Laborsphere

Ninth Circuit Calls Into Question “No Reemployment” Provisions In California Settlement Agreements

On April 8, 2015, in Golden v. California Emergency Physicians Medical Group, the Ninth Circuit Court of Appeals broadly interpreted California’s statutory provisions regarding restrictive covenants in the context of reviewing a common clause included by employers in settlement agreements. Though the Court declined to decide the ultimate issue – the validity of “no reemployment” clauses – the Court’s broad reading of California’s restrictive covenant statute is alarming.

After he was let go from his employment with California Emergency Physicians Medical Group (“CEPMG”), Dr. Robert Golden (“Golden”) filed a lawsuit in state court alleging a number of statutory wrongful termination claims. After CEPMG removed the case, the parties reached an oral settlement agreement. Later on, CEPMG memorialized the oral agreement into a written settlement agreement, which contained a provision that precluded Golden from returning to work at CEPMG – i.e., a “no reemployment” clause. Specifically, the no reemployment clause at issue provided, in relevant part, that Golden waived all rights to employment with CEPMG or at any facility that CEPMG may own or with which it may contract in the future. The no reemployment clause further provided that if CEPMG contracted to provide services to, or acquires rights in, a facility that is an emergency room at which Golden was employed, the company had the right to terminate Golden, without incurring any liability.

Golden refused to sign the written settlement agreement and CEPMG moved to enforce it. Ultimately, a District Court ordered Golden to sign the settlement agreement, finding that it did not run afoul California law because it was not a non-compete agreement. Golden appealed.

Before the Ninth Circuit, Golden argued that the no reemployment provision in the settlement agreement violated California Business and Professions Code section 16600 (“Section 16600”), which contains California’s statutory restrictions on restrictive covenants. CEPMG argued that because the no reemployment provision was not a non-compete agreement – i.e., it did not preclude Golden from working for one of CEPMG’s competitors – it was not unlawful.

The majority of the three-judge panel held that the District Court’s interpretation of Section 16600 was incorrect. The Court noted that the California Supreme Court had not specifically addressed whether Section 16600 applied only to “typical so-called ‘non-compete covenants.’” However, it noted that the language of Section 16600 was extremely broad – making unlawful “every contract by which anyone is restricted from engaging in a lawful profession, trade, or business of any kind.” Examining the few exceptions that the California Legislature had carved out to Section 16600, the Court found that the context of the statute suggested that California had intended it to apply more broadly because of the particularity of the exceptions. The Ninth Circuit, thus, held that “the crux of the inquiry under [S]ection 16600 is not whether the contract constituted a covenant not to compete, but rather whether it imposes ‘a restraint of a substantial character’ regardless of ‘the form in which it is cast.’” Although the Court declined to determine, for itself, the exact boundaries of Section 16600, it remanded the case to the District Court for it to determine the validity of the agreement using a broader interpretation of Section 16600.

Infamously, California has some of the toughest limitations on restrictive covenants in the nation. Yet, employers have routinely included the type of provision at issue in Golden in employment settlement agreements, without concern.

It is unclear how Golden will be interpreted over time, particularly what restrictions courts may determine to be “of a substantial character.” Notably, the potential restraint on Golden as a result of the agreement was arguably more expansive than is typically the case, given CEPMG’s large market share and the potential for the immediate termination of Golden’s employment if CEPMG expanded. Nonetheless, Golden is a clear declaration that Section 16600 is not limited solely to traditional non-compete agreements.

Golden follows other recent decisions, enforcement actions and agency opinions which collectively have challenged the assumption that various common settlement and separation provisions are valid and enforceable. For example, as noted here,the EEOC has been challenging the validity of cooperation, non-disparagement, non-disclosure, and release provisions in separation agreements, arguing that they interfered with employees’ rights to file administrative charges and participate in EEOC investigations. Similarly, as noted here, the SEC recently for the first time used its enforcement powers under Rule 21F-17 of the Whistleblower provisions of the Dodd-Frank Act to impose a civil penalty on an employer for using a confidentiality agreement during internal investigations which, in the SEC’s opinion, restricted an employee’s ability to report potential securities violations. Finally, as discussed here, the NLRB has recently opined that handbook confidentiality provisions intended to protect confidential information and trade secrets may have the effect of unlawfully inhibiting employees from engaging in protected activities under the NLRA, such as discussing wages, criticizing management, publicly communicating about working conditions and discussing unionization.

