iStock_000016721898SmallBusiness Tip: Include a liquidated damages clause in your restrictive covenant agreements that clearly sets forth how damages will be calculated in the event your employee breaches the non-competition agreement.

As a President, CEO or General Counsel of your company, you have recognized the need to have your key executives and employees enter into non-competition or non¬-solicitation agreements. Those non-competition agreements are usually a cost effective way to stop your key executives and employees from competing against when they leave your company. However, in those instances where you have to go to court to enforce your non-competition agreement, the experience can be costly, in terms of attorneys’ fees, your time and your company’s resources.

One of the factors that makes the enforcement of a restrictive covenant costly is that damages can be difficult to prove as it is hard to quantify the damaging effect of the competition on your business. Often times you will have to hire an expert to determine the appropriate damages formula to use and calculate what damage your company has incurred as a result of your former executive or employee competing against you. A cost effective way to help minimize some of this cost is to include a provision in your agreement with the key executive or employee that sets forth the damages that your company will be entitled to recover if they violate their restriction.

Unfortunately, such a damages provision cannot provide that if your key executive or employee violates the restriction that your company is entitled to hundreds of thousands or millions of dollars in damages. In fact, if a court views the damages provision as imposing a penalty, it will not enforce the provision. A penalty is one which is grossly disproportionate to the probable loss that your company is likely to incur. Instead, the damages provision must be a “reasonable forecast” of the damages that your company is likely to incur as a result of the breach of the restriction.

What is a “reasonable forecast” of damages for one type of business or employee may not be a “reasonable forecast” for another type of business or employee. Therefore, care needs to be given in the drafting of such damage provisions. An examination of several cases that have discussed such damages provisions is instructive in determining what types of clauses courts have found to be “reasonable forecasts” and which have been found to be penalties.

Two Times Lost Profits A Reasonable Forecast. Two securities traders agreed if they traded any of the products that they had traded for their employer in the three months before they left their securities trading firm, their employer would be entitled to between $700,000 and $800,000 in damages or, alternatively, would be entitled to obtain an injunction against them. When the securities traders violated their non-competition agreement, their former employer sought damages in the amount of the profits that the securities traders generated for their new employer while breaching their non-competition agreements. While the court recognized that it would be difficult if not impossible to calculate the trading profits the securities trading firm would have made but for the violation of the non-competition agreements, the court held that the profits earned by the securities traders for their new employer was not necessarily equivalent to the losses suffered by the securities trading firm as damages. Instead, the proper measure of damages in this case were the profits the securities trading firm would have made on sales it could reasonably have expected to secure had the securities traders not sold securities in breach of their non-competition agreements. However, the court noted that had such a provision been included in the non-competition agreement, that upon breach of the agreement, the securities trading firm could have recovered the profits earned by the two securities traders while breaching their non-competition agreement.

Two Times Previous Years Customer Commissions A Reasonable Forecast. One shareholder of a closely held company purchased the shares of the other shareholder under an agreement that precluded the selling shareholder from competing against the company for three years. In the event that the selling shareholder violated the non-¬competition provision, he agreed to pay two times the previous year’s commissions for the customer or account to which the breach relates. The court found that since the damages calculation was directly tied to the previous year’s commission earned from the customer to whom the breach related, the calculation was a reasonable method of calculating damages.

Two Times Lost Annual Premiums A Reasonable Forecast. An insurance salesman had an employment agreement that contained a non-solicitation provision that prevented him from soliciting the insurance companies’ clients for two years after he left the insurance company. Further, in the event of breach of that provision, the agreement provided that the insurance company was entitled to recover as damages two times the annual premiums it lost as a result of the violation. The court found that because the insurance company had an historic renewal rate of ninety percent, the loss of one customer had the potential to have recurring impact. Therefore, the court found the formula to be reasonable in determining damages.

One And One Half Times Lost Fees Could Be A Reasonable Forecast. A manager at the Buffalo office of a national accounting firm entered into a non-competition agreement with his employer in which he agreed that since his position gave him an advantage in attracting certain clients to the accounting firm, that if he served any former client of the Buffalo office within eighteen (18) months of his departure from that accounting firm, that he would compensate the accounting firm one and one-half times the fees that the accounting firm had charged that client over the preceding fiscal year. The rationale for this formula was that it used a client’s gross billings to value the loss of the client. While the court recognized that such a formula had been accepted by other courts in evaluating accountant non-competition agreements, the court said that in this case evidence needed to be presented that showed that such a formula compensated the accounting firm for the actual damages that it had incurred as a result the loss of client as opposed to penalizing its former employee.

