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.

New Guidance for Employers on When Leave is an ADA Accommodation

ADA GuidanceIn non-North Carolina bathroom news, the Equal Employment Opportunity Commission (EEOC) issued this past week a resource document concerning the Americans with Disabilities Act (ADA). More specifically, this document addresses the use of employer-provided leave as an accommodation under the ADA.

The intent of the EEOC’s resource document is to provide general information to employers and employees regarding when and how leave must be granted for reasons related to an employee’s disability to promote voluntary compliance with the ADA. Or in the words of the EEOC:

The purpose of the ADA’s reasonable accommodation obligation is to require employers to change the way things are customarily done to enable employees with disabilities to work. Leave as a reasonable accommodation is consistent with this purpose when it enables an employee to return to work following the period of leave.

Leave as a Reasonable Accommodation Under the ADA

The EEOC requires employers to consider providing unpaid leave to an employee with a disability as a reasonable accommodation if the employee requires it, and so long as it does not create an undue hardship for the employer. It is important for employers to understand that the EEOC requires employers to provide leave even if:

  • The employer does not offer leave as an employee benefit;
  • The employee is not eligible for leave under the employer’s policy; or
  • The employee has exhausted the leave the employer provides as a benefit (including leave exhausted under a workers’ compensation program, or the FMLA or similar state or local laws).

Reasonable accommodation does not require an employer to provide paid leave beyond what it provides as part of its paid leave policy. Also, as is the case with all other requests for accommodation, an employer can deny requests for leave when it can show that providing the accommodation would impose an undue hardship on its operations or finances.

Closing Thoughts

The EEOC’s resource document contains numerous examples involving different employee leave scenarios. It may not be the most exciting reading, but the EEOC’s resource document should be mandatory reading for human resource professionals.

For more information about leave as a reasonable accommodation, as well as responding to complying with the American’s with Disabilities Act, contact employment attorney Jason Shinn.

NLRB Finds Employer’s Workplace Rules Violated Federal Labor Law

Employee HandbookAnother day and another National Labor Relations Board (NLRB) decision about the legality of employer rules. Once again the NLRB issued an opinion about workplace rules that could be (maybe, possibly, sort of, etc.) construed as interfering with workers exercising their federal labor law rights. As explained below, these type of decisions can transform a weak unfair labor practice charge into one that exposes the employer to liability.

Also, this NLRB decision is notable because it highlights the disagreement over the standard for assessing employer rules that do not expressly interfere with labor law rights, but could reasonably be construed as such. It further provides a well-reasoned critical analysis of that standard and for abandoning it.

Beaumont Hospital’s Unlawful Employee Rules.

This particular decision involved Metro-Detroit based William Beaumont Hospital (William Beaumont Hospital 4/13/2016). The NLRB concluded in a 2-1 decision that the hospital violated Section 8(a)(1) of the NLRA by maintaining two rules that:

  • Prohibit conduct that “impedes harmonious interactions and relationships,” and
  • Prohibit “negative or disparaging comments about the . . . professional capabilities of an employee or physician to employees, physicians, patients, or visitors.”

Time to Reconsider the Standard for NLRB Assessment of Workplace Rules?

The dissenting board member, Philip A. Miscimarra, reasoned that it is time to abandon the NLRB’s current legal framework for determining the legality of workplace rules. That framework comes from a case called Lutheran Village-Livonia:

More generally, I believe the time has come for the Board to abandon Lutheran Heritage Village-Livonia (Lutheran Heritage), which renders unlawful all employment policies, work rules and handbook provisions whenever any employee ‘would reasonably construe the language to prohibit Section 7 activity.’ This aspect of the Lutheran Heritage standard applies to policies, rules and handbook provisions that do not expressly restrict Section 7 activity, were not adopted in response to NLRA-protected activity, and have not been applied to restrict such activity.

In contrast, the non-dissenting member majority reasoned that “Lutheran Heritage Village is no obstacle to a hospital employer seeking to promote safe patient care by legitimately regulating employees’ on-the-job interactions.” Further, limiting board review to an employer’s application or enforcement of facially neutral rules “would leave the potential chilling effect of such rules on protected, concerted activity unaddressed.”

Conclusion

There is no meaningful dispute among NLRB members that maintaining specified employment rules may interfere with employee rights. And such interference will violate the National Labor Relations Act (NLRA). But how to determine between lawful and unlawful rules is another story. Whether that story will be re-written as suggest by Mr. Miscimarra remains to be seen.

