The first noncompete case EVER!

I picked up an interesting tidbit from NPR's Planet Money episode Hire Power. The first noncompete case (that we know of) occurred in England in 1414. It involved a young man training to become a fabric dyer. His name was - what else? John Dyer. 

MATT MARX: He had an agreement with his master that once he had been trained in the fine arts of clothes dyeing, he wouldn't set up his own clothes dyeing shop in the same city. He would go somewhere else. 

ARONCZYK: This agreement was supposed to last for six months after he finished his training. Somehow, the master seemed to think that John Dyer didn't, in fact, wait the whole six months. 

MARX: Apparently he broke that promise, and so his master hauled him into court. 

BERAS: And John Dyer shows up to court. And the judge is like, folks, there are bigger labor issues right now. 

MARX: The bubonic plague had basically wiped out about a third of the labor supply in northern England. 

ARONCZYK: There were not a lot of workers left. Even 70 years after the plague ended, there were still not enough people to do all of the work. 

MARX: And so when the master clothes dyer brought this essentially noncompete lawsuit before the judge, the judge basically said, are you kidding me?

Apparently the judge was actually even harsher than "are you kidding me." Per the wikipedia page on Dyer's Case, the judge exclaimed: 

In my opinion, you might have demurred upon him that the obligation is void, inasmuch as the condition is against the common law; and by God, if the plaintiff were here, he should go to prison until he had paid a fine to the King.

Noncompetes are still disfavored here in the United States, but are often enforced under the right circumstances. 

3d Cir: "Fairness" in university discipline policy requires cross-examination and live, adversarial hearing

The Obama administration's Title IX "Dear Colleague" letter generated a flood of litigation. Mostly male university students challenged the single investigator model and lack of various procedural safeguards in sexual misconduct disciplinary processes. For the most part, federal courts have been sympathetic to their plight. The Dear Colleague letter has now been replaced by the Trump administration's Title IX regs, but the litigation continues.

On May 29, 2020, the Third Circuit issued a precedential opinion in Doe v. Univ. of the Sciences. The university expelled a male student following allegations of sexual assault from two female students. He claimed that the school discriminated against him because of his sex in violation of Title IX; and, the university breached its contractual obligation to provide him a "fair" process under the student handbook and university policies. 

The Court noted assorted Title IX doctrines that have sprouted up in the past few years, most notably, erroneous outcome and selective enforcement. The Court expressly rejected the need to "superimpose doctrinal tests" and instead just focused on whether "a federally-funded college or university discriminated against a person on the basis of sex."

Here, the student alleged outside pressure to target male students from the Dear Colleague letter. He

also pointed to the university's failure to pursue discipline against the female students, who he claims violated the confidentiality provisions of the policy (by recruiting new accusers), violated the alcohol policy by drinking, and failed to consider that the accusers may have violated the policy because *he* was intoxicated when they had sex. The Court concluded that these allegations were sufficient to state a Title IX claim. 

The next part of the opinion analyzed the process afforded to John Doe. Most procedural challenges in this context are based on the 14th Amendment's Due Process Clause. But, here, the student attended a private school, which is not subject to constitutional constraints. The Court held, however, that the school could have contractually bound itself to its student handbook and discipline policies, which promised "fairness" 

 

The policies did not define "fairness" . . . so, the Court did:

In short, notions of fairness in Pennsylvania law include providing the accused with a chance to test witness credibility through some form of cross-examination and a live, adversarial hearing during which he or she can put on a defense and challenge evidence against him or her.

The student alleged that he received neither a live hearing nor an opportunity to cross-examine, and therefore he had stated a claim for breach of contract. 

Interestingly, the Court distinguished this case from a line of Pennsylvania court decisions showing a fair amount of deference to university interpretations of their own policies:

That is especially appropriate for matters uniquely within the institution’s province, such as academic integrity or faculty development and discipline . . . . This is not such a case. The investigation and fair adjudication of alleged criminal activity like sexual assault is not uniquely within the province of colleges and universities.

This raises some questions for future application. The University is not adjudicating a crime, and there is no criminal conviction - it's adjudicating a violation of its own policies. Now, there is obviously an overlap in that criminal activity (such as sexual assault) will often also violate a school policy. But, one of the cases the Court purports to differentiate is Murphy v. Duquesne Univ. of the Holy Ghost. 

In Murphy, the university terminated a faculty member for violation of its sexual harassment policy. Obviously, harassment could encompass criminal activity, including assault. So, why is Doe's situation different? Is there a substantive distinction between faculty sexual harassment and student sexual harassment? Student discipline is just as much in a university's wheelhouse as faculty discipline, no? Or is the distinction assault versus harassment that does not include assault? It feels like the Court drew some fine lines here, and it's not entirely clear (to me at least) exactly where they were drawn. 