The goal of any damages formula provision should be twofold. First, the provision should allow former employers to easily calculate damages, saving it the cost and expense of proving complicated damages at trial. Second, the provision should serve as a deterrent to the employee (and possibly the new employer) by establishing the damages the employee may have to pay as damages for violating the restriction. Such provisions may give a company another basis to stop employees from competing against them.

iStock_000000234992XSmallBusiness Tip: Include extension clauses in your restrictive covenant agreements to ensure that the time of the restrictions will not begin to run until the employee has stopped violating the restrictions.

In order to make sure that an employer gets the full benefit of the restrictive time period in its non-competition, non-disclosure or non-solicitation agreements, employers in Illinois should make sure that such agreements contain “extension clauses.” Extension clauses will extend the time period or modify the start date of the restrictive covenant in the event that an employer does not discover the former employee’s breach until near the end of the restrictive time period or the employee continues to violate the restriction during litigation.

The Illinois Appellate Court for the First District addressed the issue of extension clauses in Citadel Investment Group, LLC v. Teza Technologies LLC, et al. In that case, Citadel sought to enforce a non-competition agreement against two former employees that prohibited the employees from competing against Citadel for nine months following the end of their employment. Several months into the nine-month non-competition period, Citadel discovered that its former employees were competing against it and filed an emergency motion for a preliminary injunction. After a preliminary injunction hearing, the employees were enjoined from engaging in any competitive activity as defined by the non-competition agreements from the date of the order and ending at the termination of the nine-month restrictive time period set forth in the non-competition agreements, which deprived the Citadel of nine full months without competition. In its opinion, the trial court noted that the non-competition agreement did not have a clause extending the restriction period based on a violation of its terms.

On appeal, Citadel argued that its former employees should have been enjoined for the full nine-month restrictive time period as contemplated under the agreement starting from the date of the injunction order, despite the lack of an extension clause in the non-competition agreements. However, in upholding the trial court, the First District Appellate Court recognized that under the plain language of Citadel’s restrictive covenants, the restrictions terminated by their own terms nine months after termination of employment. Further, the Appellate Court recognized that the agreements did not contain any provision for allowing for an extension or modification of the commencement date of the restriction.

In light of this decision, which is in accord with decisions from other districts of the Illinois Appellate Courts, employers in Illinois should review the non-competition or non-solicitation agreements that they currently use and that they have used in the past to see if they contain extension clauses. If any of these agreements do not contain extension clauses, Illinois employers should consider revising these agreements to include extension clauses to ensure that the employer gets the full benefit of the restrictive time period in these agreements.

5388576411_700edd78b2In our previous post, we addressed the National Labor Relations Board’s finding that franchisors can be considered joint employers of its franchisee’s employees. The issue of the joint employer relationship continues to be a hot button issue. Just last week, the Missouri Supreme Court announced a new rule of joint employer liability under the Missouri Minimum Wage Law (MMWL). In Tolentino v. Starwood Hotels & Resorts Worldwide, Inc., No. SC93379 (Mo. banc Aug. 19, 2014), the court took a broad view of joint employers – even when criminal activity is involved.

Background to Tolentino – Joint Employer Liability

Tolentino arose out of a common joint employer situation – a temporary staffing agency sending employees to provide services to a client. In Tolentino, Starwood Hotels, the operator of the Westin Crown Center in Kansas City, Missouri, contracted with Giant Labor Services (GLS) to furnish housekeeping services. The contract provided that GLS would furnish housekeepers on an as-needed basis, and Starwood would pay GLS $5.00 for each room cleaned. The contract also provided that GLS would be responsible for hiring, disciplining, and paying the housekeepers. It also specifically stated that GLS’s employees would not be considered employees of Starwood for any purpose.

During his employment with GLS, Tolentino provided housekeeping services for the Westin Crown Center. After a few months of employment, Starwood notified GLS that Starwood no longer wanted the plaintiff to work at the hotel due to performance concerns. The plaintiff received $0.00 from GLS in his final check for the services performed for Starwood, as GLS deducted the entire after-tax amount for visa fees, a practice that is clearly illegal. Based on GLS’s deduction practices for the plaintiff and other employees, GLS executives were later convicted of violations of federal racketeering laws.