In the meantime, employers and their management attorneys like us have to worry if the next unfair labor practice (ULP) charge will involve a poorly drafted workplace policy or rule that gives new life to an otherwise factually weak ULP. In fact, much of our defense of ULP charges has arisen in the context of non-union workforces where the investigation invariably expands to assessing the employer’s handbooks and workplace rules. For this reason, it is important to have your company’s HR policies and rules reviewed and revised if necessary to avoid being the next recipient of an unfair labor charge from the NLRB.

For more information about this article or about updating your company’s employee handbooks and contracts, contact employment attorney Jason Shinn. Mr. Shinn routinely represents companies charged with unfair labor practices before the NLRB.

Can an Employer’s Religious Belief Defeat a Discriminatory Firing?

Religious DiscriminationCan an employer’s religious beliefs defeat an otherwise discriminatory termination? Employers in Michigan may soon have much-needed guidance on this issue based on an employment discrimination case filed by the Equal Employment Opportunity Commission (EEOC) in Federal District Court in Michigan.

Specifically, the EEOC filed a lawsuit against RG & GR Harris Funeral Homes, Inc. In 2013 over its decision to fire a transgender funeral director (EEOC v RG & GR Harris Funeral Homes Complaint). Both sides filed motions for summary judgment on April 7, 2016, and awaiting a decision from the District Court Judge.

Religious Beliefs and Transgender Discrimination

As to the underlying discrimination suit, the employee had worked for the funeral home beginning in 2007. In July 2013, the employee informed the funeral home and her coworkers that she was undergoing gender transition from male to female and intended to address in appropriate business attire as a woman going forward. But on August 15, 2013, she was fired by the majority owner, Thomas Rost, because he found it unacceptable based on his religious views. He owns 94.5% of the business and claims he is a devout Christian.

The EEOC claimed that the employee, as a transgender woman, was fired because of sex and, therefore, this termination violated Title VII of the Civil Rights Act of 1964. Rost did not dispute that his religion played some role in firing the funeral director in 2013. According to court filings:

Rost sincerely believes that the Bible teaches that a person’s sex (whether male or female) is an immutable God-given gift and that it is wrong for a person to deny his or her God-given sex.

Rost sincerely believes that he would be violating God’s commands if he were to pay for or otherwise permit one of RG’s funeral directors to wear the uniform for members of the opposite sex while at work.

The EEOC, however (and perhaps citing to Deuteronomy 13:1 “Whatever I am now commanding you, you must keep and observe, adding nothing to it, taking nothing away”) responded that Rost’s religious exercise is very selective and based on convenience or profit. Consider for example:

  • Rost’s business employs people of various faiths;
  • Non-Jewish employees sometimes wore traditional Jewish head coverings as a courtesy when hosting Jewish funeral services;
  • The facilities were not decorated with religious fixtures to avoid offending visitors;
  • The business is not a Christian business enterprise, it is not affiliated with a church, and its articles of incorporation “do not avow any religious purpose; and
  • Rost routinely acted against his religious beliefs to stay in business by performing cremations instead of holding funerals or accommodating the non-Christian beliefs of his customers.

The EEOC stopped short of noting that Mr. Rost also chose to ignore God’s directives set forth in Deuteronomy 13:7-11 with respect to the fired employee, the non-Christian employees, and non-Christian customers.

Closing Thoughts

I’ve always found religious discrimination claims to be incredibly fascinating. In part because of the numerous issues – legal, social, and theological – that are often in play. This case is no different and we’ll be monitoring this case for a decision on the competing motions for summary judgment.

But one point that is especially unique and thought provoking here is how much fidelity must an individual give to his or her religion to warrant protections – either as a basis to justify an otherwise unlawful firing or to claim religious discrimination?

As noted above, the EEOC highlighted numerous inconsistencies between the employer’s claimed beliefs that motivated the termination and how the business was run. And we’ve defended a number of religious accommodation cases where individuals often take a very liberal “buffet” approach as to what “sincerely held religious beliefs” they choose to live by and to ignore.

For more information about religious discrimination or other employment legal issues, contact employment attorney Jason Shinn. Mr. Shinn is a Michigan attorney. Since 2001, he has worked with businesses and individuals to address employment law issues under federal and Michigan law.

