Credit Reports.jpgConnecticut recently joined five other states that restrict the use of credit report information in employment decisions. These five other states are Maryland, Illinois, Oregon, Washington, and Hawaii. 

Proposed Michigan Legislation 

Michigan does not presently have similar legislation in place. But State Representative Jon M. Switalski is the primary sponsor of House Bill 4362 (PDF), which would create similar restrictions under the proposed Job Applicant Credit Privacy Act.   

This proposed act restricts employers from making hiring decisions based on a person’s credit history. It would also prevent employers from inquiring about a job applicant’s credit history, unless good credit history is “an established bona fide occupational requirement of the particular position or employment classification.”

Further, employers cannot ask that individuals waive any right or protection under the proposed act.

A violation of the proposed act allows for the aggrieved individual to bring a civil suit for damages or injunctive relief. Additionally, the proposed act specifically requires a court to award costs and reasonable attorney fees to an individual who prevails as a plaintiff in a suit authorized by the act.

Intent Behind Proposed Job Applicant Privacy Act

Representative Switalski explained that the motivation behind the proposed bill as follows: 

Michigan residents shouldn’t be punished and passed over for jobs because their credit rating has suffered during these tough economic times. A lot of good hard-working people have lost their jobs and are trying to get back on their feet. Many job seekers are behind on their bills because they lost their job, but they can’t get hired because they have a low credit rating – it’s a vicious cycle.

The Take Away for Employers 

We will continue to monitor this legislation and encourage you to subscribe to this blog for future updates on this and other employment law topics.

But in the meantime, it is important for employers to comply with existing statutory requirements that may come into play when a person’s credit related information is used in employment decisions. Also, there are restrictions applicable to related information under the Bankruptcy Code that employers must also comply with when making employment decisions. 

Changing Gears.jpgA Flint jury recently awarded $535,000 to a white former employee wrongfully fired after making a racial comment. This verdict also highlights important differences when it comes to reverse discrimination claims under Michigan and federal law.

For background, Mr. Craig Hecht, a former charter school teacher, was fired from Linden Charter for undisputedly telling another employee that “white tables are better than brown tables and brown tables should be burned.” 

At trial, however, Mr. Hecht was able to show that black staff members at Linden Charter Academy also made racial jokes but were never punished like him. 

Reverse Discrimination under Michigan and Federal Law

Reverse discrimination generally refers to discrimination experienced by a member of a class that has not historically been disadvantaged.

Under both Michigan and federal employment discrimination law, an employment plaintiff – minority and non-minority – must generally satisfy a burden-shifting framework (commonly called the McDonnell Douglas test) to establish a prima facie case of discrimination by showing the plaintiff:

  1. Was a member of a protected class; 
  2. Suffered an adverse employment action; 
  3. Was qualified for the position; and 
  4. Was replaced by someone outside the protected class or was treated differently than similarly-situated, non-protected employees.

Duch v. Mich. Dep’t of Corr. (E.D. Mich. Feb. 15, 2011).

Reverse Discrimination Differences under Michigan and Federal Law

In addition to the preceding test, under federal law, a reverse discrimination plaintiff must also demonstrate “background circumstances” to support the suspicion that the defendant is that unusual employer who “discriminates against the majority.” 

In contrast, Michigan law diverged from federal law in 2004 on this point. Specifically, in Lind v. City of Battle Creek, 470 Mich. 230, 232-233 (2004), the Michigan Supreme Court abolished the different standards for minority and non-minority plaintiffs. In this regard, the Court reasoned that the Michigan Civil Rights Act simply protected all persons from racial discrimination equally, with uniform burdens of proof, regardless of the race or races involved. 

Closing Thoughts

Mr. Hecht’s verdict is a good reminder of three important points:

  • Employers must have a clear policy prohibiting discrimination in employment. That policy should also define prohibited discrimination and provide multiple avenues for making complaints of perceived discrimination; 
  • A policy is only as good as its enforcement. And even the best policy that is not followed or (worse) applied inconsistently can result in an expensive head-on collision with a jury; and
  • There are a number of similarities between federal and state employment law. But there are also significant differences. It is, therefore, critical to understand these similarities and leverage the strategic value or work to minimize the disadvantages offered to one side or the other, i.e., the employer or individual employee. 