SCOTUS applies "but for" standard to race claims under s1981

I've been so busy trying to keep up with pandemic pandemonium that I completely missed this SCOTUS decision that came out yesterday: Comcast Corp. v. National Association of African American-Owned Media.

Federal statute, 42 U. S. C. §1981(a), guarantees, “[a]ll persons . . . the same right . . . to make and enforce contracts . . . as is enjoyed by white citizens.” In other words, it prohibits race discrimination when making and enforcing contracts. Per the syllabus, the Court held "
A §1981 plaintiff bears the burden of showing that the plaintiff’s race was a but-for cause of its injury, and that burden remains constant over the life of the lawsuit."

Helpful reminder that many courts have shut down physical locations or postponed certain in-person activities - but the courts are still conducting business.

Judge offers insight on (and criticism of) employment arbitration

If you're interested in employment arbitration agreements, then this is the opinion for you! In Styczynski v. MarketSource Inc., Judge McHugh (E.D. Pa.) provided a great overview of the law regarding unconscionability (both procedural and substantive) for employment arbitration agreements.

I found the analysis very interesting and helpful. What's getting all of the attention, however, is a concluding section in which Judge McHugh summarizes substantial criticism of employment arbitration agreements. Some of the main points:

• Roughly 20% of non-union employees have arbitration agreements (often imposed as contracts of adhesion);
• Employees win less often (compared to court litigation);
• Employees win less money when they do win;
• The forum deters many employees from even pursuing claims (with some data suggesting that arbitration is a greater deterrent than litigation).

His argument relied heavily on research following the Supreme Court's decision in 2001 in Circuit City (holding that the Federal Arbitration Act (FAA) covers employment contracts). Ultimately, of course, it's up to the Supreme Court to reverse the precedent holding that the FAA makes employment arbitration agreements enforceable (or for Congress to amend the FAA itself). 

O'Reilly's alleged "proven in court" clause

With all of the sexual harassment allegations flying around the media and entertainment industries, I've been trying to pickup tidbits that relate to law (and contracts). One story that stuck out to me was: O’Reilly Contract Barred Fox From Firing Him Unless Claims Proven In Court. According to testimony from an "Independent Director of 21st Century Fox," there was "an employment agreement with Bill O’Reilly which stated he could not be dismissed on the basis of an allegation unless that allegation was proved in court."

In retrospect, it's easy to see how this could allow a serial sexual harasser to keep his job so long as no litigation or criminal charges were ever taken all the way to trial and proven in court. That's a problem. However, at a high level, job security is one of the primary reasons people sign employment contracts to begin with.

Generally, employees serve "at will" and can be terminated for any reason at all (so long as that reason is not specifically prohibited by law or public policy) or even no reason. A contract is a way to afford greater security, whether it's the multi-millionaire pundit or the union member with a CBA.

In fact, good luck finding a CBA that does not require "just cause" for terminating employees, along with a grievance procedure that ends in arbitration. Is a "prove it in arbitration" clause really that different from a prove it in court clause?

Ultimately, requiring allegations to be proven in court prior to termination may be too high of a bar (and most employers would not want that burden). However, it is not at all uncommon for employees to insist on some type of contractual due process prior to termination; and, it's a benefit many employers are willing to provide to secure labor. We shouldn't lose sight of that when considering these issues.

Can employers fire employees for attending Charlottesville protests?

I'm sure you've already heard about the violence in Charlottesville this past weekend, and you've probably heard about the efforts to get the white supremacist protesters fired. Is is legal for employers to fire employees for attending the protests?

Generally

Generally, yes. Private employers can generally fire employees for any reason or no reason at all unless it conflicts with some established law or public policy (we call this "at will" employment). By now, you probably already know the lawyerly caveat you're about to get here . . . but, it depends. In fact, this may be one of the most convoluted issues ever to grace this fine blog.

NLRA

Why isn't this like the Google memo guy (which I analyzed here). Google memo guy was working with his co-workers to address the terms and conditions of his employment with his employer ("protected concerted activity" under the NLRA). I have heard nothing to suggest that the Charlottesville protesters were engaged in this sort of protected activity. Also, as Jon Hyman notes, other exceptions may apply.

"Just Cause"

However, there are a few situations that strike me as a little dicier. For example, many employees have individual employment contracts or union collective bargaining agreements that require "just cause" for termination. The "just cause" determination is very case-specific and varies a little based on jurisdiction.

It's usually harder for the employer to establish just cause for a termination based on off-duty conduct. To give you a sense of what's required, Pennsylvania looks at these factors:

First, the nature of the job is an important consideration; an employee in a 'sensitive position' may be subject to dismissal if only to avoid the appearance of impropriety whereas an employee in a non-sensitive position may not . . . . A second relevant factor is whether the conduct in question demonstrates a lack of judgment that erodes confidence in an employee's character . . . . A third factor concerns safety. An employee whose job it is to protect the safety of others is expected to behave in a manner consistent with this goal even while off duty.

