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.

 

Posted in Employment Litigation

Independent Contractors: The Newest Ultrahazardous Sport

Base jumping, street luging, and transporting loose glass bottles of nitroglycerine in the back of a Jeep off-road have been equally adventurous activities in the modern world. Now, courtesy of New York City, utilizing independent contractors should perhaps be added to that list.

New York City has passed first-of-its-kind legislation to protect independent contractors against alleged wage theft — the Freelance Isn’t Free Act (“FIFA”).  That law will go into effect on May 15, 2017.  Like other state and local laws (e.g., “ban the box”), proliferation of such laws elsewhere is inevitable.

For the safety of adrenaline junkies, let’s examine (1) the reasons why using independent contractors has become a high-risk activity; (2) what the New York City law adds to make this sport even more fraught; and (3) what steps might facilitate your ability to compete and survive.

1. RISKS OF USING INDEPENDENT CONTACTORS: A QUICK REVIEW

It’s no secret that independent contractors can provide a number of attractive benefits to employers, among them an estimated 20-40% savings in labor costs, a flexible workforce that can be adjusted more easily to business needs, and a lower administrative burden. But the rush of these thrills comes at a price.

The Department of Labor, National Labor Relations Board and state agencies have been regularly challenging the misclassification of contract workers. That is also now a commonplace in private litigation.  This is further complicated by the absence of a single uniform test for proper classification.

The “ABC test” – most often used for unemployment insurance coverage but now expanding elsewhere – is the most rigorous: (A) the worker is free from your company’s control and direction in performing her service; (B) the work being done is outside of your usual course of business; and (C) the worker is customarily engaged in an independent trade, occupation, profession or business.

2. NYC’s FREELANCE ISN’T FREE ACT: STREET LUGING IN NYC, ANYONE?

Who’s covered? FIFA defines a freelance worker as a person or organization composed of no more than one person that is hired or retained as an independent contractor to perform work in NYC.  Lawyers, medical professionals and salespeople who solicit orders are not covered under the definition of freelancer.

What’s required? FIFA requires a written contract between the hiring party and freelancer whenever the services provided have a value of $800 or more, either for that single service, or when combined with all services for the hiring party in the past 120 days.  The contract must include: (1) an itemization of the work to be done; (2) the value of the work to be provided and the rate and method of payment; and (3) the date payment will be due or the mechanism by which the date will be determined.  If the contract doesn’t specify the payment due date, payment must be made within 30 days of completion of the work.

What’s the exposure for noncompliance? Complaints may be filed with the director of the city’s Office of Labor Standards, though there’s no requirement to do so as a condition precedent to a civil action.  There are three causes of action: (1) failure to enter into a written contract; (2) breach of contract for failure to timely render full payment for completed work; and (3) retaliation for exercising or attempting to exercise rights guaranteed under FIFA.  Plaintiffs can be awarded damages, injunctive relief, attorney’s fees and costs.  Also, the city’s corporation counsel has authority to bring actions for pattern or practice violations of the Act and to seek penalties of up to $25,000 in such instances.

3. KEEP SAFE WHILE STREET LUGING OR HIRING FREELANCERS

Even though New York City’s is the only such law today, others could soon follow. Thus, this is the right time to review usage of  independent contractors.  Take a close look at when, where and how you are employing freelancers:

  • Do you have them working on your premises for extended periods of time?
  • Are they performing any core functions of your business?
  • Are they doing the same work and in the same positions as your employees?
  • Do they lack the ability to subcontract the work in order to increase their profit?

If the answer to any of these questions is yes, you should feel the same adrenaline rush as with any other ultrahazardous sport. There is risk in every sport and every business; there are also alternatives to reducing risk (from wearing a helmet to reducing reliance on such adventurous arrangements).  The choice (and taste for the adrenaline rush) are necessarily personal.

PS: Relying on a contract clause saying “the parties agree that this is an arms-length relationship and that X is an independent contractor” is  more akin to a flashy scarf than a safety helmet in the current conditions of this sport.

