Posted in Employment Policies International Employment Law

Unlimited Paid Time Off: Can Ferris Bueller’s Dream Go Global?

Thirty years ago, Ferris Bueller taught us how important a day off is. Fast forward, the recent rise of unlimited paid time off (PTO) policies sounds like Ferris’ heaven. Ferris would definitely take advantage.  So what is causing this recent trend in the U.S. and how can it be managed in a global workplace?

Pros in the U.S.

Most countries require mandatory paid vacation and sick days for employees. Not the U.S.

The Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations, sick leave or holidays. These benefits are matters of agreement between an employer and an employee or state law. Only seven states and 30 cities or counties currently require paid sick leave. Yet, it is not unusual to see U.S. companies offering a specified number of days of PTO.

Now, some employers are voluntarily offering unlimited PTO policies – why?

  1. Savings: Unlimited PTO policies allow companies to cap the amount of vacation owed to employees on the books at current levels; eliminate additional accrual in the future; and thereby reduce vacation payouts at termination (where that is required by law or Company policy).
  2. Reduced Administrative Burdens: Unlimited PTO policies remove the need to monitor and track vacations.
  3. Recruiting Tool: Unlimited PTO policies can attract talent (e.g. millennials who are often credited with pressing for flexibility and autonomy) and bolster an egalitarian culture.

Cons when Going Global

Some U.S. multinationals are trying to take this innovation of unlimited PTO global.

Yet, benefits seen in the U.S. do not necessarily cross borders. Unlike the U.S., most overseas countries have minimum legal entitlements to paid vacation and sick leave. Thus, combining U.S. style unlimited time-off policies with local statutory requirements can be difficult to reconcile.

  1. Savings Not Equivalent: Outside the U.S., the potential cost savings of removing vacation liabilities from the books does not generally exist. The norm is that a company must at least grant employees statutory vacation, which includes requirements to carry certain accruals. Multinationals could argue U.S. style unlimited policies are more generous than such statutory requirements and, as such, permissible. But, if a company using an unlimited policy does not track statutory vacation at all, that can create significant cost issues on termination because accrued but unused statutory vacation (which can roll over into a large balance over time) will still need to be paid out in most countries.
  2. Administrative Burdens Not Reduced: Outside the U.S., it is virtually impossible to eliminate tracking unused statutory vacation and its accrual. Local statutory vacation entitlements are the mandatory minimum threshold and must be granted no matter how much vacation an employee can theoretically take in excess. Therefore, to be able to demonstrate compliance with local law, companies with unlimited PTO policies will still need to track vacation. This removes the administrative advantages enjoyed in the U.S for unlimited PTO.

    Beyond statutory entitlements for vacation, employees outside the U.S. typically have enhanced contractual rights (either by individual contract or collective contracts with unions or work councils), which define the terms and conditions of employment and require employee consent before alteration. Arguably a change to unlimited PTO could be viewed as an improvement to benefits for which consent is unnecessary, but this argument has not yet been tested. Either way, the adding of unlimited vacation could not be pulled back without consent.

  3. Not Viewed as a Recruiting Tool: There are cultural expectations outside the U.S. which need to be carefully navigated. Internationally, the pattern is well-established for set statutory vacation or sick leave and tracking their use. As a result employees outside the U.S. may well have the perception that an “unlimited vacation” really means that there is “no vacation”.

  4. Risks of Abuse: Employees abroad come out of a different culture and different tradition. For example, employees outside the U.S. are actually expected to take their vacation days; in many countries taking vacation is considered a health and safety issue. This (along with the absence of at-will rules for employment) make it precarious to discipline or discharge employees overseas for doing too little work and taking too much time off. Although arguably contrary the principle of “unlimited” PTO, it may be necessary to protect the company by placing certain “limits” outside the U.S.: e.g., limiting how much time off employees can take at once or implementing systems requiring preapproval of vacation time companywide (to ensure fair and equal treatment across the board).

The Direction of Travel?

Ferris Bueller is quintessentially American.  So too unlimited time off polices?

Such policies have upsides in the U.S. that are not mirrored for companies implementing internationally. Global implementation undermines the U.S. drivers to have a policy that is less expensive, less burdensome and less bureaucratic. This is not to suggest it cannot be done, but only that rolling out such policies globally is today fraught with caveats.

Perhaps, more countries outside the U.S. will begin catching up quickly. Until then, prudence requires contemplating adding safety valves to any non-U.S. extensions of “unlimited” time off policies: e.g., requiring (and tracking) employees use of statutory vacation entitlement prior to use of any unlimited leave policy.

Ferris knew: “The question isn’t what are we going to do; the question is what aren’t we going to do.”

Posted in Employment Litigation Employment Policies

Hashtag — Zero Tolerance Policy?

Jules: Hash is legal there in Amsterdam, right?

Vincent: Yeah, it’s legal, but it ain’t a hundred percent legal. I mean, you can’t just walk into a restaurant, roll a joint and start puffing away. You’re only supposed to smoke in your home or certain designated places.

Jules: And those are hash bars?

Vincent: Yeah. It breaks down like this: it’s legal to buy it, it’s legal to own it, and, if you’re the proprietor of a hash bar, it’s legal to sell it. It’s still illegal to carry it around, but that doesn’t really matter ‘cause…get a load of this: if you get stopped by the cops in Amsterdam, it’s illegal for them to search you. I mean, that’s a right the cops in Amsterdam don’t have.

Jules: I’m going, that’s all there is to it, I’m *^`#ing going.

