Lynne Anne Anderson, Author at Laborsphere

New Jersey Supreme Court Holds That Economic Loss is Not Needed To Recoup a Former Employee’s Salary for Breach of the Duty of Loyalty

On September 22, the New Jersey Supreme Court unanimously gave the green light to awards of the remedy of equitable disgorgement, even in the absence of economic loss, as a fair and practical response to an employee’s disloyal conduct. The Court also noted that the fear of disgorgement should serve to as a deterrent to employee misconduct. Bruce Kaye v. Alan P. Rosefielde (A-93-13) (073353), New Jersey Supreme Court.

The Facts of the Case

Bruce Kaye hired attorney Alan Rosefielde as a full-time, salaried employee after using him as outside counsel. Rosefielde served as Chief Operating Officer and General Counsel for some of Kaye’s timeshare businesses. Kaye terminated Rosefielde’s employment based on discovery of unauthorized self-dealing and other actions by Rosefielde that exposed Kaye’s companies to potential liability, and as result of dissatisfaction with Rosefielde’s job performance. Kaye sued Rosefielde for breach of fiduciary duty, fraud, legal malpractice, unlicensed practice of law and breach of the duty of loyalty. After a lengthy bench trial, Rosefielde’s egregious conduct was found to breach his duty of loyalty, among other claims. The trial court awarded compensatory and punitive damages, as well as legal fees. However, the court did not order disgorgement of Rosefielde’s salary as an equitable remedy because the breach of loyalty did not result in any actual damage to the employer’s companies. The Appellate Division affirmed.

Upon review of the limited question of whether a court may award the remedy of disgorgement of a disloyal employee’s salary to an employer who has sustained no economic damage, the New Jersey Supreme Court recognized that the remedy of equitable disgorgement has only rarely been discussed in appellate decisions. Writing for the unanimous court, Justice Anne Patterson stated that:

“[t]he disgorgement remedy is consonant with the purpose of a breach of the duty of loyalty claim: to secure the loyalty that the employer is entitled to expect when he or she hires and compensates an employee.…[w]hen an employee abuses his or her position and breaches the duty of loyalty, he or she fails to meet the employer’s expectation of loyalty in the performance of the job duties for which he or she is paid….[r]equiring an employer to demonstrate a that it has sustained economic loss ‘is inconsistent with a basic premise of remedies available for breach of fiduciary duty’”. (Opinion, Page 24/25).

As one example, the New Jersey Supreme Court cited to the determination that Rosefielde had engaged in multiple inappropriate sexual advances towards toward co-workers as a basis for disgorgement of Rosefielde’s salary – without requiring the employer to demonstrate that litigation resulted from the misconduct, or that any other economic loss resulted from the inappropriate behavior.

What type of conduct may justify an award of disgorgement of salary? Examples of the misconduct constituting breach of duty of loyalty in the Kaye case included: unauthorized business transactions that provided a personal financial benefit to the employee; billing the employer for non-business expenses during a Las Vegas trip (a hotel suite shared with three adult film stars); sexual advances towards female co-workers; a fraudulent application to a health insurer to obtain employee coverage for independent contractors; and retaliation against another employee who refused to participated in a self-dealing scheme.

In terms of application of the Kaye decision to unfair competition claims, employers will presumably no longer need to demonstrate economic loss to recoup salary for employee misconduct such as theft of confidential information or customers, use of employer time and resources to set up a competitive activity, misdirecting business opportunities to a potential new employer or failing to fully perform duties or responsibilities while anticipating a jump to a new employer.

How much salary can be recouped?

The New Jersey Supreme Court remanded for a determination on disgorgement, and instructed the trial court to apportion the employee’s compensation by focusing on time periods during which the employee committed acts of disloyalty, and to consider the following factors: the employee’s degree of responsibility and level of compensation; the number of acts of disloyalty; the extent to which those acts placed the employer’s business in jeopardy; the degree of planning to undermine the employer that is undertaken by an employee; and other factors that may guide a court in the exercise of its discretion to impose an equitable remedy.

The Court also directed that the trial court should order disgorgement for monthly pay periods in which the Rosefielde committed acts of disloyalty because he was paid his salary on a monthly basis.

While the Court did caution that the trial court should not order a wholesale disgorgement before conducting the analysis cited above, it did include a footnote in the Kaye decision allowing for disgorgement of the employee’s entire salary if there is a determination that the employee was disloyal during all pay periods. (Opinion, fn.8).

The Takeaway

Employers should include breach of duty of loyalty claims when suing for “on the job” misconduct, especially for highly paid employees. Such claims may very well have the deterrent effect intended by the New Jersey Supreme Court by allowing employers to recoup salaries without having to show economic loss. Deterrence may be especially relevant with regard to claims of unfair competition, as subsequent employers will likely not able to offer enforceable indemnification guaranties for disgorgement awards.

