Delaware Employment Law Blog

Can an individual supervisor be held liable when an employee files suit? Well, like all legal questions, it depends. The Third Circuit Court of Appeals issued an opinion yesterday expanding the instances when the answer to this question is yes in Haybarger v. Lawrence County Adult Probation & Parole, No. 10-3916 (3d Cir. Jan. 31, 2012).

Background
The plaintiff, Debra Haybarger, was the office manager for Lawrence County Adult Probation and Parole, an agency of the Lawrence County of Court of Common Pleas. Haybarger reported to Director William Mancino who, turn, reported to Court Adminstrator Michael Occhibone. Occhibone reported to the President Judge of the Court, Judge Dominick Motto.

Hayberger missed a lot of work due to various illnesses. Her boss, Mancino, was "displeased" by the absences, writing on her performance evaluations that she needed to "improve her overall health and cut down on the days she misses due to illness." He also commented about her health and suggested that she need to "start taking better care of [her]self." Yikes.

Mancino put Haybarger on a six-month probation, which required weekly progress reports and formal monthly meetings. In a disciplinary letter, he wrote that Haybarger's "conduct, work ethic and behavior [were] non-conducive to the Adult Probation Office." He also wrote that she demonstrated a "lack of leadership," and "no clear understanding of the subordinate positions" that she supervised. Gulp.

At the end of the six months, Mancino told his superiors that Haybarger's performance had not improved and recommended that she be terminated. They followed his recommendation.

The Suit
Haybarger sued the agency, the county, and Mancino under the ADA, Rehabilitation Act, Pennsylvania's state discrimination statute, and the FMLA. Initially, the District Court dismissed all of the claims except for the Rehabilitation Act claim against the agency and the FMLA and state-law claims against Mancino.

After limited discovery, the agency moved for summary judgment, alleging it was immune from suit pursuant to the 11th Amendment. The motion was denied and the Third Circuit affirmed.

On remand, the agency again moved for summary judgment, as did Mancino. The agency's motion was denied but the parties subsequently settled, leaving only the FMLA claim against Mancino in his individual capacity.

The District Court held that, while the FMLA permits individual liability against supervisors at public agencies, the plaintiff failed to show that Mancino had "sufficient control over [her] conditions and terms of employment" because he did not have authority to hire and fire and, therefore, was not a supervisor.

The Holding
The Third Circuit determined, as a matter of first impression, that supervisors at public agencies are subject to liability under the FMLA was one of first impression. The court then went on to find that Mancino could be considered a supervisor and, in turn, an "employer" for purposes of the FMLA.

In its first finding, the court rejected the positions of the 6th and 11th Circuits, both of which have found that the FMLA does not provide for individual liability for supervisors and, instead, adopting the reasoning of the 5th Circuit. This conclusion was based on the determination that the language of the FMLA and its implementing regulations are more like the FLSA, which permits individual liability, rather than Title VII, which does not.

The court then turned to the facts that could support a finding that Mancino could be considered to be an "employer" for the purposes of the FMLA. In sum, the court explained, "an individual is subject to FMLA liability when he or she exercises 'supervisory authority over the complaining employee and was responsible in whole or part for the alleged violation' while acting in the employer's interest."

The Impact on Supervisors
There are several lessons to be learned from this case--some more obvious than others. First, do not comment (or care) about the reasons for an employee's absence. If an employee is absent and is permitted to be absent--because of your leave policy, because of the FMLA, or otherwise--then the reason(s) for the absence is irrelevant. Do not care and do not comment about why an employee is taking leave when she is permitted to do so.

Second, learn how to write a better performance evaluation. Ambiguous comments like, "employee demonstrates poor leadership skills" do not help the employee improve because they do not identify the underlying conduct that you want her to change. Give an example of how she fails to be a good leader. If you cannot articulate a specific example of what you consider to be poor performance, it is not poor performance under the law.

Third, to avoid being held individually liable under the law, supervisors are best advised to let HR do what they do best--including administering FMLA leave. Simply turn it over to HR and then get the pros involved when writing performance evaluations and considering disciplinary action for any employee who has been approved for FMLA leave. This stuff isn't easy--get help from the pros.

When terminating an employee, employers need only one reason. Of course, there is rarely just a single reason for reaching the decision. But the existence of multiple reasons does not mandate that each reason be shared with the employee.  In other words, when an employer makes the decision to terminate, there should be only one reason upon which the employer relies and which is shared with the employee—the “final straw.” When an employer changes its “final straw,” it raises doubts both with the employee and with the court and changing reasons are evidence of unlawful discrimination. 

