On  April 27, 2016, the House of Representatives passed a bill that would allow companies to go straight to federal court to fight trade-secret theft by their employees. Currently, when a company’s trade secrets are stolen, the only available remedies are to file a private civil action in state court or to convince the Justice Department to bring a criminal case.

The goal of the new Defend Trade Secrets Act is to create stronger tools for combating trade-secret theft through federal court resolutions, as well as build uniform law through the federal statute. Supporters believe the legislation will help protect against the growing threats of trade-secret theft, especially as federal courts are likely better equipped than state courts to handle the complex technological and international cases.

In addition to putting trade secrets on the same ground as patents, copyrights and trademarks in terms of available protections, the new statute would allow courts to issue ex parte seizure orders to prevent the dissemination of a trade secret. Although courts are cautioned in the statute to only issue orders in extraordinary circumstances, this severe remedy is not otherwise available under state law. While there are some concerns about overreaching and unfairly preventing employee mobility with the DTSA, it ultimately has widespread support from both the House and the Senate, as well as indicated backing from the Obama administration. It is clear the business world is anxious to see it go into effect both to prevent the passage of trade secrets out of the country, and in its defense of the processes that support billions in revenue and millions of jobs.

If you have questions about the Defend Trade Secrets Act or want to know more about protecting your company’s trade secrets, please contact our Employment & Labor Group. 

A railway company and the business groups that supported its position scored a victory April 5 with the U.S. 8th Circuit Court of Appeals’ decision that obesity is not a covered condition under the Americans with Disabilities Act. The ruling is the latest to support the position that general obesity, without an underlying medical cause, does not warrant protection under the ADA.

In Melvin Morriss III v. BNSF Railway Co., the U.S. 8th Circuit Court of Appeals upheld an earlier district court decision in favor of defendant BNSF. The three-judge panel agreed that “for obesity to qualify as a physical impairment — and thus a disability — under the ADA, it must result from an underlying physiological disorder or condition.” Because the plaintiff had not shown this to be the case in his situation, the ADA did not apply.

Obesity as an impairment

The plaintiff, Morriss, applied for a machinist job with BNSF in 2011 and received a conditional offer for the position, contingent on a medical review. Two physicals indicated his body mass index exceeded the limit BNSF places on new hires for “safety-sensitive” positions, so the job offer was revoked. The plaintiff claimed that BNSF’s refusal to hire him because of his obesity amounted to a discriminatory action in violation of the Americans with Disabilities Act. He filed suit in January 2013.

In assessing Morriss’ claim that obesity was a disability, the U.S. District Court for the District of Nebraska considered Morriss’ medical questionnaire in which he denied suffering from any medical impairment or condition. Morriss’ personal physician testified in a deposition that Morriss’ obesity was not the result of any physiological condition, nor did Morriss suffer from any medical condition associated with obesity, such as diabetes, hypertension, cardiac disease or sleep apnea. Morriss himself testified that he was unaware of any underlying condition that contributed to his obesity or any physical limitation caused by his obesity.  Based on this evidence, the trial court concluded that Morriss did not have a “physical impairment” as is required to meet the definition of “disabled.”

Furthermore, the trial court concluded that BNSF did not regard Morriss as having a presently existing physical impairment.  The court concluded that BNSF’s concern that Morriss’ obesity created an unacceptably high risk that he might develop future medical conditions was insufficient to satisfy the “regarded as” prong of the ADA. Based on these findings, the trial court granted BNSF’s motion for summary judgment and dismissed Morriss case with prejudice. Morriss challenged that judgment in his appeal to the 8^th Circuit.    

Morriss argued that previous decisions from the Second and Sixth Circuits — which each agreed that obesity by itself does not qualify as an impairment to be covered — should not apply because they were decided before significant revisions were made to the ADA. Congress passed the ADA Amendments Act (ADAAA) in 2008, with an intent to provide broader coverage of people with disabilities. However, the 8th Circuit panel noted that the enactment of the ADAAA did not change the definition of physical impairment and so the pre-ADAAA case law remains relevant. Examining the case law, the appellate court concluded that obesity only qualified as a disability if the condition was caused by a physiological condition. The appellate court also agreed with the trial court’s analysis of Morriss’ regarded as disabled claim and affirmed the lower court’s ruling.

