Arbitrating the Noncompete Case: The Supreme Court Speaks

The Supreme Court recently ruled that arbitration agreements in non-compete clauses are matters of federal law under the Federal Arbitration Act, notwithstanding the relatively transparent efforts by a state supreme court to deprive federal courts of jurisdiction.

The case arose out of the typical non-compete situation. Two former employees of Nitrolift, having previously signed an agreement with provisions containing confidentiality, noncompetition, and arbitration requirements, went to work for a competitor of Nitrolift. The former employer demanded arbitration in consonance with the terms of the non-compete provision, and the former employees filed suit in state court, asking the court to declare the non-competition agreements invalid. When the state trial court found the contracts arbitration clauses were valid and that an arbitrator was the proper fact finder to resolve the dispute, the former employees appealed to the Oklahoma Supreme Court. That court determined first that it had jurisdiction over the Federal Arbitration Act issue because there was a state statute in effect regarding covenants not to compete. The Oklahoma justices then found adequate and independent state grounds to justify assertion of jurisdiction.

Of course, these two initial findings by the Oklahoma court were simply an attempt to dodge the fact that it has no jurisdiction over these claims because it is a state court. And the U.S. Supreme Court stepped directly into that discussion by noting that the state court could only get jurisdiction by rejecting the federal act requirement that arbitrators should decide a contract's validity. In other words, there was a federal law basis present in the initial court decision, and the Oklahoma Supreme Court could not get around that federal basis.

So the U.S. Supreme Court gets the case, voids the Oklahoma determination, and then finds that the Federal Arbitration Act specifically holds that attacks on the validity of a contract, which are distinct from attacks on the validity of the arbitration clause, are to be resolved by the arbitrator and not a court.

While this was ultimately a win for the employer, and for proponents of arbitration, the lesson here is that non-compete, arbitration and non-confidentiality agreements should not be included in one  employment contract. State law varies dramatically on the enforceability of all three of these types of agreements and the confusion that was generated here (and the basis for state court mistakenly asserting jurisdiction) could have been avoided with better drafting. In other words, at a minimum, consider writing out separate employment contracts for confidentiality, non-compete provisions, and arbitration, especially if you are engaged in multistate operations.

The NLRB’s Attack on At-Will Employment

Recent cases coming out of Region 28 of the NLRB (which is located in Arizona) indicate that the Board is beginning to undermine one of the most basic elements of the American workforce relationship – at-will employment. These Region 28 cases revolved around a relatively uncontroversial clause found in most employee handbooks and union contracts indicating that the employees of the company were at-will and that this employment arrangement could not be changed without the signature of a senior company manager. The NLRB found in both cases that the innocuous provisions were discriminatory because they might cause employees to think they could not change their at-will employment status through collective bargaining or some other qualified protected activity. Note that there was no actual claim that anyone believed that a union contract could not alter at-will employment status, or that anyone was harmed by believing that they couldn't engage in collective bargaining. The Board simply whacked these provisions on some fanciful harm that might occur in the future.

As with its opinion on off-duty employee access to the workplace, the Board seems to be making up its jurisprudence on the fly. For whatever reason, it has decided to interpret at-will employment provisions that state that the relationship can only be modified with the consent of senior management as affecting Section VII concerted activity rights. Of course, most of these at-will employment provisions were adopted in response to state court holdings that a company's failure to explicitly state that the at will employment relationship could only be modified in a particular way could lead to the inadvertent formation of employment contracts as a result of publishing employment policies in things like employee handbooks. Is the Board trying to set employers up for breach of contract claims, or is it simply trying to undermine the at-will relationships established over a century of employment jurisprudence? Who knows, but the uncertainty reflected in these Board decisions is simply going to make it more difficult for employers and strengthen the hand of unions in their interactions. Given the administration's reliance on unions for campaign financing and muscle, that may be the best explanation of all.

UPDATE:  Shortly after these decisions were issued, the NLRB General Counsel issued an updated guidance that distinguished the Arizona cases and actually moved the needle back in favor of the employer.  The GC noted that context was an important factor in assessing employer policies, and specifically noted, among other things, that the use of the personal pronoun "I" in the Arizona policy language indicated a waiver by employees of their rights to modify the at-will relationship.  These are very fine distinctions, in my opinion, that really don't give us much guidance on anything but the hairsplitting nature of the NLRB opinions.

Homelessness Discrimination?

Under the category of “is this really a problem?”, comes news that Rhode Island enacted a “Homeless Bill of Rights” that included a provision that makes it illegal to discriminate against an employee or a job applicant because they don’t have a fixed home address or permanent mailing address. Nor can an applicant be rejected for employment because she lists a homeless shelter or a social services provider as a mailing address. There is apparently a push for similar legislation in other states.

I would be very interested to see if this is really a problem, or to know how many people are turned down for a job because they list a post office box as their home address.

Controlling Access to Your Place of Business

Terrible events in Connecticut recently highlight the absolutely crucial ability of employers to be able to control access to their  places of business. How ironic is it that the NLRB has significantly eroded the ability of an employer to control off-duty employee access to the workplace?