Tolentino recovered $3,150 from GLS in a separate criminal suit, which was deemed to be his “total loss” in that suit. He also filed a separate civil suit against Starwood for violations of the MMWL. Starwood claimed that it could not be held liable because it was not his employer. It also argued it did not set the terms of the plaintiff’s compensation, the plaintiff earned more than minimum wage before GLS illegally deducted his wages, and Starwood had no idea GLS illegally deducted his wages.

Under Missouri and federal law, an employer is a joint employer if it has the power to: 1) hire and fire the worker; 2) supervise and control the worker’s schedule and conditions of employment; 3) determine the worker’s wages and method of payment; and 4) maintain records related to the worker’s employment. The trial court and appellate court did not decide whether Starwood was a joint employer, holding that even if it was, it could not be held liable for the unforeseen criminal acts of GLS.

The Missouri Supreme Court’s Ruling

The Missouri Supreme Court held Starwood’s status as a joint employer was an open question. The Court reasoned that Starwood’s authority to recommend a housekeeper’s removal, set cleaning standards, establish per-room rates paid to GLS, and record how many rooms each housekeeper cleaned, might be evidence that Starwood should be considered a joint employer.

However, the court overruled the lower courts and held that Starwood could be held liable for GLS’s criminal acts. The court found that the MMWL is a remedial statute designed to be interpreted broadly in order to effectuate its purpose of ensuring employees receive the legally mandated minimum wage. Noting that refusing to impose joint liability on Starwood would place the risk of underpayment of wages squarely on the shoulder of the employees, the court held that if Starwood is considered to be a joint employer, it has responsibilities under the MMWL. Those responsibilities, the court held, were not absolved by GLS’ unforeseen criminal acts. The court remanded the case for further consideration to the trial court.

What This Means for Missouri Employers

Tolentino may have broad repercussions for employers under the MMWL, as well as other Missouri laws. First, Tolentino teaches that despite language in a temporary staffing agency contract, a party may still be deemed to be an employer of a worker under the joint employer test. In Tolentino, Starwood’s contract with GLS specifically provided that Starwood would not be deemed to be an employer of the housekeepers and delineated each party’s responsibilities for wage payment, supervision, and hiring and firing. Despite this, the court analyzed the four factors of the joint employer test, ruling that the facts surrounding the plaintiff’s employment indicate that Starwood could be a joint employer. The lesson to Missouri employers here is that an employment contract is not conclusive for purposes of joint employer determination. Rather, courts will look to the facts and circumstances surrounding the employment relationship.

The second lesson of Tolentino is that if an employer is deemed to be a joint employer, that employer may be liable under many Missouri laws for actions by a third party. Although Tolentino specifically addressed the MMWL, Missouri has several laws that are construed broadly to protect employees in the workplace. For example, the Missouri Workers’ Compensation Law, the Missouri Prevailing Wage Law, and the Missouri Human Rights Act are often interpreted in favor of employees. Tolentino should give pause to employers subject to these laws, as the case may signal a willingness of the courts to impose expanded employer liability.

As joint employer relationships become more common in the workplace, whether through franchising or staffing agency relationships, analyzing the day-to-day relationship between an employer and an employee may significantly reduce the risk of liability under Missouri laws when acts are committed by another employer.

franchiseIn a decision that could have far-reaching legal implications for franchisors, on July 29, 2014, the General Counsel of the National Labor Relations Board (“NLRB”) ruled that McDonald’s was a joint employer of its franchisees’ employees. This decision stems from allegations that McDonald’s and its franchisees violated employees’ rights following protests pertaining to wages and working conditions.

Under long-standing NLRB precedent, a joint employer relationship may be found where one company possesses control over another company’s employees. Typically, the NLRB looks for evidence showing that the joint employer meaningfully affects employment matters such as decisions regarding hiring, firing, discipline, supervision or direction of another employer’s employees. Because the General Counsel’s reasoning for his decision is not published, the specific basis of the General Counsel’s decision remains unknown; however, factors such as a franchisor requiring (or strongly recommending) franchisees to maintain common policies, dress code, work rules and/or performance standards are among those that might be considered by the NLRB in deciding joint employer status.