Posted in Employment Policies

Performance Management: Lessons from Professional Baseball

Spring means a few things for me but especially spring training for professional baseball and geeking out over how to get the most out of the talent on my favorite team (both on the baseball diamond, and in my office).  Baseball performance metrics have changed over my lifetime.  I watch expectantly at the promise of equivalent change in non-baseball employers as I read articles like “The Performance Management Revolution” in the Harvard Business Review.

Let me expedite that change by sharing how businesses might copy the Pittsburgh Pirates.

1.  Reward Wins Above Replacement

A metric now used in baseball is Wins Above Replacement (WAR).  WAR is the value that would be lost if that individual employee was unable to do the job and you had to replace that person with an average employee.  This is illustrated in a recent book explaining how the Pittsburgh Pirates ended 20 years of futility and got to the playoffs in 2013.  Big Data Baseball, puts the value of one WAR in the 2012-2013 at $5 million.  That year, Andrew McCutchen won the MVP award for the Pirates with a WAR of 8.1 and a salary of $4,500,000 – meaning that his true value was $40.5 million, or a value of $36 million over what the club was paying him.

Thinking this way can be useful for employers as well. The true value of a given employee is the value of that person relative to his or her replacement.  Obviously, turnover is expensive so there is a value in retaining the talent you have.  But an employee with a negative WAR (with your own WAR being an assessment of the full value of the employees you have) by its very nature cannot be better than a replacement.  And an employee with a minimal WAR can be more easily replaced by an all-star with a lot of potential.  So then the question becomes, how do you calculate your own WAR?

2.  Think Outside the Box

Going into the 2013 season, the Pirates had one of the lowest payrolls in baseball. And management was given only a budget of $15 million to bring in additional talent to improve that off-season. To provide a sense of the challenge that was presented here, 28 free agents received an annual contract value of over $10 million prior to the 2013 season, with the top pitcher receiving a 6 year, $147 million contract, and the top hitter receiving 5 years and $125 million. But the Pirates still had to find a way to win, so they went looking for undervalued players, and found one in catcher Russell Martin who had a skill that had not previously been measured – pitch framing.

Pitch framing is essentially how a catcher catches the pitch so either a potential ball is called a strike, or a potential strike is called a ball. For years this was talked about, but never measured – but with additional data came additional ways to quantify the effect of this undervalued skill. What this data showed was that Russell Martin brought a huge amount of value just by getting the umpire to call more strikes – 70 runs from 2007 to 2011. Over the same period, the Pirates primary catcher at the time cost the club 65 runs. So this one position, and one skill had the difference of 135 runs over a 4 year period. Runs, simply put, translate into wins – in this case, 13 wins that the Pirates had left on the table over those years based on this one skill alone.

Yet, Russell Martin, based on the usual baseball metrics, was coming off a horrible year. In 2012, he only hit .211, with a .311 on base percentage. His RBIs had dropped to 53 – quite simply, he was not sexy, and he was not who a team would traditionally spend money on when they needed to win. Nonetheless, the Pirates gave him a 2 year, $17 million contract. Finding untapped skillsets – like Russell Martin — in your current or prospective workforce that you can then use for your company is the real world equivalent of gaining those 13 wins. The difficulty is abandoning the traditional and thinking outside the box: what is your equivalent of pitch framing? Is it worth taking time to consider what it might or could be?

3.  Democratize the Process

Moneyball, the Michael Lewis book and Brad Pitt movie about how my beloved Oakland Athletics found their own way to win with a limited payroll, is justifiably famous.  While Moneyball was notable for showing how new statistics could be used to find value, it was actually more revealing if you stop and consider the decision-making process that Brad Pitt faced:  while the “smart guys” in the room were all Ivy League grads with laptops, the baseball people made all the decisions.

