Yesterday, President Obama signed the Defend Trade Secrets Act — a broad federal law designed to give companies added protection.  It does not circumvent state law — indeed, where a state law is more protective of the trade secret, it still applies. Nevertheless, it provides a base level of uniformity nationwide.

My colleagues, Pat Fahey and Lee Duval, prepared this summary a few days ago, which I republish here.  But candidly, there are plenty of such summaries out there by nearly every lawfirm.  You can find a whole host of them on LXBN.  If the subject is of interest to you, it’s worth following up with your attorney to get more information about how this statute is likely to impact your particular company.

congressWith the long-awaited passage of the Defend Trade Secrets Act of 2016 (“DTSA”), which amends the Economic Espionage Act, federal law will now provide a civil cause of action for misappropriation of trade secrets.

Prior to the DTSA, the protection of trade secrets was largely a matter of state law and based primarily on the Uniform Trade Secrets Act (“UTSA”).

Most states have adopted a version of UTSA, but variations between states on essential requirements, such as what qualifies as a trade secret, led to the call for a federal body of law that would be more predictable and uniform.

The DTSA does not preempt state laws governing trade secrets, but will allow civil litigants to pursue an additional claim and to bring those claims in federal court.

Litigants will still be able to pursue state law claims for misappropriation of trade secrets, but by filing in federal court, they will now have access to the broad, nationwide discovery permitted by the Federal Rules of Civil Procedure and the unique remedies afforded by the new law.

Two provisions of DTSA are particularly noteworthy: the allowance of ex parte seizure orders and certain employee protections.

Ex parte seizure orders – essentially an order from the court permitting the seizure of property to prevent the use or dissemination of the stolen trade secret without notice to the accused wrongdoer – would be permitted in “extraordinary circumstances.”

In the event that a wrongful seizure occurs, the victims will be entitled to damages, including punitive damages upon a showing of bad faith, and attorneys’ fees.

It remains to be seen how courts will interpret the ex parte seizure provisions, including what constitutes a wrongful seizure, and whether or not such requests will be made often by the trade secret owner.

The DTSA also provides certain protections for employees, which includes contractors and consultants.

Specifically, the legislation provides protection for certain “whistleblower” employees, and employers are obligated to inform their employees of these new protections.

For example, if an employee discloses a company’s trade secret in confidence “solely for the purpose of reporting or investigating a suspected violation of law,” that employee is immune from liability under DTSA.

Moreover, going forward, employers who fail to provide their employees with notice of the new immunities could lose the ability to recover punitive damages or attorneys’ fees in an action against an employee.

The notice requirement may be satisfied by an employer “provid[ing] a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.”

In addition, the law prohibits a court from “prevent[ing] a person from entering into an employment relationship” and requires that any conditions placed on the new employment “be based on evidence of threatened misappropriation and not merely on the information the person knows”, which is intended to foster employee mobility and to avoid conflict with state law.

Thus, in states that have authorized the “inevitable disclosure” doctrine as being a sufficient basis to justify a misappropriation of trade secrets claim, it will be imperative that the employer bring state law claims in addition to a DTSA claim.

We strongly recommend that employers take notice of the changes the DTSA makes to existing law.  All employers should review any employee agreement that “governs the use of a trade secret or other confidential information” and provide the requisite notice of the new immunities.

Employers also are encouraged to perform a trade secret audit to identify or inventory and document their claimed trade secrets, the steps that have been implemented to protect those trade secrets from disclosure and the economic value associated with the trade secret.

By taking these steps now, an employer will be in a better position if it finds itself in a dispute regarding the misappropriation of the company’s trade secrets.

justiceLate last month, a federal court in Connecticut took another look at the prohibition of discrimination “because of sex” with a case that has all the elements of a “can you believe it” fact-pattern that will surely be used for harassment training going forward.

The case involves a male employee posed for Playgirl nearly two decades prior and who, according to the decision, faced harassment from male and female co-workers.

But what does that phrase “because of sex” mean in today’s workplace climate?  And should it be extended when we’re looking at issues of same-sex harassment?

