The Plaintiff had sought class certification in a wage-and-hour suit against her employer, Giordano’s Enterprises, over a $0.25-per-hour deduction used to cover employee meals. The Plaintiff wanted two separate classes certified – employees who were paid below minimum wage after the deduction, and employees who still received more than minimum wage after the deduction. The Defendant asked the court for additional time to respond, claiming they wanted to negotiate settlement.

During the court’s extension, the Defendant executed some 350 settlement and release agreements with individual employees. The settlements released the company from the wage claims in exchange for $10. When the Plaintiff learned of the releases, she moved the court to enjoin the Defendant from executing any additional settlements, and to void the already-obtained agreements as against public policy. The court granted the injunction, and certified the question of the settlements’ validity for interlocutory appeal.

On appeal, the court noted that the Wage Payment Act itself states that payment of minimum wage is a matter of public policy, and that any contract that results in less-than-minimum wages is void. The Act also requires employers to pay employees all wages not in dispute, and that acceptance of a paycheck can’t be tied to release of wage claims. Thus, the Act itself prohibited the settlements signed by any member of the putative “below-minimum” class.

As to the other class – those who still received more than minimum wage after the $0.25 deduction – the court looked to Federal courts’ interpretation of the FLSA for guidance. Though there are exceptions, the court noted a steady line of cases prohibiting private settlements of wage claims. The reasoning was transferrable to Illinois – the legislature’s determination of a public right to minimum wage payment meant that the right cannot be waived.

Finally, and most importantly, the court held that all the settlements were void because the Plaintiff had already petitioned for class certification. Illinois courts have long held that, where a class hasn’t been certified yet, the Defendant can execute settlements with individuals who would eventually be members of the class. However, no court in the state had ever dealt with settlements executed while a petition for class certification was pending. The court of appeals held that a trial court has a duty to protect the interests of a putative class, and the legitimacy of the judicial process, and that this duty was affected by the Defendant’s attempts to settle with members of the class. As a result, the court of appeals held that any releases signed by members of a putative class while a petition for certification is pending are void as a matter of law.

It will be interesting to see how the Defendant’s specific actions in this case – asking the trial court for an extension so it could “negotiate settlement”, not notifying either the Plaintiff or the court of its intentions, offering a blanket sum of $10 rather than negotiating individual claims, etc. – affect the trajectory of this decision’s precedent. Future courts could limit the holding to circumstances where the defendant tried to deceptively execute releases, or it could stand on the holding as it reads – that any release executed while a motion for class certification is pending is outright void.

Either way, for now the message is clear: In Illinois, everything changes when that petition to certify is filed.

Image © 2010, Franczek Radelet P.C.

I just wanted to write a quick note to welcome labor & employment attorneys Jeff Nowak and Bill Pokorny to the blawgosphere, and to point you to their new blog, FMLA Insights.

Jeff is a trusted source on labor and employment law in general, and a veritable expert on FMLA issues.

The blog already has posts up on the new Administrator’s Interpretation extending parental leave to gay partners, analysis of case law and pending legislation, and even podcasts.  There’s even some reassurance for employers about the new FMLA regs.

If you or your business ever have to deal with the the Family Medical Leave Act, you should add this site to your RSS list now. I have.

The interpretation focuses on language in the FMLA that allows eligible employees 12 weeks unpaid leave to bond with or care for “a son or daughter”. The Act defines “son or daughter” as a biological, adopted or foster child, a stepchild, a legal ward, or a child of a person standing in loco parentis….”

That last little bit of Latin means anyone who has day-to-day responsibilities for a child, but hasn’t gone through a formal process to legalize a parental relationship. This definition exists regardless of the existence or presence of the child’s biological parents.

So, the Administrator says:

“an employee who will share equally in the raising of an adopted child with a same sex partner, but who does not have a legal relationship with the child, would be entitled to leave to bond with the child following placement, or to care for the child if the child had a serious health condition, because the employee stands in loco parentis to the child.”

It’s important to note that, while the granting of same-sex rights is clearly the lead story here, this interpretation has many more implications for those caring for children. Other examples the Administrator gives include:

• A grandparent that has assumed ongoing responsibility for a grandchild;
• An aunt assumes responsibility for raising neices and nephews following the death of the children’s parents;
• Any employee sharing responsibilities equally with the child’s biological parent (including live-in, long-term girlfriends/boyfriends, presumably).

