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Labor and Employment Law Newsletter
Fall 2000
Articles:
QUARTERLY QUIZ
Three employees of a non-union employer complain to their supervisor that their five-minute breaks are too short, and ask that the break time be extended to 10 minutes. The supervisor writes them up for disruptive activity during work time.
True or False?
The supervisor may be accused of insensitivity or heavy-handedness, but he cannot be accused of violating the law.
(Answer Here.)
THE BRAIN DRAIN: PROTECTING YOUR COMPANY'S INTERESTS
Michael L. Blumenthal
Kansas City Office
Dot-com companies. E-commerce. The "new economy" grows every day. The Information Technology Association of America estimates that, in this year alone, the growth of technology based companies will result in the creation of more than 1.5 million new jobs. There is a flood of senior executives, middle managers, and technology personnel leaving traditional brick-and-mortar companies to join emerging technology companies. Some of these employees will likely be from your company. When employees leave your company, however, are they going to take with them your confidential, proprietary, or secret information? Are they going to be exploiting technology that they developed on behalf of your business? And, how do you prevent the brain drain from damaging your company?
Get A Plan: Too many companies fail to plan for the inevitable departure of key personnel. You should form a team responsible for developing a program to safeguard your company's proprietary information.
Define Your Trade Secrets: Identify all information which you consider to be proprietary or confidential. Such information might include formulas, computer programs, manufacturing processes, pricing and profit data, and information about your company's clients or customers. After you identify this information, ask, "Does this information give me a competitive advantage?" If the answer is "yes," then ask, "Can a competitor readily obtain this information from public sources or reverse engineering?" If the answer is "no," you must take additional steps to safeguard your secrets. After you have identified your trade secrets, they should be indexed, clearly marked "confidential," and stored in secured files or rooms with limited access.
Identify Who Will Have Access To Your Trade Secrets: Determine who within your organization is exposed to, and consequently could misappropriate, confidential information. These people may include employees, vendors, suppliers, contractors, customers, and visitors. Keep records of who has access to confidential information as well as the specific confidential information to which they have access.
Require Employees To Sign Confidentiality Agreements: Any person who has access to your confidential information should be required to sign a confidentiality agreement providing for severe penalties in the event of a breach. Custom tailor your confidentiality agreements to specifically reference the type of confidential information the individual will be exposed to, prohibiting the disclosure of that information, and requiring its return when the person no longer needs access to the data.
Require Employees To Sign Well-Drafted Restrictive Covenants: Contrary to what most people think, many courts will enforce a non-compete or non-solicitation agreement if it is carefully drafted to protect the company's proprietary interests. You should require employees to sign well-drafted agreements prohibiting them from going to work for certain customers, vendors, or competitors within clearly defined (and reasonable) geographic limitations. The agreements should also prohibit employees from soliciting the company's customers (including those specific clients which the employees solicited while employed by the company).
Adopt A Computer Use Policy: A computer use policy should be as commonplace in today's workplace as a sexual harassment policy. A computer use policy should limit employees' use of computer technology (including the internet) to business-related matters, and should advise employees that the company may monitor their use of the computers and related technology.
Remain Vigilant: Monitor employees' use of the company's computer systems to ensure that employees are not using your technology to misappropriate confidential information. Check with departing employees' supervisors about what confidential information the employees may have in their possession. Also, inquire about whether departing employees have engaged in any unusual activity such as using the photocopier excessively, taking documents away from the premises, or doing a substantial amount of work at home.
Require Employees To Acknowledge Their Commitments Upon Their Resignations: Conduct exit interviews with all departing employees. Ask employees to respond to reports that they engaged in suspicious activity prior to announcing their resignations. Require departing employees to acknowledge in writing that they have returned any confidential information to the company. Also, provide departing employees with copies of the confidentiality agreement and restrictive covenants they signed and indicate that you expect the employees to refrain from engaging in any activity that violates those agreements. Send a follow-up letter to the employee's new employer explaining that the employee has knowledge of your company's proprietary information and is bound not to divulge that information.