The case, Sawka v. ADP, can be downloaded here, and I’ll talk about it a bit more below.

The EEOC has been pushing an expanded view of this language, particularly as efforts to prohibit employment discrimination on the basis of sexual orientation have been floundering at the federal level.

(It should be noted that Connecticut law explicitly prohibits sexual orientation discrimination but there are case of male on male, or female on female harassment that don’t involve sexual orientation — like this case.)

But this case touches on same-sex harassment unrelated to the employee’s sexual orientation.  The case came to my attention by David Wachtel in a detailed post that is worth a read.  In it, Wachtel notes that in cases of same-sex harassment, there have been limited theories for employees to pursue.

Based on Supreme Court precedent in the Oncale case, a plaintiff would have to show either that:

  1. The harasser was motivated by sexual desire;
  2. The harasser was expressing a general hostility tto the presence of one sex in the workplace;
  3. One sex was treated differently from the other;
  4. Defiance of a sexual stereotype.

Wachtel argues that there is another kind of motivation that should also be covered by the “because of sex” principle.  Likening it to the “Fifth Beatle”, he says that a court should focus on the employee’s sexual characteristics and that this case seems to expand on it.

For employers, though, the case is easier to understand without the legal theories, notwithstanding the complicated facts that involved, among other things, teasing by both male and female coworkers for nude photos that the employee has posed in Playgirl for nearly two decades ago.

Ultimately, the federal court said that there was sufficient evidence to send the case to a trial (thereby denying the employer’s motion for summary judgment at least partially).

For example, one woman referenced “the existence of pictures or searching for Mr. Sawka online” and said she saw “everything”.  Another said that everyone had seen the pictures and that he had a “beautiful c***” and she just wanted to “f*** the s*** out of you.”

The court said that these comments and behavior (and other) could be viewed by a jury as being motivated by sexual desire and thus “because of sex”.  And the comments by male co-workers about the “size and state of his genitals” could also be harassment “because of sex”.  Thus, the court said, the employee could proceed with his hostile work environment claims.

It’s not a full victory for the employee however. The employee resigned and claimed that he was “constructively discharged.”  The court rejected that claim because to proceed, the employee must produce “evidence of even more severe conditions” than those that create a question of fact on a hostile work environment claim.

Nevertheless, the case is a notable one that reinforces something that I talk about in sex harassment prevention training.  Sex-based jokes, comments, and teasing by EITHER gender can lead to liability for an employer if that behavior interferes with an employee’s ability to do his or her job.

I’ve talked many times before about the importance of a well-drafted disclaimer in your employee handbook (here and here, for example).

This is not a new thing and in Connecticut dates back to an important case back in 1995 .

Without such disclaimers, employers can be subject to a breach of contract claim by your employees.

Yesterday, a federal judge in Connecticut was the latest to reinforce this message by allowing a breach of contract claim to proceed based on the employer allegedly failing to comply with its own anti-harassment policy, even though the federal legal claim of harassment was time-barred.

You can download the decision denying the employer’s motion for summary judgment on this issue in Mariani v. Costco Wholesale Corp. here.

One important note at the outset. This decision does not mean Costco is liable for a breach of contract; all the court decided is that the employee’s claim can proceed to a trial.  (In doing so, the court threw out many other claims of the employee.)

The facts on this issue seem straightforward. Costco seemingly has an employee handbook that it titles “Employee Agreement”.  It requires the employees to acknowledge receipt.  Costco conceded to the court that this “Agreement” could create a contractual obligation to its employees.

But, according to the court, Costco’s anti-harassment policy created an additional contractual responsibility that it did not disclaim. In other words,  the court said that while the employer was under no obligation to have tougher anti-harassment policies than state or federal law — having said it would abide by stronger language, it must follow that or face a breach of contract claim.

