Taking On Some Lawyers From a Bankrupt Firm? Better Go Slow

Here's a recent decision by a federal judge in New York that could potentially shake the very foundations of law practice here in the United States.

The ruling relates to the movement of lawyers from firms that declare bankruptcy, to other ongoing practices, and whether the bankrupt firm has any claim on the ongoing client work that the departing attorneys take with them. Usually, billable hour rate work like this travels freely with the departing lawyer, and the old firm has no right to any of the proceeds.

That changes with this ruling.  Relying on New York partnership law, the partnership agreement of the bankrupt firm, and the authorization for declaration of bankruptcy by the remaining partners, the court determined that ongoing but unfinished work, even unbilled work, was the property of the bankrupt law firm. In other words, the lawyers who took that work with them to other firms and subsequently billed for it have to account for the value of that work, and repay it to the bankruptcy estate of  their former firm.

This return of billable proceeds potentially represents tens of millions of dollars of losses to the firms that hired these lawyers following the bankruptcy.  The ruling should greatly restrict the movement of lawyers from a bankrupt firm, especially those who leave with active client engagements involving litigation or transactions. Moreover, the sweeping nature of the court's opinion and analysis indicates that firms might be able to assert ownership over ongoing work taken by a departing partner even without the bankruptcy proceeding.

If that's the case, then I would expect the loyalty factor at major law firms to go up substantially, because it would mean the end of the so-called "portable book of business" that most firms hiring laterals seek to acquire.  Such a ruling would dramatically reduce the movement of lateral partners by making them far less attractive to acquiring firms. And it might do a lot to reinvigorate the collegial model of law firm practice, where partners remain in one place for virtually their entire careers.

UPDATE:  An expert on law firm breakups provides more details and background here.

CEOs Behaving Badly

There's been a run of silliness at the top of the management food chain recently and I thought that several of these cases deserve comment.

Yahoo's CEO was recently forced out after it was discovered that he had falsely claimed to have an accounting and computer science undergraduate degree, and he only had an accounting degree.  The genesis of the false degree claim is odd-the gentleman was also the CEO at eBay prior to taking the Yahoo position, and his official SEC filing resume showed the correct undergraduate degree. However, his bio listed on PayPal at the same time references the nonexistent comp sci degree.  As serious as the Yahoo resume fraud is-the misstatements appeared in a formal SEC filing, which the CEO had to swear under oath was correct-the real problem here is that Yahoo was not making enough money in the opinion of a group of renegade shareholders.  The CEO's departure also resulted in the departure of a number of board members and senior management officials, including the woman who chaired the search committee that failed to detect the resume embellishment.

That would be consistent with my experience in this area-while resume fraud for relatively low level job applicants is an instant killer, at the rarefied levels of management, especially where there has been a demonstrated level of performance over the years, padding the old bio is not viewed nearly so seriously when the company is making money.  It's not uncommon to see dollars trump personal integrity issues, especially when the board has personal attachments to the malfeasor.  But when things aren't going so well, look out.

Over at Best Buy, the story is a little more convoluted but with similar results.  This time the misconduct involved self-aggrandizement of a somewhat different type-the CEO got himself into an overly familiar relationship with a female subordinate.  Apparently there was nothing particularly romantic about the relationship, at least not yet, but the woman in question was amazingly indiscreet about the many favors that the CEO was showering on her in the form of tickets, travel, dinners, etc.

When one of the woman's coworkers wrote a personal letter to the chairman of the board expressing her concerns about favoritism resulting from the relationship, the chairman did a remarkable thing. No, I don't mean he acted to investigate the allegations and determine whether there was a threat to the company; he did a remarkably dumb thing-he showed the personal letter, which identified the reporting female coworker by name, to the CEO, and told the CEO to knock it off. He did not advise the rest of the board about the problem, and, when the CEO didn't take the hint, was effectively forced out as board chairman several months after the CEO was forced to resign.

In this day and age, anyone in senior management forging a close personal relationship with a business subordinate needs to be careful. Anyone in senior management forging a close personal relationship with an attractive business subordinate of the opposite gender needs to have his/her head examined.You don't require a PhD in organizational psychology to understand the effects of this kind of situation.  And for goodness sake, when you get a formal complaint about a relationship like this, don't sweep it under the rug, or think you can deal with it "personally".