And before 2012, this is how the Pirates operated too.  The manager, Clint Hurdle, was an old-school baseball-lifer.  The general manager, Neal Huntington, was a Dartmouth grad who was crazy smart, but did not interfere with the clubhouse.  Unsurprisingly, this was not working until Dan Fox stepped up. Dan Fox was the Pirates main analytics expert.  He was an Iowa State grad with a true skill in explaining complex processes.  Fox found a way to take all this data, and present it in a format that was compelling to ball players.

Starting from spring training, he convinced the coaching staff to value shifts of their infield defenders to minimize the opponents ability to get on base with ground balls and simultaneously convinced veteran pitchers to start throwing a sinking fastball with less velocity, but a higher likelihood of a ground-ball.  Then, Fox convinced hitters who were paid on home runs for years to stop pulling the ball and instead use the whole field.  He did this by becoming ingrained in the clubhouse, and an indispensable part of the club.

What does Dan Fox’s success teach all the rest of us?

  • Hire – and empower – passion and expertise, not credentials.
  • Sell the metrics (not announce or order or anything else traditional)
  • Prove the metrics with constant feedback (because annual reviews won’t work)

4.  If You Aren’t Failing, You Aren’t Trying

The Pirates were extraordinarily successful in 2013: making the playoffs for the first time in 20 years, winning the Wild Card game at home, taking the Cardinals to the edge in their series, having a player win the MVP, and having 5 players, including 3 pitchers, as All-Stars. They got extraordinary value, with a motley crew like Francisco Liriano (3.0 WAR and $1 million salary) and Starling Marte (5.0 WAR and $500,000 salary) providing value.  The Pirates went to the playoffs again in 2014 and 2015, losing in the Wild Card game both times, and then in 2016, flop city.  Trying to stay ahead of the curve by playing their outfielders closer to the infield to cut off hits, the Pirates regressed to a losing record, showing that innovative organizations always looking for the edge will sometimes fail.

The safest thing any organization can do is to continue to be average by following what has been successful in the past. But looking ahead is key to learn the lessons of spring – to take advantage of the talent you have, and recruit the talent you need.  Seeking glory means doing things that are considered odd.  So, go home tonight and ask (1) what is the right means to measure WAR in your organization; (2) what is the hidden talent like “pitch framing” that is currently unrecognized/unrewarded; (3) what would Dan Fox do to improve your organization with his ability to explain, cajole, and provide reliable feedback; and (4) is it better to play it safe or to risk in order to dare for success?

Just like the Pirates, you can succeed, regardless of your history and limitations.

Posted in Union Organizing

Could Trump Election Be a “Huge” Win for Global Labor?

Despite President Trump’s proposed labor-friendly trade policies, the prevalent view is that labor will be on the defensive during the Trump administration. However, that view may not fully account for the development of a contractual and, for lack of a better term, philosophical international regulatory regime that lays the foundation for broader union success.

Focusing only on the US, evidence of labor’s decline seems overwhelming:

  • Labor’s securing of “quickie elections” from the NLRB? It hasn’t produced the success the unions anticipated as union membership in 2016 fell. Missouri just dealt another blow to labor by becoming the 28th state to pass “right to work” legislation.
  • President Trump’s trade positions may seem friendly to organized labor, but Thomas Perez and David Weil are gone, along with the union dream of massive top-down organizing of employers.
  • With the majority of states under Republican control, gains beyond organized labor’s existing strongholds (California and New York, by themselves account for two-thirds of union membership) likely will be marginal. And now, a Republican-controlled Congress has introduced a National Right to Work law.

Yet, undercurrents misunderstood or not observed have a way of changing the inevitable. If numbers alone can illustrate labor’s decline, how does one explain union power in France, where membership at 8% is lower than the 10.7% in the United States?  Simple: union membership numbers is yesterday’s game, union power is tomorrow’s.

About the time Y2K doomsday scenarios were in vogue, unions began rallying around the theme “Solidarity without Borders.”  Back then, the SEIU worked with global union federations to create Union Network International, now UNI Global Union (UNI).