Vigorously Enforce Confidentiality Agreements and Restrictive Covenants: Employees often breach their confidentiality agreements, non-compete, or non-solicitation agreements because they believe that their employers will not try to enforce them or, if litigation ensues, that a court will not enforce those agreements. Many courts will enforce such agreements, however, if an employer promptly seeks judicial relief preventing the employees' disclosure of confidential information and if the agreements are narrowly tailored to protect the employer's proprietary interests.
Assess Your Company's Physical Security: You must ensure that your company's facilities are adequately safeguarded to make it difficult for your trade secrets to be stolen. Reasonable security measures include the following:
- Electronically controlled and monitored access into the company's facilities.
- "No Trespassing" and "Re-stricted Access" signs.
- Employee Identification badges.
- Locked storage of and limited access to files containing confidential materials.
- Restrictions on visitor access.
Courts will continue to protect businesses from the misappropriation of their trade secrets so long as companies take reasonable precautions to safeguard their secrets. Employers do not need to create impenetrable fortresses to protect their interests, but they do need to take reasonable steps to ensure that employees, vendors, competitors, and the public cannot easily gain access to proprietary information. We live in exciting times, and some of your employees may leave your company to pursue exciting opportunities. You need to act prudently, however, to ensure that their excitement is not based on the misappropriation and use of your proprietary information.
Mike Blumenthal practices in the areas of litigation defense and prevention. This article originally appeared in the April 21, 2000 edition of the Kansas City Business Journal.
FORM VERSUS SUBSTANCE:
The FMLA Designation Debate
Angelique Groza Lyons
Tampa Office
For years, human resource professionals have lamented the confusing, often contradictory, and overly technical Department of Labor ("DOL") regulations that implement the Family and Medical Leave Act ("FMLA"). If you have had similar thoughts, rest assured that you are in good company. Recently, several federal Appeals Courts have wrestled with the issue of an employer’s liability for failure to comply with the "designation" technicalities where the employee has received her full twelve-week allotment.
Good News, Bad News
The decisions are mixed, but so far the news is mainly good for employers. Two of three courts that have faced the issue have held that, so long as the employee receives his twelve-week leave allotment, the employer need not comply with the technical "designation" requirements. However, a panel of the Sixth Circuit, which includes federal courts in Michigan, Ohio, Tennessee, and Kentucky, has held to the contrary.
The DOL regulation in question, 29 C.F.R. Section 825.208, provides that an employer must properly designate the leave as FMLA-qualifying before it can count the time against the employee's 12-week annual entitlement. According to the Regulations, if the employer fails to properly designate the time, then the leave does not count against the employee’s 12-week entitlement — in other words, the employee gets the time off "free" and remains entitled to an additional 12 weeks of FMLA leave. Employers rightfully complained that this regulation elevated form over substance, especially since many of the employees who benefitted had ample notice — although not "proper" under the regulations — that their employers were considering their leave to be covered under the FMLA.
The Circuits Weigh In
Approximately one year ago, the Eleventh Circuit, which covers Florida, Georgia and Alabama, took the employers’ side on this issue, holding the "designation" regulation invalid where the employee had clearly received her 12-week allotment. In McGregor v. Autozone, Inc., the employee was out of work for 15 weeks after a pregnancy, but the employer never designated any of the time off as FMLA leave. When the employee sought to return to her former position or an equivalent one, the employer informed her that she had been discharged. The employee sued, alleging that the employer violated the FMLA by failing to reinstate her. She claimed to be entitled to reinstatement because the employer had never designated the time off as FMLA leave — thus, she had not begun to exhaust her 12-week entitlement at the time she sought to return to work.
The Court disagreed and held that the Regulation was invalid because it was contrary to the intent of the FMLA, which was to provide 12 weeks of leave — no more and no less. The Court relied on one of the explicit purposes behind the FMLA, which is to "balance the demands of the workplace with the needs of families . . . in a manner that accommodates the legitimate interests of employers." (Emphasis added.)