Finally, a recent revelation concerning the Stryker Corporation demonstrates that even when you follow the rules, you may not be safe. Stryker's CEO was forced out of the job earlier this year, officially for "family reasons". Unfortunately, it wasn't the CEO's family that drove the force-out, it was the Stryker family, which has the most shares in the privately held company.

The CEO, who had been very successful for the company and its business management, became the subject of discussion after his wife filed for divorce, and the CEO went to the chairman of the board and the board's compliance officer and asked for permission to date a woman employed by the company as a flight attendant on the corporate jet. The board advised the CEO that the relationship would be permissible if the woman left the company, which she did. Months after this episode, the board launched an independent investigation of the relationship, based on an anonymous phone call to the company hotline that there was a double standard in place because of the woman's departure.

Apparently the now separated spouse of the CEO had some friends, or at least one Stryker family friend, on the board. The end result-- the board separated the CEO, although it characterized the termination as "without cause." I would say so, given the fact that there was an explicit authorization of the relationship, and the independent investigation found no misconduct whatsoever by the CEO. So the message here is that running a business successfully, and making tons of money for your shareholders, and getting public approval for your relationships, and following the rules, isn't enough if you really irritate a powerful board member.

It's a little reminiscent of what I refer to as the Pirates of the Caribbean defense:  when convenient, the rules are more like guidelines.

When Does a Work Day Actually Start?

The Fair Labor Standards Act continues to be a source of significant litigation and risk for employers. My take on why this statute is the law most likely to be violated by my clients is that the FLSA simply does not fit very well in a modern work place. After all, the statute reflects a Depression–era view of the United States, a place where jobs typically involved manufacturing or agriculture rather than services and information technology. There are still a lot of “typical” jobs, of course, but a number of employers are finding themselves whipsawed between the demands and opportunities of the modern job, and an antiquated statute that still draws clear lines between work time and non-work time and the work place and non-work place.

FLSA language continues to be parsed more and more by plaintiffs’ lawyers, who focus on undefined  terms that allow them to squeeze out what are effectively de minimus violations that apply to large work forces. As I have mentioned before in this blog, the threat of a large class action or FLSA collective action, with associated litigation costs in the millions of dollars, moves many an employer to a quick settlement.

A recent Seventh Circuit case  shows how closely these lines are being drawn. The FLSA does not define when an employee begins “work”; it only requires that all working time be paid. This vagueness becomes a problem when employers require their employees to undertake preliminary activities that are not productive work, e.g. putting on uniforms or protective work clothes. These so called “donning and doffing” situations are perfect examples of the collective action problem facing employers – the time involved is relatively small for compensation purposes, but is typically spread across a huge work force, with significant potential liability.

In this case, the issue involved a requirement by US Steel that its employees put on flame retardant uniforms, gloves, boots, a hard hat, and other protective equipment before going to the job. The protected employees must then walk from their locker rooms to their work stations.  In a non–union setting, the time spent changing into a uniform would be compensable  and mark the start of the work day.  In other words, the employees would be compensated from the time they enter the locker room to put on their uniforms through the time they travel to their work station, work their shift, and then return and remove their protective equipment.

But the FLSA contains a provision that allows union contracts to exclude  from compensation all the time spent changing clothes or washing up at the beginning or end of each work day . Such an exclusion was negotiated between the Steelworkers and US Steel.

Notwithstanding this express provision, the plaintiffs in this case alleged that what they were putting on was not exactly clothing, but rather safety equipment. Since the collective bargaining agreement did not address the issue of pay for time spent putting on and taking off  “safety equipment”, the Plaintiffs tried to argue that they should be compensated for this time, along with the travel time to and from the work area.

The Seventh Circuit panel was having none of this semantic dancing around. It quickly noted that clothing is almost always protective to some degree, and it made no sense for the collectively bargained provision to be circumvented in this manner. The Court stated that the union and the employer had negotiated a trade-off:  the time spent changing clothes would not be compensable, in exchange for a higher hourly rate for time spent actually engaged in productive work.  The Court also found that if the clothes changing time was not compensable, then the travel time between locker room and work station was not compensable either.

