Religious Discrimination Guidance Issued by the EEOC

Religious Accommodations Employers should be aware of the recent guidance on federal protections for religious discrimination issued as a result of the interagency effort between the Department of Justice and the Equal Employment Opportunity Commission  (EEOC).

Specifically, the EEOC released on 7/22/2016 its religious discrimination guidance, which focuses on younger employees and explaining how the laws protect the freedom of religious practice within the workplace of workers of all ages.

On this point, federal and state governments protect against religious discrimination. The federal anti-religious discrimination statute is Title VII of the Civil Rights Act of 1964 (federal law). And Michigan’s Elliott-Larsen Civil Rights Act safeguards an individual’s freedom to exercise sincerely held religious practices in the workplace by prohibiting discrimination against an employee on the basis of religion. For more information on religious discrimination, see Religion in the Workplace: Avoiding Religious Discrimination Claims.

The EEOC’s Guidance: Ensuring Workers of All Ages Know Their Religious Rights

The EEOC’s release emphasizes that individuals should not have to choose between their job and their deeply held religious beliefs and practices. This is because Title VII protects practices observed by traditional religions as well as newer, less familiar religions.  The EEOC’s guidance provides many examples of religious accommodations that may be requested by employees and both appropriate and inappropriate employer responses. A few such examples include:

  • Wearing of religious garb (i.e. hijab or bindi) must not be discriminated against by the employer.
  • A change in shift scheduling to account for religious practices and an exemption from certain work-related practices, so long as they would pose little to no burden on the company, must also be considered by the employer.

In addition to these and other examples of religious discrimination, the EEOC’s release provides information – conveniently highlighted in green – about filing a discrimination charge (not subtle whatsoever).

Proactive Steps For Employers and Employees

As discussed in the release, the interagency effort determined that religious discrimination continues to be an issue in the workplace. In support, the EEOC cited in its statement that it received 3,502 charges alleging discrimination on the basis of religion in the fiscal year 2015 alone.

For employers, the EEOC’s release should signal that the agency intends to continue to focus on religious discrimination issues. This also means companies must be on alert for employees’ religious accommodation requests and the potential for bias to arise when handling these requests. Also, in response to an employee’s request for a religious accommodation, companies must be prepared to intelligently determine whether the requests would pose an undue burden on the employer. Moreover, the employer should be ready to document the undue burden to be able to successfully defend against a potential claim for religious discrimination. For more information on religious discrimination, see Religion in the Workplace: Avoiding Religious Discrimination Claims.

For employees, they need to understand their obligations to discuss a religious accommodation with their supervisors. A great explanation of this obligation is provided by an equally great employment attorney, Robin Shea who explains:

It’s not enough for an employee to tell the employer, “I need Sundays off.” An employee who needs a religious accommodation must communicate to the employer (1) that he or she needs the accommodation, and (2) that the need results from a conflict between a work requirement and the employee’s religious beliefs. “I need Sundays off because I believe it’s a sin to work on Sunday” should do the trick.

See Ms. Shea’s article, Hallelujah! 5 Things About Religion In The Workplace That You May Not Have Known.

For further information regarding religious discrimination, accommodating employees’ religious beliefs, and how to respond proactively to an employee’s religious accommodation request, contact employment attorney Jason Shinn.

NLRB Makes Gambling with Your Company’s Employee Handbook a Risky Bet

Employers must have well written employee manualsEmployers are once again put on notice that missteps in drafting employee handbooks and other HR policies will be targeted as unfair labor practices where they come within an area code of compromising employee rights under the National Labor Relations Act (NLRA).

This time, a California casino was found to have interfered with workers’ labor law rights. This interference arose from the employer having a handbook that prohibited employees from conducting “personal business” while at work on the employer’s premises. Casino Pauma (7/18/16).

Specifically, the employee handbook rule provided in part that:

Team members are to conduct only Casino Pauma business while at work. Team members may not conduct personal business or business for another employee during their scheduled working hours.

The NLRB administrative law judge issuing the decision reasoned that under the NLRA, employees have the right to discuss union issues. Employees also have the right to engage in other protected activity during their nonwork time. But the Casino’s rule violated both rights because it was overbroad in that it unlawfully restricted employee rights.