While employers applauded the McGregor decision, a panel of the Sixth Circuit — which covers Kentucky, Michigan, Ohio and Tennessee — took the contrary position in Plant v. Morton International, Inc., decided in May 2000. In that case, the Court held that the employer could be required to provide the notice provided for under the Regulations even though the plaintiff had taken approximately eight months of leave during a 17-month period. The employer has petitioned for rehearing en banc, which if granted will give the entire Sixth Circuit the opportunity to address the issue.
Then, just before this article went to press, another court entered the fray — this time, on the side of the employers. In Ragsdale v. Wolverine Worldwide, Inc., the Eighth Circuit Court of Appeals, which covers the Dakotas, Minnesota, Arkansas, Nebraska, Iowa and Missouri, agreed with the Eleventh Circuit and held that the regulation is invalid on the ground that an employee is not entitled to more than 12 weeks of leave regardless of the employer’s designation.
So, Now What?
What does all of this mean for the human resource professional? First, the Eleventh and Eighth Circuit positions should provide some vindication for the employers who have complained of the overly technical nature of the FMLA regulations. Moreover, the lack of agreement among the circuits validates what employers have known all along — that the FMLA regulations are far from clear, precise or realistic.
Second, and more importantly, it provides some breathing space for employers with operations in the Eleventh and Eighth circuits, as well as perhaps those in circuits that have not addressed the issue but are known for being relatively sympathetic to employer needs, such as the Fifth (covering Texas, Louisiana, and Mississippi) and the Fourth (covering the Carolinas, West Virginia, Virginia, and Maryland). Employers in these jurisdictions should continue to designate leave as provided in the regulations; however, if they err in making the designation but grant the leave, they have a good-faith basis for counting the leave against the employee’s 12-week entitlement.
The news is not so good for those who have operations in the Sixth Circuit. Caution is also strongly recommended for employers in circuits that have not addressed the issue but have more liberal reputations, such as the Third (covering Pennsylvania, New Jersey, and Delaware), and the Ninth (covering California, Washington, Oregon, Arizona, Nevada, Alaska, and Hawaii). Employers in these jurisdictions will probably have to maintain strict compliance with the designation regulations to avoid granting "free leave" to employees.
Amid all the confusion, one thing is fairly certain: If the Sixth Circuit holds firm, the Supreme Court will probably get the final say on the issue. And which way it goes is anybody’s guess.
"Now, Tell Me Again How to Designate That Time . . ."
The "designation" regulations are confusing, and it is easy to make mistakes. The following is a timetable:
Date that employee requests/takes time off: Try to determine whether the leave is for an FMLA-qualifying reason. However, keep in mind that it is the employee’s duty to give you enough factual information so that you can make the determination. It is your duty to recognize an FMLA situation from the facts you are given.
Date that you receive enough factual information to know or suspect that the leave should be covered under the FMLA: This is often the same date as the date of the request, but it can be later. This is the date that the clock begins to tick.
Within two business days of knowledge or suspicion of coverage: Let the employee know, either orally or in writing, whether the time will count against the employee’s FMLA entitlement and, if applicable, that paid leave must be substituted for all or part of the FMLA leave. This notice can be provisional (that is, approval can be conditioned upon receipt of a medical certification by a health care provider).
(If applicable) by next payday after oral notice of coverage: If the previous notice was oral, follow up with written notification of same. If there is less than one week until the next payday, you can wait until the second pay day after you provide the oral notice. "Written notice" can be as simple as a notation on the employee’s paycheck.
If FMLA approval is conditioned upon receipt of medical certification: A "conditional" approval automatically becomes final if you receive a timely medical certification, although it is wise to provide one more written notice. You must provide written notification if you disapprove the leave after receiving the certification.
Angelique Lyons practices primarily in the areas of litigation prevention and defense.
Editorial
RACIAL and ETHNIC HARASSMENT: Feel the Terror.
Robin E. Shea, Editor
Winston-Salem Office
Picture the following: a woman works in a predominantly male field _ let's say computer programming. One day, she comes to you, the Director of Human Resources, and reports that she has been subjected to lewd remarks, unwanted touching, and demands for sexual favors from her co-workers. You lean back in your chair and tell her, "Honey, programming is a man's world. What do you expect? If you don't like it, go to beauty school."
