New Employment Case Archives

January 23, 2010

New Year brings new rule on “Good Faith” as basis of Commissions Claim in At-Will Employment situation

In a unanimous opinion, the First Department, Appellate Division determined that an at-will employee may proceed under a written commission agreement and New York Labor Law Sections 191 and 198 for payment of a commission on completed work that was not payable until a date after the termination of his employment. Arbeeny v. Kennedy Executive Search Inc., 105733/07 (January 14, 2010). According to a front-page story in the New York Law Journal (Jan. 19, 2010), “Lawyers from both sides of the labor law bar not involved in the case said in interviews last week that the decision breaks new ground in New York law.” The First Department is the first New York court to apply a Second Circuit ruling in Wakefield v. Northern Telecom, 769 F.2d 109 (1985) that the at-will doctrine should not preclude an employee from raising breach of the implied covenant of good faith where “necessary to enable one party to receive the benefits promised for performance.” Writing for the Appellate Division, Justice Acosta stated that the implied covenant can be invoked where it appears that “the employer’s termination action was specifically designed to cut off commissions that were coming due to the employee” even though the employee can not sue for wrongful discharge. The decision also contains a lengthy footnote regarding the New York Court of Appeals decision in Pachter, 10 NY3d 609 (2008), a controversial decision regarding commissions and deductions under Labor Law 191 and 193. All of this should remind labor and employment lawyers of the necessity of careful drafting of employment and commission agreements.

November 8, 2011

Paid Leave for Religious Observance Unconstitutional, Says NY Supreme Court

In a decision and order entered on October 17, 2011, a New York State Supreme Court justice found a religious observance clause contained in a collective bargaining agreement to be "violative of the Establishment Clause of the First Amendment of the United States Constitution which requires strict government neutrality with respect to religion." At issue in the case - Board of Education v. Mineola Teachers Association - was a provision contained in the collective bargaining agreement between a Long Island school district and its teachers' union granting teachers full pay for non-attendance resulting from absences, not to exceed five single days, for observance of religious holidays.

Upon advice of counsel in October 2010, the school district terminated its compliance with the religious observance provision of its contract with the teachers' union, informing the union that the clause violated the First Amendment since it provided a monetary benefit to those employees who claim to be religiously observant while failing to provide a similar benefit to those who are not. The school district further explained its view that providing paid leave to such employees without charging any of their accrued time discriminates against non-religious individuals. The teachers' union filed a grievance, alleging the school district's action was a violation of its collective bargaining agreement. When the teachers' union sought to move the grievance to arbitration, the school district sought to stay arbitration on public policy grounds.

Relying upon appellate division precedent, the Court denied the union's motion to compel arbitration and permanently stayed the arbitration. The Court relied upon prior Second Department precedent, while noting a diverging opinion by the Third Department.

This post was authored by Seth Greenberg of Greenberg Burzichelli Greenberg P.C.

December 21, 2011

First Department Revises McDonnell Douglas Analysis Under New York City Human Rights Law

In a case of first impression, a unanimous First Department has applied but refined the McDonnell Douglas analysis, long-used by the judiciary in evaluating discrimination cases, as applied to summary judgment motions in discrimination cases brought under the New York City Human Rights Law ("HRL").

The case is Bennett v. Health Management Systems, Inc., 2011 NY Slip Op 09206 (December 20, 2011), and writing for the Court is Justice Rolando T. Acosta. Bennett involves claims of race and age discrimination which had been dismissed at the summary judgment stage by the trial court. While affirming the dismissal of Plaintiff's discrimination claims, the Court took the opportunity to assess the propriety of applying the three-step burden shifting analysis set forth in McDonnell Douglas at the summary judgment stage to claims raised under the HRL, in light of the HRL's mandate to the judiciary to review such claims "independently from and more liberally than their federal and state counterparts."

The Court answered this inquiry in the affirmative, ruling that with some modifications, it is appropriate to apply the McDonnell Douglas analysis at the summary judgment stage to cases brought under the HRL. The Court summarized its analysis in the following manner:

1. "If a court were to find it necessary to consider the question of whether a prima facie case has been made out, it would need to ask the question, 'Do the initial facts described by plaintiff, if not otherwise explained, give rise to the McDonnell Douglas inference of discrimination?"

2. "Where a defendant has put forward evidence of one or more non-discriminatory motivations for its actions, however, a court should ordinarily avoid the unnecessary and sometimes confusing effort of going back to the question of whether a prima facie case has been made out. Instead, it should turn to the question of whether the defendant has sufficiently met its burden, as the moving party, of showing that, based on the evidence before the court and drawing all reasonable inferences in plaintiff's favor, no jury could find defendant liable under any of the evidentiary routes-McDonnell Douglas, mixed motive, "direct" evidence, or some combination thereof."

3. "If the plaintiff responds with some evidence that at least one of the reasons proffered by the defendant is false, misleading, or incomplete, a host of determinations properly made only by a jury come into play, and thus such evidence of pretext should in almost every case indicate to the court that a motion for summary judgment must be denied" except in "the most extreme and unusual circumstances."

In articulating the first point, the Court expressed some concern that the last prong of the prima facie case analysis set forth in McDonnell Douglas , as applied in State and Federal courts ("that adverse action has been taken under circumstances giving rise to an inference of discrimination"), could be incorrectly understood to require a plaintiff to prove his or her entire case at the prima facie stage. Under the First Department's analysis, a plaintiff need only show there is "some path" by which a jury might conclude that discrimination occurred.

In articulating the third point, the Court disagreed with the notion "suggested" (in the Court's view) by the U.S. Supreme Court in Reeves v. Sanderson Plumbing Products, Inc., 533 U.S. 133 (2000) that summary judgment could be routinely granted even where evidence of pretext exists. In light of the HRL's mandate, the Court reasoned, "evidence of pretext should in almost every case indicate to the court that a motion for summary judgment must be denied."

Applying this standard to the facts, the Court affirmed the lower court's dismissal of Bennett's claim. Defendant's proof of its legitimate reason for terminating Bennett was unrebutted, on both his claim of race discrimination, and his claim of age discrimination. And because the claims failed under the more protective provisions of the HRL, the Court ruled, Plaintiff's State law discrimination claims failed as well.

