Corporate Religious Beliefs – A New Defense in Employment Discrimination Claims?

Religious freedom and employment discrimination

The tension between employment discrimination and religious freedom recently played out in a Michigan federal district court case. In that case, EEOC v. R.G. & G.R. Harris Funeral Homes, the employer’s religious freedom won out over the rights of a transgender employee. Specifically, the judge ruled that a metro Detroit funeral home did not discriminate against an employee when it fired her for transitioning from a man into a woman.

Two important points to be gleaned from this lengthy opinion. First, the employer argued that its enforcement of its sex-specific dress code could not constitute impermissible sex stereotyping under Title VII. The district court rejected this argument.

Second, the court ruled that under the Religious Freedom Restoration Act of 1993 (“RFRA”), the EEOC was prohibited from applying Title VII to force the funeral home to violate its sincerely held religious beliefs. In reaching this decision, the District Court relied extensively upon the U.S. Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc., 134 S.Ct. 2751 (2014), which concluded that a for-profit corporation is considered a “person” for purposes of RFRA protection.

As such, the district court went through the intellectual exercise of asking whether Title VII “substantially burdens” the funeral home’s exercise of religion. The answer was, yes:

The Court finds that the Funeral Home has shown that the burden is ‘substantial.’ Rost has a sincere religious belief that it would be violating God’s commands if he were to permit an employee who was born a biological male to dress in a traditionally female skirt-suit at one of his funeral homes because doing so would support the idea that sex is a changeable social construct rather than an immutable God-given gift. Rost objects on religious grounds to: 1) being compelled to provide a skirt to an employee who was born a biological male; and 2) being compelled to allow an employee who was born a biological male to wear a skirt while working as a funeral director for his business.

Should a for Profit Company Have a Religious Belief Exception to Discrimination Claims?

Employment law sage and attorney Robin Shea first reported on this case on April 19, 2016. She believes that this decision is likely to be appealed to the U.S. Sixth Circuit Court of Appeals. I hope so.

I say this is because the opinion and others like it leave too many unanswered questions for employers and employees. Also, as explained below, the consequences for elevating religious beliefs of a corporate entity over the rights of people under various anti-discrimination statutes are not good.

First, the funeral home employer, R.G. & G.R. Harris Funeral Home, Inc., was organized in 1932 as a Michigan domestic profit corporation. It was never formed as a non-profit or a religious institution. Also, the funeral home’s most recent articles of incorporation, provide that the funeral home’s sole purpose is to “perform involving, funeral burial and related services as well as all other purposes allowed under Michigan law.” (2005 restated articles of incorporation). Again, from creation to operation nothing inherent in the corporate entity demonstrates any preferred religion.

Second, the distinction between a religious institution and a for-profit corporation were succinctly explained by Justice Ginsburg in the Hobby Lobby case:

Religious organizations exist to foster the interests of persons subscribing to the same religious faith. Not so of for-profit corporations. Workers who sustain the operations of those corporations commonly are not drawn from one religious community.

Building on this point, it is corporate law 101 that a corporation is to be treated separate and distinct from its owners. Under Michigan corporate law, the corporate entity remains distinct even where a single person owns all its stock.

Third, turning to the actual religious beliefs at issue in this case – they were asserted by the corporation’s majority shareholder, Thomas Rost. But the individual discriminated against was employed by the corporation – not Mr. Rost. Yet it was Mr. Rost’s sincerely held religious beliefs that were asserted. As the court noted, he 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.” However, they are his beliefs – not the corporation.

Simply put, a person is not required to form a corporation or other business entity in order to conduct a for-profit business. However, there are many reasons and advantages for forming a business entity. But one should not be permitted to maintain a business structure when it inures to their benefit and then ignore the constraints of that business entity when it does not.

There, but for the grace of God, go I.

Further, where is the line to be drawn, if at all, when it comes to whether any business entity’s purported religious beliefs, should be respected over anti-discrimination statutes? It is important to remember that this question opens the door to any religion – mainstream religions or otherwise, including any variants. It is also important to note that not all people, gender, competing religions may be treated equally in another’s religion.

As Justice Ginsburg noted in the Hobby Lobby decision,

Approving some religious claims while deeming others unworthy of accommodation could be ‘perceived as favoring one religion over another,’ the very ‘risk the [Constitution’s] Establishment Clause was designed to preclude … The court, I fear, has ventured into a minefield.

