Non-Competes, Unsigned Agreement; Quirky Question # 126
Quirky Question # 126:
We have a non-compete issue. Several years ago, we provided our employees with an employment agreement that contained various post-employment restrictive covenants. When one of our employees left a couple of years later and started competing with us, we took a careful look at the non-compete language in the employment agreement. Simply put, it was not brilliantly drafted. Therefore, we had our lawyers draft a new version of the employment agreement that contained a more carefully crafted (and more comprehensive) non-compete. Because our company also was having some financial difficulties at that time, we also used that opportunity to change everyone’s compensation formula, reducing their compensation.
Most of our employees signed off on the new agreement. Several, however, did not. Nevertheless, we started compensating those employees on the basis of the new compensation system and they continued to work. After another year or so, due to ongoing financial problems at our company, we reduced everyone’s compensation yet again. We presented the employees with a new employment agreement, containing the new compensation formula. We also changed some other terms and conditions of their employment, and significantly enhanced the non-solicitation agreements (both with regard to co-employees and customers) contained in the agreement. Again, some employees did not sign. But, we started compensating them on the basis of the new agreement and they continued to work for us.
A couple of the employees who never signed the revised agreements recently left our company and joined one of our competitors. We’d like to enforce the most recent version of the employment agreement, with its better drafted restrictive covenants, even though they did not sign. Even though they did not sign, they continued working for us. Short of enforcing that agreement, we’d like to enforce the agreement they did sign. Do you see any problems with that plan?
Roy’s Analysis:
Responding specifically to the question you posed at the end of your factual description, “Yes, I see problems with your plan.” Let me step back, however, to explain why.
First, as a prefatory observation, keep in mind that there is no federal law regulating contracts that include non-competition provisions or other post-employment restrictive covenants. Like so much of employment law, non-compete issues are dependent on state law. Moreover, the 50 states are by no means uniform in how they treat post-employment restrictive covenants. Some states repudiate these anti-competitive restrictions completely, whether by statute or common law; other states enforce them, largely as written. So, the first challenge you confront is to ensure that you understand where your state falls on the spectrum of repudiation to complete enforcement. Further, you need to understand that if your company is operating in multiple states, you likely will not be able to use a single contract containing identical provisions if you expect to be able to enforce them in all jurisdictions where your company is operating. In short, you need to tailor these provisions depending on location, considering the statutes and judicial decisions of the states where your employees are working.
Second, in your question you comment that you provided your “employees with an employment agreement that contained various post-employment restrictive covenants.” This comment implies that you provided this agreement to both applicants and current employees. If true, you may have a problem with the adequacy of the consideration needed to support these contracts. For new employees, the provision of the job itself typically constitutes adequate consideration. For existing employees, however, separate consideration typically is required to support a post-employment restrictive covenant. Again, however, this varies from state to state, and in some jurisdictions, continued employment may constitute adequate consideration to support the contract, especially when other factors exist. Unless your company is operating in one of those states, you may have a problem with regard to your current employees, separate and apart from the other issues I will address below.
Third, although it is good that you evaluated the quality of your employment agreements and the restrictive covenants contained in the agreements, you do not have complete latitude to alter those documents and impose the new agreements on existing employees. Employment agreements, like any other contract, require an offer, acceptance of that offer, and as referenced above, consideration. Although your company certainly has the right to change the employment agreements it uses, you have to meet the standard requirements needed to establish any contract. You also noted that at the same time you reviewed the employment agreements, you also reduced your employees’ compensation. Given that fact, it would appear that there was no consideration sufficient to support the change in the agreements and the restrictive covenants they contained, even for those employees who did sign.
Fourth, you stated that when you modified your employment agreements, some of your employees did not sign the new agreements. As to these employees, your situation is even more problematic. In my opinion, there are very few courts that will enforce these unsigned agreements. By way of example, in Cypress Group, Inc. v. Stride & Associates, Inc., 2004 WL 616302 (Mass. Super. 2004), a Massachusetts court observed, “[E]ach time an employee’s employment relationship with the employer materially changes . . . a new restrictive covenant must be signed.” Similarly, in Smith-Scharff Paper Co. v. Blum, 813 S.W.2d 27 (Mo. App. 1991), a Missouri court noted that materially altering employee’s salary after employee agreed to a non-competition covenant resulted in unilateral breach by the employer of the employment agreement. (Remember, this is a state-by-state analysis.)
Contracts reflect an accord, an agreement, (or as law school contract professors like to characterize it), a “meeting of the minds.” When an employee refuses to sign an agreement offered to him or her, it is pretty clear that he or she is not “agreeing” to the new terms. At that point, your company had three alternatives: a) the company could have made a greater effort to obtain the signatures of those who balked, offering financial or other incentives to incentivize the employees to sign; b) the company could have made the difficult decision to part ways with the employees who refused to sign; or c) the company could have elected to stick with the original signed agreement. Unfortunately, as discussed below, your company opted for none of those options.