The case is basically about arbitration agreements between employers and their employees. But that makes it sound way more sexy than it actually is; the case is really about whether a court can analyze an arbitration agreement where the agreement specifically grants the arbitrator the exclusive right to decide the legitimacy of or otherwise interpret the agreement’s terms.

The Court held that, where a party wants to assert a contract defense against an arbitration agreement’s delegation of specific rights to the arbitrator, the litigant must challenge that specific provision of the arbitration agreement, and not the agreement as a whole. Since Jackson challenged the arbitration agreement as a whole, the issue should have been left to the arbitrator under the terms of the agreement.

Still with me? Good. Now, that boring topic above is really interesting to me, and to many other labor and employment lawyers who get excited about the intricate procedural details of bringing employment claims. But I think we can all agree that it’s not the kind of SCOTUS opinion that makes the front page of the New York Times.

What’s interesting to me is how my fellow L&E blawgers have used the case to make very practical or helpful notes for their potential clients. To wit:

• The opinion is, arguably, very good news for employers who want air-tight arbitration agreements that will keep them out of court. But Jon Hyman at Ohio Employer’s Law Blog reminds employers that being able to do something doesn’t always mean you should. Recent studies have called into question whether mandatory arbitration is really saving businesses any money at all.
• At Jottings by an Employer’s Lawyer, Michael Fox puts the opinion in political perspective, and explains why it may not be such a great thing for employers after all. If his dead-on prediction of Sen. Leahy’s response to the opinion is any indication, this may lead to legislation that swings the pendulum much farther toward the employee than was the case yesterday.

Both these posts are worth reading, whether you’re into meta-analysis of arbitration agreements or not.

Photo by gravitywave (flickr)

Yesterday, the Autism Genome Project released the results of the largest study to date into the links between genes and autism. The results showed a correlation between the location of certain genetic variants – errors in DNA, essentially – and symptoms of autism spectrum disorder. This is how the Autism Speaks press release put it:

[T]he AGP reported that individuals with autism tend to carry more submicroscopic insertions and deletions called copy number variants (CNV) in their genome than controls. Some of these CNV appeared to be inherited, while others are considered de novo, or new, because they are found only in affected offspring and not in the parents. Taken together, more of the CNVs disrupt genes, previously reported to be implicated in intellectual disability without autism or in autism, than expected by chance.

Got that? No? Well, lucky for you Nature, the journal that published the study, has a blog to help explain empirical results in layman’s terms. Here’s how they put it:

[Researchers] found that autistic people did not have more rare copy-number variants than those without the disorder, but their variants were more often found within genes rather than in the vast amount of DNA located between genes. Specifically, 20% more genes contained a rare copy-number variant in autistic participants in the study. And among genes previously linked to autism spectrum disorder or intellectual disability, 70% more of them contained a rare copy number variant.

Deletions in one region of the X-chromosome, called the DDX53-PTCHD1 locus, were associated with a three-fold higher risk of autism spectrum disorder.

Still confused? Don’t sweat it, it’s a confusing issue. Both of the sources I just quoted make that point, too – that the issue of genetics and autism is nowhere near fully understood, including how these genes react with the environment.

Why am I talking about this? Well, the point of the research, of course, is to find some new treatment for the disorder, including genetic testing for early detection. Here’s one of the researchers (via WebMD):

“I can imagine a day when one can identify the specific genetic risk that led to an individual child’s autism, and then using that genetic information to say what pathway has been affected and then choosing a medical intervention.”

This would be phenomenal, of course. But it showcases how important the new Genetic Information Nondiscrimination Act may soon become. As studies like this one continue, more and more diseases and disorders will be linked to genetics, and testing for future medical issues is likely to become commonplace among doctors. GINA’s purpose is to keep genetic information private, and keep even well-intentioned employers – who don’t understand those science quotes above any more than we do – from using that information in employment decisions.

There will be moral and ethical decisions we’ll all have to make about how much knowledge we want about ourselves and our family members. And often, we’ll have to make those decisions without fully understanding what the results of such tests really mean. It’s telling how a study as nuanced and intricate as this autism study clearly was can be reduced to headlines like “DNA sweep reveals new autism genes“.

