What Happens at Work Stays at Work – The California Employer’s Approach To A National Program for Restrictive Covenants and Trade Secret Protection

Kate Gold, Mark Terman and Adam Thurston, partners in the firm’s Los Angeles office, recently presented to the Southern California Chapter of the Association of Corporate Counsel a program titled “What Happens at Work Stays at Work – The California Employer’s Approach To A National Program for Restrictive Covenants and Trade Secret Protection”.

The presentation, which was broadcast to in-house counsel viewing in three separate locations spread out around southern California, first looked at the California landscape, giving a refresher and update on non-competition agreements, customer and employee non-solicitation, identifying and pleading trade secrets and misappropriation.

The presentation then looked at considerations for a multi-jurisdictional approach to trade secret protection, including best practices for effective corporate policies and confidentiality and property protection agreements.

The presentation concluded by addressing social media in a trade secret protection program, including Twitter, LinkedIn, and BYOD, and making the most of choice of law and forum selection clauses in restrictive covenants.

A copy of the presentation can be downloaded here.

New Jersey’s Whistleblower Law Is Not An End Run Around Labor Law Preemption

By: Meredith R. Murphy

New Jersey’s Appellate Division has rejected two Atlantic City nightclub workers’ attempts to artfully plead their way around preemption under the National Labor Relations Act (NLRA) and the Labor Management Relations Act (LMRA) by alleging a whistleblower claim under New Jersey’s Conscientious Employee Protection Act (CEPA). The case was brought by two “Tipped Floor Euros,” i.e., alcoholic beverage servers, who alleged retaliation and constructive discharge following their complaints regarding tip-pooling, wage payments and being forced to perform duties prohibited by the collective bargaining agreement (CBA). The case is O’Donnell v. Nightlife, et al. (April 17, 2014).

In rejecting the plaintiffs’ CEPA claims, the Appellate Division took a narrow view of the whistleblower statute, citing the standard that the conduct complained of must “pose a threat of public harm, not merely private harm or harm only to the aggrieved employee.” [Opinion, p. 11, available here, citing Mehlman v. Mobil Oil Corp., 153 N.J. 163, 188 (1988)] The Appellate Court agreed with the trial court that most of the plaintiffs’ complaints alleged violations of the CBA, not violations of law, and accordingly, not violations of CEPA.

The Appellate Division also took a broad view of preemption under the NLRA and LMRA. The Court gave credit to plaintiffs’ attempts to “artfully phrase” the language in the complaint – alleging that failure to pay the share of the nightly tip pool constituted “fraud” and failure to pay full minimum wage for non-tipped work constituted a “violation of [New Jersey] wage and hour laws.” However, the Appellate Division ultimately ruled that such state causes of action are presumptively preempted under NLRA and LMRA and were appropriately dismissed as preempted because they each ultimately asserted violations of the CBA or claims that required interpretation of the CBA.

Accordingly, based on this precedent, a unionized employee’s remedy lies not under CEPA but through the union grievance procedure and the relief available under Sections 7 and 8 of the NLRA.

Philadelphia Pregnancy Accommodation Law: Notice Requirement Begins on April 20, 2014

By: DeMaris E. Trapp

On January 20, 2014, Philadelphia Mayor Michael Nutter signed into effect an amendment to the city’s Fair Practices Ordinance: Protections Against Unlawful Discrimination that expressly includes pregnancy, childbirth, or a related medical condition among those categories protected from unlawful discrimination.

The city law covers employers who do business in Philadelphia through employees or who employ one or more employees.  Before this amendment, employers’ obligations under city, state, and federal antidiscrimination laws only required them to treat employees with pregnancy-related issues no worse than any other disabled employee with respect to accommodations.  Now employers are not only prohibited from denying or interfering with an individual’s employment opportunities on the basis of pregnancy, childbirth, or related medical conditions, but employers also are required to make reasonable accommodations on these bases to an employee who requests it.  The legislation’s non-exhaustive examples of reasonable accommodations include restroom breaks, periodic rest for those who stand for long periods of time, assistance with manual labor, leave for a period of disability arising from childbirth, reassignment to a vacant position, and job restructuring.  Employers have an affirmative defense under the law for failing to accommodate an employee if such accommodations would cause an undue hardship.

