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.
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.
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.
In our last post, we detailed how Sanford Wadler, the former general counsel of Bio-Rad Laboratories, won a $14.5 million verdict against Bio-Rad.
Before Wadler could get to a jury, however, he had to surmount a significant hurdle: Bio-Rad asked the judge to exclude any testimony based on information Wadler learned in his role as in-house counsel. Bio-Rad relied on an attorney’s ethical duty to protect client confidences unless the client is threatening criminal activity that could lead to death or serious bodily harm.
Companies entrust their in-house attorneys with sensitive and confidential information in order to obtain legal advice on important matters. Thus, when an in-house attorney turns on his or her employer, the repercussions can be significant.
In a recent case involving just this situation, a jury awarded Sanford Wadler, the former general counsel for Bio-Rad Laboratories, an $8 million verdict for wrongful termination. The jury found that Wadler raised concerns about violations of the Foreign Corrupt Practices Act (FCPA) at Bio-Rad, and that the company violated the Sarbanes-Oxley Act and California public policy when it terminated him after he raised those concerns.
When an employee brings a lawsuit alleging that his employer retaliated or discriminated against him, courts typically assess the claim by using a burden-shifting approach. Under this approach, after the employer offers a “legitimate, nondiscriminatory reason” for its actions, the employee has to come forward with evidence showing that the reason was pretextual.
The recent decision in Stephenson v. Potterfield Group LLC serves as an example of how an employee can meet this burden.
Last week, the U.S. Supreme Court issued a plaintiff-friendly decision resolving disagreements over the question of when a constructive discharge claim accrues. The lower courts didn’t agree on when the clock should start ticking on claims by employees that they were forced to quit, creating uncertainty for plaintiffs who faced the possibility that their claims would be barred by the statute of limitations if they didn’t sue soon enough.
As the United States gears up for next year’s presidential election, it’s always fun to check in with PolitiFact’s Truth-O-Meter on the days following debates or periods of political grandstanding to see who is really telling the truth and whose pants are on fire.
Since we’re all human – yes, politicians are, too – some of us admittedly engage in the occasional white lie or embellishment in the work place. While we don’t have PolitiFact to fact-check our boardroom meetings, one employee recently alleged that his CEO tried to snuff out lies using a portable lie detecting machine.
Facebook is as public a forum as they come, yet it’s ironic how intimate some posts can be, as if the user is thinking out loud for everyone to hear.
Posts can be funny, political, or just plain weird, while others allow us to commiserate, empathize, or laugh out loud as we take that ultimate step of “liking” them. Sometimes liking another person’s thoughts can carry a high cost, especially if those thoughts disparage one’s employer.
Triple Play Sports Bar and Grille, the disparaged party in this example, took issue with the Facebook activity of two of its employees. Employee Vincent Spinella, a cook, “liked” this statement of a former employee:
“Maybe someone should do the owners of Triple Play a favor and buy it from them. They can't even do the tax paperwork correctly!!! Now I OWE money...Wtf!!!!”
Bartender Jillian Sanzone added the comment, “I owe too. Such an asshole.”
Triple Play’s management noticed the online behavior and discharged Spinella and Sanzone for violating company policy relating to prohibited internet activity.
The Justice Department issued a memo to United States attorneys nationwide that might have Wall Street executives shifting nervously in their seats. The memo signifies a new focus as it instructs both civil and criminal prosecutors to pursue individuals, not just their companies, when conducting white collar investigations. According to The New York Times, the memo is a “tacit acknowledgement” that very few executives who played a role in the housing crisis, the financial meltdown, and other corporate scandals have been punished by the Justice Department in recent years. Typically when a company is suspected of wrongdoing, the company settles with the government after supplying the authorities with the results of its own internal investigation. This paradigm has led to corporations paying record penalties, while individuals usually escape criminal prosecution. Deputy U.S. Attorney General Sally Q. Yates authored the memo and articulated the Justice Department’s new resolve. “Corporations can only commit crimes through flesh-and-blood people. It’s only fair that the people who are responsible for committing those crimes be held accountable.” To achieve this end, U.S. attorneys are directed to focus on individuals from the beginning, and will refuse “cooperation credit” to the company if they refuse to provide names and evidence against culpable employees. And don’t think about naming a fall guy to take the blame. Ms. Yates said the Justice Department wants big names in senior positions. “We’re not going to be accepting a company’s cooperation when they just offer up the vice president in charge of going to jail.” We’ll have more on the Yates Memo and its potential implications in weeks to come.
Normally, in litigation between executives and employees, the executive will bring suit after he or she is fired, alleging wrongdoing by the former employer. This makes sense: the employer, after all, is the one who took the adverse action against the exec. And it’s the one that caused the damage, assuming that the executive can prove his or her claims.
The case of Stephen Stradtman, former CEO of Otto Industries North America, Inc., was not a normal case. For one thing, Stradtman wasn’t fired – he quit. And Stradtman didn’t sue Otto – he sued two other companies (Republic Services, Inc. and Republic Services of Virginia, LLC) and one of their employees.
Section 1514A of the Sarbanes-Oxley Act shields a whistleblower from retaliation if he reports “conduct [that he] reasonably believes” violates certain laws, including Securities and Exchange Commission regulations. Last month, the Sixth Circuit held that the question of a whistleblower’s “reasonable belief” is a “simple factual question requiring no subset of findings that the employee had a justifiable belief as to each of the legally-defined elements of the suspected fraud.” Rhinehimer v. U.S. Bancorp Investments, Inc., No. 13-6641 (6th Cir. May 28, 2015). Based on this principle, the court affirmed a $250,000 verdict in favor of the plaintiff, Michael Rhinehimer.