City of Phila. v. City of Phila. Civil Svc. Comm'n. Employers must also establish a "nexus" between the off-duty conduct and the employee's ability to perform the job. Established employee policies come into play too.

So, I really can't provide you with a blanket rule, because every situation is different. What job does the employee have? What was (s)he actually doing? Each situation requires individualized analysis, and we may see different results depending on whether the employee was a klansmen punching someone or just some gawker; a neo-nazi or some sort of free speech activist; or maybe just some poor parent who picked a *really* bad weekend to take their kid on a college visit to UVA. The facts matter. And, of course, don't get the wrong guy (example here).    

Free Speech

Private employees generally don't receive First Amendment protections in employment. However, public employees do. Broadly speaking, public employees have a right to speak on matters of public concern while acting as private citizens. Public employers are generally prohibited from retaliating against public employees for First Amendment protected speech. However, once again, this is a complex area of the law - I'm just throwing out some general considerations.

State Laws

As usual, I present this with the caveat that states have myriad laws that I'm simply unfamiliar with. For example, the D.C. Human Rights Act prohibits employment discrimination based on political affiliation; Colorado prohibits employment termination for lawful outside-of-work activities; and Connecticut applies something like First Amendment free speech protections even to private employees (ask Dan Schwartz - I don't know anything about it).

Conclusion

Somebody could write an entire book on all of the legal issues raised by firing employees who attended Charlottesville. Most of the time, employers can go ahead and pull the trigger; but, there are a ton of mines in that field.

Third Circuit on Hostile Work Environment (Is one "n-word" enough?)

Last week, the Third Circuit issued a precedential opinion in Castleberry v. STI Group. It's an interesting opinion, on appeal from a dismissal at the pleadings stage, on the legal standard for hostile work environment claims.

One issue is very clear: the correct standard is that the harassment must be severe or pervasive - meaning that either one very severe event or a slew of not-so-serious events may suffice to state a claim (or, presumably, some combination).

Not official use.

At one point, the Court frames the issue as:

Under the correct “severe or pervasive” standard, the parties dispute whether the supervisor’s single use of the “n-word” is adequately “severe” and if one isolated incident is sufficient to state a claim under that standard.

The Court appears to conclude that, yes indeed, one n-word can be enough. Although, the Court notes that "the resolution of that question is context-specific." Also, strangely, that does not appear to be the actual issue presented by the facts.

Here Plaintiffs alleged that their supervisor used a racially charged slur in front of them and their non-African- American coworkers. Within the same breath, the use of this word was accompanied by threats of termination (which ultimately occurred). This constitutes severe conduct that could create a hostile work environment. Moreover, the allegations could satisfy the “pervasive” alternative established by the standard. Plaintiffs alleged that not only did their supervisor make the derogatory comment, but “on several occasions” their sign-in sheets bore racially discriminatory comments and that they were required to do menial tasks while their white colleagues (who were less experienced) were instructed to perform more complex work. Whether these allegations are true and whether they amount to “pervasiveness” are questions to be answered after discovery (for example, after determining how many times racial remarks were scribbled on the sign-in sheets). Plaintiffs have pled a plausible claim of a hostile work environment under either theory—that the harassment was “severe” or “pervasive.”

What if the slur were not accompanied by threats of termination that came to fruition? What if we were at summary judgment instead of the pleadings stage? The Court stops short of holding that one racial slur is always enough - but it came pretty close.

Sidenote: This was a Section 1981 race discrimination in contracts claim - but presumably the same analysis would apply to the more common Title VII discrimination an hostile work environment claims.

Tomi Lahren settles lawsuit against Beck and Blaze

Tomi Lahren (Twitter profile pic)

A month ago, I wrote about Tomi Lahren suing The Blaze and Glenn Beck for allegedly firing her for expressing a vaguely pro-abortion message on The View. I didn't want to leave you hanging, so . . . Update! The case settled. FoxNews has some of the details:

Lahren's attorney, Brian Lauten, said in a statement Monday that his client had been released from her employment contract and denied her access to the Facebook page TheBlaze had set up for her. He said that page and its millions of followers now belong to Lahren.  

In return, the conservative talker must remove videos she made for TheBlaze from the page and return them. Other terms remain confidential.

Now you don't have to wander through life wondering what ever happened to that lawsuit.

Tomi Lahren sues Glenn Beck and The Blaze

What happens when a conservative commentator goes on The View and expresses vaguely pro-choice opinions? Lawsuits, apparently. Tomi Lahren sued Glenn Beck and The Blaze last week (Complaint here). She claims that the The Blaze fired her (even this is a little muddled, arguing a de facto termination) because she went on The View (which is apparently somehow still on television) and said:

Tomi Lahren (Twitter profile pic)

I can't sit here and be a hypocrite and say I'm for limited government but I think the government should decide what women do with their bodies.

