Suits by Suits

Companies zealously guard their trade secrets and other information that gives them a competitive edge. And as we’ve covered in prior posts, companies often resort to the courts to protect this kind of information.

Recently, a media company filed a lawsuit seeking to use trade secret protections to recover something very public—a reporter’s Twitter account.

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:

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.

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.”

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.

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.”

Federal employment law protects against a number of different types of discrimination, including treating employees differently because of age, gender, or race. 

More and more often, employees bring discrimination claims based on harassment, rather than (or in addition to) claims based on employer decisions that appear to be discriminatory. 

However, an employee can only bring a harassment claim under federal law if the employer has engaged in "discriminatory intimidation, ridicule, and insult" that was "sufficiently severe or pervasive to alter the conditions of the victim's employment and create an abusive working environment." See Harris v. Forklift Systems, Inc., 510 U.S. 17 (1993).

An employee without an employment contract is typically deemed to be an at-will employee. In an at-will employment relationship, the employer has the right to terminate the employee for any reason permitted by law, with or without cause.

Moreover, when employers write their employee handbooks, they frequently adopt strong language describing this at-will employment structure and warning employees of this termination right. But sometimes even this handbook language isn’t enough to protect an employer from a claim that an employee is exempt from termination without good cause.

That’s exactly what happened to Barnes & Noble in Oakes v. Barnes & Noble College Booksellers, LLC, a recent decision from the California Court of Appeal.

Federal law—specifically, Title VII of the Civil Rights Act of 1964—prohibits employers from discriminating against employees based on a number of protected characteristics, including sex, race, national origin, and religion.

One major open question, however, is whether Title VII prohibits employers from discriminating based on sexual orientation. For example, if a job candidate is openly gay, can the employee refuse to hire that person because of his sexual orientation without violating federal law?

The Supreme Court has never spoken on the issue.

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.

The board of directors controls a corporation, but individual directors don’t always agree on the future direction of the company. Sometimes, boards can split into factions. A company’s CEO may align himself with one side and oppose the other.

In rarer circumstances, these disagreements can develop into corporate gridlock. This happens when the warring factions on a board are equally divided.

What can a court do to fix this situation?