Non-Solicitation Restrictions – A Valuable Tool for Protecting Your Company’s Customer Relationships

ToolboxWhen it comes to post employment restrictions, non-compete agreements often get all the attention. In fact, such restrictions are a frequent subject of discussion on our law firm’s blog (Noncompete Restrictions: The First Line of Defense for Protecting the Company from Unfair Competition).

However, as explained below, a carefully drafted non-solicitation provision should be in every employer’s toolbox when it comes to protecting relationships and customers critical for business success.

How Non-Solicitation Restrictions Protect a Business

Take for example a recent case involving the enforcement of a non-solicitation provision in an insurance agent agreement (American Family Mutual Insurance Company v. Graham 7/5/2015). Specifically, the individual defendant, Stephen Graham, sold insurance for American Family Mutual Insurance Company for over 20 years. However, in January 2011, American Family terminated Mr. Graham’s agency agreement.

That agency agreement contained a non-solicitation provision which prohibited Mr. Graham from “directly or indirectly” inducing or attempting to induce any policyholder of American Family to cancel his or her policy with American Family.

Not to be deterred by this restriction, Mr. Graham formed an independent insurance agency and came up with a creative “work around,” to the non-solicitation restrictions, which included the following:

  • In February 2011 he sent approximately a letter to 1,500 of his former American Family customers letting them know he no longer represented American Family Insurance Company.
  • He further noted in this letter that he could not solicit or induce any of his former customers to leave American Family, except he could offer policies for insurance needs that were not covered by an existing American Family policy.
  • Email communications revealed discussions such as, “[w]hen you get some time, just complete and return [the waiver form] and I can run some quotes which I really think will make you smile” or “[j]ust wondering if you got the form you requested. I would love to work some quotes up for you if it works to send [the waiver] back.”
  • He further described how he could offer his former clients “more choices, expanded coverage, an excellent rates” that were “better suited for your needs.”
  • And if a former American Family customer contacted Mr. Graham, the customer was asked to sign a “non-inducement form,” which provided that Mr. Graham had not solicited or induced that customer to “replace, lapse or cancel any American Family Insurance policies.”

American Family, not impressed or amused by Mr. Graham’s creative efforts, sued him in 2012 for violating the agent agreement with the above actions. The company further claimed his actions amounted to inducing or attempting to induce those customers to cancel their American Family insurance policies.

In October 2013, a jury agreed with American Family and found in its favor on all claims. Mr. Graham was ordered to pay $523,153.70 plus interest and he appealed this decision, but he did not fare any better on appeal, which upheld the jury verdict.

The Take-Away for Employers and Employees

Well-drafted non-compete restrictions offer significant protections for employers. But, as we previously discussed here, such restrictions are not always a silver bullet defense to competition by former employees. For this reasons, we recommend that employers consider non-compete restrictions and non-solicitation provisions as a valuable 1-2 punch when it comes to protecting your company’s competitive interests. Having both in place offers employers with alternative theories of recovery – restricting unfair competition by enforcement of the non-compete restriction and protecting customer valuable relationships through non-solicitation provisions.

For employees, Mr. Graham’s efforts bring to mind the saying that ‘pigs get fat, hogs get slaughtered.’ Specifically, Mr. Graham could have simply notified his former customers that he left American Family to start his own agency and left it at that, which could may have avoided the lawsuit and judgment. At least this is the conclusion to be drawn from the Court of Appeals decision. That decision noted that while Mr. Graham’s letter specifically informed customers about his restrictions and intent to “honor that agreement,” it also informed customers that the agreement did not restrict him from offering a “broader range of insurance products” through “other companies that may be better suited for your needs.”

For more information about implementing or improving your company’s protection of competitive advantages and other intellectual property or for a thorough assessment of your obligations under non-compete/non-solicitation restrictions, contact attorney Jason Shinn. Since 2001, he has worked with companies and individuals to address legal issues and enforcement of post-employment obligations under non-compete and non-solicitation agreements.

Oy Vey! No Religious Discrimination in Jewish Nurse’s Termination

CoExistA recent religious discrimination claim dismissed in favor of an employer offers a number important take-aways for both employers and employees. Specifically, on 7/16/2015 the Eighth Circuit Court of Appeals affirmed the dismissal of a religious discrimination claim brought by a Jewish nurse who had worked for a Missouri medical center. See Shirrell v. St. Francis Med. Ctr., 7/16/15).

The trial court had granted summary judgment in favor of the employer, which was affirmed on appeal. In reaching this decision, the court concluded the plaintiff, Rebecca Shirrell did not present evidence giving rise to an inference of religious bias, as required by Title VII of the 1964 Civil Rights Act, as well as dismissing her state law employment discrimination claims for similar reasons.

An Overview of a Religious Discrimination Claim

For background purposes, to properly bring a religious discrimination claim under Title VII, a plaintiff must show either direct evidence of discrimination or create an inference of discrimination or retaliation under what is referred to as the McDonnell Douglas burden-shifting framework. If there is no direct evidence and a plaintiff meets her evidentiary standard under the McDonnell Douglas framework, an employer then has the burden of showing a legitimate, non-discriminatory reason for the challenged action. If the defendant offers such a reason, the burden shifts back to the plaintiff to show the defendant’s proffered reason is a pretext.