January 3, 2012

Severing the Connection: Who Owns That LinkedIn Account?

An interesting decision from the Eastern District of Pennsylvania is worth noting in this Blog. While its focus is on Pennsylvania common law, the case addresses the novel issue of LinkedIn account ownership, an issue that is likely to arise in multiple jurisdictions throughout the country, including New York.

The case is Eagle v. Morgan, et al., Civil Action No. 11-4303 (E.D.Pa. December 22, 2011), and the general facts will be familiar to anyone with a passing interest in the legal posturing that occurs when a valued employee, particularly a former owner, leaves a long-time employer. Plaintiff Linda Eagle ("Eagle") founded and operated a financial services and training company for over twenty years. She and her partners sold the company, Edcomm, Inc., in October 2010, but remained on as employees until June 2011, when they were fired by the new owner, Sawabah Information Services Company. A lawsuit by the company against Eagle, for securities fraud and other claims relating to the sale of the business, followed a week later, but will not be addressed in this post.

The facts get more interesting when modern technology and new methods of doing business are introduced, in the form of a LinkedIn account. While she owned Edcomm, and later as its employee, Eagle had established a LinkedIn account, which she maintained with the help of her administrative assistant. When Eagle attempted to access her LinkedIn account later that day, access was denied (another founder who was also terminated had the foresight to change his password before the termination meeting). Edcomm had accessed the account with Eagle's password, changed the password and then changed Eagle's account profile to display the name and photo of one of the new owners of Edcomm. Thus, individuals searching for Eagle were routed to a LinkedIn page featuring the name and photo of the Defendant, Morgan, but which included Eagle's resume and CV, her honors and awards, and her connections. Several weeks later, however, Eagle was able to regain control of the account, though the decision does not explain how she did so.

Before regaining control of the account, Eagle brought an action against Edcomm and numerous individual defendants for alleged violations of federal statutes (the Computer Fraud and Abuse Act and the Lanham Act), and various common law torts. Edcomm responded with several counterclaims, including several directed at Eagle's alleged misappropriation of the LinkedIn account in her own name. Many of the claims related to a company-issued cell phone and cell phone number, and will not be addressed in this post, other than to note that most of these claims were dismissed. The more interesting allegations raised by the company relate to the LinkedIn account.

The counterclaim Complaint alleged that while Eagle managed Edcomm the company had required employees to create LinkedIn accounts utilizing their Edcomm email address, utilize a specific template created by the company, with specifically approved language regarding Edcomm's business, the employee's work history and professional activities, photos taken by a company-hired photographer, links to Edcomm's web-site, and a template for replying to inquiries from LinkedIn users. The counterclaim Complaint further alleged that several Edcomm employees were responsible for monitoring the LinkedIn accounts, correcting violations of company policy, and who maintained several accounts on behalf of Edcomm employees. All departing employees were required to return Edcomm-related connections and content from their LinkedIn account.

According to the Court, these factual allegations were sufficient to state a cause of action for Misappropriation of Ideas against Eagle, as well as Unfair Competition. The Misappropriation claim survived because Edcomm sufficiently alleged it had made a substantial investment of time, effort and money into developing Eagle's LinkedIn account, meaning that it was wrong or tortious for Eagle to then access and take the account away from the company after her termination. The tort of Misappropriation of Ideas also requires that the idea be "novel," but the Court did not address how a LinkedIn account could be considered "novel."

The Court rejected, however, the claim that Eagle's retention of the LinkedIn account constituted misappropriation of a "trade secret," because the account information on the LinkedIn account was generally known in the wider business community, or capable of being derived from public information.

Edcomm's unfair competition claim also survived the dismissal motion. Under the Restatement (Third) of Unfair Competition, an unfair competition claim can be made where "the means of competition are otherwise tortious with respect to the injured party." While the Court cautioned that this liberal standard should not act as a "catch-all" for any form of wrongful business conduct, Edcomm's unfair competition claim was viable at the pleading stage because Eagle may have unlawfully misappropriated the LinkedIn account.

Thus, it seems that under the right circumstances, a LinkedIn account may not actually belong to the individual whose name appears on the account's home page, and whose professional history and accomplishments are detailed in the account's profile. This is an interesting development, but one that may not withstand further scrutiny, given the Court's acceptance, without much discussion, of the notion that a LinkedIn account is a "novel" idea worthy of protection. The viability of this decision may also be impacted by the LinkedIn user agreement, which states that the "user" is the owner of the account. The Court did not address this fact in its decision, and in this case, if the company's allegations prove to be true, the company may well be deemed to be the account "user."

As it currently stands, the decision may impact how employers do business. In the typical non-compete case, especially in the sales arena, the legal battle often focuses on the former employee's "contacts." This decision may embolden employers to take a more active role in the initiation, development and/or maintenance of LinkedIn accounts by and for their employees, in order to prevent employees from keeping those contacts that are stored on LinkedIn, and strengthen post-departure claims of misappropriation and unfair competition.

January 12, 2012

Spotlight On Legal Complexities Of Telecommuting After Second Circuits Calls It Potential Reasonable Accommodation

            The Second Circuit Court of Appeals recently ruled that telecommuting is a potential reasonable accommodation under the Americans with Disabilities Act ("ADA") and the Rehabilitation Act.  Although new technologies have made telecommuting more commonplace, not all employers have embraced the work-from-home concept.  The Second Circuit's recent opinion, as well as recently proposed and enacted telework legislation, highlight that employers cannot ignore telecommuting, and should consider the myriad legal issues that telecommuting presents, including wage-and-hour liability, privacy and data protection concerns, workplace safety, and other obligations. 