The final part of this opinion is worth reading for what the Court says about the Department of Labor and its brief filed on behalf of the Plaintiffs. Judge Posner, writing for the Court, noted that the Department of Labor’s position on this issue had shifted from the time of the 2008 election; specifically, the DOL favored the company’s position under the Bush Administration, and favored the employee’s position under the Obama Administration.

Judge Posner voiced his displeasure with this shifting of agency positions based on the nature of the administration in power:

      “All that the Department has contributed to our deliberations, therefore, though it is not quite nothing, is letting us know that it disagrees with the position taken by the Bush Department of Labor...it would be a considerable paradox if before 2001, the Plaintiffs would win because the president was a Democrat, between 2001 and 2009 the defendant would win because the President was a Republican, and in 2012, the Plaintiffs would win because the President was again a Democrat.  That would make a travesty of the principle of deference to interpretations of statutes of the agencies responsible for enforcing them... since that principle is based on a belief either that agencies have useful knowledge that can aid a court  or that they are delegates of Congress charged with interpreting and applying their organic statutes consistently with legislative purpose.

In other words, the DOL opinions on these types of issues are virtually worthless. You would think someone in the agency would take this not so subtle hint in the future.

Looking for Love in All the Wrong Places

Digital office technology provides all kinds of means for increased productivity and better work results. But it also provides opportunities for all kinds of mischief, as this case shows.

The plaintiffs here are former employees of a solo practice law firm, owned and operated by one Jeremiah Johnson. When you own your own firm, you get to set the dress rules, and Mr. Johnson apparently required all of his female staff to wear skirts and heels in the office. Especially for a former mountain man, Mr. Johnson was technically quite proficient with iPhone and iPad apps that surreptitiously take photographs using the devices' embedded cameras. At some point, his female staff apparently became suspicious about the placement of their boss's iPhone and iPad  (it's unusual, even in small firms, to find the boss's cell phone under your desk), and managed to look on his computer to see if their suspicions were correct.

Well of course they were, otherwise I wouldn't be writing about this. Mr. Johnson's devices allegedly recorded a series of "up skirt" shots that he then stored on his office computer. The women deleted the offending pictures of themselves, quit, and then filed suit against Mr. Johnson alleging invasion of privacy and a great little tort called "outrage".

That conduct alone would make the case worth reporting, but Mr. Johnson, apparently not satisfied with the press he was getting for mere perversity, upped the ante by filing a counterclaim against his former employees.  Exercising the kind of creative thought process that got him into trouble in the first place, he sued the former employees under the Computer Fraud and Abuse Act because they deleted the files on his computer. The women promptly moved to dismiss.

Now, one of the things you have to do in any type of CFAA claim is describe the data that was erased from your system. Unsurprisingly, Mr. Johnson did not do this.  The court booted his counterclaim not only for failure to identify what was removed, but because whatever was removed (and I'm talking files, folks) did not qualify as a "loss" under the statute.  I'm pretty sure the court could connect the dots here.

Check the links for entertainment value. I would hope that the lessons of this case are obvious--you can connect the dots, too.

Social Media - The Rise of Twitter in Pro Sports

I talked earlier about how pro sports leagues are moving to restrict the use of social media by individual athletes and coaches just before and during games, and for obnoxious behavior in general.  But what if a team was posting to the fan base?

The LA Kings, a wildly unlikely hockey success this year, have apparently mastered the art of snarky tweeting, something that endears them to sportswriters and sports blogs, and the fan base as well.  The tweet above, for example, shows a post following a King victory over the Vancouver Canucks, who I guess are not really well-liked outside of British Columbia.

I'm not sure how the NHL deals with this--I suppose the team could be fined since it's the front office representative that's doing the sassing, but it's hard to ignore the fact that the practice is driving a lot of interest to the site and the feed.  And that's the whole idea in the entertainment biz.

Does this undercut the League policy with respect to the players?  A little, but if it leads to more revenue, I suspect that the front office will turn a blind eye/ear to the occasional riling tweet from LA.