The court found that the nurse failed to meet her obligations under this framework. Specifically, she failed to show that she was unlawfully fired because of her religion or because she complained about a co-worker who said she would try to “Jew down” the price of a camper she intended to purchase. Additionally, the court held that Shirrell failed to demonstrate a causal connection between her complaint about her co-worker’s single derogatory remark and her termination three months later for accumulating too many disciplinary points within a 12-month period.

In terms of the failings of this religious discrimination claim, the following deficiencies were highlighted by the court:

  • Shirrell didn’t identify any similarly situated, non-Jewish employees who received more favorable treatment.
  • She offered no evidence that the ultimate decision-maker for her termination had any bias toward her because of religion.
  • Shirrell’s history of disciplinary issues plus her reliance on “one overheard, offhand remark” about religion that wasn’t directed at her were fatal to her lawsuit.

Additionally, Ms. Shirrell’s Title VII retaliation claim failed because the evidence showed that the employer terminated Shirrell pursuant to hospital policy for disciplinary reasons, rather than in response to Shirrell’s complaints about the co-worker’s derogatory statement.

Religious Discrimination Take-Aways 

Our law firm recently obtained a summary judgment award in a religious discrimination claim on substantially identical reasons discussed in the Shirrell v. St. Francis Med. Ctr. case. In both cases, a critical factor for the employer’s success was having well-documenting employment policies in place and documenting instances of poor job performance on the part of the employee or violating the employer’s policies. Such evidence will often be an insurmountable obstacle to showing that the employer’s adverse employment action was pretext for religious discrimination.

For employees, it is not enough to simply point to a derogatory statement as evidence of discrimination and expect to be successful in a discrimination claim. This is especially true where the adverse employment action occurs months after the statement was made.

For more information about complying with Title TII’s requirements for providing reasonable religious accommodations or complying with its anti-discriminatory requirements, contact Michigan employment attorney Jason Shinn. Mr. Shinn has been focused on employment law matters since 2001.

Sexual Orientation Discrimination is Unlawful under Federal Law … For Now?

same-sex coupleOn July 16, 2015, the Equal Employment Opportunity Commission (EEOC) issued a decision confirming that workplace discrimination based on sexual orientation violates title VII of the Civil Rights Act of 1964 (Title VII)

Title VII is the primary federal statute that prohibits a range of discrimination against employees. This decision marks the first time the EEOC has formerly ruled Title VII prohibits discrimination based on sexual orientation.

In concluding that sexual orientation discrimination is also sex discrimination, the EEOC offered essentially three separate reasons in support of its decision in Complainant v. Foxx, E.E.O.C., Appeal No. 0120133080, 7/16/15-2015).

First, the EEOC concluded that sexual orientation is inherently a sex-based consideration in that it treats an employee less favorably because of that employee’s sex.

Indeed, we conclude that sexual orientation is inherently a ‘sex-based consideration,’ and an allegation of discrimination based on sexual orientation is necessarily an allegation of sex discrimination under Title VII … Discrimination on the basis of sexual orientation is premised on sex-based preferences, assumptions, expectations, stereotypes, or norms. ‘Sexual orientation’ as a concept cannot be defined or understood without reference to sex … Sexual orientation discrimination is sex discrimination because it necessarily entails treating an employee less favorably because of the employee’s sex.

Second, the EEOC explained that:

Sexual orientation discrimination is also sex discrimination because it is associational discrimination on the basis of sex. That is, an employee alleging discrimination on the basis of sexual orientation is alleging that his or her employer took his or her sex into account by treating him or her differently for associating with a person of the same sex.

Third, the EEOC further supported its position by noting that “Sexual orientation discrimination is also sex discrimination because it necessarily involves discrimination based on gender stereotypes.”

Title VII and what is Says About Sexual Orientation

Title VII doesn’t mention sexual orientation and courts historically have reached inconsistent rulings as to whether the statute’s ban on sex discrimination covers sexual orientation discrimination.

Ironically, an opinion authored by Justice Scalia (yes, the guy who had a judicial meltdown in response to his fellow justices ruling in favor of marriage equality for same-sex couples) has become a cornerstone for one of the reasons the EEOC interpreted Title VII to prohibit sexual orientation discrimination. See the Slate article by Mark Joseph Stern, Thank Scalia for the Revolutionary EEOC Workplace Discrimination Decision, discussing Justice Scalia’s opinion in a case called Oncale v. Sundowner.

Closing Thoughts

After the U.S. Supreme Court’s ruling in the Obergefell v. Hodges same-sex marriage case we explained here that employers need to, at a  minimum, carefully evaluate taking adverse employment actions against homosexual employees who were to marry. This caution was necessary because Michigan’s anti-discrimination statute ((Elliott-Larsen Civil Rights Act or “ELCRA”) protects against discrimination based on marital status.