I can feel your reaction as I'm writing this column. You are measuring the time it would take for your boss to fire you and for your name to appear as an individual defendant in the sexual harassment lawsuit that is sure to follow. You are watching your children's college fund go down the drain to pay damages to this unfortunate woman. You are seeing your house go on the block to pay your attorney _ as well as hers.
In many ways, your terror is healthy. It causes you to handle sexual harassment complaints quickly, with sensitivity. It causes you to make sure your non-HR management is adequately trained as well. So, why do we so often lack this healthy terror when it comes to harassment complaints based on race or national origin?
Race and national origin claims are often tough to defend, in large part because management isn't getting training. As a result, management often lacks the level of "raised consciousness" that it has for sexual harassment complaints.
The result: verdicts and settlements on a scale rarely seen in the majority of sexual harassment situations involving sophisticated employers.
And we expect the problem to become even worse, as our recent wave of immigrants _ mainly Hispanic but also from the Middle East and Southeast Asia _ overcome the language barrier enough to know when they are being harassed and to report it to management.
Constangy has developed a model harassment policy that covers all forms of harassment, and many of our attorneys conduct "global" harassment training for HR professionals, non-HR management, and even employees. If you feel your company needs help in these areas, please contact your Constangy attorney.
PS- We hope you have seen and enjoyed our advertisements, which began in July and will continue through the autumn. Ads will be featured in the "Southeast Journal" section of The Wall Street Journal; the Society for Human Resources Management publication HR Magazine; and selected local media. The campaign is being kicked off as we celebrate a record year in office expansion to better serve our clients.
For Attracting Execs, SERP SWAP is a Win-Win
William M. Clifton
Macon Office
"The executive receives a compensation package that is far more valuable... and the employer compensates the executive in a far more efficient manner without incurring additional costs"
In today's market, competition is fierce for top-notch executive talent. Employers are constantly searching for ways to recruit and retain capable, effective corporate leadership. With employers bidding for the same talented applicants, the law of supply and demand ought to dictate that the value of executive compensation packages must rise. However, one recent innovation suggests that there may be a way for creative employers to gain an edge in executive recruitment and retention without increasing corporate expenditures.
Taking into account income, stock options, qualified retirement plans, and other investments, senior executives often have sufficient assets to comfortably support themselves and their spouses during retirement.
What the members of this group often lack is an effective way to pass larger estates to their heirs instead of giving most of their assets to the federal government. Today, the estates of executives are subject to the marginal estate tax rate of fifty-five percent. Adding insult to injury, many top executives are eligible to receive additional retirement benefits from non-qualified retirement plans that probably will be subject to the marginal federal income tax rate of forty percent, as well as state income taxes.
Thus, executives lose almost half of their non-qualified supplemental income to taxes even though they really do not need the income to meet living expenses, and they often leave the after-tax remainder in an estate where more than half of the proceeds will be lost to Uncle Sam.
The perceived benefit to the executive of the employer's retirement plan does not equal the cost of the plan to the employer, so neither party gets the satisfaction of having received the best bargain.
A "SERP SWAP" allows eligible executives to swap non-qualified retirement income for split-dollar life insurance that is excluded from the estate of the executive upon his or her death. This eliminates the estate taxes on income sitting in the estate of an executive. Here's how it works, along with an explanation of why executives should find SERP SWAPs attractive:
Through a SERP SWAP, an executive agrees to forgo non-qualified retirement income. The money that would have been used by the employer to fund the executive's non-qualified retirement benefit is instead used to purchase split-dollar life insurance that is placed in an irrevocable life insurance trust created by the executive. As far as the employer is concerned, the expense is a wash because the after-tax net present value of funding the non-qualified retirement benefit equals the after-tax net present value of the insurance purchase.
Although a portion of the present cost of funding the insurance policy constitutes taxable income to the executive, the insurance policy held in trust is likely to be worth many times more than the amount of the forgone non-qualified retirement benefit. Also, the split-dollar life insurance arrangement allows the employer to ultimately recover the costs of the premiums when the proceeds of the policy are distributed following the executive's death.