This was because:

  1. Denying employees the right to engage in protected activity “while at work” was too broad; and
  2. The rule was also overbroad, “because it is not properly restricted to ‘work time’ and thus bans protected activity during nonwork hours, such as time on lunch, breaks and before and after work.”

Companies Need to Carefully Review and Update their Employee Handbooks

First, it is important that your company actually has an employee handbook. This is a fundamental building block for any business with a workforce.

Second, we’ve written extensively about the risks employers face in having poorly drafted employee policies and handbooks. There is also danger where such policies and handbooks have not been updated to reflect the increased policing by the NLRB when it comes to such HR staples. See NLRB Finds Employer’s Workplace Rules Violated Federal Labor Law and Employer Charged with Unfair Labor Practice Because Employee Manual and Agreements Were Unlawful.

Third, this casino case is also consistent with our experience in representing employers in NLRB proceedings. In fact, we just resolved three unfair labor practice charges initially involving disciplinary actions taken by the company (which were all or partially dismissed). However, the charges were later expanded to alleged overbroad provisions in the employee handbook.

The bottom line is that employers need to carefully scrutinize their employee manuals and policies to avoid an (over)zealous NLRB finding such documentation inadvertently violate workers’ labor rights.

For more information about drafting and updating your company’s employee manuals and HR policies, contact employment attorney Jason Shinn. Since 2001, he has collaborated with employers to comply with Federal and Michigan employment laws.

Emails Become an Expensive Sideshow in Employment Discrimination Lawsuits

Focus on Merits of Employment Discrimination A recent employment discrimination lawsuit underscores the importance employers must place on preserving and producing electronic evidence. As explained below, the employer lost an opportunity to avoid significant costs associated with searching and recovering emails.

Specifically, in Wagoner v. Lewis Gale Med. (7/13/16), the plaintiff sued his former employer Lewis Gale Medical Center LLC for violating the Americans with Disabilities Act. Plaintiff claimed his employment was terminated after two months in violation of the Americans with Disabilities Act (the “ADA”), including for unlawful retaliation and failure to accommodate.

In discovery, plaintiff requested electronically stored information maintained by two of his former supervisors. To the credit of plaintiff’s attorney, these requests were further limited to a date range of only four months and certain search terms.

The employer responded that it could not perform the search itself and would need to hire a third-party vendor. The estimated cost for the search and retrieval was $45,570.00 with an additional estimate of $24,000 for reviewing the information. The employer further argued that the requested electronic discovery wasn’t proportional because the plaintiff had only worked for two months as a security guard and his potential damages were less than the cost to perform the search.

The Court rejected this argument. In large part, the Court focused on the employer’s failure to use a system that didn’t preserve e-mails in a readily searchable format, requiring the costly production of e-mails.

The judge further noted:

Employment discovery presents particular challenges to the employees where most, and sometimes all, relevant discovery is in the control of the employer. Here, in light of the limited request, restricted by custodian, search terms, and time period, I find the request proportional to the needs of the case.

While these concerns are legitimate, this case also highlights the unique and no less problematic challenges faced by businesses sued for discrimination. Those challenges include assymetrical and significant recovery and production costs; managing relevant information disbursed across multiple custodians; and often less than ideal record retention policies not suited for litigation needs. Unfortunately, judges are not always sympathetic towards these issues.

Don’t Let E-Discovery Became a Sideshow to the Main Event

All too often, electronic discovery preservation and production issues can become a sideshow. As such, this sideshow becomes, at best, a distraction from the main event, i.e. the merits (or lack thereof) of the litigation. For this reason, we make it point to work with our business defendants to take appropriate measures to manage this aspect of the litigation. Such efforts go a long way to counter arguments from opposing counsel that the court should intervene by imposing overbroad preservation obligations.

Further, the cost of electronic discovery can transform a weak discrimination lawsuit that would otherwise have only “nuisance” settlement value, into considerably more. Going back to the Wagoner case, the employer estimated it would cost almost $70,000 just to respond to this subset of the litigation in a matter where the plaintiff only worked for the company for two months. That sort of price tag often weighs heavily in favor of settlement regardless of the merits.

Maintain a Reasonable Focus for Obtaining Digital Evidence

Also, it should be emphasized that the plaintiff’s attorney set the stage for a compelling argument by narrowly tailoring the discovery requests to specific custodians and a specific time-frame.