To the extent GINA keeps information like this from being used to discriminate against employees, it may become the ADA of the 21st century.

Specifically, the new poster includes updated information on the ADA Amendments, some updated DOL language, and information on the new Genetic Information Nondiscrimination Act (GINA) which goes into effect November 21. 

The EEOC website has information on ordering new posters, but also has a downloadable version of the new poster, and a downloadable supplement to the 2002 poster, if you’ve got a glossy version of that one that you want to keep up. 

Go download one of these two notices and put a pushpin in it.  Not only will it keep you in compliance, but your employees notice when things like that change, and it makes you look like you’re thinking about their rights.  (That’s a good thing.)

A little background on noncompetes before we go any farther.  A noncompete, of course, is an agreement between an employee and a company that the employee won’t compete directly with the employer if he quits.  Usually, the agreement is limited to a certain geographic area, a certain amount of time, or both.

Okay, so here’s where things get interesting:

The Il-Legitimate “Business Interest Test”?

For a long time, Illinois appellate courts have used two tests for determining whether a noncompete was overly limiting. The first test – the “Time-and-Territory” test – is sort of the industry standard. The court determines (based on prior cases) whether or not the time and distance limitations included in the agreement are a reasonable restraint of trade. If so, then the agreement is valid. If they are found to be unreasonable, then the court may either void the agreement or adjust it to make it palatable.

The second test, however – the “Legitimate Business Interest” test – makes the court’s process a little more complicated. Under this test, a covenant not to compete will be enforced if (1) the employee acquired confidential information through his employment and then attempted to use it for his own benefit; or (2) if, by the nature of the business, the customer relationship is near-permanent and the employee would never have had contact with the customers but for his employment with the company. In other words, under the Legitimate Business Interest test, noncompetes are only valid if some trade secret violation occurred on top of any violation of the agreement itself.

Making matters worse, the use of the tests has not been mutually exclusive: some decisions only refer to one or the other, and some reference both.

The Sunbelt Rentals Decision

On September 23, 2009, the Fourth District Appellate Court issued an opinion in Sunbelt Rentals, Inc. v. Ehlers discussing the two tests. In this case, Sunbelt, an equipment leasing company, sued its main competitor, and one of its former employees (Ehlers) who had recently tried to move his efforts over to the competitor. Sunbelt argued that Ehlers had violated the restrictive covenant in his employment contract which forbade him to work in direct competition with Sunbelt, soliciting its customers or renting similar equipment within a 50-mile radius of his former store. Ehlers and his new employer countered that, because Ehlers did not take any proprietary information with him when he left Sunbelt, his former company had no “Legitimate Business Interest” sufficient to enforce the noncompete agreement.

In rejecting Ehlers’ argument, the Sunbelt Court held that the Legitimate Business Interest Test was created “out of whole cloth” by the Appellate Courts, and that it should no longer be used to determine the validity of noncompetes. The Court noted that the Illinois Supreme Court had never used the “Test”, even though it had decided plenty of noncompete cases since the test was introduced 30 years ago.

Going back to the origin of the Legitimate Business Interest Test, the Sunbelt Court concluded that the so-called “test” had been mashed together from multiple, unrelated Supreme Court opinions, and did not actually constitute a legal test at all. The Court further noted that both the earliest and most recent Illinois Supreme Court cases use only the Time-and-Territory Test to determine whether restrictive covenants were valid. The lesson from these cases, the Court said,

…is that courts at any level, when presented with the issue of whether a restrictive covenant should be enforced, should evaluate only the time-and-territory restrictions contained therein. If the court determines that they are not unreasonable, then the restrictive covenant should be enforced.

Because both the time and territory restrictions in the Sunbelt agreement were valid, the Court held, the agreement itself was valid, and Sunbelt was entitled to damages from both Ehlers (for breaching his agreement) and his new employer (for interfering with Sunbelt’s contract).

The Takeaway

With the elimination of the Legitimate Business Interest Test, the Fourth District has made it much easier and clearer to enforce an otherwise-valid restrictive covenant in Illinois. Under the Sunbelt decision, all an employer must do is ensure that its restrictions on time and distance are reasonable, and the court will not stand in the way of the company and employee’s freedom to contract.  If you’re the hiring company, however (or the employee), a major arrow in your quiver has been taken away.