Her lawsuit makes vague allusions to First Amendment free speech and the right to express her personal views. Generally, such things do not apply to private employers and the lawsuit is technically not arguing that they do. Instead, Lahren argues that her employment contract (attached to the Complaint) requires "cause" to terminate her; and, the contract does not allow for termination based on her comments on The View.

The contract does allow The Blaze to terminate her for "repeated failure to comply with the reasonable directions of senior management" - we have yet to hear their side, so this may be a factor. Also, the contract was set to expire on September 30th of this year anyway, so perhaps they're content to just pay it out. We'll see.

So, what does Lahren want? A full prayer for relief appears in the Complaint, but to touch on some highlights:

• Damages for wrongfully terminating the contract;
• A declaration that The Blaze breached the contract and failed to perform other duties (like meeting a specific minimum number of recorded shows); and, therefore, Lahren is free to go out and compete without the restrictions of her contract;
• Tomi Lahren's Twitter account is alive and well, but her Facebook page lies dormant. Lahren claims she is locked out and she wants it back (she has over 4.2 million page Likes). 

Sidenote: The contract appears to have a typo - stating that Lahren can be terminated in accordance with "Paragraph 9)b_(ii), (iii), or (vii)" . . . but in context this should clearly refer to Paragraph 11, not 9. I somehow imagine celebrities having these infallible airtight contracts . . . and, yet, they have typos and ambiguities just like the non-celebrity contracts I see in my day-to-day practice. 

Lawffice Links - Court enjoins contractor blacklisting rules

Yesterday, the final rule implementing President Obama's "Fair Pay and Safe Workplaces" executive order, including the so-called "blacklisting" rules for federal contractors, was supposed to take effect (generally, it requires contractors to publicly disclose certain labor law violations and instructs federal agencies how to factor in those violations in awarding contracts). But, wait! At the last minute, a federal court enjoined most of the rule. I baked some Lawffice Links to bring you up to speed:

• Of course, you'll want the final rule and the Department of Labor's final guidance. 
• Or at least the brief overview on DOL's website.
• And then, you'll want to read the Judge's Memorandum and Order Granting Preliminary Injunction from the Eastern District of Texas. 
• Or at least some quality blogging about the decision, like maybe Eric Meyer's A Texas judge has enjoined practically all of the DOL “blacklisting” rules;
• Or maybe Seth Borden's Federal District Court Enjoins Reporting and Arbitration Requirements in Administration’s Contractor Blacklisting Rules; Allows Paycheck Transparency Provisions to Stand. 

Now, remember kids, it's only a preliminary injunction at a district court . . . so, the game is far from over. 

What does "solicit" mean in nonsolicitation agreements?

Nonsolicitation clauses are fairly common in restrictive covenants. The contract will say something like, "Upon termination, Employee shall not solicit customers of Employer for a period of two years" (it is also common to forbid solicitation of employees). What exactly does "solicit" mean though?

Meyer-Chatfield v. Century Business Srv., Inc., 732 F.Supp.2d 514 (E.D. Pa. 2010) has an entire section under the headline "Meaning of Solicitation." The Court turns to Black's Law Dictionary:

To appeal for something; to apply to for obtaining something; to ask earnestly; to ask for the purpose of receiving; to endeavor to obtain by asking or pleading; to entreat, implore, or importune; to make petition to; to plead for; to try to obtain; and though the word implies a serious request, it requires no particular degree of importunity, entreaty, imploration, or supplication. To awake or incite to action by acts or conduct intended to and calculated to incite the act of giving. The term implies personal petition and importunity addressed to a particular individual to do some particular thing. Black's Law Dictionary, p. 1392 (6th ed. 1990).

At this point, I should note that Black's Law Dictionary has undergone numerous revisions since the 6th Ed. in 1990. The 10th edition (2014) defines "solicitation" as:

1. The act or an instance of requesting or seeking to obtain something; a request or petition . . . .
4. An attempt or effort to gain business. • The Model Rules of Professional Conduct place certain prohibitions on lawyers' direct solicitation of potential clients.

I omitted the less relevant prostitute-y/criminal definitions.

I found this portion of the Meyer-Chatfield opinion particularly interesting:

Also relevant here is Aetna Bldg. Maintenance Co. v. West, 246 P.2d 11 (Cal. 1952). Aetna concerned an agreement where the defendant may not "solicit, serve and/or cater to any of the customers of the [plaintiff] Company served by him." Id. at 13. Despite the additional language of "serve and/or cater" modifying solicit, the court still held that "[m]erely informing customers of one's former employer of a change of employment, without more, is not solicitation. Neither does the willingness to discuss business upon invitation of another party constitute solicitation on the part of the invitee."