UNI proposed to use the aggressive campaign tactics of the US to expand and enforce the emerging “social dimension” of Europe. To many it sounded like another grand-sounding theme for whatwould in the end amount to nothing more than the same letters and statements of support that historically passed for cross-border solidarity.

Fast forward to 2017: UNI has changed and so too has its approach: “labor rights are human rights.” Now, many middle-class workers in a routine labor dispute are labeled “human rights victims” and Human Rights Watch gives the corporate targets of unions the same treatment formerly reserved for dictators.

The United Nations Global Compact and its Guiding Principles on Business and Human Rights elevate local organizing and bargaining disputes to rarefied heights.  The OECD Guidelines for Multinational Enterprises validates these views, and adds an enforcement mechanism.  The International Labor Organization’s Conventions 87 and 98 have newfound meaning.

Unions now have the power to offset changes within the US by bringing pressure to bear outside the US. Whether it’s the soft law of the UN Guiding Principles’ obligation to audit and resolve potential human rights impacts or hard law such as the United Kingdom’s Modern Slavery Act and EU Directive 2014/95 on nonfinancial reporting, the game has changed.

The IUF/Colsiba-Chiquita Framework Agreement in 2001 was the first watershed moment; its supply chain provisions a harbinger of things to come.  No longer would unions be satisfied with the undefined aspirational statements.  Unions demanded concrete commitments.

The second moment is taking place now.  Union pension funds control $5.2 trillion, according to the AFL-CIO’s Investment Trust Corporation.  Global coordination is leading to a much more effective use of these funds in labor’s “Capital Strategies.”  The dream of “Pension Fund Socialism” from the 1970s could find full expression in tomorrow’s global union campaigns.

Other strands (beyond the scope of a blog post) are converging to create an international impact that is less and less affected by shifts in national law like those being forecast for the Trump Administration.  Audi’s 2017 Super Bowl ad on income inequality is a reflection of the influence of that international trend and an example of its post-Trump potency.

Equal pay is a favorite wedge issue for global unions.  Trump may ultimately reverse the EEOC’s proposal for disclosures of wage equality in annual EEO-1 statements, but businesses with global operations are being pushed in the opposite direction.  That could be the hidden significance of Trump’s electoral victory: an incentive to unions to accelerate the transition to globalism.

Posted in Employment Litigation Employment Policies

And the Oscar Goes to. . .the Stored Communications Act?

Film reels abound with examples of employees-turned-detectives using documents taken from their employer’s files to bring wrongdoing to light. You may have your own favorites but here are mine (with titles hidden in footnotes so as not to spoil your fun):

An up-and-coming agent uses a flash drive hidden in her coffee mug to smuggle data belonging to her employer out of a high-security facility.[1]

An operative frantically searches through his boss’s computer files to print out communications showing his boss has been lying to their stakeholders, all the while attempting to distract his boss on the phone with an offer to go play tennis.[2]

A cloak-and-dagger duo steal documents from their employer and provide falsified versions to a fellow employee to thwart their employer’s effort to corner the market on orange juice commodities.[3] 

What Happens After the Director Yells Cut?

While these film characters entertain, their conduct could have serious consequences for both employee and employer after the cameras turn off.  That is because of the Stored Communications Act (“SCA”).

The SCA, a criminal statute (18 U.S.C. §§ 2701, et seq.), prohibits accessing an electronic communication service facility (which can include employer e-mail services) and obtaining electronic communications where the individual either lacks authorization for the access or exceeds the authorization they have been provided. It also provides for a civil cause of action against the violating party.

Responding to an employee’s allegations of corporate crime—particularly where the employee has “investigated” on their own and may have violated the SCA in the process—requires expert navigation by the employer. The employee may have simply been trying to comply with an employer’s policy requiring a good faith basis for reporting wrongdoing, but the line between “developing a good faith basis” and violating the SCA can be a blurry one.

