Over the last few years, increased attention has surrounded OSHA’s whistleblower provisions. Recently, there have been signs of possible legislative action to expand protection for employees who report their employer’s legal infractions.

On April 29th, the Assistant Secretary of Labor for Occupational Safety and Health, Dr. David Michaels, testified before the U.S. Senate subcommittee of the Committee on Health, Education, Labor and Pensions. Michaels urged Senators to consider far reaching changes to the Occupational Safety and Health Act (“OSHA”)’s whistleblower protections. Michaels recommended three drastic changes to the Act:

Creating a private right of action for employees who are discriminated against because of their reporting of workplace safety issues;
Authorizing OSHA to order “immediate preliminary reinstatement” of employees who may have been wrongly fired for reporting workplace safety issues; and
Expanding the current 30-day statute of limitations for alleging retaliation to 180 days.

These changes would likely lead to a dramatic increase in retaliation claims brought against employers. While the Assistant Secretary strongly urged action on these issues, any amendment to OSHA would require congressional approval, an unlikely feat with the currently divided Congress and upcoming Congressional elections.

Given the significant impact of the proposed amendments, Kelley Drye will continue to monitor this area and update you on any developments.

DOL Crackdown on “Classification” of Workers

The Federal and State Labor Departments, and the IRS, are all cracking down on employers who hire workers who qualify as employees but are paid as interns or independent contractors. New York and 15 other states have partnered with the Department of Labor to coordinate misclassification initiatives, and investigate and prosecute cases.

In 2013, New York’s “Joint Enforcement Task Force on Employee Misclassification” identified 24,000 instances of employee misclassification, discovered $333.4 million in unreported wages and assessed nearly $12.2 million in unemployment insurance contributions. In addition to the Task Force’s work, the New York Department of Labor (“DOL”) is prosecuting many of the misclassifications as fraud. The NY DOL completed more than 2,200 fraud investigations in 2013, discovering $271.2 million in unreported wages by employers and collecting nearly $10 million in unemployment insurance contributions.

Worker classification issues involve many tax and employment laws, and have civil as well as criminal implications. If an employer misclassifies a worker as an intern or independent contractor and the government later discovers that the worker should have been classified as an employee, the employer is responsible for all the taxes it should have withheld, and possible overtime wages, as well as interest and penalties. Worker misclassification usually takes place on a large scale, and persists unnoticed for years, which can result in millions of dollars of unpaid taxes and wages. With the increased level of government scrutiny on employers, it is more important than ever for employers to consult counsel when deciding how to classify their workers.

Rochester Passes Ban-the-Box Legislation

As Employer Express noted in our March newsletter, many jurisdictions around the country are enacting “ban-the-box” legislation. The City of Rochester, New York now joins the pack, passing an ordinance significantly restricting employer inquiries into an applicant’s prior criminal convictions.

The Rochester “ban-the-box” ordinance goes into effect on November 18, 2014, and will apply to any employer located within the City of Rochester with 4 or more employees. Under the ordinance, Rochester employers may not ask an applicant to disclose previous criminal convictions on an employment application or at any point prior to or during an applicant’s first interview. After the initial interview, an employer may inquire into an applicant’s previous criminal convictions. The ordinance makes certain exceptions, allowing for criminal history inquiries on applications when such action is required by licensing authorities or under state or federal law, as well as for law enforcement positions. Employers should note that New York State law prohibits employers from taking adverse action against an applicant based upon a criminal offense unless the offense is directly related to the position sought by the applicant.

Navigating the myriad of state and local “ban-the-box” laws can be complex, rendering an employer’s ability to inquire into an applicant’s criminal history during the hiring process anything but clear. Reach out to Kelley Drye for counseling on your jurisdiction’s laws concerning inquiries into an applicant’s criminal history. We can review your employment application, revise hiring procedures and conduct a risk assessment to strengthen compliance with federal, state, and local laws.

