Thursday, July 23, 2015

Minnesota Court of Appeals Finds Employer's Written Nonsolicitation Agreement Unenforceable for Failing to Satisfy Minnesota's Statute of Frauds

July 2015
By: James B. Sherman, Esq.

Every state has a "statute of frauds" requiring that certain contracts be stated in writing to be enforceable. However, I often hear business people say, incorrectly, that noncompetition agreements and other restrictive covenants are "not worth the paper they are written on." In truth, these agreements are frequently upheld in court so long as they are carefully drafted. However, a recent decision from the Minnesota Court of Appeals illustrates the importance of dotting I's and crossing T's when it comes to drafting restrictive employment agreements. Specifically, the court found that a written nonsolicitation agreement nevertheless failed to comply with Minnesota's statute of frauds. The result was that the agreement was deemed unenforceable.

The case involved an employee of roughly three years who was asked to sign a “Nonsoliciation and Confidential Information Agreement” in connection with the employer’s installation of a new computer system that gave employees access to detailed customer information. The agreement applied both during employment and for a period of two years after employment ended. Due to its duration the agreement fell under Minnesota’s statute of frauds, which applies to any contract which by its terms cannot be performed within one year from its making. But Minnesota’s statute of frauds (Minn. Stat. § 513.01) not only requires that such an agreement be in writing, as the appellate court noted it specifically requires that the written agreement “express the consideration” given in exchange for the contract. In this particular case, because the employer’s nonsolicitation agreement did not specify, in writing, what consideration (i.e. thing of value) was being given to the employee in exchange for her promise not to solicit customers, the agreement failed to satisfy Minnesota’s statue of frauds and, therefore, was unenforceable. 

The employer in this case tried to argue that its consideration to support the nonsolicitation agreement was giving the employee access to its customer information, which would not have been done had the employee not signed the agreement promising not to solicit customers. The employer's failure to include this, in writing, in the nonsolicitation agreement itself proved fatal because it did not comply with Minnesota’s very explicit statute of frauds. Had this detail not been overlooked, perhaps the outcome of this case could have been different.

Questions? Attorney James Sherman of our Minneapolis office has extensive experience drafting, enforcing, and defending against enforcement of noncompetition, nonsolicitation, trade secret and other restrictive employment agreements. He may be reached by email at jasherman@wesselssherman.com or call (952) 746-1700.

Wednesday, July 22, 2015

Jim Sherman Recognized for Excellence in the Legal Profession

Wessels Sherman President and CEO, James Sherman, was recently selected to the 2015 Minnesota Super Lawyers list.  No more than 5 percent of the lawyers in Minnesota are selected by Super Lawyers to receive this prestigious recognition. 

“I’ve been told that being named a Super Lawyer in Minnesota is rather remarkable in my case due to the fact that I do not practice exclusively in Minnesota but am licensed to practice and also represent clients in Wisconsin and Illinois, in addition to many other states by special permission,” says Mr. Sherman.  “I guess I made the grade in spite of my regional law practice where I spread my time between helping employers both in and outside of my home state of Minnesota.” 


Super Lawyers, a Thompson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement.  Watch for Jim’s listing when it appears in the August 2015 Minnesota Super Lawyers Magazine, Mpls. St. Paul Magazine, and Twin Cities Business Magazine!

Minnesota Court of Appeals Refuses to Enforce Employer’s Nonsolicitation Agreement Against Former Employee Who Resigned and Began Soliciting Customers for a Competitor

July 2015
By: James B. Sherman, Esq.


I often hear business people say, incorrectly, that noncompetition agreements and other restrictive covenants are "not worth the paper they are written on." In truth, these agreements are frequently upheld in court so long as they are carefully drafted. However, it certainly is accurate to say that noncompete, nonsolicitation, confidentiality and similar agreements between employers and their employees often receive a great deal of scrutiny in court. A recent decision from the Minnesota Court of Appeals illustrates this point and the importance of dotting I's and crossing T's when it comes to restrictive employment agreements.