Impact on employers

The U.S. Chamber of Commerce and other major business associations filed amicus briefs in support of BNSF’s position that the ADA requires a physiological basis to trigger coverage of obesity. To interpret the requirements otherwise, the business groups argued, would disadvantage employers. The impact “would be immediate and profound,” they noted, citing “massive” potential for heightened litigation and unrealistic accommodation demands that would divert time and resources from those with more clearly defined impairments.

For ADA-covered employers, the decision in Morriss reaffirms that the act does not apply to those who are simply obese, without an underlying physical impairment. However, the Morriss decision does not create an unfettered right for employers to make employment decisions based on an individual’s weight. The Morriss decision merely applies to those individuals who, despite their obesity, are otherwise relatively healthy. Further, Morriss happened to be someone whose obesity was not caused by an underlying condition. Individuals with a physiological condition that leads to obesity, as well as those who have health conditions associated with their obesity are still protected by the ADA. With groups including the Equal Employment Opportunity Commission pressing these issues, employers must remain careful in their assessment before taking actions based on an employee’s weight.   

A proposed Department of Labor rule update that would increase employee overtime costs for businesses is nearing publication, but in the meantime, it faces some congressional opposition.

Congress hasn’t seen the final rule yet, and neither have employers. That will happen after the completion of a review by the White House’s Office of Management and Budget, likely within the next few weeks — a faster pace than originally expected. However, the proposed rule released last summer called for changes that DOL estimated would make 4.6 million workers newly entitled to overtime protection, with average annualized direct employer costs totaling between $239.6 million and $255.3 million per year.

Those costs come from the proposed dramatic increase in salary requirement for overtime exemptions. If implemented as proposed, the rule will more than double the minimum salary threshold required to qualify for FLSA “white collar” exemptions, from $23,660 annually to $50,440 annually. The $50,440 salary is a projection that represents the 40th percentile of weekly earnings for full-time salaried workers. (To see a detailed description of the proposed changes, see our previous post here.)

Based on those numbers, Republicans in the House and Senate recently introduced legislation that aims to halt the rule’s advancement, pending a complete economic analysis on small businesses, nonprofit employers and other employers. Many industries, including retail, construction, convenience store and nonprofit organizations, have spoken in opposition and submitted public comments on the proposal. In addition to higher costs, employers have argued they would face substantial worker reclassifications, with workers potentially losing status and benefits as a result.

It remains to be seen how much the final version will differ from the proposed rule, but for employers, the accelerating timeline of these changes will be important to monitor. If implemented as proposed, employers will need to be prepared for worker reclassifications and a heightened administrative burden of tracking hours worked by the now non-exempt employees. If you have questions about the proposed rule or the effects it might have on your business, please contact the attorneys in our Employment & Labor Group.

A new proposal announced by the Equal Employment Opportunity Commission (EEOC) would add a requirement that employers submit data on employees’ pay ranges and hours worked on federal EEO-1 forms beginning in September 2017. Companies with more than 100 employees and federal contractors are currently required to annually submit an EEO-1 report that includes information regarding employees’ race, ethnicity and gender.

Although EEOC Chair Jenny Yang suggested the newly required information is intended to assist employers in assessing their pay practices to avoid discriminatory pay discrepancies, employers should anticipate that the EEOC will also review this information and investigate matters it deems suspicious. In fact, in a statement regarding the new proposal, Secretary of Labor Thomas Perez acknowledged that the proposed change “gives the Department of Labor a more powerful tool in its enforcement work.”

The fact that the proposal was announced in conjunction with the anniversary of the Lilly Ledbetter Fair Pay Act should make apparent the true purpose of the proposed changes. Employers required to submit the EEO-1 form should certainly expect increased scrutiny from the EEOC with respect to this new information.