SOCIAL TRENDS

The Effect of the Same-Sex Marriage Victories on Employers

In the wake of the Supreme Court’s decision in U.S. v. Windsor, District Courts in 11 states - including most recently Oregon, Pennsylvania, and Wisconsin - have declared their state’s bans on same-sex marriage to be unconstitutional. To date, 20 states and the District of Columbia have legalized same-sex marriage. These decisions have a significant impact on the benefits and protections available to employees in same-sex marriages. On June 20, the Department of Labor proposed a rule that would extend FMLA protections to same-sex married couples, regardless of whether the state they live in recognizes their union.

After the Supreme Court held Section 3 of the Defense of Marriage Act (“DOMA”) to be unconstitutional on June 6th, 2013, a number of federal agencies granted married same-sex couples access to many benefits previously unavailable to them. The Department of Labor (“DOL”) expanded the Family Medical Leave Act (“FMLA”) to include same-sex marriages. Prior to Friday’s announcement, the DOL had redefined the term “spouse” for purposes of the FMLA, to include same-sex marriages recognized by the state in which the employee resides – in stark contrast to the DOL and Internal Revenue Service “state of celebration” position with respect to employee benefit plans. On June 20, the DOL went a step further, proposing a rule that would extend FMLA protections to same-sex spouses regardless of whether the state they live in recognizes same-sex marriage.

With an increasing number of states legalizing same sex-marriage, employers need to be cognizant of employees in same-sex marriages residing in states that recognize such marriages, as they are eligible for leave to care for a spouse under the circumstances delineated in the FMLA. Under the proposed rule, employers would have to go further and extend FMLA benefits to employees in same-sex marriages even if they reside in a state that does not recognize such marriages.

On a broader scale, employers must be extremely pragmatic with their employment policies. While Title VII of the Civil Rights Act does not include sexual orientation as a protected class, a growing number of courts have found discrimination based on sexual orientation to constitute discrimination on the basis of gender, which is a protected characteristic. In our April Employer Express, we discussed the Terveer case in which the U.S. District Court for the District of Columbia refused to dismiss an employment discrimination case. In Terveer, the employee claimed he was discriminated against because his sexual orientation failed to align with his employer’s expectations of his gender.

While the Employment Non-Discrimination Act, which would make sexual orientation or gender preference a protected class, has yet to pass in Congress its enactment will likely generate lawsuits, given the current wave of popular support. In addition, many states and localities have passed non-discrimination legislation that specifically protects employees from discrimination due to their sexual orientation. Even in jurisdictions without these protections, employers are advised to revise their nondiscrimination policies to protect against discrimination based on sexual orientation.

Due to the quickly changing legal landscape in this area, employers should be extremely prudent when devising benefit plans and nondiscrimination policies. Employers should ensure that their policies are inclusive of all employees, regardless of whether certain characteristics are protected under federal, state, or local law.

“Medical Marijuana” and the Workplace

On May 6th, Minnesota became the 22^nd state, along with the District of Columbia, to legalize the use of medical marijuana. With the legalization movement gaining momentum, employers need to be aware of state medical marijuana laws and the impact of such laws on drug testing policies.

A number of states with medical marijuana legislation now provide workplace protections for legal medical marijuana users, also referred to as qualifying patients. These states have enacted one of two forms of protections for qualifying patients. In Illinois and Connecticut, for instance, the protections are limited to prohibiting negative employment actions based solely on the employee’s status as a qualifying patient. However, it is unclear how these statutes would affect an employer who wants to penalize a qualifying patient for a positive drug test. The second approach, taken by Minnesota, provides broader protections for qualifying patients. Under the Minnesota statute, an employer is prohibited from taking any negative employment action against an employee based on either their status as a qualifying patient or a positive drug test. Both approaches provide exceptions for when a failure to consider an employee’s qualifying patient status would violate state or federal law, or licensing regulations, as well as for employees who used, possessed, or were impaired by medical marijuana on the premises of their place of employment or during the hours of employment.

Due to the difficulty of identifying employees who are legal users of medical marijuana as well as the fast changing status of the law in relation to marijuana, employers should contact Kelley Drye when faced with a positive drug test if that employee is in a state that does not prohibit all use of marijuana.