Also, if a corporation’s religious beliefs are allowed to be an affirmative defense against discrimination, does this open the door for such beliefs to be litigated, including discovery, proofs, and legal arguments so that a judge may ultimately decide the issue?

Returning to the funeral home’s religious beliefs and actual business practices, there was no dispute that the funeral home marketed to and served customers of every religion (various Christian denominations, Hindu, Muslim, Jewish, native Chinese religions) or none at all. But the Christian Bible strictly forbids recognizing other religions. See Exodus 23:13 (“… and make no mention of the names of other gods, nor let it be heard on your lips; Isiah 45: 21 (“And there is no other god besides me … there is none besides me.” Exodus 20:3 (“You shall have no other gods before me.”). Further, Biblical passages even direct its followers to kill anyone who worships a non-Christian God. See Deuteronomy 13:9. I have yet to find any “profit” or “business necessity” exception to these Biblical prohibitions against religious acceptance or tolerance in order for a company to turn a profit.

Accordingly and returning to the EEOC’s case against the funeral home, why wouldn’t the Agency have a right to challenge the “sincerity” of the funeral home’s belief where it chose to profit by ignoring the Bible, but now claims the Bible as a defense against discrimination. Do these inconsistencies create a question of fact to be decided by a judge or jury? And are these the sorts of issues that judges should be determining?

As an attorney, I represent a number of small and medium-sized businesses similar to the funeral home. I also understand that families or small groups of shareholders often run such businesses and may share common, sincerely held beliefs. In fact, my law firm is such a business. But I would never subject my staff to my religious views by claiming that the legal entity that actually employs them has a particular religious belief. I also would not want my religious beliefs subjected to the scrutiny inherent in litigation. I just cannot accept the fiction that a for-profit business entity can have religious beliefs or that such a fiction should be elevated to take priority over people and their rights under federal anti-discrimination statutes.

Noncompete Litigation Between Papa John’s and Panera – Lessons For Protecting Competitive Advantages

Business conflictEarlier this month a federal district court judge entered a temporary restraining order (TRO) against a former Panera executive and his new employer, Papa Johns. The TRO arose out of a lawsuit to enforce the former Panera executive’s non-compete agreement. That agreement restricted him from competing against Panera for one year after his employment ended. The Order is available here, Panera v Nettles.

In sum, the TRO prohibits Panera’s former executive, Michael Nettles, and Papa John’s from working with each other, either directly or indirectly in any capacity. Papa Johns is also restricted from employing Nettles until further order of the Court. 

While this sort of non-compete lawsuit is relatively common, there are a number of points that business owners should consider when it comes to their company’s competitive advantages.

  • Trade secrets and competitive advantages – every business has them.

First, in talking about this case with some non-attorney friends and family (yes, I am THE life of a party), the discussion went along the line of, “Trade secrets and non-compete restrictions. But it’s just soup, sandwiches, and pizza (and not very good pizza at that).” This sentiment is also common among business owners concerning their companies; They often overlook or fail to realize the competitive advantages inherent in their own business.

Going back to the Panera lawsuit, yes Panera’s business is about soups, sandwiches, etc. But Nettles worked in a high-level executive position within Panera’s Information Technology department. In that role, Panera granted Nettles access to its highly sensitive confidential and proprietary information and trade secrets used across the business. Panera further described in its Complaint the competitive advantages it sought to protect as follows:

… Panera unveiled its vision for “Panera 2.0,” which consists of enhanced to-go and eat-in options enabled by a series of integrated technologies. “Panera 2.0” is an integrated, comprehensive, end-to-end solution that aims to reduce wait times, improve order accuracy, and minimize or eliminate crowding; and create a more personalized experience.

Ok, so it isn’t quite as exciting as Colonel Sanders’ 11 secret herbs and spices or the famed Coca-Cola trade secret formula, but it is information that provides value to Panera.

  • Protecting business assets – you have to know what you have.

Second and building on the preceding point, businesses should make it a priority to conduct an assessment of its intellectual property (IP) and what provides a competitive advantage to the company. I often recommend owners think about what information they would take if they had to do their job for a competitor. This question focuses attention on what a company should be protecting to maintain its competitive advantage.