Bad News for Whistleblowers: New Jersey Supreme Court Rules Theft of Confidential Documents for Self-Help in Employment Lawsuit Can Result in Jail Time

Does an employee have an unfettered right to take confidential documents from her employer to use in her discrimination and retaliation lawsuit against the employer? Not in New Jersey. The New Jersey Supreme Court recently ruled in State v. Ivonne Saavedra that the theft of a company’s confidential documents for self-help in an employment lawsuit can result in jail time.

Florham Park partner Lynne Anderson recently published an article in Law360 discussing the decision and its ramifications for employers and would-be whistleblowers.

Read “Woe To The NJ Whistleblower Who Whisks Away Documents” here.

Whistleblower and Retaliation Claims Compliance, Risk and Prevention

Whistleblower and Retaliation claims continue to rise and general counsel of companies large and small are increasingly budgeting for the prevention and defense of these claims. The multitude of regulations governing industries including pharma, life sciences healthcare, insurance and financial services, present employees with numerous opportunities, sometimes even incentives, to threaten and file whistleblower and retaliation claims. Launch the brief video below to hear how Labor and Employment Group partners Tom Barton and Lynne Anderson are helping employers achieve a culture of compliance to minimize risk, as well as the Labor & Employment group’s proven track record of success in helping employers handle and defend against these claims.

Lynne Anderson Quoted in Miami Herald Story on Miami Dolphins Bullying Incidents

Lynne Anderson, partner in the firm’s Florham Park office, was quoted in a story that appeared in the Miami Herald regarding the recent incidents of bullying on the Miami Dolphins football team and the potential for the victim of the bullying, Jonathan Martin, to bring legal action against the team and its coaching staff.

Lynne addressed the possiblity of Martin bringing a suit against the team based on Martin belonging to a protected class. “If Martin can prove he was harassed because of his race – and Incognito’s vile voice messages might be the proof he needs…” But, being a member of a protected class is only the first step for bringing a claim against the team as Lynne added, “he also has to show that it [the bullying] was unwelcome behavior”.

Lynne also addressed the chance that even if the team was not aware of the bullying that legal action could be brought against the team’s coaching staff itself. “If the coaches were aware that this kind of conduct was going on among the team, that by itself would be enough to give rise to a complaint.” Lynne went on to further explain, “The law does not recognize a stick-your-head-in-the-sand defense for unlawful harassment”.

New Jersey Federal Court Finds that the Stored Communications Act Protects Employee’s Non-Public Facebook Wall Posts – But Also Provides Guidance on Whether An Employer Can Take Action Based on The Unsolicited Receipt of An Offensive Post

Facebook continues to be the new “water-cooler” as co-workers regularly “friend” each other and allow access to their “wall” posts. New Jersey’s Federal District Court recently addressed the issue of whether a Hospital’s decision to suspend a nurse based on a post on her Facebook wall – which it received unsolicited from a co-worker who was a Facebook friend of the nurse – violated the Federal Stored Communications Act (“SCA”), 18 U.S.C. § 2701-11. The Court also addressed the nurse’s related invasion of privacy claim. Ehling v. Monmouth-Ocean Hospital Service Corp., 2013 U.S. Dist. LEXIS 117689 (8/20/13). [Opinion]

The nurse was a Hospital employee who maintained a personal Facebook account. She chose privacy settings that limited access to her “wall” to her Facebook ‘friends,” including one of her co-workers. Following the 2009 shooting at the Holocaust museum, the nurse posted the following to her wall:

An 88 yr old sociopath white supremacist opened fire in the Wash D.C. Holocaust Museum this morning and killed an innocent guard (leaving children). Other guards opened fire. The 88 yr old was shot. He survived. I blame the DC paramedics. I want to say 2 things to the DC medics. 1. WHAT WERE YOU THINKING and 2. This was your opportunity to really make a difference! WTF!!!! And to the other guards….go to target practice.”

Her co-worker took a screen shot of the post, and then showed the post to the nurse’s supervisor. As a result, the Hospital temporarily suspended the nurse, with pay, due to the concern that her comment reflected a “deliberate disregard for patient safety.”

The nurse sued claiming that the Hospital’s reliance on her Facebook post violated the Federal Stored Communications Act – and was an invasion of privacy. The Court first addressed the issue of whether the SCA applied to Facebook wall posts since the SCA was enacted in 1986, before the WorldWideWeb was developed in 1990 and web browsers were introduced in 1999.

The Court did determine that the SCA applied to Facebook posts based on the following analysis: (1) Facebook wall posts are electronic communications as defined by the SCA; (2) Facebook is an electronic communication service provider as defined within the SCA; (3) Facebook wall posts satisfy the “in electronic storage” requirement as they are not held in temporary, intermediate storage before delivery to the website, and are in accessible storage for back-up purposes; and (4) given that the touchstone of the SCA is to protect information that the communicator took steps to keep private, if a Facebook user chose privacy settings that limited access to her “friends,” the post at issue was covered by the SCA. The Court relied on California precedent in reaching this determination. Interestingly, the Court also found that the privacy protection provided by the SCA is not dependent on the number of Facebook friends to whom the user provides access.