WAGE AND HOUR

Employers Face More Wage-and-Hour Suits

In the span of a year, beginning on April 1^st 2013, a total of 8,126 new wage and hour suits were filed in federal courts - marking an increase of 4.7 percent over last year’s total. The number of wage and hour suits has been on the rise since 2008, a likely product of workers’ rising awareness of their status and rights under the Fair Labor Standards Act (“FLSA”).

A recent class action filed by more than 5,000 current and former hospital employees, for example, should give employers pause. The employees in Corcione v. Methodist Hospital et al. sued a chain of Houston-based hospitals claiming that they are owed back pay for their meal breaks. The employees claim that their breaks should be considered compensable as time worked because their employer continually interrupted their meal breaks and required the employees to be extremely responsive to any patient request received on their cell phones. This claim spans years of employment and could end with the hospitals owing a large sum of back pay to the affected employees.

Similar cases have been brought against Walmart and Costco. In these cases, employees, relying on California law, claim to be owed compensation for time spent working overtime or during their meal breaks. These cases will hinge on whether, under the FLSA, the time the employees claimed to not have been paid for consisted of activities that are integral to the employees’ principal activity.

With a likely continued increase in wage and hour claims, employers need to be conscious of when an employee’s time is compensable and when it is not. At Kelley Drye, we have experience handling wage and hour claims. We can counsel employers in best practices in order to avoid these sorts of claims, as well as assist an employer through any litigation that might arise.

The Ninth Circuit Weighs in on Judicial Approval of FLSA Settlements

May’s Employer Express touched on a split between the 11^th and 5^th Circuits on whether private settlements of wage and hour claims under the Fair Labor Standards Act (“FLSA”) require Department of Labor (“DOL”) or court approval to be enforceable. The 9^th Circuit, however, appears to have no intention of straying from its requirement of judicial approval for such settlements. A 9^th Circuit judge recently rejected a proposed $1.97 million settlement of a proposed class action brought by financial service representatives claiming that Metlife violated the FLSA and California law by encouraging its employees to work overtime without pay and confiscating a portion of their commissions if they left the company before being employed for 12 quarters.

The proposed settlement was to be paid out to 431 current and former Metlife employees via two sub-funds. The first fund, the Novitiate Fund, would compensate financial services representatives who lost portions of their commissions for terminating employment prior to attaining 12 quarters of employment. The second fund, the Expense Reimbursement and Overtime Fund, purported to cover three injuries – deductions for operating expenses from employees who were employed longer than 10 quarters, uncompensated overtime, and unreimbursed business expenses. The judge found the settlement to be inequitable based on the second fund, which was meant to cover both employees who suffered only two of the three injuries and employees who suffered all three. For the agreement to be equitable, employees who worked more than 10 quarters and were thus charged certain fees for office space, clerical support, and other operating costs, should receive an additional amount of the settlement compared to the employees who were solely owed for uncompensated overtime and unreimbursed business expenses.

As we discussed in last month’s newsletter, in late February the Eastern District of New York held in Picerni v. Blungual Seit & Preschool, Inc. that no judicial approval is required to settle a private FLSA lawsuit. The decision was in stark contrast to an earlier Eastern District decision issued the month prior, in January 2014, requiring a fairness hearing prior to settlement (Socias v. Vornad Realty). While the Second Circuit has yet to weigh in on the issue, the 9^th Circuit’s most recent denial of the Metlife proposed settlement demonstrates that California judges are in no rush to deviate from the well-traveled procedural approval requirement.

We will continue to monitor and update you on developments in this area. In the meantime, employers who think they may be improperly classifying employees as exempt from overtime pay should reach out to us to develop a comprehensive compliance solution that minimizes exposure to future employee claims. Kelley Drye’s Wage and Hour Class Action Defense practice group can assist with all aspects of wage and hour issues, including FLSA settlements.

Interns Hit L.A. Clippers with Wage Suit

The Los Angeles Clippers now face a wage class action brought by a former intern claiming the Clippers engaged in an illegal scheme to reduce labor costs by misclassifying employees as unpaid interns, in violation of the Fair Labor Standards Act (“FLSA”) and California Labor Law.

