A recent article in Lawyer USA discusses how litigation over noncompetition and nonsolicitation agreements has been on the rise in recent years. Currently, when employers’ most valuable assets are their people and ideas, and the spread of technology has lead to increased concerns regarding theft of confidential information, employers have dramatically stepped up their use of noncompetition agreements to limit what departing employees can do.
Times are tough out there. Company budgets are being slashed, along with the number of employees and available hours. Many supervisors suddenly find their departments doing the same amount of work with half the people. On the overtime front, this is a recipe for a disaster.
Under these conditions, many supervisors are trapped with little ability to approve overtime. Hard working employees may not even request approval for overtime knowing that it will be viewed as an admission they cannot perform their job at the expected level (and thus place them at the top of the list for the next round of layoffs). Overtime therefore goes underground – a tacit understanding exists between management and employees that no one will mention how the work gets done as long as it gets done and everyone keeps their jobs.
Of course, the above scenario is unlawful, and whatever the company saves in wages will be dwarfed by attorneys fees and damages in the class action lawsuit surely to follow. For that reason, now is the time to remind all managers and supervisors of the importance of the company’s off the clock policy. Looking the other way to save in the short run is not a smart business move, and will inevitably come home to roost in the form of a disgruntled employee or ex-employee who reveals the practice.
For the last week or so, the health reform public policy debate has been keyed to the Senate HELP Committee’s draft and thus dominated by whether or not the “Exchange” to be employed in access reform should include a “public plan” and, if so, whether such a plan should have the power to access provider payment rates tied to Medicare and whether Medicare participating providers would be required to contract with it. With this week’s release of the Senate Finance Committee’s draft, it will be interesting to see whether payment reform can similarly capture the attention of the press. Frankly, we have low expectations in this regard insofar as the consequences that the prevalence of fee for service payment methodologies have on health care output are hard to grasp relative to the easier concept of “universal coverage”. Perhaps it is ultimately less important that payment reform capture the air waves than the degree to which payment reform is incorporated in whatever pieces of health reform make it through this session of Congress.
There are, of course, a few helpful signs. The New York Times gave front page treatment to the President’s public embrace of the payment reform issue and his distribution of the Gawande article on health care incentives in the New Yorker. The New America foundation released a report on delivery system change which White House Health leader Nancy Anne DeParle also applauded. These may, however, faint notes against a cacophony of sound around the easier to enunciate (though themselves ill understood) concepts around public plan and access.
Gawande, Len Nichols, Peter Orszag and others are of course right that changing the predominant fee for service incentives that power the health care delivery system is vital to improving both the cost and quality of American health care. Using “medical home”, “accountable care organization”, and episode payments will begin to inject new incentives into the planning and care paths chosen by providers. We expect that Senator Baucus’ Committee draft will begin to increase the content of these payment methodologies into the fuel that powers our enormous health care engine. They are the crucial elements to the much lauded quest to “bend the health care cost curve”. Therefore, even if they do not capture the attention of CNN and MSNBC, the strength of these reform elements in the Senate Finance Committee’s bill, and their survival, bears watching by all who invest in as well as receive health care.
by Douglas Weiner
Epstein Becker Green was well represented at the National Advanced Forum on Wage & Hour Claims and Class Actions held in New York City on May 19 and 20. EBG attorney Douglas Weiner addressed the Conference regarding his experience as a former Senior Trial Attorney for the U.S. Department of Labor, identifying emerging trends of Fair Labor Standards Act litigation, and the most expensive mistakes employers make – and how to avoid them. The second day Mr. Weiner moderated a panel of Judges experienced in presiding over wage & hour class actions who gave their insights into effective trial management techniques and settlement strategies.
Plaintiffs’ counsel, defense counsel, former Department of Labor officials, and seasoned Judges exchanged views on:
- The latest on exemption claims, independent contractor and employee misclassifications, donning and doffing, compensable work, off-the-clock activities and other current areas of wage and hour litigation.
- Plaintiffs’ new targets, including remote access, tip pooling, and where the plaintiff’s bar is particularly active and looking at new opportunities.
- With a new sheriff in town, and the economic stimulus package requiring the payment of Davis-Bacon prevailing wage rates for covered projects, the Department of Labor’s stepped up enforcement of Government contract work.
- Motions for conditional certification, and motions for decertification with a view of recent rulings in current cases.
- Making the call whether to settle early, late or not at all: Evaluating potential exposure, risks of litigation and managing a settlement structure where appropriate.
- Plaintiffs’ counsel expressed their view that wage hour class actions were accelerating “vertically” and “horizontally”. Using California as the epicenter of such litigation, their intent is to drill into industries and business groups that have not yet been targeted, thus expanding class action lawsuits vertically. Horizontally, they expect to give employers throughout the nation the same scrutiny that has resulted in the many large judgments that are reported on a nearly daily basis.
Defense counsel emphasized the advice EpsteinBeckerGreen gives our clients. Conduct a wage hour self-audit, and ensure compliance with applicable law, to gain the upper hand.