However, with the EEOC’s opinion discussed above, employers need to carefully evaluate all adverse employment decisions taken against employees based on their sexual orientation in order to avoid liability under Title VII for unlawful employment discrimination.

Also, while the EEOC’s ruling is limited to Title VII, it is important for Michigan employers and employees to understand that when applying Michigan’s anti-discrimination statute (ELCRA), Michigan courts are “guided” by federal interpretations of Title VII when interpreting provisions of the ELCRA. Normally, this means that EEOC rulings like the discussed above are “afforded substantial consideration” by Michigan’s courts. Whether this happens remains to be seen.

And this brings up one of the more interesting issues presented by the EEOC’s ruling: How many courts will follow the EEOC’s conclusion that Title VII protects against sexual orientation discrimination. In this regard, the EEOC’s interpretations on the scope of Title VII are considered persuasive but not binding authority on the courts.

Building on this point, there are courts who have concluded that sexual orientation is not among the list of prohibited bases for discrimination under Title VII. In support of this position, these courts have noted that Congress has repeatedly refused to add “sexual orientation” to employment protections and, therefore, Congress did not intend to eliminate anti-gay discrimination when it enacted Title VII.

For more information about complying with this new ruling from the Equal Employment Opportunity Commission or responding to sexual orientation discrimination issues, contact Michigan employment attorney Jason Shinn.

The Supreme Court’s Same-Sex Marriage Ruling and What it Means for Employers

On June 26, Same-sex_couple2015, the Supreme Court decided in a 5-4 decision that same-sex couples nationwide have a constitutional right to marry.

The full case opinion (Obergefell v. Hodges) is available here, however, the majority opinion was best summed up by Justice Kennedy as follows:

The right to marry is a fundamental right inherent in the liberty of the person. Couples of the same sex may not be deprived of that right and that liberty.

These words wipe out Michigan’s 2004 law that limited marriage to heterosexual couples, as well as other gay marriage restrictions in force in a dozen other states. This also means all 50 states must recognize same-sex marriages. For an insightful summary of the opinion, see Lyle Denniston, Opinion analysis: Marriage now open to same-sex couples, which appears at SCOTUSblog (Jun. 26, 2015).

The Impact of the same-sex marriage ruling on employers. 

Setting aside your particular view of this decision, this decision will require the immediate attention of employers, as well as an understanding by employees as to what protections they have and may not have in the workplace.

First, Michigan law does not generally provide workplace protections against discrimination based on sexual preference. In fact, approximately 28 states don’t have laws prohibiting discrimination against lesbian, gay, bisexual and transgender people. This means individuals in those states who are fired because of sexual orientation generally don’t have any recourse – a fact largely unchanged by the Obergefell v. Hodges decision.

However, Michigan recognizes marital status as a protected classification under its primary employment discrimination law, Michigan’s Elliott-Larsen Civil Rights Act (ELCRA). Specifically, this law prohibits discrimination based on an individual’s marital status. Conversely, the federal counterpart to Michigan’s ELCRA, Title VII, has no parallel provision.

Accordingly, employers need to carefully evaluate adverse employment actions against employees in a same sex-marriages to ensure such action does not violate the ELCRA.

Also, Michigan’s ELCRA may be applied to workplace discrimination claims involving same-sex married couples remain to be seen. For instance, in past cases, Michigan courts have made the distinction in applying ELCRA’s prohibitions against marital discrimination based on policies that differentiate on whether a person is married. In other words, the focus in a marital status discrimination claim under the ELCRA is whether discrimination occurred based on if one is married, rather than to whom one is married. Could an employer argue an adverse employment decision against an employee in a same-sex marriage was independent of marital status and, instead, was based only on the employer’s beliefs concerning homosexuality – whether in a same-sex marriage or not?

Building on this point, the Wall Street Journal (by Tamara Audi and Jacob Gershman) reported:

Conservative groups have been bracing for the ruling for months—developing legal strategies to carve out religious exemptions and ramping up fundraising to pay for them. Those groups said they expect to continue to fight for religious exemptions from legal mandates to accept same-sex marriage in courts, at the federal level, and state by state.

Whether money and legal strategies translate into legislation that diminish workplace protections for same-sex married couples is uncertain even if the resolve to see it happens is not.

In contrast, Justin Nelson, Co-Founder and President of the National Gay and Lesbian Chamber of Commerce (NGLCC) noted:

While recognizing this as a victory, NGLCC and its 42 affiliate chambers across the country understand that the LGBT movement must harness this momentum to secure greater equality, especially nondiscrimination protections for LGBT Americans. It’s unacceptable that hardworking LGBT business owners still be discriminated against in corporate and government supply chains and that LGBT people can still be fired from their jobs in 28 states, evicted from their homes, or denied service in restaurants and shops simply for being who they are.

Second, employers will need to address benefit issues to make sure the policies comply with the same-sex marriage ruling. Case in point: Rick Pluta of NPR recently reported that a Kroger employee has filed a Michigan employment discrimination complaint against  it and the employee’s union because a jointly run health benefits fund refused to accept the employee’s same-sex spouse after the two were legally married last year. This marriage occurred during the brief window when it was legal in Michigan for same sex couples to marry.

