Today we're going to look at a federal statute that is increasingly becoming central to disputes between outgoing executives and their former employers -- a statute originally designed to prohibit computer "hacking."
Now, if you’re anything like me, when you hear the word “hacking,” you probably envision Matthew Broderick using a dial-up modem to break into his high school’s computer and change his grades. (In fact, Broderick pulled this same trick twice in the 1980s; first in WarGames and then again in Ferris Bueller’s Day Off.) Indeed, if you asked the average person to define “hacking,” they would probably come up with something like WarGames; that is, they would consider hacking to be breaking into a computer or network to which you were not given permission to access, in order to do something nefarious, like changing your grades or starting World War III.
It probably comes as no surprise that after those blockbuster movies (and some real-life events, too), Congress enacted a statute to prohibit “hacking” back in the heyday of the 1980s. That statute – the Computer Fraud and Abuse Act (“CFAA”) – is still the law today, and is codified at 18 U.S.C. §§ 1030.
But what you might not know is that in many areas of the country, there's a court-interpreted disconnect between the CFAA’s definition of hacking and Matthew Broderick. That disconnect, in turn, has become a very real issue today for departing executives and their employers. For example, if you’ve been fired and you delete files off of your laptop before returning it, you may be civilly and even criminally liable under the CFAA in some jurisdictions. (International Airport Centers, LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006). (Less relevant – but more salacious – is the Justice Department’s efforts to prosecute a mom under the CFAA for lying about her age on MySpace.) United States v. Drew, 259 F.R.D. 449 (C.D. Calif. 2009).
It all depends on how the courts in your area interpret the CFAA. Read on....
This week, Heinz sounded a lot like American did last week (as we noted) in justifying the size of a golden parachute for its CEO upon the completion of a merger. Heinz’s spokesperson claimed that payments to its CEO William Johnson totaling $56 million "reflect Mr. Johnson’s success in creating billions of dollars in shareholder value," including "the 19% premium" that Heinz shareholders are to receive for their shares when Heinz is acquired by Berkshire Hathaway and 3G Capital. For those of us who consider $56 million to be a whole lot of money – no matter what they guy did for ketchup sales – the spokesperson might also have said that only about $17 million of that amount (okay, still a whole lot of money) is really a golden parachute.
On Friday, we reported on American Airline CEO Tom Horton’s golden parachute in the merger agreement between American and US Airways. American is asking the court overseeing its bankruptcy to approve the merger agreement, which includes a letter agreement between American and Horton. The letter agreement provides that Horton’s employment with American will be terminated at the time of the merger, and – so long as he agrees to release American and US Airways from any claims – he will be paid severance totaling nearly $20 million in cash and stock.
Why would any company agree to such a thing? According to American, its agreement with Horton is “in recognition of [his] efforts in leading [American’s] restructuring and his role in enhancing the value of [American] and overseeing the evaluation and assessment of potential strategic alternatives that culminated in the Merger.” In other words, to compensate him for helping to make possible a good merger and then getting out of the way. The new company created by the merger can only have one CEO, and it is best for the new company not to be distracted by disputes with former executives of the old company.
There are things we’re all supposed to do before a catastrophe occurs, to help prevent that catastrophe or minimize the harm from it. This list would include changing the batteries in your smoke detectors, or making sure your car is kept in good repair, or seeing the dentist every so often for a thorough teeth cleaning.
If you are an executive or a business owner with any role in hiring or managing others, I’m about to add one more suggestion to that list: check to figure out if you have insurance for employment-related allegations for which you may, in some circumstances, be held personally liable.
In Part One of this series, we looked at insurance for employment-related claims against business owners and managers. Specifically, we looked at employment practices liability insurance (“EPLI”), and I suggested you find out if your company has this coverage – which, if you’re doing any of the hiring, firing, or supervising, is something you should know.
