Suits In The WorkPlace

Not the Best Management Move

Wal-Mart has long been the whipping boy of the plaintiff’s bar and the news media based in large part on its overwhelming market success. The plaintiff’s bar is constantly looking for a deep pocket (there’s no money in suing poor people) and the mainstream media is generally hostile to anyone doing well in business (who also are some of the same people who insist on newspapers making a profit). But Wal-Mart does an awful lot to bring this stuff on itself, too.

Take the company's latest debacle, which occurred in state court in Minnesota. Wal-Mart’s been ordered to pay $6.5 million to 56,000 current and ex-employees because it did not give them the rest and meal breaks to which they were entitled under state law.

Minnesota, like a number of states, has a baby Fair Labor Standards Act that is more restrictive than the federal statute. The Land of Ten Thousand Lakes requires a meal break during more than eight hours of work, requires payment for breaks that are less than 20 minutes, and requires accurate time records of all of this. Wal-Mart was sued by one of its grill cooks working in the lovely town of Apple Valley (not too far from where I went to high school, in fact). The ex-employee claimed violation of the state statute, as well as being denied the opportunity to use the bathroom and not being paid for actual hours worked.

You are probably thinking to yourself that a failure to comply with legal requirements affecting 56,000 people could not have escaped the notice of Wal-Mart management, and you would be right. In fact, Wal-Mart conducted at least two audits of its work force – 128 stores nationwide, and 6 in Minnesota – to determine the scope of compliance with various wage and hour laws and specifically, the accuracy of employee timekeeping. The audits were thorough. At six Minnesota stores, more than 1,000 meal breaks were unaccounted for and more than 2,600 rest breaks were missing in a one-week period. In other words, either people weren’t recording the breaks, or they simply weren’t being given the opportunity for them as required by the law.

Here’s where the real problem starts. A company that believed it was giving people adequate break time that was improperly recorded would move to correct the reporting deficiencies and do it quickly. Any employment lawyer looking at such an audit would realize immediately that the company was in significant danger of being sued for something that it wasn’t doing, i.e. not providing sufficient breaks.

But that’s not what Wal-Mart management did. Instead of trying to figure out whether it was actually breaking the law or just had sloppy record keeping, Wal-Mart management directed employees to stop recording breaks on their timecards. In other words, when you read bad news, burn the newspaper. This was probably the single most important factor in the court’s determining that Wal-Mart not only was breaking the law, but also knew it was breaking the law at a significant pace.

Minnesota has a long history of employee protection and imposes stiff penalties for intentional violations of its statutes. In this case, the penalties accrue at the rate of $1,000 per violation. That’s in addition to punitive damages. The penalty could total $2 billion, a number that would get your attention on a balance sheet anytime.

The lessons here are pretty obvious. I’ve said before that if I have to pick a statute that my clients are most likely violating, it would be the Fair Labor Standards Act or similar state statutes. Companies need to pay more attention to their timekeeping process and how their policies are actually being applied on the shop floor. They should allow their employees to verify the time records to ensure accuracy and give the employees a means of reporting errors that does not involve their local managers. The company should undertake periodic audits to ensure that the time records are showing compliance. And finally, if you see a problem, don’t try to solve it by making sure the problem can’t be reported to you. Ignorance is not bliss.

Yet Again, In San Francisco

    I have singled out the City of San Francisco on a couple of occasions for its wacky, California-style employment situations.  But now the Bay City has given us a lesson that is truly instructive. 

     It's been a rough couple of weeks in San Francisco, principally due to the actions of one Terry Childs.  Mr. Childs is a mid-level computer network administrator for the city.  Shortly after some real or imagined slight at the hands of his employers, Mr. Childs effectively shut down SF's wide-area network, which contained records ranging from jail inmate bookings to emails from city officials to city payroll files to confidential law enforcement documents, and a host of other data generally considered essential to the running of a modern nanny state.  Childs did this simply by setting up a mechanism that gave him exclusive access to the system and then passwording it, and refusing to give anyone else the password.  If you remember Jurassic Park, think of him as the fat guy who was stealing the dinosaur eggs and shut down the entire facility network for the dinosaur park to cover his getaway.  Fortunately, the results here were not quite so dramatic.  At least, no lawyers were eaten.

     And Childs wasn't doing it to cover up anything.  In fact, he apparently was quite open about what he had done and was promptly arrested and tossed in the slammer.  There was no record of his booking, of course, but I suspect that the City wasn’t going to lose track of him.

