David J. Woolf, Author at Laborsphere

An Employer’s Obligation to Follow up after Receiving a Medical Certification: Greater Than You Might Think

If an employee seeks FMLA leave, she typically needs to ask for it. Likewise, it goes without saying that if an employee is asked to provide a medical certification in support of her request (something employers are free to seek) and fails to provide that information – or worse provides a certification indicating that she does not qualify for FMLA leave – the employer has no obligation to provide that leave. Or does it?

In Hansler v. Lehigh Valley Hospital Network, the plaintiff, Ms. Hansler, asked for a two-day per week, one-month leave of absence to deal with certain medical issues, a condition that was diagnosed after her separation as diabetes. In support of her request, Ms. Hansler submitted a medical certification that referred to the length of the requested leave, but did not describe the nature or duration of her condition. The hospital network, instead of asking for clarification of the certification, terminated Ms. Hansler’s employment after she took several days off, contending that because Ms. Hansler was requesting only limited time off, her condition did not qualify as a “serious health condition” under the FMLA and entitle her to leave.

Ms. Hansler thereafter brought suit claiming that the hospital network interfered with her FMLA rights by terminating her employment and retaliated against her for requesting the leave, claims that the trial court dismissed on the ground that Ms. Hansler’s medical certification indicated on its face (by virtue the duration of leave requested) that Ms. Hansler did not qualify for FMLA leave. On appeal, the Third Circuit Court of Appeals reversed. The Court, in a 2-1 decision, held that the hospital network, rather than just acting on the information in the certification, should have asked Ms. Hansler for additional information, even though on its face the information indicated that Ms. Hansler did not qualify for FMLA leave.

In one sense the decision is predictable and understandable. After all, the hospital network with its sophisticated HR capabilities could easily have reached out to Ms. Hansler and asked her for additional information via an updated certification and Ms. Hansler, for her part, was later diagnosed with diabetes, a condition that does qualify as a “serious health condition.” Yet, the decision is not without concern. FMLA regulations provide that an employer “shall advise an employee whenever the employer finds a certification incomplete or insufficient, and shall state in writing what additional information is necessary to make the certification complete and sufficient.” But FMLA case law also holds that, where the certification indicates that the employee does not have a serious health condition, the employer need not follow up further with the employee about her need for leave. And, here, there was at least a decent argument that that was the case given the limited leave requested by Ms. Hansler.

So what is an employer to do when faced with an incomplete FMLA certification? If the certification clearly indicates that no leave is needed or that the employee otherwise clearly is not entitled to leave, it seems fair to say that the employer can rely on the certification and deny the leave request. If, however, the certification indicates that a leave of any length is needed, the employer would be wise to follow up with the employee and provide her an opportunity to submit additional information within the seven-day period contemplated in the FMLA regulations.

How Safe Are Your Company’s Trade Secrets?

In a world where employee mobility is a business reality, companies should be taking proactive measures to guard trade secrets, retain competitive advantage and be ready for court if it comes to that. Click below to launch a video and hear from Labor & Employment partners Mark Terman and David Woolf on what they, and our other Labor & Employment group lawyers, are doing every day to protect companies.

Ten Considerations in Drafting Executive Employment Agreements

Perhaps your company has just acquired a new business and wants to put that entity’s employees under a more structured employment arrangement. Or maybe you are just looking to roll out new executive-level agreements within your own company. Whatever the motivation and circumstances, here are ten things to think about in drafting employment agreements that often go overlooked:

Severance – The most common question is the easiest: Are you going to provide severance and, if so, how much? Other details merit consideration though. For example, is death or disability a severance trigger? As part of the package, do you want to provide things like medical benefit continuation, prorated bonus, equity vesting acceleration, extension of the option exercise period, or other benefits? Whatever you do, the employer will want to make sure that the executive has to execute a release to receive the severance benefits, other than vested benefits and accrued compensation.
Fixed Term (or Not) – Traditionally, a term contract was like a baseball contract – the executive had a term and, except where the employer had good cause for an early termination, it had to pay the executive out through the end of the term no matter what. That concept seems to have largely disappeared, in that (a) employers don’t want to be saddled with paying out the full term if they elect to make a change earlier and (b) executives want severance even when the agreement expires naturally and is not renewed by the company. As a result, except where the employer can secure a true no obligation walk away at the end of the term, or at least establish some difference between an in-term and end-term separation, an employer would be wise to go with an at-will arrangement with no set term.
Restrictive Covenants (or Not) – Restrictive covenants, including covenants not to compete, require clearer, more definitive consideration than most contract terms. And aside from new employment, there is no better consideration than new or enhanced compensation and benefits memorialized in a formal employment agreement. So, if you think non-competition, customer non-solicitation, or other restrictive covenants are worthwhile (and you usually should at the executive level), the employment agreement (or a separate, contemporaneously-executed and cross-referenced restrictive covenant agreement) is the place to do it.
Cause – “Cause” means different things to different people. From an executive’s point of view, Cause is often engaging in particularly serious conduct that is not rectified after notice and an opportunity to cure. Employers, however, should seek to include things like the executive’s failure to perform his or her duties; violation of material company policies (such as anti-discrimination and harassment policies); commission of a felony or other serious crime; breach of his or her restrictive covenants, fiduciary duty, or other misconduct; and material misrepresentation of experience or education, among other things.
Good Reason Provision (or Not) – A “Good Reason” separation provision allows an executive to resign for certain preapproved reasons – typically the employer’s material breach of the employment agreement, a required relocation, or a material diminution of the executive’s duties, often after the employer has failed to cure – and collect severance as if he or she was fired without Cause. Most savvy executives have come to expect such a provision, and providing it to the executive can be a relatively easy give if the Good Reason provision is drafted correctly.
Award Equity (or Not) – Many executives, particularly when accepting a role in a new or newly-acquired company, understand that the cash compensation may be limited initially. What they really want is equity or options so that, if they succeed in developing the company, they can share in that success. Employers and equity firms often find this arrangement beneficial too in that it limits cash outlays and aligns incentives.
State Law and Venue Selection – Almost all employment agreements include a choice of law provision, and many, if not most, employers instinctively select the state in which the company operates and the executive will work. But that may not be the best law for the employer and other options may be available. For example, most courts will apply another state’s law if there is a nexus to that state, such as it being the employer’s state of incorporation. Venue is equally important, as requiring an employee to litigate in a certain forum can give the employer litigation location certainly and potentially avoid the executive running to another state where the law (for example, concerning non-competes) is more favorable.
Assignment – Often forgotten, the assignment provision is critical in that, without it, many states’ laws will not permit assignment, even upon a sale of the employer’s assets. To avoid this, the employment agreement should state that, although the executive may not assign the agreement, the employer may do so, at least to an affiliate or as part of a transaction.
409A – When possible, severance, other payments and the agreement generally should be structured so as not to trigger coverage under Section 409A of the Internal Revenue Code. If the agreement is subject to Section 409A, it should be written to comply with it. Failure to do so can expose the executive, among other things, to a 20 percent additional tax and the employer to an angry executive.
Miscellaneous – There are of course numerous other things of value that an employer can do. For example:

● The salary section can allow for the reduction of the executive’s salary when executive salaries are being cut across the board.

● The employer may want to make any bonuses contingent on the executive working through the end of the year.

● In most states, an employer can provide that accrued, unused vacation and PTO will not be paid out upon termination of employment.

● Arbitration, subject to a carve out for injunction actions, has its positives and negatives and should be considered.

● Address what is to happen upon a sale of the employer or other change of control.

● New executives should represent and warrant that they are not bound by any restrictive covenants that would limit their ability to work for the employer and that they will not use any confidential information from their former employer.

● Although largely standard now, employers should take care to ensure that the agreement provides that it can be revised only by written document.

● Make sure the agreement works with other documents and that the integration clause doesn’t unintentionally overwrite other agreements.

There are always more issues of course, particularly those specific to the particular company and the executive. But the ten-plus areas above arise frequently and thus typically merit consideration.

WARN Act Liability And Private Equity Firms

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.

Former Executive’s Race to California Hits a Roadblock in New York

Like many things in life, there is a perceived formula for success in non-compete cases: If you are the former employee or his or her new or would-be new employer, conventional wisdom dictates that you identify the restrictions early and consider filing a preemptive declaratory judgment action in a state that is hostile to such agreements (provided the facts permit). California is the most well-known example, but there are others. The plan works best if the former employee lives in California (or similarly hostile state) or has other significant connections by virtue of his past or intended future employment. But now, a New York appellate court has thrown conventional wisdom a curve.

Michael Cusack and Peter Arkley were former Aon executives. They left Aon on June 13, 2011 to pursue lucrative opportunities with a competitor, Alliant Insurance Services. The same day, 38 other Aon employees also left, and 22 more followed shortly thereafter. Aon’s clients came too, with over $20 million in client revenue allegedly flowing from Aon to Alliant.

Arkley and Cusak, along with Alliant, following the familiar formula, filed for a declaratory judgment to invalidate their restrictive covenant agreements in California federal court on the same day they resigned. Arkley’s chances of success in California seemed particularly good because, although his employment agreement was governed by Illinois law, he both lived and worked in California, and he planned to continue to do so with Alliant.

Aon responded by filing suits in Illinois and New York state courts, and found success in New York in particular. The New York trial judge, undeterred by the action in California and Arkley’s California connections, enjoined him soliciting business from, and entering into any business relationship with, any of Aon’s clients whom he either procured or whose accounts he worked on in the 24 months prior to his departure. She also enjoined him from soliciting any Aon employees to work for Alliant.