Employers should take note that this law increases the burden on them to provide reasonable accommodations, since examples like reassignment and job restructuring have traditionally not been required under similar federal and state laws that mandate accommodations for individuals with disabilities.  Thus, employers should review their policies and other written materials regarding employee accommodations to ensure that they reflect the increased protections afforded by the amendment.  Employers were required to provide written notice to its employees of the protections under this amendment by April 20th or post the notice conspicuously at its place of business in an area accessible to employees.  The Philadelphia Commission on Human Relations has provided a model notice to employees, which can be found at: http://www.phila.gov/HumanRelations/PDF/pregnancy_poster.pdf.

Supreme Court Expands Scope of Sarbanes-Oxley Whistleblower Protections

Editor’s Note: The following post by Alexis Burgess, Associate in the Los Angeles office, appears in the latest issue of the California HR Newsletter. To sign-up to receive the California HR Newsletter click here.

Supreme Court Expands Scope of Sarbanes-Oxley Whistleblower Protections

The Issue: My company is not publicly traded, but provides services to companies that are. Do Sarbanes-Oxley whistleblower protections extend to our employees?

The Solution: Yes.

Analysis: Enacted in the wake of the Enron and Worldcom scandals, the Sarbanes-Oxley Act imposes increased reporting standards on publicly-traded companies and the outside accountants, consultants, and lawyers supporting them. Section 1514A prohibits public companies, or their contractors or agents, from using adverse employment action, threat, or harassment to retaliate against “an employee” who blows the whistle (internally or externally) on perceived violations of the Act, SEC regulation, or any other federal law relating to shareholder fraud. Though civil remedies are largely coextensive with California’s employee anti-retaliation provisions, federal claims brought under section 1514A are exempt from arbitration and entail potential criminal penalties, including up to ten years of jail time for the responsible decision-makers.

In Lawson v. FMR LLC, decided in early March, the Supreme Court significantly expanded the scope of section 1514A’s protection, extending it to employees of service providers to public companies. The plaintiffs in Lawson were accountants formerly employed by FMR, a private contractor that prepares SEC filings for publicly traded mutual funds. They were allegedly terminated for raising concerns to their superiors regarding accounting and reporting methodologies used by FMR. FMR argued that the case should be dismissed because section 1514A, titled “Whistleblower protection for employees of publicly traded companies,” regulates private contractors only to the extent they are used to retaliate against public company employees, and does not shield a private contractor’s own employees.

The Supreme Court disagreed. Reversing the First Circuit, the Court held that, “based on the text of 1514A, the mischief to which Congress was responding, and earlier legislation Congress drew upon, . . . the provision shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.” Though this expansive interpretation could generate a wide range of potential plaintiffs (a fact duly noted in the dissent), the Court indicated that professional service providers, such as the accountant plaintiffs in Lawson, are the intended and most likely beneficiaries.

Accordingly, private companies providing professional services to publicly traded clients should ensure they have appropriate procedures in place for responding to employee questions or complaints that may be regarded as “whistleblowing.” Failure to do so may expose them to federal remedies above and beyond those already imposed by California law.

Daughter’s Facebook Post Leads to Costly Breach by Father of a Confidentiality Clause in His Settlement Agreement With Former Employer

By: Lawrence J. Del Rossi

A recent decision by a Florida appeals court, Gulliver Schools, Inc. v. Snay, stands as a stark reminder of the perils of trying to maintain confidentiality in the age of social media where news can travel faster than the speed of sound and inadvertent dissemination of information that is intended to be “confidential” can be difficult, if not impossible, to prevent.