That gives employees who sign nonsolicitation agreements a lot of wiggle room.

Are employee handbooks legally binding contracts in Pennsylvania?

Can an employee sue his or her employer based on a breach of the terms of an employee handbook or manual? Law101: The answer to every question is always, "it depends."

Generally, the answer to this question is "no" - but with the qualifier that... wait for it... "it depends." Ordinarily, I wouldn't rely on an unpublished federal trial court opinion for state law issues, but I particularly like this summary (and it relies on published Pennsylvania appellate court opinions):

[W]e note that "the presumption under Pennsylvania law is that all employment is at-will, and, therefore, an employee may be discharged for any reason or no reason." Luteran v. Loral Fairchild Corp., 688 A.2d 211 (Pa. Super. Ct. 1997). The burden of overcoming the presumption rests squarely with the employee. Rutherford v. Presbyterian-University Hospital, 612 A.2d 500 (Pa. Super. Ct.1992). In order to rebut the presumption of at-will employment, a party must establish one of the following: (1) an agreement for a definite duration; (2) an agreement specifying that the employee will be discharged for just cause only; (3) sufficient additional consideration or (4) an applicable recognized public policy exception. Luteran.  

The Supreme Court of Pennsylvania in Luteran stressed that when alleging that an employee handbook created an implied contract, the handbook must contain a clear indication that the employer intended to overcome the at-will presumption. Moreover, courts should not presume that the employer intended to be legally bound by distributing the handbook nor that the employee believed that the handbook was a legally binding instrument. Id. The court stated that absent any language that the handbook was intended to be a legally binding contract, it could not hold that the employer intended to form a contract. This was in spite of the fact that the handbook stated that an employee "may only be discharged for just cause."

Consolmagno v. Home Depot, No. 06-1097 (W.D. Pa. 2006).

In other words, the courts generally assume that a handbook is not a contract "absent any language that the handbook was intended to be a legally binding contract." As a practical matter, as someone who has seen dozens of employee handbooks, I'll note that:

• I have never seen an employee handbook that says, "this is totally a contract" or anything even remotely resembling that; and
• Almost every handbook I've seen says the exact opposite, "THIS IS NOT A CONTRACT." (with varying degrees and combinations of obnoxious bold, all caps, underlined, and super-sized text).

Employers may wish to consider adding such a disclaimer to their handbooks. As an employer, would you rather go into court and ask it to apply a presumption? Or ask it to apply both the presumption *and* the text of the disclaimer? That's a no-brainer. I often draft or revise handbooks, and the "this is not a contract" disclaimer goes in every one. 

For Ohio law on this issue, check out Jon Hyman's Ohio Employer Law Blog. 

Coach Sarkisian Files Disability Discrimination Lawsuit

Former USC football coach, Steve Sarkisian, filed a lawsuit this week (copy of Complaint here). USC fired him for reportedly showing up to a team meeting drunk. This followed an allegedly drunken appearance at a pep rally earlier in the year.

As I explained in an earlier post, alcoholism may be a disability under the ADA, but employers do not have to tolerate someone showing up for work drunk. The coach claims he was not drunk . . . he only had two beers at the rally but it didn't mix well with some medication he was taking; and at the team meeting he was not drunk, although he had gotten drunk the night before.

I'm sure I'm not the only one who's a tad bit skeptical of his version. I'll note that he filed his claim under CA law and not the ADA. Also, he has some claims based on the language of his contract. For example, he claims USC failed to use a dispute resolution procedure prior to firing him.

We'll see how it goes. I predict low-value confidential settlement, but we'll see (or not if it does settle confidentially).

Are No Re-Hire and No Re-Apply Clauses Unlawful?

I attended the ABA Labor and Employment Law Conference this past weekend. It was my first time, but it will not be my last. It was a great conference! I learned a lot, but one particular issue stuck out for me: Are "no re-hire" and "no re-apply" clauses unlawful?

When employers and employees part ways, they often enter into separation agreements. The agreement almost always includes a waiver and release of all claims (including discrimination). Often, the agreement also includes a clause stating that the employee cannot re-apply for employment with that employer (or understands that (s)he will not be re-hired). These clauses are pretty common, so I was surprised when an EEOC attorney at the conference stated that the agency takes the position that  such clauses are unlawful (vaguely referencing retaliation).