Blueprints.jpgEmployers commonly require employees to execute noncompetition agreements (also referred to as covenants not to compete or restrictive covenants). Under Michigan law (MCL 445.774a), such agreements will be enforceable if reasonable.

In theory, an enforceable noncompete agreement generally places certain limitations on an employee’s ability to work for a competitor or to start a competitive venture business following an employee’s departure. But as the venerable Yogi Berra noted, “In theory there is no difference between theory and practice. In practice there is.”

So setting theory aside, in “practice” what happens when an employee is in violation of a noncompetition agreement?

There are few right or wrong answers in terms of a proper response, just trade-offs between decisions and informed decisions. But the following are a few critical strategic issues that should be considered when it comes to drafting a strategy for litigating noncompete issues: 

Is the noncompete agreement enforceable?

Before taking any action against a former employee, the first question that needs to be answered is whether the noncompete agreement is enforceable. Otherwise, you could be exposing your company to liability. Consider, for example, former employers have been held liable for tortiously interfering with their former employee’s new employment relationship by threatening litigation over an unenforceable non-compete agreement.

Should the new employer be sued?  

Assuming the noncompetition agreement is enforceable, the next question is who should be sued: the former employee, the new employer, or both? The answer to this question will depend on a number of considerations.

Reasons for not suing the new employer 

The new employer may not have notice of the noncompete agreement, which warrants against naming it in the lawsuit. Sending the new employer a copy of the non-compete agreement and advising that, if necessary, you intend to fully enforce your legal rights under the non-compete has several advantages:

  • Generally a new employer is not interested in “hiring a lawsuit” and its associated costs. Accordingly, it may voluntarily terminate the new hire to avoid both once it is educated about the noncompete agreement and subsequent violation by the former employee.
  • Providing notice also has value in that it concretely documents the new employer’s knowledge of the non-compete agreement. Not only is such knowledge a likely element for your legal claim, it also puts you on better footing when asking a judge to award injunctive relief against the new employer (i.e., a temporary restraining order) by showing the new employer had actual knowledge of the noncompetition agreement that is being violated. This eliminates a compelling argument that judicial relief should not be awarded against the new employer because it was merely an “innocent bystander” caught in the crossfire between you and your former employee.
  • In addition to providing notice of the actual noncompete agreement, you should also put the new employer on notice that an evaluation of its preservation obligations is appropriate in response to a reasonable expectation of litigation. By providing such notice, you are laying the foundation for later obtaining sanctions if there is a failure to preserve information involved in the litigation. 

Another reason you may not want to sue the new employer is because an individual employee is unlikely to have sufficient financial resources to hire legal counsel to defend against the noncompete violation. But by suing the employer, you may make a “deep pocket” available in which to pay legal expenses or the new employer may have insurance that extends to the individual employee. 

Reasons to Sue both the Former Employee and New Employer

You may have “smoking gun” evidence, such as e-mails between the former employee and new employer showing that the new employer actively encouraged the individual to misappropriate your information with the intent to violate the non-compete agreement, which leaves you with little choice but to sue the new employer.

There may also be compelling business reasons for suing the new employer. For example, the new employer may be using your former employee (and likely his or her knowledge previously gained from your company) to move into your market or geographical region or to actively solicit your current employees and/or customers. Obviously these circumstances create compelling business and legal reasons to include the new employer in the litigation.

It is important, however, to make certain business justifications do not overshadow state or federal legal and ethical requirements for maintaining an action. Generally, speaking, a claim must be well grounded in fact and warranted by existing law. Failing to comply with these requirements may result in a range of sanctions for filing a legally frivolous claim.  

Conclusion

The reasonableness of a noncompete agreement is often subject to judicial interpretation. It is, therefore, absolutely essential when drafting noncompete agreements to understand the statutory requirements for an enforceable noncompete agreement. As noted above, these requirements focus on “reasonableness.” 

And when it comes to noncompete litigation it is often more art than science where there are no fixed or mechanical responses for responding to a breached noncompete agreement. Instead, each set of circumstances has its own unique business and legal issues. Accordingly, a noncompete litigation strategy should be developed by considering the above issues and other relevant considerations with legal counsel and business stake-holders.

Knife Behind Back.jpgThe alleged (mis)handling of an employee’s complaints of wrong-doing by her former employer offers insight on how to avoid a subsequent whistleblower claim or, at least, be in a better position to defend against such claims. 

