Suits In The WorkPlace

SOX Impediments

   The Sarbanes Oxley Whistleblower process continues to shake out standards for what comprises an actionable complaint of retaliation.  A Department of Labor Administrative Law Judge recently refined the requirements for a valid whistleblower claim in a case involving Lexmark International, Inc.  The employee, a director of supply chain programs for Lexmark, complained about inventory tracking procedures and was fired the following work day.  After refusing to grant summary judgment to Lexmark, the ALJ dismissed the case following the hearing, finding that the complainant's concerns did not mention the Security and Exchange Commission, or claim an impact on investors or stock price.

     The opinion is noteworthy because it looks directly at a key subjective element for a SOX complaint -- the reasonable belief of the individual that false information is being reported or that there is a violation of the SEC filing requirements.  Specifically, the ALJ noted that the complainant had a graduate degree in business and described him as a person with sophistication, experience and extensive knowledge of supply chain practices.  This high-level and specialized knowledge of the supply chain industry creates a higher standard for complainant to show that he reasonably believed there was fraud or an SEC violation.  This is a key point, because it is quite possible that a lower ranking employee, or someone without the specialized knowledge of complainant, might allege a valid SOX complaint under exactly the same circumstances. 

     In addition to his failure to establish that he reasonably believed that fraud or an SEC violation occurred, Complainant could not overcome the issue of timing.  It was undisputed in the record that Lexmark had been discussing and planning Complainant's termination for several months prior to his complaint.  The ALJ held that Complainant would have been fired even if he had not raised concerns about the inventory accounting process.  This is a classic example of one of the affirmative defenses available to an employer in a SOX whistleblower case and points again to the necessity of carefully documenting these kinds of decisions so that an accurate record can be put in evidence.  An employer that can establish a termination has been made, even if the timing has not been finalized, can establish the affirmative defense and prevail at the hearing.

Class Action Final Frontier--ERISA?

A recent ERISA decision out of the Southern District of Illinois may portend some real problems for benefit plans and their administrators.  Typically, ERISA cases are disposed of very quickly, either by a motion to dismiss or on summary judgment, usually in favor of the employer.  That's because ERISA has a variety of plan-friendly requirements that make it very difficult for an employee to challenge the actions of plan administrators.  The flipside of this equation is that because ERISA cases typically involve hundreds, and sometimes thousands, of employees, damages potential is much higher than it is in the average single-employee discrimination case.

 The potential for large class action-type litigation is now beginning to attract the attention of plaintiffs' law firms that have traditionally been focused on personal injury litigation, especially those in the class action, mass-tort area.  Having bankrupted some industries and forced others into federal legislative protection, these firms are beginning to turn their focus to other potential large class actions, and ERISA benefit plan litigation seems to be a likely target.  In fact, at least one firm is actively soliciting representative plaintiffs for litigation in the St. Louis area.  An example of this increased focus can be seen in the Southern District of Illinois, where several participants in a cash-balance pension plan sued claiming age discrimination.  Donaldson v. Pharmacia Pension Plan, S.D. Ill., No. 06-003-GPM. 

The plaintiff-participants sued as class representatives claiming the pension plan violated ERISA because it cut some contributions after an employee reached age 55, reduced actuarial value of annual credits to individual accounts based on increasing age of the individual participants, and failed to pay lump-sum benefits in an amount equal to the accrued benefit reduced to present value. 

The plan responded with a standard ERISA defense, namely that the participants failed to exhaust their administrative remedies before filing the suit, and because the plaintiffs asked for compensatory rather than equity remedies.  The court rejected the plan's motion--holding that the failure to exhaust administrative remedies argument was specious because the court believed that the administrative procedure would not have resolved the plaintiffs' outstanding issues.  In what can only be considered ominous language for the plan, the court noted that it would make statutory interpretations on a de novo basis "without deference to the opinions of the plan's administrators."  That's quite unusual, plan administrators are usually accorded substantial deference under an arbitrary and capricious standard with regard to their decisions, but in this case the court characterized the issues as legal ones which it can review without considering the plan's interpretation.

The plaintiffs' firm in this litigation has a lot of experience in mass tort class actions such as Dioxin, asbestos, Vioxx and pharmaceutical product litigation.  These kinds of cases have traditionally paid out large amounts to law firms willing to pursue them; it appears that ERISA plans may be the next target of opportunity. 

The Postman Always Drinks Twice

It's true that postal workers here in the United States generally get a bad rap.  Whether it’s Federal Express commercials, or disgruntled mail carriers, or Clifford Claven, the postal employee frequenting the bar in Cheers, post office workers have not enjoyed the best publicity over the last decade or so. 