In Smizer v. Community Mennonite Early Learning Center, the employer told the employee that he was being fired due to a Facebook posting he’d made. But the employee didn’t buy it.  He claimed that he really was fired because of his “tardiness and lack of cleanliness in his classroom.”  He claimed that similarly situated female employees, who also were tardy and who kept equally messy classrooms, had not been fired.

If this claim were true, and there were late and messy female employees who had not been fired and the plaintiff was really fired for these reasons, it would support the plaintiff’s Title VII claim.  So the plaintiff sought the court to compel his former employer to produce documents he claimed would show these failings of his female counterparts.

The employer responded that evidence relating to tardiness and messiness were not relevant to the suit because, as you may recall, it fired the plaintiff due to a “troubling” comment he’d made about coworkers on his Facebook page. Thus, the employer contended, the evidence that the plaintiff sought was irrelevant to his claim.

The court disagreed.  In its opinion, it stated that the plaintiff had provided “ample documentation” tending to show that the Facebook posting may not have been the real reason for his termination.  Instead, the documentation apparently showed that the employer had claimed at various other times that there were other reasons for terminating Smizer—including his tardiness and lack of cleanliness.  In employment-discrimination claims, “a shifting justification for an employment action can itself be circumstantial evidence of an unlawful motive.”  Because evidence of “shifting justifications” may be admissible at trial, the requested documents were discoverable and ordered the employer to produce them. 

So what’s the big lesson employers can learn from this story?  In short, pick a reason and stick to it.  One reason to terminate an employee is all you need—and all you should have.  Certainly, there may be (and usually is) a long history of performance issues with the employee.  And all of these would be relevant to the employer’s decision to proceed to termination. But the “final straw” is not a “bail of hay.”  Pick a reason, stick with it, and don’t muck it up by giving multiple reasons for the decision at the termination meeting or in a termination letter.  If you’ve done what you’re supposed to do, you’ve addressed the other issues as they came up with the employee and he’s aware of those issues. 

Smizer v. Community Mennonite Early Learning Ctr., No. 10 C 4304, 2011 U.S. Dist. LEXIS 102212 (N.D. Ill. Sept. 7, 2011).

See also:

Bad Reason #29 to Fire an Employee

Don’t Hate Me Because I’m Brilliant: One Employee’s Tale

3d Cir.: No Protection for an Employee Who Lies

In Meditz v. City of Newark (PDF), the Third Circuit concluded that the City of Newark, New Jersey’s residency requirement may have unlawful disparate impact on non-Hispanic white applicants.  The case was brought Gregory Meditz, an attorney acting pro se.  Meditz alleged that the City’s residency requirement disparately impacted white, non-Hispanics and, as a result, white, non-Hispanics were under-represented in the City’s workforce.

Meditz, a white male, applied for a job as an Analyst with the City of Newark, New Jersey.  He was rejected for the job because he lived in Rutherford, New Jersey and a City ordinance required that non-uniformed employees live within City limits.  Meditz filed suit, alleging that the City’s residency requirement negatively impacted the hiring of white, non-Hispanics.

In support of his suit, Meditz provided statistical information that he’d gathered from publicly available sources.  Newark argued that the disparity reflected by the statistics were not sufficiently substantial.  The federal district court agreed with the City and found that the statistical evidence Meditz presented did not “constitute sufficient evidence of a significantly discriminatory hiring pattern.”  The Third Circuit Court of Appeals did not agree and reversed.

The Third Circuit found, instead, that the statistics showed that the percentage of white, non-Hispanics in Newark’s non-uniformed workforce was lower than the percentage that would be expected based on Newark’s general population.  The case was remanded for the District Court to analyze the evidence in accordance with the correct standard, as described in the Third Circuit’s decision.

Meditz v. City of Newark, No. 10-2442 (3d Cir. Sept. 28, 2011) (PDF).

 

For more on disparate impact, see also:

9th Cir. on ADA and Drug Addiction

Overview of the Risks of Employment Testing

The Link Between Race and Obesity—Disparate Impact Waiting to Happen?

