Rights Provided by Employee Handbook, Quirky Question # 54
Quirky Question # 54:
We have an employee who has missed a fair amount of work due to various surgeries. As set forth in our handbook, we offer FMLA leave for employees who have worked 1250 hours in the preceding 12 months. When we were informed that our employee would need to miss additional time due to some follow-up surgeries, we belatedly explored the issue with our attorneys.
Our lawyers advised us that although our employee had worked the requisite number of hours under the FMLA, he was not FMLA eligible because we don’t have enough employees in the office where he works or within 75 miles of his worksite. Based on those facts, we informed our employee that he was not eligible for FMLA leave and told him that he could not take time off. When he went forward with his surgery and took leave anyway, we terminated his employment. He now has sued us under the FMLA and other legal theories, including “promissory estoppel.” Given that he was not FMLA eligible, do we have anything to worry about?
Roy’s Analysis:
As you may have perceived, QQ # 54 was derived from a 7th Circuit case, decided just last month, Peters v. Gilead Sciences, Inc., No. 06-4290 (July 14, 2008). In Peters, a case based on Indiana law, the employer had provided its employees with an employee handbook which paraphrased the language of the Family and Medical Leave Act (FMLA). The handbook described the FMLA eligibility requirements of 1250 hours of work in the preceding 12 months, combined with one year’s employment. The employer’s handbook, however, did not address the other nuances of the FMLA or its other applicability criteria. For example, the handbook did not address the FMLA requirement that there must be 50 employees at the worksite of the employee seeking FMLA leave, or within 75 miles of that worksite (sometimes referenced as the 50/75 rule).
Peters experienced a work-related neck and shoulder injury in late 2001. He re-injured his shoulder about one year later, leading to corrective surgery that required a brief (11-day) leave. Compounding the imprecision of its handbook, Gilead Sciences then sent Peters a letter explaining the FMLA and restating, in part, the FMLA’s eligibility requirements. Again, however, the letter omitted any reference to the 50/75 rule. The letter specified when Peters would need to return to work, and promised him reinstatement in the same or an equivalent position.
As noted above, Peters quickly returned to work and was reinstated into his job. Several months later, however, he took a second leave, caused by an adverse reaction to a prescription medication he had been using. The company sent Peters another letter, largely mirroring its first FMLA communication and specifying the date by which he needed to return to work. Somewhat carelessly, the company miscalculated the mandatory return date, miscounting the amount of leave Peters actually had taken and consequently, underestimating the amount of leave he had left.
When the incorrectly calculated leave “expired,” the company hired a new employee to fill Peters’ job. The company explained its decision to Peters by referencing another FMLA provision, the company’s right to replace an employee occupying a “key” position. Gilead Sciences offered Peters another position but he rejected it, at which point he was terminated. Peters then sued the company on a number of different legal theories, including FMLA violations, breach of contract and promissory estoppel.
Once it examined the FMLA more closely, the company discovered that Peters was not FMLA-eligible because he did not work at a site that had at least 50 employees and the company did not have 50 employees in the aggregate working within 75 miles of Peters’ work location. Peters, however, argued that his employer was “equitably estopped” from denying him coverage under the FMLA due to the company’s representations in its employee handbook and the two letters the company sent to him. Despite Peters’ equitable estoppel argument (the notion that given its representations to him in the handbook and the letters, the company was prevented, or “estopped,” from making an argument based on the eligibility requirements) the District Court granted summary judgment, dismissing Peters’ case.
The 7th Circuit reversed, though on slightly different grounds. The appellate found that it did not have to decide the “equitable estoppel” issue, since there were two other potential bases on which Peters could prevail. First, the 7th Circuit found that Peters might be able to prevail on his claim for “promissory estoppel.” Promissory estoppel is a quasi-contract theory in which the court finds that certain promises may rise to the level of a binding agreement if the person to whom the promises were made takes action in reliance and is injured as a result. For example, if a company made a job offer to an individual (the promise) and encouraged him to move across the country to accept the position, and the employee moved across the country to take the job (the reliance), and was damaged thereby (e.g., quitting his other job, selling his house, etc.) (the injury), the employer is prevented (or estopped) from denying the employee the benefits of the promises previously made.
In the Peters case, the court found that the employer’s handbook and the statements set forth in the letter could constitute promises under Indiana law upon which Peters had relied to his detriment.
