Guest Article & Analysis
It Ain’t Over Til It’s Over, or How to Convert a Successful Mediation to a Done Deal
You and your client settle a case at mediation. Great! But, alas, the end of the mediation marks the beginning of weeks or sometimes even months of protracted negotiations over the language of the settlement agreement or, worse yet, over issues that were never discussed or were inadequately clarified at the mediation. Generally, these negotiations will be with the other side; worse is when the negotiations are between you and your client. As the days and weeks pass without a final settlement document, your client is increasingly unhappy with you. This unhappiness sometimes stems from the fact your “meter” is still running; at the very least, it’s a consequence of the fact that the client has not attained the closure and finality that they thought they’d achieved at mediation.
1. Well in advance of the mediation, get a clear understanding from your client of what non-monetary terms should be part of a resolution. This especially applies to cases involving issues beyond dollars. Don’t assume that your client will have all these items in mind; in some cases, you will need to really quiz your client to make them think through what a final settlement should look like. If there is to be an ongoing business relationship post-settlement or settlement terms requiring future action, your complete fluency with what will be required is imperative.
2. As soon as you have an understanding with your client, you need to communicate it to the other side. Unless there are strategic reasons not to do so this should be done before mediation. There are several ways this can be done:
a) Prepare a draft settlement agreement incorporating all desired terms. If you’re worried that this gesture may be misinterpreted as an excessive desire to settle, state it’s being done to alert your opponent to issues of concern and to save time at the mediation session.
b) Make a settlement demand, specifying all desired terms. If you’re on the defense side, such that a “demand” may not seem in order, send a letter identifying the terms that will be important to your client if a resolution is reached.
c) If a pre-mediation demand or draft settlement agreement is impractical because the structure of the deal will need to evolve at the mediation, prepare draft language for important terms on separate sheets of paper so they can be shared at
the mediation, as appropriate.
3. At the mediation session, don’t just focus on dollars; negotiate all terms as you make your way through the negotiation. Quite frequently, parties and counsel who are pessimistic about the prospects for settlement will say, “Let’s see if we have any chance of getting close on the money…THEN we’ll worry about the other terms. This strategy often leads to several unintended and certainly undesirable consequences:
a) The parties miss the opportunity to achieve positive momentum from the small successes that come from agreement on some non-monetary terms or those of secondary importance. More important, some of those non-monetary terms have more value to the other side than you may appreciate; your early agreement to them may make it easier to get closer on dollars.
b) The 11th hour revelation of important, non-monetary terms makes their negotiation more difficult because parties may be more tired, more frustrated and less clear in their thinking due to the tug and pull of the negotiations. Sometimes, a party may feel “sandbagged” by having made substantial monetary movement, only to discover that the parties remain very far apart on non-monetary terms and that significant leverage has been lost by the status of the monetary negotiations.
4. Recognize that almost every term needs to be negotiated, not merely assumed. This seems obvious, but I have often seen that the following terms are not articulated at mediation; when they show up for the first time in a draft Settlement Agreement, they invariably produce consternation and sometimes non-agreement:
a) Mutuality of terms, like releases, confidentiality and non-disparagement agreements.
b) Scope of releases.
c) Liquidated damages or shifting attorneys’ fees provisions and the circumstances for their operation in the event of a breach of the Settlement Agreement.
d) Characterization of the settlement proceeds or the allocation between fees and proceeds that should appear in the Settlement Agreement, as well as any indemnification terms.
e) In employment cases, plaintiff’s agreement not to reapply.
f) Mandatory ADR (mediation or arbitration) to deal with post-settlement issues or alleged breaches of the Settlement Agreement.
g) Specific scope and terms of non-disparagement agreements or non-competition agreements.
h) Specific language of negotiated statements or scripts, joint press releases or letters of recommendation.
i) Confidentiality, specifically what is to be kept confidential (e.g., terms of settlement, allegations or facts of claim, fact of settlement, etc.), who is covered and who is excepted.
j) In summary, in some negotiations, almost everything needs to be specified and not assumed, other than severability, non-admission of liability and, generally but not always, choice of law terms.