Plaintiffs allege that the team required interns to perform the work of paid employees without any compensation. Named plaintiff Frank Cooper was a fan relations intern with the Clippers for less than two months in 2012. While the interns did not have set schedules, they worked between 40 to 50 hours a week. During that time, Cooper claims he performed tasks similar to those performed by paid employees, such as supervising autograph sessions with players, office duties including the distribution of gifts and prizes and mailing of season tickets, and organizing basketball clinics for fans and camps for children. The suit claims that absent the work performed by the interns, the team would have been forced to require current staff to work longer hours or hire additional employees.

Cooper is currently seeking certification of FLSA and California Labor Law subclasses of interns who were unpaid for work performed between September 2012 and the present. Cooper seeks unpaid minimum wages, damages, restitution and an accounting of the Clippers’ records for the liability period.

This is the second employment suit brought against the Clippers this month, as it follows a case brought by a former female assistant to team owner Donald Sterling alleging that the Clippers withheld pay and terminated her for complaining of racist remarks and refusing to perform sex acts.

The treatment and protection of interns in the workplace is currently a hot topic. As we mentioned in our April newsletter, New York employers should also be mindful of the new legislation granting greater employment protections for interns passed by the New York City Council on March 26, 2014. Given the growing trend, employers should anticipate interns to be entitled to essentially the same protections available to regular employees, and should review their discrimination and retaliation policies to reflect the new requirements. Employers should also review their internship programs to ensure that interns are properly classified and performing work deemed to be for their training, development and benefit – rather than primarily for the benefit of the organization. Kelley Drye can help ensure your internship programs are not exposing your organizations to legal liability.

NLRB

An Aggressive NLRB Strikes Down More Employer Policies

In a case which typifies the NLRB’s aggressive attitudes towards employers, an NLRB judge invalidated a slew of employer internal policies, a nondisclosure agreement and an arbitration agreement.

In Hooters of Ontario Mills (5/19/14), the NLRB found that a Hooters franchise unlawfully fired a waitress after she complained about an allegedly rigged bikini contest. In doing so, the administrative law judge (“ALJ”) invalidated nine of Hooters’ internal handbook policies. Among the invalidated policies were prohibitions against (1) staff discussion of tips with other workers and guests, (2) insubordination, (3) unauthorized dispersal of sensitive company material, (4) conduct affecting the company’s smooth operation, and (5) disrespect to the company and its employees, which forbid employees from posting negative comments about the company and information about a coworker. The judge found these policies to be overly broad and reasonably likely to encroach upon the employees’ ability to engage in “protected concerted activity” under the NLRA. The judge ruled that the plaintiff’s complaints of unfairness in the bikini contest were “protected concerted activity” under the NLRA since there was a $300 prize awarded to the winner. The invalidation of these policies exemplifies the NLRB’s hypercritical treatment of employer policies, a trend we touched upon in April’s NLRB Finds Policy Banning “Negativity” Unlawful.

The ALJ also struck down Hooters’ mandatory arbitration agreement that waived the right to bring class claims, applying the NLRB’s controversial D.R. Horton decision holding that such agreements violate the NLRA. As we previously discussed in NLRB Continues to Eschew Wave of Decisions Approving Employee Arbitration Agreements with Class Action Waivers, despite the fact that numerous federal courts have rejected D.R. Horton, it appears that the NLRB will stand by their decision until the Supreme Court overturns it.

This case is a strong reminder to employers of the importance of involving counsel in the oversight of their employment policies and development of handbooks. Employers must be sure to revise their employer handbooks and policies to ensure that there are no prohibitions on what could be considered “protected concerted activity” by the NLRB.

NLRB Expands Power Through OSHA Referral Agreement

On May 21^st, the NLRB announced a joint referral agreement with the Occupational Safety and Health Administration (“OSHA”) under which OSHA will refer time barred complaints under the Occupational Safety and Health Act to the NLRB. This agreement marks the NLRB’s latest tactic to expand its ever growing authority. Accordingly, employers should expect an increase in claims brought under the NLRA.

