Signing Contract.jpgThe apparent resume fraud by Yahoo’s former CEO Scott Thompson is grabbing headlines after he became the most recent departure through Yahoo’s CEO revolving door; He was the fourth CEO to step down in five years.

But the real expensive lesson that companies should study from this embarrassment is how to carefully draft executive employment contracts to protect against having to pay out severance compensation when an executive is let go for his or her own misconduct. 

Specifically, the Wall Street Journal reports that Mr. Thompson stepped down after inaccurate information about his academic accomplishments was discovered. Because Mr. Thompson was employed pursuant to a “for cause” employment contract, the critical question Yahoo and its shareholders must answer is whether this inaccuracy is sufficient “cause” to disqualify Mr. Thompson from severance pay – millions of dollars in his case – despite the reported resume fraud by Mr. Thompson.        

“Employment at Will” vs. “For Cause”

Under Michigan law, like most states, absent an agreement to the contrary, employment for an indefinite period is at will. What this means is that an employer or an employee may generally terminate the employment relationship at the will of either party, for any reason or for no reason at all. As many employers have learned, however, this seemingly broad discretion has limits, e.g., terminating employment cannot be based on an unlawful discriminatory reason. 

Employment at will, however, is often the exception when it comes to executive or dual owner/employee situations. In those instances a company and an individual will often enter into a definite employment contract that is not terminable at-will and, instead, terminable only “for cause.”

Where the contract may only be terminated “for cause,” it is important for both the company and the individual to carefully specify what exactly will constitute “for cause” termination. Otherwise – as illustrated by the Scott Thompson situation – millions of dollars of severance pay or other compensation could be owed to an individual in spite of proven misconduct. 

The Importance of Defining “For Cause” Termination

Defining what constitutes “for cause” is one of the most fiercely negotiated terms in an employment contract. It is equally one of the most heavily litigated terms when it comes to for cause employment agreements. 

The following are some common definitions that employers and individuals should consider identifying as justification for terminating a “for cause” employment contract:

  • Fraud, embezzlement, or theft;
  • Willful misconduct damaging to the company, its reputation, products, services, or customers;
  • Intentional violation of any law or regulation;
  • Any unauthorized disclosure of any trade secret or confidential information of the company or a subsidiary;
  • Continued failure to perform duties owed to the company; and
  • Being charged with a felony or a misdemeanor involving moral turpitude.

Additionally, companies and individuals should address two other important provisions in relation to “for cause” termination: First, the employment agreement should specify what, if any, further compensation or benefits the employee is entitled to if the employment contract is terminated for cause.

Second, if the employee is subject to any restrictive covenants, e.g., noncompete agreement, the employment agreement should clearly specify whether early termination extinguishes such obligations.

Conclusion

Negotiating a “for cause” employment agreement generally requires careful attention to many details. But one of the most important details is under what circumstances the “for cause” employment contract may be terminated.

Defining those circumstances will also have significant impact for downstream issues such as terminating compensation or other benefits as well as triggering other obligations. For these reasons, it is important to work with a lawyer experienced in negotiating and drafting executive employment contracts. 

Performance Reviews

While employee performance reviews are designed to benefit and improve the operations of an employer; if not properly implemented, a performance review program may prolong an employment discrimination claim. 

Generally speaking, many employers use some form of employee performance reviews. These reviews, also called performance appraisals, commonly include some type of a regular evaluation, e.g., annual, quarterly, etc., employee performance improvement plans, progressive discipline policies, and coaching sessions.

The remainder of this post discusses how these employee review programs may help or hurt the defense of an employment discrimination claim. 

How Performance Reviews Hurt a Company

Performance assessments generally prove to be detrimental to the defense of an employment related claim in two scenarios:

  1. If the employer’s evaluation process is based on unfettered discretion or is otherwise excessively subjective. 
  2. A discharge may be successfully challenged if performance evaluations are nonexistent or the employee receives good ratings but is nevertheless terminated for poor job performance.

Two Examples of Performance Reviews Benefiting and Hurting an Employer

In Chen v. Dow Chem. Co., 580 F.3d 394 (6th Cir. 2009), an Asian-American filed suit in federal court against Dow, alleging discrimination and retaliation in violation of Title VII. Chen appealed after the district court granted summary judgment for Dow on both claims, finding that Chen failed to rebut Dow’s legitimate, non-discriminatory reason for terminating her—her chronic poor performance. 