In January, a New York appellate court affirmed. The court rejected Arkley’s calls to defer to the first-filed California action, calling it “a preemptive measure undertaken to gain a tactical advantage so as to negate the force and effect of the restrictive covenants, which the parties had freely agreed upon.” The New York court seized upon the fact that the parties’ agreement had selected Illinois law to govern and held that Illinois law provided for enforcement.

Although the outcome was arguably an unusual one insofar as a New York court entered an injunction against someone who lived and worked in California and intended to do so in his new employment, so too were the facts involved, on many levels. First, the conduct at issue was particularly egregious in that it involved, among other things, former employees allegedly taking the equivalent of hundreds of thousands of printed pages of documents, including highly-sensitive documents; a coordinated departure strategy that included filing a declaratory judgment action in California within an hour of the key executives’ resignations; a mass exodus of both employees and clients; and alleged violations of an earlier-issued temporary restraining order. Second, the executives involved were high-level employees, who received seven-figure compensation from Aon, at least in part in consideration of the very restrictions they sought to avoid. Third, the restrictive covenants at issue were not blanket non-competes, but rather restricted the executives from disclosing confidential information, from calling on the customers that they serviced for Aon, and from soliciting other Aon employees for employment. In different circumstances, involving lower-level employees, who are alleged to have engaged in less egregious conduct and/or who are subject to broader restrictive covenants, the former employer may not fare as well.

Still, the takeaways are unmistakable. First, choice of law is critical, and an employer loses a tactical advantage when it fails to select a state law that, if not favorable to it, at least gives it a fair shot. Second, living and working in California is not the end all be all, and racing into a California court does not guarantee the former employee and his new employer freedom from the employee’s post-separation obligations. Solid facts and a solid agreement, presented in a jurisdiction that follows a more traditional approach to restrictive covenants, can still result in success for the former employer.

Georgia’s Pro-Employee Restrictive Covenant Law Is Back (If Only Briefly)

Just when it seemed safe for companies with employees in Georgia to try to enforce their restrictive covenant agreements, the Eleventh Circuit has brought back to life – if only for one last hurrah – the old Georgia law that made non-competition and other restrictive covenant agreements virtually impossible to enforce. The Court did so in Becham, et al. v. Synthes USA, et al., No. 11-14495, 2012 U.S. App. LEXIS 11225 (11th Cir. June 4, 2012), by holding that Georgia’s first attempt to re-write the State’s non-competition law was unconstitutional and that the second attempt did not apply to the agreement at issue.

The backdrop, well known to those who practice in Georgia, is a frustrating one for employers who have attempted to enforce restrictive covenant agreements. For years, Georgia statutory and constitutional law disfavored non-competition and other restrictive covenants and, through a very narrow view of what is reasonable and a refusal to reform overly broad agreements, made them nearly impossible to enforce. This changed beginning in 2009 when the Georgia legislature approved a law allowing the enforcement of previously unenforceable covenants, by, among other things, creating presumptively reasonable time periods for restrictions, removing the requirement of an expiration date for certain confidentiality covenants, and, perhaps most importantly, giving Georgia courts the ability to reform overly broad agreements. The law was subject to a constitutional amendment permitting the change, which occurred on November 2, 2010 through Georgia’s citizens’ ratification of the amendment.

The confusion then began. The new law went into effect on November 3, 2010, the day after the constitutional amendment was ratified. The constitutional amendment, however, did not take effect until January 1, 2011. Fortunately, the Georgia General Assembly recognized the gap and passed a second law that repealed the first law and authorized a second, virtually identical law effective May 11, 2011. Problem solved, right?

Not so fast. Unfortunately for Synthes, the restrictive covenants at issue were reaffirmed on December 1, 2010, after the effective date of the first law, but before the effective date of the second law. The Eleventh Circuit thus focused on the first law and held that, because the law was implemented before the constitutional amendment went into effect, it “was unconstitutional and void the moment it went into effect.” The Court then went back to “old” Georgia law, and like so many agreements before it, found Mr. Becham’s restrictive covenant agreement unenforceable.

Although the result was an unfortunate one for Synthes, the impact can be managed going forward by making note of the critical May 11, 2011 date. Restrictive covenant agreements entered into on or after May 11, 2011 will be subject to the second new law, and hence subject to more favorable court review. Agreements entered into prior to that date, even if after the November 2, 2010 constitutional amendment, will be judged under “old,” pro-employee Georgia law. Employers of Georgia employees will therefore want to make sure that their restrictive covenant agreements are effective on or after May 11, 2011 and, where they are not, arrange for the execution of new agreements.