Vincent: Yeah baby, you’d dig it the most.

Twenty plus years after Vincent Vega educated Jules Winnfield in Pulp Fiction on Dutch drug law (and, perhaps more memorably, on the metric system’s impact on appropriately naming a hamburger), it is now legal in twenty-nine U.S. states and the District of Columbia, which includes recreational use in eight of those thirty jurisdictions.

Yet, as Katharine Liao detailed effectively (Reefer Madness), employers have remained largely unaffected by that legalization.  Courts have repeatedly held that employers may fire employees testing positive for marijuana, even when used to treat a disability.

But, nothing lasts forever, even cold November rain. A recent Massachusetts Supreme Judicial Court opinion breaks ranks with prior courts’ treatment of this issue.  In Barbuto v. Advantage Sales & Marketing, LLC, 477 Mass. 456 (2017), Barbuto sued her former employer alleging disability discrimination after being fired for testing positive for marijuana, which she used to treat Crohn’s disease (a debilitating gastrointestinal condition).

Barbuto was a sympathetic plaintiff: she had informed her employer that she used marijuana for medicinal purposes in limited quantities at her home with dinner and received confirmation “that her lawful use of medical marijuana would not be an issue ….” But, she was later fired after failing a mandatory drug test despite that she already been performing the job well, had not used marijuana at work, and had never reported to work intoxicated.

The Massachusetts Supreme Judicial Court held that Barbuto had a claim under the state disability discrimination statute: “an exception to an employer’s drug policy to permit its use is a facially reasonable accommodation” because Massachusetts’ marijuana law provides “that patients shall not be denied any ‘right or privilege’ on the basis of their medical marijuana use.”

But, similar to Vincent Vega’s point that although marijuana may be legal in Amsterdam, “it ain’t a hundred percent legal.” There are three discrete limitations that Vega would add to his commentary on this case.

  1. The Massachusetts high court emphasized that its ruling does not require employers to tolerate on-site use of medical marijuana. So, as Mr. Vega so eloquently laid it out, it’s not as if an employee can just walk into work, “roll a joint and start puffing away. You’re only supposed to smoke in your home or certain designated places.”
  2. The court recognized that accommodation would be an undue hardship in some situations: “For instance, an employer might prove that continued use of medical marijuana would impair the employee’s performance of her work or pose an ‘unacceptably significant’ safety risk to the public, the employee, or her fellow employees.”
  3. The Massachusetts court noted that the language of its marijuana act distinguished this case from cases in other states (i.e., California). Put with the bluntness (pun intended) of the Pulp Fiction script, Massachusetts and Amsterdam may each be unique: places that employees failing drug tests elsewhere wish were home.
Posted in International Employment Law

Global Employment Law: Comparing Countries

When your water cooler is actually a set of water coolers in 40+ countries like at DLA Piper, water cooler talk must be digital. News reports of changes in France’s labor laws — Code du Travail – prompted speculation (and debate) among DLA’s attorneys on which countries now provide the best climate for business expansion after looking at both economic and legal factors in combination.  Bets were made and a template was agreed upon for each competitor to research from.

Here is how the US looks on that template on a scale from 1 (best business climate) to 10 (least promising climate).

Economic/Political Stability:  USA has been #1 on the A.T. Kearney Foreign Direct Investment Confidence Index for 5 years running

Labor Costs:  Productivity is key: USA is #5 in OECD – more “bang per buck” than any other country on this competition

Corporate Tax Rates:  USA’s effective tax rate is 18.6% but more than 2/3 of US corporations pay no tax

Ease / Cost of Set Up:  World Bank ranks USA first among larger countries and in top ten overall in this category

Talent Pool:  40+% college educated + more patents filed per year than any other country + availability @ OECD and G-7 averages

Labor Market Regulation: 

Collective Engagement:  USA has no works councils; few unions (less than 8% of private sector covered by union contracts)      

Key HR Legal Considerations:  Employment at will = maximum business flexibility (e.g., no equivalent to “Transfer of Undertakings: Protection of Employment” regulations (TUPE) that are commonplace in the UK and the EU       

Evaluative scores for the other participating countries (ranked from lowest/best score to highest/worst score) on that business pain cycle entailed individualized judgment. Each participant attempted to pinpoint how difficult the employment laws in his or her country were.  Those scores initially ran as follows:

  • USA – 1.5
  • UK – 3
  • Romania – 3
  • UAE – 4                                  
  • Spain – 4
  • France – 4
  • Netherlands – 4
  • German – 5
  • Australia – 5
  • China — 7

Circulation of those scores (which were submitted by each participant simultaneously to the London office for tabulation) triggered further debates, which may continue until Christmas. Comments from the wagerers/debaters illustrate the difficulty of such transnational comparisons as well as their depth of knowledge of the laws in each other’s countries:

    • “Are you saying France is only a 3? If so, Australia must be a zero then!”
    • “UAE should come down to 2 – limited unfair dismissal regulations and discrimination regulations plus no unions.”
    • “I thought that in Spain we suffer more pain than in the UK but less than in France; I need to recalibrate Spain.”
    • “The world has gone mad! Given these ratings, Germany must be a 2.”

Passion runs high in the best professionals. Here, however, there is not only passion but the willingness to do the research to confirm each point. That is why I love working with (and debating with) my international colleagues, who are wicked smart and who track not only what happens in their own country but globally.   This crew is a truly talented team regardless of how you score each country.