Section 11(c) of the Occupational Safety and Health Act protects whistleblowers from retaliation from their employers. Currently however, employees have only 30 days from the time of the violation to file a complaint with OSHA - after the 30 days their claim is unactionable as time barred. The new joint referral agreement between OSHA and the NLRB is significant because OSHA will begin to refer all untimely complaints to the NLRB, many of which, the organizations believe, will also constitute violations under the NLRA, which prohibits employer infringement on an employee’s ability to engage in “protected concerted activity.” Because the NLRA has a statute of limitations of 6 months, many of the claims that are not actionable under the OSH Act will still be actionable under the NLRA. An OSHA chief recently estimated that roughly 200 OSHA claims every year are dismissed as untimely because they are filed after the 30 day statute of limitations. If the agreement works as planned, many of these claims will be brought under the NLRA.

As always, Kelley Drye is ready to assist any of its clients with claims brought under the NLRA or OSHA.

NLRB Curtails Employers’ Ability to Safeguard their Facilities and Proprietary Information

An NLRB administrative law judge (“ALJ”) recently held that Boeing engaged in unfair labor practices when it photographed and recorded employees engaged in union activity. Boeing’s policy prohibiting employee use of cameras in the workplace was also found to be in violation of the National Labor Relations Act (“NLRA”).

The ALJ found that Boeing lacked any reasonable justification for photographing four union marches that took place in 2012 in support of the union’s demands for a new contract. To record such union activity, an employer must have a reasonable basis for anticipating misconduct. While Boeing claims to have a reasonable justification, the ALJ found that the lack of any prior history of misconduct during the marches weighed against Boeing. In addition, the employer’s recording had a chilling effect on the employees’ exercise of their federally protected rights. If an employer has the desire to video tape or photograph its employees’ union activity, it should first speak with counsel in order to determine whether or not it possesses the justification necessary to do so, thus avoiding a costly claim of unfair labor practice under the NLRA.

The issue of larger import for employers, however, was the ALJ’s decision to invalidate Boeing’s policy prohibiting employee use of cameras in the workplace. The policy prohibited workers’ use of personal camera enabled devices to capture images or videos unless there was a valid business need and an approved permit. The judge found the policy to be at odds with the NLRA since employees would reasonably construe the rule as barring all photography in the company’s facilities, including photography related to solidarity marches during bargaining negotiations or other protected concerted activities. The policy, the judge reasoned, would reasonably tend to chill the exercise of workers’ labor law protected rights.

At a time when nearly every working-aged individual has a camera built into their phone, an employer’s ability to curtail the use of those devices may be integral to its ability to protect the security of its facility as well as its proprietary information. To avoid invalidation of internal policies, employers should consult with Kelley Drye when drafting or revising their policies in order to protect their security and proprietary information while at the same time avoiding any liability under the NLRA.

DISCRIMINATION

7th Circuit Sides with Employers in Recent Race Discrimination Cases

In a pair of recent 7th Circuit cases, employee claims of racial discrimination failed to survive the summary judgment phase. In both cases, Peers v. Village of Hazel Crest and Huang v. Continental Casualty Company, employees claimed that their employer discriminated against them due to their race in violation of Title VII of the Civil Rights Act. As the two recent cases demonstrate, it can be difficult for employers to determine when an action constitutes discrimination.

There are two methods an employee may use to prevail on a claim of discrimination, the direct method and the indirect method. Under the direct method, a plaintiff must provide evidence that absent the impermissible consideration of race, he or she would have received the promotion. Under the indirect method, the plaintiff must only show that he or she was treated differently than someone similarly situated outside their protected class. However, under the indirect method, even if the plaintiff meets his or her burden, an employer may offer non-discriminatory reasons for the discharge which shifts the burden back to the employee to prove the employer’s reasons are pretextual.

In Peers, two white police sergeants claimed that a promotion to deputy chief, which they both desired, was given to a less qualified black officer due to the officer’s race. While there was significant evidence that race played a part in awarding the promotion, the plaintiffs failed under the direct method because of a lack of evidence that either of them would have received the promotion had race not been a factor in the decision. The plaintiffs similarly failed under the indirect method because they were unable to show that the employer’s proffered reasons for not promoting them, i.e., lack of leadership and volatile character, were untrue.