Apparently as part of an effort to polish the image a little, postal workers are subject to a regulation that states that they are prohibited from drinking intoxicating beverages in a “public place” while in uniform.  A postal employee in Dayton, Ohio, was terminated for violating this regulation when 30 members of a VFW post signed a letter of complaint to the local post office complaining about the postman's wearing his uniform while drinking at the VFW bar.  Although the postman was a regular at the bar (he estimated that he had consumed over three thousand drinks there since 1988), apparently his internal complaints about VFW accounting matters raised his profile sufficiently that he became a target of opportunity.  The employee appealed through the Merit Systems Protection Board ("MSPB"), which upheld the termination, noting that the employee had admitted to drinking at the bar and that he was under a last-chance agreement for other misconduct at the time of his termination.

The U.S. Court of Appeals for the Federal Circuit, however, took a dim view of the postal service's action.  Specifically, it said that the USPS's interpretation of the drinking regulation was not entitled to any deference. The court noted that the USPS could not have reasonably believed that a VFW hall was a “public place”, because the definition offered by the postal officials-that a public place is wherever postal customers are found-was too broad.

I have no idea how many people funnel through the Dayton, Ohio VFW post on an average workday afternoon, but I suspect it's more than a trivial number.  Especially since there were at least 30 people there who were able to identify the postman over time.  Moreover, the federal court's running the USPS definition out to its slippery slope conclusion in a case where such an issue was not before the court might have some interesting ramifications for a private employer that sought to enforce its own regulations in a similar situation. 

At least the plaintiff in this case was drinking after work. 

Stressed for Success

Sometimes employers require applicants to undergo psychological evaluations as part of the application process in order to determine their suitability for particular positions.  These kinds of tests can open up a Pandora's box of issues when the applicant is also in the process of suing her former employer for employment discrimination and claims emotional distress as part of her damages which, by the way, almost all former employees do as part of their discrimination suit.

 A recent case out of the Northern District of Texas, Gaujacq v. Electricite de France International, N.A. Inc., No. 3-06-MC-042-D, shows how such evaluations can become a source of new information for the former employer defending a litigation. 

In this case, the plaintiff was fired by a French-owned company and sued claiming discrimination, and emotional distress, among other damages.  While the litigation was pending, she was evaluated by a licensed psychologist, who assessed her suitability for employment for another company and also provided her with job coaching.  When the former employer found out about the evaluation, it subpoenaed the psychologist, asking for information regarding the plaintiff's suitability for employment, as well as whatever leadership coaching plaintiff received from the psychologist.  The psychologist, understandably, objected and moved to quash the subpoena, but the trial court denied the motion. 

The court noted that the psychologist was in the capacity of a treating physician not a party to the litigation, and ruled that the psychologist could be deposed regarding interviews, evaluations, or diagnostic tests she performed or administered at the request of the potential employer, as well as any leadership coaching she provided.  The court noted that this type of an evaluation was specifically relevant to plaintiff's employment discrimination case because it related directly to any emotional distress she might have suffered, as well as her ability to secure new employment.  These types of issues are on target with regard to relevant evidence for damages, and are usually a goldmine for former employers seeking to prove that whatever happened, the effects are not nearly as severe as claimed.

The court did say that if the deposition of the psychologist strayed from medical issues that were not involved directly in the diagnosis of the plaintiff, then the psychologist could ask for expert witness fees; for example, if the defendant asked the psychologist her opinion on certain types of medical conditions.  But otherwise, the psychological profile that was developed as part of the application process for the gaining employer may become a powerful weapon in the hands of the previous employer seeking to blunt a claim for damages.

Dressed for Success

I frequently see what I refer to as "quasi-commercial" cases involving non-compete agreements and the like from both plaintiffs and defendants.  A recent Virginia Supreme Court decision highlights the importance of being able to actually show damage to business, no matter egregious the violation of the non-compete agreement. 

The case involved two high-end clothiers -- James, Ltd. and Saks Fifth Avenue, Inc. operating in the Mecca of Washington, DC shopping, Tysons Corner.  At one point, Tysons Corner was exactly that, a corner of an intersection between two unpaved Virginia state roads.  In fact, sitting in my old office in Tysons Corner is a picture of a 1930s version of a convenience store at Tysons Corner.  It is the only building at the junction of the two roads.  The area is now a mega sprawl with two huge and very upscale shopping centers surrounded by equally upscale hotels, restaurants and boutique mini-shopping centers.  It's a great place to spend money quickly, which is why the two clothiers were located there. 

