File this one under "you can't believe your lying eyes." A major law firm, O'Melveny & Myers, signed a contract with the Department of Energy to provide it with legal services in connection with the sale of a petroleum reserve. As with virtually all federal contracts, this one contained clauses indicating that the parties were subject to particular paragraphs of the Federal Acquisition Regulation requiring them to comply with federal executive orders relating to employment discrimination against minorities and women, the disabled, and Vietnam era veterans. In other words, the contract required the law firm to submit to the jurisdiction of the OFCCP and its compliance process.
For whatever reason, the firm elected to disregard these provisions, and instead relied on the oral pronouncements of the chief of the OFCCP's Defense Contracts Administration in Los Angeles that the provision of legal services under these circumstances was not within OFCCP's jurisdiction.
(As an aside, I typically counsel my clients to never, ever, rely on anything they are told over a telephone, or even in person, by a federal or state employee with respect to an interpretation of the regulations or laws the employee routinely enforces).
Law firms traditionally shy away from doing anything that will make them subject to the OFCCP's oversight. The large firms with which I've worked assiduously assessed whether they might be obligated to respond to an OFCCP request for information, and carefully avoided doing things that would bring them under OFCCP supervision. That's because virtually no law firm that I'm aware of could withstand an OFCCP audit of its employment practices. The numerical disparities involving women, minorities, and veterans in big law leadership would raise red flags under the most benign employment audits, nevermind what would happen under the tilted OFCCP process.
In any event, when the OFCCP compliance officers appeared on the law firm's doorstep, asking for the law firm's pay and compensation data, the firm blew them off, and cited the above-mentioned opinion of the OFCCP official. At the resulting hearing before an administrative law judge, the firm tried to argue that, notwithstanding the presence of its signature on the contract with DOE, it was not a party to a "federal contract" (I think even the administrative law judge had difficulty swallowing that one), and, even if it was, it was not providing "nonpersonal services", as required for OFCCP jurisdiction. The ALJ brushed aside the firm's interpretation of the requirement, noting that similar arguments in the healthcare industry had been rejected last year.
The end result, then, is that the law firm was ordered to comply with OFCCP procedures. I suspect there will be an appeal on this case, but regardless, this is a warning shot across the bows of law firms that are not only providing services directly to federal agencies, but that are providing services in support of federal contractors. OFCCP jurisdiction is quite expansive, and has been known to reach out and ensnare not only federal contractors, but companies working with federal contractors, sometimes even the companies that are not involved in the performance or support of the federal contract in any way. This case is a powerful warning that firms need to assess whether their work for federal contractor clients might entangle them in OFCCP jurisdiction, with all the accompanying affirmative action headaches and disclosures.
Thursday, November 17, 2011
Wednesday, November 16, 2011
Federal Contractor Blues
'When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less.'
---Through the Looking Glass, by Lewis Carroll
There are many advantages to being a federal contractor, the biggest, of course, being that your main customer won't go bankrupt, and tolerates a level of inefficiency that would be certain death in the private sector. This is especially true if you are providing a unique product, such as building tanks, or nuclear submarines. The flipside of working for a client that simply prints more money for its vendors is that you are subject to the vagaries of the federal executive's social engineering programs.
One example of this is the OFCCP, an antiquated federal employment practices watchdog that engages regularly in highly intrusive reviews of workforces using standards that mutate based on, well I don't know.
A recent federal case out of the District of Columbia illustrates perfectly why nobody wants to be involved with the agency. A company receives notice that it is in the crosshairs of the OFCCP for something referred to as a "desk audit". This is a relatively benign process by which the agency requests annualized compensation data broken down by race, gender, and employee salaries, grade, and/or workforce level within the organization.
The initial analysis yields a threshold ratio determined by measuring the extent of pay differential between minorities, women, and white male employees within discrete job classifications. Above the threshold, and the employer is subject to the next phase of the OFCCP review. Or at least that's the way it's supposed to work in theory.