Second, the court observed that the statements made in the employee handbook could simply be a unilateral contract offer, which Peters accepted by working for Gilead Sciences. The 7th Circuit noted, however, that the Indiana Supreme Court had not decided the issue of whether employee handbooks could rise to the level of binding contracts. Even if a handbook in Indiana did not constitute a contract, the appellate court concluded that Peters had set forth enough facts to pursue a claim under the legal theory of promissory estoppel.
As the 7th Circuit noted, “There is no reason employers cannot offer FMLA-like benefits using eligibility requirements less restrictive than those in the FMLA, and that is what Gilead did. Peters statutory ineligibility is irrelevant to the contract-based theories of liability.”
The Peters lawsuit is illustrative of several critical points. First, as I have observed in this Blog before, much of employment law is state law dependent. In Indiana, the courts apparently have yet to resolve the issue of whether the promises in an employee handbook can rise to the level of contract. Other states, however, have resolved that issue. In Minnesota, for example, our state Supreme Court decided about 25 years ago that handbooks could constitute unilateral contracts. Of course, that led to the use of disclaimers, boldly set forth in handbooks, to disabuse employees of the notion that it would be reasonable to view handbooks as contractually binding.
Second, there are times when state law provisions do interact with federal law. Here, the handbook analysis had direct bearing on the FMLA, a federal statute. Indeed, in some ways the federal statute complicated the situation because the FMLA requires that information about employee FMLA leave rights be included in employee handbooks (if the employer uses such a document). Moreover, the appellate court considered, but did not decide, whether Peters’ “equitable estoppel” argument would have required the employer to provide the otherwise ineligible Peters with rights provided by the FMLA. In the absence of Peters’ state law contract and quasi-contract claims, presumably the court would have reached this issue.
Third, the case illustrates the importance of crafting your employee handbook carefully. If you reference eligibility for statutory benefits, you’d better get it right. If you omit key statutory provisions, you may be obligating your company to provide benefits that exceed those of the statute or that apply to individuals who otherwise would not be eligible for the statutory benefits. There are at least two ways to address this potential problem. You could analyze each statute carefully and ensure that your summary descriptions are correct. Or, you could include a provision in your handbooks, specifying that the handbook only provides a short synopsis of the statute and, to the extent that the statute contains provisions governing eligibility or benefits not summarized in the handbook, the statute (not the handbook) will govern. This may not completely exculpate an employer that mischaracterizes a statute but it is better than the alternatives — either omitting key statutory provisions or attempting to incorporate the entire statute into the handbook.
Fourth, the Peters case also illustrates the importance of conveying information clearly, and accurately, in other employee communications. Don’t send out letters that paraphrase statutory provisions inaccurately. Don’t advise employees that they are entitled to benefits for which they would not be eligible. Do your homework before sending out the letters. Get legal advice to ensure that you are not making promises you do not intend to make. Otherwise, you may find yourself in the position of Gilead Sciences, having promised benefits that are quite likely to be enforced, regardless of the limitatons of the statute.
Finally, purely from an advocacy perspective, limit your arguments to those which are credible. As referenced above, one of the explanations that Gilead Sciences offered to Peters for why he had been replaced was that he was a “key” employee under the statute. The FMLA definition of a “key” employee is very circumscribed and there is no way Peters would have fit that definition. By including an argument that has virtually no chance of success, the company merely diminished its own credibility with the court.
Termination for Infertility Treatments, Quirky Question # 53
I read with interest your Quirky Question # 46, regarding the issue of whether an employer can fire an employee for having an abortion. I have a slightly different inquiry. Could we fire an employee because of her infertility treatments? I ask because we need to reduce our workforce slightly and one of the employees we are considering has been recently involved in in vitro fertility treatments. She’s missed quite a bit of work and it seems likely that she will miss more. Given that fact, we’d rather retain other employees in comparable positions.
Since both men and women alike may suffer from infertility, our decision is not based on sex. Any thoughts?
Your reference to Quirky Question # 46 is on target. As I discussed in that analysis, the key to the question of whether an employer could terminate an employee for having an abortion was the PDA provision that explained the term “because of sex” included discrimination “because of or on the basis of pregnancy, childbirth, or related medical conditions.” Just as the decision to terminate a pregnancy implicated the ‘related medical conditions’ language, so too does the decision to use modern medical techniques to enhance the likelihood of pregnancy.