For over a generation the NLRB interpreted the National Labor and Relations Act to allow an employer to deny access to its property by off-duty employees. Typically, an employer’s policy that limited access had to do so solely with respect to the inside of the plant and/or working areas, be clearly explained to all employees, and apply universally to prohibit access to the plant by any off-duty employee for any purpose. These rules were consistent with other Board requirements relating to uniform and consistent application of employer policies, regardless of union presence.

But in several recent decisions, the Board found that any employer policy allowing off-duty employees back onto the facility for work related purposes (for example to pick up a paycheck or attend an employer sponsored evening event) were too sweeping in scope to be enforced. I usually don’t quote Board opinion language, but the facts here are important to understanding the bizarre way the Board reasoned to strike down these policies. In J.W. Marriot, the Board determined that a requirement that employees who were returning to their work area post-shift “obtain prior approval from your manager” was unenforceable because it gave managers “absolute discretion to grant or deny access for any reason, including to discriminate against or discourage" protected, concerted activity.  

        Now, there was no actual circumstance where any manager had refused to allow an employee access to a work area after hours for the purpose of preventing a protected meeting or discussion; the Board based its holding on the mere possibility of discrimination at some undefined future time. In other words, an employer cannot retain discretion in its management team to allow limited purpose access to its facility for off-duty employees, it must either reject all off-duty returns under all circumstances, or none. Of course, this holding represents a significant departure from previous Board opinions. And since most employers are not going to be put in a situation where they refuse to allow access to off-duty employees who, for example, might forget their medicine at work, the Board's ruling effectively opens the door to access by all off-duty employees. The Board did indicate that there might be special circumstances where an employer could allow reentry, but gave virtually no guidance on this, and the language of the Board’s opinion indicates that these would be unique circumstances, indeed.

Employers that limit access by off-duty employees to their work place but allow exceptions in very limited circumstances risk having that policy struck down. Moreover, a policy that requires manager permission for reentry is similarly likely to violate the Board's new interpretation of Section 8(a)(1) because of potential, but undefined harm to union organizers. redesign your workplace security plans accordingly.

Hugs and Kisses and Correspondence

This story in The Atlantic details a practice with which I am totally unfamiliar-the appending of "xoxox" to digital correspondence, almost exclusively by women.  Apparently this is a trend that's been developing for some time, although it's used more in certain industries then in others.

Well. Since the meaning of this term is "hug and kisses" (and please note, it's apparently common enough that my Dragon voice recognition software automatically puts the letters in rather than the words), I would not recommend that you close business correspondence this way. Moreover, I would not recommend that you close any correspondence in the workplace this way, especially if you're a guy writing to a female coworker or subordinate, or vice versa. It goes without saying that you should not address your boss this way, but I would have thought it goes without saying that this is generally inappropriate in any professional communication, and I would've been wrong.

I'll leave it to the readership to figure out whether this is a passing fad or representative of some deep-seated genetic thing. My personal view is that I am not thrilled about any trend that introduces even more ambiguity into communications that are already misinterpreted enough.

When Your Employees Might Be Guilty

There are certain cases under various state and federal laws when both the corporate entity of the company and its individual employees face separate liability for their joint conduct. A typical example is a sexual harassment case that involves allegations of physical contact. The company is potentially liable because its employees have allegedly created a hostile work environment; the individual supervisor involved in the alleged conduct is potentially liable because of the assault on the person of the plaintiff. Another example might involve allegations of securities fraud-both the company and individual executives can face criminal liability stemming from securities transactions in which the employees were involved.

As a result, lawyers like me who defend these cases have to tread very carefully at the very beginning of our investigation. While I am representing a company in the case, I'm also representing the individual employees in their management capacity as representatives of the company.  Of necessity, I am frequently representing the employees in their individual capacity, too, because their interests (i.e. their version of events) and the company's coincide. But what happens if, during the course of the investigation, I discover that the individual employee has, in fact, committed securities fraud? Or has committed an assault? At that point, the interests of the employee and the interests of the company diverge-the company might well want to be able to say that the employee acted outside the scope of her employment, and therefore the company has no liability.

Obviously, this puts the lawyer in an untenable situation where he is representing two clients with diametrically opposed interests: the company wants to throw the employee under the bus, and the employee wants to shift as much claim to the company as possible. In that case, the lawyer must withdraw from representing both clients and turn the case over to someone else.

Just about the only way to avoid this situation is with what is called a joint defense agreement. Basically the lawyer advises the employee that she is representing both the company and the employee, but that if their interests diverge, the lawyer is staying with the company, and the employee must get her own counsel. The agreement also specifies that both sides can share whatever information is uncovered up to the point that their interests begin to diverge and that each side waves its right to disqualify the lawyer because of a conflict of interest.

But if the lawyer doesn't get a joint defense agreement, and continues the representation, he's in real trouble. As we see in this case.

I'll follow up when I see the decision here, but the lesson for corporate clients is clear-make sure you understand up front the exposure that you are facing and the exposure that your employee is facing, if any. Where both sides have exposure, make sure your counsel is not in the process of disqualifying himself when he starts the investigation.

Not Your Typical Supervisor-Employee Counseling Session

I have absolutely no idea whether any of this is true, but as a general rule, poorly performing store managers should not be physically assaulted, choked, or have their faces rubbed in the dirt by senior company managers.