In actuality, if a company workforce meets the threshold test, i.e., there's no indication of discrimination in pay, and the compliance officer either decides or is directed to find discrimination somewhere, the OFCCP can run the compensation data through a variety of other statistical tests of dubious validity in an effort to try to find some test that will deliver a result indicating that there is a pay disparity. This pernicious determination opens the door to a far more intrusive, expensive, and likely rigged investigatory process. I use the word "rigged" advisedly-the OFCCP has every incentive to find some discrimination in order to justify its existence. Enough findings of no problems, and some congressional budget hawk might decide to allow the EEOC, which also has jurisdiction over federal contractors, to simply manage the discrimination issues by itself. This, of course, would be a disaster for all those career bureaucrats at the OFCCP.
And so this luckless federal contractor found itself meeting the threshold test, but then discovered that the OFCCP compliance officer decided to run a few more tests that-surprise!-showed some type of discrimination. The company objected to this post hoc determination by the agency, and the case moved on to federal court. Unfortunately, federal administrative law being what it is, federal agencies have wide discretion as to how they conducts their tests, even to the extent of changing the rules in midstream. To its credit, the OFCCP doesn't try to obfuscate this, but says in its public documents that its measurement thresholds are not static, but "subject to changes as OFCCP continues to evaluate its targeting methodology". The end result, though, is a moving target for employers that are trying to run a business without opening the door to an investigation that can cost thousands of dollars, and hundreds of hours in employer time and effort.
---Through the Looking Glass, by Lewis Carroll
There are many advantages to being a federal contractor, the biggest, of course, being that your main customer won't go bankrupt, and tolerates a level of inefficiency that would be certain death in the private sector. This is especially true if you are providing a unique product, such as building tanks, or nuclear submarines. The flipside of working for a client that simply prints more money for its vendors is that you are subject to the vagaries of the federal executive's social engineering programs.
One example of this is the OFCCP, an antiquated federal employment practices watchdog that engages regularly in highly intrusive reviews of workforces using standards that mutate based on, well I don't know.
A recent federal case out of the District of Columbia illustrates perfectly why nobody wants to be involved with the agency. A company receives notice that it is in the crosshairs of the OFCCP for something referred to as a "desk audit". This is a relatively benign process by which the agency requests annualized compensation data broken down by race, gender, and employee salaries, grade, and/or workforce level within the organization.
The initial analysis yields a threshold ratio determined by measuring the extent of pay differential between minorities, women, and white male employees within discrete job classifications. Above the threshold, and the employer is subject to the next phase of the OFCCP review. Or at least that's the way it's supposed to work in theory.
In actuality, if a company workforce meets the threshold test, i.e., there's no indication of discrimination in pay, and the compliance officer either decides or is directed to find discrimination somewhere, the OFCCP can run the compensation data through a variety of other statistical tests of dubious validity in an effort to try to find some test that will deliver a result indicating that there is a pay disparity. This pernicious determination opens the door to a far more intrusive, expensive, and likely rigged investigatory process. I use the word "rigged" advisedly-the OFCCP has every incentive to find some discrimination in order to justify its existence. Enough findings of no problems, and some congressional budget hawk might decide to allow the EEOC, which also has jurisdiction over federal contractors, to simply manage the discrimination issues by itself. This, of course, would be a disaster for all those career bureaucrats at the OFCCP.
And so this luckless federal contractor found itself meeting the threshold test, but then discovered that the OFCCP compliance officer decided to run a few more tests that-surprise!-showed some type of discrimination. The company objected to this post hoc determination by the agency, and the case moved on to federal court. Unfortunately, federal administrative law being what it is, federal agencies have wide discretion as to how they conducts their tests, even to the extent of changing the rules in midstream. To its credit, the OFCCP doesn't try to obfuscate this, but says in its public documents that its measurement thresholds are not static, but "subject to changes as OFCCP continues to evaluate its targeting methodology". The end result, though, is a moving target for employers that are trying to run a business without opening the door to an investigation that can cost thousands of dollars, and hundreds of hours in employer time and effort.
Monday, November 14, 2011
Overreaching Dooms Noncompetes
A recent case out of the Virginia Supreme Court shows how important it is for employers to pay attention to the post-employment conduct they are trying to limit when drafting a noncompete agreement. In fact, I frequently tell clients when they are putting these agreements together to be as specific as possible with respect to the position the employee is working now, and use that description as the basis for limiting any future employment with a competitor. Otherwise, the former employer runs the distinct risk of having the noncompete voided by a reviewing court.
