worker3After nine-plus years of writing about employment law in Connecticut, it’s getting to be pretty rare to find a topic that I haven’t at least touched upon, but here’s one: The Duty of Loyalty.

Indeed, a new Connecticut Supreme Court case is giving me the opportunity to do so.

The case arises from an employee who, while working for one employer, was secretly working as an independent contractor for a competitor.  The employer sued under a breach of the duty of loyalty claim.

The case, Wall Systems Inc. v. Pompa, officially released last week, can be downloaded here.

Lawyers will look at the case because it sets forth what types of damages are recoverable when a breach of a duty of loyalty claim is established.  In doing so, the court makes it clear that a trial court has some discretion in fashioning the appropriate remedy:

We agree with the plaintiff that the remedies of forfeiture of compensation paid by an employer, and disgorgement of amounts received from third parties, are available when an employer proves that its employee has breached his or her duty of loyalty, regardless of whether the employer has proven damages as a result of that breach. Nevertheless, the remedies are not mandatory upon the finding of a breach of the duty of loyalty, intentional or otherwise, but rather, are discretionary ones whose imposition is dependent upon the equities of the case at hand. Moreover, while certain factors, including harm to the employer, should not preclude a finding that the employee has committed a breach of the duty of loyalty, they nevertheless may be considered in the fashioning of a remedy. Here, because the trial court properly exercised its broad discretion when it awarded damages but declined to order forfeiture or disgorgement, we will not disturb its judgment on this basis.

But I think the more interesting point for companies is to understand the scope of the duty of loyalty.

In discussing the scope of this duty, the Connecticut Supreme Court reaffirmed principles that were last set forth in detail over 50 years ago in Town & Country House & Homes Service, Inc. v. Evans.  In that case, the court found an employee breached the duty of loyalty by soliciting employer’s customers for his own competing business while still working for the employer.

The court noted that an employee’s duty of loyalty includes “the duty not to compete … and the duty not to disclose confidential information”.  The court noted that this duty not to compete is during the employment relationship — not necessarily after — and is not dependent on the use of employer’s property of confidential information.

The court went on to say that the duty of loyalty “also includes the duty to refreain from acquiring material benefits from third parties in connection with transaction undertaken on the employer’s behalf.”  What does this mean? Essentially, it bars the collection of “secret commissions and kickbacks which might cause the employee to act at the expense or detriment of his or her employer”.

An employer may seek the forfeiture of an employee’s compensation for the period of disloyalty, but the court concludes that such a remedy is an equitable one and subject to the facts of the particular case.

But it’s always important to read the footnotes and here, in footnote 9, the Court inserted the notion that the duty of loyalty may not apply all employees.  “The scope of the duty of loyalty that an employee owes to an employer may vary with the nature of their relationship. Employees occupying a position of trust and confidence, for example, owe a higher duty than those performing low-level tasks.”

Still, the case is an excellent one for employers to keep in mind — particularly if the employer does not have restrictive covenants with its employees.  If the employees are engaging in competing work while still employed, the employer can use this case — and the theories behind it — to see the appropriate remedies.

With the appropriate employee, the employer can further strengthen its arguments, but including this in an employment agreement along with restrictive covenants.  In such a case, the court reminds parties that an employer could then terminate that agreement prematurely and seek recovery of damages directly attributable to the employee’s breach.

Employers should consider consulting with their favored outside counsel to see how this decision may apply to them.

 

starrMy colleague Gary Starr returns today with a story worth reading about the need for employers to secure confidential information.  Although it is based on Massachusetts, the concepts it covers may have some carryover to employers elsewhere as well.  

Employers that maintain records of their employees and customers and allow employees have access to confidential information have long needed policies that not only secure the information, but ensure that employees who have been granted access to such information are complying with the corporate policies and are trustworthy.

An insurance agency in Massachusetts thought it had done everything right, but was sued for negligence in its retention of an employee that it thought was trustworthy, but was not.

An employee used her computer to access confidential information that she then gave to her boyfriend about the identity of a witness to a car accident in which the boyfriend had been involved with her car.  The boyfriend used that information to contact and threaten the witness.  The witness reported the threat to the police and ultimately the boyfriend and the employee pleaded guilty to witness intimidation and conspiracy.  After the police visited the employer to obtain information about the threat, which was traced back to the employee, the employer fired the employee.

That, however, did not end the tale.

The witness then sued the employer for failing to safeguard personal information, and for negligent retention and negligent supervision.  While the trial court dismissed the case, the appellate court has determined that the facts alleged are sufficient to go to trial.