A similar National Forum on Wage & Hour Claims and Class Actions is scheduled to take place in San Francisco in October. We hope to see you there.
How quickly can $87 million go up in smoke?
Pretty darned quickly, especially if you are referring to the $87 million that was awarded to plaintiffs and their attorneys in a tip-pooling class action against Starbucks in San Diego.
In Chau v. Starbucks (CA4/1 D053491 6/2/09), Jou Chau, a former Starbucks barista, brought a class action against Starbucks challenging the Company’s policy that permits certain service employees, known as shift supervisors, to share in tips that customers place in a collective tip box.
If you’ve ever been to a Starbucks, you know exactly where that tip box is. (And if you haven’t been to a Starbucks, then you must be new to the country. Welcome.)
Chau alleged the Company’s policy violates California’s Unfair Competition Law, Bus. & Prof. Code, § 17200, based on a violation of Labor Code section 351. After certifying a class of current and former baristas and conducting a bench trial, the trial court found Chau had proved his claim, and awarded the class $87 million in restitution, plus interest and attorney’s fees.
And now it’s gone.
Up in smoke that smells vaguely like soy latte.
A California Court of Appeal has overturned the decision, ordering the trial court to enter judgment in Starbuck’s favor.
The Court of Appeal concluded that applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes. The Court explained that the trial court’s ruling was improperly based on a line of decisions that concerns an employer’s authority to require that a tip given to an individual service employee must be shared with other employees. As the Court explained, the policy challenged in Chau presented the flip side of this mandatory tip-pooling practice as it concerned an employer’s authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer.
This one can be chalked up as a major victory not just for Starbucks, but for the entire hospitality industry, which has been hit with an epidemic of wage-hour class actions in California. To those who represent employers in these matters, congratulations must go out now only to Starbucks’ attorneys, but to Starbucks itself, for holding firm rather than paying an enormous settlement, as plaintiffs surely sought both before and after their trial court victory.
Now we can sit back and wait to see if the California Supreme Court wishes to hear the case, as plaintiff’s counsel will certainly request.
While it’s always a fool’s game to bet on what the California Supreme Court might do, the early read on this case is that it is not a matter that the Supreme Court will have interest in.
A dispute between UBS Financial Services Inc. (“UBS”) and three of its former brokers highlights various issues involving trade secrets and non-solicitation covenants in the financial services industry. UBS sued the three brokers after they were hired by Morgan Stanley, accusing the brokers of stealing confidential customer information and trying to steal customer accounts assigned to them while they worked at UBS, in breach of nonsolicitation and nondisclosure covenants contained in the brokers’ agreements with UBS.
On May 22, 2009, on UBS’s motion in UBS Financial Services Inc. v. Lofton, Case No. 1:09 CV 367, the U.S. District Court for the Southern District of Ohio entered a temporary restraining order prohibiting the three individuals from soliciting any securities investment business from UBS customers pending an arbitration hearing before the Financial Industry Regulatory Authority (“FINRA”).
The three brokers were Timothy Lofton, Kyle Poland and Shawn Anderson. Anderson retired from UBS around January 2008. In connection with his retirement, Anderson entered into an agreement with UBS whereby the customer accounts he had serviced were transferred to Lofton and Poland, and Anderson received an income stream on those accounts for some period, as well as forgiveness by UBS of an outstanding employee loan. Anderson also agreed not to solicit or refer those customer accounts away from UBS. At the same time, Lofton and Poland entered into agreements with UBS granting them commission revenues from the transferred accounts and obliging Lofton and Poland not to solicit such customer accounts or to disclose customer information upon their departure from UBS.
On May 19, 2009, Lofton and Poland resigned from UBS without prior notice, and they were found not to be “good leavers.” Although reminded of their nonsolicitation obligations in a brief exit interview, Lofton and Poland apparently paid no heed. Indeed, it seems they already had orchestrated a raid upon the UBS customers. UBS alleges that within 20 minutes after Lofton and Poland left the UBS branch office, and before their securities licenses had been transferred over to Morgan Stanley, UBS customers began receiving automated phone calls from Lofton advising of his and Poland’s resignation from UBS and their new employment with Morgan Stanley. UBS also alleges that many customers received account transfer forms by mail on May 19, 2009, meaning those forms had been mailed out prior to Lofton and Poland’s resignation. Apparently, Anderson came out of retirement to join Morgan Stanley at that time as well.
UBS also alleges that when they resigned, Lofton and Poland provided UBS with defective lists of the customers they had serviced for UBS. In accordance with the Protocol for Broker Recruiting (a forbearance agreement among numerous securities brokerage firms, including UBS and Morgan Stanley, which provides guidelines that, if followed, permit financial advisors to take a limited client contact list when transitioning to a new firm), Lofton and Poland were required to leave customer lists with their UBS branch manager upon their termination. UBS alleges, however, that the lists they left contained only addresses and phone numbers, not customer names. They did not provide corrected lists until after the close of business on May 19.