On appeal, the Sixth Circuit sided in favor of the employer citing Dow’s reliance on performance reviews that showed Chen’s repeated performance problems when it made its decision to terminate her. Specifically, these reviews showed Chen had an eighteen-month history of performance problems, including two failed performance audits, a negative review for 2005, and a history of customer complaints and conflicts with co-workers.

In contrast, in Moss v. City of Abbeville, (D.S.C. July 15, 2010) (PDF), the plaintiff was terminated for poor job performance approximately three months after returning to work from Family Medical Leave Act (“FMLA”)leave.

The plaintiff filed suit, alleging that he was subjected to retaliation in violation of the FMLA. The employer unsuccessfully moved for summary judgment. The Court rejected the employer’s position that poor job performance was its legitimate, non retaliatory reason for the plaintiff ’s termination. In reaching this decision, the Court highlighted the following evidence:

  1. A general lack of documentation to corroborate any alleged poor performance, as the Plaintiff’s documented work history was favorable; 
  2. The Director of the Utilities Department and the City Manager had approved the Plaintiff ’s performance ratings as “meeting” or performing “above standards” for several years prior to terminating him based on alleged poor job performance; 
  3. The Plaintiff ’s performance evaluation for 2005 rated the Plaintiff ’s performance “above standards;”
  4. The Plaintiff ’s last annual performance evaluation before he took FMLA leave, which was for 2006, indicated that the Plaintiff ’s performance received “standards” and “above standards” in all criteria; and
  5. An affidavit submitted by one of the Plaintiff ’s crew members who worked closely with the Plaintiff for many years indicated that the Plaintiff ’s performance was good and he had no more late work orders than anybody else on the crew; and (6) the fact that the Plaintiff

Conclusion

When implementing any type of performance review program, the employer and its human resource professionals must carefully consider its execution. Otherwise, an improperly implemented performance evaluation can be evidence that a claim of poor performance is pretext for discrimination.

Baseball Bat.jpgBloomberg Businessweek recently featured in its “How to Issue” insight from the manager of the Baltimore Orioles, Buck Showalter, about how to terminate an employee. Mr. Showalter has been a Major League Baseball manager for 14 seasons. Among his recommendations for letting an employee go: 

You’re trying to define reality as you and the organization see it … You have to be aggressive. If you’re speaking like you’re not real sure about the action that’s getting ready to take place, that really creates a lot of anxiety. So I’ve rehearsed it. And I try to be prepared for whatever might go a different direction… I’ve had a bat within short reach.

Recommendations for Terminating an Employee

Relying on a bat as part of the termination process is not recommended. But it is recommended that employers and HR managers view ending the employment relationship as a process – not an event.

As part of that process, employers and HR should consider the following: 

  1. Record all instances of misconduct, insubordination, or substandard performance. Any such instances should be written up as soon as they occur, even if they are not incorporated into the written evaluation until later.
  2. Before any evaluation process, evaluators should receive written guidelines reminding them of appropriate evaluation behaviors.
  3. Employers should not address employee termination on an ad hoc basis. Instead, managers and decision-makers should have policies and procedures that are consistently followed.  
  4. Avoid disciplinary policies that limit employers to specific conduct. Thus even if an employer’s discipline policy is normally progressive, the policy should provide for the exercise of discretion, e.g., disciplining or terminating an employee without exhausting all the steps outlined in the policy.
  5. Before disciplining or terminating an employee for poor job performance, employers should make sure adequate documentation of the employee’s performance deficiencies exist and there is no evidence of disparate treatment.

For additional recommendations relating to the end of the employment relationship, see Employee Exit Interviews – What’s On Your Checklist? Also, contact Jason Shinn for further questions or advice on how to properly end the employment relationship. 

Whistle.jpgRetaliation against company employees who report inappropriate or illegal action create significant legal risks for employers under whistleblower protection statutes.

Employers, however, can significantly increase their chances of disposing of a whistleblower protection claim if proper policies are in place and by appropriately responding to such reports. The following provides an overview of a whistle blower protection claim. 

Who is a Whistleblower?

Under Michigan’s Whistleblowers’ Protection Act, a whistleblower is an employee, or a person acting on behalf of an employee, who (i) reports; or is about to report; (ii) verbally or in writing; (iii) a violation or a suspected violation of a law or regulation or rule promulgated pursuant to law of this state, a political subdivision of this state, or the United States to a public body. MCL 15.362.  