Assuming your company (or entity – employment-related claims hit not-for-profits as well) has EPLI, then you need to ask some more questions to really understand what it covers and how it will work. And the time to consider this is before you may potentially have a claim for coverage under it.
Yesterday, we had good news for Bob Cratchit: he has a right under the FLSA to more compensation than Scrooge pays him, and could take legal action to protect that right. But what about the other unfairness and indignities that Bob suffers as Scrooge’s employee – such as the cold office and Bob’s inability to secure Tiny Tim proper medical care? Would any federal laws protect him? That’s the subject of today’s post, and the news is not good for Bob.
Bob Cratchit’s boss, Ebenezer Scrooge, is an “odious, stingy, hard, unfeeling man.” Or, at least that’s what Mrs. Cratchit says of him after feeding her family of eight, including her crippled son, Tiny Tim, a too-small pudding for dessert on Christmas. Readers of Dickens’ A Christmas Carol could easily reach the same conclusion. Bob, a clerk in Scrooge’s business (which some suggest is what we would call a stock brokerage today), is paid a mere 15 shillings weekly to work six days a week in an office that Scrooge refuses to adequately heat. That seems bad. But, today, in say, New London, somewhere in the U.S.A., would it be illegal? For these final days of the holiday season, we explore possible causes of action in Cratchit v. Scrooge. (We are not the only lawyers with these types of holiday musings.)
In our last installment, we described a dispute between CBS, on the one hand, and three former producers of the CBS show Big Brother, on the other, in which the former producers argued that CBS had waived its contractual right to arbitrate by spending months pursuing litigation against the former producers before demanding arbitration. Because many employment contracts have mandatory arbitration clauses, the possibility of waiver must be on the radar screens of parties to an employment dispute. We discussed the flipside of this issue, arbitration by estoppel, in July.
The threshold question is whether the party seeking arbitration acted inconsistently with the right to arbitrate.
Reality TV is a guilty pleasure for some - not us at Suits by Suits, mind you, as we prefer to focus our attention on the more pressing legal questions of our time. Reality TV is also a highly competitive industry and fertile ground for lawsuits between companies and star employees with lessons for all of us about employment contracts. In our last episode, MSNBC and the former host of My Big Obnoxious Fiance taught us about repudiating contracts. In this episode, CBS and three former producers of Big Brother teach us about waiving a contractual right to arbitrate an employment dispute.
The three former Big Brother producers - Corie Henson, Kenny Rosen and Michael O’Sullivan – eventually wound up working on the production of ABC’s The Glass House, which CBS has called a blatant rip-off of Big Brother, and which aired last summer. Before it aired, in May 2012, CBS sued ABC and the three former producers in federal court in Los Angeles. The former producers had signed non-disclosure agreements (NDAs) with CBS in connection with their work on Big Brother. CBS sought to temporarily restrain ABC from airing the first episode of The Glass House, claiming that ABC and the former producers had violated CBS’s copyrights and misappropriated its trade secrets in the production of the show. CBS also claimed that the former producers violated the NDAs by disclosing confidential information and trade secrets relating to technical, behind-the-scenes aspects of filming and producing Big Brother.
On Thursday, a 4-3 majority of the Virginia Supreme Court held in VanBuren v. Grubb that individuals such as supervisors or managers could be sued as individuals and held personally liable for the common law tort of wrongful termination (also known as wrongful discharge) in addition to whatever corporate liability the employer may have.
As a practical matter, this gives plaintiffs and their lawyers additional leverage when bringing suits that contain a cause of action for wrongful termination in Virginia by being able to name the former employee’s boss as a co-defendant. From the boss's perspective, this decision means that you, personally, could be named as a defendant and ultimately forced to satisfy a judgment for improperly firing an employee from your own pockets -- not just your company's. It also means that employers and their executives who operate in Virginia need to review their D&O insurance coverage with this potential exposure in mind.
In short: whether you're an executive or an employer, you need to know about this case and its implications on the employment relationship.
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.
John J. Connolly
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