In almost every state where they are enforceable (they are not in California) noncompetes are viewed with disfavor. That's because they limit the ability of former employees to find jobs, and are viewed as a type of restraint of trade by the judges who are usually charged with enforcing the agreements. Courts will typically look for reasons to void noncompete agreements rather than enforce them. As a result, the smart employer drafts a noncompete that does not overreach, and does not create any more of an obstacle to future employment than is necessary to protect specific employer interests. Noncompete clauses that seek to restrict a former employee's ability to work anywhere, at any time, for any current or potential competitor or customer, are almost always struck down as being overbroad. The smarter course, as is clearly demonstrated in the Virginia case, is to draft the noncompete clause to limit a former employee from performing the same types of services for a competitor or customer that she performed for the former employer.
Regardless of the actual description of the limitation, the company must also be able to articulate the legitimate business interest justifying any type of noncompetition clause.
For purposes of enforceability, it's frequently best to provide a brief job description, or a limiting paragraph relating to job duties, so that a reviewing court has a clear picture of just how far the employer seeks to extend its reach with a former employee. The old adage that "less is more" is nowhere more true than in the drafting of these types of agreements.
In almost every state where they are enforceable (they are not in California) noncompetes are viewed with disfavor. That's because they limit the ability of former employees to find jobs, and are viewed as a type of restraint of trade by the judges who are usually charged with enforcing the agreements. Courts will typically look for reasons to void noncompete agreements rather than enforce them. As a result, the smart employer drafts a noncompete that does not overreach, and does not create any more of an obstacle to future employment than is necessary to protect specific employer interests. Noncompete clauses that seek to restrict a former employee's ability to work anywhere, at any time, for any current or potential competitor or customer, are almost always struck down as being overbroad. The smarter course, as is clearly demonstrated in the Virginia case, is to draft the noncompete clause to limit a former employee from performing the same types of services for a competitor or customer that she performed for the former employer.
Regardless of the actual description of the limitation, the company must also be able to articulate the legitimate business interest justifying any type of noncompetition clause.
For purposes of enforceability, it's frequently best to provide a brief job description, or a limiting paragraph relating to job duties, so that a reviewing court has a clear picture of just how far the employer seeks to extend its reach with a former employee. The old adage that "less is more" is nowhere more true than in the drafting of these types of agreements.
Friday, November 11, 2011
Evidentiary Issues
Courts tend to look at employment discrimination cases as being proved by either "indirect" or "direct" evidence. The distinction between the two kinds of evidence is relatively simple-with indirect evidence, a jury or judge has to make an inference that illegal discrimination is the motivation for the employment decision.
An example of indirect evidence would be something like a supervisor who regularly makes fun of older employees by referring to them as "dinosaurs", "mossbacks", or other derogatory terms. The inference that arises is that someone who doesn't care for older workers would allow that feeling to infect the employment decision-making process. Direct evidence, on the other hand, requires no such inference. A supervisor who says, "We have too many older workers here, we need to get rid of some so that we project a better corporate image," leaves no doubt about the motivation for subsequent employment decisions.
This becomes important because many employment discrimination cases are disposed of before trial, typically by showing that there is not enough evidence to make it worth putting a case before a jury. The process of short-circuiting a case like this is called "summary judgment." And cases where direct evidence is present can't be disposed of through summary judgment, ensuring that the employer will have to go through the time, expense, trauma, and significant risk of facing a jury with its version of events.
Direct evidence of discrimination is rare, however. You just don't have employers, or their agents, telling employees that the reason they're being let go, or that their job was eliminated, is because they're old, female, Catholic, black, white, etc.
Which leads me to this case. A law firm marketing director, with good performance evaluations, went out on pregnancy leave under the FMLA. While she was out on leave, the firm's executive committee determined to restructure the marketing department, and dominate the marketing director's job. As part of the termination process, the firm engaged its human resources director to consult with outside counsel to orchestrate determination. But after the now ex-marketing director was notified that she was fired, the human resource director told her that she had been let go because she was pregnant and took medical leave. The human resources director also allegedly said that there were a group of people that were discriminated against because they were pregnant or took medical leave, and named several names.
The human resources director's statements, which she repudiated under oath at her deposition, nevertheless counted as statements made by the firm or its authorized agent with respect to the marketing director's termination. As a result, the law firm was confronted with direct evidence that pregnancy and medical leave were the causes of her firing. The Seventh Circuit Court of Appeals reversed the lower court's grant of summary judgment in favor of the law firm, with result that the case is now headed for trial.