Where did the employer go wrong?  The company had adopted a data security plan and policy that prohibited employees from accessing or using personal information for personal purposes.  The computer software even required employees, who wished to access the data base with confidential information, to agree to use the information for one of four limited purposes, all of which were business related.

Those were positive steps.

The problem arose because the unrestricted access did not stop the employee from reviewing information that had an impact on her personally.  The second failure had to do with an inadequate investigation of the employee’s background and simply taking the employees word about a weapons arrest that occurred during her employment in another state.

The employee told her boss that the arrest was a misunderstanding, that she was clearing it up, and subsequently said it was resolved.  The employer simply took her word for it.

What he would have discovered with a very simple inquiry was that there were serious issues with her honesty and fitness for accessing other people’s personal information.  The company could have learned that she was traveling with her boyfriend when they were stopped for speeding and that she was arrested for having two semi-automatic guns concealed in her purse, one had the serial numbers filed off and the other was stolen.  She also had a half-mask and police scanner.  After her arrest, she told the company that there had been a misunderstanding as the weapons belonged to her boyfriend, that she didn’t know anything about them and that she was exonerated.

Her story was not true, but her account itself should have raised questions about her having access to personal information.

The court said that the company had a duty to protect the confidential information and that it was foreseeable that the employee could access information and use it for personal gain.  The company had an obligation to investigate the employee’s continuing fitness after the arrest.  The court said that a jury could decide that the failure to take action under these circumstances was unreasonable as the company knew about the weapons charge and could have learned of her lies and her willingness to commit a crime with her boyfriend.  The company did not take sufficient steps to limit the risk of harm to those whose personal information its employees could access.

There are steps to take to avoid this problem.  After an employee is hired, that does not end the need to be vigilant about their fitness for the job.  When information comes to light that may raise questions about the actions of an employee, an employer cannot simply take his/her word for what occurred.  It must take affirmative steps to explore what the underlying issue is, analyze the employee’s story, and assess the risk the employee poses if access to confidential information is abused or if other employees and the public may be put at risk.

 

secretsEarlier this month, The New York Times ran another column in its Workalogist series that asked the following question:

Are conversations with a human resources department confidential? I’m contemplating retirement in about three years and would like to gather benefit information from human resources now — but I do not want my supervisor to know. Once I decide, I would like to give three weeks’ notice.

In responding, the Workalogist quotes one SHRM professional as saying that, “An H.R. professional should maintain the employee’s confidentiality to the extent possible.”  But note the caveat: HR is at the “razor’s edge of balancing confidentiality with the overall needs of the business.”  He notes that many workers assume some confidentiality even where it doesn’t exist:

Workers often assume there’s some sort of H.R. parallel to the confidentiality they’d expect from a doctor or a lawyer. That’s not the case, says Debi F. Debiak, a lawyer and labor and employment consultant in Montclair, N.J. Barring circumstances involving, for instance, a medical condition, “there is no legal obligation to maintain confidentiality” about a retirement discussion, she says.

Suzanne Lucas, the Evil HR Lady (her name, not mine), has often touched on this subject in her blog and columns.  She was asked whether it was “illegal” or immoral for the HR representative to forward to the company’s COO an employee’s angry e-mail:

Well, it’s not illegal (she says in her non-lawyer, non legal advice way). HR people are not required to keep a confidence as a doctor, priest or lawyer is. In fact, part of our job is to blab. Which means that I’m also going to suggest that it wasn’t necessarily immoral either.

Indeed, there may be times when such a referral is necessary to protect the company. Complaints of sexual harassment often need to be investigated, or reviewed.  In those instances, employers may not be able to honor a request to keep things “confidential”.

In short, those in human resources should realize that they shouldn’t make promises they can’t keep.  Protecting the company and investigating harassment complaints are two common areas when HR should be speaking up — instead of keeping silent.

As I said before, the notion that this might be a quiet year for employment law legislation at the Connecticut General Assembly has long since left the train station.

Indeed, we’ve appear to be swinging completely in the opposite direction. Anything and everything appears up discussion and possible passage this year — including items that really stood no chance in prior years.

GA2I’ll leave it for the political pundits to analyze the why and the politics of it all. But for employers, some of these proposals are going to be very challenging, at best, if passed.

One such bill, which appeared this week on the “GO” list (meaning its ready for considering by both houses) is House Bill 6850, titled “An Act on Pay Equity and Fairness”.  Of course, you won’t find those words in the bill itself which is odd.  There is nothing about pay equity in the bill; indeed, it is much much broader than that.

It stands in contrast to, say, the Lilly Ledbetter Fair Pay Act, which tried to tackle gender discrimination in pay directly.

