O'Neill, Ashley

We recently discussed the SEC’s proposed rules pursuant to the 2010 Dodd-Frank Act regarding the clawback of executive compensation under various circumstances related to accounting restatements. Now it seems Hertz’s former CEO, Mark Frissora, may become one of the first test cases should these rules survive the comment period. According to Footnoted, upon Frissora’s resignation last September, he received over $10 million plus other benefits. But the company recently filed a 10-K for 2014 that not only included restated results for 2012 and 2013, but also made a disclosure that could suggest a possible future effort to claw back Frissora’s severance package. The disclosure blamed Frissora for creating an environment that “in some instances may have led to inappropriate accounting decisions and the failure to disclose information critical to an effective review of transactions and accounting entries.” Perhaps another interesting twist is whether any potential clawback will have an effect on Frissora in his new role as CEO of Caesar’s Entertainment, a position he assumed two weeks ahead of Hertz’s delayed filings.

California is known for its skeptical treatment of employers’ efforts to enforce non-competes, but it may not be as friendly toward all employees as originally suspected, according to The National Law Review. In 2014, California resident Stacey Sabol-Krutz left her position with Quad Electronics, a Michigan-based employer, to take a position with a rival company, which was also based in Michigan. Sabol-Krutz had started working for Quad in Michigan, and signed her employment contract there, but moved to California in 2011. Her employment contract specifically named her new employer as a company that Sabol-Krutz wouldn’t join for 12 months after leaving Quad. After Quad found out about Sabol-Krutz’s new job, it sued her for breach of contract. She, in turn, filed suit in California, attempting to invalidate the agreement under California law. The California court, noting the absence of a choice of law provision in the agreement, found that Michigan law applied, using a “governmental interest” test. Although courts may refuse to apply a choice of law provision when construing restrictive covenants (as we illuminated here), Sabol-Krutz’s move to California to work for an out-of-state employer did not win her the protection of California law.

• Civil Litigation
• Noncompete Agreements ‎
• Pregnancy Discrimination

Benjamin Wey immigrated to Oklahoma from China as a teenager with scant dollars in his pocket.  He parlayed ambition and ties to Chinese businesses into a lucrative investment firm engaged in the controversial practice of reverse mergers. According to the Washington Post, this so-called “Wolf of Wall Street” hired a beautiful Swedish model, Hanna Bouveng, to serve as his assistant, and used her Swedish contacts to further his business interests while heaping monetary rewards on her to seemingly win her affections.  According to Bouveng, Wey pressured her into a sexual relationship, and when she refused his advances, he allegedly terminated her employment, waged war on her reputation through social media, stalked her, and threatened her with further ruin. Ms. Bouveng fought back in Manhattan federal court where she sued Wey for sexual harassment, retaliation and defamation. The jury returned an $18 million verdict in favor of Ms. Bouveng. While Ms. Bouveng likely feels vindicated, Wey is claiming victory on his twitter account.  

• Civil Litigation
• Harassment
• The Inbox

Big Brother is watching you, or at least tracking your movements through your smartphone. According to the Washington Post, employers have steadily increased their use of GPS-enabled technology to track the movements and location of “field employees” like salespeople and delivery drivers. In fact, a 2012 study by the Aberdeen Group cited an increase of over 30% in the tracking of employees over the previous 5 years. Legitimate reasons exist to track field employees, such as making sure that drivers take the best routes and sales calls are conducted efficiently. But it’s more tricky to justify the tracking of employees who are off the clock.  For example, Myrna Arias, a former sales executive with Intermex, was allegedly fired for disabling a tracking app called Xora StreetSmart when she was off duty. Now Ms. Arias has sued the company, alleging wrongful termination and invasion of privacy. Jay Stanley, a senior policy analyst at the ACLU, cautions employers against collecting off-the-clock data, because it opens the door to discriminatory practices. Mr. Stanley wondered, "What happens if an employer doesn't like the choices a worker makes in their personal lives and retaliates professionally?" 