New EEOC data by state

Curious about how your state stacks up on the bigotry index?  Well, wonder no more--the EEOC has now published a state by state summary of its discrimination statistics.  As far as I can tell, the data is virtually useless, unless you are writing some type of research paper on long term trends in changing perceptions of the workforce about federal discrimination law, or want to scare potential clients into using your services.

But if you want to know what percentage of the national genetic discrimination cases are found in your state, this is the site for you.  E.g.,

	FY 2009	FY 2010	FY 2011
TOTAL CHARGES for Illinois	5,713	5,288	6,098
% of US total charges	6.1%	5.3%	6.1%
Race	2,148	1,985	1,997
% of US race charges	6.4%	5.5%	5.6%
% of total state charges	37.6%	37.5%	32.7%
Sex	1,574	1,385	1,371
% of US sex charges	5.6%	4.8%	4.8%
% of total state charges	27.6%	26.2%	22.5%
National Origin	652	610	606
% of US National Origin charges	5.9%	5.4%	5.1%
% of total state charges	11.4%	11.5%	9.9%
Religion	158	180	192
% of US Religion charges	4.7%	4.7%	4.6%
% of total state charges	2.8%	3.4%	3.1%
Color	145	120	148
% of US Color charges	4.9%	4.3%	5.2%
% of total state charges	2.5%	2.3%	2.4%
Retaliation (All)	2,008	1,999	1,949
% of US Retaliation (All) charges	6.0%	5.5%	5.2%
% of total state charges	35.1%	37.8%	32.0%
Retaliation (Title VII)	1,703	1,649	1,589
% of US Retaliation (Title VII) charges	5.9%	5.3%	5.1%
% of total state charges	29.8%	31.2%	26.1%
Age	1,406	1,235	2,279
% of US Age charges	6.2%	5.3%	9.7%
% of total state charges	24.6%	23.4%	37.4%
Disability	1,399	1,402	1,339
% of US Disability charges	6.5%	5.6%	5.2%
% of total state charges	24.5%	26.5%	22.0%
Equal Pay Act	66	60	50
% of US EPA charges	7.0%	5.7%	5.4%
% of total state charges	1.2%	1.1%	0.8%
GINA*	0	14	23
% of US GINA charges	0.0%	7.0%	9.4%
% of total state charges	0.0%	0.3%	0.4%

Somebody at the Commission probably got a nice performance bonus and raise out of this little project, so I encourage you to take advantage of viewing what your tax dollar hath wrought.  Happy perusing...

California Employers Beware

Every so often I get a decision crossing my desk that is so breathtakingly silly that I have to mention it. Sometimes, those silly decisions have significant ramifications for employers. And, it seems, a decision that meets both criteria is, nine times out of ten, coming from California.

I don't know what it is about California, but you would think the place with an economy approaching the status of Greece would have judges a little more sensitive to the business implications of their decisions. Not so. A relatively recent decision out of a Northern California appellate court sets a new standard for oddball analysis and pernicious result.

Here's the situation: a partner in a partnership complains to the other partners about allegations of sexual harassment by members of the partnership against partnership employees. Sometime after that, the partnership  reduces the partner's responsibilities and job title. She sues under California state employment discrimination law, claiming that the partnership is retaliating against her for raising the allegations of sexual harassment.

The thing is, a partner in a partnership is not an employee of the partnership, she's a member of the company ownership and management. She can't sue the partnership directly for employment discrimination, because that would be the functional equivalent of an employer suing itself for its own conduct. In fact, the California Supreme Court determined that a partnership is not the employer of its partners, and can't be liable to them for employment discrimination claims. Presumably this included retaliation claims, at least until this latest demonstration of California judicial reasoning.

The appellate court found that the partner could sue the partnership for retaliation, based on the fact that although the statute specifically exempted nonemployer entities (i.e., partnerships) from its coverage, this exclusion did not apply to non-employees (i.e. partners) who were acting to protect the status of partnership employees. Thus, a nonemployer could be sued by its nonemployee if the nonemployee complained about the nonemployer's actions with respect to actual employees.