These developments collectively challenge many of the benefits and protections afforded to employers by resolving disputes or potential disputes through separation, severance, release and settlement agreements. Employers should thus reevaluate the provisions they have traditionally used, to ultimately determine whether utilizing such agreements is indeed an effective deterrent against future potential disputes, or worth the potential litigation that may result from using language that is unlawful under Section 16600.

Twenty-Seven Day Elections (Or Less) Likely Under NLRB’s New Quickie Election Rules

The NLRB’s “quickie election” rule goes into effect today. And while the National Labor Relations Board (NLRB) has avoided a clearly mandated time frame for processing union representation petitions, employers can expect elections to be held just 27-days (or less) after petition filing under the NLRB’s new representation election rule.

In speaking to interested stakeholders during an informational training session held on April 7^th, Peter Sung Ohr (“Ohr”), Regional Director of the NLRB’s Region 13, described a timeline whereby union petitions will be processed and served electronically on employers the same or next day after filing. Pre-election hearings will be scheduled eight days later, but absent significant questions concerning representation or jurisdiction, issues of individual employee eligibility will not be litigated or resolved pre-election. Assuming consecutive-day hearings, elimination of rights to file post-hearing briefs, and a three-day period for the receipt of hearing transcripts, it is likely that Regional Director hearing decisions and directions of election will issue within four-days of scheduled hearing dates.

The NLRB’s new election rule directs Regional Directors to schedule elections for the “earliest date practicable.” While an employer has two-days post-decision to provide the petitioning union a final voter eligibility list (containing employee names, work locations, shifts, job classifications, available home addresses, personal email address and home/personal cellphone numbers), the Regional Director could order an election held a few days afterwards, assuming the union is willing to waive a 10-day voter list review period.

The Board’s new election procedures are expected to shorten the average election period in contested cases from 42- to 27-days, with unions driving election timelines in individual cases. The NLRB will start applying its new election procedures to all petitions filed on and after April 14^th. New representation case forms are now available on the NLRB’s website. Noncompliant employers risk waiver of rights to challenge petitioned-for bargaining units and overturned elections under the NLRB’s new election rule.

New Guidance Regarding Employee Handbooks Part Two: Employee Conduct Rules Can Prohibit Insubordination and Harassment But Cannot Prohibit Criticism and Debate

This post is the second in a series providing guidance on federal rules regarding permissible and impermissible employer handbook policies and rules. See Guidance Regarding Confidentiality Rules, here. While the recent guidance was issued by the National Labor Relations Board (NLRB) found here, this guidance is applicable to both unionized and non-unionized employers. The National Labor Relations Act (NLRA) restricts all employers from issuing policies or rules – even if well-intentioned – that inhibit employees from engaging in activities protected by the act, such as discussing wages, criticizing management, publicly communicating about working conditions and discussing unionization.

Employee Conduct Rules: What Is At Stake?

The NLRB acknowledges that employers have a right to prohibit employee insubordination. Equally important, employers have a right and an obligation to ensure that their workplace is free from harassment. However, these employer rights and legitimate business interests must not be expressed in rules that also curtail employees’ rights to (1) criticize or protest their employer’s labor policies or treatment of employees; or (2) argue and debate with each other about unions, management and their terms and conditions of employment. The NLRB places a high premium on these employee rights, so much so that even false and defamatory statements regarding employers is permitted (provided they are not malicious) and that speech among employees may even be “intemperate, abusive and inaccurate,” and still be protected.

While context always matters, there are a few clear guidelines:

• DO NOT demand that employees “respect” all employees and management. A broad rule such as this, without any context or examples, will be deemed unlawful.

• DO NOT insist that employees refrain from conduct that could “damage the company’s reputation;” however, prohibiting disparagement of an employer’s product is permissible.

• DO require employees to cooperate with each other in the workplace.

• DO NOT prohibit employees from debating honestly with each other.

The NLRB not only disfavors policies and rules that expressly prohibit or restrict employee discussions and collective action, but also those that are vague enough to dissuade an employee from such activities. According to the NLRB, employees should not have to guess about whether they are allowed to talk about their pay, hours or working conditions, but should instead feel free to do so.