This bill would make it illegal for employers to do three things. If passed, no employer (no matter how big or small) could:

  • Prohibit an employee from disclosing, inquiring about or discussing the amount of his or her wages or the wages of another employee;
  • Require an employee to sign a waiver or other document that purports to deny the employee his or her right to disclose, inquire 1about or discuss the amount of his or her wages or the wages of  another employee; or
  • Discharge, discipline, discriminate against, retaliate against or otherwise penalize any employee who discloses, inquires about or discusses the amount of his or her wages or the wages of another employee.

You might be wondering: Isn’t this first bill duplicative of federal law? And the answer is yes, and then it goes beyond it.  Federal labor law (the National Labor Relations Act) already protects two or more employees discussing improving their pay as a “protected concerted activity”.  It’s been on the books for nearly 80 years. So, as noted in an NPR article:

Under a nearly 80-year-old federal labor law, employees already can talk about their salaries at work, and employers are generally prohibited from imposing “pay secrecy” policies, whether or not they do business with the federal government.

This provision goes beyond that by making it improper for an employer to prohibit an employee from even disclosing another employee’s pay.

Continue Reading “Pay Secrecy” Bill Goes Above and Beyond Other Proposals

My good friend, Jon Hyman of the Ohio Employer’s Law Blog, probably said it best this morning:

I try to shy away from hyperbole, but OH MY GOD, THIS CASE COULD BE RUINOUS!!!

Yeah, pretty much.

Is the sky falling?

So, if you — like me — have been tied up with day-to-day affairs for a bit, or thinking how tomorrow’s snowstorm is going to put you over the edge, you might have missed the news of a lawsuit brought by EEOC against CVS.In it, the EEOC has challenged a bunch of garden-variety provisions that are being used in nearly every separation agreement in this country, I suspect.  Just look at some severance agreements that are publicly available and you’ll see some of the biggest companies using these same agreements with their executives.

Jon does a nice job recapping the provisions that are at issue (such as confidentiality and nondisparagement) so I’m not going to repeat them here, but if the EEOC prevails, it would turn this area of law on its head.

And that’s the key fact: IF the EEOC prevails.  My gut tells me that the courts are not likely to view the government’s arguments with favor.  The arguments just seem too “out there.” But that’s why we have the legal system — to test arguments like these.

But for employers, that is of little solace.

There are, however, some potential stopgap measures. In some agreements now, there is a carveout that says, in effect, nothing in this agreement prohibits employees from engaging in conduct with the EEOC and such conduct won’t constitute a breach of the agreement.  Jon suggests some language.

There are two other potential ideas that can be considered as well:

  1. First, employers could consider a “severability” clause that says that to the extent that any provision is found to be overbroad or illegal, it shall not affect the enforceability of the rest of the agreement.
  2. Second, employers could borrow the idea of a “blue pencil” from the area of restrictive covenants and empower the court to “revise” any provision that is overbroad to make it fit within the contours of the law.

None of these solutions is perfect and again, it is far from clear whether this lawsuit will find any favor in the courts anyways.

For now, employers will be left to wonder if the agreements that they have relied on to end lawsuits may ultimately survive an even bigger lawsuit.

Two stories over the last few weeks have been percolating that may be of interest to employers in Connecticut.  You may not see the impact immediately, but the implications are certainly there.

First, the EEOC is now looking to conduct more direct investigations — that is, investigations that are initiated without any claim by an employee or former employee — to see if gender-based pay bias is out there. 

As reported by Employment Law Daily:

In an effort to combat gender-based pay discrimination, the commission has launched pilot programs at three of its district offices to figure out the best approach to using its authority to conduct direct investigations — investigations initiated without any prior charge of pay discrimination — to determine whether Equal Pay Act violations are occurring.

The article goes on to note that the agency is also looking to see if it can use its authority to root out discrimination based on sexual orientation. That will have less impact in Connecticut, where the laws preventing discrimination on the basis of sexual orientation and gender identity are already on the books. 

Second, the NLRB recently issued a decision that calls into question whether an employer can instruct employees to keep an investigation confidential and not discuss it with co-workers.  It left Jon Hyman, from the Ohio Employer’s Law Blog, “speechless”, who noted today that the EEOC is also taking the same position. 

Numerous blogs have recapped the decision.  Here are a few to take a look at:

  • The In-House Advisor blog was quick to note that the NLRB’s admonition isn’t absolute and that an employer may be justified if: a witness needs protection; evidence is at risk of being destroyed; testimony is in danger of being fabricated; or there is a need to prevent a cover-up.
  • The veteran Employer Law Blog says that the “the NLRB’s position puts employers in a tough spot. How do you protect the integrity of an ongoing investigation without asking witnesses to maintain confidentiality at least while the investigation is ongoing? Employers should treat each investigation on an individualized basis. If a decision is made to request confidentiality during an investigation, the employer should document its specific business reason for requesting confidentiality in that case. “
  • The New York Labor & Employment Law Report also does a nice job summarizing the key points.