A successful whistleblower protection claim may entitle a plaintiff to reinstatement, payment of back wages, full reinstatement of fringe benefits and seniority rights, actual damages, or any combination of these remedies. A court may also award the complainant all or a portion of the costs of litigation, including reasonable attorney fees. MCL 15.364

Establishing a Whistleblower Protection Claim.

To establish a whistleblower protection claim, an individual must show that he or she:

  1. Was engaged in protected activity, which includes reporting to a public body a violation of a law, regulation, or rule, being about to report such a violation to a public body, or being asked by a public body to participate in an investigation;
  2. Was discharged or discriminated against; and
  3. A causal connection exists between the protected activity and the discharge or adverse employment action.

Defending Against a Whistleblower Protection Claim – Timing is Everything. 

The last element of a whistleblower protection claim – a causal connection – often provides employers the opportunity to successfully argue that the complained of adverse employment action had no “causal connection” to the protected activity. 

A temporal relationship, standing alone, is not enough to demonstrate a causal connection between the protected activity and any adverse employment action. Instead, a whistleblower protection plaintiff must show something more than merely a coincidence in time between protected activity and adverse employment action.

Examples of “something more” between the protected activity and the adverse employment action that Courts have accepted include:

  • Showing that the employer was upset about any protected activity.
  • Evidence that after engaging in any protected activity, plaintiff was treated differently than before;
  • Showing that the employee’s job duties were altered; or
  • The employee was threatened to stop making complaints.

In other words, the decision to take action against the employee must be connected to the protected activity.

Avoid Turning Employee Complaints into Whistleblower Ammunition

Before taking an adverse employment action, employers must examine employee conduct and a broad range of potential legally protected activities in the workplace. To further minimize or eliminate the risks of a whistleblower protection claim, employers should consider the following: 

  1. Before an employer takes an adverse employment action against an employee, it should first determine if that employee was engaged in protected activities shortly before the termination decision. If so, the employer must next determine if there is a causal link between the termination and the employee’s participation in any such collateral civil rights matter.
  2. It is critical for employers to identify the person responsible for making the adverse employment decision. 
  3. Once this identification take place, the next question is whether the person involved in the decision making had knowledge of the employee’s alleged protected conduct or activities. 

Taken together, this analysis will hopefully show that when the adverse employment decision was made the person making the decision had no knowledge of the protected conduct. Follow this link for additional recommendations for responding to a whistleblower protection claim. 

Without this link, an employer should be able to show there is no causal connection between the protected activity or conduct and the adverse employment decision. Conversely, such analysis may alert the employer to potential liability and shift the litigation strategy to settlement negotiations in order to minimize further litigation costs.  

Security_Computer_Laptop in Chain.jpegPreviously this blog outlined the various approaches Courts have taken to applying the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. 1030, to workplace misuse of employer provided computer resources.

A recent opinion from the Ninth Circuit Court of Appeals, however, seriously limits the applicability of the CFAA to the employer/employee relationship and challenges other courts to reconsider its application.

Specifically, the Ninth Circuit Court rejected the Justice Department’s interpretation of the CFAA, which asserted the CFAA targets both hackers and individual employees who use a computer for an unauthorized purpose.

Factual Background

The case, U.S. v. Nosal (PDF) involved David Nosal who worked for Korn/Ferry International “Korn/Ferry”), an executive search firm. After leaving the company in 2004, Nosal and other Korn/Ferry employees allegedly conspired to help Nosal start a competing business, in violation of a a non-compete agreement.  

Korn/Ferry eventually learned that information contained within a confidential company database had been transferred to Nosal. Korn/Ferry argued this database was one of the most comprehensive of its type in the world. Accordingly, it had taken significant measures to protect the information from improper use. 

of the information.

Procedural Background and the Criminal Charges

After David Nosal was indicted on 20 counts, including violations of the CFAA, his lawyers argued that the CFAA charges should be thrown out. They argued that the CFAA targets only hackers, not employees who misappropriate information or who violate contractual confidentiality agreements by using employer-owned information in a manner inconsistent with those agreements. In other words, Nosal argued the Korn/Ferry employees could not have acted without authorization, nor could they have exceeded authorized access, because they had permission to access the database and its information.