  • Protection starts with a non-compete agreement.

Third, once your business has identified its competitive advantages and valuable IP, the next step is to implement policies and agreements to protect this information. Non-compete restrictions, confidentiality provisions, and non-solicitation prohibitions will often be a cornerstone of your company’s IP protection plan. For this reason, it is important to have your employment agreements and post-employment restrictions tailored to your business by an experienced employment attorney.

Going back to the Panera lawsuit, would Panera’s information be valuable to a pizza chain (the status quo at Papa Johns certainly hasn’t worked beyond producing something approximating an edible food product)? Maybe, maybe not and this will likely be a question addressed in the litigation.

But by having Nettles sign a non-compete agreement, Panera reinforces its belief that the information is valuable and it took some effort to protect the value of that information. This fact alone is often not enough to win or lose a TRO hearing; We have successfully obtained TROs where there was no non-compete restriction. And we have successfully defended against TROs where there was a signed non-compete restriction. But even so, a signed non-compete agreement is always a compelling exhibit for any judge in considering whether a TRO should be issued.

For more information about drafting and enforcing non-compete agreements, as well as protecting trade secrets, contact attorney Jason Shinn. Mr. Shinn has focused on these legal issues since 2001 on behalf of companies and individuals.

Michigan Employees Find Themselves on the Chopping Block after Dow Corning Layoff Notices

Employees on Chopping BlockM-Live, by Heather Jordan, reported that Dow Corning Corp. has formally notified the state of its plans to lay off 348 Michigan employees. This layoff follows the June 1, 2016, announcement of the successful completion of restructuring the ownership of Dow Corning joint venture with Midland-based Dow Chemical. Under that restructuring, Dow Chemical Company assumed full control of Dow Corning Corporation.

Having worked with numerous business owners, it is an agonizing decision when the company finds itself in a layoff or reduction in force (RIF) situation. Conversely, employees who find themselves on the chopping block often feel betrayed, blindsided and motivated to sue for discrimination. Accordingly, such conditions make for the potential for an explosive situation.

Here are a few legal issues companies must carefully evaluate when laying off its employees:

  1. Notices: Employers must determine whether they are subject to the Worker Adjustment and Retraining Notification (WARN) Act.  Employers must comply with WARN notice requirements if they have 100 or more full-time employees or 100 or more full- and part-time employees who work a combined total of at least 4,000 hours per week (excluding overtime). In general, WARN’s notice requirements apply to plant closings involving 50 or more employees and layoffs involving 50 or more employees and at least 33 percent of employees during any 30-day period (the 33 percent requirement does not apply to layoffs involving 500 or more employees).
  2. Layoff Policies and Employment Agreements: If your company determines layoffs/RIF are necessary, then it is important to review all policies, agreements, or collective bargaining agreements with employees before beginning the process.
  3. Determining the Order of Layoff: Layoffs or large-scale RIFs are generally the results of economic necessity. But employers cannot rely exclusively on this explanation. This is because companies must still be prepared to explain why particular employees were selected for economic layoffs; an employer cannot decide which employees to lay off on the basis of considerations that are prohibited by law, such as age or other unlawful discrimination. Accordingly, companies must decide the order of layoffs based on non-discriminatory factors, such as skills, knowledge, and abilities that are necessary for the company to operate. Further, these factors must be documented. In our experience, the criteria and decision-making process for determining layoffs can be the employers greatest defense against subsequent employment discrimination claims or an equally great hindrance to that defense.

These are only a few issues that need to be considered when a workforce is downsized through layoffs or RIFs. Above all, it is essential that at all times in determining the order of layoffs or criteria for any RIF that your business adheres to its commitment to provide equal employment opportunity for all employees.

For more information about this article or legal issues involving downsizing workforces through employee layoffs or RIFs, contact Michigan employment attorney Jason Shinn.

NLRB Once Again Wades Into the Lawfulness of Employer’s Workplace Policies

NLRB wades into lawfulness of employee policies under NLRAOnce again a company’s workplace policies were found to have violated the National Labor Relations Act (NLRA). This time on July 29, 2016, the U.S. Court of Appeals for the District of Columbia Circuit endorsed the National Labor Relations Board’s (NLRB) view that an employer violates the NLRA by maintaining workplace policies that employees may reasonably view as coercive.