The Sunbelt opinion was issued by the Fourth District Appellate Court, which means it is controlling law only for the middle of the State. It will be very interesting to see if any other Appellate courts latch onto the Fourth District’s thinking.  I doubt all of them will.  Eventually (finally, maybe), this issue has to make its way to Springfield.

In the meantime, however, where your noncompete lawsuit is filed in Illinois suddenly makes quite a difference.

This time around, all I had to do was watch Sunday Night Football.

This week, the Patriots and Jets revived one of the best rivalries in the NFL, a bitter divide that New England has dominated for years.  But the Jets had a little extra help going into the game:  two weeks ago, the Patriots let backup quarterback Kevin O’Connell go.  He was quickly signed by New York and drilled for any inside information he could provide the Jets on New England’s strategy.

According to the NY Daily News, both teams downplayed O’Connell’s information sharing.  Plus, this is not the first time one of the two teams has adopted what the paper called a “sign-pump-discard strategy” of hiring a recently-released player, drilling them for information, and canning them after the game.  But I think the results should speak for themselves – the Jets beat the Patriots in the Meadowlands for the first time in years, and so far, O’Connell is still playing for New York.

Here’s the takeaway: your business is not the NFL.  In the corporate, non-professional-sports world, hiring an employee because of her knowledge of a competitor’s business a pretty big no-no.  A company generally has proprietary rights to its trade secrets, and employees that switch to rivals with these secrets to share can quickly run afoul of state employment laws.

So, what is a trade secret?  A recent blog post by TS expert (and new Twitter acquaintance) Russel Beck spells it out nicely:

“‘Trade secret‘ means information, including a formula, pattern, compilation, program device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

*** In sum, a trade secret has three essential components: (1) information; (2) value; and (3) secrecy.

Normally, that means stuff like client databases, patents, and the like.  A playbook would likely fall into that category, too.  So, how do you protect your secrets from competitors that might snatch up one of your second-string quarterbacks?  A couple of suggestions:

1. Make It a Trade Secret.

Redundant?  Yes – and it may feel that way when you’re doing it, too, but making sure everyone knows a trade secret is just that – secret – is key to protecting your information.

If you don’t want a client list disseminated to the public, put “CONFIDENTIAL” on the document.  Keep your patents, formulas, code, etc. behind lock-and-key, either literally or virtually.

Many courts will ask what precautions you took to protect your info as a way of determining if something was a trade secret in the first place, so this step is really, really important.

2. Let Your Employees Know.

This, of course, means confidentiality agreements.  An employee’s signature acknowledging that your confidential information cannot be shared is probably the strongest defenses if that same info ends up in a competitor’s hands.  Depending on your state, these agreements may be piggy-backed with a noncompete agreement, but in many cases that’s not necessary or advisable.  See #3 for more specifics on that.

If your business involves any type of proprietary information – a recipe, an algorithm, a specific marketing or demographic study – your employees should sign something at least saying that they acknowledge your right to keep the thing secret.

You may also want to discuss the issue with your employees at some point.  Especially if you haven’t had nondisclosure documentation, asking a long-time employee to sign something like that can put a bad taste in their mouths.  Talking to them before you toss the piece of paper in front of them can put the issue in a positive light – protecting trade secrets should not be an “us versus them” thing, but without good communication employees may take it as just that.

3. Talk to an Attorney.

Trade secret laws vary from state to state, and many are piecemeal mixtures of statutes and decades of case law that can lead to intricate rules about what is a trade secret and how it must be protected.  If you are going to have your employees sign NDAs, or if you have something that you aren’t sure fits the description, call an attorney.

Don’t wait until it gets stolen and used against you – by then there may be little your lawyer can do.  Besides, a lot of times NDAs are issued as part of a larger anticompetition strategy, and only a good lawyer can tell you what’s legal and what’s not when it comes to restricting your employee’s ability to work for a competitor.

There are lawyers out there who can help  you regardless of the size of your business or budget.  If you need some help finding one, you can email me – I may know someone.

Finally…

Back to the NFL for one last piece of advice. After the game, some reporters asked Tom Brady about the significance of New York’s new backup QB and the information he may have provided.  In analyzing his team’s loss, Brady shows that the right mentality about trade secrets includes putting them in the appropriate place on the scale of importance.   From the NYDN:

“You’ve got to change some things because I’m sure Kevin has told them some things that can help them,” Brady said. “But at the end of the day, it comes down to how well you can execute. Having some inside information…you still have to throw the ball, complete it and block.”