Employers and other interested parties may wish to strongly consider submitting comments during the 60-day comment period beginning Feb. 1, 2016. Comments should specify that the rule being addressed is “EEOC-FRDOC-0001-0194.” Comments can be submitted using the Federal eRulemaking Portal or can be mailed to Bernadette Wilson, Acting Executive Officer, Executive Secretariat, Equal Employment Opportunity Commission, 131 M. Street NE, Washington, D.C., 20507. Submissions of six or fewer pages can also be submitted by fax at 202-663-4114.

If you have any questions about the proposed changes to the EEO-1 form or the potential impact the proposed changes might have on your business, please contact the attorneys in our Employment & Labor Practice Group.

On Jan. 11, 2016, the U.S. Supreme Court declined to accept review of Smith v. Aegon Companies Pension Plan, a case in which the Court of Appeals for the Sixth Circuit found forum selection clauses in ERISA plans to be valid and enforceable. The holding of the Sixth Circuit, the only court of appeals to have considered this issue, allows ERISA plan sponsors to designate the federal courts in which their participants may bring claims arising under ERISA. Plan sponsors, particularly those with participants scattered throughout multiple states, often favor this approach because it brings uniformity to the treatment of their plans.

The Supreme Court denied certiorari without comment, but before considering the case had requested the position of the U.S. solicitor general. The solicitor general’s brief, filed in November, urged the Supreme Court not to review Aegon. It explained that, contrary to the petitioner’s claims, no circuit split on this issue existed. Furthermore, the brief counseled that there was no reason for the court to depart from its “usual practice of allowing percolation among the courts of appeals.” Doing so, it explained, would provide the court with the perspectives of other circuits and “shed light on the practical consequences of the rule adopted by the Sixth Circuit.”

The solicitor general’s brief went further, however, arguing that the Sixth Circuit erred in upholding the Aegon plan’s venue provision because forum selection clauses are inconsistent with ERISA’s liberal venue and service provisions. This position is shared by the U.S. secretary of labor, who filed amicus briefs advancing this argument with the Sixth Circuit as well as two other courts of appeals that considered the issue, neither of which ultimately addressed the validity of venue provisions in ERISA plans.

For the time being, the Sixth Circuit’s ruling remains undisturbed. Additionally, this issue is routinely litigated before district courts, the majority of which have found ERISA forum selection clauses enforceable. Although forum selection clauses are well-positioned to be enforced in the lower courts, plan sponsors can likely expect that the Supreme Court will eventually weigh in on this issue if a circuit split develops.

A recent Illinois Appellate Court decision serves as a good reminder that when it comes to restrictive covenants, one size does not fit all. A consistent theme in recent court decisions has been that “form” employment agreements with overly broad restrictions not anchored to the employee’s job responsibilities and related to the employer’s protectable interests will not be enforced.

This approach was recently illustrated in AssuredPartners, a case in which the Illinois Appellate Court applied the “rule of reasonableness” analysis and found that the restrictive covenants in a senior vice president’s senior management agreement were unenforceable as a matter of law.

Illinois courts examine the enforceability of restrictive covenants subject to a “rule of reasonableness” analysis. Under this analysis, a restraint is only likely to be upheld if four criteria are met:

1. the restraint is no greater than necessary to protect a legitimate business interest of the employer;
2. the restraint does not impose undue hardship on the employee;
3. the restraint does not injure the public; and
4. and the restraint has reasonable activity, time and geographic restrictions.

Factors relevant to evaluating the legitimate business interest to be protected by the restraint include, but are not limited to, the near-permanence of customer relationships and the employee’s acquisition of confidential information during employment. An employer has a better chance of enforcing a restrictive covenant when the restriction is specifically tailored to that employee’s position and the legitimate business interests of the employer.

In AssuredPartners, the defendant worked as a wholesale broker selling lawyers’ professional liability insurance by acting as an intermediary between a retail broker and an insurance carrier. In performing his job, the defendant identified a carrier that was willing to provide the specialized coverage the retail broker’s client wanted and then would negotiate the premium and policy wording with the insurance carrier. The defendant had worked in this capacity for a number of years, including before becoming employed by the plaintiffs. And in his years in the field, the defendant built a substantial book of wholesale lawyers’ professional liability insurance business.