But, you can see that for yourself. These debaters are among the contributors to DLA’s new Guide to Going Global, which contains additional information about employment and labor law basics in 56 jurisdictions throughout the Americas, Asia Pacific, Europe, the Middle East and Africa.  Drop me an email (kevin.connelly@dlapiper.com) and I will get you an autographed copy; be sure to specify which country’s contributor you are most interested in so I can get his or her autograph on your copy.

Posted in Employment Litigation Employment Policies

Shakespeare Sheds Light on Liability for Abetting Discrimination

Over 500 years after his death, Shakespeare’s works continue to be a touchstone for legal analysis and critique. A fool’s errand it would be to attempt to catalog the legal issues in each of his 37 plays.  Indeed, so popular is the Bard’s legal acumen that he is the most-quoted literary author in Supreme Court decisions.

Once again, a single line from one of Shakespeare’s plays explains a critical legal development:

And you that do abet him in this kind
Cherish rebellion, and are rebels all.

Richard II, Act II, Scene 3.

Like the non-discrimination laws in a number of other states, including California, New Jersey, and Illinois, New York State’s Human Rights Law (“NYSHRL”) contains a provision extending liability to those who aid and abet discrimination or retaliation. A recent federal appellate decision, Griffin v. Sirva, Inc., 858 F.3d 69 (2d Cir. 2017), reveals that such aiding and abetting provisions may apply even outside those states.

The facts of that case are simple, and not uncommon. Sirva is the parent of Allied Van Lines, which had a contractual relationship with Astro, a New York warehouse and transportation company.  Allied’s standard contract requires its contractors (like Astro) to run criminal background checks and eliminate any individuals convicted of certain crimes from working on Allied jobs.  Astro, accordingly, terminated the employment of two New York drivers – Messrs. Godwin and Griffin (perfect Shakespearean names), who then sued Astro, Allied and Sirva because the NYSHRL limits the use of criminal convictions in employment decisions.

Let’s leave aside the issue of whether this might be a permissible decision by Astro (in fact, a jury cleared Astro of discrimination prior to our curtain call) and go where the Duke of York did in Richard II: is Allied (which is not the employer and not based in New York) potentially culpable? The District Court said no; the Second Circuit initially certified questions to the New York Court of Appeals and now – based on the Court of Appeals answers to those questions in Griffin v. Sirva, Inc., 29 N.Y.3d 174 (2017) –  has vacated and remanded.

No one contended that Allied was the direct employer, and the Court of Appeals confirmed that liability under the criminal conviction discrimination provisions of the NYSHRL (Section 296(15)), is limited to an aggrieved party’s “employer.” The Court of Appeals did acknowledge that a joint employer could be liable under the law but set a test for that which effectively excludes Allied: “common-law principles … determine who may be liable as an employer under [S]ection 296(15) of the Human Rights Law, with greatest emphasis placed on the alleged employer’s power to order and control the employee in his or her performance of work.”

Allied’s true peril (and that of other businesses) lies in the extra-territorial application of the Human Rights Law’s aiding and abetting provision. As the Second Circuit held, “Section 296(6) extends liability to persons and entities beyond joint employers [and] … applies to out-of-state defendants.”

The final curtain has not yet dropped on this play, but the performance so far raises an important reminder. It does not matter if it is in New York or “[i]n fair Verona, where we lay our scene.” Romeo and Juliet, Prologue.  Out-of-state companies must be mindful that imposing obligations, by contract or otherwise, on their business counterparties which impact the employees of those counterparties may trigger scrutiny under an aiding and abetting theory.

To reduce this risk, businesses should consider utilizing as many of the following best practices as practicable:

  1. Eliminate contractual provisions that dictate how a counterparty must act with respect to its own employees;
  2. Disclaim any control over employment decisions impacting the counterparty’s personnel;
  3. Require the counterparty to covenant to comply with applicable federal, state and local employment laws;
  4. Demand indemnification from any suits by employees, agents, or contractors of the counterparty; and
  5. Demand to be named on the counterparty’s EPLI insurance as “a separate named insured.”

Every expansion of potential employer liability admittedly also leads to the temptation to follow the advice of Dick the Butcher: “The first thing we do, let’s kill all the lawyers.” Henry VI, Part 2, Act IV, Scene 2. If so, please note that a catalog of the types of deaths in the Bard’s plays is readily available with suggestions for how best to do this.

Posted in Employment Policies

Do you have what it takes to be a great lawyer?

Today’s authors are summer college interns from DLA Piper’s Chicago office.

 

Being good at anything is no easy feat. Becoming great is even harder. But, as we submit applications to law schools, we wanted to know what it would take to become truly great lawyers and thus interviewed a cross-section of DLA Piper’s employment law partners to prepare a psycho-biography of stardom for ourselves.

We have compiled our field research and analysis into a short quiz:

1.    You’re on your way to a meeting with a client. Right before the meeting, do you:

A.     Brush up on some publications that are relevant to that client’s business and write down new questions you have for them?
B.     Reread your file on this matter?
C.     Relax because you went to a top ten law school and have years of experience?

Good lawyers do B; great lawyers do A as well. Washington, DC partner Joseph Turzi admonished us to “read your clients’ trade publications and know their issues better than they know their own issues. This is your investment into the future.”

2.     You’re writing an email to a client, answering their questions, do you:

A.     Send your first draft knowing that clients often fail to immediately understand legal complexities so there will be a follow-up conference call?
B.     Summarize your advice in plain English and in a clear format directly answering the questions?
C.     Forward the research done by your associates with an FYI cover email?