In contrast, we often come across absurdly broad electronic discovery requests in employment discrimination and related lawsuits. See Trade Secret Computer Inspections Should Require More than Knee Jerk Reactions where we discussed a request to preserve and produce computers and digital information “owned or used by [Plaintiff], his immediate family members and [Plaintiff’s new employer].” The Court in the above lawsuit clearly took notice that the requested electronic evidence was limited in both scope and time.

For more information about this article or preserving electronic evidence in employment discrimination lawsuits, please contact attorney Jason Shinn. Mr. Shinn began his legal career as a member of a manufacturer’s trial team where he was responsible for implementing electronic discovery preservation and production strategies, as well as briefing and responding to plaintiffs’ motions concerning these issues. He now routinely assists attorneys and companies with e-discovery issues involved in employment and other litigation.

What is Your Company’s Mindset in Conducting Employee Investigations?

Investigating discrimination

I recently watched an excellent TED Talk by Julia Galef, that should be a “must read” for every HR professional who is tasked with the responsibility of conducting employee investigations. As explained below, applying the points made by Ms. Galef can improve your company’s response to allegations of discrimination or workplace misconduct, as well as guard against the employee investigation later being attacked as a pretext for unlawful discrimination.

Ms. Galef’s TED Talk is titled, “Why You Think You’re Right Even if You’re Wrong.” The central premise is that there are two perspectives when it comes to investigating and processing information. Ms. Galef describes these views as that of a “soldier” and the other as a “scout” mentality.

The “soldier” mindset is focused on action and seeking out information to validate the chosen course of action. In contrast, the “scout” mentality is described as follows:

The scout’s job is not to attack or defend. The scout’s job is to understand. The scout is the one going out, mapping the terrain, identifying potential obstacles … But above all, the scout wants to know what’s really there, as accurately as possible … having good judgment, making accurate predictions, making good decisions, is mostly about which mindset you’re in.

Employee Investigations – Why Perspective Matters

Sooner or later, every company will find itself in a position where it must investigate workplace misconduct or allegations of discrimination. When that time comes, there will be a litany of questions as to how the investigation should be conducted. For example:

  • Who should carry out the investigation?
  • Is it important to have an attorney lead the investigation for purposes of maintaining attorney-client privilege and attorney work product?
  • Have appropriate steps been taken to preserve information relevant to the investigation? This is especially important for emails and other digital documents.

Answers to these questions will depend largely on the circumstances of the investigation. For example, conducting an internal investigation may be appropriate when it comes to investigating a garden-variety dispute between lower-level employees. In contrast, if the allegations involve potential criminal conduct or higher-level executives involved in discrimination or harassment, it may then be prudent to carry out an investigation using independent legal counsel. But what should be a constant in any company investigation is maintaining a “scout” mindset. That is to say, an impartial investigation with the goal of understanding the factual terrain giving rise to the investigation.

There are two reasons for taking the “scout” view when conducting employee investigations. First, of course, companies should want to make disciplinary decisions based on accurate information. But equally important is to guard against having the methodology of your investigation later attacked as biased or otherwise selectively looked at particular facts to the exclusion of others to cover up unlawful discrimination.

For more information about this article or conducting workplace investigations in compliance with federal or Michigan employment laws, contact Michigan attorney Jason Shinn. Mr. Shinn routinely works with companies when it comes to investigating allegations of workplace discrimination or employee misconduct.

Buying or Selling a Business? Don’t Forget to Consider Employment and Non-compete Agreements.

Noncompete Agreements in M&A TransactionsThe decision to sell a company involves many considerations. One important – but often overlooked – consideration is the value that should be derived from having enforceable employee and non-compete agreements.

However, all too often, due diligence fails to critically assess the enforceability or transferability of non-compete restrictions. As discussed below, the value of the business or the deal may be adversely affected if this issue is not properly addressed.

Purchasing Company in Asset Sale Cannot Enforce Non-compete Restrictions

Take for example a recent case in which the buyer’s due diligence appeared to have overlooked the critical issue of whether employee noncompete restrictions would be enforceable after the acquisition.

Specifically, in a recent lawsuit (Hedgeye Risk Mgmt., LLC v. Heldman, 7/8/16), an employee left his company to start his own competing business after the company’s assets were acquired by a purchaser. The purchasing company then sued to enforce the noncompetition restriction against the new business.