The lesson here is that direct evidence of discrimination is an incredibly powerful factor in employment discrimination litigation. Employers should do everything they can to refrain from any kind of communication indicating a protected factor motivated or caused an adverse employment action.
An example of indirect evidence would be something like a supervisor who regularly makes fun of older employees by referring to them as "dinosaurs", "mossbacks", or other derogatory terms. The inference that arises is that someone who doesn't care for older workers would allow that feeling to infect the employment decision-making process. Direct evidence, on the other hand, requires no such inference. A supervisor who says, "We have too many older workers here, we need to get rid of some so that we project a better corporate image," leaves no doubt about the motivation for subsequent employment decisions.
This becomes important because many employment discrimination cases are disposed of before trial, typically by showing that there is not enough evidence to make it worth putting a case before a jury. The process of short-circuiting a case like this is called "summary judgment." And cases where direct evidence is present can't be disposed of through summary judgment, ensuring that the employer will have to go through the time, expense, trauma, and significant risk of facing a jury with its version of events.
Direct evidence of discrimination is rare, however. You just don't have employers, or their agents, telling employees that the reason they're being let go, or that their job was eliminated, is because they're old, female, Catholic, black, white, etc.
Which leads me to this case. A law firm marketing director, with good performance evaluations, went out on pregnancy leave under the FMLA. While she was out on leave, the firm's executive committee determined to restructure the marketing department, and dominate the marketing director's job. As part of the termination process, the firm engaged its human resources director to consult with outside counsel to orchestrate determination. But after the now ex-marketing director was notified that she was fired, the human resource director told her that she had been let go because she was pregnant and took medical leave. The human resources director also allegedly said that there were a group of people that were discriminated against because they were pregnant or took medical leave, and named several names.
The human resources director's statements, which she repudiated under oath at her deposition, nevertheless counted as statements made by the firm or its authorized agent with respect to the marketing director's termination. As a result, the law firm was confronted with direct evidence that pregnancy and medical leave were the causes of her firing. The Seventh Circuit Court of Appeals reversed the lower court's grant of summary judgment in favor of the law firm, with result that the case is now headed for trial.
The lesson here is that direct evidence of discrimination is an incredibly powerful factor in employment discrimination litigation. Employers should do everything they can to refrain from any kind of communication indicating a protected factor motivated or caused an adverse employment action.
An Employment Lawyer's View of the Paterno Situation
I've counseled corporate clients many times on removing senior-level executives, and the odd Paterno termination process, with its hand-delivered letter and curt telephone call 10 minutes before the Board of Directors announced the firing, makes perfect sense to me.
It's clear that there has been an acknowledgment at the senior levels of Penn State leadership that Paterno needed to go for some time. Several years ago, representatives of the University management team went to Paterno's house to ask him to step down from his head coach position. Paterno threw them out. Either before or after that particular event, the realization must have come to the Penn State board that by wallowing in the financial success of the football program, and allowing Paterno's successful record in football (unblemished by NCAA violations) to become the focus of the University, they had created a monster that perceived itself to be totally outside their control.
Now, it's great to be a monster, as long as you're only facing people with figurative pitchforks and torches. But as a monster, you have to be careful not to do something so, well, monstrous, that ultimately allows the pitchfork crowd to get a monster of its own.
That's what Paterno ended up doing here. And because he's a monster, or because he's 80+ years old, or for some other reason, Paterno didn't realize that the monster he created was about to gobble him up. By acting like a monster himself, Paterno set up a situation in which the university owed him literally nothing in terms of process, hearing, or explanation.
In short, Paterno become dangerous to the brand he mistakenly thought was his. The economic value of continuing with him to the end of the season, or even giving him the opportunity to defend himself (I'm not sure he can, anyway), was less than the economic damage his presence directing the team would inflict. The monster of terrible, continuing publicity, was bigger than the monster of Joe Paterno.
An easy choice, in the end.
