Crisis Management - Page 17 of 18

California Rejects Enforcement of Restrictive Covenant in Employment Agreement

A California Court of Appeal recently rejected a covenant not to compete included in an employment agreement, although it was related to a transaction for the sale of goodwill of a business – one of the well-recognized exceptions to the general rule in California that limits restrictive covenants.

In Fillpoint, LLC v. Maas, No. G045057 (Cal. Ct. App. Aug. 24, 2012), Michael Maas, a shareholder in Crave Entertainment Group, Inc., sold his shares in the company when it was acquired by Handleman Company. That transaction was executed through a stock purchase agreement which contained a three year covenant not to compete. A month later, Maas entered into an employment agreement, which contained a one year covenant not to compete that became effective as of the date of the termination of his employment with Crave. Three years after the sales transaction, Maas resigned from Crave and began working for a competing company. Handleman’s successor, Fillpoint, LLC, sued Maas for breaching his employment agreement (as well as his new employer for interference with contract).

Fillmore argued that the restrictive covenant in Maas’ employment agreement was enforceable because it fell within the sale of goodwill exception contained in California Business and Professional Code section 16600. The Court of Appeal rejected that argument and found that, although the stock purchase agreement and employment agreement constitute a single transaction and each agreement referenced the other, only the purchase agreement was focused on protecting the acquired goodwill. In contrast, the Court of Appeal stated that the covenant contained in the employment agreement impermissibly targeted an employee’s fundamental right to pursue his or her profession and was therefore unenforceable.

This recent decision reaffirms the limited scope of the exceptions to the general rule in California that covenants not to compete are unenforceable. Therefore, employers must be mindful when drafting such covenants to ensure that they fall squarely within one or more of the recognized exceptions.

Illinois Becomes Second State to Prohibit Employers from Requiring Access to Employees’ and Prospective Employees’ Social Media Web Sites

On August 1, 2012, Illinois joined Maryland (law passed in March 2012) in prohibiting employer access to social media web sites of their employees and prospective employees. There are a number of other states that are also considering such prohibitory legislation (California, Delaware, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, Ohio, South Carolina and Washington), as is the United States Congress. In April 2012, Representatives Eliot Engel and Jan Schakowsky introduced the Social Networking Online Protection Act (2012 H.R. 5050), and the Password Protection Act of 2012 (2012 S. 3074) was introduced in the Senate in May 2012, which prohibit employers from requiring access to their employees’ social media web sites. In July, Delaware passed a law prohibiting public and private academic institutions from requiring that a student or applicant disclose password or account information granting the academic institution access to the student’s or applicant’s social networking profile or account. A companion bill dealing with employers is still being considered by the Delaware legislature.

The new Illinois law amends Section 10 of the Right to Privacy in the Workplace Act. It prohibits an employer from requesting or requiring any employee or prospective employee to provide any password or other related account information in order to gain access to the employee’s or prospective employee’s account or profile on a social networking website or to demand access in any manner to an employee’s or prospective employee’s account or profile on a social networking website. This Act goes into effect January 1, 2013.

The Illinois law defines “social networking website” as an Internet-based service that allows individuals to construct a public or semi-public profile within a bounded system, created by the service; or to create a list of other users with whom they share a connection within the system; or to view and navigate the employee’s or prospective employee’s list of connections and those made by others within the system. It does not include electronic mail.

The new Illinois law is not intended to nor does it prohibit an employer from obtaining information about a prospective employee or an employee’s information that is in the public domain or that is otherwise obtained in compliance with the new law.

Under the new Illinois law, an employee may file a complaint with the Director of Labor or, failing timely resolution, may bring a civil action for injunctive relief and to recover actual damages plus costs. For a willful and knowing violation of this Act, the employee may recover $200 plus costs, reasonable attorney’s fees, and actual damages. Any employer or prospective employer or his agent who violates the provisions of this Act is guilty of a petty offense and subject to a $1,000 fine. The new law also prohibits retaliation for opposing employer’s conduct reasonably believed to violate the new law.

Employers are advised to ensure compliance with these laws in both Illinois and Maryland and to keep their eyes on the other states.