As recent decisions show, the best solution is to address the issue beforehand through clear policies and good training. Because legal battles under the SCA often hinge on whether the employee was “authorized” to access the communications at issue, employers should define who is authorized to access company e-mails when writing both their computer and internet policies and their reporting policies.

Write Your Own Screenplay: Adaption or Original?

A case recently decided by the 11th Circuit Court of Appeals, Brown Jordan International, Inc., et al. v. Carmicle, — F.3d —-, 2017 WL 359651 (11th Cir. Jan. 25, 2017), reveals the difficulties often facing employers when an employee accesses another’s e-mail.  There, Carmicle – the president of two subsidiaries – began accessing other executives’ e-mail accounts using a generic password provided by the employer’s chief information officer.  Upon finding what he believed to be evidence of a fraudulent scheme to deceive investors,  he brought the information to the company’s attention.  The company investigated but, after discovering how Carmicle had accessed the information, terminated him for cause and successfully sued him for violations of the SCA (which was affirmed on appeal to the 11th Circuit).

Seeing this litigation, employers ponder whether to make sequels or write afresh. Let’s call this the Best Adapted Screenplay method.  No matter the direction you choose to go with your script, it is critical to investigate the alleged wrongdoing reported and to do so completely independent of the outcome of making any SCA claim.  Failure to investigate a charge of serious wrongdoing merely because it was reported following a potential violation of the SCA could expose the company to lawsuits (by the discharged employee, shareholders, or governmental authorities that may still try to use the information procured in violation of the SCA).  Investigations, however, will invariably reach a fork in the road.

  • On the first path, you discipline the investigating employee for violations of the SCA. In that case, the employee will almost surely pursue a retaliatory discharge claim for reporting the violations (as occurred in Brown Jordan) and whether they are successful will boil down to whether their reports were protected activity and, if so, whether the violations of federal law were cause for the discharge independent of the report.
  • On the second path, you elect not to discipline the reporting employee. That may encourage employees to act as vigilantes seeking to bring coworkers to justice or set a difficult precedent for future violations. It may also open the door to a suit for violation of the SCA by the purported bad actors, although – so far – courts have shut down the theory of “secondary liability” for violations of the SCA. Vista Marketing, LLC v. Burkett, 999 F. Supp. 2d 1294, 1296-97 (M.D. Fla. 2014) (citing other similar decisions). In addition, Shefts v. Petrakis, 2012 WL 4049509, at *6-7 (C.D. Ill. Sept. 13, 2012), indicated that it may be possible to “authorize” such an investigation after the fact.

The pitfalls on each path illustrate the importance of well written policies when it comes to employee investigations and SCA compliance. Let’s call this the Best Original Screenplay method: you write the policies in a way that leads your employees down the appropriate path, attempting to avoid the pitfalls entirely.

E-mail and computer usage policies should be narrow and unambiguous in delineating who can authorize access to e-mail accounts. The policy in Brown Jordan provided that access was controlled by “senior management” and also required a legitimate company purpose and permission of “corporate senior management.” Could it be improved with 20-20 hindsight from the best film critics or test audiences?

Had it stated that only the head of the parent company’s legal or compliance department can authorize access to other employees’ e-mail accounts, it might have dissuaded Carmicle from unilaterally conducting his own investigation. Even if it didn’t alter Carmicle’s approach, such a specific policy would make short work of Carmicle’s argument that he was “authorized” under the SCA.

It is equally important to address separately in policies on compliance what is expected from employees in reporting misconduct. For instance, the conventional wisdom has been to use a policy statement that informs employees of their obligation to report wrongdoing and the protections afforded them for making such reports in good faith.  Given the SCA issues, a better policy should go on to inform employees that their role is to report rather than to become vigilante investigators and to emphasize the need to honor all computer and e-mail usage policies and applicable privacy laws.