The court’s “money” quote is this:

The Employment Agreement does not contain any disclaimer language to the effect that its “super” anti-harassment provisions do not create legally enforceable protections beyond the protections of background law. Today’s corporate employers compete not only on grounds of their raw ability to make, deliver, and sell goods and services at a low or reasonable cost but also on grounds of their corporate self-image as “good” corporate citizens. They likewise compete on grounds of their ability to attract employees by means of promises of innovative management practices that foster dynamic workplaces that are comfortable and safe. This is not to fault the fact that Costco has adopted progressive anti-harassment policies but only to make clear that these policies, as framed without disclaimer, may give rise to legally independent and enforceable obligations for the benefit of employees that rely on them

How can Connecticut employers avoid this same result?

This case should be yet another reminder of the importance of a disclaimer in any company handbook that these policies.  Remind employees that no provision of the handbook creates an employment contract or any other obligation in regard to employment.  And consider using this language in the acknowledgment of receipt.

And, without stating the obvious, consider calling your employee handbook, well, a handbook instead of an “agreement”.  If you call it an agreement, a court isn’t going to disagree with you.

With the year coming to a close, this is the perfect time to have your handbook reviewed by an attorney.  Otherwise, you could be facing an employment law claim that you created yourself.

 

Costco Contract Claim

Management-side lawyers like myself like to joke that a former employee can sometimes sue any employer for any reason at any time.

It’s not true, of course, but at times it feels like there is no limit to the creativity of lawyers filing claims against employers.

One such tactic was recently rejected by the federal court in Connecticut.

In the complaint, the employee alleges that the employer failed to pay mandatory prevailing wages on public works projects and failed to pay him overtime.  While he alleged a violation of the Fair Labor Standards Act, he also alleged a violation of the Connecticut Unfair Trade Practices Act (CUTPA).

CUTPA, as noted by the federal court, is a remedial statute that states that no person shall engage in “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”

The court in Matysiak v. Spectrum Services Co. (download here) rejected the CUTPA claim here saying that the claims arise from the employer-employee relationship and thus fall outside the scope of the statute.

In the case at bar, allegations that Defendants”repeatedly certif[ied] that prevailing wages were being paid to all employees on public works projects [while they] instead retain[ed] the prevailing wage premiums as profit” could certainly suggest damages to competitors through undercutting, as well as to taxpayers and other individuals, and could conceivably be found to fall within the above-enumerated requirements of the Cigarette Rule. However, Defendants’ alleged practice of misreporting wages in bids for public works projects, which the Court takes as true for the purposes of adjudicating this Partial Motion to Dismiss, did not injure or cause damage to Plaintiff. Rather, Plaintiff’s alleged injury and damages stem from what Plaintiff describes as a lack of proper wage and salary payments, a strictly employment-related matter which underlay any wage misreporting in public works projects bids rather than resulted therefrom. Simply put, then, Defendants’ fraud and misrepresentation as described in the Complaint did not cause or result in Plaintiff’s damages.

For employers facing lawsuits, it is not enough to simply deny the allegations of a lawsuit. Rather, there may be legal reasons why the claims may fail.   Motions to dismiss like the one made in this case are still difficult to prevail on, but where there is legal justification for dismissing them, they still may be worthwhile.

A side note: Following the court’s ruling, the employer has since denied the remaining allegations overall and has filed a counterclaim against the employee. The employer’s claim? That it paid the employee $20,000 in “full and final settlement of his claims”.   The employer, however, alleges that this was merely an “oral contract.”    Employers should continue to get these types of agreements in writing.


Your former employee files suit against your company in federal court in Connecticut claiming that she is entitled to overtime under the Fair Labor Standards Act.   You go to a settlement conference before a magistrate judge. After a few hours of back and forth negotiation, you reach a settlement with the ex-employee.

Is judicial approval of the settlement necessary?

It’s clear that in discrimination cases, the answer is no. Parties settle such claims all the time without judicial intervention.

But, federal judges in Connecticut are noting that there is a developing split of authority on whether judicial approval is needed to settle FLSA claims.

On the one side, there are cases like Socias v. Vornado Realty L.P. (E.D.N.Y. 2014), from earlier this year, which requir a fairness hearing prior to voluntary dismissal of a FLSA action.