William Horwitz Authors Articles for New Jersey Law Journal and BNA’s Corporate Counsel Weekly

William Horwtiz, counsel in the Labor & Employment practice group, recently authored articles for both the New Jersey Law Journal and BNA’s Corporate Counsel Weekly.

William’s article for the New Jersey Law Journal titled, “Third Circuit Rides the Class-Action Arbitration Waive”, discusses the case of Quilloin v. Tenet HealthSystem Philadelphia, in which the Third Circuit, following the U.S. Supreme Court’s lead and its own precedent, endorsed the validity of class-action waivers in predispute employment arbitration agreements. Bill outlines the facts of the case and the court’s reasoning and says that the case offers helpful guidance for employers rolling out new arbitration agreements and employers with existing agreements. He also notes that Quilloin holds that class-action waivers are enforceable and employers should consider including them in arbitration agreements, adding that employers should also “include a provision requiring the parties to submit arbitrability issues to the arbitrator.”

William’s article for BNA’s Corporate Counsel Weekly, “In Case Involving Employer’s Poor Handling of Sexual Harassment Allegation, Second Circuit Resolves Two Novel Issues”, William discusses the case of Townsend v. Benjamin Enterprises, Inc., in which the U.S. Court of Appeals for the Second Circuit resolved two issues of first impression. In outlining the facts of the case and the court’s observations, William notes that the most important takeaway from the decision may be the important guidance for employers of how not to address sexual harassment in the workplace.

To read the complete article, “Third Circuit Rides the Class-Action Arbitration Waive”, click here.

To read the complete article, “In Case Involving Employer’s Poor Handling of Sexual Harassment Allegation, Second Circuit Resolves Two Novel Issues”, click here.

Recent Fee Shifting Cases Caution Against Diving into Non-Compete/Trade Secret Litigation Where the Facts Supporting a Violation are Unknown or Questionable

Two recent cases highlight the down side of running into court with guns blazing but without the horses to prevail, or at least without the facts sufficient to survive the bad faith standard of the Uniform Trade Secret Act. In Sasco v Rosendin Electric, Inc., 143 Cal.Rptr.3d 828 (July 11, 2012), the Appellate Court affirmed the lower court’s judgment of $ 484,943.46 in attorneys’ fees and costs pursuant to California’s Uniform Trade Secrets Act, observing:

Speculation that the individual employees must have taken trade secrets from SASCO based on their decision to change employers does not constitute evidence of misappropriation. Nor does speculation that Rosendin’s success in obtaining the Verizon Tustin contract was based on the theft of trade secrets constitute evidence of misappropriation.…..Having reviewed the parties’ respective papers, the court found there was no evidence of trade secret misappropriation.

In Loparex, LLC v. MPI Release, LLC, 2012 WL 3065428 (S.D. Ind., July 27, 2012) the District Court was even more direct in awarding the prevailing party, MPI, $475,000 in attorneys fees and nearly $29,000 in costs under the Illinois Uniform Trade Secret Act. The Court found that Loparex pursued the trade secret misappropriation claims in “bad faith.” The Court also determined there was no evidence that the employees had misappropriated any trade secrets in its diversion of a former Loparex customer. The Court went on to award fees against Loparex’s former lead counsel as well, under 28 U.S.C § 1927, for bad faith prosecution of the case.

These cases do not mean that attorneys’ fees will be shifted where a plaintiff can show that trade secrets are at issue and the plaintiff has a good faith factual basis to conclude that those trade secrets were being misappropriated or there was a threatened misappropriation. The plaintiff bringing a trade secrets action does not get assessed the other party’s attorneys fees by losing, but only when the plaintiff loses and a claim of misappropriation is made in bad faith. In these two cases, there was no reasonable basis for bringing the claims, let alone continuing to pursue the litigation after it was clear to everyone that the plaintiffs’ claims were meritless.