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With movie scenes influencing popular culture, better policies may not totally dissuade employees becoming ultra vires investigators/detectives. But, better policies will ensure that your movie has a happy ending.

 

[1] This is drawn from the 2003 Touchstone Pictures and Spyglass Entertainment film The Recruit.

[2] This is drawn from the 1994 Paramount Pictures film Clear and Present Danger.

[3] This is drawn from the 1983 Paramount Pictures film Trading Places.

Posted in Employment Litigation

“Breaking Up Is Hard To Do”: But a Good Separation Agreement Can Ease the Pain

Neil Sedaka’s 1962 hit song still rings true not only for ex-lovers but also for ex-employees.  But, the Employment Relationship Doctor has advice for half of that equation in time for Valentine’s Day.  Well thought out separation agreements allow employers to survive failed relationships.

Let me repeat the operative phrase: “well thought out.”  Despite prior warnings on the subject, too many employers have yet to scrap historic provisions in their separation agreements that the SEC, NLRB, or EEOC view as unlawful.  Every separation is unique; every month the law is evolving; and  –  as the SEC continues to assess fines, some into the 7 figures – every use of cookie-cutter forms creates a risk of a truly painful breakup.

Employers approaching a breakup with one or more employees also need a checklist:

1.  Conduct a relationship retrospective – any prenup?

Most employees in the U.S. are at-will, such that the relationship can be terminated at any time by either the employer or the employee. Yet, this may be one of those situations where there are agreements that address obligations of the employee and/or employer upon separation.  Employers should review the employee’s personnel file for any relevant contracts, such as an employment agreement; offer letter; restrictive covenant agreement (e.g., NDA, non-compete, or non-solicit); stock award; severance plan; or promissory note.  The starting point for any separation agreement should be any applicable provisions in those agreements concerning what happens in the event of a breakup (even though the parties are free to reach a mutual agreement that may alter and/or supersede any previously agreed-upon terms).

2.  Money can’t buy love, but it can buy peace: get a proper release of claims

Employers should consider offering employees a separation payment in exchange for a broad release of claims against the company.   Unless an employee already has a contractual right to a certain severance amount, there is generally no magic amount that an employer must offer in exchange for a release. Employers often use length of service to determine the severance amount: e.g.,  X weeks of severance pay for each year of the employment relationship, up to some cap.

An effective release will include a comprehensive waiver of both common law and statutory claims. The release, however, must not include claims that cannot be waived as a matter of law – for example, an employee cannot waive the right to file a charge with the EEOC; claims under the FLSA generally cannot be waived; and many states (including, but not limited to, CA, FL, IL, NY, and TX) prohibit waiver of claims for unemployment and/or workers’ compensation benefits.

3.  R-E-S-P-E-C-T thine elders

For a one-off separation with an employee who is age 40 or over, be sure to provide the 21-day review period and 7-day revocation period required for a waiver of claims under the Age Discrimination in Employment Act (“ADEA”), as amended by the Older Workers Benefit Protection Act (“OWBPA”).  There is also a litany of other OWBPA factors (commonly put in a single paragraph) that must also be included.

In the event of a company restructuring or other reduction-in-force program, a valid ADEA/OWBPA waiver requires that separating employees aged 40+ are also provided: (i) a 45-day review and consideration period (and the same 7-day revocation period) and (ii) information (usually provided in chart form) of the job title and age of those individuals included in the layoff, along with the job title and age of those individuals within the same “decisional unit” who are not being terminated.

4.  Wash those unlawful provisions out of your agreements

Well thought out agreements are not only customized but current.

Let’s look at the most recent clauses that legal developments require be deleted:

  • Clauses prohibiting the employee from communicating with a government agency about a potential violation of law (or requiring the employee to first inform the company before disclosing such information to a government investigator).
  • Clauses barring (or limiting by requiring prior notice and permission from the company) the employee from cooperating with the government in a complaint or investigation against the company.
  • Clauses precluding the employee from a monetary recovery awarded in an action brought by a government agency (e.g., whistleblower claim under the Dodd-Frank Wall Street Reform and Consumer Protection Act).
  • Clauses preventing the employee from making any disparaging (even if true) comments about the company or its officers, directors, or employees to government officials/agencies.