The Second Circuit's Opinion on Telecommuting as a Reasonable Accommodation


            In Nixon-Tinkelman v. N.Y. City Dep't of Health & Mental Hygiene, No. 10-3317-cv, 2011 WL 3489001 (2d Cir. Aug. 10, 2011), the plaintiff suffered from several physical ailments including cancer, heart problems, hearing impairment, and asthma.  The plaintiff had worked at the New York City Department of Health and Mental Hygiene ("DOHMH" or the "Department") since 1984 and had worked out of DOHMH's Queens office for 21 years as a Regional Director.  In January 2006, she was transferred to the Department's Manhattan location.  The transfer resulted in a longer and more difficult commute for Ms. Nixon-Tinkelman.  As a result, she requested, as an accommodation for her disability, to be reassigned to a "work location closer to home in order to reduce the stress and anxiety associated with the hour and a half commute each way every day."  Representatives from the Department met with Ms. Nixon-Tinkelman to discuss possible alternative assignments.  DOHMH concluded that one of the assignments in which Plaintiff expressed an interest was "inappropriate" because the job required extensive travel and therefore would not resolve Ms. Nixon-Tinkelman's commuting issue.  DOHMH further concluded that Ms. Nixon-Tinkelman's suggestion of a transfer to the Department's Pest Control Office in Queens was not a "viable" option.  Because the Department believed that there was no suitable reassignment that could be made within the organization to accommodate Ms. Nixon-Tinkelman, they denied her request.  Ms. Nixon-Tinkelman filed suit under the ADA and sections 501 and 504 of the Rehabilitation Act, alleging that the Department failed to make a reasonable accommodation.


            Under the ADA and Rehabilitation Act, an employer has an affirmative duty to provide a reasonable accommodation when it is aware that an employee has a qualifying disability that prevents the employee from performing essential job functions, so long as the accommodation does not unduly burden the employer.  Granting summary judgment for the defendant, the Southern District of New York ruled that commuting was beyond the scope of the plaintiff's job, and "not within the province of an employer's obligations under the ADA and the Rehabilitation Act."  The Second Circuit reversed, relying on two prior cases in which the Second Circuit ruled that an employer might have an obligation to assist with an employer's commute:  Lyons v. Legal Aid Soc'y, 68 F.3d 1512 (2d Cir. 1995); and DeRosa v. Natl's Envelope Corp, 595 F.3d 99 (2d Cir. 2010). 


            In Lyons, the Second Circuit reversed the dismissal of an ADA claim alleging that Plaintiff's employer failed to accommodate her request for a parking space near her office.  The district court dismissed the case on the ground that the accommodation requested by Lyons was unreasonable as a matter of law; however, on appeal, the Second Circuit ruled that the complaint stated a claim on which relief could be granted, holding that "there is nothing inherently unreasonable . . . in requiring an employer to furnish an otherwise qualified disabled employee with assistance related to her ability to get to work."  In DeRosa, the Second Circuit suggested that permitting a disabled employee to work from home was a reasonable accommodation.  The DeRosa court vacated an award of summary judgment for the employer, in which the district court ruled that the plaintiff was judicially estopped from bringing an ADA claim.  In so doing, the Second Circuit did not question the reasonable accommodation--working from home--that the Plaintiff sought.  The Nixon-Tinkelman court's reliance on DeRosa implies that the Second Circuit interprets the decision as standing for the proposition that working from home can be a reasonable accommodation.


            In Nixon-Tinkelman, the Court of Appeals explained that the determination of whether an accommodation is "reasonable" must be made on a case-by-case basis and remanded the case back to the trial court to conduct the required "fact-specific inquiry."  The Second Circuit made clear that employers cannot categorically deny requests for an accommodation to work from home or to receive other commuting accommodations.  Rather, employers must assess the circumstances of such requests on an individualized basis as they would with any other request for an accommodation.  The Second Circuit suggested a non-exhaustive list of factors for the trial court to use in evaluating the reasonableness of a potential accommodation, such as:


·        The number of individuals employed by the employer;

·        The number and location of the employer's offices;

·        Whether other available positions existed for which the employee was qualified;

·        Whether the employee could have shifted to a more convenient office without unduly burdening the employer's operations; and

·        The reasonableness of allowing the employee to work from home without on-site supervision.


The Second Circuit further provided illustrative examples of commuting accommodations that the district court should consider, including whether DOHMH could: (1) transfer Ms. Nixon-Tinkelman back to Queens, (2) permit her to work from home, or (3) provide her a car or parking permit to minimize the burden of her commute and make it easier for her to travel to and from her doctor's appointments.


Recent Legislative Initiatives to Increase the Availability of Telecommuting


            The Second Circuit's decision is in line with a recent trend favoring telecommuting.  On December 9, 2010, President Obama signed into law the Telework Enhancement Act, which gave federal agencies a six-month window of time to establish a telework policy and notify employees of their eligibility under the policy.  The new law requires each agency to implement a telework policy, designate a telework managing officer to oversee the agency's telework program, and ensure continuity-of-operations planning, particularly when employees' commutes are affected by inclement weather.  Several states, including Connecticut, Florida and Virginia, have also recently implemented or proposed legislation regarding telecommuting.  For example, New Jersey has proposed legislation that provides private sector tax incentives for certain business telecommuting program development and implementation costs and a separate bill that requires state agencies to adopt telecommuting programs.  In June 2010, Connecticut enacted a law to develop and implement telecommuting guidelines for state employees with the goal of having a positive effect on worker efficiency, the environment, and traffic congestion.  In New York, legislation has been proposed to require public employers to establish policies and programs allowing public employees to perform all or a portion of their duties remotely (see, e.g., A00206 / S 1381) as well as establishing tax credits for employers who enact policies to encourage teleworking (see S 2065).  This wave of legislative activity, along with the Second Circuit's recent opinion, provide a good opportunity for employers to consider the legal, operational, and administrative issues related to telecommuting.


Wage-and-Hour Concerns Arising from Telecommuting


            The Nixon-Tinkelman decision acknowledges that lack of supervision may pose difficultly in allowing an employee to work from home.  This may be particularly true for non-exempt employees.  Aside from the more obvious concern of some employers about a loss of productivity absent on-site supervision, there is also a converse risk that overzealous non-exempt employees would work "off-the-clock," i.e., engage in work without reporting their time, absent on-site supervision.  In the work-from-home context, where the ability of employers to monitor an employee's activity is limited, allegations of violations of federal and state wage and hour laws for such off-the-clock work may prove more difficult to refute than those brought by employees who work at an employer site under direct supervision.  Given this reality, it is important for employers to have specific, well enforced wage and hour policies governing work-from-home employees. 