When Do Employee Conduct Rules Strike The Right Balance?

Employers can clearly prohibit insubordination and harassment; however, such rules must still be clearly tailored to avoid scrutiny from the NLRB. Some examples of employee conduct policies that the NLRB has deemed lawful include:

• No “rudeness or unprofessional behavior towards a customer, or anyone in contact with” the company.

• “Employees will not be discourteous or disrespectful to a customer or any member of the public while in the course and scope of [company] business.”

• “Each employee is expected to work in a cooperative manner with management/ supervision, coworkers, customers and vendors.”

• “Each employee is expected to abide by Company policies and to cooperate fully in any investigation that the Company may undertake.”

Further, as to employees’ conduct towards each other, the NLRB approved of the following policies:

• No “making inappropriate gestures, including visual staring.”

• Any logos or graphics worn by employees “must not reflect any form of violent, discriminatory, abusive, offensive, demeaning, or otherwise unprofessional message.”

• No “threatening, intimidating, coercing, or otherwise interfering with the job performance of fellow employees or visitors.”

• No “harassment of employees, patients or facility visitors.”

• No “use of racial slurs, derogatory comments, or insults.”

Perhaps the most important takeaway when reviewing company policies is that context matters. Illustrative of this point, the NLRB upheld a rule that prohibited, among other things, “being disrespectful” because it was clear based on the context that the provision was focused on serious misconduct, i.e., being insubordinate, threatening, intimidating or assaulting others in the workplace. A rule with examples of what constitutes “disrespect” will not unlawfully cause workers to refrain from any spirited debate or discussion regarding working conditions.

When reviewing policies intended to ensure a safe, productive and harassment-free workplace, employers must consider if rules impede employee rights to discuss, criticize and debate. Broad rules requiring constant “civility” and “respect” run the risk of prohibiting collective action and will be reviewed with disfavor by the NLRB.

NLRB’s New Election Rule Implementation Update

In preparation for the NLRB’s new “quickie election” rules going into effect next week, the NLRB General Counsel yesterday published a 36-page Guidance Memorandum intended to explain how representation cases will be processed under the NLRB’s final rule. While the lengthy memorandum describes specific changes to Board procedures in great detail, it leaves unanswered significant questions such as how Regional Directors will process petitions on a “real world” basis, what opportunities employers are left with to challenge bargaining unit compositions, and ultimately, whether the NLRB’s “quickie elections” result in significantly shorter election time periods. Indeed, the GC acknowledges that the Board “will not be able to fully assess what impact the rule will have” until after it begins processing representation petitions. The GC instead directs the NLRB’s Regional Directors to “continue to process representation petitions and conduct elections expeditiously” consistent with the Board’s revised rules.

What seems certain is that employers should prepare themselves for implementation of the Board’s new regulations on April 14^th. Last week President Obama vetoed a congressional resolution to disapprove the final rules, and while two pending federal cases challenge the Board’s statutory authority to publish the revised rules, it remains unlikely any such legal challenge will delay the Board’s implementation of its final rule next week.

SEC Uses Its Powers under the Dodd-Frank Whistleblower Provisions to Warn Employers Against Attempting to Restrict Employees’ Ability to Report Potential Violations

On April 1, 2015, the SEC announced a settled enforcement proceeding against KBR, Inc., a publicly traded, Houston-based technology and engineering company, for including “restrictive language” in confidentiality agreements used in the course of internal investigations. This is the first time the SEC has used its enforcement powers under Rule 21F-17 of the Whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Rule 21F-17 provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement … with respect to such communication.”

The language to which the SEC took exception appeared in confidentiality agreements KBR used in connection with internal investigations. The statement, which investigators required employees to sign before the interview, was included in the Company’s Code of Business Conduct Investigations Procedures manual. The statement read:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during this interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be the grounds for disciplinary action up to and including termination of employment.

It does not appear that the policy specifically referenced reporting to the SEC or any governmental authority. Moreover, it seems likely that the Company’s intent was to prevent employees from discussing the matter with each other. The SEC admitted that it had no evidence KBR ever prevented an employee from communication with the SEC staff or that KBR took any action to enforce the confidentiality provision. Nevertheless, the SEC posited that the language undermined the purpose of Section 21F and Rule 21F-17(a), which is to “encourage individuals to report to the” SEC.