For employers returning from their summer vacations, these new developments may just make your fall a little more interesting. 

 

The title of this post is, of course, a bit misleading.  Any lawyer will tell you that each employment case you may have is unique and that any settlement must take into account the facts and circumstances of the particular case.

All true.  And, if your company is negotiating a settlement, you ought to have your agreement reviewed by an attorney.

But for those wondering what provisions “most” settlement agreements contain, I thought it would be helpful to outline a few from an employer perspective.

  • Consideration/Payment — This paragraph describes what the employer is typically paying in the settlement and whether the paymen
    What's on YOUR checklist?

    t is to be made in a lump-sum or over time.

  • Release — Probably the single most important part of the agreement. The employee is typically waiving all of his or her rights in this paragraph.
  • Covenant Not to Sue – In this paragraph, the employee agrees not to sue the employer in the future.
  • Stipulation of Dismissal – Of course, since there is a settlement, if the matter is pending in court, the employee agrees that the matter will be dismissed as settled (various courts term such a dismissal differently).
  • No Admission of Liability – Each party agrees that the agreement is not an admission of liability but that the agreement merely represents a compromise.
  • OWBPA-compliant provisions — If the employee is over the age of 40, the Older Workers Benefit Protection Act may come into play. If so, provisions relating to OWBPA (covered in this prior post) may need to be added.
  • Confidentiality — Nearly all of the settlement agreements nowadays contain some type of provision that calls for the settlement to remain confidential (with some limited exceptions for attorneys, accountants and those within the company with a business need to know).
  • Non-disparagement — As with the confidentiality clause, often times employers (and employees) insist that the other party cease from saying negative things about the other.
  • No Rehire – If the employer is settling a dispute from a termination, typically, the employer does not want to have to rehire the employee. This provision provides that the employee agrees that he or she will not seek re-employment and waives any right to be rehired.

This list is far from comprehensive but is a starting point for employers to consider.  There are other standard provisions (governing law, severability, etc) that are also routinely added too.

Although it is a bit dated, there’s still a great checklist of all such provisions in employment settlement agreements that you may also want for your library prepared by Attorney Robert Fitzpatrick. It remains among the more comprehensive lists I’ve seen out there on the subject. It doesn’t have some of the more recent developments (such as Section 409A regarding executive compensation), but it’s a good primer on the subject.

(And another  reminder, please be sure to consult with your legal adviser regarding the drafting or reviewing of a settlement agreement that will fit with your unique legal circumstances.)

Last year, employers were taken aback when a New Jersey court ruled that an employee did have some expectation of privacy of e-mails she sent to her attorney using work computers.  The case, Stengart v. Loving Care Agency became one of the most talked about cases of the year. 

Last week, a California court came out with a decision based on California law that basically said the opposite. The New Jersey Employment Law Blog has this good post describing the key aspect:

Recently, in Holmes v. Petrovich Development Company, the California courts held that an employee who was consulting with counsel in connection with a pregnancy discrimination claim used a company system for privileged communications at her own risk.

[T]he e-mails sent via company computer under the circumstances of this case were akin to consulting her lawyer in her employer‟s conference room, in a loud voice, with the door open, so that any reasonable person would expect that their discussion of her complaints about her employer would be overheard by him. By using the company‟s computer to communicate with her lawyer, knowing the communications violated company computer policy and could be discovered by her employer due to company monitoring of e-mail usage, Holmes did not communicate “in confidence by means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted.” (Evid. Code, § 952.) Consequently, the communications were not privileged.

What are we to make of this apparent split in how courts are reating the issue (besides differing state laws)? Well I think Frank Steinberg is dead-on with his suggestion for employees. "The question is, Stengart notwithstanding, why would an employee take the foolish risk of compromising the protection provided by the attorney-client privilege by using her employer’s e-mail system? After all, most everyone owns or has access to a personal computer, a wireless phone or Blackberry, on which secure communications can be sent."

For employers in Connecticut, the electronic monitoring statute is a must to know and follow.  I’ve previously covered it in prior posts.  Employees have no private cause of action under it (as the Connecticut Supreme court ruled in Gerardi v. City of Bridgeport, 294 Conn. 461, 985 A.2d 328 (2010) but that doesn’t mean employers can simply ignore it.