     Childs, who is still in jail, gave up the password on July 21 only after SF Mayor Newsome made an in-person visit to meet with him.  Hizzoner later reported that the still San Francisco city employee (I guess even this doesn’t get you summarily fired in CA) got "a bit maniacal" during his tenure.  Whatever that means, I suspect the remark again reflects the reticence of all California employers to say anything bad about an employee for fear of litigation down the road.  Likewise, the Chief Administrative Officer of the city said that SF was attempting to implement best practices to prevent exactly this problem from occurring, but that "it appears that he [Childs] was rebelling against them."   It appears he was rebelling?   No one can say they rush to conclusions in the Bay Area, that’s for sure.

     Some commentators have noted that the executive team in San Francisco is lucky they're not in the private sector.  Allowing such a slipshod and sloppy operation, in which a single individual can effectively shut down your entire computer system, almost certainly would have triggered a federal SEC investigation and could have resulted in criminal charges filed against the CEO under Sarbanes Oxley.

     And of course, the city faces the ongoing nightmare of not knowing what viruses, booby traps, data bombs, or other mechanisms Childs might have left in place.  It may be a long time before the city’s IT managers can look around and believe that they have complete control over their system.

     What is it the nuns used to say in Latin class?  "Quis custodiat ipsos custodes?"  Well, part of the answer is not to let one of the guardians have the keys to the entire kingdom.

Addendum--In an effort to thwart Mr. Childs from getting bail reduced,  the city disclosed in its memo to the court some 150 passwords for access to its systems that were discovered on Childs' computer.  Presumably these have all been reset and the VPN system at issue reconfigured, yet another cost resulting from the city's lax security practices. 

Guns in the Workplace Webinar

For those of you so inclined, on July 29th at 12:30 EDT I will be speaking at one of MW's free webinars about the recent proliferation of state laws prohibiting employers from excluding employee firearms from company parking lots.  I'll cover the new laws themselves, problems that may arise as a result of having a workforce with ready access to loaded guns, and some considerations for employers thus affected. 

You can register here, the program will go for an hour, it's free, and we will be able to take questions.  Hope to see (?) you there.

Religious Discrimination Guidance from Our Friends at the EEOC

Signs of the Times

The Atlanta Public Works Department, after receiving complaints from the editor of PINK magazine, agreed earlier this month to change all its road signs from "Men Working" to "Workers Ahead."  Read the full story here.  Although, in fairness, half the workers in the department are female, there was no indication that the old signs failed to adequately notify drivers that workers were, indeed, working in the road - regardless of gender.  The new gender neutral signs will cost an extra $144 a piece, but hey, that's a small price to pay for political correctness, right?  The real question:  what does this mean for my favorite 80's band Men at Work?

Employers:  next time you stroll around your office or facility, be on the lookout for insidious sinage that might be Exhibit A (more like B or C) in your next gender case.

Policy Language Creates FMLA Rights for Ineligible Employee

The Seventh Circuit just handed down a doozie. In Peters v. Gilead Sciences, 2008 U.S. App. LEXIS 14894, the court ruled that an employee who was statutorily ineligible for benefits under the FMLA may nevertheless be entitled to a leave of absence and a guaranteed return to work because of inartful language in the employer’s FMLA policy and correspondence to the employee. In other words, the employer’s own policy actually created an entitlement to leave, even though the FMLA did not apply.

Mr. Peters suffered an injury and took leaves of absence to recover. His employer, Gilead Sciences, sent him letters at the beginning of each leave period which outlined their FMLA policy. The letters and the policy discussed the eligibility requirements for taking a leave of absence, including the fact that employees must have worked at least one year for the employer, and at least 1250 hours in the past year. The letters were silent, however, on the eligibility question associated with the employee’s work location. (Under the FMLA, employees are only eligible if they work at a location with at least 50 employees within a 75 mile radius. ) By now, you can probably see where this is going. In addition to the letters, Gilead’s handbook stated: “a request for family and medical care leave will be granted for all employees employed by the Company for at least twelve months and who have worked 1,250 hours during the twelve months preceding the commencement of leave.” I suspect many of you have the similar language in your own handbooks. Before you scurry off to check, read on.

Before Peters returned from leave, Gilead filled his job with another employee. When he did return, the company offered him a demotion, he declined, and was terminated. He sued under both the FMLA and under the Indiana state law theory of promissory estoppel. The court upheld dismissal of the FMLA claim itself, because it was undisputed that Peters did not work in an office with at least 50 employees within 75 miles. Thus, he was statutorily ineligible for FMLA leave. However, and this is a big however, the court allowed the promissory estoppel claim to go forward, on the theory that Peters had relied on the letters and handbook when he took the leave, and he was therefore equitably entitled to leave: “Gilead’s employee handbook promised 12 weeks of medical leave – the equivalent of the leave guaranteed by the FMLA – and Gilead repeated these promises in its letters to Peters. It is not clear whether this is sufficient to establish a binding contract under Indiana law. . . . In the absence of a binding contract, however, Indiana permits enforcement of Gilead’s promises to the extent of Peters’ reliance damages.”