Third, employers will need to review their employee manuals and make necessary modifications to their policies to ensure that they are in compliance with this ruling. For example, many employee handbooks treatment of “spouse” under such topics as medical leave, conflict of interest, and equal opportunity, anti-retaliation should be carefully reviewed.

Fourth, many companies prior to the Supreme Court ruling offered benefits to same-sex couples as domestic partners. However, with the Supreme Court ruling eliminating the barriers same-sex couples faced in getting married, employees should expect that domestic partnership benefits may be eliminated for unmarried same-sex couples.

For more information about Michigan employment law, as well as responding to changes created by this historical same-sex marriage ruling, contact attorney Jason Shinn. Since 2001, Mr. Shinn has worked with employers to respond to every day and significant employment law challenges facing their businesses.

Another Employee Handbook Provision Found to Violate Federal Labor Laws

Employee Manual Violates NLRAAnother employee handbook did not measure up to the National Labor Relations Board’s (NLRB) scrutiny after it ruled that an employee handbook provision prohibiting employees from having a “conflict of interest” with the employer was facially overbroad and unlawful on its face. See Remington Lodging & Hospitality, LLC, 2015 BL 194198, 362 N.L.R.B. No. 123 (6/18/15).

Specifically, on June 18, 2015, the Remington Lodging & Hospitality decision, the NLRB concluded that hotel employees would reasonably interpret the conflict of interest rule as limiting their exercise of rights under the National Labor Relations Act (NLRA). Accordingly, the employee handbook provision was overbroad and illegal on its face because it violated NLRA.

Two of the three members of the NLRB panel said the rule interfered with employee rights in violation of the NLRA because employees would reasonably believe it would apply to NLRA-protected activities, in part because of other violations of the NLRA by the employer:

Particularly when viewed in the context of the [Employer’s] other unlawfully overbroad rules employees would reasonably fear that the rule prohibits any conduct the Respondent may consider to be detrimental to its image or reputation or to present a ‘conflict’ with its interests, such as informational picketing, strikes, or other economic pressure.

Under applicable NLRB decisions, a rule is unlawful if it explicitly restricts Section 7 activity or if there is a showing that (1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights.

Employer Take-Aways

As we previously reported, the NLRB has aggressively pursued employer violations arising out of overbroad or even improperly drafted employee handbooks. See Employer Charged with Unfair Labor Practice Because Employee Manual and Agreements Were Unlawful and Employee Manuals Need Spring Cleaning Thanks to the NLRB. But this latest ruling is likely to be of significant concern to employers for a number of reasons. This is because employers have a legitimate interest in preventing employees from maintaining a conflict of interest, whether they compete directly against the employer, exploit sensitive employer information for personal gain, or have a fiduciary interest that runs counter to the employer’s enterprise. Accordingly, the sort of conflict of interest provision that was found to be unlawful in the Remington case is commonly found in many employment handbooks and agreements.

For this reason, it is critical for employers and human resource professionals to carefully review and update their existing employee manuals and policies to avoid a later finding that the employee policies inadvertently violate the NLRA. And this recommendation applies to both union and non-union employers as the applicable NLRA rights extend to employees in both situations. In other words, even if your employees are not in a union, those employees still enjoy rights under the NLRA.

For more information about complying with federal or Michigan employment law, including implementing HR best practices and drafting employee manuals, contact employment attorney Jason Shinn. Since 2001, Mr. Shinn has provided comprehensive legal services in the area of employment law compliance. He routinely works with start-up and growing businesses to provide employment law and overall general counsel services for the company.

Enforcing a Noncompete Agreement Takes More Than Bluffing

iStock_000016245459XSmall.jpgWe recently wrote about the importance of having an enforceable noncompete in place in order to protect your business (Noncompete Restrictions: The First Line of Defense for Protecting the Company from Unfair Competition). But when it is necessary to obtain and injunction and to enforce that agreement, companies can’t expect to bluff their way to success.

Case in point, I was in Oakland County Circuit Court earlier this week defending against a motion for preliminary injunction that was filed by my client’s former employer. That employer was seeking to enforce a non-compete agreement and thereby restrict the client from working within a division of the new employer’s business. It had hired a well-established large law firm to make this case and despite significant efforts to reach a resolution prior to the hearing, the former employer insisted on going forward with the motion.

Noncompete Agreements and Preliminary Injunctions – A Matter of Briefings or Evidentiary Hearings

When it comes to preliminary injunction motions, at least in the Oakland County’ Court’s Business Courts, judges may decide the matter on the briefs or, more often than not, schedule an evidentiary hearing. An evidentiary hearing in this context is essentially a mini-trial with witness testimony and exhibits provided to the judge to determine if an injunction should be issued.

The judge in our case decided the issue on the briefs (the written submissions filed by the parties) and ruled in my client’s favor; The former employer’s motion for injunctive relief was denied, which means my client can continue to work for the new employer while the matter continues through the litigation process.