5. Learn to identify cases with complicated issues or parties with significant emotion which may benefit from two mediation sessions rather than a one-day marathon. Identifying the proper mediation structure for a particular case is an important skill for both professional mediators and advocates in mediation; ‘Rome wasn’t built in a day’, and some settlements aren’t either. In many cases, the process and the parties will benefit from a 1-1/2 or 2-day mediation with sessions of reasonable length. This format gives parties time to express and get past their feelings about the case and move on to the settlement issues. In some other cases, it gives the parties time to reflect on the deal crafted thus far and to refine their thinking, so as to arrive at a better, more comprehensive settlement.
Multiple sessions of sensible length do not add to the expense of mediation. For example, a mediation that lasts from 8:30 a.m. to 6:30 p.m. on Day I and then from 8:30 a.m. to 2:00 p.m. on Day II is not much different in cost from a mediation starting at 8:30 a.m. and running to midnight; in fact, the former structure is likely to be more cost-effective and successful because the parties will be less fatigued and likely to make better and quicker decisions. What is important in multiple session mediations is shaping the parties’ expectations for reasonable stopping times and identifying good points in the negotiation for breaks.
a) If you arrive at a settlement and, again, if you have no draft Settlement Agreement or collection of term sheets as I have suggested above, then prepare a detailed, handwritten outline of terms, which sets forth the key points of agreement and which is signed by the parties. If it’s already late in the day, if both fatigue and frustration are setting in and if the deal struck is complex, it’s sometimes wise to do a very short list of terms and then to schedule a several hour session either for the next day or the very near future, either for the parties to meet in person or to have all necessary persons accessible by conference call to conclude these matters. Again, this may sound to some like additional or unnecessary expense, but as anyone who has been involved in protracted post-settlement negotiations can attest, a more streamlined process is cost efficient.
What all this advice adds up to is more of the First Commandment for Lawyers at Mediation: Thou Shalt Be Prepared. Far too often, even counsel who are prepared for the mediation process and who are armed with a negotiation strategy have not found the time or taken the trouble to develop a closure strategy. Practice some of the steps outlined above and you are guaranteed to get better settlements, faster closure and to have happier clients.
Religious Discrimination — Beards; Quirky Question # 88
Quirky Question # 88:
We have various policies at our company relating to the appearance of our employees. One of those policies is that our male employees must be clean shaven. Several of our employees are protesting that policy on the ground that it constitutes religious discrimination. Come again? Is this legit? Do we have to accommodate the requests of employees that undermine our policies with respect to the appearance of our employees?
Roy’s Analysis:
You inquired whether you have to accommodate the requests of your employees who object your company’s policy that your male employees must be clean shaven. Although I would need a few additional facts to provide you a definitive answer, the simple response is that your company most likely does have to accommodate your employees’ desires to have beards. This is true even if allowing these employees to have beards conflicts with your policies regarding the appearance of your employees.
As you suggest in your question, your employees contend that your policies constitute religious discrimination. The first issue, therefore, is whether these employees have a “sincere religious belief that conflicts with a job requirement.” Occasionally, the “religious belief” issue is an analytical stretch for the employee. For example, one of the first Blog analyses I posted involved a female employee with various facial piercings that conflicted with her employer’s appearance policies. She attempted to justify her facial piercings on religious grounds, claiming she belonged to the “Church of Body Modification.” The court did not buy it.
In most instances, however, employees raising claims of religious discrimination do have a sincere belief that conflicts with a specific job requirement. Since you have not described the religious beliefs of the employees involved, I will assume that their desires to have beards is actually linked to their religion.
The next question you will need to explore is whether your company can accommodate the employees’ religious beliefs without causing an “undue hardship” with regard to the conduct of your business. See 42 U.S.C. § 2000e(j). As you likely know, the concept of “reasonable accommodation” developed in the area of disability discrimination. Typically, with regard to disability discrimination, companies examine the economic impact of the requested accommodation on the business and other corollary issues. These cases are highly individualized, and like other areas of discrimination, depend on an analysis of the totality of the circumstances. How expensive is the accommodation? How many employees work at the facility where the accommodation is sought? What are the company’s revenues? What are the revenues of the facility where the employee is seeking the accommodation? Are there non-monetary considerations that bear upon the accommodation (e.g., would the requested accommodation require the company to modify its work schedule; how would other employees be affected; could the employee perform the essential functions of the job with the accommodation; are any safety issues implicated; etc.)?