Privacy and Data Security Concerns Arising from Telecommuting


            In addition, employees who do work from home are most likely able to do so via remote electronic access to the employer's network, which can raise  a whole host of concerns over the privacy and security of personal information and confidential company information that the employee may be able to access remotely: 


·        Whether the remote access to the employer's network will be made via secure connection, which decreases the risk of a security breach while information is in transit, and whether employees will be able to download files directly to their personal computer, reducing the employer's ability to protect the security of those files. 

·        Whether the employee will be using a company-issued computer or a personal computer.  Employee-owned computers increase security risks because the employer has limited ability to monitor the software on the computer and restrict user access.  For example, a personal computer might contain third-party data sharing software that could access company information that has been downloaded to the computer.  Moreover, employers have limited ability to ensure that other home users of an employee-owned computer would not be able to access company files if, for example, the remote connection is left open.  Either situation could trigger notice obligations under state data breach notification statutes if covered personal information is accessed or acquired by an unauthorized person.

·        Whether necessary files and data can be transferred only via a secure network or whether portable media, such as thumb drives, will also be permitted for file and data transfers, and if so, what level of security, such as encryption and password protection, will be required.  The shrinking size of portable media provide greater freedom, flexibility, and mobility, but also pose greater risk of loss or theft due to their diminutive size.

·        How to ensure the security of a work-from-home employee's workstation.  For example, will the screen be visible to others and how will the remote employee secure paper files? 


Employers will need to develop and implement both administrative mechanisms, such as clear policies that put employees on notice of their rights and responsibilities, and operational mechanisms, such as implementing encryption and monitoring technology and other electronic security measures, that balance the need to preserve confidentiality and maintain security while allowing for the flexibility and mobility the employer's off-site employees' need.


Workplace Safety Issues and Liabilities Arising from Telecommuting


            Further, although telecommuters are not at the workplace, employers must still be concerned with workplace safety issues.  Workers compensation laws, OSHA and other workplace safety regulations can still apply to remote employees, so employers must develop ways to ensure that work-from-home employees comply with relevant safety protocols even in their home offices.  Although OSHA has announced that it will not conduct inspections of employees' home offices, and does not expect employers to conduct inspections, the agency will hold employers responsible for injuries or hazards at remote locations, including home offices, if they are caused or created by materials, equipment, or work processes that the employer provides or requires the employee to use at the remote location.  As well, OSHA will conduct inspections of home-based work sites when it receives a complaint or referral that indicates a violation of a safety or health standard that threatens physical harm.   Most state workers' compensation laws, including New York, are not limited to work related injuries that occur at the employer's fixed physical location, and therefore can apply to work-related injuries occurring at a home office or other work location.  The employee will still have to establish that the injury arose out of and in the course of employment, and not during a break or other non-work related activity. 


            Another recent area of liability, brought about by the technologies that have helped expand the mobile workforce, stems from injuries and damages caused by employees texting and talking while driving.  For example, in Bustos v. Dyke Industries Inc., Miami Dade Case No. 01-13370 (2001), an employer settled for over $16 million, after a jury initially awarded over $21 million in damages to an elderly woman who was hit and severely disabled by a salesman who was making a work related call on his cell phone while driving, resulting in the accident.  Again, due to the lack of on-site supervision, employers should, at minimum, enact clear policies on workplace safety issues that consider the particular circumstances of remote employees.    


            There may certainly be other concerns associated with remote employees in particular industries, and the issues noted above are but a sample of the concerns that telecommuting can raise.  Given the recent trend towards telecommuting, and the Second Circuit's decision clarifying that, in certain circumstances, it can be required as a reasonable accommodation, employers should take the opportunity to review their own telecommuting policies and procedures and consider the various issues that may arise when their own employees work from home or other remote locations. 


            This post was authored by Matt Lampe, Joseph Bernasky, David Krieger, and Mariya Nazginova of Jones Day.  The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of Jones Day or the New York State Bar Association.

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April 18, 2012

States Immune From Lawsuits By Employees Alleging Violation of FMLA's Self-Care Provision, Says U.S. Supreme Court

On March 20, 2012, the U.S. Supreme Court held that States retain their sovereign immunity and cannot be subjected to lawsuits by employees alleging violations of the self-care provision of the Family and Medical Leave Act of 1993 ("FMLA"). The case - Coleman v. Court of Appeals of Maryland (No. 10-1016) - centers around a lawsuit filed by an employee of the Maryland Court of Appeals (an instrumentality of the State of Maryland) who, after requesting time off to take care of his own health issues, was informed that he would be fired if he did not resign.

The FMLA entitles eligible employees to take up to 12 weeks of unpaid, job-protected leave per year for certain specified family and medical reasons. One of those reasons, referred to as the "self-care" provision, permits for the use of such leave when an employee's own serious health condition interferes with the employer's ability to perform at work. Under the FMLA, eligible employees have a private right of action against their employer for violation of their FMLA rights.

The Supreme Court, by a 5 to 4 plurality vote, affirmed the decision of the Fourth Circuit and concluded that the abrogation of State sovereign immunity through the FMLA's self-care provision was not a valid exercise of congressional power under the Fourteenth Amendment. Justice Kennedy, who joined the Court's more conservative bloc of justices and who wrote the Opinion of the Court, concluded: "To abrogate the State's immunity from suits for damages under §5 [of the Fourteenth Amendment], Congress must identify a pattern of constitutional violations and tailor a remedy congruent and proportional to the documented violations. It failed to do so when it allowed employees to sue States for violations of the FMLA's self-care provision."

