• Last week, American Apparel announced that its board had decided to terminate Dov Charney, the company’s founder, CEO, and Chairman, “for cause.”  (We’ve discussed the meaning of terminations “for cause” in prior posts here and here.)  The board also immediately suspended Charney from his positions with the company.  Although the board didn’t initially disclose the reasons for its action, Charney is not new to controversy; in recent years, he has faced allegations of sexual harassment and assault.

    The reasons for Charney’s termination have now become public, and they aren’t pretty.  In its termination letter, available here, the board accuses Charney of putting the company at significant litigation risk.  It complains that he sexually harassed employees and allowed another employee to post false information online about a former employee, which led to a substantial lawsuit.  The board also says that Charney misused corporate assets for “personal, non-business reasons,” including making severance payments to protect himself from personal liability.  According to the board, Charney’s behavior has harmed the company’s “business reputation,” scaring away potential financing sources.

    Read more
  • The Inbox: June 20, 2014

    | Zuckerman Spaeder Team

    This has been a noteworthy week here at Suits by Suits for developments in the law concerning whistleblowers; in addition to our in-depth articles we published this week, we also saw the following developments:

    • The big news – which we tweeted about yesterday – is that the U.S. Supreme Court issued its opinion in Lane v. Franks, a case we’ve been watching with considerable interest.  In a unanimous (9-0) decision, the Supreme Court ruled that whistleblowers are protected against retaliation by their employers when they are called to testify in court about corruption, departing from past cases in which employees were held not to have First Amendment rights to discuss matters learned at their jobs.  Writing for the unanimous Court, Justice Sotomayor held that such testimony is in fact protected by the First Amendment because “Anyone who testifies in court bears an obligation, to the court and society at large, to tell the truth.”  We’ll be analyzing this decision in depth in the coming days.
    • The Supreme Court’s decision in Lane v. Franks comes on the heels of a survey conducted by the federal Office of Personnel Management showing that nearly 20% of federal employees are afraid of retaliation if they were to disclose “a suspected violation of any law, rule or regulation” by any government agency.  (61.2% affirmed that they felt free to disclose such violations without fear of reprisal.)  The Washington Post analyzed these results in the context of the ongoing controversy regarding the department of Veterans’ Affairs; the Acting Secretary of the VA, Sloan Gibson, has promised to protect any whistleblowers from reprisal.  Nevertheless, attorney Scott D. Gerber, writing in the Huffington Post, opines that the VA’s whistleblower protection program “is broken, too.”
    • Relatedly, the Wall Street Journal opined that recent activity and statements by the Securities and Exchange Commission (SEC) may signal that the agency is prepared to take stronger measures against employers who retaliate against whistleblowers.
    • Illustrating the SEC’s get-tough policy, earlier this week, it fined a hedge fund, Paradigm Capital Management, for retaliating against a whistleblower that reported alleged “improper transactions” by the hedge fund to the SEC.

    Of course, not everything that happened this week involved whistleblowers; here are a few other Suits by Suits that may be of interest:

    • The U.S. Supreme Court granted certiorari in a case that will determine whether mortgage loan officers are “employed in a bona fide executive, administrative, or professional capacity” and thus exempt from mandatory overtime pay requirements.
    • Finally, the Washington Post documented the fallout over years’ worth of complants about American Apparel’s CEO Dov Charney (as well as photographer Terry Richardson) for multiple alleged instances of sexual misconduct.  Despite founding the company, the American Apparel board of directors ultimately suspended Charney for a 30-day cure period as required by contract before he can be terminated.  Charney’s bizarre conduct is alleged to include wandering through American Apparel offices in his underpants, masturbating in front of a (female) reporter, among other behvaiors that led one plaintiff to describe his leadership as a “reign of sexual terror.”  The Post also called out Richardson’s “aesthetic of hipster softcore pornography” (which it then documents by reproducing a half-dozen advertising shots of young-looking models).
    Read more
  • While we’re talking about whistleblowers, it’s worth noting that two days ago, the U.S. Court of Appeals for the Second Circuit heard oral argument on appeal from the a federal district court’s opinion in Meng-Lin Liu v. Siemens AG, 978 F.Supp.2d 325 (S.D.N.Y. 2013). This case raises the significant question as to whether the anti-retaliation provisions of the Dodd-Frank Act, 15 U.S.C. § 78u-6(h)(1)(a), apply to an employee who is terminated by a non-U.S. corporation that does business in (and is regulated by) the United States.

    Read more
  • One recurring topic here at Suits by Suits is the default corporate practice of including mandatory arbitration clauses in employment contracts; we’ve written frequently about that practice.  Such clauses typically specify that “the parties agree to submit any dispute arising out of this Agreement to binding arbitration.”

    Read more
  • The Inbox - Friday the 13th of June Edition, 2014

    | Zuckerman Spaeder Team

     