The case involved an employee of roughly three years who was asked to sign a “Nonsoliciation and Confidential Information Agreement” in connection with the employer’s installation of a new computer system that gave employees access to detailed customer information. The agreement applied both during employment and for a period of two years after employment ended. Due to its duration the agreement fell under Minnesota’s statute of frauds, which applies to any contract which by its terms cannot be performed within one year from its making. But Minnesota’s statute of frauds (Minn. Stat. § 513.01) not only requires that such an agreement be in writing, as the appellate court noted it specifically requires that the written agreement “express the consideration” given in exchange for the contract. In this particular case, because the employer’s nonsolicitation agreement did not specify, in writing, what consideration (i.e. thing of value) was being given to the employee in exchange for her promise not to solicit customers, the agreement failed to satisfy Minnesota’s statue of frauds and, therefore, was unenforceable.

The employer in this case tried to argue that its consideration to support the nonsolicitation agreement was giving the employee access to its customer information, which would not have been done had the employee not signed the agreement promising not to solicit customers. The employer's failure to include this, in writing, in the nonsolicitation agreement itself proved fatal because it did not comply with Minnesota’s very explicit statute of frauds. Had this detail not been overlooked, perhaps the outcome of this case could have been different.

Questions? Attorney James Sherman of our Minneapolis office has extensive experience drafting, enforcing, and defending against enforcement of noncompetition, nonsolicitation, trade secret and other restrictive employment agreements. He may be reached by email at jasherman@wesselssherman.com or call (952) 746-1700.

Unprecedented Winds of Change at U.S. Department of Labor Aim to Require Overtime Pay for Millions by “Reclassifying” Workers - from Exempt to Non-exempt and from Independent Contractors to Employees

July 2015
By: James B. Sherman, Esq.

Within the past month, the U.S. Department of Labor (DOL) has taken two separate actions to greatly expand the reach of the Fair Labor Standards Act (FLSA) to require overtime pay for millions more workers.  The first action taken on June 30th, was the DOL's release of proposed regulations aimed at doubling the minimum salary needed to meet the so-called white collar exemption to the FLSA's minimum wage and overtime requirements.  If the proposal becomes final it will result in the reclassification of an estimated 4.6 million workers from exempt to non-exempt status, entitling them to overtime pay.  The DOL's second action was taken on July 15th, when the Wage and Hour Division of the DOL released an "Administrator's Interpretation" addressing what was termed the "misclassification" of workers as independent contractors rather than employees.  This interpretation may result in many more workers who presently are treated as independent contractors, being reclassified as employees for purposes of the FLSA and, thus, entitled to overtime pay.

While many employers have heard about the DOL’s proposed new minimum salary for exempt employees, few have heard about its position on “misclassification” of independent contractors.  In either case, employers should brace for the impending changes that these new measures will soon bring.  In addition to keeping records on millions more workers who are expected to be entitled to overtime pay, all of those reclassified individuals represent a new pool of potential plaintiffs to join the ever growing surge of wage and hour lawsuits.    

1.       The Proposed New White Collar Exemption Regulations

This is only the second time in more than 50 years that the DOL has proposed revisions to its regulations implementing the exemption from minimum wage and overtime pay under the Fair Labor Standards Act (FLSA) for executive, administrative, professional, outside sales, and computer employees. The nearly 300 pages of bureaucratic data and legalese of the proposal can be summarized as follows:

  • More than doubling the minimum salary for the white collar exemption, from $455/week ($23,660 annually) to a figure equivalent to the 40th percentile of earnings for all full-time salaried workers.  The current estimate for the first quarter of 2016 when the proposed rule may go into effect, is a new minimum salary requirement of approximately $970/week ($50,440 annually).