Great lawyers are great explainers and teachers. Ian Kopelman, a partner in the Chicago office, states, “I don’t know if it’s a legal skill but you have to be able to speak and write in English rather than in legalese, so that a non-lawyer client is able to understand what you’re trying to express. Whether if it’s a legal analysis or a practical analysis based on the law, they have to be understand what you’re telling them.”

3.     You are seeking additional work from a current client. Do you:

A.     Schedule a lunch date with them for next week and try to get some quality time in?
B.     Shoot them a quick email with some subtle hints?
C.     Make a mental note to passive aggressively bring it up next time they call?

The best lawyers are “good people” and understand how to connect with people. San Diego partner Mary Dollarhide admonished us “ you must have face time and talk time with people.” Her view is straightforward: “Forget the notion that you can recede into your text messages and into your emails; that doesn’t do it.” Mary emphasized “It’s really important to make the investment in the people at each client because law is very much a people business.”

4.     It’s your most exciting case of the year! To prepare, you should:

A.     Don’t sleep for five days because this is a must-win scenario?
B.     Relax now so your mind is fresh to improvise during trial?
C.     Prepare your case thoroughly including familiarizing yourself with the opposition’s side?

Here, as elsewhere, the Aristotlean “golden mean” is what the best lawyers do. Chicago partner Marilyn Pearson puts it aptly when she says, “in my practice, what I try to do when I’m going to do an arbitration is I try to prepare my case and I try to prepare their case. I want to know what  they are going to argue. I want to be able to argue their case as well or better than they can.”

5.     You receive an assignment at work but are confused about how to go about it, do you:

A.     Desperately research everything you can and work from there?
B.     Make a list of the things you are confused about, find the person who gave you the assignment, and ask questions?
C.     Start working on the assignment in hopes that you figure it out somewhere along the way?

 In a career as demanding as the legal profession, it’s easy to feel that you have to know it all. Maria Rodriguez, a partner in the Los Angeles office, sagely counseled us that the best lawyers “ask questions. There are so many questions to always ask. I was the kid that asked too many questions; I am still that way. Always. So I think you come to each task with humility, you come to listen and you come to learn. And you learn by listening and asking questions.”

If any law school wants to utilize this quiz on its application, we are now ready. But, before we finish our collective assessment of greatness, indulge us each in a closing thought on our field research:

Alix:  Throughout these interviews, what I found compelling was the overlap of responses. The most common response when asked about important character traits was how critical it is to be good to the people around you. Being good to coworkers and to clients was something almost everyone emphasized. It reminded me that — no matter how successful you are — at the end of the day you’re a person like everyone else. Along with this, some advice I also treasured was that at any point in life it is okay to ask questions and there is no shame in that. I will make sure to remember this advice and act on it throughout the remainder of undergrad, law school, and my legal career.

Amanda: Although many of the partners we interviewed espoused the importance of hard work and being analytical, almost all repeatedly advised us to be good listeners, build relationships and be humble. We will keep these skills in mind during our journey to the law profession as they are often overlooked or regarded as less important. For some, soft skills may not come easily. Yet, through these interviews, we saw that partners are still continuously reevaluating, developing and improving their soft skills by being conscientious and self-aware. We will do the same!

Lucas: It might seem counter-intuitive but, to be successful, one needs to be much more than just a great lawyer. In a world that is increasingly competitive, excellence with the legal aspects of the profession are expected rather than commended. To be truly successful, one needs to develop a wide range of skills. The difference maker today is just as much what you do outside of the office, as what you do within it. Something that spoke to me was this idea that success is proportional to the investment you make in yourself with your free time. In a world where there are so many competing priorities, going above and beyond is the new normal. Alix, Amanda, and I must adapt as such by investing in ourselves.

Posted in Employment Litigation Employment Policies

Background Checks: Minor Mistakes = Major Consequences

Details matter. The Titanic sank because its center propeller didn’t work in reverse. A Japanese company lost between $225 and $350 million because a typing error caused it to offer thousands of shares for 1 yen apiece instead of single shares for thousands of yen apiece.

For employment, the most dangerous illustration of this “minor mistakes, major consequences” syndrome is the Fair Credit Reporting Act (“FCRA”). Recent FCRA settlements make this point perfectly clear:

  • A major transportation company settled an FCRA class action case for $7.5 million.
  • A major bank settled an FCRA class action case for $12 million.
  • A major home improvement store settled an FCRA class action case for $2.2 million.

Let’s review the FCRA details. This federal law regulates the use of consumer reports, which includes the typical background check that employers often use for job applicants.  The law sets specific, detailed, and unforgiving standards for each step of the process:

  • Prior to obtaining a report, the employer must advise in a stand-alone written disclosure that a consumer report may be obtained for employment purposes; get written authorization from the individual; and certify to the consumer reporting agency that it will comply with various legal requirements.
  • Prior to taking an adverse action based on the report, the employer must provide the individual a copy of the report and a description in writing of the individual’s rights under the FCRA. This is typically done in a pre-adverse action letter.
  • Next the employer must wait 5 business days before taking any adverse action. While not explicitly required in the text of the FCRA, a federal advisory opinion and related case law support this 5-day waiting period. See, e.g., Kelchner v. Sycamore Manor Health Ctr., 305 F.Supp.2d 429 (M.D. Pa. 2004) (acknowledging in dicta that a reasonable period for the employee to respond to disputed information is not required to exceed five business days following the consumer’s receipt of the consumer report from the employer).
  • After taking an adverse action based on the report, the employer must: 1) give post-adverse action notice to the individual of the adverse action; 2) provide the name, address, and telephone number of the consumer reporting agency as well as a statement that the agency did not make the decision to take the adverse action and cannot provide reasons for the adverse action; and 3) provide notice of the individual’s right to dispute the accuracy or completeness of the agency’s report and to obtain a free copy of the consumer report within 60 days. This is typically done in a post-adverse action letter.