Patrick Snay sued his former employer, Gulliver Schools, for age discrimination and retaliation under the Florida Civil Rights Act after his contract as the school’s headmaster was not renewed.  The parties reached a settlement in the amount of $150,000 ($10,000 in back pay, $80,000 for non-wage damages, and $60,000 in attorney’s fees), and agreed that the “existence or terms” of the agreement were to be kept strictly confidential.  The confidentiality provision prohibited Snay from “directly or indirectly” disclosing or discussing the case or the settlement with anyone except “his attorneys or other professional advisors or spouse.”  It contained a clawback or liquidated damages provision allowing for the disgorgement of plaintiff’s portion of the settlement payments in the event of a breach.

Only four days after the parties had signed the settlement agreement, the school notified Snay that he had materially breached the agreement based on a Facebook posting of Snay’s college-age daughter, who boasted to approximately 1200 Facebook friends (many of whom were either current or past Gulliver students): “Mama and Papa Snay won the case against Gulliver.  Gulliver is now officially paying for my vacation to Europe this summer.  SUCK IT.”

Mr. Snay testified that he believed his daughter was retaliated against at Gulliver, that she was “very concerned about” the lawsuit, and that after the settlement was reached he and his wife decided to tell their daughter that the case had settled and that they were happy with the result.  They apparently did not tell her that the settlement was confidential or that she should not disclose such information to anyone else.  The trial court found that neither Snay’s comments to his daughter nor his daughter’s Facebook comment constituted a breach.  The appeals court disagreed and reversed, ruling that Mr. Snay “violated the agreement by doing exactly what he had promised not to do,” and “[h]is daughter then did precisely what the confidentiality agreement was designed to prevent, advertising to the Gulliver community that Snay had been successful in his age discrimination and retaliation case against the school.”

Confidentiality clauses like the one in the Snay/Gulliver settlement agreement are common and should be enforced when they are clear, unambiguous and voluntarily and knowingly agreed to.   From a drafting standpoint, if it was important for Mr. Snay to have disclosed certain information about the settlement to his daughter (as he had claimed at his deposition), then the confidentiality provision could have included “immediate family” as permissible recipients of confidential information and have subjected those family members to the same confidentiality obligations as Mr. and Mrs. Snay.

In addition, attorneys should take heed of this opinion in light of their ethical and legal obligations to protect client confidences.  The duty to protect privileged and confidential client information extends to current clients (RPC 1.6), former clients (RPC 1.9), and prospective clients (RPC 1.18).  Zealous representation and confidentiality are at the foundation of the attorney-client relationship, but if an attorney’s spouse, family member, or co-worker, inadvertently or otherwise posts on social media client or case information that is confidential (e.g., “mom just settled big toxic tort case, off to Mexico for much needed family vacation!”), such disclosure could be disastrous.

Proposed California Paid Sick Leave Law Will Require Employers to Provide Paid Sick Leave to Employees

By: Pascal Benyamini

Are you a California employer currently providing paid sick leave to your employees?  You may soon have to!  California Assemblywoman Lorena Gonzalez (D-San Diego) recently introduced legislation (Bill AB1522) approved by the Assembly Labor and Employment Committee requiring employers in the State of California to provide their employees with paid sick leave.

This bill would enact the Healthy Workplaces, Healthy Families Act of 2014 to provide, among other things, that an employee who works in California for 7 or more days in a calendar year is entitled to paid sick days to be accrued at a rate of no less than one hour for every 30 hours worked.  An employee would be entitled to use accrued sick days beginning on the 90th calendar day of employment.  And employers would be subject to statutory penalties as well as lawsuits, including the recovery of attorneys fees by the aggrieved employee against employers, for alleged violations.

It is important to note that this type of bill is not new in California, as the San Francisco Paid Sick Leave Ordinance became effective on February 5, 2007 and all employers must provide paid sick leave to each employee — including temporary and part-time employees — who performs work in San Francisco.

The California Chamber of Commerce as well as other employer groups are opposed to this bill and view it as a job killer.

Stay tuned….