The district court initially rejected Nosal’s argument. This decision, however was reversed because the trial followed the reasoning of a subsequent CFAA opinion, that later came out (LVRC Holdings LLC v. Brekka, 581 F.3d 1127 (9th Cir. 2009)), which construed narrowly the phrases “without authorization” and “exceeds authorized access” in the CFAA. Based on Brekka, the district court concluded that “[t]here is simply no way to read [the definition of ‘exceeds authorized access’] to incorporate corporate policies governing use of information unless the word alter is interpreted to mean misappropriate,” as “[s]uch an interpretation would defy the plain meaning of the word alter, as well as common sense.”

The government appealed but lost this decision before the Ninth Circuit Court of Appeals.

The Computer Fraud and Abuse Act and the Employment Relationship

The Ninth Circuit’s ruling is at odds with the Fifth, Seventh and Eleventh Circuits, all of which have adopted a broader view of the CFAA’s sweep. In responding to the conflict, Judge Kozinski said those other courts “failed to consider the effect on millions of ordinary citizens” and urged them to reconsider. Judge Kozinski further noted: 

Minds have wandered since the beginning of time and the computer gives employees new ways to procrastinate, by chatting with friends, playing games, shopping or watching sports highlights. Such activities are routinely prohibited by many computer-use policies, although employees are seldom disciplined for occasional use of work computers for personal purposes. Nevertheless, under the broad interpretation of the CFAA, such minor dalliances would become federal crimes. While it’s unlikely that you’ll be prosecuted for watching Reason.TV on your work computer, you could be. Employers wanting to rid themselves of troublesome employees without following proper procedures could threaten to report them to the FBI unless they quit.

Michigan Employers and the Computer Fraud and Abuse Act 

For Michigan employers and employees, it is important to note that the applicable federal circuit (the Sixth Circuit Court of Appeals) has upheld the criminal conviction of a CFAA violation arising out of the employment relationship.

Specifically, an employee who stole confidential data from his employer’s computers, but that decision was limited to the issue of whether the government had offered sufficient proof that the value of the data stolen exceeded $5,000 to qualify as a 5 year felony, 18 U.S.C. § 1030 (a)(2)(C)(c)(B)(iii), and whether the district court had abused its discretion in ordering restitution in the amount of $47,565. Additionally, the former employee’s conviction was based on the fact that after he had been discharged he accessed his employer’s computer network and confidential files at least 21 times, including through an employer server and 19 times through the email account of another employee.

Take Away for Employers

Certainly courts continue to debate whether the CFAA should, if at all, be applied to the employer/employee relationship. Setting aside this issue, it is important for employers to protect their company and confidential information. And these steps may improve the likelihood that, if necessary, the CFAA will be available to protect competitive advantages and defend against unfair competition.

Korn/Ferry provides an overview of protective measures employers should take to protect company computers and databases. Specifically, Korn/Ferry took the following steps:  

  • The placement of controls on electronic access of the database and its servers;
  • The creation of unique usernames and passwords for authorized users; 
  • A requirement that all employees sign an agreement confirming the confidential and proprietary nature of the information; and 
  • Having the opening screen of the database include the warning: “This product is intended to be used by Korn/Ferry employees for work on Korn/Ferry business only.”

Should the CFAA apply to the employment relationship? There are a number of reasons why the CFAA should have limited application in the employment context.    

Facebook.jpgMichigan recently joined a growing trend of states that have introduced legislation to prohibit employers from asking job applicants and current employees for passwords and other private account information for social networking websites such as Facebook and Twitter.

Specifically, State Rep. Aric Nesbitt (Republican) proposed legislation that applies to state and private employers. Mr. Nesbitt’s legislation also prohibits educational institutions from asking for private account information, and penalizes them for dismissing or failing to admit a student who does not provide such details.

Michigan employers should have a number of concerns if this legislation were to be enacted.

First, Michigan employers would be prohibited from: 

  • Requesting an employee or an applicant for employment to disclose access information associated with the employee’s or applicant’s social networking account.
  • Discharging, disciplining, failing to hire, or otherwise discriminate against an employee or applicant for employment for failure to disclose access information associated with the employee’s or applicant’s social networking account.

Second and incredibly, an employer who violates the proposed legislation would be guilty of a misdemeanor punishable by imprisonment for not more than 93 days, a fine of not more than $1,000.00, or both.

Third, an “employer” is broadly defined to mean “a person … engaged in a business, industry, profession, or other enterprise in this state and includes an agent, representative, or designee of the employer.” Thus, any manager, HR professional, business owner, etc. who asked an employee or job applicant for log-in information would be facing these stiff penalties. 

