Suits by Suits

This post deals with two related protections that state laws and companies provide for directors and officers—indemnification and advancement. Corporations usually commit to indemnify officers and directors (and sometimes employees) when, because of their connection to the company, they are pulled into legal proceedings. Corporation also usually agree to advancement - paying legal fees and costs in advance of a final determination about the individual’s right to indemnification - so that officers and directors don’t have to foot the legal bills themselves while such a matter is going on. 

On May 29, Roseanne Barr posted a tweet comparing former Obama adviser Valerie Jarrett to an ape. ABC’s reaction was swift and decisive: it fired Barr and cancelled her show.

ABC’s decision led to pontification from various pundits and Twitter personalities arguing that Barr’s “humor” was somehow “free speech” protected by the First Amendment. 

But even if Barr was exercising free speech when she posted her tweets, that has no bearing on ABC’s lawful right to fire her. ABC is a private employer, not the government, so the First Amendment did not prevent it from taking action based on employee speech.

Companies and individuals frequently enter into arbitration agreements requiring that claims be brought before a private arbitrator, rather than a judge and jury. Arbitration has various benefits: it can provide quicker resolutions, reduced costs, the right to participate in the selection of the arbitrator, and arbitral expertise. In addition, some parties prefer arbitration because it offers a cloak of confidentiality that does not exist in the state and federal courts.

Phishing. Spoofing.

These words may sound silly, but for employers, they are anything but.

Phishing is the attempt to obtain sensitive electronic information—such as usernames, passwords, or financial information—under false pretenses. Often, when bad actors engage in phishing, they use email spoofing—sending emails that appear legitimate but are anything but. These emails can dupe users into disclosing confidential personal or company information.
 

When an employer changes its contract with an employee, the change should be communicated clearly—and preferably, in writing. Otherwise, the employer may be at risk of finding that the old terms still control.

For example, last week in Balding v. Sunbelt Steel Texas, Inc., No. 16-4095 (10th Cir. Mar. 13, 2018), a federal court of appeals ruled that an employer had to go to trial over a salesman’s claim for unpaid commissions. 

Tell the Securities and Exchange Commission (SEC). That’s the message the United States Supreme Court sent to whistleblowers with its decision yesterday in Digital Realty Trust, Inc. v. Somers.

As we previously covered here, the Digital Realty case involved a key issue under the Dodd-Frank Act’s anti-retaliation provision: does the provision apply to a whistleblower who reported internally, but did not provide information to the SEC?

Companies want to attract talented leadership, and protections for officers and directors against lawsuits can be part of the total package.

This is one reason why many businesses incorporate in Delaware—Delaware law provides significant assistance to officers and directors who are named in legal proceedings connected to their corporate role. Delaware courts don’t hesitate to uphold this protection when circumstances warrant. And in Horne v. OptimisCorp, the Delaware courts again vindicated an officer’s broad rights to indemnification under Delaware law.

When the calendar flips from December to January, it’s a good time to take stock of what to expect over the next 12 months. Here are four major issues in employment law that we’ll be watching in 2018:

Tracy Chapman famously sang about needing “one reason to stay here.” But when severance is involved, employees may look for one reason to leave—one “Good Reason.”

While Ms. Chapman didn’t sing about them, many employment contracts include a “Good Reason” clause, which allows the employee to resign and still receive severance if certain conditions are met.

For example, many Good Reason clauses provide that an employee can receive severance upon resignation, so long as the employee has suffered from a reduction in salary or benefits, diminution of duties or responsibilities, or due to a forced relocation. In some cases, these Good Reason clauses only apply when an employee resigns following a change in control of the employer (for example, a merger or acquisition).

When Congress passed the Dodd-Frank Act in 2010, it bolstered protections for whistleblowers who report certain kinds of misconduct, such as violations of securities law. At the time, the Sarbanes-Oxley Act already provided many of these whistleblowers with a cause of action for retaliation. But the new Dodd-Frank cause of action included a longer statute of limitations, a more generous damages remedy, and a right to proceed straight to federal court rather than first bringing the claim to the Department of Labor (as Sarbanes-Oxley requires).

Sarbanes-Oxley provides protection for individuals who blow the whistle internally. But courts have struggled with whether Dodd-Frank provides that same protection, or if Dodd-Frank protects only individuals who report misconduct to the Securities and Exchange Commission (SEC) directly.

A party seeking to enforce a contract has to show mutual assent, also referred to as “a meeting of the minds.” In other words, both parties actually have to agree on the same thing. If the parties don’t agree, then a contract does not exist.

In a recent case, T3 Motion, Inc. (a Segway competitor) used a lack of mutual assent to avoid arbitration of its claims against its former CEO, William Tsumpes. This posture was somewhat unusual - typically, employers try to enforce arbitration agreements, and employees try to avoid them so that they can present their claims publicly in court, before a jury of their peers.