However, the Court still granted summary judgment to the Hospital because it determined that the “authorized user” exception applied because the nurse granted her co-worker access to the post by “friending” her and thereby “intending” that her co-worker would view her posts. The Court also rejected the claim that the “authorization was coerced because the supervisor had never asked the co-worker for any information about the nurse, or the nurse’s Facebook activity. The Court also noted that the nurse’s supervisor was not in a position to offer the co-worker any benefit in exchange for the unsolicited presentation of the Facebook post since supervisor worked in a different division and had no control over the co-worker’s compensation.

The Court also dismissed the nurse’s common law invasion of privacy finding that:

“The evidence does not show that Defendants obtained access to Plaintiff’s Facebook page by, say, logging into her account, logging into another employee’s account, or asking another employee to log into Facebook. Instead, the evidence shows that Defendants were the passive recipients of information that they did not seek out or ask for. Plaintiff voluntarily gave information to her Facebook friend, and her Facebook friend voluntarily gave that information to someone else.”

Notably, the nurse also filed a complaint with the NLRB, however the NLRB determined that the Hospital did not violate the NLRA, and that there was no privacy violation because the post was sent, unsolicited, to Hospital management.

What is the take-away from this decision? First, employers have been waiting since the 2009 jury verdict in Pietrylo v. Hillstone Restaurant Group for guidance about what circumstances would qualify as “authorization” under the federal and NJ stored communications statutes. Second, employers should continue to use extreme caution taking adverse action based on employees’ social media activities. This decision, as well as recently enacted state legislation, clearly prohibits employers from directly – or indirectly – demanding access to employees’ social media accounts. As of July, 2013, legislation has been proposed in over 30 states to prevent employers from requesting passwords, and a number of states have enacted such legislation, including California, Illinois, Maryland and Michigan. Facebook has also condemned the practice and has updated its Statement of Rights and Responsibilities to address this issue.

In addition to potential liability under the SCA, the NLRB has been very active with regards to finding that Facebook rants about bosses, work conditions or compensation fall within the realm of protected “concerted activity” under the NLRA. However, even the NLRB has recognized that employers have a legitimate basis to take action in response to negative postings about their customers/clientele. The Office of the General Counsel found no violation for Facebook firings of a bartender who labeled customers as “rednecks” and hoped that they choked on glass, and of an employee of a residential facility for homeless people with significant mental health issues who joked about the condition of the facilities’ clients.

New York City Expected to Pass Expansive Paid Sick Leave Law

The New York City Council has reached a compromise that will enable it to pass a paid sick leave law. Although Mayor Michael Bloomberg objects to the legislation, news outlets are virtually unanimous in predicting that the City Council has enough votes to override his veto. While federal law does not require employers to provide paid sick leave, Connecticut and some cities (including San Francisco, Seattle and Portland) have adopted paid sick leave laws. Other cities (including Philadelphia) are considering doing so. In New York City, even employers that already provide paid sick leave will have to take a close look at the new legislation and reconcile their current sick leave policies with the city’s mandates. For example, New York City’s proposed law includes anti-retaliation provisions that would prohibit employers from firing employees for using their paid sick leave.

What employers are covered by the proposed law and when would it go into effect?

Under the proposed New York City law, as of April 1, 2014, companies with 20 or more employees would have to provide at least five paid sick days a year. The law would be extended to apply to companies with 15 or more employees as of October 1, 2015. Earlier versions of the legislation had required nine paid sick days, so five days was part of the compromise lawmakers reached in response to small business owners’ very vocal objections. The New York City law is not as expansive as some other city laws. For example, paid leave obligations in San Francisco, Seattle and Portland apply to companies with as few as five employees.

Notably, the New York City law will also require companies of any size to provide five days of sick leave as of April 1, 2014, but the time off may be unpaid.

What employees would be eligible?

To be eligible for paid leave, employees working within the borders of New York City would have to be employed for at least 4 months. The law applies to full-time and part-time workers, although seasonal workers and student interns would not be eligible.

Other details include that the New York City Department of Consumer Affairs would have enforcement authority and there is a safety net provision that would delay implementation of the law if New York City’s economy slows down.

Advocates of the legislation claim that the law will provide paid sick leave for one million workers. It is clear that this law will have a significant impact on small businesses. The Society for Human Resource Management reports that only 32% of small businesses (50 or less employees) currently offer paid sick leave, and an advocacy group, A Better Balance, reports that over 80% of restaurant workers and 60% of retail workers in New York City do not receive pay when they miss work due to sickness. As noted above, this law will also impact larger employers to the extent that they do not already provide five days of paid sick leave or only offer benefits to full-time employees or employees employed for longer than four months. And, as with any new law, it is important to track implementation to comply with notice requirements, both in terms of posting and adoption of compliant company policies prior to the April 2014 and October 2015 effective dates.

Editor’s Note:

On May 8, 2013, the New York City Council passed the Earned Sick Time Act by a 45-3 vote. New York City Mayor Michael Bloomberg had vetoed the bill on June 7, 2013, but the New York City Council overrode the veto on June 27. New York City now joins San Francisco, Washington, D.C., Seattle, Portland, and the State of Connecticut to pass mandatory sick leave laws.