It's clear that there has been an acknowledgment at the senior levels of Penn State leadership that Paterno needed to go for some time. Several years ago, representatives of the University management team went to Paterno's house to ask him to step down from his head coach position. Paterno threw them out. Either before or after that particular event, the realization must have come to the Penn State board that by wallowing in the financial success of the football program, and allowing Paterno's successful record in football (unblemished by NCAA violations) to become the focus of the University, they had created a monster that perceived itself to be totally outside their control.
Now, it's great to be a monster, as long as you're only facing people with figurative pitchforks and torches. But as a monster, you have to be careful not to do something so, well, monstrous, that ultimately allows the pitchfork crowd to get a monster of its own.
That's what Paterno ended up doing here. And because he's a monster, or because he's 80+ years old, or for some other reason, Paterno didn't realize that the monster he created was about to gobble him up. By acting like a monster himself, Paterno set up a situation in which the university owed him literally nothing in terms of process, hearing, or explanation.
In short, Paterno become dangerous to the brand he mistakenly thought was his. The economic value of continuing with him to the end of the season, or even giving him the opportunity to defend himself (I'm not sure he can, anyway), was less than the economic damage his presence directing the team would inflict. The monster of terrible, continuing publicity, was bigger than the monster of Joe Paterno.
An easy choice, in the end.
Tuesday, November 8, 2011
Jay Cutler is the Worst Interview in Football
Seriously. I think highly of him as a player, and well of him as a person. But his interview demeanor is simply awful.
Apple Corps?
This is interesting.
A unionized Apple Store would pit the traditionally change resistant and anti-innovation (with respect to employment practices, in particular) unions against a company that was constantly reworking its retail environment, and that has high standards of product knowledge and flexibility for its employees. It would make for an entertaining union voting campaign, at the least.
A unionized Apple Store would pit the traditionally change resistant and anti-innovation (with respect to employment practices, in particular) unions against a company that was constantly reworking its retail environment, and that has high standards of product knowledge and flexibility for its employees. It would make for an entertaining union voting campaign, at the least.
Monday, November 7, 2011
Dealing With A Ghastly Scandal
"Appalled" would be far too mild a word to describe my reaction to the Penn State sexual assault allegations.
For those of you looking for a lesson as to how something awful can totally spin out of control for your organization, review that first sentence. "… the Penn State sexual assault allegations." Not the Jerry Sandusky sexual assault allegations-this awful episode is now totally within the Penn State brand. It doesn't matter that Sandusky, a former longtime defensive coordinator for the PSU football team, was no longer working for the University when these terrible events started coming to light. The incomplete and apparently uncoordinated response of the PSU leadership to what was witnessed and reported by a graduate student places a significant amount of blame at the very top of the Penn State athletic department.
We know from reading the initial reports that there may be a valid legal defense for the two Penn State administrators, who have been arraigned on charges of failing to report criminal sexual activity involving children, and perjury. We know that iconic coach Joe Paterno is not accused of any legal wrongdoing. But surely somebody at least contemplated whether there could be a valid moral, public relations or business justification for failing to do more on the information the athletic department received in 2002.
Irrespective of the fact that what was being reported was a criminal sexual assault on a child by an individual with almost total access to the Penn State athletic facilities, and who enjoyed the trust of everyone at the University, I have to believe that some adult in this miserable process thought about what this would be like if the administration's attempt to sweep it under the rug was unsuccessful, or if the benign assumption about Sandusky was wrong. How someone could possibly believe that there was any type of upside - moral, business, personal - in not making this a formal investigation and complaint is simply staggering.
Under the circumstances, it's probably wise to revisit a few of my basic truisms about corporate conduct. No. 1 -- whitewashing something like this and being found out almost always creates a situation far worse than does reporting the misconduct when it first surfaces. No. 2 -- a cover-up will almost always be found out; and the worse the conduct, the more likely the cover-up will be unsuccessful. No.3 -- there is no proper explanation, at least not one that you can make and continue to look at yourself in the mirror each day, for not intervening to stop a sexual assault on a child, and/or not immediately reporting what you observed to the police. No.4 -- there are certain circumstances in which there is no such thing as the "benefit of the doubt." And last -- the more difficult the choice confronting the organization (i.e., confronting the individuals in the organization making the choice), the more likely that the easy choice is the wrong one.
All of us know how we would like to think we would act in circumstances similar to those confronting Joe Paterno, his graduate assistant, and the Penn State athletic director and Penn State's senior vice president for business and finance. Reminding ourselves of the truisms above might help our decision-making process become closer to our ideal.