Fourth, an employee or job applicant who is the subject of a violation of the proposed legislation may bring a civil action for that violation and may recover actual damages or $1,000.00, whichever is greater.

Additionally reasonable attorney fees and court costs (as if the misdemeanor is not bad enough) are also available to plaintiffs.

Criticisms of Proposed Employer Ban on Accessing an Employee’s Social Media

There is no shortage of statutes and regulations that apply to the employment relationship. And as previously noted by this blog, employers already have a number of reasons for not requiring employees or job applicants to provide access to their social networking information.

But even if I were convinced that companies need another employment statute imposed upon them, this proposed statute is not it.

Consider for example that there are no exceptions available to employers for requiring access to an employee or job applicant’s social networks. It is certainly not difficult to come up with circumstances where an employer should be able to bypass this statute: 

  • Investigating customer complaints or complaints of workplace harassment or discrimination may require access to an employee’s social networking account; or
  • An employer may feel the need to review an employee or job applicant’s social networking account if a position involves working with children or vulnerable populations like the elderly.

And imagine the litigation landslide this statute would create. It would begin with a single accusation that a manager requested an employee for his or her Facebook password. With that accusation, an employee or job applicant has a ready-made lawsuit complete with a provision for the recovery of attorney fees (but only the reasonable kind) hanging over an employer along with potential criminal charges.

An attorney could make a rich career just on the settlement value of these claims …. hmmmm. Time to rethink the focus of my law practice. Thanks. Mr. Nesbitt.    

Basketball.jpgEmployment discrimination claims and making bracket selections for March Madness a/k/a the men’s Division 1 NCAA basketball tournament often share two decision-making approaches: Guessing and analysis.

For example, Survival of the Fittest: A New Model for NCAA Tournament Prediction discusses analyzing the tournament using a model based on network characteristics to “quantify traits that specifically apply to the tournament and the other teams in it, which form a network as they play each other over the course of the season.” Sounds like a lot more work than simply going by who has the better mascot. 

But in contrast, Sheldon H. Jacobson, a professor of computer science at Illinois, notes that picking the higher-seeded team to beat a lower-seeded opponent usually works only in the first three rounds of the tournament, but after you get to the Elite Eight, seeding is irrelevant and “you might as well pick names out of a hat.”

Guessing, Analysis, or a Little of both in Employment Discrimination Lawsuits

In representing individuals and employers in employment discrimination lawsuits, making settlement and litigation decisions often comes down to a mixture of guesswork and analysis. But proper analysis is the beginning point for taking the guess-work out of litigation.

The starting point for this process is reducing the claims to a range of potential outcomes. In this regard, a critical first step in this process is analyzing jury verdict results. Consider for example three randomly selected 2011 employment lawsuits and their results:  

  • Defense Verdict – Plaintiff awarded $0.00: In a gender discrimination and a hostile work environment involving a 40 year old female Plaintiff who was working in retail sued for lost wages, benefits, and damages for emotional distress. She asked the jury for in excess of $100,000. The Defendant employer contended that Plaintiff’s complaints were promptly investigated when she complained to the appropriate supervisor, an immediate investigation was performed and disciplinary actions were taken. Defendants denied that plaintiff was terminated in retaliation for her complaint and contended that she was terminated for economic reasons.
  • Settlement of $130,000: A legally-blind 44 year old female employee claimed she was fired because of her handicap. The defendant employer denied the allegation and maintained that the plaintiff’s firing was for nondiscriminatory reasons. 
  • Plaintiff verdict in the amount of 535,120.00: In a discrimination lawsuit, a white, 32 year old male teacher was terminated for making a racially-insensitive remark. The plaintiff argued that he was singled out for discipline when similar comments made by black employees were overlooked.

For an actual claim, the sample of jury verdicts will be larger and usually limited to identical or similar claims. Depending upon the available sample size, this analysis may also be reduced by Michigan counties or geographic areas. 

In this very limited sampling, the average amount for resolving these claims was $221,706.00 (exclusive of costs and attorney fees). I would also want to put as much context behind the numbers used to reach this value. 

For example, a further investigation of the circumstances of the largest plaintiff’s verdict may (hopefully) explain why that verdict result should not be relevant in analyzing a particular discrimination claim. Perhaps, there was direct evidence of discrimination, spoliation of evidence, or particularly egregious conduct on the part of the defendant employer. From here, a useful “value” of what a claim is worth can be fleshed out.