Two recent cases decided by the 1st District Illinois Appellate Court have brought an interesting facet of our unemployment law to the fore:  you don’t have to be a lawyer to represent a party in an unemployment hearing.

In both cases (here and here), former employees appealed the Illinois Department of Employment Security’s denial of benefits, alleging that the hearing was voided because the former employer had hired a “representative” that asked questions of witnesses and made factual closing statements. 

In both opinions, the First District noted that the unemployment statute is meant to create an informal process, and specifically allows for a “duly authorized agent” to represent either party at the hearing.  The courts also noted that factual questioning and analysis of this one specific issue – unemployment insurance – doesn’t qualify as “practicing law”. 

I’m not sure about that last point.  The official definition of ”the practice of law” is:

“the giving of advice or rendition of any sort of service by any person, firm or corporation when the giving of such advice or rendition of such service requires the use of any degree of legal knowledge or skill.” 

I don’t quite see how summarizing facts at an unemployment hearing would be useful if the person summarizing those facts doesn’t have an understanding of the underlying law.  Not saying the courts were wrong – there is obvious leeway in the statute for non-lawyer representation – and there are valid public policy reasons for allowing non-lawyers to assist companies and aggrieved employees, not the least of which is sheer cost. 

But the exposition in these decisions about factual work being outside the practice of law creates a shaky precedent for me in any context.   What do you think?

Finally, remember that unemployment insurance typically requires that you prove you’re still looking for work.  So if you do have to go in for a hearing, ask around – you never know whose hiring these days.

Original photo by eye2eye (flickr)

The Workplace Prof Blog tipped off this story in the National Law Journal about the ongoing litigation between three former law professors at the Ave Maria School of Law and the school’s founder and financier, Tom Monaghan (the Domino’s guy).

The lawsuit has been going on for over two years now, with the professors claiming they were fired for voicing concerns over the legality of uprooting and moving the ABA-accredited school to Florida.

Now Monaghan has filed a motion to dismiss the case using what some see as a novel approach.  From the NLJ:

In the latest twist to the two-year-old suit… Monaghan… filed a motion last month claiming that the law professors are “ministerial.” Therefore, he argues, because the school is a religious institution, the administration over these minister-professors is exempt from civil trial court under the “Establishment and Free Exercise of religious clauses of the First Amendment.”

Monaghan also claims that the institution is eligible for “ecclesiastical abstention,” requiring courts to “abstain from inquiring into, or interfering with, governance of the religious institution.”

Seems crazy, right?  You’d think there’d be no support for a position like that, but it turns out that in cases where professors – law schools included – are actual ministerial employees, ecclesiastical abstention has been a decent defense.  The NLJ article mentions McDonough v. the Catholic University of America (83 F.3d 455 (D.C. Cir. 1996)) - where a nun/law professor’s sex discrimination case was thrown out as a ministerial matter outside of the court’s purview.  And Monaghan’s motion points to various sections of the Catholic canonical law regarding treatment of university faculty as a sign that the courts should stay away.

The difference here, of course, is that none of the professor plaintiffs are actual clergy.  Instead, Monaghan argues that if their jobs require them to address some theological issues related to their specialty (which Canonical law requires), they are ministers enough for the court to abstain from hearing the case. 

The McDonough court framed the ministerial exemption pretty broadly, actually:

[T]his circuit and a number of others have long held that the Free Exercise Clause exempts the selection of clergy from Title VII and similar statutes and, as a consequence, precludes civil courts from adjudicating employment discrimination suits by ministers against the church or religious institution employing them.

***

The ministerial exception has not been limited to members of the clergy. It has also been applied to lay employees of religious institutions whose “primary duties consist of teaching, spreading the faith, church governance, supervision of a religious order, or supervision or participation in religious ritual and worship….”  If their positions are “important to the spiritual and pastoral mission of the church,” they “should be considered ‘clergy.’”

(Citations Omitted)

Everything I’ve read about the motion sort of frames it as a bizarre stalling tactic (the attorneys for the professors certainly thinks it is), but if the standard in McDonough is applied, then I think Ave Maria at least has a solid argument here.