In its 2003 decision in Nevada Dept. of Human Resources v. Hibbs, the Court held that Congress could subject the States to suit for violations of one of the so-called family-care provisions (which grant leave for reasons related to the care of a family member with "a serious health condition"). But Justice Kennedy distinguished the self-care provision from that family-care provision, explaining that the holding in Hibbs "rested on evidence that States had family-leave policies that differentiated on the basis of sex and that States administered even neutral family-leave policies in ways that discriminated on the basis of sex." Unlike evidence supporting the enactment of the family-care provisions of the FMLA - namely a pattern of state constitutional violations and evidence of sex discrimination or sex stereotyping in the administration of sex leave - the legislative history of the self-care provision "reveals a concern for the economic burdens on the employee and the employee's family resulting from illness-related job loss and a concern for discrimination on the basis of illness, not sex." Thus, since Congress did not pass the self-care provisions to counter sex discrimination in granting leave due to an employee's own illness or incapacitation, the right to sue a state should not extend to violations of the self-care provision.

Justice Ginsburg, who read her dissenting opinion from the bench, argued that the plurality paid little attention to the "overarching aim of the FMLA: to make it feasible for women to work while sustaining family life." Highly critical of plurality's decision, the four dissenting justices maintain "[i]t would make scant sense to provide job-protected leave for a woman to care for a newborn, but not for her recovery from delivery, a miscarriage, or the birth of a stillborn baby."

Despite its critics, Coleman appears to be a fairly narrow decision, applying only to the self-care provision and only with regard to such lawsuits against states. Money damages under the self-care provision are still permitted against private employers.

This post was authored by Seth Greenberg of Greenberg Burzichelli Greenberg P.C.

August 17, 2012

Employer Lawsuits Against Employees Under the Computer Fraud and Abuse Act

The Computer Fraud and Abuse Act, 18 U.S.C. 1030 (the "CFAA"), prohibits the fraudulent access of computer data by individuals "without authorized access" or who "exceed[] authorized access" of a "protected computer," which is defined by the CFAA as either a government computer or one used in or affecting interstate commerce.  The CFAA provided only for criminal penalties until amendments in 1994 added civil remedies, prompting employers to file actions under the CFAA against current and former employees who misappropriate or misuse confidential computer data.  On August 2, 2012, the Department of Justice announced that it would not seek Supreme Court review of a closely watched decision, U.S. v. Nosal,  in which the Ninth Circuit ruled on the application of the CFAA in the employment context.  The Ninth Circuit's decision in U.S. v. Nosal departed from the interpretations of other Circuits, and the federal courts, including the Second Circuit district courts, are split on whether and to what extent an employer can bring an action against an employee under the CFAA.


The Ninth Circuit Narrowly Interprets CFAA

In U.S. v. Nosal, the Ninth Circuit considered whether defendant David Nosal violated CFAA by enlisting his former colleagues at Korn/Ferry to download lists, names, and information from a confidential database on his former employer's computer.  676 F.3d 854, 856 (9th Cir. 2012).  The Ninth Circuit upheld the district court's dismissal of the employer's cause of action under CFAA, interpreting the phrases "without authorized access" and "exceeds authorized access" in the CFAA as prohibiting violations of access but not use restrictions.  Id. at *863-864.  The Ninth Circuit pointed out that the CFAA criminalizes improper "access" of protected computers but fails to speak directly about the "misuse" or "misappropriation" of the data found on such computers.  Applying what it deemed to be a "narrower interpretation" of this language, the court reasoned that the statute's phrase "without authorized access" contemplates the "outside hacker," or an individual without any authorization to access the protected computer in the first instance, and the phrase "exceeds authorized access" contemplates the "insider hacker," or one who has limited or restricted access to the protected computer but accesses information not within the scope of his or her authorized access.  Id. at *858.  According to the Ninth Circuit, the CFAA did not cover the situation before the court in which Nosal's colleagues had permission to access their employer's database and the information within that database, by way of a protected computer that they were also authorized to access, but used the information contained therein in an unauthorized manner. The Ninth Circuit expressed concern that reading the CFAA to prohibit unauthorized use of protected computers (as opposed to unauthorized access in the first instance) could effectively criminalize a wide range of common "minor dalliances" by employees, such as shopping on the internet or chatting with friends on a computer that they are authorized to access but are not authorized to use for such purposes.   


The Second Circuit District Court Split

The Second Circuit has not yet addressed this issue and the district courts in the Second Circuit are split on whether an employer has a cause of action against an employee under the CFAA for violating his or her use rights under employer policy.  Like the Ninth Circuit, some district courts have rejected claims under the CFAA where an employee has permission or authority to retrieve the confidential information at issue, regardless of whether the employee subsequently misuses the information.  See, e.g. University Sports Publications Co. v. Playmakers Media Co., 725 F. Supp. 2d 378, 385-387 (S.D.N.Y. 2010); Westbrook Techs., Inc. v. Wesler, 2010 WL 2826280 (D.Conn. July 15, 2010).  Further, in one decision, the Southern District of New York observed that the Second Circuit's interpretation of damages under the CFAA in Nexans Wires S.A. v. Sark-USA, Inc., 166 Fed.Appx. 559 (2d Cir. 2006), was consistent with a narrower interpretation of the statute's application.  See Orbit One Comm'ns, Inc. v. Numerex Corp., 692 F.Supp.2d 373, 386-87 (S.D.N.Y. 2010).  In Nexans, the Second Circuit upheld damages under the CFAA for losses in connection with hacking computer information but denied recovery under the CFAA for the misuse of computer information.  Id. 


By contrast, in an action against former employees accused of transferring trade secrets to their new employer, the court found that the defendant-former employee exceeded his authorized access of the company computer when he violated the broad confidentiality section of his employment agreement, and in doing so violated the CFAA.  Marketing Tech. Solutions, Inc. v. Medizine LLC, 2010 WL 2034404, at *7 (S.D.N.Y. May 18, 2010).  In another case in which an employee copied and e-mailed proprietary company information (which he was otherwise authorized to access) in violation of his company e-mail policy, the court defined "exceeds authorized access" to include actions whereby an employee has "reason to know" that his access of documents is in "contravention of the wishes and interests of his employer."  Calyon v. Mizuho Securities U.S.A., Inc., 2007 WL 2618658, at *1 (S.D.N.Y. Sept. 5, 2007). 