There is also a significant amount of additional analysis that goes into assessing claims or defenses. One example, I’ve begin to incorporate a decision tree analysis, also known as risk analysis, to further refine my evaluation of a particular claim or defense. I’ve found that decision tree analysis is useful for providing structure within which to assess litigation or settlement strategy, lay out options, and investigate possible outcomes from choosing those options. It also provides a solid foundation for offering reasons for the likely outcome on an issue. 

It is important to remember that even within this structure some “educated guessing” comes into play in terms of exercising experience and judgment. Both are needed to assess issues such as rulings on key evidence issues, anticipating how a jury will respond to various issues, credibility of witnesses, and the likelihood of disposing of a claim through a dispositive motion.   

Conclusion

Preferably a thorough case analysis done as early in the litigation process as possible will avoid the all too familiar disappointing feeling of looking over a decimated March Madness bracket (thanks MSU … and Duke … and Missouri).

But unlike the disappointment of losing your office pool, failing to engage in a meaningful analysis at the beginning of a claim or defense could mean the disappointment of pursuing a costly litigation strategy that is unlikely to overcome significant factual or legal challenges.

With this realization, however, the focus can be shifted to developing a settlement strategy that may more cost-effectively resolve the claim. Only by following an analytical framework along with mixing in an attorney’s own professional judgment about an employment discrimination lawsuit can a clearer understanding about key issues and exposure be obtained. And maybe a little bit of luck. 

Facebook 2.jpgIncreasingly, employers are asking prospective or current employees to turn over their Facebook passwords in order to review their profiles.  

In response to this increase some states, including California, Illinois, and Maryland, have proposed legislation to ban such conduct. 

Facebook recently interjected its position on this topic when its Chief Privacy Officer, Erin Egan, noted on the company blog that:

This practice undermines the privacy expectations and the security of both the user and the user’s friends. It also potentially exposes the employer who seeks this access to unanticipated legal liability.

Ms. Egan further notes what this blog has repeatedly warned employers about – reviewing an applicant’s Facebook profile raises a number of legal issues and may open the employer up to discrimination claims. Facebook’s blog post notes:    

We don’t think employers should be asking prospective employees to provide their passwords because we don’t think it’s the right thing to do. But it also may cause problems for the employers that they are not anticipating. For example, if an employer sees on Facebook that someone is a member of a protected group (e.g. over a certain age, etc.) that employer may open themselves up to claims of discrimination if they don’t hire that person.

Three Reasons Why Asking Current Employees or Applicants for Facebook Information is a Horrible Idea 

  • A precursor to a Discrimination Lawsuit?

As noted above, this blog has repeatedly cautioned employers about the legal risks created by using Social Media to screen applicants. In sum, when it comes to making employment decisions, employers must continue to be prepared to articulate a legitimate, nondiscriminatory reason for any employment decision and retain appropriate documentation to support that decision.

But given the treasure trove of information that an employer may learn about an applicant or employee through Facebook or other social media outlets, e.g., race, age, pregnancy status, religion, disability status, etc., an employer is almost asking to have any legitimate, nondiscriminatory reasons for making an employment decision subject to being challenged upon review of a given Facebook profile. 

Think of it this way, an employer would never in the course of interviewing a candidate require a resume to include a color picture of the candidate or ask about a person’s age, pregnancy status, race or ethnic background. Yet all of this information and more is readily available through a person’s social media profile.

Additionally, employers often overlook or simply are not getting good advice when it comes to compliance with existing employment laws and regulations and implementing a social media employee screening process.  

  • Federal Prosecution, Computer Fraud and Abuse Act Violations, and other Legal Risks  

Employers should carefully note that Facebook has made it a violation of its Statement of Rights and Responsibilities to share or solicit a Facebook password, which may expose employers to a number of unanticipated legal risks.

This means an employer soliciting a job applicant’s Facebook password could be liable for violating Facebook’s Terms of Use. Where courts have enforced similar terms of use (often called browsewrap agreements) they have been against businesses. See Lemley, Terms of Use, 91 Minn. L. Rev. 459, 472 (2006) (“An examination of the cases that have considered browsewraps in the last five years demonstrates that the courts have been willing to enforce terms of use against corporations, but have not been willing to do so against individuals.”).

Further, the U.S. News reported that the U.S. Department of Justice regards it as a federal crime to enter a social networking site in violation of the terms of service.