These kinds of inquiries also come into play when a religious accommodation is sought. Would the accommodation cause an undue hardship for your company? For example, are there any safety issues that would be implicated by allowing employees to have beards? A recent case from the United States Court of Appeals for the D.C. Circuit, Potter v. District of Columbia, No. 07-7164 (March 6, 2009), involved just this context. In Potter, a group of D.C. firemen and emergency medical services (EMS) workers challenged on religious grounds the D.C. fire department’s proscriptions against beards. The principal factual issue of the case was whether beards impeded or interfered with the use of various different types of breathing apparatus the firemen needed to perform their jobs. A central question was whether a leak in the face mask, caused by a beard, could endanger the bearded fireman, his fellow firemen, and/or the citizens the firemen are trying to assist.
After both the City and the firemen filed cross-motions for summary judgment, the District Court granted summary judgment for the firemen and EMS workers. The trial court concluded that the City’s “clean-shaven policy” was not sufficiently narrowly tailored to satisfy the requirements of the statute on which the firefighters had grounded their claim, the Religious Freedom Restoration Act. That statute mandates that the government demonstrate that a policy that burdens religious freedom do so in the least restrictive manner to advance a compelling interest.
The U.S. Court of appeals affirmed the summary judgment decision in favor of the firemen. It appeared, however, that this decision was based, at least in part, on the flawed approach to the litigation taken by the City. Indeed, in a concurring opinion, one of the federal appellate judges commented that the City’s “muddled litigation strategy rendered summary judgment for the plaintiffs a legitimate outcome.” The concurring judge went on to characterize the situation as a “semi-natural experiment, in which the District of Columbia will fight calamities with some of its firefighters bearded, while other firefighting entities adhere to OSHA’s rule or its equivalent.”
Nevertheless, as the Potter case illustrates, it is important for employers, whether governmental or private employers, to evaluate whether the policies adopted that infringe on religious freedoms are the least restrictive policies that could be adopted in light of the compelling interest the employer seeks to advance.
Moreover, as some cases illustrate, there are times when the issues of disability discrimination and religious discrimination may intersect. If, for example, the employer has accommodated an employee for disability reasons, that accommodation may also affect whether the same accommodation must be offered to accommodate religious beliefs. By way of illustration, in Fraternal Order of Police Newark Lodge No. 12 v. City of Newark, 170 F.3d 359 (3d Cir. 1999), the appellate court held that the government cannot discriminate between conduct that is secularly motivated and religiously motivated. The Newark police department prohibited police officers from growing beards but granted medical exceptions for beards as required by the ADA. Two Muslim police officers filed suit, contending that their First Amendment rights were infringed by the no-beards policy. The Third Circuit agreed, holding that the police department must create a religious exemption to its no beards policy to parallel its secular exemption, unless the department could make a substantial showing as to the hypothetical negative effects of a religious exemption.
A final observation with respect to the “undue hardship” concept. As some courts have observed, establishing an “undue hardship” in the context of a religious accommodation request is “not a difficult threshold to pass.” When assessing claims of whether an undue hardship is likely to be caused by a religious accommodation, courts seem more willing than in the parallel disability accommodation context to look beyond mere economic considerations.
In sum, the first issue is whether the accommodation sought relates to a sincerely held religious belief. The next issue is what important interest the policy is designed to advance. Assuming that there are both legitimate religious beliefs and legitimate corporate interests at stake (e.g., safety considerations), the courts have to evaluate whether the policies are the least restrictive policies designed to advance the corporate interest. Lastly, the courts evaluate whether the requested accommodation would cause the employer an undue hardship. Even if sincere religious beliefs are at issue, an accommodation that causes the employer an undue hardship is likely to be rejected. But, absent some serious safety issues (e.g., your employees work with air-borne pathogens and need tight fitting masks), it may be difficult to advance a persuasive argument that accommodating someone who wants to have a beard for religious reasons would cause your company an undue hardship.