Workplace Confidentiality and Nondisparagement Policies Violated NLRA

Specifically, Quicken Loans’ confidentiality and non-disparagement policies were found to have violated the NLRA because they interfered with workers’ rights to discuss labor unions and their job conditions. See Quicken Loans, Inc. v. NLRB, (7/29/16). Quicken Loans required employees to sign an employment agreement that had two disputed provisions.

  • Quicken Loans’ confidentiality rule prohibited employees from disclosing “personnel information” to any person “except as may be authorized by the Company in writing.” Personnel information was defined to include employee lists and rosters and information about co-workers such as home and mobile phone numbers and e-mail and home addresses.
  • Quicken Loans’ mortgage bankers were also required to agree to its non-disparagement rule. That rule prohibited employees from acting alone or in cooperation with others to “publicly criticize, ridicule, disparage to defame the Company or its products, services, policies, directors, officers, shareholders or employees.”

Both provisions were found to violate employees’ Section 7 rights. In reaching this decision, the Court rejected Quicken Loans’ argument it had never enforced the rule in a manner that restricted NLRA-protected activity and its contention that employees didn’t understand the rule as limiting their statutory rights. Here is an excerpt from the Court’s opinion:

… Quicken contends that the Board should have considered whether Quicken employees actually construed the Confidentiality Rule to prohibit Section 7 activity … or Quicken had ever enforced the Rule to interfere with Section 7 activity. Those arguments, however, fail to come to grips with the governing law. The validity of a workplace rule turns not on subjective employee understandings or actual enforcement patterns, but on an objective inquiry into how a reasonable employee would understand the rule’s disputed language. Thus [the NLRB] is merely required to determine whether ’employees would reasonably construe the language to prohibit Section 7 activity … and not whether employees have thus construed the rule.

The Court reasoned that such an objective assessment of employer rules “serves an important prophylactic function,” the court said because the NLRB has a “proactive role in safeguarding employees’ rights.”

For similar reasons, the court concluded that the non-disparagement rule also violated Section 7 rights. In so doing, it again rejected the employer’s argument that there was no evidence it ever used the disputed rule to restrict employees from exercising their rights. “The absence of enforcement could just as readily show that employees had buckled under the Employment Agreement’s threat of enforcement.”

Professional Pointers – Plan For NLRB Scrutiny of Employee Agreements

For me, this opinion illustrates two strategies that  companies can take in response to an aggressive NLRB: Hope that your company’s employee policies and agreements aren’t ever under the NLRB’s microscope or respond to the challenge and plan for such scrutiny. I say this because we have repeatedly represented employers in Quicken Loans position and covered on this blog similar results. See NLRB Makes Gambling with Your Company’s Employee Handbook a Risky Bet, NLRB Finds Employer’s Workplace Rules Violated Federal Labor Law, or Employee Manuals Need Spring Cleaning Thanks to the NLRB.

Here are three additional points to consider:

  1. First, I would almost a guarantee that restrictions in your company’s employee policies or agreements are going to run afoul of the NLRB. As the Quicken Loans’ opinion emphasized, such anti-disparagement policies “[fly] in the teeth of Section 7.”
  2. Second and of significant note for employers and HR professionals is that Quicken Loans unsuccessfully argued that it had never enforced the rules in a manner that restricted NLRA protected activity and that there was no evidence that employees construed understood the rules to restrict rights under the NLRA. Companies should take this finding as a neon, bulletin board sign to go through your employee agreements and policies to remove similar language that could be construed to violate the NLRA.
  3. Third, we collaborate closely with employers to draft employee policies and provisions with the goal of avoiding NLRB violations. Additionally, we encourage employers to include an express statement to the effect that nothing in a particular workplace rule is intended to interfere or otherwise restrict an employee’s statutory rights under Section 7 of the NLRA to engage in union activity or concerted activity for their mutual aid and protection. In contrast, it does not appear that such language was found in Quicken Loans’ policies (at least there was no argument to such a savings provision in the opinion). Such a provision when coupled with the evidence Quicken Loans presented that its rules had not been enforced in referenced to Section 7 activity may have made a difference in the outcome.

For more information about this decision or updating your company’s employee manuals and agreements to avoid NLRB violations and compliance with other employment laws, contact employment attorney Jason Shinn.

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.