According to the Court’s opinion, Rhinehimer was a financial planner for U.S. Bancorp who helped his elderly customer, Norbert Purcell, set up a trust and a brokerage account. In November 2009, Rhinehimer went on disability leave, and asked a colleague not to conduct any transactions with Purcell. The colleague didn’t follow the instructions, and instead put Purcell into investments that Rhinehimer believed were unsuitable. (Unsuitability fraud under the securities laws occurs when a broker knows or reasonably believes certain securities to be unsuitable to a client’s needs, but recommends them anyway.) Rhinehimer complained about the trades, but his superiors warned him that he should “stay out of the matter” and stop criticizing the colleague. After Rhinehimer hired a lawyer, he was placed on a performance improvement plan and fired after he failed to meet it.
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.”
After firing its head patent attorney, Steven Trzaska, L’Oreal is now under fire from Trzaska in New Jersey federal court. On April 16, 2015, Trzaska sued L’Oreal, claiming that his firing violated New Jersey’s Conscientious Employee Protection Act (“CEPA”).
In his complaint (available at Law360), Trzaska alleges that L’Oreal had a quota for its New Jersey office of 40 filed patent applications in 2014. But, Trzaska contends, an outside consultant had previously found that many of L’Oreal’s patent applications were purely cosmetic, saying that “the vast majority of its inventions were of low or poor quality.” Trzaska alleges that his superiors pressured him to file applications to meet the quota. However, he told them that “neither he nor the patent attorneys who reported to him were willing to file patent applications that the attorneys believed were not patentable.” Soon after, L’Oreal terminated him, saying that it was hiring a new “head of patents of the Americas.” Trzaska claims that this explanation was pretext and that the company in fact fired him because he refused to file applications that were not patentable.
How do Trzaska’s claims line up with CEPA?
Silicon Valley is buzzing about the trial in Ellen Pao v. Kleiner Perkins Caufield and Byers LLP, which got underway on Tuesday. According to USA Today, a UC-Berkeley professor says that you “can’t be within a stone’s throw of the Valley without hearing” about the case.
The cast of characters (described here by the San Francisco Business Times) includes a number of heavy hitters, including Pao herself. Pao, a graduate of Princeton, Harvard Law, and Harvard Business School, is now the CEO of Reddit. Kleiner Perkins is a well-known venture capital firm in Menlo Park, a city that has been described as the “center of the venture capital universe.”
Pao’s allegations are explosive. She contends that she had a brief affair with a married junior partner who continued to harass her after she broke off their relationship. Her claims about the firm go deeper than just this harassment; she contends that the firm had an overarching culture of discrimination against women, culminating in her dismissal in October 2012.
The Sarbanes-Oxley Act’s whistleblower protection provision, 18 U.S.C. § 1514A, allows a wrongfully terminated whistleblower to recover “all relief necessary to make [her] whole.” 18 U.S.C. § 1514A(c)(1). The statute then goes on to say that compensatory damages include reinstatement, back pay, and “special damages,” including expert fees and reasonable attorneys fees. In an opinion issued this week, the Fourth Circuit held that Sarbanes-Oxley damages don’t just include these enumerated damages. Rather, an employee can obtain other compensation for harm, including emotional distress damages. Jones v. SouthPeak Interactive Corp. of Delaware, Nos. 13-2399, 14-1765 (4th Cir. Jan. 26, 2015).
The plaintiff in the case, Andrea Gail Jones, was the former chief financial officer of SouthPeak, a video game manufacturer. According to the opinion, in 2009, SouthPeak wanted to buy copies of a video game for distribution, but didn’t have the cash to buy the games up front. Instead, SouthPeak’s chairman, Terry Phillips, personally fronted Nintendo over $300,000. When SouthPeak didn’t record this debt, Jones raised a stink, eventually telling the company’s outside counsel that the company was committing fraud. The same day, the company’s board fired her.
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.”
On Monday, AutoZone found itself on the wrong end of a $185 million verdict in favor of a former store manager, Rosario Juarez. Yes, you read that right. $185 million. This stunning verdict appears to have been the result of Juarez’s allegations of discrimination and retaliatory discharge, combined with an insider turned witness who provided extremely damaging testimony against the auto parts retailer.
In her complaint, Juarez alleged that AutoZone had a “glass ceiling” for women employees, which it kept in place through a hidden promotion process where open positions were not posted. According to Juarez, she succeeded in cracking the glass ceiling, securing a store manager position, but when she became pregnant, she was treated differently by her district manager. After giving birth, she complained about the unfair treatment and was soon demoted by the manager, who told her that she could not be a mother and handle her job. Later, she was terminated as the result of a loss prevention inquiry, in which she refused to participate in a “Q&A” statement about a theft at the store. Juarez alleged that the loss prevention department’s request for a statement was a pretext to fire her.
We’ve spent a lot of time on this blog discussing allegations of pregnancy discrimination like these (see, for example, here, here and here). The short of it is that a company can’t treat pregnant women, or women who have given birth, differently than it treats other employees. But we’ve never covered a verdict for pregnancy discrimination that looked more like a Powerball win than a litigation result.
We cover a broad range of issues that arise in employment disputes. Occasionally, we also spotlight other topics of relevant legal interest, ranging from health care to white-collar defense to sports, just to keep things interesting.
Led by Jason Knott and Andrew Goldfarb, and featuring attorneys with deep knowledge and expertise in their fields, Suits by Suits seeks to engage its readers on these relevant and often complicated topics. Comments and special requests are welcome and invited. Before reading, please view the disclaimer.