These requirements are technical details that—like the Titanic’s propeller specifications—have significant consequences if not met.  The FCRA creates mandatory damages of $100 to $1000 for violations with respect to each individual, which have enticed class action attorneys to bird-dog employers’ compliance with the law.

Common employer mistakes—many of which led to the multi-million dollar settlements—include providing extraneous information in the stand-alone disclosure document, failing to provide a copy of the consumer report, failing to wait the full 5 business days before denying employment, and failing to provide the necessary pre- or post-adverse action letters.  Oops!

Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) suggested respite in upholding dismissal of the case due to the lack of any concrete harm and noted that bare violations of the law’s “procedural requirements may result in no harm,” and thus no standing to bring suit.  But, that is hardly immunity.

Post-Spokeo, the common employer mistakes itemized above have been sufficient to bring suit. Thomas v. FTS USA, LLC, 193 F.Supp.3d 623 (E.D. Va. 2016) (failure to provide disclosure, written consent, and notice of adverse action before applicant received a copy of the report constitutes injury in fact); Rodriguez v. El Toro Med. Investors LP, 2016 WL 6804394 (C.D. Cal. Nov. 15, 2016) (inclusion of liability release in disclosure was an injury in fact).

Employers who utilize background checks (and wish to avoid shipwreck or other FCRA disasters) should remember that checking the small things is essential.  Your checklist for success should begin with this one-two:

  1. Make sure the stand-alone disclosure stands alone. The FCRA requires a clear and conspicuous disclosure, in a document that “consists solely of the disclosure” that states a consumer report may be obtained for employment purposes. Feist v. Petco Animal Supplies Inc., 218 F. Supp. 3d 1112 (S.D. Cal. 2016) (disclosure with 35 extra paragraphs created injury in fact because applicant could be “confused or distracted by the length of the consent form”). The best practice here is to limit any extraneous information in the disclosure and to not include any waiver of claims, FCRA or otherwise. Put simply, the disclosure must stand alone.
  2. If you’re going to take an adverse action, double-check. If you’re going to turn down an applicant or fire a current employee based on a background check, make sure to follow the necessary steps, most notably: A) get proper disclosure and authorization; B) send a pre-adverse action letter including a copy of the report and a description of the individual’s rights; C) wait at least 5 business days before taking an adverse action; and D) send a post-adverse action letter with the necessary information.

Given this, there is also a need to ask when, where, and how employers should utilize background checks. There is no science to link credit history to greater employee integrity.  Further, using criminal history to screen potential candidates invites EEOC scrutiny.  Worrying about FCRA details is important but only after worrying about why using consumer reports is important.

Posted in NLRB

Babe Ruth Was Right: “It’s Hard To Beat A [Labor Lawyer] Who Doesn’t Give Up”

Watching baseball in Fenway Park is different than watching baseball in Wrigley Field. My sons noted that distinction within an inning, commenting that Fenway fans cheered players hitting the cutoff man whereas, back home at Wrigley, the party is more important than such finer points of the game.

This is a case for those who cheer players who hit the cutoff man and run out every grounder. It is also perhaps a reminder of why those small details add significant value regardless of the outcome of any single game in the season. I love to cheer for those consummate professionals so forgive me that here he is one of our own: Dave Durham.

The case is American Baptist Homes v. NLRB (DC Cir. 2017).  The issue is a familiar one in managing a unionized workforce: the duty to share information with the union. Here, a nursing assistant was fired for sleeping on the job.  The union filed a grievance and asked for the statements of witnesses collected during the company’s investigation.

Historically, the NLRB had immunized witness statements from the broader duty to share relevant information with unions. In this case, the NLRB shifted its views too late for the nursing home to conform its practices to those new views:

  1. the NLRB concluded that only two of the three witnesses had been given sufficient assurances of confidentiality (a novel twist on its prior rule) and thus the third statement must be produced (but not the others),
  2. the NLRB decided that it would apply a new balancing test but only in future cases: a technique called “sunbursting” ever since Great Northern Ry. Co. v. Sunburst Oil & Refining Co., 287 U.S. 358 (1932).

Disappointing results, despite that getting a favorable ruling on 2 out of 3 of those witness statements (which is outstanding work for any baseball pitcher or hitter). But, the NLRB is not final and is subject to judicial review so the case proceeded onward to the appellate court.

The first issue reveals an inherent problem in current review of administrative agencies: deference. Thus, the Court of Appeals did not judge whether confidentiality is a proper test but merely copped out: “…this Court defers to the Board’s reasonable interpretation of its own precedent.”  That is a problem that will need Supreme Court review.

Justice Gorsuch (before his 2017 appointment to the Supreme Court) framed it this way:

There’s an elephant in the room with us today. We have studiously attempted to work our way around it and even left it unremarked. But the fact is [deference doctrines] permit executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers’ design. Maybe the time has come to face the behemoth.

Gutierrez-Bruzella v. Lynch, 834 F.3d 1142 (2016).

The second issue, however, is the reason for applause. Although the appellate court ducked (saying that any review of this new and as-yet unapplied rule was premature), raising this issue generated another win: a limitation on the NLRB’s ability to seek contempt sanctions for enforcement against American Baptist.