The purchaser alleged that it acquired the former employee’s contract as part of asset purchase agreement. However, the Court ruled that the asset purchase agreement’s (the “APA”) language did not assign the contract to the purchasing company because, among other things, the employment contract was not listed in the schedules of transferred assets. Also, the APA provided that the business shall, in its sole discretion, “offer employment” to firm’s employees.

The Court also concluded that there was additional language in the non-compete provision between employees and the seller’s firm with further exceptions that were inconsistent with the APA.

As a result, the value of the business the purchasing company thought it acquired was diminished in that it could not prevent (presumably) a key employee (i.e., an employee with a significant book of business or contacts) from starting a competing business.

Employment Law Considerations for Buyers and Sellers in M&A Transactions

The preparation for the sale of a business and closing involves numerous legal issues (see “Closing Considerations for Sellers and Buyers,” by John Carter, an M&A attorney we frequently collaborate with when it comes to employment law and non-compete law due diligence in business sales). But the above case illustrates specifically how failing to adequately address employment agreements and noncompetition restrictions, or other human resource liabilities may adversely affect the merger or acquisition transaction.

In our experience and from a seller’s standpoint, example employee/HR  action items for the seller to consider before entering into negotiations for the sale of a company include:

  • Assessing employment agreements, especially non-compete, confidentiality, and invention/intellectual assignment provisions – Are they enforceable? Can they be assigned to the buyer?
  • Examine the company’s current compliance with minimum wage and compensation laws – Is your company up to date?
  • Assess the company’s current compliance with state and federal anti-discrimination laws and other regulations applicable to the workplace – Any ticking time-bombs that may blow-up the deal or force you to take less as the purchase price?

Also in our experience and from the buyer’s perspective, it is important to examine the employment-related agreements and status of the workforce with an eye towards understanding the “good, the bad, and the ugly.” With that sort of insight, a buyer can make an informed decision as to whether to pull the trigger on the deal, re-structure it if necessary, or to negotiate a reduced purchase price that takes into consideration the potential liability discovered during the due diligence phase.

Contact Michigan attorney Jason Shinn for more information about conducting due diligence or presale assessment focused on employment law compliance and human resource issues. Mr. Shinn routinely works with buyers and sellers, as well as their attorneys or CPAs as a subject matter expert when it comes to Michigan and federal employment laws and non-compete issues involved in mergers and acquisitions.

Using Co-worker’s Computer Password Ends with Federal Computer Hacking Conviction

Computer Hacking by EmployeesA federal appeals court on July 5, 2016, affirmed the conviction of a former executive, David Nosal in a Computer Fraud and Abuse Act (CFAA) case that we’ve extensively covered.

In sum, Mr. Nosal was charged in 2012 and amended charges were filed in 2013 for violating the CFAA by using a shared password to steal headhunting leads from the company’s internal network after he left his job to launch a rival business. He was also charged with violating trade secret laws and one conspiracy count.

A jury convicted him on all counts in 2013. Nosal was sentenced to one year and one day in prison, three years of supervised release, fines, and $828,000 in restitution to his former employer.

In a 2-1 decision issued on 7/6/16, the panel held that Nosal, as a former employee whose computer access credentials were revoked, he acted “without authorization” when he or his former employees used the login credentials of a current employee to gain access to computer data owned by the previous employer. Such actions circumvented the revocation of the employer’s access to the computer data. But the panel remanded back to the district court to reconsider the reasonableness of the restitution award to the former employer’s attorneys’ fees.

Sharing Passwords Makes for Felony Computer Hacker?

Have you used a co-worker’s computer password to log into your employer’s network or website? Did you consider that such sharing could land you in prison? In essence – although greatly simplified – this is exactly what happened to Mr. Nosal. Or at least according to the dissenting judge who offered this stinging critique of the decision:

People frequently share their passwords, notwithstanding the fact that websites and employers have policies prohibiting it. In my view, the Computer Fraud and Abuse Act does not make the millions of people who engage in this ubiquitous, useful, and generally harmless conduct into unwitting federal criminals … [The majority] loses sight of the anti-hacking purpose of the CFAA, and despite our warning, threatens to criminalize all sorts of innocuous conduct engaged in daily by ordinary citizens.

We will continue to monitor this decision as yet further appeals may be on the horizon.