EEOC’s Proposed Regs for Age Discrimination Disparate-Impact Claims

The Third Circuit gave employers new reasons to worry about misclassifying their employees in its decision in Figueroa v. Precision Surgical, Inc., (PDF), C.A. No. 10-4449.  A former employee brought suit seeking to invalidate the non-competition provision in his independent-contractor agreement (“ICA”).  The plaintiff alleged that his former employer had materially breached the contract and, therefore, could not enforce it against him.

During the course of his 6-years with the organization, the plaintiff's relationship became more like that of an independent contractor.  For example, the company required that the plaintiff: (1) devote 100% of his energy to selling the company's products; (2) report to his supervisors daily and attend monthly meetings; (3) abide by a dress code; and (4) obtain permission from before giving quotes to certain prospective customers.

As the supervision and reporting requirements became more onerous, the plaintiff objected and, eventually, requested a new contract that clarified his status as an independent contractor.  The company refused and stated that it intended to convert all sales positions to employees, eliminating all independent contractor positions.  When he refused to make the conversion to employee status, his contract was terminated. 

The employee brought sought suit seeking declaratory relief invalidating the non-compete provision in the agreement. The company filed a counter-claim alleging breach of the non-compete agreement based on the plaintiff's new contract position as a sales representative for a competitor.

The District Court denied the employer's request for a preliminary injunction, finding that the employer had more likely than not breached its obligations under the independent-contractor agreement.  The Third Circuit affirmed, finding that the requirements to which the plaintiff had objected were not consistent with requirements for an independent contractor.  As a result, the court held, the employer breached the agreement by treating the plaintiff as an employee. 

Well-informed employers understand the significance of properly classifying employees for tax and benefits purposes. The Third Circuit’s recent opinion gives employers another reason to avoid misclassifying their employees: failure to properly classify workers as employees or independent contractors may impact their ability to enforce restrictive covenants and non-compete agreements.

A new decision from the Third Circuit Court of Appeals provides public employers with some additional guidance regarding employee internet activity. In the case of Beyer v. Duncannon Borough, police officer Eric Beyer was terminated from his position after he posted anonymous online comments, critical of the Duncannon Borough Council. More specifically, Beyer criticized the Council for its opposition to the purchase of new AR-15 rifles for the police department.

Upon his termination, Beyer filed a lawsuit against the Borough, alleging violation of his  First Amendment rights. Pursuant to the U.S. Supreme Court's decision in Garcetti v. Ceballos, a public employee's speech is only protected by the First Amendment if the employee (1) speaks as a citizen (2) on a matter of public concern. Applying this standard, the District Court dismissed Beyer's claim, holding that he was speaking in his official capacity as a police officer, not in his private capacity as a citizen. Beyer appealed the dismissal to the Third Circuit.

In reviewing Beyer's appeal, the Third Circuit placed significant emphasis on the nature of Beyer's speech--anonymous internet posts. The Court found that anonymous posting supported both prongs of the Garcetti analysis. First, the Court indicated that anonymous online postings are inconsistent with conduct performed in an official capacity. As a result, the Court found that it was more likely that Beyer was speaking as a private citizen. Second, the Court found that the broad dissemination of Beyer's statements over the internet supported the argument that he was speaking on a matter of public concern. Based on the foregoing, the Court reversed the District Court's dismissal.

So, what's a public employer to do? The Third Circuit's decision does not prohibit monitoring of employee internet activity pursuant to a reasonable policy. It does, however, limit a public employer's ability to discipline its employees for anonymous online activity critical of the employer. Going forward, public employers should be particularly careful of any disciplinary action taken in response to such conduct, and when in doubt consult an attorney.

The Third Circuit has upheld a ruling in April 2010 by Judge Sue L. Robinson of the U.S. District Court for the District of Delaware that the state’s failure to recognize out-of-state registered apprentices under Delaware's Prevailing Wage Law violates the commerce clause of the U.S. Constitution. The court ruled that Delaware discriminated against out-of-state contractors by effectively forcing them to pay higher wages to apprentices than in-state competitors were required to pay.

The Third Circuit ruled that the lower court correctly found that Delaware's refusal to recognize out-of-state registered apprentices facially discriminated against out-of-state contractors without advancing a legitimate state interest. The case is Tri-M Group LLC v. Sharp.

Tri-M filed suit in September 2006 alleging the Delaware Department of Labor had put it at a competitive disadvantage for public works projects by allowing in-state contractors “to pay reduced wages to their apprentices while denying out-of-state contractors the same right.” Tri-M was registered with Pennsylvania’s federally approved apprenticeship council but was not eligible for Delaware’s program, which requires sponsors to maintain a permanent place of business in Delaware.