On the other, there are cases like Picerni v. Bilingual Seit & Preschool Inc. (E.D.N.Y. 2013) which hold that no judicial approval is required prior to settlement of FLSA lawsuit.

Who’s right? That issue will eventually have to be decided by the Second Circuit and perhaps even the U.S. Supreme Court if a circuit split develops.

In the meantime, companies and their lawyers should be prepared for courts to bring this issue up on their own (the latin phrase is sua sponte).  If so, there are a number of factors that the court may look too, as outlined in one case, Lliguichuzhca v. Cinema 60, LLC (S.D.N.Y. 2013).

As the court noted, in “scrutiniz[ing] the settlement agreement to determine [whether] the settlement is fair and reasonable[,]” the court must look at the following factors: whether there was “overreaching” by the defendant-employer, whether plaintiff was represented by “competent” counsel; whether there were “legitimate concerns about the collectability of any judgment against defendant[]”; and whether the “proposed settlement [was] . . . the product of negotiation between represented parties following extensive litigation[,]” especially because “[a]rm’s length bargaining between represented parties weighs in favor of finding a settlement reasonable.”

This “fair and reasonable” standard may not be terribly difficult to satisfy, but for parties who believe that the settlement they reached on their own should be enough, it can still be a bit nervewracking.

For employers, be mindful of your settlements of FLSA claims.  As the saying by Yogi Berra (and the song by Lenny Kravitz) goes, “It ain’t over ’til it’s over.”

Red light? Green light? Trial.

Every week or two, the federal court in Connecticut is asked to decide a motion for summary judgment in a discrimination case.  I’ve yet to discuss what these motions are in detail on this blog, but a recent federal case in Connecticut provides a good learning example.

To simplify (drastically?) a federal court case in Connecticut, after a lawsuit is filed by an employee and responded to by the defendant/employer, the parties engage in what is called discovery — interrogatories, requests for production and depositions — all in the hopes of getting information that can help them at trial.

But at the end of discovery — before a trial happens — the parties (and typically the defendant) have an opportunity to file a “motion for summary judgment.”  Such a motion is the defendant’s chance to say, “Based on the undisputed facts, we should win on the law.”  Or, in other words, there’s no need for a trial.

What people unfamiliar with the legal process often misunderstand, however, is that the court isn’t merely looking at the law in deciding whether the case merits a trial. Rather, the court first looks to see whether all the material (or, in plain English, important) facts are undisputed.

If there are genuine disagreements as to key factual issues, then the case has to go to a trial to let a jury or judge decide the key facts.

A car accident case is the easiest way to understand this.  Suppose there is an accident at an intersection and the key issue is who had the right of way.  Driver A says the light was green. Driver B says light was red.  Witness C says the light had just turned yellow.   In this situation, there is a genuine issue as to what color the light was and therefore, who had the right of way. It’ll be up to a jury to weigh the evidence and decide who is to blame for the accident.

Continue Reading What Happens in a “He Said/She Said” Case? A Trial

UPDATED 11/22/13, 3p

Earlier this week, members of the CBA’s Federal Practice Section were informed that the Initial Discovery Protocols in Employment Cases are now being used by all the judges in the district.

As such, lawyers and clients should now expect to deal with them in various types of discrimination cases filed in federal court — at least in the District of Connecticut.

You can download the protocols here.

What’s in them? I’ve first covered them way back in 2011, and have followed up with posts in 2012 and 2013 so I’m not going to repeat it verbatim here.

But what’s important for employers to understand that they have just 30 days from a responsive pleading to do these initial disclosures.

These disclosures include things such as the employee’s personnel file and all communications concerning the factual allegations between the employee and the employer, and between the managers/supervisors and/or human resources.

That potentially is a significant undertaking in the early stages of a case.

As an aside, if anyone from the federal court clerk’s office reviews this, how about posting a link to them directly from the “Forms” page instead of under an individual judge’s name? Or put them up on the “Local Rules” page.

The protocols are still tough to find on the website itself other than under Judge Arteron’s page.   A search of “protocols” on the website only shows one reference to them.  In light of the adoption, the protocols should be more readily accessible.