The NLRB’s decision is troubling; however it is likely merely the opening salvo in an undoubtedly lengthy legal battle. The General Counsel’s decision authorizes the NLRB to proceed with unfair labor practice charges against McDonald’s and its franchises. Initial proceedings would be conducted before an NLRB Administrative Law Judge (“ALJ”). Any decision by the ALJ is subject to appeal to a three-member panel of the NLRB (the NLRB could, and in this case may be likely to, opt to have the entire Board participate in the decision), and any ruling by the NLRB may be appealed to a federal circuit court of appeals.

This is not the first time the question of joint employer status of franchisors and franchisees has been raised. Over the last several years, several state courts have examined the issue. Those decisions, however, have dealt with more limited state law issues. Ultimate success by the NLRB in treating McDonald’s as a joint employer with its franchisees could have far-reaching consequences for the franchise model in the U.S. Today’s franchise relationships are a balance between franchisors imposing enough control over their franchisees’ business to ensure a uniform experience for customers and the franchisees controlling day-to-day operations of their businesses. The franchise model is often attractive to franchisors because it enables them to grow their brand with less financial outlay than opening its own locations and is attractive to franchisees because they get to open their own business with the safety net that the franchisor provides through systems and support. Treating franchisors and franchisees as joint employers may force franchisors to reconsider their relationships with their franchisees in fundamental ways that will impact the desirability of franchising to both parties.

Contraceptives_iStock_000029626228SmallIn Burwell v. Hobby Lobby Stores, Inc., the Supreme Court struck down the contraceptive mandate as applied to certain for-profit employers.

The Patient Protection and Affordable Care Act and its regulations require group health plans to cover women’s preventive care without any cost sharing requirements. The Health and Human Services department issued guidelines that included all Food and Drug Administration approved contraceptive methods within the definition of preventive services.

In the two cases consolidated in the decision, the plaintiffs were closely held corporations – Hobby Lobby Stores, Inc., Mardel, and Conestoga Wood Specialties Corp. – and the Christian families that owned them. The plaintiffs objected to four types of contraceptive methods, which they considered abortifacients.

The plaintiffs argued that the contraceptive mandate violated the Free Exercise Clause of the First Amendment and the Religious Freedom and Restoration Act (“RFRA”). The Supreme Court held that the “contraceptive mandate as applied to closely held corporations, violates RFRA.”

In coming to this conclusion, the Court determined that for-profit corporations are included within the definition of “person” as used in RFRA based on the definition of “person” found in the Dictionary Act.

Having determined that RFRA applied to the for-profit plaintiffs, the Court then decided that the contraceptive mandate violated RFRA because it imposes a substantial burden on the plaintiffs’ exercise of their sincerely held beliefs and it is not the least restrictive means of accomplishing the government’s compelling interest. The Court pointed to the regulations’ accommodation of non-profit religious employers (“eligible organizations,” as defined in the regulations) as a less restrictive means of providing contraceptive coverage to employees.

Open Questions

The Court did not address whether the application of the contraceptive mandate to other for-profit corporations would violate RFRA. The Court specifically limited its holding to closely held corporations. However, the Court’s reasoned that there should not be a distinction between non-profit and for-profit corporations generally and that “person” in RFRA included for-profit corporations, which would suggest the holding is broader than just closely held corporations. But the Court found it unlikely that a publicly-traded corporation would assert a RFRA challenge and, thus, did not extend its holding to publicly-traded corporations.