Specifically, a Metro Detroit Employment Law firm was recently sued for violating (ironically) various employment laws. The law firm and named defendants were also alleged to have violated Michigan’s computer crimes statute, MCL 752.791-97, which forms the basis for a whistleblower claim.

The Complaint filed in Wayne County Circuit (PDF) alleges that the defendant law firm’s named partner and defendant stole computer records consisting of client information from his former law firm prior to departing to start a competing venture.

The computer statute generally targets computer intrusion crimes and traditional crimes committed through the use of computers, such as theft. Plaintiff, however, did not assert an actual claim under Michigan’s computer statute and, instead, used the alleged violation as the cornerstone for her whistleblower claim, i.e., she was “about to report” the Defendants’ violation of the Michigan computer statute to unspecified public bodies, which was one of the reasons she was fired.  

Under Michigan’s Whistleblower’s Protection Act (WPA), MCL 15.362 et seq., employers are restricted from discharging, threatening, or otherwise discriminating against an employee because that employee reports or is “about to report” a violation or suspected violation of a federal or state statute or regulation to a public body. Where a claim is based on an “about to report” theory, the plaintiff must show by clear and convincing evidence that he or she was about to report, verbally or in writing, the violation or suspected violation of a state or federal law to a public body.  

The Take Away

While it remains to be seen how this litigation actually resolves, the Complaint offers a number of “rookie” employment law mistakes that employers should avoid. Consider for example, the employer is alleged to have no employee handbook and no Discrimination or Harassment policies in place. 

But an important “take-away” for employers is how to limit or otherwise avoid a subsequent Whitsleblower claim. In that regard, companies should consider the following points:

  • Have policies in place that encourage the reporting of complaints;
  • Take all complaints seriously and investigate all concerns;  
  • Employers should encourage a reporting employee to document as many details of the alleged violation as possible so that the investigation is focused on the actual complaint. Such documentation has the added benefit that if the employee later claims retaliation, there will be a record of the reported conduct, which will be difficult to later modify or expand by the employee’s lawyer; 
  • Policies should expressly state that employees who report suspected violations will not be subject to retaliation in any manner and that any retaliation will not be tolerated; 
  • Document all steps taken in the investigation process;
  • Document a conclusion: Either the existence of a compliance issue or the absence of one; and
  • If a violation occurred, document and follow through with corrective action.

While there certainly is no “silver bullet” for avoiding whistleblower claims, by being proactive and taking these steps, employers will better able to avoid such claims or, at least, put the employer in a better position to defend a subsequent whistleblower claim in the future.

Social Media Scrabble.jpgConventional wisdom directs companies to implement social media policy to eliminate or otherwise reduce the risks involved with social media. But a social media policy is only effective if it is followed by a company’s employees. And the sweet spot for increasing compliance with such a policy is by showing individual employees why they have equally compelling reasons for exercising care and “best practices” in their personal and professional social media lives.

Consider the following examples:  

  • Andrew Shirvell, a former Michigan assistant attorney general was fired, mocked on the Daily Show, and eventually sued in federal court for for his blogging endeavors. Specifically, Mr. Shirvell published a blog that focused on the former student body president at the University of Michigan, Chris Armstong. Mr. Armstrong is openly gay and Mr. Shirvell blogged that Mr. Armstrong was promoting a “radical homosexual agenda” and referred to him as a “gay Nazi.” In discharging Mr. Shirvell, the Michigan AG’s office accused him of using his employer provided computer for blogging and Facebook posting and later lying to investigators about it. Mr. Armstrong’s suit against Mr. Shirvell (Complaint (PDF) originally filed in state court and removed to federal) asserts claims of defamation, invasion of privacy claims, intentional infliction of emotional distress, abuse of process, stalking, pending in the Eastern District of Michigan.    
  • Dr. Lazar Greenfield, an accomplished University of Michigan surgeon, made headlines earlier this year and later resigned as president elect from a national surgeon’s group after his February 2011 editorial suggesting that “semen” was a “better gift” than chocolates for women on Valentine’s Day. This editorial and the entire February issue of Surgery News was pulled from the Web after complaints flooded the American College of Surgeons.  
  • A female middle school teacher was discharged in 2010 after photographs of her engaged in a simulated act of fellatio with a male mannequin appeared on an Internet website (Land v. L’anse Creuse Pub. Schs. Bd. of Educ.). These pictures were taken during non-working hours and at a bachelorette party. The discharge was later reversed by the Michigan Teacher Tenure Commission and affirmed by the Michigan Court of appeals, but only after a a prolonged litigation process that was witnessed, at a minimum, by school employees, students, and parents.