We discussed emerging trends in the c-suite recently, and found that companies are increasingly tying executive compensation to performance. For those that do not, we can imagine a corporate shareholder version of peasants storming the castle with pitchforks in hand, thanks to say-on-pay voting. In the case of JP Morgan CEO Jamie Dimon’s 2014 compensation, the shareholders’ rebellion led to a relatively low approval rate for Dimon’s and other executives’ compensation. According to USA Today, 61.4% of shareholders approved the payouts, which starkly contrasts with an average 90% approval rating for companies that seek shareholder input on salary and bonus plans. Advisory firm ISS encouraged shareholders to rebuke the plan when they learned of Dimon’s $7.4 million cash bonus. ISS advised that “[t]he reintroduction of a large discretionary cash bonus in the CEO’s pay mix, without a compelling rationale, has substantially weakened the performance-basis of his pay.” If corporate leadership can provide a strong rationale for a big bonus, it’s more likely that the shareholders will drop their pitchforks and fall in line. 

• Civil Litigation
• Executive Compensation
• Poaching
• Termination With or Without Cause

Federal prosecutors recently indicted David Colletti, a former VP of marketing with MillerCoors LLC, on charges relating to a scheme to embezzle $7 million from the beer brewing giant. Mr. Colletti, a thirty-year veteran of the company, allegedly broke bad by conspiring with others to defraud the company through fictitious invoices for promotional and other events that were never held. According to Law 360, MillerCoors sued its former marketing executive for $13.3 million last year in an effort to recover for the alleged fraud. Prosecutors claim that Mr. Colletti and his co-conspirators used the proceeds to purchase collectible firearms, golf and hunting trips, and—perhaps inspired by Pink Floyd—even bought an arena football team. 

Nanoventions Holdings is a Georgia company that designs and manufactures microstructure technology used to prevent the counterfeiting of such things as currency, driver’s licenses, and event tickets. In 2011, $2 million went missing, and an investigation revealed that that its CFO, Steve Daniels, allegedly forged checks and converted funds to his own use as owner of a company called BIW Enterprises. In an interesting twist, BIW is engaged in the business of growing and distributing marijuana in California. According to Courthouse News Service, the company is suing Mr. Daniels for compensatory, treble and punitive damages under Georgia RICO statutes, and related causes of action.  If the allegations are true, one might find a historical equivalent to these events in the 1920s, when the president of the Loft Candy Company stole thousands of dollars to buy Pepsi-Cola out of bankruptcy.  Loft Candy ended up owning Pepsi on the basis that it was a stolen corporate opportunity.  If Georgia shared Colorado’s stance on marijuana legalization, would the court award ownership of the pot business to Nanoventions?  Oh what a difference a century makes.

• Bankruptcy
• Civil Litigation
• Executive Compensation
• Trade Secrets
• White Collar Crime

Doug Parker, the Chairman and CEO of American Airlines, has just joined a small cadre of executives who earn no salaries. Before anyone starts a GoFundMe page for Mr. Parker, consider that his 2015 compensation consists of 207,672 restricted stock units, the value of which will depend upon the airline’s performance. According to the Wall Street Journal, the stock units could amount to compensation in the range of $10.7 million if calculated using the current stock price of $51.40. By comparison, Mr. Parker earned $12.3 million in 2014, 40% of which was cash in the form of a $700,000 base salary and annual cash incentives. Mark Reilly, head of Verisight, Inc., a firm of executive compensation consultants, told the Journal that this type of compensation structure is more often found in companies facing financial hardship, and the lack of salary is offset by more generous stock awards. In the case of an executive in an established, mature industry, the message seems to be that Mr. Parker believes in the stock and that he is willing to tie his compensation to its performance.  Given US Airways’ performance since its merger with American in 2013, this wouldn’t seem like an incredible risk on his part. The combined company “has soared to record profit and its stock has climbed 42% in the past year.”

• Civil Litigation
• Executive Compensation
• Wrongful Termination

Ellen Pao may not have won her gender discrimination case against Kleiner Perkins, but she may have inspired numerous women working in Silicon Valley who identified with her cause. According to Fortune, employment lawyers are seeing a heightened awareness among women that the workplace issues they face, and that Ms. Pao articulated in her case, are perhaps more widespread than not. This “Pao Effect” has Kay Lucas, a San Francisco-based employment law attorney, fielding twice as many calls each week from potential clients with workplace gender discrimination concerns. Kelly Dermody, a partner at Lieff Cabraser Heimann & Bernstein, has litigated gender discrimination cases for a decade, and told Fortune that her clients now have a heightened willingness to speak out. Lucas also said that companies are more inclined to settle instead of allowing information to become public, and as we observed with the Pao trial, highly publicized. Lucas noted that many of her clients’ complaints share similar themes involving exclusion from important meetings and denied access to the circles of influence. Yet, she said to Fortune, “these women are not particularly angry; they’re ambitious. They’re not victims; they want to be participants.”