This gobbledygook rationale creates all kinds of troubling scenarios for employers in the state. For example, if a delivery driver (a nonemployee) reports to one of his customers that he observes a customer manager mistreating a customer employee, and the customer then tells the delivery service that it does not want that particular driver to show up anymore, the nonemployer customer is liable to the nonemployee delivery driver for some type of improper retaliation (my thanks to my friend and LA partner John Barber for crafting this enlightening example).

Such a possibility makes absolutely no sense whatsoever.

It will be pure entertainment to see if other appellate courts follow this rationale, or if this decision gets unceremoniously dumped on appeal.  Until it does, however, the floodgates of retaliatory discharge are now wide open on the West Coast.

Shortening the Statutes of Limitation in Employment Claims

Federal employment discrimination claims have fairly limited statutes of limitation, e.g., a plaintiff typically must bring a charge of discrimination before the EEOC or state Fair Employment Practices agency no later than 300 days after the last occurrence of prohibited conduct. But some state law claims have much longer statutes of limitation, and federal discrimination claims brought under 42 USC §1981 can be filed 4 years after the discrimination occurred. Fair Labor Standards Act claims are similarly lengthy, typically reaching back 2 or 3 years, depending on the nature of the violation.

Obviously, it's to the advantage of the employer to limit the length of time allowed to an employee to file suit. Employment evidence is ephemeral--payroll  and evaluation records vanish, people get fired or retire, and critical electronic evidence disappears or is erased. Moreover, back and front pay liabilities become more significant the longer the claim languishes, and these delays can limit the ability of employers to take remedial action to limit damages.

It comes to a surprise to many employers that it's sometimes possible to limit the statutes of limitation through the simple expedient of using an employment agreement. A recent example is found here, in a Sixth Circuit case involving a USERRA claim (sidenote – given my background, I am highly sympathetic to USERRA claimants, and I am in this case).

The plaintiff here was terminated shortly after he returned from a one-year tour with his Marine unit in Iraq. Although he filed a claim with the US DOL for investigation under the statute, he did not file his wrongful termination lawsuit until almost 3 years after he was fired.

His former employer moved to dismiss the case based on an employment agreement between the parties that specifically stated that any lawsuit arising out of employment, including federal civil rights claims, had to be brought within 180 days of the event giving rise to the claim. The district court agreed with the employer and dismissed the case.

Most of us who practice in this field would have some serious concerns with this ruling for at least two reasons. First, USERRA contains specific language that says that its terms supersede any contract that “reduces,  limits, or eliminates in any manner any right or benefit” provided under the law. That would seem to eliminate the ability of an employer to reduce a statute of limitations (please note that the claim in this case came before USERRA was amended to specifically state that there would be no limit on time to file a USERRA claim). Second, courts in general have been reluctant to limit a civil rights plaintiff’s ability to file a case based on a contractual modification; frequently employment agreements are viewed as contracts of adhesion because of the significant  advantage in bargaining power that the employer has at the time the employment starts.

But the Sixth Circuit approved the dismissal of the soldier’s case. It determined that absent a specific statutory provision, a contract can validly  limit the time for bringing a lawsuit to a period less than that laid out in a general statute of limitation, as long as it is reasonable. The court noted that 6 months (the provision on employment agreement) was certainly reasonable. The court then determined that the specific USERRA provision superseding contracts applied only to substantive USERRA rights, e.g. compensation, reinstatement, etc., and not to procedural rights such as statutes of limitation. In other words, even though the employee might have believed he had 4 years to file his complaint, the contract he signed limited him to 6 months, and no more.

As I noted above, USERRA has been amended so that an employer can not limit a statute of limitations with respect to reemployment or discrimination claims under that particular law. But there are other statutes that do not contain language prohibiting a shorter period of limitations. Employers should consider language in all of their employment agreements providing for a short, but reasonable, time in which to bring any type of employment claim.

Fired for Premarital Sex Versus For Being Careless-It Matters

A recent 11th Circuit Court of Appeals case has some moderately salacious facts, but really sends a lesson about not being careful with how you handle employee counseling sessions, especially when the session might lead to a termination.