In the very recent (last month) decision of Hall v. Nalco Company, No. 06-3684 (7th Cir. 2008), the federal appellate court addressed, in a case of first impression, the question presented in this Blog posting. In the Hall case, the defendant company terminated an employee who was going through the in-vitro fertilization (IVF) process to address her infertility. As the 7th Circuit explained (quoting from medical journals), the IVF process “is an assisted reproductive technology that involves administration of fertility drugs to the woman, surgical extraction of her eggs, fertilization in a laboratory, and surgical implantation of the resulting embryos into the woman’s womb.” Each IVF treatment takes weeks to complete and multiple treatments are sometimes needed to achieve a successful pregnancy.
The 7th Circuit then concluded, “Because adverse employment action based on child-bearing capacity will always result in ‘treatment of a person in a manner which but for that person’s sex would be different,’ . . . Hall’s allegations present a cognizable claim of sex discrimination under Title VII.”
Having recognized the validity of Hall’s claims, the court then turned to the specific facts to evaluate whether the District Court had improvidently granted summary judgment. Because Nalco’s management employees had made careless comments and writings regarding Hall’s health, fertility treatments and related absences from work, the appellate court felt that the case was not appropriate for summary judgment disposition. The case, therefore, was sent back to the lower court for resolution by a jury.
In short, you would be ill-advised to base your termination decision on your concerns about the amount of time your employee has missed or may miss for infertility treatments. If you find it necessary to consolidate your workforce, make your retention and discharge decisions on neutral, performance-based factors that do not implicate your employees’ protected class status. To do otherwise invites litigation and increases your company’s potential legal exposure.
Usurpation of Corporate Opportunity, Quirky Question # 52
Along with a few friends, I then started my own business. My business has nothing to do with that of the failed company where I used to work. Happily, the company that my friends and I started has had considerable success.
Much to my surprise, I recently was contacted by the former CEO of the company that fired me. He said that I “usurped” an idea that belonged to his failed firm and that he and others were considering a lawsuit against my partners and me. This seems like a shake down. Do I need to be concerned about this situation?
First, as you stated, you are a “non-managerial” employee. The legal theory was designed to reach wrongful conduct by directors and officers of companies. This is based on the common sense notion that lower level employees typically are not presented with ideas involving opportunities for the company or requiring corporate decision-making. As a non-managerial employee, it seems unlikely that “corporate opportunities” would be presented to you, rather than someone senior to you in the company. In short, it would appear that the legal theory simply may not apply to you. (It’s hypothetically possible that a non-management employee could be presented with a corporate opportunity, or conceive something based on his work for the company, but nothing in your abbreviated fact pattern suggests that this is true for you.)
Second, from your description, there does not appear to be any logical nexus between the activities your prior company engaged in and the activities of your new company. Minnesota courts require this link. As the Minnesota Supreme Court described in the seminal Minnesota usurpation case, Miller vs. Miller, 301 Minn. 207 (1974), “The threshold question to be answered is whether a business opportunity presented is also a “corporate” opportunity, i.e., whether the business opportunity is of sufficient importance and is so closely related to the existing or prospective activity of the corporation as to warrant judicial sanctions against its personal acquisition by a managing officer or director of the corporation.” A few questions that would enlighten the analysis include: a) what was the product your prior employer was trying (unsuccessfully) to produce; b) what product is your new company producing; c) are the two products competitive; d) do the two products perform the same function; e) did you incorporate any of the technology of the failed product into your new ideas; f) if so, what and how important were these ideas; g) if so, were these ideas already commonly known in the marketplace; h) what was your role in the development of the new product for your new company; and, i) how did your role compare to that of the colleagues with whom you started the company. The answers to these questions will shed light on the issue of whether the opportunity even constituted a “corporate” opportunity.