In 2006, the defendant employee entered into an employment agreement with ProAccess that contained certain restrictive covenants. This employment agreement included a carve-out for some of the employee’s pre-existing relationships. In 2011, AssuredPartners acquired ProAccess, and the defendant employee entered into a senior management agreement. Under the terms of the senior management agreement, the defendant would be employed for a term of four years and guaranteed a base salary with the opportunity to earn a performance bonus at later date. The defendant employee’s senior management agreement contained restrictions on post-employment competition and solicitation.

In 2013, the defendant resigned from AssuredPartners and began competing against it. Among other things, after his resignation, he contacted his former customers. AssuredPartners filed suit against him to enforce the restrictions in his senior management agreement. The trial court found that the noncompetition and nonsolicitation restrictions in the employee’s agreement were unreasonable and unenforceable. AssuredPartners appealed.

The appellate court found the noncompetition provision to be overly broad and unenforceable as it prohibited the defendant from engaging in any “portion of the Restricted Business that relates to professional liability Insurance Products or professional liability Related Services” anywhere in the United States or its territories. The appellate court noted that the noncompetition restriction was not limited to the specific kind of professional liability insurance practice the employee had developed during his employment — lawyers professional liability insurance. Rather, the noncompetition provision restricted the defendant employee from working with all types of professional liability insurance. Further, the appellate court noted that AssuredPartners did not have a legitimate protectable interest in a business relationship with retail brokers, vendors or LPLI clients with which it did not do business.

The nonsolicitation provision prohibited the defendant employee from directly or indirectly causing any “Potential Target, customer, supplier, licensee or other business relation of” plaintiffs and their subsidiaries to cease doing business with them. The appellate court found the nonsolicitation provision to be overly broad because it extended to any customer (potential or otherwise) regardless of whether the defendant employee had contact with them, including customers that became customers after he left his employment. In short, the restriction prevented the defendant employee from working with any customers, suppliers and other business entities with which he never had any contact.

The employer could have imposed noncompetition and nonsolicitation provisions on its employee that would have been enforceable had the employer not overreached. Employers frequently believe they are better off imposing broader restrictions. The view is that courts may narrow restrictions to the extent that they are overly broad and make an employee subject to such restrictions less attractive to competitors. However, AssuredPartners shows the dangers of overly broad restrictions. Employers should have the restrictions in the employment agreements of their key executives and salespeople evaluated to see whether those restrictions are likely to be enforceable. If the review reveals that these restrictions are overly broad, there are steps the employer may be able to take to make them enforceable.

In the aftermath of a significant change in the joint employer standard this year, several states are attempting to address how franchisors are affected.

In August, the National Labor Relations Board (NLRB) released a decision in Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Recyclery, 362 NLRB No. 186 (Aug. 27, 2015), drastically expanding the standard for determining whether an entity was a joint employer. (See our blog post about it here). In doing so, the NLRB veered away from precedent that required a showing that a company exerted actual control over the employees of another company in order for the first company to be considered a joint employer.

In the wake of Browning-Ferris, the standard now looks to the control a company could potentially exert over the employees of another company when making the joint employer determination. While Browning-Ferris involved outsourced workers and not a franchise system, the broad holding in the case (as criticized by the dissent) could apply to many scenarios, including the franchisor-franchisee relationship.

While many thought this expansion of the joint employer standard would be a nail in the coffin of franchises, states have reacted to the NLRB’s move by attempting to narrow the focus and revert to the traditional control standard. While Congress failed to act, Michigan, Virginia and Wisconsin are joining states such as Texas, Tennessee and Louisiana, which have already passed legislation to protect franchisors from being considered joint employers. Michigan, Virginia and Wisconsin have all proposed legislation that would similarly impact the franchisor-franchisee relationship.

Michigan legislative activity

In November, the Michigan legislature introduced bills in the Senate and House that would limit a franchisor’s liability to a franchisee’s employees by amending a number of statutes including:

• Workers’ Disability Compensation Act of 1969 (Michigan Senate Bill No. 493);
• Franchise Investment Law (Michigan Senate Bill No. 492);
• Michigan Employment Security Act (Michigan Senate Bill No. 5073);

• Workforce Opportunity Wage Act (Michigan House Bill No. 5072);

• Michigan Occupational Safety and Health Act (Michigan House Bill No. 5070); and

• 1978 PA 390 amending section 1, MCL 408.471 (Michigan House Bill No. 5071).