UPDATE: I agree with the assessments expressed here.
UPDATE #2: The inevitable conclusion (note that there has been sentiment to ask Paterno to step down for some time; this provides the obvious mechanism since he seemed impervious to hints). The PSU Board and its alumni supporters simply could not stand the thought of showing up at the remaining games this season and being confronted by protests and signs saying "Welcome molesters", and the like. As the article says, someone finally decided to act like an adult at State College. The decision comes at least 13 years too late.
For those of you looking for a lesson as to how something awful can totally spin out of control for your organization, review that first sentence. "… the Penn State sexual assault allegations." Not the Jerry Sandusky sexual assault allegations-this awful episode is now totally within the Penn State brand. It doesn't matter that Sandusky, a former longtime defensive coordinator for the PSU football team, was no longer working for the University when these terrible events started coming to light. The incomplete and apparently uncoordinated response of the PSU leadership to what was witnessed and reported by a graduate student places a significant amount of blame at the very top of the Penn State athletic department.
We know from reading the initial reports that there may be a valid legal defense for the two Penn State administrators, who have been arraigned on charges of failing to report criminal sexual activity involving children, and perjury. We know that iconic coach Joe Paterno is not accused of any legal wrongdoing. But surely somebody at least contemplated whether there could be a valid moral, public relations or business justification for failing to do more on the information the athletic department received in 2002.
Irrespective of the fact that what was being reported was a criminal sexual assault on a child by an individual with almost total access to the Penn State athletic facilities, and who enjoyed the trust of everyone at the University, I have to believe that some adult in this miserable process thought about what this would be like if the administration's attempt to sweep it under the rug was unsuccessful, or if the benign assumption about Sandusky was wrong. How someone could possibly believe that there was any type of upside - moral, business, personal - in not making this a formal investigation and complaint is simply staggering.
Under the circumstances, it's probably wise to revisit a few of my basic truisms about corporate conduct. No. 1 -- whitewashing something like this and being found out almost always creates a situation far worse than does reporting the misconduct when it first surfaces. No. 2 -- a cover-up will almost always be found out; and the worse the conduct, the more likely the cover-up will be unsuccessful. No.3 -- there is no proper explanation, at least not one that you can make and continue to look at yourself in the mirror each day, for not intervening to stop a sexual assault on a child, and/or not immediately reporting what you observed to the police. No.4 -- there are certain circumstances in which there is no such thing as the "benefit of the doubt." And last -- the more difficult the choice confronting the organization (i.e., confronting the individuals in the organization making the choice), the more likely that the easy choice is the wrong one.
All of us know how we would like to think we would act in circumstances similar to those confronting Joe Paterno, his graduate assistant, and the Penn State athletic director and Penn State's senior vice president for business and finance. Reminding ourselves of the truisms above might help our decision-making process become closer to our ideal.
UPDATE: I agree with the assessments expressed here.
UPDATE #2: The inevitable conclusion (note that there has been sentiment to ask Paterno to step down for some time; this provides the obvious mechanism since he seemed impervious to hints). The PSU Board and its alumni supporters simply could not stand the thought of showing up at the remaining games this season and being confronted by protests and signs saying "Welcome molesters", and the like. As the article says, someone finally decided to act like an adult at State College. The decision comes at least 13 years too late.
Friday, November 4, 2011
Boston, Florida
There are any number of reasons not to have a business located in Massachusetts-the lousy weather, the Boston driving experience, the high taxes, the overregulated and pro-union employment law regime-you know, the whole blue state thing. So while companies are willing to have some element of their operations there, it makes sense for the the prudent employer to keep as many people on the outside of the Massachusetts state line as possible.
Imagine, then, the surprise and frustration of the employer in a recent Bay State court case that found itself defending claims under the Massachusetts Wage Act brought by an employee who lived in Florida, and based his sales operations for the company from his home there. He sued in Massachusetts Superior Court, alleging that his former employer owed him more than $100,000 in unpaid commissions and accrued vacation pay.