Third, as you described in your question, the company you previously worked for failed to complete its product, struggled to obtain financing, laid off its workforce and went out of business. Your description is of a company in severe financial distress. Minnesota courts have made clear that a company struggling to survive economically cannot establish a “usurpation of corporate opportunity” claim. Again, as the Miller court observed, “If the facts are undisputed that the business opportunity presented bears no logical or reasonable relation to the existing or prospective business activities of the corporation, or that it lacks either the financial or fundamental practical or technical ability to pursue it, then such opportunity would have to be found to be noncorporate as a matter of law.” Again, this analysis is well grounded in common sense. It belabors the obvious to state that a company barely surviving economically is not in a position to pursue an entirely different product concept, with all of the costs necessary to develop this new venture. Moreover, courts have been understandably reluctant to analyze this situation with the benefit of hindsight. They have rejected the idea that the success of the subsequent company would have solved the financial woes of the economically distressed company. They also have recognized that this analysis is entirely too speculative to be credible. Who knows whether the original company would have made the same decisions that contributed to the success of the other company. Would it have hired the same people? Would the employees have been as committed to the old company? Would the employees have been able to produce the same product? With the firm’s track record of financial trouble, would it have gotten the financial backing that the second company received? These are but a few of the many questions illustrating why it would be ill-advised to accept the argument of the company claiming usurpation when it did not even have the financial wherewithal to remain in existence.
Finally, in Minnesota at least, as the quote above reveals, the courts require the company claiming the usurpation to demonstrate that it had both the practical and technical capability to pursue the opportunity it claims was usurped. Although I would need more facts to assess whether your former employer would be able to satisfy these requirements, I’m skeptical based even on the data you shared. You stated that your new business has “nothing to do with that of the failed company where [you] used to work.” As a preliminary matter, I would question whether a “failed company” has the practical ability to reinvent itself and succeed. Even if that were possible, however, I would need to know more about the technical abilities of the personnel at your former employer and the skill sets of the employees at the business you started. To the extent that they are different, however, you likely have another argument for countering the contention that you “usurped” an opportunity belonging to your former employer.
As I’ve mentioned in past observations on this Blog, the fact that you have a completely meritorious defense does not mean that you are immune from suit. Unfortunately, frivolous litigation is filed too frequently. But, assuming you can afford to defend the litigation, be resolute and don’t capitulate.
Firing a Registered Sex Offender, Quirky Question # 51
Quirky Question # 51:
We are a mid-sized technology company headquartered in California. We have twelve outside salespeople who travel three to four days a week. Typically, the outside salespeople visit our office about once a week. One of our employees in another department informed me that she had been searching the California sexual offender registry and found one of the outside salespeople on the website. She is very disturbed and upset by this information.
I checked the website myself, and sure enough, he was listed. Although she interacts very little with the outside salesperson, she was nonetheless very reluctant to continue working with this person and expressed concern about our company keeping him as an employee. What can I do? I’m afraid that if we keep him, the reporting employee will have some sort of hostile work environment claim. On the other hand, if we terminate the salesperson, are we also risking a lawsuit? Can we fire the outside salesperson based on this information?
[Set forth is another one of our California Quirky Questions. The analysis below was supplied by Jessica Linehan. Jessica, a 1999 graduate of the University of Southern California and a 2002 graduate of University of Southern California Law School, can be reached at 949.932.3675 or by email at linehan.jessica@dorsey.com.]
Jessica’s Analysis:
Your question implicates specific California law on this issue. By way of background, the federal statute enacted in 1996 known as “Megan’s Law” requires every state to create a registry for convicted sex offenders and make certain information about those offenders available to the public. This information is available online at sites such as http://www.meganslaw.ca.gov and www.Megans-law.net, and can be accessed by anyone at any time. Certain sites allow you to search by name or location, so it is inevitable that curious coworkers may sometimes unearth a hidden sex offender. When this happens, the employer is faced with numerous challenges that need to be addressed.
California’s version of Megan’s Law specifically prohibits use of information obtained on websites as to sex offenders in employment decisions, except in limited circumstances. Cal. Penal Code § 290.4(d)(2)(E). The statute provides that use is authorized only to “protect a person at risk.” See Id. at § (d)(1). The limited circumstances where use of such information is allowed is generally for particular lines of business involving minors, such as community care facilities or day care facilities. See id. at § (d)(3). If your line of business does not involve direct involvement with children that would qualify as “person at risk,” think twice about using information obtained from these websites in employment decisions.