    • Netflix is challenging the lawsuit filed against it by its former content acquisitions executive Jerry Kowal, whom Netflix fired before he could resign to work for Amazon last summer.  Kowal's claims against Netflix - which we examined earlier - include defamation.  Netflix now claims that Kowal took its confidential documents - downloading them while on vacation weeks before he left for Amazon.  
    • A 48-year-old former director of Disney's story department has sued Disney in Los Angeles Superior Court for age discrimination, claiming that Disney fired him after 26 years and replaced him with a woman in her late 20s or early 30s.  
    • Twitter's COO Ali Rowghani resigned this week, although he will continue as an employee of the company.  Reportedly, he had little to do after CEO Dick Costolo took on more responsibilities at the struggling company.  Rowghani and Costolo exchanged friendly tweets about his resignation, so we would be surprised to see a suit by suit emerge.
    • SunTrust Bank is paying $300,000 to settle a charge by the EEOC that one of its branch managers in Sarasota sexually harassed three women who reported to him by, for example, allegedly repeatedly trapping one of them at the teller's desk using his body and telling another that she should wear a bathing suit to work.
    Read more
  • Non-competes are a frequent topic here on Suits by Suits.  We have discussed how the laws of the 50 states vary - and boy do they. Some states (like California) flat out prohibit non-competes, while some states (like Delaware) not only permit non-competes but enforce broad restrictions on employment.  Meanwhile, in boardrooms and statehouses (like Massachusetts's), a debate is raging about whether non-competes are in the public's interest - especially in today's world, where our work force is highly mobile and the states are in an arms race to attract start-up tech companies (and all those jobs).  For those of us interested in the debate, three recent items in The New York Times should not be missed: an article reporting on the proliferation of non-competes in unexpected fields (such as summer camp counseling); a discussion among lawyers, professors and lobbyists about the merits or lack thereof of non-competes; and an opinion by New York Times Editorial Board that non-competes hurt workers - especially low-wage and unskilled workers lacking the bargaining power to resist entering into non-competes. 

    Read more
  • Summer humidity has arrived here in the mid-Atlantic, but the skies are blue and the thermometer isn’t creeping above 90 as of yet.  Here are some tidbits of executive-employer news to print and read in the shade when it’s time to cool off: 

    • Not that the White House needed more controversy right now, but the Office of Special Counsel is investigating 37 whistleblower claims arising from 19 different Veterans Administration facilities, reports Jack Moore of Federal News Radio.  The range of misconduct that the whistleblowers allegedly disclosed includes “improper scheduling practices, the misuse of agency funds and inappropriately restraining patients.”
    • Chris Cassidy of the Boston Herald writes that the Massachusetts House Speaker, Robert DeLeo, and the state’s governor, Deval Patrick, are clashing over noncompete agreements.  Patrick has been pushing to ban the prohibitions, while DeLeo and his allies argue that they should remain because employees have shown a willingness to live with them.
    • “I’m Number One!”  In the CEO world, the top-ranked executive in terms of compensation is Charif Souki of Cheniere Energy Inc., who raked in $142 million last year.  Now, Souki’s compensation has sparked a disgruntled shareholder lawsuit, according to Zain Shauk, Caleb Melby and Laura Marcinek of Bloomberg.  The lawsuit has led Cheniere to push off its annual meeting by three months.  Shareholder advisory firms are telling the company’s stockholders that they should not vote to approve further expansion of its executive compensation.
    • Darren Heitner, writing for Forbes, brought us the story of a football agent’s lawsuit against Octagon, his former employer.   Doug Hendrickson, who now works for Relativity Sports, alleges that the noncompete provision in his employment agreement with Octagon is an illegal restraint of trade under California law.  Hendrickson has represented Marshawn Lynch in the past; no word as to whether his lawyers are familiar with Beast Mode.
    Read more
  • In 2010, Congress passed the Dodd-Frank Act, strengthening legal protections for employees who report violations of the securities laws.  However, as we’ve covered here, here, and here, the courts have diverged widely as to whether an employee must report directly to the SEC in order to be shielded from retaliation.

    In Asadi v. GE Energy (USA), LLC, which we addressed in this post, the Fifth Circuit decided that to meet Dodd-Frank’s definition of a “whistleblower” – and to be protected by its anti-retaliation provision – an employee must in fact provide information to the SEC.    However, most of the district courts that have addressed the issue have decided that an employee need not report to the SEC in order to be protected from adverse actions by his or her employer.

    Read more
  • An executive’s right to severance payments isn’t always written in stone, even if his employer agrees to provide them.  In this post, we described how one exec lost his severance pay after the Federal Reserve decided that his employer, a bank, was in a “troubled condition” at the time.

    A recent decision from the U.S. Bankruptcy Appellate Panel of the Tenth Circuit, In re Adam Aircraft Industries, Inc., illustrates another scenario in which an executive’s golden parachute can collapse around him.  Joseph Walker was the president of Adam Aircraft, an airplane designer and manufacturer.  He was terminated in February 2007, and was allowed to resign, after which he negotiated a healthy severance package.  Over the next year, Adam Aircraft paid him $250,000 in severance, $100,002 to repurchase his stock, and $105,704 as a refund on a deposit he had made on a plane. 

    Read more
  • As long-standing readers of Suits by Suits know, California is at the forefront of the “state-by-state smackdown” regarding covenants not to compete, having prohibited essentially all such clauses by statute.  (You can refresh your recollection by reviewing our discussion of California law, here.)

    Consequently, one of the arguments deployed by other states looking to restrict or ban noncompetes is that the business climate created in California encourages worker mobility, and that climate in turn is attractive to the technology sector (and in particular, to technology start-ups), who depend upon “poaching” away top talent that may be underpaid at a competitor.  You can read these arguments in more depth here (part 1), here (part 2), and most recently here (part 3).

    The common thread that runs through these arguments is that California encourages worker mobility, and that mobility, in turn, is good for Silicon Valley.  The argument has some appeal.

    Read more

As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.

Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.

Contributing Editors
John J. Connolly

John J. Connolly
Partner
Email | +1 410.949.1149


Man

Andrew N. Goldfarb
Partner
Email | +1 202.778.1822


Sara Alpert Lawson_listing

Sara Alpert Lawson
Partner
Email | +1 410.949.1181


Nicholas DiCarlo

Nicholas M. DiCarlo
Associate
Email | +1 202.778.1835


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