These examples are a sobering reminder of the social media legal risks and embarrassment waiting for employers vis-a-vis their employees. There should be no pretense that a social media policy – even a very good policy – will completely eliminate either. It cannot. But by building on the shared interests of the employer and the employee, companies can increase the likelihood that a company social media policy will be followed.

Take-Away

Instead of simply directing individual employees to follow a social media policy in the abstract, make it personal. That is to say, use the above examples to appeal to the individuals’ self-interest i.e., show why the policy is intended to help the individual to avoid social media missteps. This will, of course, help the company do the same.

Also, to avoid a situation similar to the Shirvell matter, it is important for employees to understand that employer provided computers and resources are not to be used for non-company related social media activities. 

Jury.jpgThe Michigan Supreme Court recently approved new rules for civil and criminal jury trials that will give jurors an opportunity to participate in trials.

Under these rules, jurors will be permitted to take notes, discuss the evidence throughout civil trials, and submit questions to the judge to ask witnesses. A PDF copy of the rules was made available by the Free Press.

These rules apply to all Michigan civil cases, including employment discrimination claims. Trial judges, however, retain discretion in deciding whether to allow most of the new practices.

Justice Markman provided an enlightening concurrence as to why these rules are necessary. Among those reasons:

[the rules] will more deeply engage, and maintain the attention of, jurors in the proceedings that they are to judge … and they will render at least somewhat less true Robert Frost’s observation that ‘a jury consists of twelve persons chosen to decide who has the better lawyer.’

From a trial attorney’s perspective, I agree with Justice Markman that engaging jurors is an important consideration. And I think this increased engagement will have a critical impact on employment discrimination claims where resolving cases often come down to issues of credibility (but it is still important to heed Mr. Frost’s observation and get a great attorney – if you followed the link, I couldn’t resist).

Also, jurors asking a question will be much more critical of the answer, the mannerism of the person answering the question, and whether a satisfactory answer was given. Taken together, a juror may form an opinion of a critical witness that will shape the rest of the trial. 

Additionally, it is not uncommon for lawyers to present a particular theme or pursue a particular point of a case, but jurors, however, are focused on an entirely different issue. The insight from a juror’s question could provide insight to key attorneys into this disconnect and (hopefully) allow the attorney to bridge the gap. 

Further, it is frustrating (and unnerving) to go through a jury trial with no real way to gauge how your case is being received from the perspective of the jurors. Juror questions, however, will likely illuminate, at least circumstantially, issues the jury is wrestling with or otherwise suggest where the trial might end up.

These new rules take effect on Sept. 1, 2011. It will be interesting to see how these rules affect trials. And dinner is on me for the first juror to end their question with “and I can handle the truth” as an homage to the classic line from Colonel Nathan R. Jessep and delivered by Jack Nicholson in A Few Good Men. 

Facebook.jpgOn June 24, 2011, a Florida federal district court dismissed a claim that an employer violated the Fair Labor Standards Act’s (FLSA) anti-retaliation provision by allegedly firing an employee who expressed her disagreement over the employer’s payment practices on Facebook.

The Plaintiff, Lilli Morse, filed suit against her former employer, J.P. Morgan Chase & Co., under the FLSA alleging it failed to pay her overtime wages. She further alleged that when she complained on her Facebook page, J.P. Morgan retaliated by terminating her employment.

The FLSA Anti-retaliation Provision

Under the FLSA anti-retaliation provision an employer cannot

… discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to [the Act], or has testified or is about to testify in such proceeding, or has served or is about to serve on an industry committee. 29 U.S.C. 215(a)(3).

Earlier this year, the Supreme Court held that this anti-retaliation provision extended to both written and verbal complaints. See Kasten v. Saint-Gobain Performance Plastics Corp., 131 S. Ct. 1325 (U.S. 2011). Specifically, the Court noted that to fall under the anti-retaliation provision, a complaint must be “sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection.” And this standard may be met by oral or written complaints.