Here, as always, the NLRB’s order directed the employer to “cease and desist from …refusing to provide information that is relevant and necessary to the processing of a grievance.” This created the risk that the NLRB would/could backdoor American Baptist with its new test in contempt proceedings. Raising the issue on appeal, however, forced the NRLB to concede that it couldn’t and forced the court to limit the NLRB: “we could not uphold a cease-and-desist order that did so.”

For those fans who prefer to party at the ballpark and cheer only home runs, I apologize for this dissertation between innings on the inner game of incremental steps that determine over the course of 162 games who does and does not make the playoffs; I will buy y’all the next round of beers.

But, for fans who go to sleep wondering whether the NLRB and other administrative agencies should be required to use “sunbursting” as a rule and who appreciate the finesse that Mr. Durham pulled in using an appeal on an issue without standing in order to secure a bill of particulars limiting the NLRB’s adverse ruling, please join me in toasting Dave Durham for his fine work.

Posted in Employment Litigation

Joint Liability For Franchisors?

College legends shape minds forever. Having attended the University of California, Berkeley, “The Play”—an unscripted play to win over arch-rival Stanford with only four seconds on the clock – was the subject of a mandatory course.  It is also a cautionary tale on what can happen when attention lapses.

Reading up on commentary regarding joint employment claims that have been made against franchisors reminds me of that game. Portions of the business press (perhaps Stanford grads?) have announced that with the Republican party controlling the Executive Branch, joint employment claims will disappear.  However, there are several reasons to remain cautious:

First, changes in federal enforcement will not happen overnight.  For example, there are appointments to be made and confirmed by the Senate; there are pending cases that will need to be ruled on (e.g., pending unfair labor practice complaints at the NLRB); and, elsewhere, formal opinions issued under the FLSA (Administrator’s Opinion No. 2016-1) to be reconsidered by a yet to be confirmed successor.

Second, changes in federal enforcement offer limited solace when issues of state law continue to create potential exposure.  This includes both common law theories and interpretations of state statutes governing employment.  For example, Ochoa v. McDonald’s, No. 3:14-cv-02098-JD (N.D. Cal.), held that while McDonald’s was not a joint employer, issues of fact existed as to whether it could be held liable under an ostensible agency theory.

Third, Washington D.C. is not the sole problem for franchisors.  Rather, the plaintiffs’ bar (bringing cases like Ochoa) is an equal if not greater risk.  Despite established law holding that franchise controls are insufficient to establish joint employment, this has not deterred private litigants from seeking to hold franchisors jointly liable in individual and class-action suits throughout the country.

Given all this, what should franchisors do?

There are options.  One is better patrolling the border on joint employer issues; the other is to find innovative means to get franchisees into compliance (especially with wage-hour laws).  The former is the conventional wisdom; the latter is – for now – unconventional and untested (and is illustrated by what Subway did in its pact with the Department of Labor). 

For today, let’s look at how best to patrol the border to avoid joint employment findings.

Emerging case law developments inform that effort.

  • In Gesselle v. Jack in the Box, Inc., 2016 WL7223324 (D. Ore. Dec. 13, 2016), a federal district court held that mere “power to terminate a franchise … is not sufficient to create a joint employment relationship”; that franchise controls do not establish an employer-employee relationship because “[s]uch policies are merely reflective of an inherent interrelationship of operations …and [the franchisor’s] goal of attaining conformity to certain operational standards and details”; that a franchisor who provides payroll services or other “ministerial functions” to franchise employees is not thereby a joint employer; and that the “provision of nonmandatory advisory materials relating to Human Resources and the training of franchise employees” does not establish a franchisor’s control over franchise employees.
  • In Pope v. Espeseth, Inc., 2017 U.S. Dist. LEXIS 4928 (W.D. Wis. Jan. 11, 2017), another federal district court granted summary judgment in favor of the franchisor based on its operations manual, which expressly stated that “all personnel-related documents and recommendations” were “optional and should be modified and customized as the franchisee deems appropriate […] to suit their own business needs.” This express disclaimer, along with the franchisee’s actual practice of modifications (e.g., paying a different commission rate than recommended) precluded a finding that the franchisor was a joint employer under the FLSA or Wisconsin state law.
  • In Nutritionality, Inc. d/b/a Freshii, Case Nos. 13-CA-134294, 13-CA-138293, and 13-CA-142297 (Apr. 28, 2015), the NLRB’s general counsel provided guidance under both its traditional rule on joint employment and its more recent Browning-Ferris standard. There, the General Counsel declined to prosecute Freshii because it had no direct role in hiring, firing, disciplining or supervising, setting wages, benefits, or work hours. Although it accepted online employment applications, those were forwarded to franchisees without screening or analysis. Franchisees had access to manuals and handbooks, but the franchise agreement did not require their use and expressly disclaimed control over labor and employment matters. The extent of Freshii’s control dealt with standardizing the product and customer experience and, as a result, was not sufficient indicia of joint employment.

These developments provide valuable guidance on improving franchise agreements:

  • Franchisors should minimize controls or requirements that are not needed to protect the franchise system or the brand.
  • Franchise agreements should state the parties’ mutual intent to be independent contractors (even though that alone is not dispositive).
  • Franchise agreements should affirm that the franchisee will make all decisions on hiring, firing, promotion, and disciplining its employees.
  • Franchise agreements should provide that any personnel policies made available are optional and that the franchisee alone will chose whether and how to use these policies.

Concomitantly, these developments suggest best practices on revisiting franchise controls.