  • Increasing the “highly compensated employee” definition from $100,000 to $122,148 annually (equal to the 90th percentile of earnings for full-time salaried workers);
  • Automatic annual updates to these foregoing minimum salaries based on a fixed percentile of earnings or cost of living indicators; and
  • While not yet making specific proposals to modify the “duties test” for white collar exemptions, the DOL is seeking further comments from the public over its concern that some exempt employees may be performing a “disproportionate amount of non-exempt work.”

The DOL is accepting comments from the public on its proposed rule before it issues the final version. Timely comments must be recovered by the Department no later than August 29, 2015. To learn more about these proposed regulations and how they may impact whether employees currently regarded as exempt, may soon be non-exempt and entitled to overtime pay, attend our TIMELY WEBINAR (see below to register).

2.       The Independent Contractor Administrative Interpretation

According to this new interpretation individuals previously thought to be independent contractors rather than employees, will now be assessed under a new standard.  According to the DOL’s new interpretation, the key question in whether a worker is an independent contractor or an employee for purposes of the FLSA is whether the worker is economically dependent on the employer or in business for him or herself. The interpretation goes on to list and describe the following six factors to be considered in determining whether a worker is an employee or independent contractor (with examples for each): (1) Is the work an integral part of the employer’s business?  (2) Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? (3) How does the worker’s relative investment compare to the employer’s investment?  (4) Does the work performed require special skill and initiative?  (5) Is the relationship between the worker and the employer permanent or indefinite?  (6) What is the nature and degree of the employer’s control?  No single factor is determinative, and the interpretation states that these factors should all be interpreted within the broader concept of “economic dependence.” 

The DOL’s new interpretation openly declares that under the foregoing analysis most workers will be considered employees rather than independent contractors.  The close timing of these two measures highlights the DOL’s intention to expand the FLSA’s minimum wage and overtime requirements to millions more workers.  Employers should act now to prepare for the potential of having numerous exempt employees and/or independent contractors who soon may be eligible for overtime pay and all the many related concerns of tracking time worked, lunch breaks, work from home, etc. 

______________________________________________________________________________

To prepare for these sweeping changes or for assistance in determining whether your workers are properly classified as employees vs. independent contractors, or exempt vs. non-exempt, contact attorney James Sherman in our Minneapolis office, at (952) 746-1700, or email him at jasherman@wesselssherman.com.

Monday, July 20, 2015

What Employers Can Learn from the Controversial Pao Case!

July 2015
By: Nancy E. Joerg, Esq.

The Pao case has attracted tremendous national attention this year. The following is a brief summary of the facts and issues involving this case and where it is now:

On March 27, 2015, a San Francisco jury returned a verdict in favor of Silicon Valley venture capital firm Kleiner Perkins Caulfield & Byers (“Kleiner”). Media all over the U.S. covered the story. Kleiner scored a TOTAL VICTORY in the highly publicized trial of sex discrimination and retaliation claims asserted by Ellen Pao (“Pao”), a former junior partner at Kleiner.

Pao filed a notice of appeal on Monday, June 1, 2015. So…the case will be attracting a lot of attention.

The Pao verdict does not result in new employment law, but it does offer one particularly important message for employers.

DOCUMENTATION OF EMPLOYEE PERFORMANCE IS CRUCIAL: During the high profile trial in San Francisco Superior Court, the defense team for the employer (Kleiner) hammered home to the jury the negative performance evaluations issued by Kleiner to Pao. The evaluations contained serious criticisms of Pao’s work performance and conduct (and lent valuable credibility to Kleiner’s legal arguments at trial about why it failed to promote Pao). Many commentators about this case believe that the jury may have found in favor of Pao had Kleiner not been able to produce documentation of its criticisms of Pao’s job performance.

All too often, employers fail to document serious deficiencies in job performance.  Some employers prepare evaluations which are incomplete or unconvincing (some even lack dates!) The Pao trial demonstrates the crucial value of proper documentation of poor performance.