Really!? I went off in search of more information. I couldn't find much, but I did find this white paper by Wendi Lazar of Outten and Golden: Settling the Case and Wrapping Up Employment: Negotiating Strategies, Drafting Realities:

See Tom Gilroy, EEOC Opposes Settlement Clauses That Bar Re‐Application and Rehiring, BNA DAILY LABOR REPORT, Apr. 4, 2008, at C1 (stating that “the agency opposes as a matter of policy both ‘no‐hire’ and ’no‐re‐apply’ covenants” as such clauses “are not good public policy, since they could be viewed almost as retaliation for coming forward for a discrimination claim”).  At an ABA Labor and Employment Law Section meeting on April 3, 2008, an EEOC attorney stated that the Commission will oppose so‐called “no rehire” or “re‐application” clauses in settlement or employment agreements.  See http://suitsintheworkplace.com/blogs/archive/2008/04/05/827.aspx.  However, case law on the issue seems to suggest just the opposite.  To date, courts and the EEOC have upheld settlement agreements or any other agreements containing no re‐employment provisions.  See Jencks v. Modern Woodmen of America, 479 F.3d 1261, 1265‐66 (10th Cir. 2007) (affirming district court’s holding that employee waived entitlement to re‐employment or reinstatement with the employer in an enforceable settlement agreement and that such agreement was a "legitimate non‐discriminatory reason for declining employee's application"); Austin v. Spirit Airlines, Inc., No. 08 Civ. 60540, 2008 WL 4927003, at * (S.D. Fla. Nov. 17, 2008) (on motion to enforce a settlement agreement, compelling plaintiff to execute a full settlement agreement, including a no‐rehire provision); Salerno v. City Univ. of N.Y., No. 99 Civ. 11151, 2005 WL 578944, at *3 (S.D.N.Y. Mar. 10, 2005) (imposing a settlement judgment that included a no‐reemployment provision and noting that “a bar on future employment is not unusual”)); Franklin v. Burlington N. & Santa Fe Ry. Corp., No. 03 Civ. 228, 2005 WL 517913 (N.D. Tex. Mar. 3, 2005), aff'd, 174 Fed. Appx. 831 (5th Cir. Apr. 5, 2006) (holding that employee failed to show that employer’s refusal to process plaintiff’s application on the basis of the separation agreement, which the company believed to include a no‐rehire provision, was pretextual); Khou v. Methodist Hosps. of Dallas, 2004 U.S. Dist. LEXIS 4148, (N.D. Tex. 2004), aff'd, 2005 U.S. App. LEXIS 4206 (5th Cir. 2005) (court affirmed judgment against an employee who applied for a job after entering into a separation agreement where employee promised to voluntarily and permanently resign); Homeport Ins. Servs., Inc. v. Lundy, B236276, 2012 WL 5385640, at *5 (Cal. Ct. App. Nov. 5, 2012) (finding no reemployment provision to be enforceable) (unpublished/noncitable); O'Brien v. Potter, 2004 EEOPUB LEXIS 448 (Feb. 3, 2004) (holding that the settlement agreement between the parties, which included a no‐rehire provision, was enforceable); Jablonski v. Battista, EEOC DOC 01A23730 (Sept. 17, 2003) (enforcing no re‐employment clause in agreement).

Sorry for the long bloc quote with string citation, but it really does a great job of addressing the issue (sadly, the blog link seems to be dead).

The EEOC attorney's position was not well-received at the conference, and she acknowledged that zero case law supports the position. One audience member "politely" suggested that if they couldn't find a single court to side with them in 50+ years, perhaps it was time to move on. The EEOC attorney responded that the agency often seeks to move the law and alter the status quo.

I certainly understand the agency's role in changing the law. However, this places employers in the unenviable position of choosing between what the law apparently allows, and drawing fire from the EEOC as a test case.

"Own Occupation" Clauses and Interpretation

I cover a broad range of (mostly) employment law topics on this blog - but I don't write many posts on long-term disability (LTD) insurance and benefits. Today, I'm sharing some research on "own occupation" clauses.

The gist of an "own occupation" (sometimes called "regular occupation") clause is that insureds must have an injury, illness, or disease that precludes them from working in their "own occupation" to receive benefits. This is often a point of contention between the insurer and the insured. The insured wants to argue for a very narrow definition of the occupation to be eligible for benefits ("I can't do my specific job, so I'm covered!"). Insurers often try to deny claims on the basis that the insured can still perform different jobs that fall under a giant umbrella of the same occupation ("Look at all of these other jobs you can do that are similar enough to be called the same occupation!").

So, what's the law? Here in the Third Circuit, the courts seem to have taken a fairly insured-friendly approach:

In Lasser v. Reliance Std. Life Ins. Co., 344 F.3d 381 (3d Cir. 2003), an insurer relied on a labor market survey to deny LTD benefits under a regular or own occupation clause. The insured was an orthopedic surgeon whose coronary artery disease rendered him unable to be “on call” or perform emergency surgeries. Although his job required these tasks, the insurer denied his claim by concluding that a generic orthopedic surgeon could practice in the field without being on call or performing emergency surgery. The Court rejected this interpretation. Instead of defining own occupation as “orthopedic surgeon” (as the insurer did), the Court defined the insured’s occupation as “an orthopedic surgeon responsible for emergency surgery and on-call duties in a relatively small practice group and within a reasonable travel distance from his home in New Jersey.” Do you see how narrowly they defined that?