The Federal Circuit Split

Since the Ninth Circuit's ruling in U.S. v. Nosal, the Fourth Circuit has also applied "a narrow reading" of the terms "without authorization" and "exceeds authorized access" in the CFAA, rejecting a cause of action against employees accused of misappropriating computer information, where the employees had permission to access the information at issue.  WEC Carolina Energy Solutions, LLC, 2012 WL 3039213, at *6 (4th Cir. July 26, 2012).  Observing that the CFAA was "meant to cover hackers," the Fourth Circuit declined to apply the statute to employees who "access computers or information in bad faith or [] disregard a use policy."  Id. at *7. 


Other Circuit Courts of Appeal, including the Fifth and Seventh Circuits, have applied broader interpretations of the CFAA.  For instance, the Fifth Circuit allowed a cause of action under the CFAA to proceed against an employee who retrieved confidential customer account information, which she was authorized to access, and subsequently transferred to her half-brother for the purpose of committing a fraud.  U.S. v. John, 597 F.3d 263, 272 (5th Cir. 2010).  Interpreting the CFAA clause "exceeds authorized access," the Fifth Circuit found that an employee exceeds authorized access when he or she has reason to know that he or she is not authorized to access such information in furtherance of a criminal scheme.  Id. at 273.   In Int'l Airport Centers, LLC. v. Citrin, the Seventh Circuit upheld the district court's finding that an employee violated the CFAA when, prior to leaving the company to start his own business, he deleted confidential company information on his assigned company computer that he knew the company would have wanted. 440 F.3d 418, 419-20 (7th Cir. 2006).  Although during the course of his employment the employee was authorized to access the company information on his work computer, the Seventh Circuit reasoned that the difference between the CFAA phrases "without authorized access" and "exceeds authorized access" is "paper thin," and concluded that any authority to access the confidential computer information terminated when the employee breached his duty of loyalty to the employer, thereby falling within the scope of the CFAA.  Id. at 420.


Practical Implications

Storing company confidential information, customer and employee personal information, and other business records electronically has become the norm.  By extension, maintaining the security of such electronic data has become increasingly important and mandatory in some jurisdictions if such data includes employee or customer personal information.  Effectively maintaining the security of company electronic data of course starts with effective internal policies and procedures; however, legal recourse, such as an action under the CFAA, also presents an effective deterrent for potential violations of company security policies.  As a result of the decision by the Department of Justice not to pursue Supreme Court review of the Ninth Circuit decision in U.S. v. Nosal, the circuit split is sure to remain for the foreseeable future and the application of the CFAA to the employment context will be unresolved.  Although the Ninth and Fourth Circuits' recent decisions applied a "narrower interpretation" of the CFAA than opinions in other Circuits, hinging on the distinction between unauthorized access and unauthorized use, these decisions still leave open the possibility of employer causes of action under the CFAA against employees who breach access restrictions.  Unfortunately, these decisions do not answer what level of access restrictions would be required in order to trigger the protections of the CFAA:  Would an employer policy on access rights alone be sufficient?  Or are technical access restrictions, such as password protection, required?  In this regard, until these questions are answered by the courts, employers should consider access restrictions imposed by company policy and whether technical access restrictions would be beneficial for certain types of sensitive company data. 


This post was authored by Matt Lampe, Joseph Bernasky, and Karen Rosenfield of Jones Day.  The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of Jones Day or the New York State Bar Association.


January 16, 2013

Eighth Circuit Enforces Mandatory Arbitration Agreement Waiving FLSA Class Claims

The Eighth Circuit, in Owen vs. Bristol Care, Inc., No. 12-1719 (8th Cir. 1/7/13), held that the plaintiff must arbitrate her Fair Labor Standards Act ("FLSA") overtime claim even though the governing mandatory arbitration agreement ("MAA") contained a waiver of class claims barring her proposed collective action.

Owen, a former administrator with Bristol Care, a nursing home operator, brought her FLSA action in federal district court on behalf of herself and other similarly situated current and former employees alleging that she and other administrators had been deliberately misclassified as "exempt" employees for purposes of FLSA and corresponding state laws. The district court denied Bristol Care's motion to compel arbitration in accordance with the MAA and the Federal Arbitration Act ("FAA"). The court reasoned that although the MAA encompassed Owen's claim, arbitration could not be ordered here because the inclusion of the class waiver in the MAA rendered it invalid. In so concluding, the court noted that the Supreme Court's decision in AT&T Mobility LLC vs. Concepcion, 563 U.S. __, 131 S.Ct. 1740 (2011), upholding a class waiver in a consumer arbitration agreement, was not controlling in the employment context. Citing Chen-Oster vs. Goldman Sachs & Co., 758 F.Supp. 2d 394 (S.D.N.Y. 2011) and D.R. Horton, Inc., 357 NLRB No. 184 (2012), it explained that class waivers are invalid in FLSA cases because the FLSA authorizes the bringing of a class action.

In reversing the district court, the Eighth Circuit instructed that Section 2 of the FAA "requires courts to enforce arbitration agreements according to their terms," absent a "contrary congressional command" in another statute overriding the FAA's mandate. It noted that the burden to make this showing rests with the party challenging the arbitration agreement.

Owen, the Eighth Circuit decided, failed to meet this burden. "Owen identifies nothing in either the text or legislative history of the FLSA that indicates a congressional intent to bar employees from agreeing to arbitrate FLSA claims individually, nor is there an 'inherent conflict' between the FLSA and the FAA. In short, the FLSA contains no 'contrary congressional command' as required to override the FAA."

The Eighth Circuit also highlighted that its conclusion is consistent with the five other courts of appeals that have addressed the issue. See Vilches vs. The Travelers Companies, Inc., 413 F. App'x 487 (3rd Cir. 2011); Caley vs. Gulfstream Aerospace Corp., 428 F.3d 1359 (11th Cir. 2005); Carter vs. Countrywide Credit Industry, Inc., 362 F.3d 294 (5th Cir. 2004); Adkins vs. Labor Ready, Inc., 303 F.3d 496 (4th Cir. 2002); Horentstein vs. Mortgage Market, Inc., 9 F. App'x 618 (9th Cir. 2001).