What the CFAA Means for Employers and Employees

Both employers and employees need to be mindful of using and misusing company information of the Computer Fraud and Abuse Act. It is a federal anti-hacking criminal statute that has increasingly been applied to the employer/employee relationship.

From a business perspective, it is critical to have in place procedures and policies that clearly identify what employees have authority to access digital business information and when they have authority to do so. This is because – as was the case in Nosal – such policies determine if and when a CFAA violation occurs:

Whether a person is authorized to access the computers in this case depends on the actions taken by [the Employer] to grant or deny permission to that person to use the computer. A person uses a computer “without authorization” when the person has not received permission from [the Employer] to use the computer for any purpose (such as when a hacker accesses the computer without any permission), or when [the Employer] has rescinded permission to use the computer and the person uses the computer anyway.

For individuals, CFAA violations most often occur when an employee leaves to join a competitor. Innocently or otherwise, it is not uncommon for an employee to copy digital information that may seem harmless, e.g., Outlook contacts, email communications, or work product created by the employee. But such actions are the sort that often give rise to CFAA or related trade secret misappropriation claims. For this reason, carefully planning your exit if you are starting a new business or joining a competitor should be a top priority.

For more information about this article, as well as investigating or responding to trade secret misappropriation, Computer Fraud and Abuse Act, and related claims, contact attorney Jason Shinn. Mr. Shinn routinely investigates and litigates these legal issues in federal and Michigan Courts on behalf of businesses and individuals.

Four Take-Aways from an Employer’s Misuse of Overly Broad Noncompete Agreements

overly broad noncompete restrictionsUsing a broad brush to draft noncompete agreements that are applied universally to a company’s workforce is increasingly coming under fire. And this exposes companies to unnecessary litigation risks, as well as legal fees associated with enforcement costs.

Employer Abuse of Noncompete Restrictions

A recent example of involves Law360 and its settlement with the New York Attorney General’s office over the enforcement of the company’s noncompete restrictions.

A journalist was working for Law360 out of college. She, however, later resigned to accept a job offer from the global news company Reuters. But shortly after starting, she was let ago after her new employer was threatened with litigation to enforce the noncompete restriction.

The New York Attorney General’s office announced that it had reached a legal settlement with Law360 as to the use of its noncompete restrictions. Under that settlement, Law360 is required to stop using noncompete agreements like the one it imposed on the journalist. In a harshly worded statement, Schneiderman explained:

Unless an individual has highly unique skills or access to trade secrets, noncompete clauses have no place in a workers employment contract. Unscrupulous noncompete agreements not only threaten workers seeking to change jobs, they also serve as avail threat… Workers… should be able to change jobs in advance their careers without fear of being sued by their prior employer.

Noncompete Agreements Have a  Legitimate Purpose in Business

Our law firm routinely advises companies about the use and enforcement of noncompete agreements. And despite the harsh words by the New York Attorney General concerning noncompete agreements, they have a legitimate purpose and business if drafted and applied appropriately. Based on this experience, here are four problem areas that both employers and employees need to understand:

First, relying on overly broad, one-size-fits-all noncompete restrictions are a mistake for any business. Consider one of the most egregious examples of a company’s wrong-headed use of noncompete restrictions. Jimmy John’s required its sandwich makers and delivery drivers – often “kids” in or right out of high school – to sign broad noncompete restrictions. See Jimmy John’s Sued (Again) Over its Noncompete Restrictions. Jimmy John’s was the subject of a media firestorm and multiple lawsuits over its use of an overly broad noncompete agreements for entry level positions. Bad publicity, lawsuits, and legal fees are never good for business. And for what; Jimmy John’s responded to the lawsuits by taking the position that it “would never enforce a noncompete agreement against our employee that might’ve signed one.” So why have them in the first place?

Second, many businesses or the attorneys advising them lose sight of the fundamental requirement for having an enforceable noncompete agreement – it must protect a legitimate business interest. Merely protecting against or limiting competition is not a legitimate interest. Going back to the Jimmy John’s example, what sort of trade secrets or proprietary information is a sandwich maker or delivery driver going to have access to that would warrant a two-year post-employment restriction?

Yet Christopher Trebilcock, of Miller, Canfield, Paddock and Stone PLC, a large Detroit law firm, saw nothing wrong with the manner in which Jimmy John’s required entry level employees to agree to its post-employment restrictions (the restrictions Jimmy John’s decided to abandon):

… Jimmy John’s noncompete is a legitimate way for the company to protect its proprietary information. ‘A janitor, for example, can cause just as much trouble as a CEO because they have access to information — there could be documents with sensitive material on desks or in the trash.