In Huang, a software engineer claimed his former employer discriminated against him because he is Chinese. Huang’s employer claims it fired Huang due to his refusal to comply with his division’s requirement that he be on-call 24 hours a day every fourth weekend. Upon Huang’s continued lack of compliance, he was fired. Huang’s claims were unable to survive summary judgment because he could not identify a non-Chinese employee who refused a comparable work assignment but was not fired.

These cases highlight the high burden placed on employees to succeed on a claim of discrimination. Regardless of whether race was considered in the employment decision, such as in Peers, or if a disgruntled employee brings a frivolous claim such as in Huang, it is important for employers to understand the circumstances under which they do and do not open themselves up to liability.

Diocese Claims Exemption from Suit Alleging Discriminatory Firing

A case before the District Court of Northern Indiana highlights the increasingly litigated line between religious freedom and anti-discrimination laws. In the case, a former Catholic school teacher claims that the St. Vincent de Paul School discriminated against her, in violation of Title VII of the Civil Rights Act and the Americans with Disabilities Act (“ADA”).

The claim in Herx v. Diocese of Fort Wayne-South Bend Inc. et al arises out of the school’s firing of a teacher for undergoing in vitro fertilization treatment, referred to as “an intrinsic evil” by the Diocese bishop. The Indiana Catholic Diocese, which runs the church, claims it is protected against Herx’s claims by religious exemptions in Title VII and the ADA, as well as by the ministerial exceptions in these laws. The Diocese’s claims typify the lack of clarity surrounding what a religious employer can and cannot do. While Title VII and the ADA do contain exemptions for religious employers who make employment decisions based on an employee’s religious status, the Acts do not allow a religious employer to make such decisions based upon other protected statuses such as race, gender or national origin.

While this may seem to leave the religious beliefs of employers very little protection, both Acts also contain a ministerial exception. The ministerial exception, recently expanded in the Supreme Court case Hossana-Tabor Evangelical Lutheran Church and School v. Equal Employment Opportunity Commission, exempts religious employers from anti-discrimination laws when dealing with employees who qualify as “ministers.” The Supreme Court has not yet delineated a clear test for who qualifies as a “minister,” however, factors include the employee’s title, duties, religiosity of the tasks performed and voluntary allowances on their tax returns. Under a fact-based analysis, these factors weigh on whether an employee has ministerial status. In the present case, however, the Diocese’ argument that Herx, a teacher, falls under the ministerial exception is a bit tenuous, given that she is a female who never attended seminary in a church with only male priests.

This case is a great example of how difficult it can be for religious employers to know where they stand in relation to anti-discrimination laws. Before making any employment decisions based on religious beliefs, religious employers should consult counsel in order to avoid costly litigation.

EEOC Scrutiny of ‘Religious’ Dress

As we advised in our March issue, employers should take heed of the EEOC’s increased focus on employer accommodations for religious attire. A number of recent decisions invalidating dress code and grooming policies for discriminating against a particular race or religion suggest that employees asked to change their appearance under an employer’s dress policy have also found a safe haven in the courtroom. Employers should be mindful of this trend and take a closer look at their policies.

In a number of cases, such as EEOC v. Red Robin Gourmet Burgers, Inc. and EEOC v. Papin Enterprises, Inc., courts have found in favor of employees who have refused to cover their tattoos or remove nose rings due to their religious beliefs. Courts have largely focused on how costly the accommodation would be to the employer. If accommodating the employees would not financially burden the employer, such as allowing an employee to wear a skirt rather than slacks, the courts tend to side with the employee. However, if the accommodation came at a significant cost to the employer, such as a safety hazard caused by a piece of religious garb, the courts are more likely to find in favor of the employer. When faced with an employee who refuses to conform to a standardized dress policy, it is important to consult counsel in order to determine whether or not the employer must make an accommodation under the circumstances.

Courts have also turned a skeptical eye on policies which may have been written as racially neutral but have a disparate impact on a particular race. In a recent case, Vazquez v. Caesars Paradise Stream Resort, the U.S. District Court for the Middle District of Pennsylvania found in favor of an African American employee who claimed a company’s policy of not allowing employees to wear their hair in a manner which showed their scalp was unfairly applied when the company allowed Caucasian women to wear their hair in braids but forbid African American women to wear their hair in cornrows. Employers must educate their staffs on the proper implementation of appearance policies, remembering that facially neutral policies can still be found in violation of discrimination laws if applied unequally.

