owning a controlling stake in a faltering business.  Breaking from the norm, the Court refused to dismiss private equity firm MatlinPatterson Global Advisers, LLC (“MatlinPatterson”) and affiliated entities from a class action WARN Act suit alleging that the 400-plus employees of Premium Protein Products, LLC (“Premium”), a Nebraska-based meat processer and MatlinPatterson portfolio company, hadn’t received the statutorily-mandated 60 days advance notice of layoffs.

According to the plaintiffs, Premium’s performance began to decline in 2008 and, upon the downturn, the defendants became more and more involved in Premium’s day-to-day operations, including by making business strategy decisions (e.g., to enter the kosher food market), terminating Premium’s existing President, and installing a new company President.  Things got bad enough that, in June 2009, the defendants decided to “furlough” all of Premium’s employees with virtually no notice and close the plant.  The defendants then, in November 2009, converted the furlough to layoffs, and Premium filed for bankruptcy.  According to the plaintiffs, Premium’s head of HR raised WARN Act concerns back in June, when the decision to close the plant and furlough the employees was made, and the defendants ignored the issue.

With Premium in bankruptcy, the plaintiffs, unsurprisingly, turned to MatlinPatterson and the other defendants as the targets of their WARN Act claim, asserting that they and Premium were a “single employer.”  The Court then applied the Department of Labor’s five-factor balancing test, namely (1) whether the entities share common ownership, (2) whether the entities share common directors or officers, (3) the existence of de facto exercise of control by the parent over the subsidiary, (4) the existence of a unity of personnel policies emanating from a common source, and (5) the dependency of operations between the two entities.  This test often favors private equity firms, and on balance it did so in Woolery too, with the Court finding that the plaintiffs had made no showing as to three of the five factors.  The Court nevertheless refused to grant the defendants’ motion to dismiss, holding that the complaint alleged that the defendants had exercised de facto control over Premium and then essentially giving that factor determinative weight.

No one should be surprised by the decision given the plaintiffs’ allegations, which had to be accepted as true at the motion to dismiss stage.  They presented an ugly picture of a private equity firm dictating the most critical decisions (to close plant, layoff employees) and then attempting to duck the WARN Act’s dictates. The decision is nevertheless a cautionary tale for private equity firms and at first blush it presents a catch 22: (a) do nothing and watch your investment sink or (b) get involved and risk WARN Act liability.

So what is a private equity firm, lender or majority investor to do?  Obviously, the best scenario is to build in the required 60-day notice period or, if applicable, utilize WARN Act exceptions, including the “faltering company” and “unforeseen business circumstances” exceptions.  Even where that’s not possible, private equity firms and other controlling investors need not take a completely hands off approach.  They would, however, be best-served (at least for WARN Act purposes) to do the following:

  • Provide only customary board-level oversight and allow the employer’s officers and management team to run the employer’s day-to-day operations
  • Although Board oversight and input can occur, continue to work through the management team on major decisions, including layoffs and potential facility closures
  • Avoid placing private equity firm or lender employees or representatives on the employer’s management team
  • Have the employer’s management team execute employment contracts with the employer, not the private equity firm or lender, and have the contracts, for the most part, create obligations only to the employer
  • Allow the employer to maintain its own personnel policies and practices, as well as HR oversight and function

What the courts are primarily concerned with in these cases are (a) a high degree of integration between the private equity firm or lender and the actual employer, particularly as to day-to-day operations, and (b) who the decision-maker was with regard to the employment practice giving rise to the litigation (typically the layoff or plant closure decision).  Private equity firms and lenders that have refrained from this level of integration have had, and should continue to have, success in avoiding WARN Act liability and returning the focus of the WARN Act discussion to the actual employer.