The intent of the proposed legislation in Michigan is to clearly define “employer” and explicitly prevent the franchisor from being held as a joint employer with the franchisee. Much of the language in the bills provides that “except as specifically provided in the franchise agreement, as between a franchisee and franchisor, the franchisee is considered the sole employer of workers for whom the franchisee provides a benefit plan or pays wages.” Michigan Senate Bill No. 493 amending the Workers’ Disability Compensation Act most tellingly describes the state’s attitude towards the expanded standard. It seeks to prescribe the traditional control formula by stating that a franchisee’s employee will not be an employee of the franchisor unless the franchisee and franchisor co-determine matters “governing the essential terms and conditions of the employee’s employment,” and both “directly and immediately control matters relating to the employment relationship.” That bill, along with Senate Bill No. 492, has been sent to the governor for execution.

Virginia legislative activity

Virginia similarly seeks to redefine “employer” and “employee” to prevent the franchisor and the franchisee from being labeled as joint employers. Virginia House Bill No. 18 proposes to amend the definition of “employee” in section 40.1-2 of the Code of Virginia Definitions to read that “neither a franchisee nor a franchisee’s employee shall be deemed to be an employee of the franchisee’s franchisor for any purpose,” absent any contrary agreements in the franchise agreement.

Wisconsin legislative activity

Wisconsin follows in line with Michigan and Virginia in proposed Senate Bill No. 422, which proposes to increase franchisor exclusions for employment law purposes. The act impacts laws relating to workers’ compensation, unemployment insurance, employment discrimination, minimum wage, and wage payments. Again, harking back to the traditional notions of control to hold the franchisor as a joint employee with the franchisee, the Wisconsin Senate Bill prohibits considering a franchisor as the employer of a franchisee or a franchisee’s employee unless the franchisor agrees to that role in writing or exerts “control over the franchisee or the franchisee’s employees that is not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademarks or brand.”

These bills are an obvious reaction to the NLRB’s August decision, and it is likely that other states will pass similar legislation. It remains to be seen whether such legislation is truly necessary to protect franchisors and franchisees from more intermingling of their businesses than bargained for by either party. The state bills can be juxtaposed with congressional failure to include legislation that would limit the NLRB’s enforcement of the joint employer standard in its latest omnibus spending package. All is not lost in Congress, though, and HR 3459, the Protecting Local Business Opportunity Act, is positively positioned for a vote in 2016. HR 3459 would curtail the NLRB’s expansion of the traditional standard. In contrast to Congress’s current posture, the state bills are a clear indication that many agree with the franchise community at large that the NLRB has taken the joint employer standard too far, as least as it regards the franchise relationship.

For additional information or any questions on your state’s laws, please contact any of the attorneys in our Employment & Labor or Franchising & Distribution practice groups.

A team of Greensfelder, Hemker & Gale attorneys obtained a unanimous jury verdict in favor of client Edward Jones and one of its supervisors on all counts in defending the investment company against a former employee’s discrimination and whistleblower claims.

In the seven-day trial that ended Dec. 15 in St. Louis County Circuit Court, jurors found that Edward Jones had not discriminated against the former employee as a result of her gender or because of alleged whistleblower complaints. She sought a total of $600,000 in lost pay and benefits.

The case, Amy Grosse v. Edward Jones, initially also included claims alleging age discrimination and retaliation, as well as additional alleged whistleblower claims. The defense successfully obtained summary judgment on the retaliation claims before trial, and the judge directed defense verdicts on two alleged whistleblower claims and the age discrimination claim during the trial. That left the issue of gender discrimination and two alleged whistleblower claims for the jury to decide, and the jury rejected all three claims.

The defense team was Greensfelder attorneys Amy Blaisdell and Molly Batsch. Blaisdell leads the firm’s Employment & Labor practice group.