A couple of takeaways from this case: First, Gilead really didn’t behave all that badly under the FMLA. This isn’t like some prior decisions in which the employers actively misled the employee about his FMLA eligibility. The company here simply drafted a policy and sent correspondence (as it is required to do under FMLA). There was no evidence of any intent to mislead the employee. This means the language in your policies and correspondence to employees must be crystal clear, and should spell out all conditions of eligibility. Second, don’t make your policy and other language absolute. Saying “all employees will receive 12 weeks of leave” is very different from saying “employees who qualify under applicable law may be eligible to receive 12 weeks of leave” or some other less “promissory” language. Finally, even though this was decided under specific state law, Indiana is not the only state that recognizes the concept of promissory estoppel.

It’s of course unclear how far-reaching this case will be, but given that it came out of a federal appeals court, it at least justifies looking at policies, handbooks and correspondence templates to make sure the eligibility language is sufficiently specific.

Paradise Lost; Injunction Found

In sorting out a dispute between two federal contractors, a district court recently issued a ruling (Science Applications International Corporation v. CACI-Athena, Inc., 2008 U.S. Dist. LEXIS 37849 (E.D. Va. 2008)) that may impact numerous other trade secrets and non-compete cases for employers.  In a nutshell, the court ruled that the loss of a specific business opportunity – here the opportunity to bid on a specific federal contract – constitutes irreparable harm warranting an injunction.  Interestingly, this decision departed from prior cases that had reached nearly the opposite conclusion.

The case actually involved three federal contractors that provided services to the U.S. Government for the Counter Improvised Explosive Device Targeting Program ("CITP").  (The name of the program is wholly irrelevant to the holding, but the program title was just too cool not to mention.)  Difficulties arose when one contractor (“Athena”), which had been working cooperatively with another (“SAIC”) on the CITP, was acquired by a competitive organization.  For continuity reasons, the parties agreed to try to continue their cooperative efforts on the project.  Unfortunately, when the Government issued a RFP seeking bids for additional CITP work (worth about $60 million), the cooperation ended and Athena indicated its intention to cooperate, not surprisingly, with its new owner instead of SAIC.

On May 2, 2008, SAIC filed an Emergency Temporary Restraining Order (“TRO”) seeking an order requiring that Athena honor its contract with SAIC and preventing it from assisting any other contractor in biding on the CITP work.  SAIC contended that it could not submit a competitive proposal to the Government without Athena as its subcontractor as most of the employees on the proposal would have been Athena employees.   

The court granted the request and issued a TRO.  The decision is noteworthy for several reasons.  First, the court held that "the loss of the opportunity to bid on a specific contract constitutes irreparable harm."  In distinguishing the prior precedent, the district court pointed to several other circuits holding that "a lost opportunity to compete on a level playing field for a contract is a sufficient basis for finding irreparable harm."  Employers pursuing former employees for trade secret violations should find this aspect of the case particularly useful, especially where lost business may be a factor.

Second, the district court agreed with SAIC's contention that money damages would be too difficult to quantify.  While the court noted that there is a general reluctance toward preliminary injunctions where harm can be remedied by an award of monetary damages, in the present case, the court found that "SAIC's alleged injuries cannot be undone through monetary remedies and that it would incur irreparable harm without a TRO."  This language was also a departure from most courts in a lost contract expectancy fact pattern, since usually one can quantify the amount of damages when the quantity is spelled out in a contract.  Again, potential fodder for the employer’s cannon.

Third, in balancing the harm of both parties, the court concluded that Athena would not suffer any harm because it would simply be required to perform its obligations under the existing contract with SAIC.  The court said "an injunction that merely commands a party to perform its contractual obligations does no harm to that party."  While not really a new ruling, this language may well be used in other injunction settings where a party is attempting to enforce a non-compete against an individual or group of individuals.

Fourth and finally, it is noteworthy that the hearing and opinion were issued less than one week after the case was first removed to federal court, demonstrating once against that the U.S. District Court for the Eastern District of Virginia’s reputation as the “Rocket Docket” is well deserved.

In short, while not as juicy as some of our other reported cases, the SAIC decision may have some ongoing usefulness for employers, especially given the growing trend in trade secret and non-compete litigation that we always see in a struggling economy.

A special thanks to our colleague David Greenspan for his contribution to this post.  Accordingly, if you disagree with any aspects of our analysis, blame him.