In the summer of 2006, while Tri-M was performing electrical work at a construction project in Milford, Del., officials with the Delaware Department of Labor found the company had violated labor laws by failing to pay its apprentices their full wages.

Tri-M made adjustments, and the DDOL determined it was in compliance. Soon after, the company launched a legal challenge to the measures.

On appeal, the DDOL argued unsuccessfully that the challenged procurement scheme — including the permanent place of business requirement — does not discriminate against interstate commerce, and that the contested apprentice program regulations were explicitly authorized by Congress and approved by the U.S. Department of Labor. The Third Circuit disagreed and affirmed the District Court’s decision.

The Third Circuit Court of Appeals has issued an important decision limiting the scope of the Ledbetter Fair Pay Act, which was passed in 2009 in response to the Supreme Court's decision in Ledbetter v. Goodyear Tire & Rubber, Co., Inc.  In short, the Fair Pay Act provides that "in pay discrimination matters," the statute of limitations is tolled each time an individual is "affected by application of a discriminatory compensation decision."  In other words, if a female employee is not given the same pay raise as her male colleagues because of her gender, every time she receives a paycheck thereafter serves to toll the statutory period.  Indefinitely. 

Since its passage, the Act has been a source of legitimate concern for employers, who worry that they will be called to explain a decision made many years earlier by a former supervisor under different policies or pay practices, etc.   The Third Circuit's decision in Noel v. Boeing Co. puts some of those concerns to rest.

Noel claimed that he had not been promoted in September 2003 as a result of unlawful discrimination.  Therefore, he would have had to have brought a charge of discrimination with the EEOC or Pennsylvania Commission within 300 days of the decision.  But Noel waited to file his charge until March 2005, about a year too late, according to the defendant-employer and the trial court, which dismissed Noel's failure-to-promote claim.  Noel appealed, arguing that the Act tolled the limitations period and saved his claim.

He argued to the appellate court that, each time he received his paycheck, he was being subject again to the effects of the decision not to promote him in 2003.  The Third Circuit did not agree, finding that the Act can toll the period only for claims involving pay discrimination--not for a claim alleging failure to promote.  The court also explained what it considers to be a true pay-discrimination claim for the purposes of the Act.  Specifically, the plaintiff must be alleging that he or she received less pay for doing equal work and that the difference was due to a discriminatory bias. 

The decision is an important one for employers. Although the application of the Act remains unsettled to some degree, this case at least eliminates one type of claim from an indefinitely extended statute of limitations. 

Noel v. Boeing Co., No. 08-3877 (3d Cir. Oct. 1, 2010).

Can a blog post constitute evidence of solicitation in violation of a non-solicitation agreement? According to a federal district court in Michigan, it can. The case is Amway Global v. Woodward, No. 09-12946 (E.D. Mich. Sept. 30, 2010)

Petitioner Amway Global (“Amway”), sells health and beauty products through a network of individuals known as Independent Business Owners ("IBOs"). Respondents were former IBOs. Following the separation of the IBOs, Amway initiated arbitration proceedings, asserting breach of contract, tortious interference, and misappropriation of tort secrets. The claims were based on the former IBOs’ alleged violation of contractual prohibitions against soliciting other IBOs to compete against Amway.

The arbitrator determined that the former IBOs had breached their contractual obligations as set forth in Amway’s standard contract, which it called the “Rules of Conduct.” Specifically, Respondents were held liable for violating Rule of Conduct 6.5.5, which prohibited IBOs from “encourag[ing], solicit[ing], or otherwise attempt[ing] to recruit or persuade any other IBO to Compete with the business of the Corporation." Respondents appealed the arbitrator’s decision, contending that there was not sufficient evidence that they have violated the anti-solicitation provision

Amway had introduced evidence that showed that the IBOs terminated their contracts but remained in contact with each other and subsequently issued coordinated statements announcing that they were joining Amway’s competitor. The most captivating part of the decision, however, is the evidence upon which the arbitrator relied in finding that the former IBOs had solicited their former colleagues to join them in working for Amway’s competitor.

Specifically, one of the respondents had announced his decision to join the competitor in a blog post and wrote, “If you knew what I knew, you would do what I do.” As you may imagine, the respondents contended that blog posts were “passive, untargeted communications [that] fail as a matter of law to qualify as actionable solicitations.”