NLRB Agenda Continues to Focus on Non-Union Employee Rights

employee rights A recent decision of the National Labor Relations Board provides employers with a reason to carefully evaluate disciplining employees who make negative comments about their company’s products. Specifically, on 3/25/2016, the Eight Circuit Court of Appeals confirmed an NLRB decision that a Jimmy John’s franchisee violated the employee rights of six employees when it fired them. The illegal terminations arose out of the Jimmy John’s employees making public complaints about sick leave and tying those complaints to questions about restaurant food safety.

The franchisee, MikLin Enterprises Inc., fired six employees for participating in the publicity campaign. These employees claimed the company’s policy on medical absences compromised the health of the workers preparing customers’ sandwiches.  At issue in the case was a flier that linked worker leave to public health risks. Specifically, union supporters took the dispute public by posting in and near MikLin restaurants fliers that pictured identical sandwiches side-by-side above a message “Can’t Tell the Difference?” The flier further labeled one sandwich as being made by a healthy worker and one by a sick worker. The union supporters asserted that employees didn’t get paid sick days and couldn’t even call in sick. These policies put the public at risk, or so the argument went.

These terminations resulted in an unfair labor practice charge filing with the NLRB. An administrative law judge found the discharges violated Section 8(a)(3) of the NLRA. That section prohibits discrimination due to union activity, and Section 8(a)(1) prohibits interference with employees’ NLRA-protected activity. The Board affirmed this decision in 2014, which was then appealed to the Eighth Circuit Court proceeding. MikLin Enterprises argued the employees had no legal right to make claims it considered false.

Discharge Violated Employee Rights and Found to be Unlawful by NLRB

On appeal, MikLin argued the sandwich fliers were false because employees were not precluded from calling in sick. But the Court noted:

  • There was a written company rule that provided, “We do not allow people to simply call in sick;”
  • The company required employees to find their replacements if they were ill; and
  • There was also evidence that the employees were told to report to work while sick.

Accordingly, the Court agreed with the NLRB that there was sufficient evidence to conclude the employees’ claims about MikLin’s leave policy weren’t intentionally false or maliciously motivated.

The dissenting judge, however, disagreed. That judge believed that the NLRA did not protect “calculated devastating attacks upon an employer’s reputation and products.” In this regard, he reasoned the “dramatic poster allegations of food contamination were not necessary to aid the employees’ labor dispute.” And, instead, “the employees punished MikLin by urging customers not to buy its sandwiches out of an unwarranted fear of becoming ill.”

Closing Thoughts on Employee Rights

Jimmy John’s as a brand has taken a few unflattering hits in the last year on its employment policies. In one example, we covered it here, Jimmy John’s franchise came under fire for requiring its low-wage sandwich makers and delivery drivers to sign non-compete restrictions. One concern we had about Jimmy John’s use of non-compete restrictions for its sandwich and delivery is that rarely if ever should an employer have a “one-size-fits-all” non-compete policy.

Similarly, companies can’t assume a blanket policy for disciplining employees who are critical of company products or services will be lawful. In fact, this opinion shows how much controversy surrounds whether employee rights should be given legal protections when it comes to disseminating negative publicity about their company’s products. Accordingly, employers need to consider carefully whether such dissemination is protected activity.

For more information about investigating employee misconduct or responding to an unfair labor practice charge, contact employment attorney Jason Shinn.

EEOC Issues Fact Sheet to Help Small Businesses Comply with Federal Employment Laws

employment law tools To help small businesses comply with their employment law obligations, the Small Business Task Force, established by the U.S. Equal Employment Opportunity Commission (EEOC), recently issued a new simplified, one-page fact sheet. The fact sheet is focused on assisting small business owners to understand their responsibilities under federal anti-discrimination employment laws. The EEOC’s fact sheet, “Preventing Discrimination is Good Business,” provides a short overview of small business legal obligations under federal anti-discrimination laws.

According to the EEOC, its Small Business Task Force is also working on producing a series of short YouTube videos (a definite viral hit waiting to happen) designed to provide additional employment compliance resources. Additionally, the Fact Sheet contains information about other EEOC resources available for small business owners.

What Should be in Your Employment Law Toolbox

Of the points outlined in the Fact Sheet, we find that small businesses routinely face challenges presented by adequately responding and investigating discrimination complaints. On this point, Title VII of the Civil Rights Act of 1964 and related federal nondiscrimination laws prohibit employers from discriminating against employees and applicants based on race, color, religion, sex, age, national origin, citizenship status, disability, genetic information and veterans status. Additionally, employers must also comply with state anti-discrimination laws that may include a more expansive list of protections than federal law.