PAO’S ALLEGATIONS: Pao filed suit alleging Kleiner failed to promote her to general partner because of her gender. She further alleged that Kleiner failed to prevent gender discrimination (and that it retaliated against her, and ultimately fired her, for complaining about gender discrimination). She sought $16 million from Kleiner in compensatory and punitive damages.

Pao’s attorneys argued during the trial (that drew tremendous national attention!) that Pao was subjected to many examples of alleged discriminatory mistreatment because of her gender: an all-male dinner at the home of Vice President Al Gore; a book of erotic poetry from a Kleiner partner; being asked to take notes like a secretary at a Kleiner meeting; being cut out of e-mails and meetings by a Kleiner male colleague with whom she previously had an affair; and discussion about pornography aboard a private plane.

OUTCOME OF TRIAL: The jury of six men and six women rejected all of Pao’s claims against Kleiner, determining that Kleiner did not discriminate against Pao because she is a woman and did not retaliate against Pao by failing to promote her and firing her after Pao filed a sex discrimination complaint.  But the jury found that gender wasn’t a factor in Kleiner’s decision not to promote Pao. The jurors said in interviews that they focused on the facts as brought forward at trial and decided it was Pao’s own poor job performance that held her back in her career at Kleiner. The fault, in the eyes of the jury, was Pao’s—not her employer.

Kleiner sought almost $1 million reimbursement in court costs. Kleiner is entitled to legal costs under California law because Kleiner offered to settle before trial. A California state judge ruled in mid-June, 2015 that Pao must pay $276,000 in legal costs. So, Kleiner did not succeed in getting the almost $1,000,000 reimbursement, but Pao surely is not happy about having to pay $276,000 to Kleiner. Kleiner appears to be a total victor in this highly controversial case.

People all across the United States will be closely following Pao’s appeal.

TIP FOR EMPLOYERS: The clear takeaway from this case that recently riveted the United States is that employers should draft detailed documentation to record the legitimate business reasons about why an employee is being passed over for a promotion, receiving a lower salary, etc.

Questions? Contact Nancy Joerg at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.




The Hyperactive NLRB

July 2015
By: Walter J. Liszka, Esq.


Over the lengthy span of the author’s employment law career (commenced in November, 1972), it was a long established standard that the National Labor Relations Board (NLRB) was a somewhat slow-moving and methodical federal agency when compared to other federal agencies such as the Equal Employment Opportunity Commission (EEOC). This “long established standard” has been rant asunder over the last few years as the NLRB has done a 180-degree turn from a slow-moving methodical agency into a highly active and, what many consider, very liberal agency.

Over the past few years there have been a number of articles written by the author and others in our firm dealing with the NLRB’s “activist posture” on various issues (expansion of Section 7 Rights dealing with invalidation of employer handbook policies, the aggressive approach being taken with the McDonald’s litigation in establishing “joint employer status” between McDonald’s and its franchisees, the creation of the “ambush election rules” and warp speed processing of representational election issues, etc.). The NLRB has now again taken a very aggressive posture with another well-established and long-standing policy.

All employers who are involved in union relationships are cognizant of the NLRB vs. J. Weingarten, Inc. decision of the United States Supreme Court in 1975. That decision established the legal principle that a union-represented employee was entitled to have union representation present, upon the employee’s request, during any investigative interview that the employee reasonably believed might lead to disciplinary action. If the involved employee requested union representation, the employer could not continue to interview the employee, but the employer could deny the employee’s request for union representation and conduct its own investigation without interviewing the employee and come to any decision it wanted. This standard was established for union employees as previously indicated in 1975 and continued unchanged and unabated until recently. The NLRB did show a little aggressiveness in 2000 when in the case of Epilepsy Foundation, the “Weingarten rights” were extended to nonunion employees as well (i.e., a nonunion employee could request that another employee be present during the interview). The NLRB has now fashioned new remedies – reinstatement and back pay or what is considered “make-whole relief” for certain violations of Weingarten rights.