It can be difficult for an employer to assess when it must and how to best accommodate an employee’s religious beliefs or whether an internal policy has a disparate impact on employees. An employer faced with such questions or an employee’s refusal to adhere to its dress policy should reach out to Kelley Drye for counseling. We at Kelley Drye also have experience in helping employers develop and implement policies that can help to avoid litigation and prevent liability.

WHISTLEBLOWERS

Sarbanes-Oxley Whistleblower Case Offers Hope to Employers

In a rare win for employers in the realm of Sarbanes-Oxley (“SOX”) litigation, a 4^th Circuit judge recently ruled against an employee who claimed that his reporting of his firm’s illegal conduct was a contributing factor to his 2009 firing. While the full effect of this decision is far from clear, this case may help employers stave off retaliation claims by whistleblowers in the future.

Feldman v. Law Enforcement Associates Corp. et al. is an important decision because a plaintiff rarely fails to meet the relatively low standard necessary to survive summary judgment in SOX whistleblower claims. In order to succeed, all a plaintiff must do is show that his protected activity under SOX was a contributing factor to his finding. Traditionally, this burden has been a low one, with many courts requiring little actual evidence from the employee. While this case is a bright spot for employers, the effect it will have on future litigation may be mitigated due to the specific facts of the case. In Feldman, the former president of the corporation, who had a historically acrimonious relationship with the board of directors, was fired nearly 20 months after reporting possible illegal conduct to government regulators. The case may be narrowly interpreted as an example of the difficulty of succeeding on a claim with a long delay between the reporting of a violation and the claimed retaliation. The precedential value of this case is unclear at this point, but decisions such as Feldman are always a welcomed occurrence for employers.

Kelley Drye has substantial experience in SOX claims, and we will keep you informed of any developments that occur in this area.

Employer gets Protection from Courts in Extortion Case

In a case which should come as a relief to employers everywhere, a court has finally weighed in on just how far purported settlement discussions can go before going too far. A California appeals court recently ruled that an employee’s threatened legal action against his former employer constituted extortion.

In Stenehjem v. Sareen, the plaintiff claimed he was wrongfully terminated and defamed by his former employer, seeking $382,000 in lost wages and a total of $2 million in overall damages. Stenejhem’s attorney attempted to negotiate a settlement, but the company refused. After firing his attorney, Stenehjem emailed the company’s counsel threatening to file a false criminal complaint against the company under the False Claims Act, stating that it engaged in fraudulent billing practices, unless the defendants paid him.

The Appeals Court found that the email constituted extortion as a matter of law, particularly because the email had no connection to plaintiff’s original claims of wrongful termination or defamation. In reaching their decision, the Appeals Court held that the veracity of the FCA allegations is irrelevant to the question of whether the email constituted extortion. “Even were it true that Sareen had in fact committed acts violating the False Claims Act – and there is no evidence to support this, since Stenehjem filed no declarations in connection with the motion other than his attorney’s fee declaration – this is irrelevant to whether the threatened disclosure was extortion.”

As in many states, California’s Anti-SLAPP (Strategic Lawsuits Against Public Participation) law guards free speech in the litigation process, which extends to pre-litigation settlement negotiations and other communications. The pivotal component of any Anti-SLAPP case is whether or not the speech in question addresses protected activities. The Appeals Court reasoned that the Anti-SLAPP protections did not extend to Stenejhem’s email, which went far beyond mere pre-litigation procedures and a request for a face-to-face meeting, despite Stenejhem’s claims to the contrary.

This pro-employer decision is a small respite from the otherwise increasingly pro-employee legal landscape. When confronted with a disgruntled employee, it is always best to consult counsel immediately.

Employer Express June 2014 Newsletter

IN THE NEWS

Possible Changes to OSHA’s Whistleblower Laws

DOL Crackdown on ​“Classification” of Workers