Expressing Disagreement Over Payment Practices on Facebook is not a “complaint” under the FLSA  

Turning to Ms. Morse’s case, the Court acknowledged that the statutory requirement may be satisfied by an “informal workplace grievance procedure.” But the Court refused to extend the FLSA’s anti-retaliation provision to a posting on an employee’s Facebook page because it did not equate a Facebook post with the filing of a “complaint” within the meaning of the FLSA. Specifically, the Court reasoned: 

Morse does not allege that she made anything close to a serious complaint to her employer … in fact, she never complained to her employer at all. She simply voiced her disagreement with her employer’s payment practices on her Facebook page.

Employers Still Must Exercise Caution in Addressing Employment Issues and Social Media

Increasingly Facebook is becoming an acceptable means to fulfill legal related obligations. For example, a Businessweek article (by Heather Smith) discusses foreign courts’ acceptance of using Facebook in legal proceedings and foreclosure notices.

It is easy to understand, however, why the Court refused to extend the FLSA’s anti-retaliation provision’s requirement of making “any complaint” to a Facebook posting. After all, how many times do people express frustration or disappointment through an informal Facebook posting but take no further action, such as actually complaining to their employer? 

But employers still need to exercise caution when it comes to taking adverse employment actions against employees in connection with Facebook and other social media. This is because Section 7 of the National Labor Relations Act (NLRA) protects the right of employees (union and non-union) to engage in “concerted activities” for their “mutual aid and protection.” And in protecting such rights, the NLRB has aggressively pursued employers taking action or implementing social media policies that may discourage employees from exercising their Section 7 rights, i.e., talking with each other about protected subjects — wages, hours, and other terms and conditions of employment. In this regard, the NLRB has taken various actions against employers for simply having a policy that may have a “chilling” effect, even absent evidence the employer enforced the policy.

It is, therefore, important for employers to carefully review their employment policies relating to social media, Internet usage, email, and related technologies to assess the potential risks for violating their employees’ rights under Section 7 of the NLRA. 

Signing Contract.jpgA recent Michigan Court of Appeals opinion highlights the importance of clearly and precisely drafting separation agreements.

Meaning of “Disparagement” 

In Sohal v. Mich. State Univ. Bd. of Trs. & Davoren Chick M.D., (May 17, 2011) the parties executed a Resignation Agreement and Release relating to Plaintiff’s agreement to voluntarily resign from MSU’s medical residency program. Specifically, Plaintiff agreed to resign from his position and the parties further agreed that they would not “knowingly disparage” the other.

Plaintiff was a medical resident in Michigan State University’s program. It was, however, unanimously determined that he should be dismissed from the program. Plaintiff agreed to resign from his position, and MSU agreed to segregate any records regarding the dismissal hearing from his file. The parties further agreed that they would not “knowingly disparage” the other and waived the right to “sue, grieve, or otherwise bring a complaint against the other.” Plaintiff eventually sued the university and an individual doctor and claimed that both breached the resignation agreement and, therefore, Plaintiff and should no longer be bound by it, i.e., he was entitled to rescission of the contract, including the restriction against suing.
As to the breach, Plaintiff claimed that since leaving MSU, he had been initially accepted into another residence program but was later denied admission based on information conveyed by the Defendant university and an individual defendant. The statements were directly 
responsive to specific inquiries that were required to be answered __. 
Defendants, citing a Black’s Law Dictionary 
 In regard to the definition, defendants stated: “‘Disparagement’ is ‘a false and injurious statement that discredits or detracts from the reputation of another’s property, product, or business.’  Black’s Law Dictionary (7 th ed. 1999).”
relied on a different definition of “disparagement,” stating: “The American Heritage Dictionary states that ‘disparagement’ is ‘(1) To speak of in a slighting or disrespectful way; belittle. (2) To reduce esteem or rank.’ . . . See also Webster’s New World Dictionary . . . (also 
including a definition of disparage that does not include an element of falsehood.)”
definition of the term “disparagement,” claimed that plaintiff failed to put forth any evidence that Chick or anyone else associated with MSU disparaged him. The non-disparagement clause of the resignation agreement stated – “The University agrees that its Trustees, President, directors, officers, and administrators will not knowingly disparage Dr. Sohal. Dr. Sohal agrees that he will not knowingly disparage the University, its Trustees, President, directors, officers, employees, and administrators.” At issue was whether defendants knowingly disparaged plaintiff in violation of the agreement. In denying plaintiff’s motion and granting judgment to defendants, the trial court noted that it had previously decided not to use the Black’s Law definition of disparagement proffered by defendants. Instead, the trial court applied the American Heritage Dictionary definition proffered by plaintiff, explaining that “contracts are interpreted by the commonly understood meaning of their words.” The trial court held that even under that definition, plaintiff failed to present any evidence establishing that defendants disparaged him – “slighted, disrespected, or belittled him.” He argued that because the term “disparage” can reasonably be understood in at least three different ways, the term was ambiguous and extrinsic evidence should have been considered to ascertain the intended meaning of the term and the non-disparagement clause. The court held that the term “disparage” in the non-disparagement clause was not ambiguous. While plaintiff attempted to ascribe several “reasonable” meanings to the term “disparage,” and thus the non-disparagement clause, “the term fairly admits of but one interpretation.” The court noted that several courts of other jurisdictions have determined that the term “disparage” in non-disparagement clauses of settlement agreements was unambiguous, and have similarly defined the term. Affirmed.
Plaintiff only asserts that pursuant to the nondisparagement clause of the resignation agreement, defendants had a duty to remain silent regarding his alleged poor performance. 
The take away
Saying what you mean is not always as easy as meaning what you say. It is therefore, important to review your employment agreements and termination agreements (as well as any other agreements for use in your business) to eliminate or at least reduce ambiguities.  