The female plaintiff in this case worked at a small, Christian school as a teacher.  She became pregnant when she and her fiancé jumped the gun a little on the wedding night festivities. Within a month of discovering that she was pregnant, they got married.  Two months later, she informed her supervisors, the owners of the school, that she was pregnant and would need maternity leave at the start of the following school year.  During the course of her discussion, she admitted that she was pregnant at the time she was married; the school fired her the following day for engaging in premarital sex, conduct which the school management described as "disobeying the word of God."

The former teacher sued, alleging pregnancy discrimination under Title VII, and state law claims for marital status discrimination and invasion of privacy. The federal judge dismissed the pregnancy discrimination and marital status claims on summary judgment, and the plaintiff appealed up to the 11th Circuit.

The appellate court correctly noted that although premarital sex and premarital pregnancy are closely linked (thank goodness for mandatory sex education courses), it's perfectly permissible to fire someone for engaging in premarital sex, but not for being pregnant. The lower court determined that the plaintiff had no case because she could not show that there was a pregnant comparator in the workforce who did not engage in premarital sex and was terminated, but the appeals court said this was casting the analytical net too narrowly. What the plaintiff had to do was show that there were circumstances indicating that the pregnancy was in fact the real reason for the termination.

This the former teacher was able to do. Specifically, she was able to show that during her interrogation (I can hardly characterize it as an interview), school management made some offhand comments that seemed more concerned with her pregnancy and the associated maternity leave, than with the fact that she was disobedient to the Big Guy. Moreover, at his deposition, one of the owners indicated that there would not be a problem if the plaintiff had only apologized for her pre-marital shenanigans. Unfortunately for him, she apparently had already apologized, thus casting doubt on whether premarital sex was the real reason for the termination.

So the moral of the story here is to not freelance these types of employee interviews, but rather have some type of plan with respect to what you're going to say, and what you're going to do after the interview.   Thinking out loud usually ends up adding nothing to the discussion, but creates plenty of opportunity for problems later on.  I often ask my clients to tell me in a single sentence why they are making the decision.  That typically clarifies the thought process and leads to a better decision.

On Being Authentic, Spearmint Rhinos, and Brogrammer Culture

Here are some interesting discussion topics that I didn't feel like writing a full blog entry about:

Keeping up the facade:  According to some new research from the University of Houston and the University of Greenwich in London, being yourself has virtually no value in the workplace. In fact, vocalizing what you're thinking or feeling and not trying to impress people, but rather acting openly and honestly, is basically irrelevant to how your job goes. As one researcher noted, "it's not a problem to be authentic or inauthentic at work… it just didn't matter."
Well, I was happy to read this. I can now divert my efforts at authenticity to more productive channels, like sucking up to authority figures.

To serve mankind:   In what will likely be a loveless pursuit, United States Tennis Association umpires working the US Open filed a class-action alleging that the USTA misclassifies the tennis judges as independent contractors, rather than employees. As it is in virtually all of these cases, the crux of the case is entitlement to overtime. The umps believe they are entitled to overtime as employees; the USTA maintains that as independent contractors, they are not. My money is with the USTA-the umpires work for three weeks of the year, hardly the kind of long-term association one would expect from an employee.
Of more interest is the settlement entered into by Spearmint Rhino, which is apparently the name of a group of adult nightclubs around the country. At various Rhino joints, the entertainment allegedly was not being paid the minimum wage as a result of employee misclassification and a class action of 11,000 exotic dancers (that's a lot of, well, a lot) commenced. $10 million later, everyone was happier, mintier, and horn--, uh, no.

Finally, one of the corporate departments that employment defense lawyers assume will not generate a lot of employee misconduct claims is the IT department.  The stereotypical IT person is generally mild-mannered, nerdy, and more interested in fixing viruses than going viral.
Count on Silicon Valley to shatter our inaccurate perceptions--welcome to the world of the "Brogrammer".  That's right, recruiters in the high-tech capital of the universe are luring talent with slideshows containing bikini-clad women, events with raucous drinking, and other frat boy inducements.  It's gotten bad enough that a number of programmers complained about some of the more lurid entreaties from recruiters.  All I can say is that this is the type of trend that keeps me fully employed, so party on, brogeeks, and crush that code, along with company behavior guidelines.