In any event, Lofton and Poland would not have been allowed to solicit the customer accounts previously transferred from Anderson to Lofton and Poland in January 2008. The Protocol for Broker Recruiting expressly excludes from its coverage accounts introduced to a financial advisor pursuant to a retiring financial advisor agreement.
Given the findings of deliberate and egregious conduct of the individual brokers, the Court granted the temporary restraining order sought by UBS, pending an expedited hearing at FINRA.
Although there are some big issues that remain unresolved, such as the “public plan” component, it appears that we will see reform legislation pass in 2009. Drafts of the legislation are being prepared now by various members of Congress and their staffs.
The focus on medical homes, physician hospital organizations and accountable care organizations is very real, as is the focus on payment reform, including bundled payments and other forms of capitation-like reimbursement. A key element of the debate relates to “how integrated” a provider organization will need to be to qualify for bundled payments. Can it be virtual? Can it be physician only or must a hospital be involved? What should be the role of private payors?
We wrestled with many of these questions in the 1990s, but there are new aspects now, greater data and organizational capabilities in both the purchaser and provider sectors and much more urgency to move forward with payment and delivery system reform to accompany legislation aimed at increasing access.
One fear is that the access component will get done without payment and delivery system reform, causing costs to skyrocket and leading, potentially, to future cost controls. It is important that health care providers add their voices, individually and collectively, to this national debate. The making of major legislation is always messy, but there is real momentum right now. Whatever passes will inevitably be incomplete, and there will be unintended consequences.
In recent weeks, we have been following the fascinating case between Massachusetts-based EMC Corp. and Hewlett Packard Co., located in California. EMC won the first round by stopping a former executive, David Donatelli, who was VP in charge of EMC’s Storage Division, from starting his job at HP. The Massachusetts Court held that to allow Donatelli to work for HP would violate a non-compete agreement he signed at EMC. The Massachusetts Court enforced the non-compete even though Donatelli had filed an action for declaratory relief in California asking that Court to declare the non-compete unenforceable under California law. In the Massachusetts action, however, the Judge allowed Donatelli to present additional evidence in a subsequent hearing to demonstrate that his job at HP would have minimal overlap with his former position at EMC.
On May 26, 2009, after hearing additional evidence, the Massachusetts Court modified the preliminary injunction it had issued against Donatelli by allowing him to start working for HP in California. However, both sides are claiming victory because Donatelli will not be able to take the job he wanted, i.e., Executive VP of StorageWorks, due to the restrictions in the order. While HP expressed its pleasure with the Court’s decision to allow Donatelli to start working at HP as a Senior VP of Enterprise Servers and Networking, EMC stated it was also pleased with the Court’s ruling because it upheld “the terms of EMC’s key employee agreement.” EMC’s statement went on to say that, “The judge entered an order as proposed by EMC that precludes Mr. Donatelli from being engaged in any aspect of HP’s business that overlaps or competes with EMC’s storage business for a 12-month period.” The case is EMC Corp. v. David A. Donatelli, case number 09-1727-BLS2 in the Suffolk County Superior Court in Massachusetts.
We don’t know if the case is over, but for now, it appears that everyone got something of value from the case. The Massachusetts Court issued a narrow order tied to the protectable interest of EMC while at the same time, not depriving Donatelli his opportunity to pursue his livelihood in a competitive business.
by Michael Kun
It has not received much publicity — yet — but Representative Alan Grayson of Florida has introduced the Paid Vacation Act, a proposed amendment to the Fair Labor Standards Act.
In short, if passed, the Paid Vacation Act would require employers with 100 or more employees to provide one week of paid vacation each year to each of its employees who had worked for 25 weeks or 1,250 hours. Three years after passage, the Act would require those employers to provide two weeks of paid vacation, and smaller employers (those with more than 50 employees) would have to provide one week of vacation.
Of course, the overwhelming majority of employers already provide employees with paid vacation, so the Act would have little or no impact upon them.
As for the remainder, without going into all of the business reasons an employer might have for not providing paid vacation, one has to question whether this is really the time to be considering such an amendment to the FLSA.
The economic climate in the country is dire enough, and employers in virtually every industry have had to conduct layoffs just to remain in business.
Employees aren’t concerned about vacations. They’re concerned about keeping their jobs.
Is adding another business cost to struggling businesses wise, knowing that it would likely force some of those businesses to conduct additional layoffs or reduce employee compensation?
Or might someone be playing to the masses by proposing it?
Of course, time will tell whether the Paid Vacation Act gains any traction. But it certainly seems that this is one bill that deserves to be tabled until the economy (hopefully) rebounds.
In this high technology era, where a company’s most valuable assets are frequently its people and information and where the equivalent of thousands of pages of documents can be copied and moved with a few keystrokes, attorneys are increasingly being asked to stop the misappropriation of confidential information and trade secrets by employees and rival businesses. While there is no magic wand that will prevent a theft or stop a thief in his tracks, a company can substantially lower the risk of trade secret misappropriation through proactive policies and procedures. An article that I recently published in the Labor & Employment Law newsletter of the Illinois State Bar Association, which can be accessed by clicking here, explains how employers can do so.