Noncompete Agreements and Preliminary Injunctions – You Can’t Just Show Up

In regard to defeating the motion for injunctive relief, it certainly helped to have a client who provided a text-book example of how to properly transition from one employer to another. On this point we were able to provide an affidavit accurately reflecting that the client had provided appropriate notice to the former employer, completely cooperated in any exit interviews, returned all employer provided equipment and resources, and, most importantly, did not take any company information after ending the employment relationship.

In contrast, the former employer offered numerous assertions based only upon “information and belief” that its former employer was violating the noncompete agreement and engaged in other alleged misconduct:

Upon information and belief Defendant … by way of repeated contact with Plaintiff[‘s] current customers … soliciting … current employees, and by using Confidential Information belonging to Plaintiff, has intentionally and tortiously interfered with Plaintiff[‘s] current and prospective economic advantage, business relationships and expectancies.

These strong accusations, however, lacked any factual support from the former employer – no affidavits were provided, no computer forensics, no witnesses were identified, not even the identity of any of the customers or employees were provided in the plaintiff’s complaint or motion. This lack of information allowed us to successfully argue that “information and belief” outside of legal circles is simply speculation and without admissible evidence the former employer failed to make the “particularized” showing of harm required for issuing an injunction.

And we further highlighted that the failure to make such a showing further undermined the motion because a number of assertions involved evidence that the former employer would have had access to, e.g., computer forensics supporting misappropriation claims, the identity of clients or employees claimed to have been wrongfully solicited, dates of solicitation, etc.

We also argued that injunction should not be issued because the plaintiff was not likely to be “successful on the merits” (an element required for injunctive relief). This argument relied, in part, upon the former employer’s own marketing materials and website, which identified a few distinct market segments it served. And those segments were not within an area code of the customers my client was now working with.

In short, even though it was the former employer’s burden to show injunctive relief was appropriate, we put a lot effort into attacking the assertions made by the former employer to show why they lacked merit. That effort paid off.

The Take-Away

Obtaining injunctive relief when a former employee leaves for a competitor and is believed to have violated a noncompete agreement is a fact-intensive battle. And in this particular example, we happened to have and make use of the right facts to win that battle. We were also fortunate enough to have a plaintiff who made a minimal showing in supporting the motion for preliminary injunction.

But this also highlights the importance from the perspective of company in the role of the former employer to have a clear understanding as to the strengths, weaknesses, and risks in going forward with seeking injunctive relief or any legal claim for that matter. Sometimes the risks and/or likelihood of success are too speculative to warrant the expenditure of time, money, and resources. This particular case is probably a good example of this point.

Alternatively, this case illustrates that having in place an enforceable noncompete agreement is only the ante necessary to get into the game. But without the cards to go the distance, it can be an expensive bluff when it comes to seeking preliminary injunctive relief.

For more information about noncompete agreements under Michigan law and enforcing those agreements, contact attorney Jason Shinn. Since 2001, he has represented individuals and companies when it comes to noncompete disputes.

Noncompete Restrictions: The First Line of Defense for Protecting the Company from Unfair Competition

shutterstock_84499888Business involves competition. But not all competition is lawful. Two former employees found this out the hard way after a judge determined on May 22, 2015 that they had wrongfully started a competing business while they continued to work for their employer along with misappropriating trade secrets and engaging in other wrongful acts (Nedschroef Detroit Corp. v. Bemas Enterprises LLC, 2015). But for employers, the significance of this case isn’t the result. Instead and as explained below, it is a cautionary tale of how not to protect your company against unfair competition.

Factual Time Line

Specifically, on January 9, 2014, Plaintiff Nedschroef Detroit Corporation and its related subsidiaries filed a trade secret misappropriation lawsuit against two former employees (Marc Rigole and Bernard LePage) after discovering those former employees had formed a competing company, Bemas Enterprises LLC (Bemas) while still working for Nedschroef Detroit. According to Plaintiffs, Rigole and LePage used Plaintiffs’ equipment, personnel, and trade secrets to start up and run Bemas.

Rigole was Nedschroef’s Detroit manager from 1991-1996 and from 2004-2013. LePage was hired to work as a project and service engineer for Nedschroef Detroit in 2005. Rigole was the highest ranking Nedschroef employee in North America, and supervised the other Nedschroef Detroit employees. The job duties for both Rigole and LePage included servicing Nedschroef machines and providing replacement parts for those machines. Both had the authority to issue quotations, order replacement parts from suppliers, enter into contracts, and sign checks on behalf of Nedschroef. They also had access to Nedschroef’s passcode-protected proprietary part design drawings, customer lists, supplier lists, pricing information, and financial information, customer lists, supplier lists, pricing information, and financial information.

In December 2010 or January 2011, Rigole, LePage, and other Nedschroef Detroit employees were informed that their office would be closed within a year unless its business improved. These employees also received a pay cut at that time. About a month later, Rigole, LePage, Rigole’s wife (Christine Van Looveren) and LePage’s then girlfriend and eventual wife (Cynthia Lupo) began to discuss the idea of forming a company to service Nedschroef machines and supply replacement parts for those machines in the event that Nedschroef Detroit closed. They formed Bemas a few months later, in about June 2011, naming Van Looveren and Lupo as its owners.