Associational Discrimination, Quirky Question # 87
Some time ago, you wrote an analysis about discrimination on the basis of inter-racial marriage. We are confronting a slightly different problem. Several of our Caucasian employees have complained that they have been discriminated against because of their friendships with their African American co-workers. These individuals are not married to the African Americans and they have not even said they spend time with them away from work. But, they are claiming discrimination nonetheless. Similarly, they have complained that they are offended by some of the language used by some of their Caucasian co-workers with respect to minority employees who work at our company. Do they have a potential claim? Does Title VII reach claims brought by Caucasians who are complaining about treatment of minorities?
In the recent case of Barrett v. Whirlpool Corporation, No. 08-5307 (6th Cir. February 23, 2009), the appellate court examined a number of these issues. The case was before the appellate court following the grant of summary judgment to defendant Whirlpool. The three plaintiffs (Barrett, Melton and Nickens) claimed that their employer discriminated and retaliated against them in violation of Title VII on the basis of their friendships with and advocacy for certain African American co-workers.
The claims brought by plaintiffs involved some very ugly conduct by the plaintiffs’ co-workers, including grossly racist conduct. Some of this conduct was reported by the plaintiffs to their supervisors, but the company’s response was inadequate.
As the Sixth Circuit pointed out, “Title VII forbids discrimination on the basis of association with or advocacy for a protected party.” The court emphasized that Title VII protects individuals who, though not members of the protected class, are “victims of discriminatory animus toward [protected] third persons with whom the individuals associate.” For example, the appellate court previously had held that a Caucasian parent discriminated against because he had a bi-racial daughter stated a legitimate claim under Title VII. Similarly, as I’ve addressed in a prior Blog analysis, discrimination based on an individual’s inter-racial marriage also is prohibited by Title VII.
In Barrett, the District Court had found that the plaintiffs’ associations with their African American co-workers fell short of providing Title VII protection because the plaintiffs provided no evidence that their friendships “constituted anything other than the casual, friendly relationships that commonly develop among co-workers but that tend to be limited to the workplace.” The appellate court, however, repudiated that formulation by the trial court. Instead, the Sixth Circuit adopted the analysis articulated by the Seventh Circuit that the degree of association is irrelevant – “the key inquiries should be whether the employee has been discriminated against and whether that discrimination was ‘because of’ the employee’s race.” (Relying on Drake v. 3M, 134 F.3d 878 (7th Cir. 1998) (white employee may sue under Title VII based on discrimination resulting from his friendship with black co-workers). The appellate court also cited to other decisions involving parallel factual patterns, including inter-racial dating, inter-racial parent-child relationship, inter-racial marriage, friendship with protected class employees, association with Hispanic community, and casual social relationships with African-American non-employees. In all of these contexts, the relevant courts found that Title VII reached the conduct in question.
The Sixth Circuit adopted the reasoning of the Drake court: “If a plaintiff shows that 1) she was discriminated against at work, 2) because she associated with members of a protected class, then the degree of association is irrelevant.” The court noted that the absence of a relationship outside of work should not “immunize the conduct of harassers who target an employee because she associates with African-American co-workers.” While reaching this conclusion, the court observed that the closer the relationship (e.g., marriage or paramour) between the individual outside the protected group and the member of the protected class, the greater the likelihood the Caucasian employee will be able to demonstrate discriminatory treatment based on the relationship. But, as the appellate court emphasized, this issue “goes to the question of whether the plaintiff has established a hostile work environment, not whether he is eligible for the protections of Title VII in the first place.”
Just as the Sixth Circuit found that discrimination based on association is a viable Title VII claim, the appellate court also examined the issue of whether the plaintiffs had advanced a viable claim based on their advocacy on behalf of protected class members. “As with the question of association, the key questions are whether Plaintiffs were discriminated against, and whether the reason for the discrimination was their advocacy for protected employees.”
The appellate court also examined the issue of whether the plaintiffs were victims of retaliation. This legal theory also potentially applied to the claims of the plaintiffs.