But what should be covered when it comes to developing an EEOC policy? This question should be addressed to an experienced employment attorney, but here are a few points that need to be part of that discussion:

  • Nondiscrimination clause – First and foremost, every business should have a nondiscrimination clause. This clause will outline your business’ commitment against unlawful discrimination. This is analogous to a “mission statement” for companies that ideally guides the business in all its employment related decisions.
  • Procedures for Reporting Harassment – Your company’s employment policies should explain and provide employees with a confidential means to report discriminatory conduct or harassment. The goal of this provision is to allow employers to discover, investigate, and resolve discrimination or harassment complaints before such matters get turned over to the EEOC or similar state agency. Additionally, the policy should expressly assure employees that their complaints will be handled objectively, promptly, and without reprisals. Further, the policy should provide that an employee’s participation in internal investigations regarding such complaints will not be subject to retaliation or other reprisals.
  • Anti-retaliation Statement – Employers also need to ensure that their EEOC related policies emphasize that employees and applicants are not retaliated against: (i) because discrimination complaints are filed; (ii) for opposing discriminatory practices; or (iii) participating in investigations of such complaints.

Again, these are just a few of the “big-ticket” items that businesses need to address in their employee personnel policies and documents. Also, these provisions will ideally be incorporated into a comprehensive employee personnel strategy for eliminating or reducing employment law risks, in addition to making the company an attractive workplace environment.

For more information about federal or Michigan employment law compliance, as well as drafting employee policies and procedures, contact employment attorney Jason Shinn. He routinely works with businesses of all sizes, including start-ups, to provide cost-effective employment law counseling and solutions for complying with federal and Michigan anti-discrimination and employment related laws.

Did Meeting the FLSA Administrative Exemption Get Easier?

Reviewing FLSA Exemptions Michigan employers recently received a favorable Fair Labor Standards Act (“FLSA”) ruling. This decision also provides guidance when it comes to evaluating whether particular categories of employees may be administratively exempt from the FLSA’s overtime requirements.

Procedural Background Leading up to the FLSA Ruling

The decision arose out of the case Lutz v. Huntington Bancshares, Inc., (3/2/16). This started in an Ohio federal district as a class action. The class was made up of underwriters who worked with residential loan products. The district court eventually granted summary judgment to the bank concluding the underwriters were overtime-exempt employees under the FLSA.

On appeal, the employees did not fare any better. Specifically, a divided U.S. Court of Appeals for the Sixth concluded that the residential loan underwriters employed by Huntington Bancshares were administrative employees who were not eligible for overtime compensation under the FLSA.

The FLSA’s Administrative Exemption

Under Section 207(a)(1) of the FLSA, employers are required to pay overtime to employees who work more than 40 hours in a week. However, overtime protection does not extend to an “administrative” employee who is:

  1. Compensated on a salary or fee basis at a rate of not less than $455 per week;
  2. Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
    Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
  3. An employee who satisfies all three elements falls within this “administrative exemption.” The parties did not dispute that the underwriters met the first element of the exemption. But the plaintiff employees contend that they do not satisfy the second and third elements.

The first element was not disputed. The majority opinion of the Court found the plaintiffs met both the second element (the “duties” requirement) and the third element (“exercised sufficient discretion and independent judgment) to fall within the FLSA’s administrative exemption.

Interestingly, in addressing the “discretion and independent judgment” element, the majority opinion acknowledged that Huntington’s underwriters in performing their jobs reviewing the loan files of residential applicants must follow written materials that “span thousands of pages” and include manuals, policies, and procedures. Even so, the Court said underwriters have the discretion to rely on their personal experience or judgment in making risk assessments about loan applications. Further, they have the authority to recommend that customers consider alternative loan products when they don’t qualify for the loans they originally sought.

The dissenting judge, Hon. Helene N. White, however, highlighted what she believed to be a flaw in this conclusion:

[Plaintiffs] make no such independent discretionary decisions. Rather, [Plaintiffs] must follow Defendants’ very explicit and detailed manuals and guidelines … Because [Plaintiffs] are evaluated based on the number of files reviewed, and the default rates of loans they approve are not even tracked, much less used as a basis of performance evaluations, a reasonable fact finder would likely infer that [Plaintiffs] do not exercise discretion and independent judgment concerning ‘matters of significance.’