Furthermore, although the court pointed to the accommodation for eligible organizations as a less restrictive means of furthering the government’s interests, it specifically did not address whether the accommodation itself may violate RFRA. The Court stated that this issue was not raised in the current case. However, in late December 2013, the Court granted an injunction pending appeal to plaintiffs who would qualify for the accommodation as eligible organizations but claimed that complying with the accommodation violated their sincerely held religious beliefs. Little Sisters of the Poor Home for the Aged, Denver, Colorado v. Sebelius, 134 S. Ct. 893 (2013). The citation to Little Sisters by both the Court and the dissent suggests that this issue also may be addressed by the Court in the near future. Furthermore, the same day, the Eleventh Circuit granted an injunction pending appeal to a Catholic organization that claimed the accommodation violated its religious beliefs. Eternal Word Television Network, Inc. v. Sec’y, U.S. Dep’t of Health & Human Servs., 14-12696-CC, 2014 WL 2931940 (11th Cir. June 30, 2014). In a separate concurrence, Judge Pryor wrote that the plaintiff had likelihood of success on the merits of its claim that the accommodation violated RFRA. However, this contrasts earlier decisions in the Seventh and Sixth Circuits, which denied injunctions to similar organizations. See Mich. Catholic Conference & Catholic Family Servs. v. Burwell, Nos. 13-2723, 13-6640, 2014 WL 2596753 (6th Cir. June 11, 2014); Univ. of Notre Dame v. Sebelius,743 F.3d 547 (7th Cir. 2014). By deciding that the contraceptive mandate violated RFRA, the Court avoided determining whether the contraceptive mandate may violate the Free Exercise Clause of the First Amendment as well.

Compliance Issues

The Court’s holding suggests that for-profit organizations should also receive the accommodation offered to eligible organizations in the regulations. The definition of “eligible organization,” however, includes that the entity must be organized and operate as a nonprofit entity. See, e.g., 29 C.F.R. § 2590.715-2713A(a)(2). The Court’s holding may force the departments to amend the regulations to eliminate this part of the test and open the accommodation to closely held for-profit corporations.

Furthermore, the Court’s holding could eliminate a current ambiguity in the rule as applied to organizations in a controlled group of corporations when all the entities hold themselves out to be religious employers that object to contraceptive coverage but not all of the entities are non-profits. The preamble to the regulations states that the “eligible organization” test needs to be applied on an “employer-by-employer” basis. Although this language was never included in the text of the regulations, it could be interpreted to require a non-profit organization that sponsors a plan and acts as a parent company to a controlled group that includes a for-profit corporation to provide contraceptive coverage directly to employees of the for-profit organization (instead of indirectly providing coverage through use of the accommodation). The Court’s holding seemingly would eliminate the need for the employer-by-employer test in these situations, if, indeed, it was ever required.

Under the Court’s holding, closely held for-profit corporations and for-profit corporations with non-profit parent corporations should be able to request an accommodation from their issuer or third-party administrator or claim that, until the regulations are amended, their plans are exempt. Furthermore, non-profit parent organizations may be able to provide one self-certification for their controlled group of corporations.

However, as noted above, the status of accommodation may be in flux as it appears that the Court expects further challenge to whether the accommodation itself violates RFRA. Given the close 5-4 decision in Hobby Lobby, it is difficult to predict the future of the eligible organization accommodation.

Same Sex MarriageLast week, the United States Department of Labor (“DOL”) announced a proposed rule that would extend the Family and Medical Leave Act (“FMLA”) to provide spousal leave to employees in same-sex marriages. The proposed rule is currently open for comment and will not become final for some time.

Currently, FMLA allows eligible employees of covered employers to take unpaid leave (or use paid leave concurrently) for up to 12 weeks in a 12 month period to care for the employee’s spouse with a serious health condition. Currently, FMLA defines “spouse” as “a husband or wife as defined or recognized under State law for purposes of marriage in the State where the employee resides, including common law marriage in States where it is recognized.” 29 C.F.R. § 825.122(b).

That definition begs the question: what if an employee marries a same sex spouse in one of the 19 states that recognizes same sex marriage and then moves to a state that does not? Illinois to Missouri, for example. Under the current definition of “spouse,” FMLA leave would be denied in that scenario because the employee’s state of residence controls, rather than the state of the marriage. Under the proposed DOL rule, “spouse” would be defined as “a husband or wife,” which “refers to the other person with whom an individual entered into marriage as defined or recognized under State law for purposes of marriage in the State in which the marriage was entered into or, in the case of a marriage entered into outside of any State, if the marriage is valid in the place where entered into and could have been entered into in at least one State.” So if the marriage was valid where it was performed and would have been valid in any State, the employee has a spouse regardless of where the employee resides.

The DOL’s proposed rule is the logical progression from the United States Supreme Court decision in U.S. v. Windsor, which struck down Section 3 of the Defense of Marriage Act, which defined marriage as between one man and one woman. Without a universal federal definition of marriage, relying on employers to use ever-changing state by state definitions to implement a federal law seems unworkable and inequitable. In that regard, the DOL’s proposed rule is hardly surprising and will almost certainly become final.