In short, as the Barrett case illustrates, there are at least three potential claims that your employees could bring: a) associational discrimination claims; b) advocacy discrimination claims; and c) retaliation claims. The viability of those claims will depend on the nature of underlying conduct engaged in by your company’s employees and the nexus, if any, between the associations or advocacy of your Caucasian employees and the adverse treatment they experienced. Here, the typical issues arising in any harassment or discrimination case will predominate: the nature of the conduct; its severity and frequency; whether your company had knowledge of the discriminatory behaviors; the positions (managerial or non-managerial) of those who engaged in the wrongful conduct; the effectiveness of your company’s response when confronted with the behavior; whether the employees availed themselves of the mechanisms your company provides to address discriminatory conduct; etc.
Interestingly, when evaluating these types of issues in the Bennett case, the Sixth Circuit found that although the claims asserted by the plaintiffs were cognizable, only one of the three plaintiffs had presented sufficient evidence to overcome the summary judgment determination of the lower court. Whether you can achieve the same success will depend on the unique facts of your case.
“Long Term” Independent Contractors, Quirky Question # 86
Quirky Question # 86:
We run an insurance company. Some members of our workforce are employees; some are independent contractors. Admittedly, some of our independent contractors have held this status for some time.
We don’t pay our independent contractors overtime for their efforts – we really don’t even know how many hours they put in. I’ve heard some rumors that some of our independent contractors are unhappy about this arrangement and are talking about suing us for unpaid overtime. Does this present any risks to us?
Roy’s Analysis:
Many years ago, I was at lunch with a client. We were generally discussing the client’s business and various challenges the client was confronting. Near the end of the lunch, the client observed, “We don’t pay our employees overtime. Is that a problem?” Not fully comprehending the comment that just had been made, I stated that the client did not need to pay its “exempt” employees overtime compensation, so it should not worry about that issue. The client corrected me and noted, “We don’t pay anyone overtime. We don’t believe that overtime is consistent with our company’s culture. We do, however, pay employees substantial bonuses based, in part, on how hard they work during the year.” I did my best not to choke on my food, to maintain my composure, and to calmly explain to the client that it did not have the right to opt out of a federal statute – the Fair Labor Standards Act (FLSA) – that had been in existence since the 1930s. Likewise, I advised the client that it was facing substantial exposure for unpaid overtime (OT) compensation, with the added risk that the base pay on which the OT compensation would be calculated likely would include the “bonuses” paid at year-end to compensate its “hard-working” employees.
As the phrase goes, “That was then, this is now.” The FLSA currently is the source of more employment litigation, and more potential exposure, than almost any other employment statute. Whereas a decade ago we were able to change the client’s policies, adopt a new compensation plan based on exempt and non-exempt employee status, and avoid litigation altogether, such an outcome would be extremely unlikely today. Plaintiffs’ counsel have figured out that the FLSA can work for them like a bank (without any toxic assets). Seven-, eight- and even nine-figure judgments and settlements are reported regularly based on a variety of claims ranging from misclassifying employees (exempt vs. non-exempt), failing to pay OT comp, failing to provide appropriate meal and rest breaks, failing to compensate employees for donning and doffing required safety gear, failing to compensate employees for travel time, etc.
So, in response to your question about whether you are confronting any risks, the answer is, “Most assuredly.” The key question implicit in the facts you describe is whether your “independent contractors” are truly “independent contractors” or whether they more realistically could (or should) be characterized as “employees.” This is the central issue on which your company’s potential liability is likely to turn. Unfortunately, there are no facts in your question that would enable me to offer many meaningful insights into your situation, other than your observation that many of your independent contractors have held that status for a protracted time period. Therefore, let me analyze your situation somewhat more generally.
The FLSA applies to employees. (Note, too, that many states have wage and hour statutes that also may present risks to your company; addressing those parallel state statutes is beyond the scope of my comments here.) The FLSA does not apply to independent contractors. Consequently, the determination of whether an individual working for your insurance company is an employee or an independent contract is the initial, fundamental inquiry.
The relatively recent case of Hopkins vs. Cornerstone America, et al., No. 07-10952 (5th Cir. October 13, 2008), is an illustrative example of how courts may evaluate this issue. In Hopkins, 14 former “sales leaders” sued their employer for unpaid overtime compensation under the FLSA. The defendant insurance companies (a group of inter-related entities) argued that these individuals all were independent contractors not entitled to the protections and benefits of the FLSA. The trial court perceived the situation rather differently, granting the plaintiff group summary judgment on the issue of whether they were employees. In other words, even assuming all of the facts (and inferences from those facts) were as the defendants alleged, defendants still lost on this issue. The Fifth Circuit granted the defendants’ request for interlocutory appeal. Because the appellate court was reviewing a summary judgment motion, it evaluated the issue de novo, that is, without giving any deference to the decision of the court below.