Although the company tried to dismiss the case for lack of jurisdiction, sensibly arguing that the employee was not covered by Massachusetts law, a state judge found differently. Noting that the sales director had business cards that listed the corporate offices in Massachusetts for contact purposes, that the sales paperwork was sent to and from Massachusetts, and that the employee frequently traveled to Massachusetts to confer with the company representatives, the court determined that there were sufficient, contacts with the Commonwealth to allow application of Massachusetts law. The fact that the employee also frequently traveled to 30 other states where he had customers, and did not physically live or work in the state, was of no import.
This is a troubling result, for several reasons. Not the least among them--the Wage Act mandates treble damages and attorneys fees for successful plaintiffs.
Anyone with employees who consistently conduct business in Massachusetts should assess whether they may unintentionally subject themselves to the jurisdiction of Massachusetts state courts as a result. At the very least, it would be smart to take steps to minimize regular activity that involves contact with, or travel to Massachusetts, to avoid a similar claim.
Imagine, then, the surprise and frustration of the employer in a recent Bay State court case that found itself defending claims under the Massachusetts Wage Act brought by an employee who lived in Florida, and based his sales operations for the company from his home there. He sued in Massachusetts Superior Court, alleging that his former employer owed him more than $100,000 in unpaid commissions and accrued vacation pay.
Although the company tried to dismiss the case for lack of jurisdiction, sensibly arguing that the employee was not covered by Massachusetts law, a state judge found differently. Noting that the sales director had business cards that listed the corporate offices in Massachusetts for contact purposes, that the sales paperwork was sent to and from Massachusetts, and that the employee frequently traveled to Massachusetts to confer with the company representatives, the court determined that there were sufficient, contacts with the Commonwealth to allow application of Massachusetts law. The fact that the employee also frequently traveled to 30 other states where he had customers, and did not physically live or work in the state, was of no import.
This is a troubling result, for several reasons. Not the least among them--the Wage Act mandates treble damages and attorneys fees for successful plaintiffs.
Anyone with employees who consistently conduct business in Massachusetts should assess whether they may unintentionally subject themselves to the jurisdiction of Massachusetts state courts as a result. At the very least, it would be smart to take steps to minimize regular activity that involves contact with, or travel to Massachusetts, to avoid a similar claim.
Disclosing Cyber Security Risk Assessments
In what I would characterize as a hat tip to the obvious, the SEC Corporate Finance division issued Disclosure Guidance requiring public companies to do a better job of advising investors about so-called "cyber security risks". In a classic example of closing the door of a horseless barn, the Commission is finally getting around to telling companies that they really should be paying attention to information technology problems that might affect the value of their stock.
From my perspective, the cyber security issue often begins with the employees of a company. The easiest access into a company's information technology system is through an employee, either deliberately or as a result of day-to-day IT security sloppiness. In fact, hackers now are much more likely to simply target specific employees, or groups of employees, to insert their malware into a company system. For example, at EMC Corporation's RSA security unit, which manufactures computer log-in devices used throughout the industry, two small groups of employees received e-mails containing an innocuous, corporate type message, and attached spreadsheet labeled "2011 Recruitment plan." One employee retrieved the file from the spam folder and when she opened the attachment, she introduced a virus inside the company network that eventually gave a hacker access to proprietary company data, allowing it to conduct later attacks against RSA's customers.
It's getting easier than ever to conduct this type of spear phishing attack because of the wealth of private and corporate data contained in sites such as Facebook, or LinkedIn. Companies should be vigilant about training their staffs with respect to unsolicited e-mails from unknown addresses, and particularly the attachments contained in those e-mails. This is in addition to the training that should be going on with respect to things like flash drives, iPods, and other potentially affected hardware that gets plugged into the company server.
The SEC guidance is not particularly helpful, but it does provide a map of at least minimal diligence for disclosure to investors. Public companies are expected to evaluate cyber security risks within their operations and then figure out some way to disclose these risks to investors, without at the same time opening the door to an attack from a hacker who reads the SEC filings. I'm glad I don't have to draft that particular notice.
The Commission also notes that disclosure should occur in the event of an actual data breach. In particular, a company should factor in whether a potential or actual breach exposed it to lengthy government investigation or costly third-party claims, caused significant business interruption, or undermined the value of the company's services or reputation, or led to substantial remediation costs.
Finally, (and this sounds like a semantic nightmare), companies are required to disclose conclusions on the effectiveness of their required SEC disclosures. So if a cyber attack could affect the company's ability to disclose the required information to the SEC, the company has to disclose that its ability to disclose its ability to disclose its ability to disclose… could be affected as a result of an IT intrusion.