EmailThreatening to overturn current Board precedent, the National Labor Relations Board (“Board” or “NLRB”) has invited interested individuals and organizations to submit briefs addressing whether employees should have the right to use employer-provided e-mail and electronic communications systems for union organizing and any other activity protected by the National Labor Relations Act (“NLRA”). A successful effort by the Board will require both union and non-union employers to review their communications policies to ensure compliance with the NLRA.

Current Law

In Guard Publishing Co. d/b/a Register Guard, the Board announced its current standard. The Board reaffirmed its long-standing principle that employees have no statutory right to use an employer’s equipment or media for union activities. Further, the Board concluded that unless the employer had permitted employees to send emails soliciting support of other groups or organizations, the employer’s policy prohibiting emails soliciting support of the union was not discriminatory. The Board acknowledged that the employer had permitted employees to send a variety of personal, non-work related emails, but found these emails to be sufficiently different in nature from emails soliciting support of the union. Accordingly, absent evidence that an employer had allowed employees to send emails supporting other organizations, an employer could lawfully restrict emails soliciting support for the union.

NLRB’s Latest Proposal

 Following a recent Administrative Law Judge’s decision which followed Register-Guard, NLRB General Counsel Griffin and the Communications Workers of America filed exceptions urging the NLRB to overturn Register-Guard and find that employees permitted access to an employer’s email system be permitted to use that system for union organizing and other union activity, subject only to the employer’s need to maintain production and discipline. This position, if adopted, would mean that employees could use a company’s email system for union activities, even if the employer otherwise restricted employees from using the employer’s email for non-work purposes. The only restriction an employer would be permitted to implement would be a restriction on sending such emails during work hours, provided that the employer could show that it similarly restricted other non-work related emails during work hours. The Board’s proposed position would likely allow union organizers unlimited access to an employer’s email system.

While these exceptions are pending, the Board has invited interested parties to submit their views on the Register-Guard decision and whether or not it should be overturned. Briefs must be submitted by June 16, and should answer five questions:

  • Should the Board reconsider its conclusion in Register-Guard that employees do not have a statutory right to use their employer’s email system (or other electronic communications systems) for Section 7 purposes?
  • If the Board overrules Register-Guard, what standard(s) of employee access to the employer’s electronic communications systems should be established? What restrictions, if any, may an employer place on such access, and what factors are relevant to such restrictions?
  • In deciding the above questions, to what extent and how should the impact on the employer of employees’ use of an employer’s electronic communications technology affect the issue?
  • Do employee personal electronic devices (e.g., phones, tablets), social media accounts, and/or personal email accounts affect the proper balance to be struck between employers’ rights and employees’ Section 7 rights to communicate about work-related matters? If so, how?
  • Identify any other technological issues concerning email or other electronic communications systems that the Board should consider in answering the foregoing questions, including any relevant changes that may have occurred in electronic communications technology since Register-Guard was decided. How should these affect the Board’s decision?

If you have thoughts about this potential change in the law, now is the time to voice them to the NLRB. If you have questions about how to do so, please reach out to the Employment and Labor Group.

WorkersCompIn a decision reversing 30 years of precedent, the Missouri Supreme Court recently abandoned the “exclusive causation” standard previously applied to workers’ compensation retaliation claims in favor of the considerably more lenient “contributing factor” standard. See Templemire v. W & M Welding, Inc., SC93132, 2014 WL 1464574 (Mo. Apr. 15, 2014) (en banc).

What does this decision mean for employers? 

Prior to the decision, plaintiffs claiming workers’ compensation retaliation had to prove that their filing of a workers’ compensation claim (or exercise of another right protected by the Missouri Workers’ Compensation Act) was the “sole” or “exclusive” reason for the alleged adverse employment action. Under this standard, the employer could typically prevail by demonstrating a legitimate, non-discriminatory reason for the adverse action (e.g., that the employee was terminated for excessive absenteeism).

Now, plaintiffs claiming workers’ compensation retaliation need only prove that their exercise of rights was a “contributing factor” in the adverse employment action. In other words, an employee may still proceed or even prevail on a retaliation claim even if the employer demonstrates a legitimate and non-discrimination reason for taking the adverse action. 