There are many ways to comply: e.g., eliminate overreaching and cut the unnecessary.   At the very least, a disclaimer that “nothing in the agreement precludes the employee from providing truthful information to, or participating in, an investigation or proceeding conducted by a government agency” is a good temporary stopgap.

5.  Protect the crown jewels

Companies certainly have the right to maintain and protect their property, confidential information, and goodwill. A separation agreement should incorporate any existing restrictive covenants that an employee has signed, including but not limited to provisions governing non-disclosure of confidential information, non-competition, and non-solicitation of clients and employees.  It may also expand on those or add those for employees with no such agreements.  NB: for now, let’s assume that those are all perfectly proper even though – given the ever-changing landscape of non-compete law and the practical limits on making each such agreement both customized and current – that may be a polite fiction.

In drafting non-disclosure provisions, employers must also be mindful of the Defend Trade Secrets Act of 2016 (the “DTSA”).  Pursuant to that new statute, employees should include the DTSA-mandated notice in all non-disclosure agreements, namely that employees will not be held liable for disclosing a trade secret either: (i) in confidence to a government official or to an attorney, for the sole purpose of reporting or investigating a suspected violation of law; or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

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That’s all for today’s session of the Employment Relationship Doctor.  Remember, while breaking up with an employee may be hard to do, a well thought out separation agreement can keep everyone’s hearts from turning blue.  The Doctor remains on call for any of your employee relations needs; in fact, if you email me, I will share my favorite separation agreement template for you to consider and cross-compare with what you have been using.

Posted in Employment Benefits Employment Litigation Employment Policies

Employee Turnover: Can Employers Recoup Investments In Their Employees?

New employees need to be trained. Some need to be moved. And, in many business sectors, employers continue to invest in their employees via continued education and training courses. All of these are investments. Their pay off, however, depends on whether the employee stays with the company.

Millennials job-hop like it’s their… well, job. Over 60% plan to leave their job within three years of being hired and with an estimated 10% going to work for direct competitors.[1] Their elders, moreover, are only slightly better; the days of working for decades at the same employer and retiring with a gold watch are ancient history.

Increased attrition creates increased cost to the employer. One study estimates 213% of the annual salary for jobs that require higher levels of education and specialized training.[2] This means that one employee earning $80,000 annually might cost the company between $40,000 and $170,400 in turnover cost.

Can any of the investments in employees be recovered and, if so, how?

Not all new-hire costs can be passed along to the departing employee. Company-specific orientation and training programs are merely sunk costs. But, with a valid repayment agreement, employers may seek the equitable repayment of certain costs from employees who depart before these investments pay dividends.

The details of reimbursable education programs vary slightly state to state. For example, in California, the training must be “voluntary” to the employee in order for it to be recoverable by the employer. Yet, repayment agreements are judicially enforceable throughout the US, even in jurisdictions such as California where restrictive covenants are routinely stricken down:

California Repayment of $30,000 of the fronted costs of a voluntarily undertaken educational program, the benefits of which transcend any specific employment and are readily transportable, is not a restraint on employment. USS-Posco Indus. v. Case, 244 Cal. App. 4th 197, 210 (2016).
Colorado “Any covenant not to compete which restricts the right of any person to receive compensation for performance of skilled or unskilled labor for any employer shall be void, but this subsection . . . shall not apply to: . . . Any contractual provision providing for recovery of the expense of educating and training an employee who has served an employer for a period of less than two years.”  Colo. Rev. Stat. § 8-2-113 (2)(c).
Texas “Work-or-pay” contracts whereby an employee must reimburse an employer for job training if he does not work for the employer after training is not against public policy. Nat’l Training Fund for Sheet Metal & Air Conditioning Indus. v. Maddux, 751 F. Supp. 120 (S.D. Tex. 1990).
Wisconsin Agreement to repay costs does not restrict firefighters ability to work for a competitor and does not operate as a covenant not to compete because the obligation is unconditional, not based on whether the firefighter goes to work for a competitor.   Heder v. City of Two Rivers, 295 F.3d 777 (7th Cir. 2002).