[Updated] – Since my post of this morning, the Clerk’s Office has now updated the Rules and Orders page and posted the following notice. Great work by the court to provide this information:

The Clerk’s Office began entering the Notice re: Discovery Protocols in all civil cases with Nature of Suit codes (442, 445, 710, 720, 790, 791, and 751), for new cases filed on or after 12/1/12 and assigned to Judges Hall, Chatigny, Thompson, Arterton, Underhill, Bryant, Shea and Haight.

These protocols have been endorsed by the Judicial Conference Advisory Committee on Civil Rules and are designed to achieve the goal of more efficient and targeted discovery.

Statute of limitations — or, in plain English, the deadline to file a lawsuit — are sometimes able to be used by employers when employees and their counsel file their employment law claims late.

But a recent federal court decision in Connecticut had to look at a fairly novel issue: Did the CHRO mislead the employee’s attorney regarding the deadline to file a lawsuit that would excuse the deadline?

Ultimately, the court concluded that even if there was some ambiguity in what the state agency said,  it did not justify a tolling of the statute of limitations.

The case, Hannah v. Wal-Mart  Stores, can be downloaded here.

In the case, the CHRO issued a release of jurisdiction of the state law discrimination claims on April 10, 2012, which would obligate the employee to bring her claim to court by July 12, 2012.  (Here she did not file the state law claims until September 21, 2012, shortly after finally receiving a Right to Sue letter from the EEOC releasing the federal claims).

The court was asked whether misleading information from a third-party, such as the CHRO, could justify tolling of those state law claims.

The court said, however, that it was far from clear that there was even misleading information.

On May 25, 2012, the plaintiffs’ counsel wrote to the CHRO and stated “I have not gotten the right to sue back from the EEOC yet … Is it really necessary to get a release from them before filing, given that I never filed with them?”. The CHRO responded: “Yes, you need to get a Right to Sue from the EEOC”.

The court said that this CHRO response did not state that plaintiff could not bring the state law claims until hearing from the EEOC but only seemed a reference to the requirements to bring a federal claim.  The state law claims are separate from the federal claims.

And yet, the court said that the e-mail could be viewed as ambiguous because it did not clarify that the plaintiff did not need to file the state and federal law claims at the same time.

Is that enough?

No, says the court, because “the fact remains that plaintiffs were represented by experienced counsel who should have been aware of the requirements for filing CFEPA claims.”   Had this been a direct communication with the employee directly, that might have changed the court’s analysis.

But here, the statement from the CHRO to the employee’s counsel was not “sufficiently exceptional” to justify equitable tolling.

For employers, the case is a reminder that statute of limitations remain a powerful tool in the courts to limit claims of discrimination and that courts are willing to enforce those hard deadlines.

The employer in this case will still have to deal with the federal claims, but given the caps on some damages and the burden of proof requirements attached to the federal claims, the employer is no doubt pleased with the small victory.

Last week, a federal judge in New York ruled that unpaid interns on the movie “Black Swan” should have been paid for their work, under the Fair Labor Standards Act (FLSA).

You can download the decision in Glatt v. Fox Searchlight here.  The court relied on the six factors that have been outlined by the U.S. Department of Labor before.

I talked about these factors in a 2012 post and they are worth reviewing again:

  • The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  • The internship experience is for the benefit of the intern;
  • The intern does not displace regular employees, but works under close supervision of existing staff;
  • The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  • The intern is not necessarily entitled to a job at the conclusion of the internship; and
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Put another way, if you’re bringing on unpaid interns to do work in place of regular employees, it’s probably not going to fly.

While the mainstream press is professing some shock at the decision, most employment lawyers saw this as inevitable. As one blogger, Philip Miles, stated, it’s just “difficult for unpaid internships to be FLSA-compliant”.

Or, as Jon Hyman from the Ohio Employer’s Law Blog stated:

Employers that use unpaid interns should pay careful attention to this issue. It is far better to scrutinize interns under the DOL’s six factors before the agency, or a group of plaintiffs, swoop in and do it for you. It is even better to formalize the relationship in a written internship agreement that formally spells out how each of these six questions is answered in your favor. Or maybe it is best simply to assume that except in rare cases, there is no such animal as an “unpaid intern,” and you should simply accept the fact that if you are going to label entry-level employees as interns, you need to pay them for their services.