For example, in Templemire, the employer presented evidence that it terminated the plaintiff for insubordination approximately 10 months after plaintiff had filed a workers’ compensation claim. The plaintiff then presented evidence that the employer had yelled at him, had referred to other injured employees as “whiners,” and had belittled employees as a result of their injuries. The jury entered a verdict for the employer, finding this evidence was insufficient to demonstrate that plaintiff’s workers’ compensation claim was the exclusive reason for his termination.

After adopting the “contributing factor” standard, however, the Missouri Supreme Court found that plaintiff’s evidence was sufficient to permit a reasonable trier of fact to conclude that the filing of his workers’ compensation claim “contributed” to his discharge in some way. This conclusion was reached notwithstanding the fact that the employer had presented competent evidence that the plaintiff was terminated for a legitimate reason. This Court then remanded the case for a new trial consistent with its decision.

This decision is somewhat perplexing considering the Missouri Supreme Court’s prior observation that a lower standard for workers’ compensation retaliation claims would “encourage marginally competent employees to file the most petty claims in order to enjoy the benefits of heighted job security.” However, it is consistent with the Court’s trend in recent years to significantly lower the standard of proof for discrimination and retaliation claims.

Minimizing risk in the future

One thing is for certain—employers can expect an increasing number of workers’ compensation retaliation claims in the wake of the Templemire decision. The burden of proof is now significantly lower, making summary judgment much more difficult to obtain, and increasing the overall appeal of these claims for plaintiffs’ attorneys.

To minimize the risk of these claims, employers should exercise particular caution in the way they treat and speak to employees who have exercised their workers’ compensation rights or plan to exercise these rights. As the Court hinted in Templemire, under the new standard, even a careless comment about an injured employee or the effect of the injury on the employer may pave the way for a retaliation claim. Training supervisors to avoid any comments or conduct that could be perceived as retaliatory, and exercising extra caution before terminating or otherwise disciplining employees who have exercised or plan to exercise their workers’ compensation rights will significantly reduce the risk of a claim.

College style football on field with a pile of moneyIn a decision with the potential to change the landscape of major college sports, a National Labor Relations Board (“NLRB”) Administrative Law Judge (“ALJ”) ruled that scholarship football players at Northwestern University are employees of the university and, therefore, entitled to hold an election to decide whether or not they wish to be represented by a union. Northwestern University immediately stated its intent to appeal the ALJ’s decision, and this matter is likely to end up working its way through the federal courts, and possibly the US Supreme Court.

This dispute arose following efforts by former Northwestern quarterback Kain Colter and the newly created College Athletes Players Association to organize current scholarship football players at Northwestern. After a successful authorization card campaign, the union petitioned the NLRB for a representation election. Northwestern opposed the election on the grounds that the players were not employees of the university and, therefore, not entitled to form a union for purposes of collective bargaining.

In a decision that raised more questions than it answered, Administrative Law Judge Peter Sung Ohr issued a 24-page opinion which carefully and exhaustively analyzed the life of a Northwestern scholarship football player in an effort to determine whether such players met the common law definition of an “employee.” In answering that question in the affirmative, ALJ Ohr cited the following facts:

  • During August training camps, players engage in 50-60 hours of football-related activities and may be subject to a strict schedule set by the University through its coaches for up to 16 hours a day.
  • During the regular football season, players devote 40-50 hours to football activities and are required to fulfill strict schedules set by the University.
  • If the football team reaches a bowl game, the regular season schedule extends into December and players forego most of their Christmas break.
  • “Optional” offseason workouts are monitored by a “player leadership council” for attendance and team personnel monitor attendance at mandatory offseason activities.
  • Spring practice activities require 20-25 hours per week of football-related activity.
  • Players who receive football scholarship receive up to $76,000 in grant-in-aid that covers tuition, fees, room, board and books.
  • Players spend 20 hours or less attending classes.
  • Over a ten year period (2003-2012), the football program generated $235 million in revenue while incurring expenses of only $159 million. The profits realized from Northwestern’s football program were vital to supporting other non-revenue generating sports and ensuring the university’s compliance with Title IX.

Based on these and other facts, ALJ Ohr concluded that the scholarship football players were not “primarily students,” rather they were “employees” who performed valuable services for Northwestern under the control of its coaching staff in exchange for valuable consideration. In concluding that the appropriate bargaining unit consisted solely of scholarship football players, ALJ Ohr excluded walk-on players who, despite being subject to the same rules and schedules, are not compensated for their services.