The Court concluded that the insurer’s denial of benefits was “arbitrary and capricious” and the insured was entitled to judgment in his favor. Notably, the Court also recognized the “inherent conflict of interest” when the insurer acts as claims administrator. Thus, courts apply a “heightened” or stricter standard of review to benefits denials.

In Weiss v. Prudential Ins. Co. of Am., 497 F. Supp. 2d 606 (D.N.J. 2007), the district court ruled in favor of the insured, a teacher who fell and injured himself. The insurer denied his LTD benefits claim under a regular occupation clause that read:

Regular occupation means the occupation you are routinely performing when your disability occurs. Prudential will look at your occupation as it is normally performed instead of how the work tasks are performed for a specific employer or at a specific location.

The insurer argued that the insured’s occupation was just “teacher” and that he could work in his own occupation as a “light duty teacher.” The Court was not impressed:

Prudential never explained why it classified Weiss simply as a “teacher,” rather than the somewhat more specific title of “special education teacher,” or the even very specific “special education food services teacher” . . . . In sum, Prudential's decision to deny Weiss LTD benefits was arbitrary and capricious because that decision was based upon an unreasonable interpretation of the term “regular occupation.” In other words, had the Policy more clearly stated that those covered under the Policy were simply “teachers” rather than some more specifically defined teacher, then Prudential's decision that Weiss's injuries did not prevent him from performing the job of a light duty teacher would have been a reasonable decision. But given the more generalized definition in the Policy of the term “regular occupation,” Prudential's interpretation of that term cannot be characterized as reasonable under the heightened arbitrary and capricious review standard.

Obviously, individual cases will require fact-heavy analysis of the "occupation" in question and the specific language of the policy.

Unconscionable Employment Arbitration Agreements

Well, we only have two weeks left in the semester in my employment law class at Penn State. Frankly, I'm disappointed in myself for not blogging more about the interesting cases and issues we're covering in class. I'm covering arbitration today, including a fairly recent Third Circuit opinion on the enforcement of employment arbitration agreements.

2-Step Analysis

In Nino v. The Jewelry Exchange, 609 F.3d 191 (3d Cir. 2010), the Court held that an employment arbitration agreement was unconscionable and therefore unenforceable. Analyzing unconscionability requires a two-step analysis:

1. The procedural component; and
2. The substantive component.

The Procedural  Component

"We have consistently found that adhesion contracts-that is, contracts prepared by the party with greater bargaining power and presented to the other party 'for signature on a take-it-or-leave-it basis'-satisfy the procedural element of the unconscionability analysis." This is a pretty low hurdle, and likely covers many employment arbitration agreements. Unless the employee is a professional negotiating a full contract, I suspect most employment arbitration agreements meet this standard.

The Substantive Component

"[A] party challenging a contract on unconscionability grounds must also show that the contract is substantively unconscionable by demonstrating that the contract contains 'terms unreasonably favorable to the stronger party.'"

The Court found several of the clauses in the arbitration agreement at issue in Nino objectionable:

• The agreement required employees to file grievances within 5 days - the Court noted that even 30 days was too short (meanwhile the employer had no notice requirements for any of its claims). 
• Another clause required the parties to bear their own attorney's fees, costs and expenses. This clause conflicted with Title VII's fee-shifting structure, and burdened the employee's ability to seek legal representation in a discrimination dispute.
• The agreement also had a lopsided system for selecting the arbitrator. The parties would request a panel of 4 arbitrators from the AAA, and then take turns striking one until one was left - starting with the employer. The obvious effect being that the employer strikes two and the employee only strikes one.

Severability

Finally, the Court analyzed whether the substantively unconscionable provisions could be severed from the agreement such that the Court could compel arbitration minus the bad parts. The analysis involves two "separate and independent" bases for declining to enforce the agreement as a whole:

The first of these is whether the unconscionable aspects “of the employment arbitration agreement constitute [ ] ‘an essential part of the agreed exchange’ of promises” between the parties. If the unconscionable aspects of the clause do not comprise an essential aspect of the arbitration agreement as a whole, then the unconscionable provisions may be severed and the remainder of the arbitration agreement enforced . . . . 

The second consideration for the question of severability . . . is whether the unconscionability of the arbitration clause demonstrates “a systematic effort to impose arbitration on an employee, not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage.”

(internal citations omitted). The Court concluded that the agreement was so "pervasively one-sided" that it could not sever the unconscionable provisions, and therefore the entire agreement was effectively unenforceable.

An Enforceable PA Noncompete Without Consideration? Not on the Superior Court's Watch!

A couple of years ago, I blogged about a legal theory in a Legal Intelligencer article that would create enforceable noncompetes without any consideration.