Improper use of information disclosed on the sexual offender registries could subject employers to liability. California’s Megan’s Law expressly subjects misusers of such information to liability for actual, and trebled, damages, or a civil penalty not exceeding $25,000. Id. at § (d)(4)(A). In light of the Penal Code’s prohibition of use of the sex offender information found on the database, employers should be very careful to distance themselves from any perception that such information is being relied upon for purposes of an employment decision. An employer who terminates an employee based on its findings on the sexual offender registries also risks a claim of wrongful termination in violation of public policy. While there are currently no reported California cases advancing this theory, there is existing case law and authority that would provide the foundation for a wrongful termination claim on this basis. California case law has addressed the “compelling and necessary” public purposes for such registries, and have made clear that the legislative intent is not for the information to “be used to inflict . . . additional punishment on any such person convicted of a sexual offense.” See People v. Jones, 101 Cal. App. 4th 220 (2002); 89 Ops. Cal. Atty Gen 85 (April 27, 2006). Thus, your company would be restricted from terminating the employee your employee found listed on the sexual offender registry.
You also will need to be cognizant of the effect of the knowledge about this employee in the office environment. The employee who first discovered this information may not be inclined to keep it quiet, despite the statute’s restrictions on disclosure. To avoid the potential backlash against this employee, where other employees’ actions or reactions to this information could create problems (and potential liability for your firm), it is important to speak with both the employee who discovered the information and the employee sex offender.
With respect to the employee who discovered the information, you should counsel that employee as to the need for individual privacy and the laws that generally prohibit use of this information in the workplace. That way, you will be able to explain why action cannot necessarily be taken on the sole grounds of this discovery, while assuring your employee that her concerns are valid. You should also follow up periodically with the employee who voiced her discomfort to ensure that no worrisome behavior on the part of the sex offender employee has surfaced. Document each instance you follow up with the concerned employee and document her feedback as well. For the sex offender employee, you should be up front about the discovery. You should request that the reporting employee inform you of any inappropriate behavior he perceives from other employees and follow up periodically. Document your conversations.
Of course, it is always better to prevent this type of unfortunate situation in the first place by using effective pre-employment screening. An effective and thorough employment application can be the best starting place. While generalized inquiries as to arrests should be avoided, inquiries as to convictions, guilty pleas or pleas of no contest are generally valid. In addition, thorough background screening through reputable agencies is another tool to identify high risk individuals before hiring. Despite the many safeguards against use of information discovered on California’s Megan Law website, there are no such restrictions if the information were disclosed in the course of a properly-conducted background search. A person’s status as a sexual offender is not a protected class within the meaning of the California Fair Employment and Housing Act. See also 89 Ops. Cal. Atty. Gen. 85 (April 27, 2006). Note that such background checks must be conducted within the parameters of state and federal laws and have specific notice and disclosure requirements that must be followed. In addition, keep in mind that not all information unearthed in a background check may be used in employment decisions.
Supplement to QQ # 51, Terminating a Registered Sex Offender: In QQ # 51, my California colleague, Jessica Linehan, addressed the issue of a company’s right to terminate a registered sex offender. Shortly after we addressed this issue, a federal court in Texas decided a case involving the same legal questions. See Vlasek v. Wal-Mart Stores, Inc., No. H-07-0386 (S.D. Texas July 22, 2008).
In the Vlasek case, Wal-Mart received an anonymous letter and phone call informing the company that its employee, Vlasek, was a registered sex offender. Vlasek had not disclosed her criminal conviction or her status as a registered sex offender on her job application. Upon receiving the information regarding Vlasek’s status as a registered sex offender, Wal-Mart representatives met with her. Vlasek contended that various representations were made to her during this meeting, assuring her that her job with Wal-Mart was secure notwithstanding her prior, undisclosed criminal conduct. Not long after this meeting, however, Wal-Mart terminated her employment.
Vlasek brought several claims, including: a) promissory estoppel; b) disability discrimination; c) sex discrimination; and d) violations of the Fair Credit Reporting Act. The court rejected all of her claims. As to Vlasek’s promissory estoppel claim, the court noted that Vlasek was an at-will employee and nothing said to her in the meeting could alter that status. The court also found that Vlasek had not relied to her detriment on any statements made to her during the meeting with the store supervisors. With regard to the ADA claim, the court simply found that Vlasek did not have any mental or physical impairment covered by the ADA. As to the sex discrimination claim, the court held that Vlasek had failed to exhaust her administrative remedies. Finally, although the court recognized that there was non-compliance with FCRA, the court found that Vlasek would have been fired even if she had been given a copy of background report that contained information regarding her past conviction and her registration as a sex offender.