Is this decision good or bad? Suzanne Lucas (otherwise known as the “Evil HR Lady”) writes this morning in Inc. that ultimately the decision will only hurt college students, not help them:

Why? We already know that college is expensive, and that having a degree does not guarantee a job. We also know that your best chance of getting a job after getting that shiny new degree is if you have a slew of internships on your resume. Without those, you don’t stand out. It’s hard to convince a hiring manager that you are ready to be a financial analyst with a transcript and three summers working fast food. They want someone who has experience.

Internships have been the way people gained experience. Companies were willing to take on interns as a sort of community service as well as the ability to get some of grunt work done for free. Though the latter has been illegal for a very long time, it’s mostly ignored. Now, it can’t be.

More companies will be paying for their interns: It sounds good on its face. But it also means that some companies, particularly small ones, will just skip the interns altogether. If they have to pay, then why hire someone completely inexperienced who will only be there for three months anyway? Why not hire a real person who has experience and will stick around past the training phase? Which means the number of internships available will drop.

What the decision should remind companies yet again is that unpaid internships are a risky endeavor.  If you have some this summer, make sure that they meet the DOL’s guidance on the subject.

At 47 pages, U.S. District Court Judge Hall’s decision last week in Costello v. Home Depot USA (download here) denying an employer’s motion for summary judgment in an overtime case, isn’t exactly a light read. 

More Saving, More Doing? Not so with litigation

She is, of course, not to blame. The case is complicated and has a “somewhat convoluted procedural history” because it was first filed in 2004 (!) and certified (and then decertified) as a collective action that alleged that Home Depot misclassified mechandising assistant store managers as exempt.

But after nine years of litigation, the Court was finally asked to decide whether Home Depot properly classified these two of these assistant store managers as exempt from overtime pay. 

The position of “assistant store managers” has been the source of lots of litigation over the last decade.  So it’s worth taking a look at what the court did.

Procedurally, it denied the motion for summary judgment saying that there were issues of material fact that precluded the granting of the motion. In other words, the case has to be decided by a fact-finder and jury, and not by the court itself on the papers.

Substantively, the crux of the case centers on whether the employee’s “primary duty” was “management of the enterprise”. 

As to one employee, the emplioyer argued that the employee:

(1) ensured his departments were properly staffed; (2) planned the work to be done in each department; (3) delegated work to his subordinates and followed up to make sure it was done in a timely and correct manner; (4) ensured his subordinates were trained, both for their current position and so they would be ready to advance to the next level; (5) ensured proper merchandise was ordered; (6) inspected his departments for safety violations; (7) resolved employee and customer complaints; (8) made recommendations regarding annual raises for his employees; (9) counseled associates on disciplinary issues; (10) recognized his subordinates for exceptional performance; and (11) devised strategies to improved department sales.

Sounds like it should be enough to win the case, right? The employee countered by saying that “while he performed many of these tasks, in many instances — particularly related to hiring, firing, and scheduling decisions — ultimate decision-making power and discretion lay elsewhere.”  The Court actually says that these facts do indeed lean in favor of the employer, not the employee.  

So why did the court still reject the employer’s motion?

Because taking other factors like whether the employee spent a substantial amount of time performing non-exempt work, and whether the exempt duties the employee performed were of relative importance to the job, led the court to the conclusion that there were genuine disputes as to what actually occurred.

No doubt the decision is frustrating to the employer (and other employers) who laid out a number of facts that even the court — at times — found persuasive.

But ultimately, the case is an important one for all employers to understand exactly what factors a court will look at in determining whether assistant store managers are exempt, and how important it is for employers to have its rationale locked in with supporting documents and affidavits.

These types of inquiries are very fact-specific. But even here, where the employer seemed to spell out lots of details to support its argument, sometimes, a lot of evidence isn’t good enough.

Costello v. Home Depot