According to Rigole, Bemas was formed under Van Looveren’s and Lupo’s names instead of Rigole’s and LePage’s names because an “unidentified lawyer” advised them that it was illegal for Rigole and LePage to open the company under their own names. They further testified that the women never participated in the daily operations of Bemas and knew little about Bemas’ business.  Or in the word’s of LePage, Van Looveren and Lupo were “not really active” in the business of Bemas and that they probably never sent an email from Bemas’ address.

Rigole and LePage began selling goods and performing services on behalf of Bemas beginning in mid-June 2011, while they were still employed by Nedschroef Detroit. The goods sold were replacement parts for Nedschroef machines and the services performed were on Nedschroef machines. Dozens of purchase orders, quotations, and invoices reflect that Rigole and LePage, on behalf of Bemas, competed directly with Nedschroef Detroit from mid-June 2011 forward.

Whatever “arguments” the defendant former employees offered to defend their actions were readily disregarded by the judge who found in favor of their former employer on all but two claims (Lanham Act and Michigan Consumer Protection Act claims) and ordered a permanent injunction and significant damages in favor of the former employer.

The Take Away for Employees and Employers

To some extent, this case could be filed under the “water is wet” category, i.e., if you start a business that competes directly with your current employer, there is a high probability the venture will not end well. But the most significant issue in this case for me was that the Nedschroef plaintiff asserted 11 claims in total, but no claim for a breach of a noncompete agreement. The safe assumption is that there was no noncompete restriction to enforce. A noncompete agreement would have restricted two high-level employees who were essentially given the “keys to the employer’s kingdom” in terms of trade secrets and confidential business information from starting a competing business in the first place.

This point is significant because Michigan courts have refused to find liability in the absence of a noncompete restriction against former employees for “unfair competition” style claims for planning to start a competing business. Even where such preparation included securing funding for the new venture, establishing a line of credit, and securing a potential location for the new business. With this in mind, this case may have turned out differently if the following facts had changed:

  • The employees waited until after resigning to start the competing company.
  • There was no evidence that the former employees took any trade secrets or other confidential business information.
  • The former employees did not take or refrain from taking action that impaired or sabotaged the former employer’s business ongoing success or such evidence was lacking or subject to conflicting interpretations.
  • The employees did not take any action that would have benefited them rather than the employer.

These are all areas that involve “fact questions” that take resources (time and money) to answer. And that answer may be subject to interpretation.

In contrast, enforcing the terms of a noncompete agreement often comes down to whether the former employee signed a noncompete agreement and, if so, what does the agreement provide? Answering these questions are going to be less expensive than dealing with a range of issues that must be supported by facts, testimony, and other evidence, which may be subject to further interpretation by a judge or jury.

This case should also be a cautionary tale for employees who are thinking about starting a competing business in order to understand what actions can safely be taken, where restraint is appropriate, whether there are any contractual restrictions that preclude starting a new company, and other legal issues that start-ups must consider.

For more information about protecting your business from unfair competition using and enforcing noncompete agreements, contact Michigan attorney Jason Shinn. Since 2001, Mr. Shinn has advised individuals and companies about legal issues when it comes to drafting, negotiating, and enforcing noncompete agreements. He has enforced noncompete agreements in state and federal courts, as well as defended individuals accused of violating such agreements.

Is Telecommuting a Reasonable Accommodation Under the Americans with Disabilities Act?

Telecommuting under ADAMichigan employers dodged a bullet (sort of) on when it comes to whether telecommuting must be considered as a reasonable accommodation under the Americans with Disabilities Act (ADA).

Specifically, in a “judicial do-over,” the full Sixth Circuit Court of Appeals in EEOC v. Ford revisited a prior decision (previously discussed here) that had concluded that employers may be required to consider telecommuting (i.e., working remotely) under the ADA. This time, the Court determined that Ford Motor Co. did not violate the ADA by refusing to allow an employee with irritable bowel syndrome to telecommute up to four days a week because “regular and predictable attendance” at the workplace was an essential function of her job. The employee, was a Ford steel resale buyer who had sought to work from home as an accommodation for her bowel condition. Ford rejected this request and resulted in the Equal Employment Opportunity Commission (EEOC) suing on behalf of the employee.

Originally, back in September 2012, the Michigan Eastern District found in favor of Ford and concluding that working from home, up to four days per week, was not a reasonable accommodation under the ADA. But, the EEOC appealed that decision and in April 2014 a partial panel of Sixth Circuit judges reversed the trial court’s 2012 decision concluding that there was an issue of fact as to whether the employee’s telecommuting proposal was reasonable. However, fast forward to April 2015 and the full Sixth Circuit vacated the 2014 decision and said the trial court got it right in its 2012 decision in favor of Ford.