Litigation by In-House Counsel, Quirky Question # 50
Quirky Question # 50:
We are a small to mid-size company, with a relatively small legal department. We have a General Counsel. He, in turn, supervises two other attorneys. The General Counsel joined our company about two years ago, and frankly, his relationship with C-level executives has not been ideal. His relationship with the CEO has been particularly strained. The CEO has advised me (Head of HR) on several occasions that she just does not trust the General Counsel. She has expressed doubts about his judgment, his advice, and, critically, his loyalty to the Company.
The CEO recently asked me to initiate the process to remove the General Counsel from our firm. I don’t know whether this leaked out, but soon thereafter, the General Counsel began sharing with me his concerns about whether our company is complying with the law in a number of areas squarely within his area of expertise. He advised me that he informed the CEO and CFO of his evaluation but they appear to be ignoring his advice. I feel as though I’m caught in the middle.
Assuming that we follow through with our plans to terminate the General Counsel, do we have any risks? My assumption is that everything he has been told in the course of his job is protected by the attorney-client privilege and could not be revealed in any lawsuit against the company. Similarly, I assume that he could not contend that he was fired in retaliation for bringing the supposedly illegal activities to our executives’ attention, inasmuch the concerns he articulated are squarely within his job responsibilities as our chief legal officer. Am I missing anything?
Roy’s Analysis:
The issues presented in this Quirky Question recently have received attention from the courts in Minnesota. In the case of Kidwell v. Sybaritic, Inc., No. A07-0584 (Minn. Ct. App. June 3, 2008), the intermediate appellate court in Minnesota addressed several issues paralleling those presented in this inquiry.
Kidwell was the General Counsel of the corporate defendant for a relatively abbreviated time period (about10 months). Sybaritic terminated Kidwell’s employment a few weeks after he sent an email to the company’s top management expressing his concern that the company was engaging in various types of unlawful conduct. Following his termination, Kidwell sued his former employer under Minnesota’s Whistleblower statute. Following the jury trial, which Kidwell won, the case went up to the Court of Appeals.
The appellate court explored two related issues. First, the court examined the question of whether an in-house attorney may ever sue his or her employer under the state’s Whistleblower statute. Second, the court explored the question of whether communications made by in-house counsel relating directly to his or her job responsibilities fall within the scope of the Whistleblower statute. Kidwell persuaded the court as to the former issue but not the latter.
With respect to the first question examined by the court, the Court of Appeals noted that some jurisdictions had adopted the “attorney-client defense,” i.e., the notion that because in-house counsel would have to reveal information encompassed by the attorney-client privilege to pursue a whistleblower or retaliation claim against the company, such claims are absolutely barred. The court observed, however, that “the majority view . . . appears to reject the attorney-client defense and to permit such claims, though sometimes with the proviso that in-house attorneys may pursue such claims so long as they do not run afoul of the duty of confidentiality . . ..” The Minnesota Court of Appeals elected to follow that “majority” view, holding that a claim under the Whistleblower statute is not “per se barred by the so-called attorney-client defense.”
Having concluded that even in-house counsel may avail themselves of the Whistleblower statute’s protections, the court then evaluated whether Kidwell had presented evidence sufficient to prove that he made a good faith report of a violation (or suspected violation) of law. Although the appellate court considered several alternative arguments on this issue, the argument that carried the day for the corporate employer was well-established precedent standing for the proposition that “a former employee may not maintain an action under the Whistleblower Act if the alleged report is a communication that was made to fulfill the employee’s job responsibilities.” The court observed that if an employee makes a report as part of his or her job duties, rather than to “expose an illegality,” the requirements of the Whistleblower statute have not been satisfied. As the court stressed, “an employee does not engage in protected conduct under the Whistleblower Act if the employee makes a report in fulfillment of the duties of his or her job.”