A quick search of legal news gives this “Pao Effect” additional credibility.  According to Law 360, Heather McCloskey recently sued Paymentwall, Inc. for sexual harassment, discrimination, retaliation and failure to take reasonable steps to prevent harassment and discrimination. Ms. McCloskey alleged that executive Benoit Boisset routinely harassed her, calling attention to her physical appearance in a demeaning manner. As she became more vocal in her objections, Boisset used expletives when referring to her, and ultimately terminated her employment. McCloskey also described the workplace environment as young, predominantly male and lacking any formalized set of rules or policies. Kelly Dermody cited these kinds of workplace dynamics as partially to blame for the volume of complaints arising from Silicon Valley. She opined to Fortune that many tech companies take off “really quickly without a lot of attention to human resources.” Consequently, “you have a lot of young managers who make young managers’ mistakes,” which might encompass many of the alleged missteps in the Paymentwall case.

• Civil Litigation
• Discrimination

When Dodd-Frank became law in 2010, companies with corporate compliance programs viewed the whistleblower provisions warily and anticipated a potential negative impact on the success of their own internal reporting programs. According to a Law360 piece authored by Vinson & Elkins partner Amy Riella, some companies feared that employees would circumvent the internal reporting process in favor of taking information directly to the SEC to reap the financial awards. A related fear was that corporate officers would be incentivized to do the same as they learned of misconduct through compliance channels. The SEC sought to allay these concerns by creating implementation regulations that disallowed corporate officers from bringing actions when they learned of the relevant information through the role they played in the compliance process. In other words, the officer would have to learn of the fraudulent activity through his or her own “independent knowledge or independent analysis.”  There is an important exception to this rule – an exception that recently earned a former company officer a six-figure award for reporting securities fraud.  The exception states that once the company becomes aware of the issue, it has 120 days to address the alleged misconduct. If the company fails to act within the allotted time frame, the door opens for the otherwise ineligible corporate officer to use the second-hand information to become the corporate whistleblower.

Like sands through the hourglass, so are the days of testimony in the Pao/Kleiner Perkins sexism trial. This week’s installment pitted one female venture capitalist against another. Mary Meeker, the top-ranking female partner at Kleiner Perkins, testified to the virtues of Kleiner Perkins and her belief in its fair treatment of women. When gender is a fundamental issue, the testimony of one woman’s experience versus the other can prove pivotal. According to Fortune, Ms. Meeker, a well-known investor who was once dubbed “Queen of the Net,” by Barron’s Magazine, offered a perspective designed to undercut the claims of discrimination advanced by Pao in the previous weeks’ testimony. According to USA Today, Ms. Meeker testified that "Kleiner Perkins is the best place to be a woman in the business." That said, high-ranking women are a minority in the firm and their representation in the senior partnership has remained relatively constant. Kleiner Perkins has seven senior partners, two of whom are women. At the time of Ms. Pao’s termination in October 2012, three of the eleven senior partners were women.     

• The Inbox

Craig Watts, a chicken farmer from North Carolina, recently brought a whistleblower complaint against Perdue, claiming that the poultry seller retaliated against him for bringing certain animal welfare claims to light.  Mr. Watts owns the farm on which the chickens are raised, but, according to the Government Accountability Project, the terms and conditions of the farm operations are strictly governed by the poultry giant. The Food Integrity Campaign (a program operated by the Government Accountability Project) filed the action on behalf of Mr. Watts, defending his right to speak out about the conditions on the farm, which Watts claims run far “afowl” of Perdue’s marketing claims of “cage-free” and “humanely-raised” chickens. After publicizing the conditions on his farm, Watts was placed on a performance improvement plan and is routinely subjected to surprise audits of his farm.

A former executive at L.A.’s Fashion Institute of Design and Merchandising is seeing red over the school’s termination of her employment, which allegedly came after she demanded more diverse branding in the school’s publications. Tamar Rosenthal filed a civil rights complaint in Los Angeles Superior Court alleging that the school, seemingly interested only in shades of white, opposed her attempts to showcase student diversity on the website and explicitly advised her not to showcase gay, black or non-white students in any school publications.  According to My News LA, the complaint further alleged that Ms. Rosenthal’s supervisors created an “ultra-conservative, anti-Arab and anti-Muslim political atmosphere in the school’s front office.”