The salesman from James, who was at-will but subject to a non-compete that prohibited him from working for another men's clothing store within a mile for three years, went to work at Saks immediately after he left James.  Interestingly, as part of the recruitment process by Saks, Saks' management made statements to each other like, "Do whatever it takes to get [this] guy."  An aside:  Why do people keep writing things like this in e-mail?  In any event, there was little dispute at the trial court or Supreme Court that the salesman violated his non-compete agreement.  The trial court awarded $1.645 million in damages, plus costs, attorneys' fees and expenses to James. 

But the Virginia Supreme Court reversed, no doubt influenced strongly by the argument of one of my partners, Bill Broaddus. 

James established its damages solely through the testimony of an expert, who compared the sales while the salesman was at the store with the sales following his departure from the store.  The expert did not analyze whether the salesman’s former customers at James (he had 50 or so core customers and generated more than $1 million in sales each year) actually shopped at Saks following the salesman's departure. 

The Supreme Court found this to be a fatal error.  The court stated that the proper focus of a damages inquiry is not on lost sales that occurred as a result of the salesman’s departure -- he was, after all, an at-will employee who could have left at any time.  Instead, the focus must be on sales that moved with him as a result of his wrongful conduct.  In other words, James’ expert’s projection of damages would have been the same regardless of whether the salesman left to go to work for Saks or had been hit by a car.  The proper analysis would take into account revenue that moved to Saks from James.  Unfortunately for Saks, their expert could not establish that this had even occurred.

 Moral of the story -- covenant not to compete cases can be difficult to win under the best of circumstances.  Even where there's a clear violation of the covenant, if the business doesn't travel with the former employee, you won't win.

Jumping on the Bird Flu Bandwagon

There’s  a lot of attention being paid to avian influenza (aka “bird flu”) these days, and as with most issues, there are two sides to the pancake.  More than one of my colleagues has chuckled wisely, remembering fondly the days when we stockpiled food and water in anticipation of the imminent Y2K  (OK.  We didn’t stockpile much of anything, but I knew people who did.)  Last month, the ABC docudrama on the subject (“Fatal Contact:  Bird Flu in America”) didn’t exactly inject a huge amount of credibility into the concerns, either.

Nevertheless, others have genuine concerns.  The World Health Organization, for example, is quoting estimates of 2 million to 7.4 million deaths worldwide.  The U.S. Chamber of Commerce is advising employers to be prepared for a potential 40% absentee rate among employees for a prolonged period of time.  Granted, a lot’s got to happen before there is a true pandemic:  mutating viruses and human to human transmission and other such subjects that I went to law school to avoid.

However, whether you “believe” in the bird flu (in the Tooth Fairy sense) or not, the subject certainly raises questions and issues for employers in any disaster preparedness efforts.  Whether it be bird flu, terrorism or hurricane, many employers are (or should be) developing emergency plans to address such things.  More and more, we as employment lawyers are being asked to advise employers on the legal implications of such plans and scenarios.  Some issues to consider:

ADA Implications – if infection is considered a disability, and under the worst-case scenario a fatal disease would surely qualify, then what accommodations should employers be prepared to consider?  On the other hand, at what point is an infected employee considered a direct threat to himself or others, such that an employer could require testing, or even mandatory inoculation?

Leaves of Absence – federal law permits employees who work for employers with 50 or more employees up to 12 weeks of leave under the FMLA.  Must an employer provide leave when a huge percentage of its workforce is either infected, or needs to care for a spouse, parent or child who is infected? 

Duty to maintain a safe workplace – OSHA requires employers to adhere to a general duty to take reasonable steps to maintain a safe workplace.  In light of all this hype, what does this really mean?  Masks?  Gloves?  Purell in every cubicle?

Negligent retention – what about the employer who waits too long to send home a sick employee, and in turn causes others to become needlessly infected?  Is there any liability there?

There aren't necessarily bright line answers to these questions, but that doesn’t mean they shouldn’t be asked.  While the first priority is of course mitigating the impact of the disaster, crisis management must be done legally, and the first step is thinking through some of these issues.  Now Lou thinks all this may be moot, because he predicts public health officials and pronouncements will trump all private employer policies anyway.  He may be right, but regardless of the outcome of this particular crisis du jour, I expect we haven’t seen the last of the disaster planning efforts in our lifetime.

What’s your company doing in anticipation of possible avian flu outbreaks?  Thinking, planning, or chuckling about the resemblance to Y2K?