The premise was pretty simple, Pennsylvania has a law called the Uniform Written Obligations Act (UWOA) that generally provides that a written contract will not be rendered unenforceable for lack of consideration if it expressly indicates that each party "intends to be legally bound." So, attorneys in Pennsylvania effectively use the magic words "intending to be legally bound" in contracts. Could such a thing work in the world of noncompetes?

Generally, noncompetes require consideration. That consideration may be the initial job offer, but generally not continued employment after the employee has already been hired. Does the UWOA allow employers to circumvent that requirement?

Well, when I blogged about the theory that the UWOA might get around the consideration requirement, I cautioned: "But be careful - as the article warns: no Pennsylvania appellate court has weighed in on this issue yet" . . . until Tuesday.

In Socko v. Mid-Atlantic Systems of CPA, Inc. (opinion here), the Superior Court addressed exactly this issue:

[F]or a restrictive covenant to be enforceable, the employee must receive actual valuable consideration in exchange for signing an employment agreement containing one. When the restrictive covenant is contained in the initial contract of employment, the consideration is the job itself. But when the restrictive covenant is added to an existing employment relationship, however, to restrict himself the employee must receive a corresponding benefit or a change in job status. Contractual language satisfying the UWOA does not provide the employee with any actual benefit, and thus cannot suffice as a form of consideration that is adequate to support the later enforcement of the covenant not to compete against the employee.

Sorry employers - if you want the noncompete, you gotta fork over the consideration. Then again, the Superior Court is an intermediate appellate court. This case could go up to SCOPA for a final decision.

HT to Eric Meyer, who was quick on the draw on this one: PA Superior Court Closes Non-Competition Agreement Loophole.

Miles on Duck Dynasty

Between Christmas, New Year's, and an extended daycare closure, blogging has been a little light lately. Fear not, I'll be back to "normal" (whatever that means) in 2014. I don't want you to think I've been totally slacking though. I did manage to crank out an article for the Reading Eagle: Phil Robertson's Comments on Gays Create Legal Tangle. Enjoy! And, see you next year!

Endnote: If you're interested in the citations for the cases referenced in the article:

Gadling-Cole v. W. Chester Univ., 868 F. Supp. 2d 390, 392 (E.D. Pa. 2012)(denying motion to dismiss); and 2013 WL 4602848 (E.D. Pa. Aug. 29, 2013)(denying motion for summary judgment as to religious discrimination claim).

Mendenhall v. Hanesbrands, Inc., 856 F. Supp. 2d 717, 720 (M.D.N.C. 2012).

SCOTUS on Forum Selection Clauses

Last week, the Supreme Court issued its opinion in Atlantic Marine Cons. Co. v. U.S. Dist. Ct. W.D. Tex. (opinion here). From the unanimous opinion:

[A] forum selection clause may be enforced by a motion to transfer under §1404(a) . . . . When a defendant files such a motion, we conclude, a district court should transfer the case unless extraordinary circumstances unrelated to the convenience of the parties clearly disfavor a transfer.

This is something of a win for forum selection clauses.

The Delaware Employment Law Blog has more: SCOTUS Ruling on Forum-Selection Clauses Good News for Employers.

Abraham Lincoln: Employment Lawyer

No, I'm not trying my hand at writing alternate history, a la Abe Lincoln: Vampire Slayer (a movie I have unsuccessfully attempted to watch twice now). No, Abraham Lincoln did in fact practice a little employment law.

I'm reading Lawyer Lincoln right now, a book about Lincoln's life as a lawyer that was published in the 1930s (and not to be confused with The Lincoln Lawyer about a guy who practices law out of his town car). He practiced a broad range of law from railroad cases to whether "fixing" the neighbor's hog constituted the tort of conversion. The book also includes a brief reference to employment law!

Thus Lincoln helped settle a leading principle of the law of contracts in a case involving only $26.75 claimed as wages by a farmhand. Eldridge v. Rowe (7 Ill. 91). Lincoln for Appellee.

I found the Court's opinion. The employee walked off of the job about four months in to an eight month contract. The employee then sought compensation for the four months on a theory of quantum meruit. The Illinois Supreme Court held:

[T]he plaintiff below had no legal right to recover for the four months' labor he had performed. He had agreed to labor on the farm of Eldridge, for the term of eight months for the sum of ninety dollars, and he has not performed his agreement; and it is no objection to say that Eldridge has received the benefit of his labor, this being a case, where, from its nature, Eldridge could not separate the products of his labor from the general concerns of his farm, and ought not, therefore, to be responsible to any extent whatever, for not doing that which was impossible.

The employee could not recover for his partial performance of the contract. Lincoln represented the employee, so I guess he lost. He did draw an opinionless dissent though.

Image: Cover of Lawyer Lincoln used in commentary on the book.