The Inbox – The SEC’s Claws May Come Out

| 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.

Hawaii recently joined the short list of states willing to ban certain types of non-compete agreements. The Aloha State’s legislature targeted technology businesses, declaring invalid any non-compete and non-solicitation clauses in employment contracts for those businesses. In so doing, according to JD Supra, the lawmakers noted that “Hawaii has a strong public policy to promote the growth of new businesses in the economy, and academic studies have concluded that embracing employee mobility is a superior strategy for nurturing the innovation-based economy.”

When Peggy Young, a part-time UPS driver, became pregnant, she asked her doctor for a medical note that would forever change the trajectory of her employment with the parcel company. Ms. Young’s doctor placed restrictions on her ability to lift heavy packages, which happened to be fundamental to her job description. UPS refused to make an accommodation like desk duty, placed her on unpaid leave, and sent her home. One might argue that the wording of her doctor’s note unwittingly resulted in her termination, leading to the U.S. Supreme Court’s recent holding that Ms. Young could proceed on her claim of pregnancy discrimination against UPS. In its “Well” blog, The New York Times discusses Ms. Young’s lawsuit, other pregnancy-related employment litigation, and the “pivotal role” that doctors’ notes play in these employment scenarios. The Times quoted Peggy Young’s attorney, Sharon Gustafson, as saying that “[e]ven when asking for an accommodation, the emphasis should be kept on the employee’s ability to work, rather than primarily on the inability to do some aspect of the job.”

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.

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.

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