The SEC indicated its approval of KBR’s amended policy by quoting it in the Order. The new policy provides:

Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.

While the Order imposes a modest civil penalty of $130,000, KBR is also required to contact KBR employees who signed confidentiality statements from August 21, 2011, to the present and to provide them with a copy of the Order and a statement that they do not need permission from KBR to communicate with any governmental entity.

This case of first impression underscores the SEC’s commitment to the Whistleblower program and its intent to punish employers that, intentionally or not, restrict an employee’s ability to report potential violations to the SEC. There has been much press about such restrictive language in employment agreements, not just related to the SEC, but also related to the National Labor Relations Board and other federal agencies. It is clear the SEC will consider such restrictive language wherever it may be found. By virtue of this Order, companies will have to manage protecting the integrity of internal investigations and avoiding accusations that it discouraged employees from going to the SEC. It also remains to be seen whether the SEC will take the position that companies are required to affirmatively inform employees of their ability to make reports to the SEC or other governmental bodies or whether employees must merely refrain from discouraging such activity. Because the Whistleblower provisions apply to both private and public companies, it seems a prudent course of action for all employers to review employment and confidentiality agreements.

New Guidance Regarding Employee Handbooks — Part One: Don’t Let Your Confidentiality Provisions “Chill” Employee Communications

It is a great time for employers to review their employee handbooks. Richard F. Griffin, Jr., General Counsel of the National Labor Relations Board (NLRB), recently issued a lengthy and detailed report summarizing the NLRB’s rulings on common handbook provisions. To view the complete Memorandum, click here.

The rulings in the report apply to both unionized and non-unionized employers because the National Labor Relations Act (NLRA) restricts all employers from issuing policies or rules – even if well-intentioned – that inhibit employees from engaging in activities protected by the act, such as discussing wages, criticizing management, publicly communicating about working conditions and discussing unionization.

This LaborSphere post is the first in a series that will provide guidance based on the NLRB’s report. Over the upcoming weeks, we will summarize what the NLRB has deemed acceptable and unacceptable language for workplace policies on: (1) professionalism; (2) harassment; (3) trademarks; (4) photography/recording; and (5) media contact.

When Does A Confidentiality Policy Go Too Far?

The NLRB acknowledges that employers have a legitimate right and need to protect confidential information. However, policies that are overbroad and can be interpreted by employees to prohibit discussion regarding their wages, hours and working conditions will draw scrutiny from the NLRB. While context always matters for policy language, there are some “DON’Ts” that have clearly emerged from the NLRB report:

• DO NOT prohibit employees from discussing “employee information.”

• DO NOT prohibit disclosure of “another’s confidential information.” This could be interpreted to be wages and therefore violate the NLRA.

• DO NOT prohibit disclosure of “details about the employer.”

• DO NOT prohibit disclosure of all categories of “non-public information.”

When Do Confidentiality Rules Strike The Right Balance?

Employers can vigorously and clearly prohibit disclosure of trade secrets and other confidential business information, provided that employers do not define those terms too expansively. Some examples of confidentiality policies that the NLRB has deemed lawful include:

• No unauthorized disclosure of “business ‘secrets’ or other confidential information.”

• “Misuse or unauthorized disclosure of confidential information not otherwise available to persons or firms outside [the Employer] is cause for disciplinary action, including termination.”

• “Do not disclose confidential financial data, or other non-public proprietary company information. Do not share confidential information regarding business partners, vendors or customers.”

Even with brightline rules and other strong guidance, perhaps the most important takeaway when reviewing company policies is that context matters. Illustrative of this point, the NLRB upheld a rule that prohibited disclosure of “all information acquired in the course of one’s work.” On its face, this rule is arguably overbroad and could chill employee communications. However, the NLRB recognized that the rule was “nested among rules relating to conflicts of interest and compliance with SEC regulations and state and federal laws” and, as such, could not be reasonably understood to prevent employees from discussing their wages, hours or working conditions.

In sum, when reviewing policies intended to safeguard confidential information, an employer should watch out for language that is arguably overbroad or lacks sufficient context to justify its scope. This approach is the best formula for ensuring that policies achieve the employer’s true purpose: protecting critical confidential and proprietary information.