The Fifth Circuit reached the same conclusion as the trial court. Despite the company’s characterization of the 14 sales leaders as “independent contractors,” the court found that for FLSA purposes they were “employees.”
The appellate court began its analysis by citing to a 1992 Supreme Court decision, Nationwide Mutual Ins. v. Darden, which emphasized the FLSA “stretches the meaning of ‘employee’ to cover some parties who would not qualify as such under a strict application of traditional agency law principles.” The Fifth Circuit then applied the “economic realities test” – whether the worker is economically dependent on the alleged employer or is instead in business for himself — to determine whether these workers were independent contractors or employees.
Under the Fifth Circuit’s formulation of this test [other jurisdictions have somewhat different standards], the court is to evaluate five non-exhaustive factors: a) the degree of control exercised by the alleged employer; b) the extent of the relative investments of the worker and the alleged employer; c) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer; d) the skill and initiative required in performing the job; and e) the permanency of the relationship. As the court pointed out, no single factor is determinative.
Analyzing the relationship between the company and its 14 sales leaders on the basis of these criteria, the appellate court found that every factor supported the conclusion that these individuals were, in fact, employees, regardless of the label given them by defendants. For example, with respect to the issue of “control,” the court noted that the defendants had responsibility for hiring and firing all of the subordinate sales agents upon whom the sales leaders’ income was entirely dependent. The companies also handled the advertising and determined the prices of the insurance products. Perhaps even more significantly, the defendants prohibited the sales leaders from selling any other companies’ insurance products, controlled the number and sources of the sales leads, and determined the geographic territories in which the sales leaders could work.
With respect to the second criterion – investment – the court compared the resources invested by the companies with those invested by the sales leaders. The court of appeals found that the defendants’ investment vastly exceeded the individuals’ investment, a factor that supported the determination of “employee” status.
The appellate court then looked at the third factor – who determined the worker’s opportunity for profit and loss. Given that the companies dictated the geographic territories, assigned the sales leads, prevented the workers from selling any other companies’ insurance products, and hired and fired the subordinate agents upon whose production the sales leaders’ incomes depended, the court found this factor also supported the conclusion that these individuals were “employees.”
As to the skill sets possessed by the workers – the fourth factor – the Fifth Circuit found that the sales leaders did not have any particularly “unique” skills, instead possessing the skills common to any effective managers. Moreover, given the control exercised by the defendants, the sales leaders were precluded from exercising “true initiative” in their supposedly independent businesses. This variable also supported the determination that the sales leaders were employees.
Finally, the court looked at the “permanency” of the working relationships. Given that the sales leaders had been associated with the defendants for many years, the Court of Appeals also found that this factor supported the determination that the sales leaders were employees. The court was not persuaded by the defendants’ argument that the sales leaders were “at will” workers, free to terminate their association with defendants at any time for any reason. (Of course, although not referenced by the court, nearly all ‘employees’ are ‘at will’ as well.)
Based on its analysis of these five factors, as well as a few collateral considerations advanced by defendants, the Fifth Circuit found that the sales leaders were employees and were entitled to the protections of the FLSA. The case then was sent back to the District Court for further proceedings.
The Hopkins decision should provide you some insights into whether your company could convince a court that your independent contractors are, in fact, truly independent and not really employees. As suggested above, this determination could well have significant financial implications for your firm. Good luck.
Recording Phone Calls, Quirky Question # 85
We recently heard a rumor that a member of our software engineering staff is planning to leave and start a software company of his own that may compete with us. Further, we have heard that he is discussing his plans with others outside of our company using the desk phones in our San Francisco office. We would like to record his conversations to see what he is planning and whether he is using any of our proprietary information or soliciting any of our employees to join him. Since we own the telephone system, can’t we record or listen in to his calls?