In the case of E.I. Dupont de Nemours & United Steel Workers Local 6992 (362 NLRB No. 98 – May 29, 2015) the NLRB has established the right of an individual who was denied Weingarten rights to receive the “make-whole relief”.

In the Dupont case, an employee by the name of Smith was involved in a workplace accident in May 2012. He was initially questioned by his supervisor and company medical personnel about the accident immediately after it occurred, but it should be noted at those meetings Smith did not request union representation. When he was later called into an investigative interview with other Dupont personnel, he did request union representation but that request was denied and, in fact, he was further questioned about the incident after he was denied union representation. He was interviewed a second time by company managers, again without representation; he was interviewed a third time, but at the third interview, he was provided with union representation. Dupont ultimately terminated Smith’s employment predicated on the fact that Dupont believed that Smith had “provided false or incomplete information during the interview process”. At the initial hearing at this matter at the Administrative Law Judge level, the ALJ decided that Smith had been unlawfully denied his representational rights, but the ALJ did not offer “reinstatement with back pay”. On appeal, the three-member board panel, upon reviewing the case, decided that the make-whole remedy was appropriate and created a new standard to be applied where the inappropriate termination was precipitated by or occurred during an unlawful interview. It was their opinion that the make-whole relief would be appropriate where an employer, in discharging an employee, relies, at least in part, on the employee’s commentary during an unlawful interview and that same employer had been unable to show it would have discharged the employee absent the purported denial of Weingarten rights, i.e., continued interview without requested union representation.

In the opinion of the author, this is an impossible standard for any employer to attain. Because information will be gathered in the unlawful interview (i.e., interview conducted without requested union representation), it will be impossible for the employer to establish that it would have discharged the individual in any circumstances. If, in fact, the employer had enough information to discharge the individual prior to the interview, why was the interview necessary at all? In point of fact, the employee could just have easily been taken into a room by company representatives and told “you are being fired for XYZ reason”. What was the need to get any information whatsoever from the involved employee?

Given the current standard of the NLRB’s activist approach, it is strongly recommended that employers be extra cautious in denying employees their rights to representation if so requested. It is strongly recommended that when an individual is called into an investigative interview and declines representation during that interview, that such “declining of representation” be reduced to writing and signed by the involved employee and company representatives. Only time will tell as to how far the NLRB is going to go (i.e., will this “make-whole remedy” be extended to the non-union situation?), but it is quickly changing its image of the slow plodding agency into a very activist one!

Questions? Contact Walter Liszka at waliszka@wesselssherman.com or call him at (312) 629-9300.(312) 629-9300

ACA FAQ of the Month: Federal Government Issues Final SBC Regulations

July 2015
By: Peter E. Hansen, Esq.
Last month, the federal government issued final regulations regarding the Summary of Benefits and Coverage (“SBC”). The good news is that they did not include any immediate changes, so the majority of employers who sponsor group health plans may continue to distribute the SBCs as per usual until at least 2017. The final regulations promise an updated SBC template to be released sometime before 2016, which will apply to coverage beginning on or after January 1, 2017.

Significantly, the final regulations also address SBC electronic distribution. Under the new regulations, employers may distribute SBCs via email as part of an individual’s online enrollment or renewal of coverage, provided that the individual has the option to receive a paper copy of the SBC upon request. 

Questions? Suggestion for a future ACA FAQ of the Month? Please contact WS Attorney Peter E. Hansen at (262) 560-9696, or email pehansen@wesselssherman.com.

Thursday, July 16, 2015

Pro-Union NLRB Agenda: Stay Up to Date!!


July, 2015
By Richard H. Wessels, Esq.



Employers need to stay up-to-date on the NLRB’s pro-union agenda. Keep in mind –even though you are non-union and an unlikely union target, there still is a need to stay alert. A large percentage of NLRB cases these days involve “protected concerted activity”. In other words, there is no union involved at all. The NLRB is aggressive in asserting itself in non-union situations and stretching the law to create coverage for non-union employees! 
 