After signing the Resignation Agreement plaintiff filed suit alleging that since leaving MSU, he “attempted on numerous occasions to associate with another residency program . . . . In each case, he was initially accepted into the program but as soon as the program contact[ed] Defendants . . . , [he] was denied a resident position based on information conveyed by the Defendants.”

There were a number of legal issues involved in Plaintiff’s suit, but for purposes of this post, the parties disagreed as to what a key term – “disparage” – meant.  

Defendants relied on a legal definition of the term “disparagement:” “Disparagement” is “a false and injurious statement that discredits or detracts from the reputation of another’s property, product, or business.” Black’s Law Dictionary (7th ed. 1999).

Plaintiff argued for a different definition of “disparagement:” “The American Heritage Dictionary states that ‘disparagement’ is ‘(1) To speak of in a slighting or disrespectful way; belittle. (2) To reduce esteem or rank.”

The trial court accepted Plaintiff’s definition. On appeal, the Court agreed and further concluded that the term “disparage” in a non-disparagement clause of a resignation agreement was unambiguous and should be given its plain, ordinary dictionary meaning – not the Black’s Law Dictionary. Because it was unambiguous, extrinsic evidence (evidence outside of the four corners of the agreement) could not be considered to determine the meaning of the term.

The take away

Unfortunately, having reviewed a number of separation agreements in the recent past, both employers and employees would greatly benefit from re-reviewing with experienced legal counsel their separation agreements (or any employment agreements for that matter). Such a review could eliminate or at least reduce the risks that a party will later successfully claim the agreement’s ambiguities preclude enforcement or requires a court to decide what the contract means.

Further, this review will also benefit employers in overlooking any of the numerous legal obligations that an employer must satisfy when an employee is terminated. The last thing an employer wants to discover is that a problem employment issue believed to have been resolved is now resurrected because of mistake in drafting. 

Free Pass.jpgA recent employment termination turned litigation offers important lessons for employers and employees when it comes to preserving computer information maintained on company issued laptops and related equipment.

In Larkin v. Trinity Lighting, Inc. (PDF) (S.D. Miss. Apr. 20, 2011), Larkin was employed by Trinity as a salesperson and provided a company laptop, desktop computer, and an external hard-drive.

He was terminated and Trinity directed Larkin to return all of these devices. Larkin complied … sort of. He returned the devices, but not before deleting all of the files (approximately 111,384 files).

Larkin then filed suit against Trinity alleging it failed to make bonus payments. Trinity filed a counterclaim asserting, among other claims, that Larkin breached his fiduciary duty and engaged in fraudulent activity during the course of his employment, including fraudulently altering a bonus structure.

Trinity sought to compel Larkin to pay the costs associated with the restoration of the deleted computer evidence, which was estimated to cost between $8,000 and $10,000 to restore a portion of these files (the retrievable user-created files deleted after Larkin’s termination).

Trinity argued that Larkin had actual knowledge that he was not to delete these files and that he did so in anticipation of the impending law suit because the files contained evidence of Larkin’s breach of fiduciary duty and fraudulent activity. In further support, Trinity pointed to the fact that Larkin consulted with an attorney prior to the deletion of the files.