• Discrimination
• Poaching
• The Inbox
• Whistleblowers

Netflix, the internet media giant, sued its former vice president of IT Operations, Mike Kail, in California Superior Court, claiming that he “streamed” kickbacks from vendors and funneled them into his personal consulting company. According to the complaint, Kail—who is currently the CIO of Yahoo—exercised broad latitude in both vendor selection and payment.  Netflix alleges that he took in kickbacks about 12-15% of the $3.7 million that Netflix paid in monthly fees to two IT service providers, VistaraIT Inc. and NetEnrich Inc. According to the Wall Street Journal, one line in particular from the complaint piqued experts’ interest: “Kail was a trusted, senior-level employee, with authority to enter into appropriate contracts and approve appropriate invoices.” According to Christopher McClean, an analyst at Forrester Research Inc., this suggests Netflix allowed Kail too much freedom. McClean opined that when individuals are empowered to both choose a vendor and then approve payment, corporate malfeasance can follow.  This is particularly important in the field of information technology, where tech companies vie for business in an ever-competitive market by lavishing incentives on CIOs. Companies that do not incorporate an audit function into vendor selection and payment should consider revisiting their policies going forward.

We recently discussed the hefty $185 million judgment against AutoZone in favor of a former store manager who alleged discrimination and retaliatory discharge following her pregnancy. While this case arose in California, it appears the auto parts retailer is zoned for another similarly-themed legal showdown, this time across the country in West Virginia. In the recent complaint, the plaintiff, Cindy DeLong, claimed that she was placed on a 30-day performance improvement plan for hiring too many women in the stores she managed. She was ultimately fired before the 30 days expired. As you may recall, in the California case, plaintiff Rosario Juarez claimed AutoZone enforced a “glass ceiling” for its female employees, denying them opportunities for promotion. It seems Ms. DeLong managed to chip away at the ceiling as a district manager. But, according to Courthouse News, she now alleges that her practice of hiring women rendered her “not a good fit for the company.”

• Discrimination
• Noncompete Agreements ‎
• Religious Discrimination‎
• The Inbox
• White Collar Crime
• Wrongful Termination

If you find yourself in the digital dating scene (or the market for highly-valued start-ups for that matter), you are probably familiar with Tinder, the dating app that allows users to identify potential dates with an easy swipe of a finger on a smartphone.  Last July, Whitney Wolfe, Tinder’s former VP of marketing, sued the company, alleging that she was sexually harassed by Tinder’s fellow co-founders, CMO Justin Mateen and CEO Sean Rad. The suit primarily focused on the ugly breakup between Mateen and Wolfe, and Mateen ultimately resigned in September, after Wolfe’s suit revealed his “private messages to [her] containing inappropriate content.”  Now, the aftershocks of Wolfe’s suit have spread to impact Rad’s employment as well.  As discussed in this lengthy Forbes piece, the company’s majority owner, IAC (InterActivCorp), decided to oust Rad as CEO early this month, in part due to his involvement in the Wolfe-Mateen brouhaha.   IAC says it still wants Rad to stay involved and focus on Tinder’s business, so for now, it’s not undoing the “match” between Rad and the company he founded.

Consumers of taxi and black car services have witnessed a sea change in options over the past few years. Thanks to internet-based car-summoning applications, customers are empowered with a range of efficient, cost-conscious alternatives to standing on the corner, arms waving, eyeing every yellow vehicle that approaches.  Now, Lyft, one of the leading entrants into this new market, is squabbling in court with an employee who left it to join the other market leader, Uber.  According to Courthouse News Service, Lyft recently sued its former COO, Travis VanderZanden, alleging that he breached his employment contract when he left the company to become Uber’s new VP of international growth.  Lyft says that VanderZanden stole 98,000 pages of confidential financial projections and forecasts, business strategies, marketing plans, and international growth documents. It also accuses VanderZanden of soliciting Lyft’s employees to join Uber, including Lyft’s former VP of operations. Meanwhile, just this week, Uber is rumored to be in talks with investors to raise significant capital toward international expansion. It seems obvious that Uber is focusing on growing its international market share, and perhaps time will tell if Lyft can prove a misappropriation of its own confidential international strategy.