Ghosts, ghouls, and ghastly liability; the last is certainly enough to spook any employer. For this Halloween, we take a trip down Elm Street to revisit the most startling nightmares we’ve ever covered.

It Came From the General Counsel’s Office. In March of this year, we told the story of an in-house attorney who won a $14.5 million verdict against his employer after he raised concerns about FCPA violations at the company. The company’s case faltered when the trial revealed that a negative review of the attorney had been backdated.

Under federal law, employers must pay employees time-and-a-half if they work over 40 hours in a workweek, unless the employees are exempt from the overtime law. Employers don’t usually think of an employee who takes home $900,000 in a year as a non-exempt employee who needs to receive overtime pay. But the case of Pierce v. Wyndham Vacation Resorts Inc. shows that these employers may need to think again, especially when those employees are mainly paid on commission.

In Pierce, a class of commissioned sales representatives sued Wyndham—a resort chain—claiming that they were not exempt from the Fair Labor Standards Act’s (FLSA) overtime provisions. Wyndham moved for summary judgment on some of the claims, arguing that certain sales reps earned more than $100,000 per year. Most made well over that amount, with some taking home upward of $700,000 or even $900,000 in a given year. Wyndham also argued that these reps performed “executive duties.”

An employer isn’t immune from a discrimination claim when an employee quits instead of being fired. An employee who quits can still bring a “constructive discharge” claim, arguing that his working conditions were intolerable and that he had no other option but to quit.

This is a high bar to clear. For example, in the recent case of Coleman v. City of Irondale, the employer won summary judgment on a constructive discharge claim, despite racial slurs, inappropriate screensavers, and—yes—a pro wrestling photo.

When a company believes that an employee has breached a non-compete agreement by going to work for a competitor, one remedy it can seek is a preliminary injunction. A preliminary injunction is meant to preserve the status quo in a case pending a trial on the merits. In the context of non-compete litigation, this means that an employer can file a lawsuit and quickly obtain an order barring its competitor from hiring the employee.

Getting such an injunction isn’t so easy, however, as shown by an Illinois federal court’s recent decision in Cortz, Inc. v. Doheny Enterprises, Inc.

White male discontent has been a major media talking point since the presidential election, and even long before. This talking point has made its way into the workplace, where tech firms are now being targeted for allegedly discriminating against white males in favor of women or non-white males.

Of course, discrimination lawsuits aren’t just for women or minorities; a white male can also sue for discrimination. A claim of discrimination by a white male based on gender or race is sometimes referred to as “reverse discrimination”—discrimination based on membership in a historically majority or advantaged group.

When investigating potential wrongdoing, government investigators have powerful tools that they can use to obtain information. As the U.S. Attorneys’ Manual explains, one such tool is the ability to enter into non-prosecution agreements (NPAs) in exchange for cooperation from companies and individuals.

For example, if a corporate executive has valuable information to offer in a criminal investigation of his employer or other employees, the DOJ can enter into an NPA with that exec, agreeing not to prosecute him or her in order to secure the information.

The Dodd-Frank Act, passed in 2010, includes a new cause of action for whistleblowers who claim that their employer retaliated against them for reporting wrongdoing. But it’s not yet certain whether a whistleblower who blew the whistle internally, but not to the Securities & Exchange Commission, can bring a Dodd-Frank claim. As we covered in this post, federal judges have issued conflicting decisions on this issue.

The Supreme Court is now ready to resolve this conflict. Today, the Court granted certiorari in Digital Realty Trust, Inc. v. Paul Somers, which presents the question of whether the Dodd-Frank protection extends to an internal whistleblower.

When an executive becomes embroiled in a dispute with an employer, the executive tends to take it personally. And when the executive’s conflict is with the government, the executive’s sense of outrage ratchets up even more.

Case in point: the new book from former Vascular Solutions, Inc., CEO Howard Root, titled Cardiac Arrest: Five Heart-Stopping Years as a CEO On the Feds' Hit-List. As the subtitle suggests, Root spent five years under investigation by the Department of Justice in connection with allegations that his company, VSI, engaged in off-label marketing of a medical device for the treatment of varicose veins known as the “Short Kit.”

In 2011, a group of executives left Horizon Health Corporation for a competitor, Acadia, but they didn’t leave everything behind. Horizon’s president took a “massive, massive amount” of Horizon documents with him on an external hard drive. And despite provisions in their contracts prohibiting them from soliciting Horizon’s employees, the executives recruited a key member of Horizon’s sales team, John Piechocki, who copied lists of sales leads and added them to his new company’s “master contact list.”