Larkin admitted that he deleted the files. But he contended that he did not anticipate that litigation would be filed and he only consulted counsel solely for the purpose of negotiating severance pay. Thus, Larkin contended that he had no duty to preserve the computer files.

In deciding the issue, the Court accepted that Larkin committed spoliation (destroyed evidence that should have been preserved due to the litigation), but declined to impose sanctions. In assessing sanctions, the Court focused on the following factors: (1) The degree of fault of the party who altered or destroyed the evidence; (2) The degree of prejudice suffered by the opposing party; and (3) Whether there is a lesser sanction that will avoid substantial unfairness to the opposing party.

While factors one and three seemed to clearly weigh in favor of Trinity, the Court, in a conclusory fashion, noted that Trinity had not ultimately been deprived of any information as the the information was “apparently retrievable” and Trinity could retrieve it at its cost.

The Take Away for Employers and Employees

The Duty to Preserve Evidence and When this Duty Arises

Larkin obtained a good result – he avoided paying a $10,000 computer forensic bill – but that does not necessarily mean he made a good decision. In fact, I’m surprised the Court did not impose sanctions against Larkin in light of the undisputed facts: A former employee admitting to deleting all files – company and personal – from the company owned computers after being advised to return all such property – computers and files – against the backdrop of a dispute over a lot of money (court filings indicate over $200,000). 

The right decision would have been to understand the duty to preserve evidence: A legal duty exists to preserve information under the control of a party who reasonably knows or can reasonably foresee such information being material to a potential or pending legal dispute. This duty may arise under statutory authority, case law, court procedural rules, or the inherent authority of the court. 

The threshold for preserving evidence is “reasonable anticipation,” which most frequently arises after a lawsuit has been filed, and a party receives service of the complaint or counterclaim. For non-parties, the duty often arises upon being served a subpoena or deposition notice, which provides express notice of pending litigation. But courts also have concluded that a duty to preserve evidence may arise prior to litigation, when a defendant or non-party receives pre-litigation communications or once it becomes reasonably certain that an action will be filed. 

Computer/Technology Use Policy

Providing company issued laptops and computers to remote employees like Larkin is commonplace. Consider that eighty-two employers in Fortune’s 2011 list of “100 Best Companies to Work For” offer telecommuting opportunities to employees. Further, a survey by the Society for Human Resource Management found that 84% of organizations offering telecommuting provide company laptops and desktop computers to their employees (page 18).

Regardless of whether your company offers a formal telecommuting program, it should have a computer/technology policy restricting the deletion of any company files and the personal use of employer provided computers, including the saving and storing of non-work, personal information.

Trinity, however, made no reference to such a computer/technology use policy to eliminate or undercut Larkin’s stated reason for his mass deletion: He did not have enough time to delete only personal files and information. My assumption is that Trinity did not have such a policy in place. Whether such a policy would have changed the outcome is uncertain. But it is certain not having a policy did not help Trinity’s position. 

Digital Background.jpgOn May 31, 2011, Crain’s Detroit Business (by Chad Halcom) reported that a prominent Detroit law firm and its Vice-Chairman had settled litigation involving various employment law claims filed by a former executive assistant. 

I previously reported on this employment discrimination litigation and also discussed the lessons to be learned from the law firm’s alleged mishandling of its electronic discovery obligations. In sum, the alleged e-discovery mismanagement centered on the law firm’s failure to properly implement a “litigation hold” for the preservation of discoverable information, e.g., emails and digital information.  

According to Crain’s Detroit Business, details of the settlement were not disclosed. The circumstances leading up to the settlement were also not provided, including whether the allegations of the e-discovery misconduct played any role in the parties reaching a settlement.

But whether it did or not isn’t significant. Instead, it illustrates that it is far better to create your own litigation strategy than to have external forces dictate your choices. This is especially true in employment discrimination claims where employers will often want to direct attention to the plaintiff’s employment deficiencies and the nondiscriminatory reasons for why an adverse employment decision was made in the first place.

Failing, however, to take the initiative to properly address e-discovery issues at the front end of the litigation (or sooner if there is a reason to anticipate litigation) often results in e-discovery issues becoming a distraction from the merits, or lack thereof, of the actual litigation.

Here is some practical insight for properly addressing e-discovery issues prospectively rather than reactively.