Applying the Sybaritic holding to the‘Quirky Question’ presented below, it is clear that, in Minnesota at least, your General Counsel would be allowed to pursue a claim under the Whistleblower statute. Your “assumption that everything he has been told in the course of his job is protected by the attorney-client privilege and could not be revealed in any lawsuit against the company” is erroneous. It is possible that your about-to-be former General Counsel could file a retaliation claim based on the statute. In advance of such litigation, you may want to remind your in-house attorney of his duty of confidentiality. Of course, if such a lawsuit were initiated, you may want to consider immediately requesting the court to impose a Protective Order to preserve the confidentiality of your otherwise privileged information.
Although your in-house lawyer may not be barred from suing, the other facts you reveal should provide you greater solace. As you noted, the concerns being raised by your in-house attorney fall “squarely within” his areas of expertise and job responsibilities. Given that fact, it would not appear that he would be able to persuade a court that the purpose of his (supposedly good faith) report to you was to “expose an illegality,” rather than simply fulfilling the duties of his job. If your in-house counsel later elected to institute a lawsuit, I would quickly highlight the Sybaritic holding and inquire how he could file a lawsuit on these issues consistent with his Rule 11 obligations.
Finally, the holding of Sybaritic (assuming that, if appealed further, is not reversed) should increase companies’ general comfort level regarding essential (but potentially damaging) information entrusted to other types of employees. For example, a Human Resources Director provided with statistical data about the composition of a company’s workforce should be precluded from bringing a Whistleblower claim based on recommendations regarding hiring or firing decisions. Likewise, a member of the Audit Committee who is informed about areas of concern and who conveys those facts to management should be precluded from basing a Whistleblower claim on the information revealed in the course of his/her job duties. There undoubtedly are numerous situations where key employees are provided damaging information about a company, but as these examples illustrate, the Sybaritic holding should provide companies some protection against Whistleblower claims by individuals who are merely fulfilling their job responsibilities when reporting on wrongful or illegal conduct.
Supplement to Quirky Question # 50, Litigation Initiated by In-House Counsel:
In QQ # 50, I addressed the situation of whether an in-house attorney who claimed that he was fired for whistle-blowing activities could bring a claim against his employer, even if by doing so he would need to reveal information encompassed by the attorney-client privilege. Since posting that analysis, I came across an analogous case, Nesselrotte v. Allegheny Energy, Inc., No. 06-01390 (W.D. Pa. July 22, 2008).
In Nesselrotte, an in-house counsel, fired by her employer, sued for sex discrimination, age discrimination and retaliation. In the twenty-day period between the notice of her termination and her last day of employment, Nesselrotte copied and removed numerous documents from her employer, including many which were designated as “confidential” or “privileged.” Nesselrotte attempted to justify her removal of these privileged materials on the basis of Rule 1.6(c)(4) of the Pennsylvania Rules of Professional Conduct. Among other grounds for disclosing privileged communications, that rule provides a lawyer the right to reveal information relating to the representation of a client if necessary “to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client . . . or to respond to allegations in any proceeding concerning the lawyer’s representation of the client.”
The court didn’t buy Nesselrotte’s argument. The court rejected the notion that a lawyer may rely on Rule 1.6 to justify the removal and/or copying privileged or confidential documents. As the court emphasized, “[T]he proper avenue for a former employee (even an attorney) to obtain privileged and/or confidential documents in support of his or her claims is through the discovery process, . . . not by self-help.” The Judge observed, “the Court declines to hold that Rule 1.6(c)(4) of the Pennsylvania Rules of Professional Conduct trumps the attorney client privilege in the context of this case, where an attorney employed self-help by removing without authorization privileged and confidential documents seemingly in breach of her former employer’s Ethics Code and Confidentiality Agreement.”
The Nesselrotte case is interesting but seemingly turned largely on the imprudent decision of the in-house attorney to steal the documents that she felt would be beneficial to her case. Had she instead elected to obtain access to the privileged documents she felt were pertinent to her claims through appropriate discovery mechanisms, the court would have had to resolve the more challenging issue of whether an attorney suing for sex and age discrimination could obtain access to materials that were otherwise covered by the attorney-client privilege and/or work product doctrine. Assuming that the court permitted access to these materials through discovery, the court then would have to make the more difficult determination regarding how these materials could be used in hearings or at trial.
The judiciary in different states have reached different conclusions on the rights of in-house counsel to sue their employers and their ability to support their litigation with otherwise privileged and confidential information. To the extent that you confront a claim of this kind, it is critical for you to understand the position of your state courts on these issues.
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