  • These cases highlight the value of self-imposed limits on the franchisor’s control, especially with respect to employment-related topics. Now, more than ever, it is critical to balance the desire for control against the risk of exposure on joint employment.
  • While there will inevitably be circumstances where franchisor personnel interact with franchisees’ hourly employees, franchisor employees should be programmed to interact primarily with franchisee ownership and management.
  • Franchisees should make their own personnel decisions (hiring, firing, promotion, and discipline) and set their own employee compensation policies. This franchisee autonomy should be documented at every opportunity.
  • To the extent practicable, training programs should be limited to franchisee’s supervisorial and managerial employees, who in turn can independently train the franchisee’s hourly staff.
  • Employment applications should specify that the applicant is applying to the franchisee, not the franchisor, for employment. This can also be reinforced with disclaimers acknowledging employment with the franchisee, not the franchisor.
  • Franchisees should create their own employment manuals and policies. Where franchisees are given sample personnel policies or manuals, it should be clearly documented that this is merely a resource and that its use is optional.

There is also assistance (but only with respect to state law claims) coming from legislative efforts at the state level. In the past two years, Texas, Tennessee, Louisiana, Utah, Wisconsin, Georgia, Michigan, Oklahoma, Indiana, South Dakota, North Dakota, Arizona, Wyoming, Kentucky, and Arkansas have enacted laws expressly stating that a franchisor is not an employer of a franchise and its employees.

This is a huge boost in those states but no basis to rest on the laurels of those successes given the risks under federal laws and in other states. Watch “The Play” just once and you too will understand what all of us who attended Cal cherish as sacred text: never coast, never quit, and never slow down if you intend to win.

P.S.  On June 7, 2017, U.S. Secretary of Labor Alexander Acosta announced the withdrawal of the DOL’s 2016 Administrator’s Interpretation on joint employment.  This adds incrementally to the shift evidenced in cases such as Geselle  and Pope

 

Posted in Employment Litigation Employment Policies

Unconventional Tactics

Malcolm Gladwell in his essay “How David Beats Goliath” extolled the use of the full-court press in basketball: “In the world of basketball, there is one story after another … about legendary games where David used the full-court press to beat Goliath.”

Is there an equivalent in litigation with ex-employees?

Under the Computer Fraud and Abuse Act (“CFAA”), there is one possible equivalent. Broadly, the CFAA allows employers (as owners of computers and computer systems) to bring a civil claim against anyone who accesses its computers without authorization and, as a result, causes the owner loss of $5,000 or more.

First, there must be at least $5,000 in loss. But, look closely:  CFAA defines loss as any “reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.” 18 U.S.C. § 1030.  This, in short, can include the cost of determining that there has been a misuse. Brown Jordan International, Inc. v. Carmicle, 846 F.3d 1167 (11th Cir. 2017) (holding that this dollar threshold is satisfied by the cost of retaining forensic specialists to determine the extent of the damage caused the company’s systems and to sweep the workplace for surveillance devices).

Second, the loss must result from the bad actor’s use “without authorization” or by “exceeding [his/her] authorized use.” 18 U.S.C. § 1030.  Brown Jordan held that “without authorization” means that there was an absence of authority or permission conferred by the employer to the employee for the “use” in question, a construction shared by the 9th Circuit in U.S. v. Nosal, 828 F.3d 865 (9th Cir. 2016). Other courts have taken a broader approach. For example, the 7th Circuit has held that when an employee breaches his common law duty of loyalty to his employer, he is acting “without authorization.”  Int’l Airport Centers v. Citrin, 440 F.3d. 418, 420 (7th Cir. 2006). The 5th Circuit has defined “without authorization” by virtue of  the employer’s policies—such as those set forth in an employee handbook. See United States v. John, 597 F.3d 263, 272 (5th Cir. 2010).

Gladwell points out that a full court press hinges “on a willingness to try harder than anyone else.” CFAA claims are likewise not effortless.  Such claims require proof not only of the dollar threshold but also of the fact of the misuse being unauthorized.   A press is indeed hard work.

Under the Defend Trade Secrets Act (“DTSA”), there is another potential equivalent.

The DTSA permits — in addition to actual damages — awarding the amount of any unjust enrichment the misappropriator experienced if such an amount is not covered by the actual damages. Plus, in the case of a willful or malicious breach , courts may award either double the actual loss and/or reasonable attorneys’ fees.  This arsenal of remedies creates the equivalent impact of the full court press:  “the ‘rush state’ in their opponents—that moment when the player with the ball is shaken out of his tempo.”

The $5,000,000 jury verdict in Dalmatia Import Group, Inc. v. FoodMatch Inc. et al, Case No. 16-cv-0276 (E.D. Pa 2017) illustrates this perfectly. There, Dalmatia brought claims for stealing the secret recipe for a proprietary fig spread. Though this dispute was among business partners, it is no different legally from situations in which the defendant is an ex-employee. The only difference, perhaps, would be that the in terrorem impact of a full court press of DTSA remedies may be higher there.

There is, however, a counterpoint. No strategy is automatic.  Gladwell ends his essay on a sad note: the National Journal Basketball girls’ team from Redwood City that illustrated his essay lost in the third round after committing too many fouls–a classic hazard of an aggressive press.  Is there an equivalent caveat for employers?