In addition to a statutory basis for attorneys fees under the Uniform Trade Secrets Acts adopted in many states, there are other statutory fee shifting statutes that may apply. For instance, Montana’s Declaratory Judgment Act, § 27–8–313, may provide a statutory basis for awarding attorneys’ fees as supplemental relief if such an award is determined to be necessary and proper. See, e.g., Mungas v. Great Falls Clinic, LLP. 354 Mont. 50, 221 P.3d 1230 (2009)(fees not awarded because the facts not deemed to warrant it). More frequently, however, fee shifting awards come from a well drafted employment agreement. Ohio Learning Centers, LLC v. Sylvan Learning, Inc., 2012 WL 1067668 (D. Md., March 27, 2012). The Sylvan Court quoted the relevant contract language:

[I]n the event either [SLI] or [OLC] institutes a suit or action to enforce any term or provision of [the License] Agreement, the most prevailing party in the suit or action, or on appeal, shall be entitled to recover from the losing party a reasonable attorney fee to be set by the trial or appellate court in addition to costs or disbursements provided by law.

At the summary judgment phase the Court found the fee award premature because “ at this stage in the litigation it is not yet clear that the Defendants will be ‘the most prevailing party’ in this case.” Note that the Court is enforcing the parties’ agreement as written. The Court also noted that the fee-shifting provision in the License Agreement only provides for an award of “reasonable” fees. And since evidence of the reasonableness of the fees had not yet been submitted by the putative prevailing party, the Court stated that it could not conduct the requisite analysis.

The take away: make sure you have the horses before filing suit, or at least be reasonably assured you will have those horses harnessed by the time the smoke of your rush to court clears.

Lawrence Del Rossi and Joshua Rinschler Publish Article on an ‘Awkward Theory’ of Personal Liability for Supervisory Employees Under the NJLAD

Associates Lawrence J. Del Rossi and Joshua D. Rinschler’s article, Aiding and Abetting Your Own Conduct – An ‘awkward theory’ of personal liability for supervisory employees under the N.J. Law Against Discrimination (NJLAD), was published in the July 16, 2012 edition of the New Jersey Law Journal. Their article takes a look at what is becoming a common practice in wrongful discharge cases brought under the NJLAD where terminated employees are not only suing their employer, but also naming as an individual defendant the supervisor who made the decision to terminate. Their complete article appears below.

Aiding and Abetting Your Own Conduct – New Jersey Law Journal – Larry Del Rossi and Joshua Rinschler – 7-16-12

New Jersey District Court Denies Employer’s Motion to Dismiss Plaintiff’s Cause of Action After Employee’s Supervisor Gains Unauthorized Access to Employee’s Facebook Account

In Ehling v. Monmouth-Ocean Hospital Service Corp., the District Court in New Jersey recently denied the employer’s motion to dismiss the plaintiff’s cause of action for invasion of privacy in connection with a supervisor having gained unauthorized access to her private Facebook account. The plaintiff nurse, who was also the union president at the hospital, had posted comments on her Facebook wall about the news story out of Washington, D.C. in 2009 concerning the killing of a security guard at the Holocaust Museum by a white supremacist in which she expressed her opinion or rant that the paramedics in D.C. should have let the shooter die rather than help him after he was shot during the incident: “He survived [and] 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.” The supervisor apparently wanted access to plaintiff’s Facebook comments because of her leadership role with the union, and convinced a co-worker to give him access to her private account so he could copy her postings. When he saw the comments about the D.C. incident he sent a copy to the State Board of Nursing suggesting that it represented an improper disregard for patient safety.

On the employer’s motion to dismiss the invasion of privacy claim on the grounds that there can be no expectation of privacy with respect to Facebook postings, the court decided that the question whether the plaintiff had a reasonable expectation of privacy was for a jury to decide based on the circumstances, including the number of “friends” who had access to her Facebook wall where the plaintiff claimed that she had restricted access to her friends but did not provide access to any supervisors or members of management. The court did not address the separate question whether a rant expressing an opinion about a news report could be considered an expression of one’s “private affairs” subject to protection under invasion of privacy law, and did not address the fact that Facebook specifically includes in its Privacy Policy a disclaimer to the effect that there is no guarantee of privacy and that users make postings at their own risk inasmuch as anyone with access can copy or share comments with anyone they choose.