Take Away for Employers

To be sure, the decision discussed above is very fact specific, as are most FLSA cases. Even so, a finding that employees who are subject to very detailed (thousands of pages in this case) of written guidelines may still exercise “independent judgment” required for the FLSA administrative exemption to apply is a significant development.

For this reason, employers should carefully audit their exempt and non-exempt overtime classifications. This audit should focus on employee job descriptions and corresponding internal policies, procedures, and guidelines for those positions to consider if they accurately reflect the exercise of judgment and discretion in that position such that the FLSA’s administrative exemption may be appropriately applied.

For more information about the Fair Labor Standards Act, including auditing exempt and non-exempt positions, contact employment attorney Jason Shinn.

Michigan Supreme Court Rejects Expansion of Whistleblower Protection of Employees

ThinkingRemember the movie Minority Report starring Tom Cruise? The premise of that movie was that in the future a special police task force (the “pre-crime division”) could identify wrongdoers who would go on to commit crimes and charge them before those unlawful acts actually occurred. A similar science fiction plot recently made its way to the Michigan Supreme Court except it involved Michigan’s Whistleblowers’ Protection Act (WPA) and whether employees are protected if the employee reports future unlawful activity by an employer.

The Michigan Supreme Court was not interesting in expanding the WPA to cover future conduct. In other words, the Court concluded that an employee cannot bring a claim under Michigan’s WPA if the employee is only reporting or going to report future, planned or anticipated unlawful conduct by the employer.

In the case, Pace v. Edel-Harrelson (2-1-2016), the plaintiff worked for a nonprofit entity that provided services to survivors of domestic violence and the homeless. The plaintiff claimed that she was wrongfully terminated in violation of the WPA. Plaintiff alleged that her manager represented that she intended to use grant money to purchase a stove for the manager’s daughter. Plaintiff further alleged that the manager suggested that Plaintiff should cover up the unauthorized purchase by documenting it in the name of a client. After Plaintiff had reported her manager’s plan to the executive director, Plaintiff was terminated and she filed a whistleblower lawsuit.

Michigan’s Whistleblowers’ Protection Act

Michigan’s WPA restricts employers from discharging, threatening or otherwise discriminating against an employee who “reports or is about to report” to a public body, “verbally or in writing, a violation or a suspected violation of a law or regulation or rule.”

But the Michigan Supreme Court concluded what the WPA does not cover is reporting future misconduct. In other words, an employee must, at least, have a belief that the violation of law has occurred or is ongoing Having a good faith and reasonable belief that a violation of the law will take place in the future or is being actively planned is not enough.

Because plaintiff reported [her manager’s] announced intention to buy a stove with unauthorized grant funds, which constituted an expression of an intent to act in the future, not an accomplished or ongoing act, plaintiff has not established conduct that qualifies as ‘a violation or a suspected violation of a law’ under [Michigan’s WPA]. Consequently, plaintiff did not engage in ‘protected activity’ under the WPA as a matter of law.

Accordingly, the Michigan Supreme Court reversed the decision of the Court of Appeals, which had found in favor of the plaintiff.

Take Away for Employers

This is a decision where I think the right result was reached by the Court, but it is a result that you do not necessarily have to like. Take for instance the disastrous decisions leading up the deplorable situation involving Flint and its water. Under the reasoning of the Court, an employee who may have believed that environmental laws or regulations

Under the reasoning of the Court, an employee who may have believed that environmental laws or regulations would be violated by improperly using the Flint River for the city’s water supply would not have been protected under the WPA until the violation actually occurred. Such a result is despicable public policy, but it is consistent with the Court’s reading of the plain language of the Michigan’s WPA. And to change that language is a meaningful job for the Michigan legislature, which means it is a likely a job that is not going to get done.

Michigan’s Whistleblower Protection Act remains one of the more complicated and nuanced statutes that employers and employees face. And while the case discussed above is obviously a favorable decision for employers, it is not a silver bullet against whistleblower lawsuits. Instead, it is important for companies to respond carefully to employee complaints before taking an adverse employment action. This is because it may not be entirely clear if an initial report concerns a suspected future violation or a suspected existing violation. This fine line may be the difference between having a subsequent lawsuit dismissed or spending money and resources in on-going litigation.

For more information about complying with Michigan’s Whistleblowers’ Protection Act, contact employment attorney Jason Shinn. He routinely works with employers to lead workplace investigations and in offering pre-termination assessments focused on avoiding later claims that a termination was discriminatory or unlawful. These assessments have proven an invaluable tool for avoiding costly employment discrimination litigation and liability.

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