Sure.   Employers are often tempted to raise CFAA or DTSA issues as counterclaims against ex-employees who have sued.  Before doing so, there is an additional step of analysis to undertake: is this retaliatory?  Even if an employer’s affirmative claim and/or counterclaim is colorable, it still may be retaliatory. See Spencer v. International Shoppes Inc., 902 F. Supp. 2d 287 (E.D.N.Y. 2012) (denying defendant’s motion for summary judgment as to plaintiff’s retaliation claim and finding that there was a material issue of fact as to whether claims brought against a former employee was motivated by retaliatory animus notwithstanding the validity of the suit).

Veteran basketball fans and coaches appreciate the fundamental rule of pressure defense: it can make diamonds but can also burst pipes. Choose carefully when, where, and how to apply pressure.

Posted in Employment Litigation

Queen Elsa and Judge Posner: A Duet on Change?

Under Title VII, it is unlawful for employers to discriminate on the basis of sex. Historically, sex discrimination has been understood to be biological and, thus, to exclude discrimination based on sexual orientation. But sometimes, like Queen Elsa in Frozen, judges are tempted to sing “Let it go, let it go, can’t hold it back anymore.”

Cutting loose with that history, an en banc decision from the Seventh Circuit broke new ground in Hively v. Ivy Tech Community College.  There, the appellate court held that discrimination on the basis of sexual orientation is a form of sex discrimination covered by Title VII.

In its ruling, the majority took the stance that it would be impossible to fathom discrimination based on sexual orientation without sex discrimination: i.e., if Hively had been male, she would not have been discriminated against  for having a female partner.  That is true but it is also a departure from history and from textual language.

Judge Posner, concurring with the majority opinion, attempts to explain those departures, stating that the court’s interpretation merely gives “fresh meaning” to the statutory language. He adds that “we are merely the obedient servants of the 88th Congress [from 1964], carrying out their wishes.”  Title VII is not frozen as per the day of enactment, but open to “judicial interpretative updating.”

In the words of the Frozen title tune, Judge Posner asserts authority to “let it go” and “to test the limits and break through.”  This prompted Mike Sheehan, co-chair of DLA’s Employment Group to ask his team to consider how to answer in oral argument if Judge Posner throw out that very question – “isn’t it true, counsel, that courts are not merely the obedient servants of former legislatures and have authority to take advantage of what the last half century has taught?”

Just as aspiring chess masters test themselves by replaying games played before their time, lawyers aspiring to master their craft practice by asking such questions with each morning’s advance sheets of new decisions. Let me share some samples of answers to the question posed:

  • “Your honor, no statute is frozen in time but every statute commands respect to the Constitutional division of authority between courts and legislatures. There is a key difference between the permissible — applying a 19th century antitrust statute to an e-commerce economy – and the impermissible – interpreting a 1964 discrimination statute to protect Cubs fans from discrimination.   The former is faithful to that Constitutional division; the latter dishonors it.”
  • “Your honor – I believe your question was best answered by this court 23 years ago in the matter of Fuja v. Benefit Trust Life Ins. Co., 18 F.3d 1405, 1407 (7th Cir. 1994). Ms. Fuja asked this court to order her insurance carrier to cover lifesaving chemotherapy which the carrier had deemed experimental.  This court denied Ms. Fuja’s request knowing that it would most surely lead to her death.  As Judge Coffey explained there:

Despite rumors to the contrary, those who wear judicial robes are human beings, and as persons, are inspired and motivated by compassion as anyone would be. Consequently, we often must remind ourselves that in our official capacities, we have authority only to issue rulings within the narrow parameters of the law and the facts before us. The temptation to go about, doing good where we see fit, and to make things less difficult for those who come before us, regardless of the law, is strong. But the law, without which judges are nothing, abjures such unlicensed formulation of unauthorized social policy by the judiciary.

The answer to your question is that every American is injured when judges go beyond their Article III powers and make law without having been elected by the people.”

  • “Your honor, this is – in the immortal words of Mona Lisa Vito – a bullshit question.”[1]

Worthy answers all for lawyers who practice on imaginary cases over breakfast to be best prepared for their daily work (and part of the mystique and adventure of being seconded to the US practice from my home base in Germany). Future cases in other circuits and, potentially, a Supreme Court review will tell whether we will have to let go of the traditional meaning of the Title VII’s ban on sex discrimination countrywide or only in the Seventh Circuit (Illinois, Indiana, and Wisconsin).

[1]   Mona Lisa Vito, as legal scholars well remember, was the expert witness in My Cousin Vinnie who made that line famous when the District Attorney attempted to challenge her qualifications as an expert witness:

D.A. Jim Trotter: Now, uh, Ms. Vito, being an expert on general automotive knowledge, can you tell me…what would the correct ignition timing be on a 1955 Bel Air Chevrolet, with a 327 cubic-inch engine and a four-barrel carburetor?
Mona Lisa Vito: It’s a bullshit question.
D.A. Jim Trotter: Does that mean that you can’t answer it?
Mona Lisa Vito: It’s a bullshit question, it’s impossible to answer.
D.A. Jim Trotter: Impossible because you don’t know the answer!
Mona Lisa Vito: Nobody could answer that question!
D.A. Jim Trotter: Your Honor, I move to disqualify Ms. Vito as a “expert”.
Judge Chamberlain Haller: Can you answer the question?
Mona Lisa Vito: No, it is a trick question!
Judge Chamberlain Haller: Why is it a trick question?
Vinny Gambini: [to Bill] Watch this.
Mona Lisa Vito: ‘Cause Chevy didn’t make a 327 in ’55, the 327 didn’t come out til ’62. And it wasn’t offered in the Bel Air with a four-barrel carb till ’64. However, in 1964, the correct ignition timing would be four degrees before top-dead-center.

 

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