Here is a laundry list of areas where the NLRB is making it easier for unions who want to organize and for non-union employees who wish to challenge their employer: 
  • Quickie elections – much shorter time frames.
  • Specialty Healthcare types of cases – micro units which give a union almost any voting unit they want.
  • E-mail policies – permits use of company e-mail for discussion of union activity.
  • Social media policies – vulgar comments are protected activity!
  • Employee handbooks – 30 page NLRB General Counsel memo perhaps more confusing than enlightening. The memorandum is, however, useful and must reading, if for no more than the modified rules in the Wendy’s settlement which the NLRB has ok’d.
  • Rats, banners and street theater in the construction industry – tougher to get 8(b)(4) violations.
  • Post-contract expiration obligations of the employer – reversal of long standing rule that check off does not survive contract expiration.
  • Tougher independent contractor rules – easier for union to get independent contractors eligible to vote in union elections.
  • Confidentiality agreements – can have a chilling effect on organizing and thus a ULP.
  • Non-union arbitration agreements – NLRB says unlawful because it restricts collective action.
  • Insubordinate conduct – previously unprotected activity such as profanity, disparagement and vulgarity is now protected.
  • Joint employers – franchiser-franchisee relationship becomes joint-employer.
  • Confidentiality of witness statements – casts doubt on ability to keep statements confidential in employment-related investigations.
  • Wearing of buttons and stickers – employer attempts to control this are regularly struck down by the NLRB.
  • Staffing company and host company employees in the same appropriate unit –NLRB has issued a notice to the public inviting briefs on a pending case. This is a clear signal that the NLRB is about to reverse existing case law that forbids inclusion in the same unit without the consent of both employers.
These are all complicated and fact-sensitive areas. As but one example, you might want to consider a disclaimer in your employee handbook to undercut a strained interpretation that it violates Section 7 rights. If you want to talk about any of this, contact me at (630) 377-1554 or by email at riwessels@wesselssherman.com.

Illinois Employers Beware! If You have California Employees, New Law Says Employers Must Provide Paid Sick Leave!



July, 2015
By: Anthony J. Caruso, Jr., Esq.


Illinois employers are not required by federal or Illinois state law to provide paid sick leave to their employees in Illinois. However, if your Company has California employees, a new California state law, effective July 1, 2015, known as the Healthy Workplace/Healthy Families Act of 2014, requires your company to provide paid sick leave.

What is the California Employee Entitled to?
  • An employee who, on or after July 1, 2015, works in California for 30 or more days within a year from the beginning of employment is entitled to paid sick leave.
  • Paid sick leave accrues at the rate of one hour per every 30 hours worked, paid at the employee’s regular wage rate. Accrual shall begin on the first day of employment or July 1, 2015, whichever is later.
  • Accrued paid sick leave shall carry over to the following year of employment and may be capped at 48 hours or six days. However, subject to specified conditions, if an employer has a paid sick leave, paid leave or paid time off (PTO) that provides no less than 24 hours of three days of paid leave or paid time off, no accrual or carry over is required if the full amount of leave is received at the beginning of each year in accordance with the policy.
How can the California Employee Use Paid Sick Leave?
  • An employee may use accrued paid sick days beginning on the 90th day of employment.
  • An employer shall provide paid sick days upon the oral or written required of an employee for themselves or a family member for the diagnosis, care or treatment of an existing health condition or preventive care, or specified purposes for an employee who is a victim of domestic violence, sexual assault, or stalking.
  • An employer may limit the use of paid sick days to 24 hours or three days in each year of employment.
As such, the California law requires the law to be posted along with a written notice to new employees.

Employers should note that the State of Illinois has considered similar legislation which would require Illinois employers to provide paid sick leave. It may only be a matter of time before the State of Illinois enacts such a law!!

Questions? Contact Attorney Anthony J. Caruso Jr., of Wessels Sherman’s St. Charles office at (630) 377-1554 or e-mail ancaruso@wesselssherman.com.