* * *

You can likely show the noncompete is reasonable in scope and duration.

Third and building on the above point, companies and their attorneys will aggressively seek to enforce what may amount to an unenforceable noncompete restriction. Such frivolous litigation imposes legal fees on both parties and ties up precious court resources. But in our experience defending former employees against noncompete enforcement actions, individuals are almost always at a financial disadvantage.

They may also be at a legal disadvantage if judges – looking only to clear their dockets – just enforce a restriction as written without inquiring about or requiring the former employer to carry its burden of proof that the restriction protects a reasonable competitive interest.

Fourth, a “one-size-fits-all” approach to noncompete agreements is not practical or cost effective. Specifically, companies do not have the time or money to pursue an enforcement action every time its noncompete agreement is breached – including by sandwhich makers or other entry level employees.

For this reason, we routinely take a more reasoned analysis in working with employers implementing noncompete agreements within its workforce. The goal here is to identify what information truly gives the company a competitive advantage, who has and or should have access to such information, and how to best protect those advantages from misuse.

For More information about this article or Michigan noncompete law, contact attorney Jason Shinn. Mr. Shinn routinely represents individuals and companies when it comes to drafting, negotiating, and enforcement of noncompete agreements.

Trade Secret Computer Inspections Should Require More than Knee Jerk Reactions

Trade Secret Misappropriation DecisionsA lawsuit involving trade secret misappropriation recently brought to mind the definition of a “knee-jerk reaction;” an “automatic and unthinking” response.

Specifically, our law firm filed a lawsuit for breach of contract involving unpaid commissions and other claims on behalf of a former executive. In response, the former employer manufactured filed a counter-claim for trade secret misappropriation and violation of a non-compete agreement.

After being sued, the defendant employer filed a motion for “expedited discovery,” which included a demand for forensic imaging of the plaintiff’s computers. This motion was based in large part on “information and belief,” with no supporting affidavits from the employer that any “trade secrets” had actually been misappropriated, or that there had been any unusual or unauthorized computer access before the plaintiff had departed.

On June 8, 29016, the Judge opted to order the parties to do what they and their counsel already were obligated to do (preserve evidence). Further, both sides – even though the plaintiff had not requested the relief – were to make available their respective computers and related devices for imaging.

Both parties have an obligation to preserve the evidence and shall comply with that obligation. The parties shall mutually identify what will be imaged and who will do the imaging by 4:30 p.m. on June 9, 2016 and the imaging shall be completed by June 16, 2016.

Noticeably absent in the order are any limitations as to the scope of inspections or post-imaging protocols for reviewing the data and no or very little time to meaningfully agree to such terms (the order was entered on 6/8/16 and the imaging was to be completed on 6/16/16).

Making matters worse and returning to the definition of “knee-jerk,” Defendant’s counsel filed its disclosure demanding the following devices to be imaged:

… all computers, desktop computers, servers, laptop computers, network storage devices, cellular telephones, tablets, electronic storage devices, hard drives, thumb drives and mobile devices owned or used by [Plaintiff], his immediate family members and [Plaintiff’s new employer] from January 1, 2015, through present …

A copy of the redacted request for inspection is here (PDF)). The Defendant’s disclosure failed to identify any date for the requested inspection, and it did not identify an actual person having experience or qualifications to do the imaging (only a company with a wonderful website about its services). Also, there was no indication as to who is considered who is an “immediate family” member or what information was being sought. In other words, the inspection demanded by the defendant was the equivalent of casting a digital fishing net.

Furthermore, the requested examination extended to the plaintiff’s new employer. However, there was no indication that the new employer had accessed or otherwise acquired any trade secrets or other confidential information. Further, there was no indication as to what the lay of the computer land looked like for the new employer, e.g., number of computers, network infrastructure, etc.

Three Considerations in Trade Secret Computer Forensic Inspections

This example illustrates the sorry state of affairs when it comes to managing electronic discovery and computer forensics. Further, rulings like this are troublesome on numerous fronts for businesses that become involved in such litigation.