In doing so, the Sixth Circuit’s 2015 decision gave significant ammunition to employers for refusing telecommuting as a reasonable accommodation:

… a general rule that, with few exceptions, ‘an employee who does not come to work cannot perform any of his job functions, essential or otherwise’ … That general rule—that regularly attending work on-site is essential to most jobs, especially the interactive ones—aligns with the text of the ADA. Essential functions generally are those that the employer’s ‘judgment’ and ‘written [job] description’ prior to litigation deem essential … And in most jobs, especially those involving teamwork and a high level of interaction, the employer will require regular and predictable on-site attendance from all employees (as evidenced by its words, policies, and practices).

Five judges of the Sixth Circuit dissented, essentially arguing that a jury should have been allowed to decide whether Harris’s telecommuting proposal was reasonable. In this regard, the dissent made a compelling argument that under the ADA and its associated goals, an employee’s request for accommodation should be a starting point for discussions and that employers should not be able to shut down that starting point in the interactive process and thereby shift the burden entirely to the employee to propose other accommodations. But again, that was not the winning argument after the judicial dust settled.

Key ADA Accommodation Points for Employers

While this was a long and winding judicial road-trip, after the dust settled, a number of key points should be carefully assessed when it comes to engaging in a reasonable accommodation interactive process required under the ADA.

  1. First and perhaps most significantly, the Sixth Circuit’s panel went beyond the above “general rule” that “regular and predictable on-site attendance” was an essential function and a prerequisite to perform other essential functions of the employee’s job. In this regard, the Court broadly concluded “in most jobs, especially those involving teamwork and a high level of interaction, the employer will require regular and predictable on-site attendance from all employees,” and “most jobs would be fundamentally altered if regular and predictable on-site attendance is removed.”
  2. Second and despite the preceding point, the majority opinion did not rule out telecommuting as a reasonable accommodation in all cases (that would be too easy). Instead, it concluded that, under the facts of the Ford case, the employee’s telecommuting proposal was not a reasonable accommodation because it would not allow her to perform the essential functions of her particular job.
  3. Third, the Sixth Circuit’s 2015 decision also emphasized the significance of the employer’s judgment as to which functions of a job are essential. But employers need to understand that it isn’t simply a matter of taking a position without backing it up. Instead, it is critical to be able to demonstrate the essential job functions, often through well-written and accurate job descriptions, which may also provide a legitimate basis where some employees are allowed to telecommute (as was the case at Ford), to distinguish those other telecommuting arrangements.

For more information about this decision or complying with the Americans with Disabilities Act, including responding to request for accommodations under the ADA, contact employment attorney Jason Shinn. Since 20o1, Mr. Shinn has represented employers and employees when it comes to complying with federal and Michigan employment laws.

Are Unemployment Benefit Determinations Hazy When it Comes to Employee Medical Marijuana Use?

Employee Medical MarijuanaToday is April 20, 2015. However, for certain individuals who partake in smoking a plant in the cannabis genus, it is also “420.” The use of “420” has historically been a shorthand reference to recreational marijuana smoking. However, as more states enact laws legalizing marijuana use for medical conditions, employers may need to reassess their workplace policies on drug testing and reasonable accommodation of medical conditions. Traditionally, employers have been told that because marijuana is still illegal under federal law and federal law trumps state, it didn’t matter how your state treated medical marijuana use, there was no requirement to accommodate such use. But that answer may not be so short or needs an “asterisk.”

The Current National Landscape for Medical Marijuana

According to CNN, 27 states and the District of Columbia have either legalized medical marijuana or decriminalized marijuana possession — or both. In 2008, Michigan voters overwhelmingly voted to approve a medical marijuana ballot measure, the Michigan Medical Marihuana Act (Michigan – being the counter-culture state it is – Michigan opted to spell marijuana using an “h” (marihuana), which is also the same spelling in the Michigan Public Health Code).

Michigan’s Act permits an individual with a qualifying debilitating medical condition to register as a medical marihuana patient with the state and avoid criminal penalties under state law for certain medical uses of marijuana. More information about Michigan’s registration program and Act is available here.

However, despite efforts at the state level, marijuana or, more specifically, cannabis continues to be listed as a Schedule I of the Controlled Substances Act under Federal law. This is the most tightly restricted category reserved for drugs which have “no currently accepted medical use.”  The Schedule I listing of marijuana creates an irreconcilable conflict between state and federal law in terms of marijuana being legal. In other words, one could lawfully be using marijuana in Michigan or any other state where the substance has been legalized, but still be guilty under federal law for using an unlawful substance.

Employer Obligations When it comes to Medical Marijuana Use and Employees and Downstream Issues

Because marijuana use is still illegal under federal law, and such law preempts state law, the short answer to employer questions about whether they need to accommodate an employee’s medical marijuana use in the workplace has usually been “no.” See Medical Marijuana & Employment Law: Unanswered Questions For Employers and Employees. This general rule remains true, but there may be downstream issues that employers may need to consider when making employment terminations based on medical marijuana use.

Specifically, I was having a lunch with a friend who works in insurance last week. She explained a recent situation where one of her customers had fired an employee for failing a drug test when it came back positive for marijuana use. However, at the time of the registration, that employee was also properly registered under Michigan’s medical marijuana act to use it. But again, the employer relied upon the distinction that under federal law, marijuana is still illegal.