Likewise, relocation and other incentives such as signing bonuses can also be tied to a requisite timeframe of employment post-benefit, with courts generally enforcing timeframes of 12-18 months:

Michigan Employee was required to reimburse his employer for certain relocation expenses in full under agreement promising to do so if he should he voluntarily terminate his employment within the first year. Kvaerner U.S., Inc. v. Minarik, No. 216550, 2001 WL 765895 (Ct. App. Mich. Jan. 26, 2001).
Nevada Contract requiring repayment of relocation expenses to employer if employment terminated within one year for any reason is enforceable. Grimsley v. Charles River Laboratories, No. 3:08-cv-00482, 2011 WL 4527415 (D. Nev. Sept. 28, 2011), aff’d 467 Fed. Appx. 736 (9th Cir. Feb. 3, 2012).
New York Under terms of the employer’s formal offer of employment, it was entitled to repayment of relocation expenses and a signing bonus from its product marketing manager who quit within the first year. Ebenstein v. Ericsson Internet Applications, Inc., 263 F.Supp.2d 636 (E.D.N.Y. 2003).
Ohio An employee was required to repay the $7,600 relocation benefit provided to her, pursuant to a relocation agreement entered into between the employer and employee. Trout v. FirstEnergy Generation Corp., No. 3:07-cv-00673, 2008 WL 4159702 (N.D. Ohio Aug. 6, 2008).
Texas Employee’s commitment to repay relocation costs if he quit within one year is enforced; this was not a restrictive covenant, did not affect the employee’s at-will status, and was not an unlawful penalty. Dresser-Rand Co. v. Bolick, No. 14-12-00192-CV, 2013 WL 3770950 (Tex. App. July 18, 2013).

These authorities form the blueprints for successful recovery of employee investment costs.

  1. Timing. Enter into a clear and simple agreement with the employee before the investment is made, where the employee acknowledges the amount of the investment and agrees to repay it (or agrees to a formula for repayment, if the amount is difficult to determine) if he or she leaves within X years.
  2. Be exact. Tie the recoupment amount to a specific formula or to a set amount associated with the investment. For example, if the employer is attempting to recoup the cost of a $5,000 training, the employee may simply be required to pay the employer back $5,000 if he leaves within one month, and a decreasing percentage of the $5,000 if he leaves within two months, three months, and so on.
  3. Be reasonable. Over-reaching is invariably fatal. Brunner v. Hand Indus., Inc., 603 N.E.2d 157 (Ind. Ct. App. 1992) (“repayment agreement” invalid where employee could be liable for an amount in excess of all wages received); Wilson v. Clarke, 470 F.2d 1218, 1223 (1st Cir. 1972) (reimbursement agreement unenforceable where the employer could not demonstrate that the formula was a reasonable forecast of damages, where it did not adjust for time worked for the employer, or whether the termination was voluntary).
  4. Enforce diligently and consistently. Upon the employee’s termination, inform him or her of the amount owed and, if possible, obtain an the employee’s acknowledgement of the amounts owed and agreement to a repayment plan. Put a procedure in place so that this process is followed with all employees who terminate early.
  5. Be mindful of tax consequences. The employer must take any deduction it took for the reimbursement back into income when it recovers the amount from the employee.  The tax issues associated with repayments are complex.  Employers should consult their tax advisor to determine how to properly report reimbursements and repayments.

 

[1] http://millennialbranding.com/2013/cost-millennial-retention-study/

[2] https://www.americanprogress.org/wp-content/uploads/2012/11/CostofTurnover.pdf

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