Hospital Employee Discharged for Refusing Flu Shot Due to Veganism May Proceed with Religious Discrimination Claim

Denying defendant's motion to dismiss, the United States District Court for the Southern District of Ohio in Chenzira vs. Cincinnati Children's Hospital Medical Center, 1: 11-CV-00917 (S.D. Ohio 12/27/12), found that plaintiff stated a plausible claim of religious discrimination under Title VII and the Ohio Civil Rights Act based upon her adherence to veganism. Chenzira alleged that the hospital violated her religious convictions by discharging her for refusing to receive the flu vaccine. She explained that receiving a flu shot would contravene her convictions as a vegan not to ingest any animal or animal by-products because the flu vaccine is grown in chicken eggs.

The court rejected defendant's argument that veganism represents nothing more than a dietary preference or social philosophy, and, as such, does not qualify as a religion for purposes of the protections afforded by Title VII or the Ohio Civil Rights Act. Instead, referencing the standard to be applied in the context of a motion to dismiss, the court concluded that it was "plausible" that Chenzira could subscribe to veganism with a sincerity equating that of traditional religious views, thereby satisfying the EEOC's definition. 29 C.F.R. §1605.1. It noted that this conclusion was further supported by Chenzira's citation to supporting essays and Biblical excerpts. "Although the Code makes it clear that it is not necessary that a religious group espouse a belief before it can qualify as religious, 29 C.F.R. §1605.1, the fact here that Plaintiff is not alone in articulating her view lends credence to her position."

The court also denied the hospital's motion to dismiss Chenzira's complaint as being untimely. Although Chenzira filed her formal charge with the EEOC beyond the 300-day limit, the court determined that the intake questionnaire that she completed at the EEOC prior to the expiration of that period was sufficiently detailed to satisfy the charge-filing requirement.

January 24, 2013

Comments Made to Employee During Pregnancy Preclude Summary Judgment on Her Title VII Claim Challenging Subsequent Discharge

The United States District Court for the Northern District of Illinois, in Quinlan vs. Elysian Hotel Company, No. 1:11-CV-05956 (N.D. IL 1/4/13), ruled that plaintiff may proceed with her Title VII claim alleging her discharge shortly after she returned from maternity leave constituted sex discrimination. In denying the employer's motion for summary judgment, the court concluded that remarks purportedly made to Quinlan by three management officials who participated in the decision to discharge her raised a genuine issue that their decision was influenced by sex discrimination. The remarks at issue concerned the difficulty of balancing work and being a good mother. The court described Quinlan's claim as asserting "the employer discriminated based on a view that new mothers cannot (or are less able to) do the job."

Acknowledging that certain of the cited comments were attenuated from the Quinlan's discharge having been made more than six months prior, the court found that the remarks attributed to Mary Beth Malone, one of Quinlan's supervisors and one of the three decision makers, standing alone constituted sufficient circumstantial evidence that discrimination may have influenced the decision to terminate Quinlan's employment. These included repeated inquiries as to how Quinlan was going to manage a baby and her workload, as well as recommending that Quinlan consider returning to her career "later in life" because of the difficulty of managing work and being a "good mom."

The court refused to accept for summary judgment purposes, Elysian's contention that Malone's comments were not discriminatory, but represented "girl talk" conversations in which Quinlan and Malone chatted about life as friends. It explained, "at this stage, the Court must view the evidence in Quinlan's favor, and when the content of the remarks are combined with the settings in which they were made, and the repetitiveness with which they were made, and that it was allegedly Malone who repeatedly brought up the subject, the remarks are evidence of discrimination."

May 20, 2013

District Court Denies Motion To Dismiss Employer's Action To Enforce Restrictive Covenant

In Locke v. Tom James Co., 2013 WL 1340841 (S.D.N.Y. March 25, 2013), the Court declined to dismiss claims by an employer seeking to enforce a two-year, 50-mile restrictive covenant. Judge Daniels denied summary judgment to the former employee, who was seeking dismissal of claims that he had breached the restrictive covenant and misappropriated trade secrets. The former employee worked as a clothier and salesman for a high-end custom clothing company.

The Court found that the customer list at issue was not publicly ascertainable, and noted that protecting customer relationships is especially important when employees work closely with customers over a long period of time, especially when the employee's services to the customers are significant. (Here, the former employee visited customers at their offices or homes.) The Court also concluded that a two-year duration and 50-mile radius were reasonable, and that the agreement was not obtained under duress.

(Thanks to WRR Committee member Steven T. Sledzik of Jones Morrison, LLP for this contribution!)

May 22, 2013

D.C. Circuit Rules Single Use of "N-Word" by Management Official May Create Hostile Work Environment

The D.C. Circuit in Ayissi-Etoh v. Fannie Mae, No. 11-7127 (4/5/13), reversed the district court's grant of summary judgment for Fannie Mae. It found that plaintiff had established triable race discrimination and hostile work environment claims under the Civil Rights Act of 1866, 42 U.S.C. §1981.

Fannie Mae hired plaintiff as a senior financial modeler and promoted him three months later to modeling team lead. Plaintiff's claim of racial discrimination arose from Fannie Mae's failure to grant him a pay increase in connection with his promotion. He alleged that when he questioned Fannie Mae's chief audit executive concerning this issue, she replied: "For a young black man smart like you, we are happy to have your expertise; I think I am already paying you a lot of money." Noting that the executive denied making this statement, the court instructed that such a credibility contest cannot be resolved at the summary judgment stage against the non-moving party. Instead, it concluded that the "young black man" comment constituted direct evidence of racial bias that entitled plaintiff to a trial on the issue.

In reversing the grant of summary judgment on plaintiff's hostile work environment claim, the court cited both this comment and a subsequent incident in which a Fannie Mae vice president during a meeting on work assignments yelled at plaintiff, "Get out of my office n____." Addressing this latter event, the court suggested, "This single incident might well have been sufficient to establish a hostile work environment." It explained, "perhaps no single act can more quickly alter the conditions of employment" than "the use of an unambiguously racial epithet such as 'n_____' by a supervisor."$file/11-7127-1429152.pdf

June 4, 2013

Second Circuit Vacates Summary Judgment, Finding District Court Applied Wrong Standard In Evaluating Claims Under NYCHRL

The Second Circuit, in Mihalik v. Credit Agricole Cheauvreux North America, Inc., No. 11-3361-cv (2nd Cir. April 26, 2013), ruled that federal standards do not govern claims under the New York City Human Rights Law ("NYCHRL"). Instead, such claims require a separate and independent analysis. The court explained that that the 2005 amendment of the NYCHRL compels this result.