Fun stuff, huh? The short answer is that every organization, but especially those that sell public stock, should be policing their IT programs at the highest level. That means senior executive involvement, and perhaps more nerdiness in the so-called C-suite.
Wednesday, November 2, 2011
If at First You Don't Succeed…
Sue, sue, again. At least that's the approach of the plaintiffs' litigation team in the late and unlamented Dukes v. Walmart litigation that was unceremoniously bounced from the ranks of class-action cases by the Supreme Court last year. You may recall that the Court determined that the Ninth Circuit's approval of the class of approximately 1.5 million women who worked at Walmart during the relevant period was inappropriate and improvident. The majority on the Court focused on the allegation in the class certification that the plaintiffs were all similarly affected by Walmart's centralized policy of decentralization that allowed individual store managers to make employment decisions based on a scheme affected by centralized and pervasive anti-woman bias.
If that sounds like unmitigated lawyer doubletalk, then you agree with Justice Scalia and the rest of the majority.
The plaintiffs' law firm has now refiled the case, this time on behalf of only 90,000 current and former female employees who work for Walmart in California. But this doesn't seem to solve the problem mentioned above-that if these decisions were decentralized, it's almost per se impossible to certify a class based on the resulting treatment. In fact, this will be Walmart's defense in this case--namely that each individual employment decision, or at least each individual store manager's employment decisions, will stand on their own and cannot provide the basis for such a wide-ranging class.
The plaintiffs are alleging that they have new statistical evidence that was not put before the Supreme Court in the original litigation. Short of some kind of clear link between these thousands of employment decisions at issue, plaintiffs may find it's "class dismissed", even in the relatively employee-hospitable environs of the Ninth Circuit.
If that sounds like unmitigated lawyer doubletalk, then you agree with Justice Scalia and the rest of the majority.
The plaintiffs' law firm has now refiled the case, this time on behalf of only 90,000 current and former female employees who work for Walmart in California. But this doesn't seem to solve the problem mentioned above-that if these decisions were decentralized, it's almost per se impossible to certify a class based on the resulting treatment. In fact, this will be Walmart's defense in this case--namely that each individual employment decision, or at least each individual store manager's employment decisions, will stand on their own and cannot provide the basis for such a wide-ranging class.
The plaintiffs are alleging that they have new statistical evidence that was not put before the Supreme Court in the original litigation. Short of some kind of clear link between these thousands of employment decisions at issue, plaintiffs may find it's "class dismissed", even in the relatively employee-hospitable environs of the Ninth Circuit.
Tuesday, November 1, 2011
Bootstrapping Time?
I am an infrequent reader of the press releases put out by the Department of Labor, EEOC, and other federal executive agencies because they are frequently agency propaganda about how well they're doing, and fairly transparent attempts to justify why they should receive more tax dollars. But a recent release by DOL relating to an overtime and back wages settlement involving Hilton Reservations caused my eyebrows to jump a little. It wasn't the size of the settlement that caused me some consternation, although $715,000 is nothing to sneeze at. Rather it was the fact that DOL found that Hilton had not complied with the Fair Labor Standards Act by not paying for pre-working shift activity such as booting up the computer, and opening programs required to assist customers, such as e-mail programs.
This is noteworthy, because many employers do not start recording compensable work time until an employee's computer terminal is functional. In fact, in many businesses, employees actually login using their computer terminals, which cannot be done until the computer is booted up and running. That the Department considers this working time to be compensated and calculated into overtime is striking.
For employers that are not counting computer start up time as time worked, it would be a good idea to assess how much time is involved in this process, and keep an eye out for other enforcement reports by the DOL on the subject. There may be a significant alteration in how time is tracked in your future.
This is noteworthy, because many employers do not start recording compensable work time until an employee's computer terminal is functional. In fact, in many businesses, employees actually login using their computer terminals, which cannot be done until the computer is booted up and running. That the Department considers this working time to be compensated and calculated into overtime is striking.
For employers that are not counting computer start up time as time worked, it would be a good idea to assess how much time is involved in this process, and keep an eye out for other enforcement reports by the DOL on the subject. There may be a significant alteration in how time is tracked in your future.
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