  1. First, computer inspections should be the exception when it comes to discovery and only upon a showing of exceptional circumstances. However, judges are quick to allow such inspections and – as this case illustrates – computer forensics inspections may be allowed upon a minimal showing. Again, no affidavits were provided setting forth facts that any information was in danger of being lost. Also, no facts were provided showing that any misappropriation of trade secrets had occurred to warrant the imaging of the plaintiff and the plaintiff’s new employer’s computers.
  2. Second, computer inspections are extremely invasive and often result in a sort of litigation karma – what comes around, goes around. Case in point, only the defendant petitioned the court for the inspection. Even so, the court ordered that both parties were to make available their respective computers and related devices to be imaged and to do so and in short order.
  3. Third, this case illustrates how companies may often become embroiled in litigation or become collateral damage when trade secret litigation against a former employee is pursued. Here the order extended to the plaintiff’s new employer who was later added as a party to the suit by way of an amended counter-claim. No company expects a new hire will also result in a lawsuit. But it happens. To minimize this risk, we recommend our business clients to take certain steps as part of a solid pre-employment screening procedure. One such step is to identify whether a new hire is a party to any non-compete restrictions or other post-employment restrictions that require further evaluation.

For more information about trade secret and non-compete law, as well as how both may affect you or your business, contact Michigan attorney Jason Shinn. Since 2001, Mr. Shinn has worked with companies and individuals to address non-compete litigation and trade secret misappropriation claims.

Jimmy John’s Sued (Again) Over its Noncompete Restrictions

Stupid Non-compete MistakesThe Illinois Attorney General sued Jimmy John’s over the use of its noncompete restrictions on June 8, 2016. The suit alleges that Jimmy John’s is violating state law by requiring its sandwich makers and delivery drivers (i.e. low-wage workers) to sign restrictive noncompetition agreements.

A copy of the lawsuit may be found here (Illinois v Jimmy John’s Enterprises, LLC). This lawsuit seeks to obtain a declaratory judgment that the non-compete agreements are unenforceable and void.

The noncompetition restrictions prevent Jimmy John’s employees from working for a competitor for two years after working for Jimmy John’s and within a three-mile radius of any Jimmy John’s. A “competitor” is defined as a store that made 10% of their revenues from sales of “submarine, hero-type, deli style, pita, and/or wrapped or rolled sandwiches.”

We reported in March 2015 that Jimmy John’s requirement to have sandwich makers and delivery drivers agree to noncompete restrictions as a condition of employment was simply absurd and those restrictions were arguably unenforceable:

However, the use of noncompete restrictions can deteriorate into the absurd. Consider for example that the Jimmy John’s sandwich franchise routinely requires its low-wage sandwich makers and delivery drivers sign non-compete restrictions.

Noncompete Agreements and Your Business – Don’t be Jimmy John’s

For Michigan employers, the Jimmy John’s noncompete lawsuit highlights three important points.

  1. First, while the Illinois lawsuit against Jimmy John’s does not directly impact Michigan companies, it is, nonetheless, relevant to the question of whether your employees should be required to sign a noncompete restriction. Specifically, Illinois, like Michigan law, calls for noncompete agreements to protect a legitimate business interest and be narrowly tailored as to duration, geographic restriction, and activity. With this in mind, the analysis for employers should focus on what legitimate business interests should be protected. Upon completing this assessment, employers should then concentrate on drafting reasonable noncompete restrictions to protect those interests.
  2. Second, if your company requires employees to sign noncompete restrictions, is it prepared to enforce those agreements? Debra Pressey of the News-Gazette reported that Jimmy John’s issued a statement in response to the Illinois lawsuit that it was previously sued in federal court over the use of its noncompete agreements. That lawsuit was dismissed after Jimmy John’s represented it would not seek to enforce such agreements. In response to the Illinois lawsuit, Jimmy John’s again reiterated it “would never enforce a noncompete agreement against our employee that might’ve signed one.” So why have a noncompetition restriction if it is not going to be enforced?
  3. Third and building on the preceding point, Jimmy John’s has now been sued, at least twice, for non-compete restrictions it has no intention of enforcing – assuming they were to begin with. Certainly this is not a great strategy or use of company resources. But where were its attorneys when it came to discussing these practical and legal issues? Perhaps too busy billing for the recycling old drafting of non-compete restrictions that may or may not fit the company’s business needs and that may not be enforceable in the first place?