Citing the First Department's decision in Williams v. New York City Housing Authority, 872 N.Y.S.2d 27 (1st Dep't 2009), the Second Circuit explained that under the NYCHRL the "severe and pervasive standard" is not the test of liability for gender discrimination, but is relevant only to the issue of damages. To prevail on liability, the plaintiff need only demonstrate by "a preponderance of the evidence that she has been treated less well than other employees because of her gender." The court cautioned, however, that the NYCHRL is not a "general civility code." Therefore, the plaintiff still must demonstrate "discriminatory motive," which requires a showing that she has been treated less well, at least in part, due to her gender.

Addressing the standard for a retaliation claim under the NYCHRL, the Second Circuit instructed that the plaintiff must establish that she opposed her employer's act(s) of discrimination and the employer responded with conduct "reasonably likely to deter a person from engaging in such action." The court opined that in the context of this case, Mihalik did not need to demonstrate that she was discharged for opposing her supervisor's alleged offensive behavior because "a jury could reasonably find that publicly humiliating Mihalik in front of her male counterparts and otherwise shunning her was likely to deter a reasonable person from opposing his harassing behavior in the future."

August 29, 2013

Third Circuit: Existence of Collective Bargaining Agreements Did Not Bar Plaintiffs From Pursuing FLSA Claims

The Third Circuit in Bell v. Southeastern Pennsylvania Transportation Authority, No. 12-4031 (3rd Cir. August 19, 2013), reversed the district court's dismissal of plaintiffs' claims under the Fair Labor Standards Act (FLSA). Plaintiffs, former and current bus drivers and trolley operators, brought an FLSA collective action to recover unpaid wages and overtime compensation relative to the pre-trip inspections to which they were subject prior to the start of their daily runs. In granting SEPTA's motion to dismiss, the district court concluded that the FLSA claims required interpretation of provisions of three collective bargaining agreements (CBA's) between SEPTA and the unions representing the plaintiffs, and, therefore, were subject to the grievance and arbitration provisions of those agreements.

In rejecting the district court's conclusion, Judge Barry explained that the plaintiffs do not contend that SEPTA violated any term of the CBA's, although each contained a provision addressing compensation for time worked prior to the start of the morning shift. Instead, plaintiffs assert that their FLSA claims exist independently of any rights they have under the applicable CBA's. As such, Judge Barry highlighted, resolution of these claims (i.e., failure to compensate for all time worked in performing pre-trip inspections; and exclusion of pre-trip responsibilities from calculation of overtime) do not require an interpretation of the CBA's. Rather, they require "a factual determination of the amount of time [plaintiffs] are required to work prior to their scheduled start and a legal determination regarding whether this time is (1) compensable and (2) subject to the overtime provisions of the FLSA."

Judge Barry distinguished the court's earlier ruling in Valdino v. A. Valey Engineers, 903 F.2d 253 (3rd Cir. 1990), on which the district court relied. In Valdino, the plaintiff, claiming he should have been compensated at the "journeyman" rate and not the "normal" rate under the CBA, alleged that the employer violated the FLSA by failing to pay his hours worked in excess forty per week at one and one-half times the journeyman rate. For this reason, Judge Barry noted that in contrast to the claims in this case, Valdino's FLSA claim was "tethered to the threshold question of whether or not he was entitled to the journeyman wages or normal wages under the governing CBA." In sum, the claim was derivative of his breach of contract claim and necessarily dependent on an interpretation of the CBA.

August 30, 2013

Second Circuit Holds Class Action Waiver in Arbitration Agreement Enforceable Against Plaintiff's FLSA Claims

The Second Circuit in Sutherland v. Ernst & Young, No. 12-304-cv (2nd Cir. August 9, 2013), concluded that as consequence of the Supreme Court's decision this term in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), its so-called "effective vindication doctrine" as applied in In re American Express Merchant's Litigation, 554 F.3d 300 (2nd Cir. 2009) ("Amex"), is "no longer good law." Specifically, a showing that plaintiff has no economic incentive to pursue his/her statutory claims individually no longer provides a basis for invalidating a class-action waiver in an arbitration agreement. Instead, interpreting Italian Colors, the court instructed, arbitration agreements should be enforced according to their terms, including class-action waivers, absent a "contrary congressional command" in the statute governing the claim being brought. Finding no "contrary congressional command" in the Fair Labor Standards Act barring waiver of class arbitration, the court held that Sutherland must arbitrate her FLSA claims individually even though the ratio of her costs to potential recovery was approximately 100:1.

Quoting Italian Colors, the court noted that the "effective vindication doctrine" remains available to invalidate "'a provision in an arbitration agreement forbidding the assertion of certain statutory rights . . . . [and] would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impractical.'"

Sixth Circuit: Arbitration Agreement's Six-Month Limit on Claims Constitutes Invalid Waiver Under FLSA & Equal Pay Act

The Sixth Circuit, in Boaz v. FedEx Customer Information Services, Inc., No. 12-5319 (6th Cir. August 6, 2013), found unenforceable an arbitration agreement provision setting a six-month limitations period as applied to plaintiff's claims under the Fair Labor Standards Act (FLSA) and the Equal Pay Act (EPA). The court reasoned that the limitations provision was effectively an unsupervised waiver of plaintiff's statutory rights, which is barred under both the FLSA and EPA. See Jewell Ridge Coal Corp. v. Local No. 617, UMWA, 325 U.S. 161 (1945).

The court distinguished those cases cited by FedEx enforcing a shortened limitation period for clams arising under other statutes, such as Title VII. It explained that the policy considerations cited by the Supreme Court in prohibiting waivers under the FLSA, and by extension the EPA, are not applicable to clams under Title VII or any of the other referenced statutes. Id. at 167.

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