Instead of that being the end of it, the terminated employee filed for unemployment. Normally, an employee is disqualified from receiving unemployment benefits if he or she was fired for misconduct in connection with the work. And illegal drug use has historically been used as such a disqualifier. But in this particular instance, apparently there was an administrative determination that the terminated individual was not disqualified for failing the drug test because at that time he was (under Michigan law) lawfully using marijuana for medicinal purposes.

Employer Take-Aways. 

 

A review of the Michigan Unemployment Insurance Agency’s employee/employer resources and related administrative materials did not produce any insight as to whether this result is the product of an agency-wide position. More likely, it may simply be one case decided on its own set of facts by one person at the agency.

Even so, employers should still enjoy (for now) the general rule that there is no legal obligation to accommodate an employee’s medical marijuana use because it remains illegal under federal law. But, like most things when it comes to employment law, employee use of medical marijuana may require a closer look in order to make an informed decision and/or to evaluate downstream issues.

For more information about Michigan employment law issues, including investigating workplace misconduct or addressing employee accommodations, contact Jason Shinn.

 

Michigan Court Orders Former Employee to Give Up Company, Move it, or Shut it Down After Violating Noncompete Agreement

Understanding Noncompete RestrictionsNot many people would jump out of a plane and then worry about figuring out what to do about a parachute on the way down. But often times individuals take that approach when it comes to starting a new business or taking a job after having signed a non-compete agreement. And that lack of planning can prove costly and catastrophic.

A former employee learned this lesson the hard way after a Michigan Circuit Court judge issued an injunction preventing him from operating his new business. See Arko Exchange v. Mehmedovic, (PDF). Specifically, the judge ruled that the former employee violated his noncompete agreement when he started up a freight-hauling business that competed against his former employer. The employee also recruited truck drivers from his former employer for his new company.

Aladin Mehmedovic, the defendant, had formed his freight hauling company (Rocket Transport, LLC) on October 14, 2013. But on January 2, 2014, Mr. Mehmedovic signed a noncompete agreement with Arko Exchange LLC, also a freight-hauling company.

The agreement provided that during Mehmedovic’s  employment and for a period of two years from the date of termination, he would not compete with Arko within Michigan, Indiana, Illinois, and Ohio. The agreement also provided that Mehmedovic could not (1) “own, manage, operate, join, control, or be employed” with any other business like Arko; (2) induce Arko’s employees to end their employment; and (3) “engage or otherwise participate in business activity directly or indirectly competitive with Arko’s business.”

On January 23, 2015, Mr. Mehmedovic left Arko and hit the ground running with Rocket, including recruiting drivers from Arko. Arko responded with its lawsuit asserting, among other claims, a breach of the noncompete agreement Mr. Mehmedovic had previously entered into, seeking money damages and an injunction to keep Rocket from operating. The Court granted the injunction finding that there was a “substantial likelihood of irreparable harm” (the magic legal words necessary for issuing an injunction) if an injunction was not granted to stop Rocket’s recruiting practices.

The Take-Away for Employers and Employees.

From the employer’s perspective, this case illustrates two critical points when it comes to protecting the company against departing employees: Vigilance and Decisiveness. More specifically, the defendant former employee left Arko’s employment on January 23, 2015 and on February 16, 2015, Arko filed suit. That is a decent turn around time in the litigation world. It also indicates that someone at Arko was closely monitoring Mr. Mehmedovic’s departure and the company was ready to take action when it had evidence of Mr. Mehmedovic’s violation of the noncompete agreement and to otherwise support its claims.

In contrast, it is not uncommon for months to go by before an employer even realizes such issues have occurred and then more time is spent deciding what to do about it. That delay harms the company’s competitive interests and erodes arguments in favor of convincing a judge to issue an injunction in the first place. For these reasons, we’ve developed for our business clients a checklist of steps to take when an employee ends his or her employment, including steps to take if there is a noncompete restriction involved.

From the employee’s perspective, signing a noncompete restriction has consequences. And if you don’t understand what you can or cannot do under your noncompete agreement that is a problem that can turn into an expensive lawsuit. And in addition to litigation costs, consider the loss of the time and money invested in starting up the business in the first place. On this point, Mr. Mehmedovic was given three options to choose from by the judge:

  1. Divest himself of any ownership interest in the company;
  2. Move the business outside the geographic restriction area provided for under the agreement (Michigan Indiana and Ohio); or
  3. Shutdown the company.

Even if Mr. Mehmedovic’s noncompete restriction was “bullet-proof” in terms of restricting his post-employment obligations, how much better off would he have been knowing that before spending the time and money to start a new business only to be told you have three options – get rid of your interests, shut it down, or move it.

For more information about Michigan noncompete agreements, contact Michigan attorney Jason Shinn. Mr. Shinn works with both companies and individuals when it comes to drafting, negotiating, and enforcing noncompete agreements. He has litigated noncompete disputes in Michigan and federal courts on behalf of employers and individuals.

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