Closing Thoughts

In our experience over the years representing individuals sued for purportedly violating noncompete restrictions, cases like the Jimmy John’s noncompete agreement are not the exception. It is common to see employers seek to enforce non-compete restrictions under ridiculous circumstances on par with the Jimmy John’s example.

Conversely, we have also worked with employers who take the time to assess their business to understand what gives the business a competitive advantage. With that understanding, we collaborate to draft and implement tailored but strong noncompete restrictions to protect the company from unfair competition and that we believe will be enforceable.

For more information about Michigan non-compete law, as well as enforcing noncompete restrictions, please contact attorney Jason Shinn. Since 2001, Mr. Shinn has worked with clients to draft and assess non-compete restrictions. He also represents companies and individuals in noncompete disputes in federal and Michigan courts.

Trade Secret Misappropriation Law Gets a Major Federal Upgrade

Trade Secret ProtectionIn coming post, we will be covering in detail sweeping changes to trade secret law resulting from the recent enactment of the Defend Trade Secrets Act. This statute was signed into law on May 12, 2016, by President Obama with overwhelming bipartisan support (410 to 2 in the U.S. House of Representatives and by a vote of 87 to 0 in the Senate).

The Act creates a federal cause of action for trade secret misappropriation. Before its passage, such claims were governed by state law. In this regard, 48 of the 50 states – including Michigan – adopted and applied some version of the Uniform Trade Secrets Act.

Overview of the Federal Trade Secret Act.

So what does the Act do and why is it so important? Here are a few of the high-points and specific features:

  1. Trade secret misappropriation is a federal offense. Under the Act, a claimant can bring a misappropriation claim in federal court if that trade secret is “related to a product or service used in, or intended for use in, interstate or foreign commerce.” In other words, to bring a federal trade secret lawsuit there must be an interstate commerce component.
  2. State Treatment of Trade Secret Law. The Act does not preempt similar state trade secret law. This means that a trade secret plaintiff can file claims under federal and state law. This provision will require careful consideration from trade secret plaintiffs because federal and state law may allow for different remedies and rights.
  3. Federal versus State Trade Secrets. The Act essentially leaves intact the definition for “trade secret” that is used by state law. Also, threatened or actual misappropriation is prohibited, meaning a plaintiff does not have to wait for actual harm before seeking relief in court.
  4. Immediate seizure of misappropriated trade secrets. The Act allows for immediate seizure of stolen trade secrets before a full court hearing. To do this, a plaintiff must make a showing of “extraordinary circumstances” to prevent the use or dissemination of the stolen trade secret. The seized materials remain in court custody pending a court determination after a hearing. The order may only be entered if (i) there is no other adequate equitable relief; (ii) the trade secret has been misappropriated; and (iii) the trade secret is in danger of destruction/removal. Conversely, the Act requires a plaintiff obtaining the order to provide appropriate security, as determined by the court, for the payment of damages that any person may be entitled to recover as a result of a wrongful or excessive seizure or wrongful or excessive attempted seizure under this paragraph.
  5. Employment Agreement and Whistleblower Protections. The Act provides immunity to whistleblowers who disclose a trade secret to (i) government officials for the purpose of reporting violations of law or (ii) an attorney or court in connection with an anti­retaliation lawsuit relating to the individual’s whistleblower activities. The Act requires employers to provide notice of such immunity “in any contract or agreement with an employee that governs the use of a trade secret or confidential information.” Perhaps most important for employers, to be able to take advantage of the attorneys’ fees and exemplary damage provisions available under the Act, any confidentiality agreement with an employee against whom the company sues under the statute must provide notice of the whistleblower protections or make reference to a whistleblower policy that provides such notice.
  6. Remedies. Potential remedies include: (i) injunctive relief; (ii) seizure of stolen trade secrets; (ii) damages for actual loss or amount of unjust enrichment; (iii) royalty payments in lieu of other damage assessments; (iv) double damages if willful and malicious misappropriation; and (v) fees.

With this background in place, in the next post, we will be covering specific recommendations for companies to take in response to the Act. In particular we will be looking at the seizure provision and the potential for anti-competitive seizures and procedural safeguards.

For more information about trade secrets under federal or Michigan law, contact attorney Jason Shinn. Since 2001, he has represented clients in trade secret lawsuits, as well as drafting trade secret protections and protocols.

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