The court did not agree. Instead, the court found that this language in the blog post “would readily be characterized as [a] solicitation[].” The court rejected the respondents’ argument that “passive placement” of a solicitation on the Internet can qualify as a solicitation even if it does not involve “one-on-one importuning” and was not directed at any specific individual.

[H/T to Evan Brown at Internet Cases]

See also, Blog Post as Trial Evidence

In Lozano v. City of Hazelton, the Third Circuit Court of Appeals ruled that the Hazelton, Pennsylvania ordinances regarding illegal aliens were unconstitutional.  The ordinances, which had been enjoined by a federal court before taking effect, were designed to keep illegal aliens out of the town by penalizing employers who employed them and landlords who rented to them.  The court found that the ordinance conflicted with federal immigration laws and therefore violated the Supremacy Clause. The ordinances operated in part through the sanction of suspending the business license of any person or entity who hired a worker not authorized to work in the U.S.

The court explained that the Immigration Reform and Control Act of 1986 (“IRCA”), the federal law that first prohibited the employment of undocumented workers, was carefully designed to minimize the burdens imposed on both employers (who did not want to be involved in the enforcement of federal immigration laws) and on authorized workers, who might erroneously be perceived as illegal aliens and discriminated against. Accordingly, IRCA limited the types of complaints against employers that the government would investigate, the measures that employers would have to take to assure that workers are authorized to work in the U.S., and the workers to which it would apply (IRCA applies to employees only, not to independent contractors). Congress also included an anti-discrimination provision in IRCA to reduce the burden imposed on authorized workers.

Pharmaceutical giant Novartis recently defended a class action lawsuit filed by thousands of its female sales representatives alleging discriminatory treatment in pay and promotions. It was the largest gender discrimination case ever to reach a jury verdict. 

Novartis might need to stock up on their in-house supply of Diovan – their top-selling drug, which treats hypertension -- as there are surely some Novartis executives with elevated blood pressure following the recent verdict. The jury awarded $250 million in punitive damages, $3.37 million in compensatory damages for the 12 named plaintiffs, with compensatory damages for the remaining members of the class to be determined separately. Experts estimate that Novartis could pay as much as $1 billion when all is said and done, and that doesn’t include legal fees expended to defend the mega-lawsuit.

Given the staggering nature of this award, an increase in employment class action lawsuits is almost certain. Class action suits are far more lucrative for plaintiff’s lawyers to take on, than a single employment discrimination lawsuit where damages rarely exceed a few hundred thousand dollars. In light of this new era which is sure to dawn : it is essential that employers examine their practices and consider their potential exposure in this area now.

Prevention is the Best Medicine

Audit pay classifications and EEO numbers.

Review your pay structure. Particularly in light of the Lily Ledbetter Act, which opens up exposure for employers potentially dating decades back, employers must be confident that their compensation structure does not reflect any trends that could be construed as discriminatory. Also, review your EEO numbers – this is one of the first things defense attorneys will do when their client is hit with a class action. Be aware, though, that if you run the numbers and they don’t look good, you’ve got to be willing to take action. Failing to take corrective action after a self-analysis could make the problem worse.

Outreach/Diversity in minority communities.

Fostering diversity programs within the workplace are good business and help to create a good corporate image while recruiting minority applicants. Because the recruiting/hiring process can be ripe ground for class action lawsuits, outreach is an important preventative step.

Hold managers accountable.

Make sure managers whose statements or actions result in company liability are held accountable. Where managers are appropriately trained, and take inappropriate actions nevertheless, one approach is to have litigation costs taken from the bottom line of the division for which the manager is responsible.

Have an internal EEO reporting procedure and train all employees.

Make sure you have an internal reporting procedure for any employee who has an EEO complaint, and that all employees understand that procedure. Handling any such complaints appropriately and with due diligence often can effectively head off future litigation.

Be Afraid – Be Very Afraid

The proactive steps outlined above will go a long way towards preventing a discrimination lawsuit, whether individual or class action. But sometimes even the most diligent of employers cannot avoid lawsuits. In light of the massive award in Novartis, class actions discrimination suits are sure to become more common. What signs should you look for to indicate you may be headed for a class action?