Building on this point, Courts have previously found in favor of Facebook where parties have exceeded authorization in accessing Facebook site information as a violation of the Computer Fraud and Abuse Act. See Facebook, Inc. v Power Ventures, Inc. (PDF) (2012). 

  • Big Brother Has Negative Connotations for a Reason 

Sometimes the best advice a lawyer can give to a client has nothing to do with the law. 

When it comes to asking or requiring a current employee or an applicant to turn over his or her Facebook password my personal opinion is simply this is almost always going to be a bad idea. This opinion has nothing to do with what may be legally acceptable. Instead, it is based on two beliefs:

First, I simply have a fundamental belief that some minimal level of privacy should be afforded by an employer to an employee or job applicant. Certainly there may be circumstances where this respect needs to give way to a competing and compelling interest. But absent such circumstances, what is the need to peruse a person’s private Facebook profile?  

Second, asking or requiring an employee or applicant’s social media log-in information reminds me of the fictional character “Big Brother” from George Orwell’s novel 1984. In that novel everyone was under complete surveillance by the authorities. Against this backdrop, is this the setting an employer wants to create for its employees? 

Conversely, is this the setting that is going to attract the best candidates? For example in Jason Yormarck’s blog post “Asked For Your Social Profile Passwords In An Interview? Look The Other Way notes: 

Asking for your Facebook login is probably a pretty clear sign of a company that is not going to be pleasant to work for anyway … it’s a cop out for having to do real work to determine if a candidate is a good fit.

Conclusion

Implementing a social media policy to screen applicants or current employees can be done with the proper planning. And because of the number of legal pitfalls, such planning must include the assistance of experienced legal counsel.

But before seeking such counsel, employers should ask if such a policy makes business sense in the first place. In answering the question, it is likely that there are few circumstances where forcing a job applicant or current employee to share with his or her employer Facebook or social media log-in information as a condition of employment makes sense.   

Caution Tape.jpgOne general misconception that business owners have when it comes to social media policies is that it is a silver bullet against disgruntled employees disparaging the company. Certainly this is a serious concern for any employer. But a recent “parting gift” from a Goldman Sachs Vice President illustrates the real danger that social media poses to the business – you simply cannot control the message.

As explained below, it is, therefore, more important for companies to focus on drafting the story that will be told rather than focus on preventing the message. 

The Goldman Sachs Muppet Debacle

It appears that Greg Smith, a former Vice President of Goldman Sachs Group Inc., single-handedly caused Goldman Sachs lose $2.15 billion (yes, billion) of its market value. This loss happened after Mr. Smith’s highly critical editorial appeared in the for the New York Times detailing Goldman and its Chief Executive Officer Lloyd C. Blankfein’s treatment of clients as nothing more than cash cows.

An excerpt from the New York Times piece highlights this scathing analysis:  

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.

* * *

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets …”

The Response by Goldman Sachs 

The Wall Street Journal reported that in a memo to employees of Goldman Sachs employees, its Chairman and Chief Executive Lloyd C. Blankfein and President Gary D. Cohn response essentiall boiled down to two elements:

  • Mr. Smith was one “of nearly 12,000 vice presidents” among more than 30,000 employees at the company;” and 
  • Mr. Smith’s assertions do “not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.” 

The complete Goldman Sachs memo is available here.

Analyzing Goldman Sachs’ Response – Is it Convincing? 

First, Goldman Sachs avoided the mistake of offering a My Cousin Vinnie response to the public relations debacle. Specifically, there is scene where Joe Pesci’s character responds to the prosecutor’s opening statement: “Uh… everything that guy just said is bullsh*t… Thank you.” While this classic line garners laughs, it does little to offer convincing support for your position.

But instead, of taking this approach, Goldman Sachs responded that its leadership team had implemented policies and procedures to promote and ensure that employees have opportunities to resolve company concerns like Mr. Smith raised. The fact is that when a current or former employee – disgruntled or not – feeds the media with a story like Mr. Smith’s, management will want to quickly demonstrate that the company’s process and culture inside the company is perceived as “fair” and reasonable.

Building on the preceding point, Goldman Sachs also noted that there was no record that Mr. Smith ever elected to use such policies to voice the concerns raised on his way out the door and through a very public medium.

With both the policy and Mr. Smith’s apparent failure to use it, Goldman Sachs is in a better position to turn the microscope back onto Mr. Smith and question his motives. For example, why did Mr. Smith see fit to enjoy whatever perks, bonuses, and compensation came to him during his 12 years with the company yet make a public issue of his concerns on his way out the door. He may have had compelling reasons to do so, but the focus is no longer exclusively on Goldman Sachs because Mr. Smith is now in a position where must explain himself.   