While ALJ Ohr’s decision stunned the sports world, and is undoubtedly subject to years of challenges, the decision raises as many, if not more questions than it answers.

  • What impact, if any, does the decision have outside of college football? Does the decision affect only athletes of “revenue generating sports” (notably college basketball) or does it impact all college sports? What about sports which require lesser time commitments?
  • The NLRB does not have jurisdiction over public employers. A number of college football programs (e.g., University of Missouri) are maintained by state universities. Would state labor laws apply to these programs?
  • If the scholarship football players are employees, and their grant-in-aid scholarship is compensation, do the football players have to pay income tax on the value of the scholarship?
  • Would the football players’ injuries be subject to workers’ compensation laws?
  • What sort of issues might be subject to collective bargaining? Would decisions related to player discipline be subject to an employee grievance procedure?
  • Could college players receive compensation in addition to the value of their grant-in-aid scholarship?

It’s unlikely we will get answers to these or many other questions that may be asked in the coming months/years. But if you’re like me and you look forward to a Saturday afternoon tailgate at your alma mater or enjoy laughing at the ridiculous predictions of the College Game Day crew, you may want to cross your fingers, rub your lucky rabbit’s foot or do whatever it is you do to bring your team good luck. The landscape of college football may be headed for significant changes.

Football Line of ScrimmageBy now, if you haven’t heard the name “Michael Sam,” you’ve probably been hiding under a rock somewhere. His name was constantly in the headlines of both sports and news media after he publicly announced he is gay. And for good reason. The former Mizzou football player and SEC Defensive Player of the Year could become the first openly gay player in the NFL. As many in the media struggled to find a new angle for the story, some questioned whether Sam’s sexual orientation would hurt his chances of being a high draft pick – or a draft pick at all. Some speculated that NFL teams may pass on Sam because of the real or perceived unrest it could create among his teammates.

Suppose Michael Sam goes undrafted – or in employment law terms – suppose NFL teams refuse to hire him because he is gay. What recourse would he have? 

He could file a grievance with his Union, the NFL Players Association, for violation of the NFL’s Equal Employment Opportunity Policy and Collective Bargaining Agreement, both of which prohibit discrimination based on sexual orientation.

But legally, Sam’s options would be more limited. That’s because Title VII does not include sexual orientation as a protected class. In fact, federal courts have uniformly rejected the argument that Title VII’s prohibition against discrimination based on “sex” should be construed to include sexual orientation.

State law treatment of the issue is anything but uniform, but most follow Title VII’s example. However, twenty-one states have enacted non-discrimination laws that prevent employment discrimination based on sexual orientation. Illinois is among them; Missouri is not. The Illinois Human Rights Act expressly prohibits discrimination “because of . . . sexual orientation.” 775 ILCS 5/1-102(A). Although Missouri’s Human Rights Act does not cover sexual orientation, several bills are currently pending in the Missouri state legislature that would, if passed, amend the Human Rights Act to add sexual orientation and gender identity as protected classes.

Many municipalities around the country have enacted ordinances that prohibit discrimination based on sexual orientation. St. Louis is among them. St. Louis Ordinance 67119, Section 9 prohibits an employer from failing or refusing to hire, discharging or discriminating against a person because of sexual orientation. Ordinance 67119 does not authorize private causes of action, however, and St. Louis Ordinances only apply within the city limits.

So from a legal standpoint, some teams could legally refuse to draft and “hire” Sam because he is gay because they are not covered by state or municipal discrimination laws that cover sexual orientation. According to one account, there are five such teams: the Arizona Cardinals (Glendale, AZ), Jacksonville Jaguars, Houston Texans, Carolina Panthers (Charlotte, NC) and the Tennessee Titans (Nashville, TN). If that is accurate, Sam would have some legal measure of protection from discrimination by all other teams.

This state-by-state and city-by-city analysis could change in the near future, however. United States Senate Bill 815, also known as the Employment Non-Discrimination Act of 2013, or “ENDA,” would prohibit sexual orientation discrimination by all employers with over 15 employees (the same threshold as Title VII). ENDA passed the Senate in November 2013 and is currently pending in the House of Representatives.