In short, the executive receives a compensation package that is far more valuable to the executive and his or her family than those offered by the employer's competitors, and the employer compensates the executive in a far more efficient manner without incurring additional costs.
As might be imagined, SERP SWAPs are fairly complex transactions. Handled improperly, a SERP SWAP could increase, rather than decrease, tax liabilities. Moreover, since there are risks arising from these transactions, employers must assure that executives are properly advised and informed before entering such an arrangement. Nevertheless, the SERP SWAP offers one of today's most promising methods of attracting and keeping top talent.
Bill Clifton practices in the areas of litigation prevention and defense, and has contributed to the employee benefits group.
Organizing Issues in the Health Care Industry
Marcus Welby, Union Organizer
Unionizing in the health care industry is an increasing concern. This is the second of what will be a three-part series by Kimberly Seten from Constangy's new office in Kansas City.
In November 1999, the NLRB overturned more than 20 years of its own precedent by ruling that medical residents (physicians in post-graduate training) are employees, not students. As a result, more than 90,000 resident physicians now have the right to organize.
The ruling has sparked fear among hospital administrators and faculty that residents' unions will hinder medical centers' ability to educate these new physicians. Of course, pay demands could also threaten the viability of many health care organizations, and a strike would be devastating to patient care.
Currently, two unions specifically represent residents and physicians: the Committee of Interns and Residents (CIR) and the Physicians for Responsible Negotiation (PRN). CIR, which started in New York City in the 1950s, is infamous for conducting the first multi-hospital strike of doctors and dentists in New York history (in 1975). Although CIR historically concentrated its organizing activities in the New York-New Jersey area, since approximately 1990 it has begun expanding into other states.
In 1998, CIR affiliated with the Service Employees International Union (SEIU), the country's largest union of health care employees. During 1999, SEIU earmarked $1.2 million for CIR's organizational activities. CIR has approximately 10,000 members in California, Florida, Massachusetts, New Jersey, New York, and the District of Columbia. CIR employs a full-time legal staff and conducts substantial lobbying. Health care employers can expect CIR's activities to start expanding into even more states.
Rival PRN was formed on September 9, 1999, by the American Medical Association, which has loaned PRN $1.2 million through December 31, 2000, and anticipates additional loans of up to $1.6 million through the middle of 2002. PRN is still establishing its staff and legal department.
PRN takes a more moderate approach to organizing than does CIR. PRN says it will not strike or honor picket lines at health care facilities. PRN also will not require union membership at facilities where it has bargaining units.
PRN recently won its first representation election for staff physicians at the Detroit-based Wellness Plan. After this first victory, employers can expect PRN to step up its organizing activities.
Please contact your Constangy attorney for information on how to prevent union organizing among your staff physicians and residents.
"Now, Tell Me Again How to Designate That Time . . ."
The "designation" regulations are confusing, and it is easy to make mistakes. The following is a timetable:
Date that employee requests/takes time off: Try to determine whether the leave is for an FMLA-qualifying reason. However, keep in mind that it is the employee's duty to give you enough factual information so that you can make the determination. It is your duty to recognize an FMLA situation from the facts you are given.
Date that you receive enough factual information to know or suspect that the leave should be covered under the FMLA: This is often the same date as the date of the request, but it can be later. This is the date that the clock begins to tick.
Within two business days of knowledge or suspicion of coverage: Let the employee know, either orally or in writing, whether the time will count against the employee's FMLA entitlement and, if applicable, that paid leave must be substituted for all or part of the FMLA leave. This notice can be provisional (that is, approval can be conditioned upon receipt of a medical certification by a health care provider).
(If applicable) by next payday after oral notice of coverage: If the previous notice was oral, follow up with written notification of same. If there is less than one week until the next payday, you can wait until the second pay day after you provide the oral notice. "Written notice" can be as simple as a notation on the employee's paycheck.
If FMLA approval is conditioned upon receipt of medical certification: A "conditional" approval automatically becomes final if you receive a timely medical certification, although it is wise to provide one more written notice. You must provide written notification if you disapprove the leave after receiving the certification.
CHECK US OUT!