Jennifer’s Analysis:
While you may have good reason to worry about whether this employee is using your confidential information or improperly soliciting your employees, eavesdropping on telephone conversations to find out is very risky in all states, especially California. Although federal law provides limited exceptions that allow employers to monitor private telephone conversations, California law subjects employers to criminal and civil penalties for the same, even when the employer owns the communication system.
As information technology has expanded in the workplace, so too have legal and ethical privacy issues for employers. Monitoring the use of electronic equipment in the workplace can be tricky, and employers need to understand the strict federal and state laws that limit those actions. Generally, both federal and California laws prohibit eavesdropping through the monitoring or recording of confidential telephone conversations.
The Federal Electronic Communications Privacy Act
An employer who “provides” a telephone and/or voice-mail system may access those systems only under certain conditions. As a general rule, the Electronic Communications Privacy Act (“ECPA”) prohibits intentional interception or disclosure of electronic communications. 18 U.S.C. § 2501, et seq.; 18 U.S.C. § 2701, et seq. Courts have found that eavesdropping or recording a conversation at the time of transmission constitutes “interception.” United States v. Meriwether, 917 F.2d 955 (6th Cir. 1990); Fraser v. Nationwide Mutual Insurance Co., 135 F. Supp. 2d 623 at 634. On the other hand, mere retrieval of stored information, such as voice-mail, probably would not be considered a violation of the Act because the transmission has already ceased.
There are two key exceptions to the ECPA that allow employers to monitor their employees. First, an employee may either expressly or impliedly consent to an employer’s monitoring. Federal courts are split on what constitutes implied consent, and they often examine the way a company sets out and enforces its policies. Although courts are usually reluctant to find implied consent, it has been found where
The second ECPA exception to electronic monitoring allows employers to monitor an employee’s telephone calls or voice-mail messages in the ordinary course of business. For example, if the communications are intercepted by employer telephones or related equipment for the purposes of customer service or training, the business use exception would likely apply. Even so, courts look to whether there is a reasonable business justification for the monitoring in each case, and have created somewhat varying standards when applying this exception.
The ECPA was designed for those employers who “provide” phone and/or voice-mail systems, and, thus, it does not apply to employers whose electronic systems are provided by an outside entity. Because you own your company’s telephone system, your company may fall within the federal exceptions to telephone monitoring, so long as you set forth and consistently enforce clear policies, obtain the consent of your employees, and conduct the monitoring in the ordinary course of business. California law, however, is a very different matter.
California Privacy Act
In California, persons who eavesdrop or surreptitiously record workplace conversations are vulnerable to civil or criminal liability under the Privacy Act. Cal. Penal Code § 630, et seq. Unlike federal law, California does not provide a business use exception, but it does permit electronic monitoring of “confidential communications” with the consent of all parties.
The Privacy Act defines “confidential communication” as “any communication carried on in circumstances as may reasonably indicate that any party to the communication desires it to be confined to the parties thereto.” Excluded from this definition is “a communication made in a public gathering . . . or in any other circumstance in which the parties to the communication may reasonably expect that the communication may be overheard or recorded.”
In 2002, the California Supreme Court adopted a broad reading of the Privacy Act to resolve a split in the Courts of Appeal concerning the definition of “confidential communications.” Flanagan v. Flanagan, 27 Cal.4th 766 (2002). The court held that the Privacy Act applies to “the actual conversation, not its contents,” and distinguished between “simultaneous dissemination” of a conversation and the “secondhand repetition” of its contents. This means that eavesdropping is prohibited in California only if done while the message is in transit. As a result, the mere retrieval of stored voice-mail messages that have already been transmitted may limit an employer’s exposure to criminal or civil liability.
Many employers choose to notify employees in advance, through a written policy within their employee handbook, that their activities may be monitored. Under any circumstances, an employer should warn all employees using its electronic communication systems that they should not expect their communications to be private. Some may even go so far as to indicate on outgoing voice messages that the caller’s message may be monitored by the company. However, because California law requires the consent of both parties to a “confidential communication,” eavesdropping or recording is prohibited if any party to the conversation expects it to be private. For this reason, while there are certainly steps you can take to protect your confidential information, especially if you have a written technology usage policy in place, recording or listening in on the employee’s calls may be a perilous option.
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