Still, courts in Connecticut have not fully adjudicated this issue. As a good summary of this issue said in a recent Connecticut Bar Association newsletter article, "in-house counsel and other attorneys who retrieve privileged information as a result of a search of the employee’s work computer — even if the data is itself “owned” by the employer — should proceed cautiously and comply in all respects with the applicable Rules of Professional Conduct." 

Moreover, employers can review their personal use policies and consider notifying employees that while personal use of computers may be permitted, employees should have no expectation of privacy of such communications. 

Former Hartford resident Mark Twain once wrote: "The Report of My Death Was An Exaggeration".

The same can be said, I believe, of reports from a case out of Florida on confidentiality.  Rick Hayber, who writes the Connecticut Employee Rights Blog, discussed the case earlier this week and asked for my views. In the case, the judge refused to accept a settlement of a class action overtime case because it contained a confidentiality clause.

Although Rick titled the post "Confidentiality Clauses May be a Thing of the Past", the content of the post suggests that not even Rick believes that all confidentiality provisions may be struck down.  I think that’s a fair reading.

Indeed, if you look at the decision — which is basically a few paragraphs — in Valdez v. Taso Properties, Inc. (thank you Google Scholar), it’s hard to figure out exactly what the concern is.  But the case also stems from another Florida case, Dees v. Hydradry, Inc., which rejected confidentiality provisions in many cases for court-approved FLSA settlements. Indeed, it appears that because the FLSA settlement had to receive court approve, the court seemed loath to approve of confidentiality of what would otherwise be a public proceeding.

For now, employers in Connecticut should certainly exercise caution when insisting on confidentiality provisions in settlement agreements.   Many times it will be appropriate; sometimes it won’t be. And settlement of FLSA claims requires particular care and attention because of the need for court or DOL approval in some cases. But for the remaining types of settlement agreements, tailor the provision according to the situation and, if settling claims outside the state, seek local counsel to ensure compliance with any particular state rules.

(Incidentally, if you love all things Mark Twain, you could do a lot worse than to follow the Mark Twain House on Twitter, or Caitlin Thayer, who works at the Mark Twain House and tweets @ctinct). 

 

In posts earlier this week, I’ve discussed what the NLRB’s Connecticut Office is doing and what to expect for 2010. 

But as I continue to recap the breakfast I attended earlier in the week with NLRB (Region 34) Regional Director Jonathan Kreisberg, of particular importance to employers was the discussion about what issues the NLRB may see reoccur from time to time.  The NLRB recapped some of these in its January 2010 newsletter and its worth a read through (page 4).

Here are some highlights from our discussion:

  • Kreisberg indicated that employer rules that have broad confidentiality provisions prohibiting employees from discussing wages, benefits and working conditions with co-workers are likely to be struck down. While protecting "trade secrets" is a legitimate concern, he indicated that many employer rules — in his view — go too far. 
  • He also said that rules that prohibit employees from discussing non-confidential matters with the media are likely overbroad, though rules that restrict an employee from talking with the media as the company’s "spokesman" may be more palatable. For more information, he pointed to a relatively new NLRB case which discusses this in more detail: Trump Marina Assocs., 354 NLRB 123 (2009).
  • Kreisberg also noted that anti-solicitation rules may be properly drafted so long as the rule does not prohibit employees from distributing written materials during non-working time in non-working areas.  Kreisberg said however that employers often run into difficulties in the selective application of the rule. (And in this time of Girl Scout cookies, it’s a good reminder.)
  • He did note that employers can prohibit the use of employer’s e-mail system for union solicitation but he again cautioned that selective enforcement of the rules could lead to issues with the NLRB down the road.  
  • We also discussed "anti-harassment" policies. For the most part, if such policies are in the context of discrimination/hostile work environment discussions, he did not see much of an issue with it.  But he indicated that the NLRB will look to see if the application of the rule is showing an anti-union bias.  He also reminded everyone that during elections, the NLRB seems to allow behavior (particularly from union personnel) that might not otherwise be tolerated if in the context of daily working activities.
  • Lastly,  Kreisberg indicated that the NLRB had produced a video designed to inform the public about the role of the Agency in conducting elections. It is also available on DVD upon request to employers and others.  (And he noted that if an employer uses this video during an election, it would pass muster as an neutral educational video.)

So what’s the bottom line for employers? 

  • Review your confidentiality, anti-solicitation and anti-harassment policies to ensure that they will pass muster under scrutiny.
  • Perhaps more importantly, educate staff about the appropriate application of the policy to union activities.
  • And finally, even if you do NOT yet have a union at the workplace, these rules (such as blanket prohibitions on employees’ discussions of wages) may still apply, so if you’re concerned, be sure to seek appropriate legal counsel.