∙ For-Cause Findings by EEOC

∙ Numerous charges with the same of similar allegations

∙ A pattern of irrelevant questions during management depositions

∙ Large numbers of employees asking for personnel files

∙ A significant increase in the number of internal complaints

If you observe any of these signs in your workplace, inform with your outside counsel immediately and brace for impact!

Bottom Line

No company is immune from a class-action lawsuit, and sometimes they are unavoidable. Nevertheless, taking the preventative steps and being attuned to the warning signs discussed above can significantly reduce a company’s risk of an employment class-action lawsuit.

Jon Hyman of the Ohio Employment Law Blog writes a weekly post in which he rounds up some of the most important stories from around the web. This week, I’m going to follow Jon’s lead with a “best-of-the-web” edition of my own. There is so much happening in the world of employment law and human resources, it’s hard to narrow down my top choices for the must-reads. But I’ll do my best. 

 

To give proper honors, I’ll give the first hat tip to Jon, who wrote about a family-responsibilities case (a rare breed, indeed), that resulted in a quarter-billion-dollar verdict.

 

Deliberations, the blog focused on how juries work, reports on an interesting gender-discrimination case  in Man Wins Pregnancy Discrimination Suit.

 

The U.S. Supreme Court has issued another important decision affecting employers in Lewis v. City of Chicago.  Generally speaking, the case involves the statute of limitations for disparate-impact claims.  For more specific details, see Daniel Schwartz at the Connecticut Employment Law Blog, Ilyse Shuman at the DC Employment Law Update, and Paul Mollica at Daily Developments In EEO Law.

The Third Circuit Court of Appeals recently ruled that side effects from medical treatment may constitute an impairment under the Americans with Disabilities Act (the “ADA”). The 3d Circuit's decision in Sulima v. Tobyhanna Army Depot is clear that, under limited circumstances an employee-plaintiff may have a cause of action under the ADA if he can prove that the effects of medical treatment are truly disabling, even if the underlying condition is not.

Facts

The employee-plaintiff worked for Defense Support Services, a defense contractor which provided workers at the Tobyhanna Army Depot. The employee was morbidly obese and suffers from sleep apnea. At the time, the employee was taking weight-loss and related medications which caused him to take frequent restroom breaks. When asked about the frequent breaks, the employee told his supervisor that they were the result of his medication. He later provided his supervisor with a doctor's note, which stated that the employee may need to use the restroom frequently due to a “gastrointestinal disorder.” The employee told his supervisor that he was not sure how long he would need the medication and that he was going to find out if he could take an alternative medication.

After employee continued to take frequent restroom breaks (some days for a total of two hours during his shift), a supervisor asked that he be transferred to a different work area. When he found out about the transfer, the employee submitted another note from his treating physician, which indicated that his mediation had been changed and that he no longer needed frequent restroom breaks. The decision was made to transfer him anyway but there were no available positions at the Army Depot and the employee accepted a voluntary layoff.  He later filed a claim in federal court, alleging violations under the ADA and the Rehabilitation Act.

[read on to learn how the Third Circuit ruled. . . ]

Federal Judge Sue L. Robinson, U.S. District Court for the District of Delaware, has issued an important decision affecting Delaware employers in a case captioned, Tri-M Group, LLC v. Sharp, C.A. No. 06-556-SLR (D. Del. Apr. 14, 2010).

Tri-M Group, LLC, a Pennsylvania electrical contractor, was the successful bidder on a Delaware state construction project. It used apprentices registered in Pennsylvania, and paid them the apprentice wage rates prescribed under the Delaware prevailing wage law. An investigator for the Delaware Department of Labor learned that the apprentices were not registered in Delaware. The contractor asked him how it could register its apprentices in Delaware and was told that the Delaware law requires sponsors of apprentice programs to maintain a permanent place of business in Delaware.

Even though Tri-M had maintained a construction trailer at AstraZeneca for some years, that was not considered to be a “permanent place of business.” The DDOL determined that the contractor was in violation of Delaware law and since the apprentices were not registered in Delaware, they had to be paid the higher journeyman’s rate. The contractor sued in Delaware District Court, contending that favoring in-state contractors by forcing others to pay higher rates violated the Commerce Clause of the U.S. Constitution.

Judge Robinson agreed. She pointed out that several states in the region, “in a contest of wills over apprentice recognition,” had adopted discriminatory statutes designed to retaliate against and disfavor out of state contractors. Delaware’s statute was particularly blatant, in that it “discriminates against out-of-state employers on its face.” Therefore, a heightened scrutiny standard applied and the requirement that an apprenticeship program maintain a permanent place of business in Delaware would be declared invalid unless the state could show that the requirement “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” The court concluded that the DDOL could adequately protect its apprentices without using discriminatory means, and granted Tri-M’s motion for summary judgment.