Constangy attorneys have been published in the following recent "out-of-house" publications:
Pat Tyson (Atlanta), "Home Work," Safety and Health (March 2000) and "Whistleblowers and Ergonomics, Continued," Safety and Health (June 2000)...
Zan Blue (Nashville), "Should Multi-Disciplinary Rules Be Adopted?," Nashville Bar Journal (April 2000)...
REASON PREVAILS...
Still legal to fire foul-mouthed, insubordinate, violent thieves — at least, in the Midwest. The Seventh Circuit (Indiana, Illinois, and Wisconsin) vacated an NLRB decision reinstating two truck drivers who were terminated during an organizing campaign. The court found that there was ample reason to believe that the drivers were foul-mouthed, insubordinate, and sometimes violent, and that they were probably stealing gasoline from company trucks.
"*&!#$*#&@ paper, or *!#@&$*@&$# plastic?" A federal court in Michigan held that a supermarket chain was not required to retain an employee with Tourette's Syndrome, a medical condition that causes victims to curse involuntarily, in a position that requires contact with the public.
Shorn of porn, bureaucrats mourn. The Fourth Circuit (Maryland, the Virginias, and the Carolinas) held that the State of Virginia could legally prohibit government employees from accessing sexual materials on the state computer system.
Victory for common sense, demons. A federal court in New York held that a state hospital legitimately terminated a director who hired an exorcist to drive demons from a mental patient.
Even California Democrats have their limits. Gov. Gray Davis (D-Calif.) vetoed a bill sponsored by Jane Fonda's ex, Tom Hayden, that would have allowed family leave for grandparents, siblings, adult children, domestic partners, and _ no kidding _ roommates.
If you didn't like driving, why the heck did you take this job? The aforementioned Seventh Circuit upheld the termination of a sales manager who had "spontaneous panic attacks" and "feelings of altered reality" when driving in unfamiliar places. (Her job required extensive car travel, natch.) Among other things, the court found that "commuting" was not a major life activity under the Americans with Disabilities Act.
... AND REASON FLAILS...
More plaintiffs win mega-bucks. The percentage of plaintiffs winning employment verdicts of $10 million or more increased from one percent of all victorious plaintiffs in 1990 to an alarming nine percent by 1998, according to a recently released report by the U.S. Department of Justice.
Truth fails to put damper on Equal Pay Day. The Clinton Administration observed "equal pay day" in May, the month in which women's earnings purportedly catch up with those accumulated by their male counterparts at the end of the preceding year. The employer-bashing was not hindered by the fact that the government statistics fail to take into account job, experience, education, work hours, and just about every other legitimate variable that affects pay.
Whippersnappers 1, Oldsters 0. The Michigan Court of Appeals held unanimously that its state civil rights act prohibits age discrimination against young people as well as old. "A younger worker may be unfairly viewed as immature . . .," said the court, apparently without irony.
Gee, I guess we gals really can "have it all." The Iowa Supreme Court has held that an employer is liable for birth defects caused by Mom's workplace environment. This, even though the U.S. Supreme Court has held that it's illegal to bar women of childbearing age from environments that could cause birth defects in their unborn children.
CORRECTION:
The "Macon" portion of the article "Bigger and Better" in the last newsletter contained two errors. Melisa Bodnar, who heads the workers' compensation practice in Macon and works with Brett Bartlett, was inadvertently omitted from the list of attorneys. Kristie Smith's first name was also inadvertently spelled "Kristin."
Answer to Quarterly Quiz
FALSE. The employees have engaged in "protected concerted activity," a doctrine that provides for liability under the National Labor Relations Act even in the absence of a union or union-organizing activity. Protected concerted activity typically involves two or more employees' joining together to raise concerns regarding terms and conditions of their employment. On occasion, the activities of even a single employee may be "concerted" if he or she is seeking to induce or prepare for group action. Although employees may be subject to discipline or discharge if their means of protest is "indefensible," they cannot be penalized for engaging in the activity itself.
This is a publicaton of Constangy, Brooks & Smith, LLC. The information contained in this newsletter is not intended to be, nor does it constitute, legal advice. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and experience.
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