It is important to note, however, that to make the preceding point credible, there must be a company culture where employees are expected to raise questions and concerns. On this point, however, Mr. Smith points to a number of specific issues that make Goldman Sachs look guilty of the cultural lapses described by Mr. Smith and far from the type of  anti-Goldman culture that exist at other investment firms.  

Third, one criticism I have about Goldman Sachs’ response is its attempt to minimize Mr. Smith’s tenure by noting that he was only one of 12,000 vice presidents in a company with 30,000 employees.

For me, this is a valueless piece of information in that it does nothing to address the issues raised. In fact, it calls into question how much authority or opportunity Mr. Smith actually had to realistically exert any influence over the culture and issues he described. After all, having the title of “vice president” in a company where approximately 2 out of every 5 employees have such a title speaks more to title inflation rather than the type of true leadership function required to change culture.      

Concluding Thoughts

Not every departing employee will have the opportunity to aire their grievances about an employer on the editorial page of the New York Times. But with the ubiquity provided by social media, stages like the New York Times are no longer required to reach a large audience.

And when it comes to social media, no employer will ever be able to control what current or former employees have to say. And under certain circumstances, such an attempt may violate applicable laws, such as under the National Labor Relations Act.

For these reasons, employers should certainly strive to have a better response than Goldman Sachs offered. But in order to do this, up-front planning is required. Part of that planning includes implementing internal policies and procedures that will promote a company’s culture and organizational goals. And a social media policy should be an extension of both. At this point, employees should understand and be dedicated to those preferences.

Your Thoughts

I don’t have any first-hand insight as to the culture at Goldman Sachs or Mr. Smith’s assertions or his motivations. But I would be unlikely to ever become a Goldman client based on Mr. Smith’s critique. Do you think, however, Goldman’s response offers a compelling reason to revisit this assessment? 

Medical Marijuana.jpgIn the fall of 2008, 63% of Michigan residents voted in favor of legalizing medical marihuana. Despite this majority, Michigan legislators continue to whittle away at that law.

The latest such effort involves Michigan’s Worker’s Compensation statute.

Specifically, under a provision of the Worker’s Disability Act, an employer must furnish or cause to be furnished, reasonable medical, surgical, or hospital services and medicine, or other attendance or treatment that is legal under State law, to an employee who receives a personal injury arising out of and in the course of employment.

But proposed legislation would amend the Worker’s Disability Compensation Act to specify that an employer is not required to reimburse, or cause to be reimbursed, charges for medical marihuana treatment.

How Many Michigan Employees Would be Affected by the Proposed Change to Worker’s Comp Law?

It is not clear how many Michigan employees this amendment would apply to. But back in April, the Detroit Free Press reported approximately 63,735 Michigan residents had registered to use marihuana for medical purposes under Michigan’s Medical Marihuana Law (Michigan spells marihuana with an “h”, rather than a “j”). 

Further, since 2009, the Michigan Department of Community Health reports that:

  • 222,413 original and renewal applications received since April 6, 2009.
  • 131,483 patient registrations issued.
  • 22,550 applications denied — most due to incomplete application or missing documentation

Just playing the numbers game, it is reasonable to presume at least more than a few employees are exercising their rights under Michigan’s Medical Marihuana Act. It is also not clear what the cost or savings will be to employers.  

Simple is Better – Or at least less likely to be challenged   

Setting aside where you come down on the use of medicinal marijuana, it will be interesting to see if the proposed revision to Michigan’s Disability Act passes whether it will survive an obvious judicial challenge. Specifically, this proposed amendment clearly creates a conflict between Michigan’s Medical Marijuana Act and the Worker’s Disability Act as to the use and coverage of medical marihuana. 

This conflict is entirely unnecessary as the proposed amendment could simply be revised to read eliminate the “legal under State law” provision and replace it with “legal under Federal law.” This is because – whether used for lawful medical reasons under Michigan law or something else – marihuana is not legal under federal law as it is classified as a schedule 1 drug.

It is also important to note that under Michigan’s Medical Marihuana Act, commercial and non-profit health insurers are already exempted from having to be forced to reimburse a person for costs associated with the medical use of marihuana. See MCL § 333.26427. 

In any event, we will continue to monitor this proposed legislation.