In Gross v. FBL Financial Services, Inc., the U.S. Supreme Court ruled that a plaintiff claiming a violation of the ADEA must do more than prove that age was "a motivating factor" in the adverse employment action. Rather, the plaintiff must prove that the action would not have occurred "but for" the employee's age, making ADEA cases harder for plaintiffs to win than other kinds of discrimination cases. Legislation to overturn the Gross case has been introduced and is pending in the Senate and House.

That proposal, called "The Protecting Older Workers Against Discrimination Act," would adopt the burden of proof currently used in mixed motive disparate treatment cases under Title VII. Under that approach, once a plaintiff proves that age was a "motivating factor" for the adverse action, he or she would win unless the employer proved by a preponderance of the evidence that the same decision would have been made if age had not been considered. 

At Young Conaway’s Annual Employment Law Seminar on April 28, we will discuss the prospects for passage of the POWADA and how it would affect the defense of ADEA cases.

Restrictive covenants include agreements by an employee not to compete, not to disclose confidential information, and not to solicit an employer’s clients. Based on a recent decision from Delaware’s Court of Chancery, these agreements are more valuable than ever. Deciding a novel issue in Delaware, the Court held that, absent a provision to the contrary, restrictive are assignable from one employer to another, so long as both employers are engaged in the same business. This means that when businesses merge, employees who are already subject to restrictive covenants with the acquired business do not have to execute new agreements with the acquiring business. In addition, the Court reminds us that contracts defining the employer-employee relationship, are the only way to prevent a competitor from poaching employees in an at-will employment state, like Delaware.

Facts

The background in Great American Opportunities, Inc. v. Cherrydale Fundraising, LLC, is one that will be familiar to many employers. Three businesses were competing in the surprisingly cut-throat world of third-party fundraising (selling fundraising materials to non-profit organizations such as schools and churches, who then sell the materials to their communities to raise money). Two of the businesses, Great American Opportunities, Inc. (GAO) and Kathryn Beich, Inc. (KB) merged, leaving GAO as the surviving business. At the same time, the third business, Cherrydale Fundraising, saw an opportunity to expand its market presence by hiring away several of KB’s sales representatives. GAO discovered what was going on shortly after the merger.

To KB’s credit, it had been a careful employer and almost all of its employees were subject to the trifecta of restrictive covenants: non-competition, non-disclosure, and non-solicitation contracts. However, GAO was not a party to any of these contracts. Faced with a complicated situation, GAO filed a lawsuit alleging that Cherrydale tortiously interfered with the contractual relationship between GAO and its employees, leaving the Court to sort out the details.

Discussion

Before it could address Cherrydale’s activities in poaching KB’s employees, the Court had to decide if there was any formal relationship between GAO and KB’s employees as a result of their merger. Cherrydale argued that Delaware’s doctrine of at-will employment prohibits a claim of tortious interference with a contractual relationship. But KB’s employees were subject to a contract, as they had signed non-competition, non-disclosure, and non-solicitation contracts. Thus, Cherrydale’s first argument was unsuccessful.

The Court next had to determine whether KB could lawfully assign its rights under the employees’ restrictive covenants to GAO, in conjunction with the sale of a business. Surprisingly, this was an issue that had not been thoroughly analyzed under Delaware law. Adapting the general rule that contract rights may be assigned absent a provision prohibiting assignment, the Court held that an employer’s rights under a restrictive covenant may be assigned, in conjunction with the sale of a business, so long as the former employer and the current employer engage in the same type business.

Bottom Line

For employers who have workers with specialized skills, restrictive covenants, including non-competition, non-disclosure, and non-solicitation contracts, are as important as ever. In Delaware and other at-will states, such contracts are the only thing preventing your competitors from poaching your employees and their valuable know-how. But restrictive covenants are now more valuable because they can be assigned from one employer to another in a merger or asset sale. So if your employees are not subject to restrictive covenants, now is a better time than ever to consider whether they may be right for your business’s circumstances.

Great American Opportunities, Inc. v. Cherrydale Fundraising, LLC, C.A. No. 3718-VCP (Del. Ch. Ct. Jan. 29, 2010)