Fifth, you also inquired whether you could enforce the original, signed agreement. Here, your later actions have significantly diminished the likelihood that your initial agreement has any continuing validity. The combination of your alteration of material terms of the original agreement, which you unilaterally imposed on your employees, coupled with your presentation of subsequent employment agreements to your employees vitiates your initial agreement. The fact that you offered your employees new employment agreements presents several problems, especially because you also reduced your employees’ compensation in a manner consistent with the later agreements. This action certainly suggests that your company has abandoned the initial agreement. Alternatively, your decision to begin compensating your employees consistently with the later agreements would appear to be a breach of your original agreement and the compensation terms it contained.
Courts that have examined the enforceability of the original agreement when other agreements were subsequently presented have uniformly found the initial agreement to be unenforceable. For example, in another Massachusetts case, AFC Cable Sys. v. Clisham, 62 F. Supp. 2d 167, 173 (D. Mass. 1999), the court found that a change in the employee’s title from “sales consultant” to “sales manager” and the accompanying modification of his pay structure, as well as the employer’s subsequent efforts to have him sign a new non-competition agreement, indicated that employee had entered into a new employment relationship with employer, thereby voiding the original non-compete agreement he had signed at the outset of his employment. Similarly, in F.A. Bartlett Tree Expert Co. v. Barrington, 353 Mass. 585 (1968), the court held that changes in the employee’s compensation plan, title, responsibility, and territorial assignment, together with the employer’s requests that he sign a new agreement containing restrictive covenants, rendered the restrictive covenants in the agreement signed at the outset of employment unenforceable. As these illustrative cases demonstrate, particularly when an employer changes material terms of an employee’s contract and presents the employee with a new agreement (or multiple new agreements), there is compelling case law that the original agreement is unenforceable.
In sum, your company is confronting a number of serious problems with respect to any attempt to enforce either the later-presented, unsigned employment agreements, or the original signed agreement. In my view, it would not be worth your time or energy or resources to seek to enforce any of these agreements as to the employees who left your organization and who are now competing with your company.
Title II of the Genetic Information Act of 2008
Title II of the Genetic Information Nondiscrimination Act
On May 21, 2008, the Genetic Information Nondiscrimination Act of 2008, also referred to as GINA, was signed into law. GINA includes two titles providing individuals with federal protections against genetic discrimination in health insurance and employment.
Title I addresses the use of genetic information in health insurance and provides that health plans and health insurers may not use genetic information for underwriting purposes, request or require genetic information prior to enrollment, or require an employee or the employee’s family members to take a genetic test. Please see the Dorsey e-update posted November 13, 2009, for additional information on Title I.
Title II of the Act prohibits the use of genetic information in employment, prohibits the intentional acquisition of genetic information about applicants and employees, and imposes strict confidentiality requirements.
Genetic Information
Genetic information is defined to include an individual’s genetic tests, the genetic tests of an individual’s family members, and information about any disease, disorder, or condition of an individual’s family members (i.e., family medical history). Family history is included in the definition of genetic information because it is often used to determine whether someone has an increased risk of getting a disease, disorder, or condition in the future. The definition of genetic information specifically excludes information about the sex or age of an individual.
Title II
Title II went into effect with very little attention on November 21, 2009, and seems to be under the radar of many employers, perhaps because final regulations have not yet been released by the Equal Employment Opportunity Commission (EEOC), the agency with regulatory authority over Title II.
Title II applies to private and state and local government employers with 15 or more employees, employment agencies, labor unions, and joint labor-management training programs. Title II also covers Congress and federal executive branch agencies.
Title II makes it an unlawful employment practice for an employer to fail or refuse to hire, or to discharge, any employee, or otherwise to discriminate against any employee with respect to the compensation, terms, conditions, or privileges of employment because of genetic information. Title II also makes it unlawful to harass a person because of his or her genetic information or to retaliate against an applicant or employee for filing a charge of discrimination, participating in a discrimination proceeding, or otherwise opposing discrimination under Title II.
Title II also makes it an unlawful employment practice for an employer to request, require, or purchase genetic information with respect to an employee or a family member of an employee. GINA provides for six limited exceptions regarding employer acquisition of genetic information:
1. inadvertent acquisition of genetic information does not violate GINA;
2. genetic information (such as family medical history) may be obtained as part of health or genetic services, including wellness programs, offered by the employer on a voluntary basis, if certain specific requirements are met;
3. genetic information may be acquired as part of the certification process for FMLA leave or leave under similar state or local laws;
4. acquisition through commercially and publicly available documents, like newspapers, is permitted, as long as the employer is not searching those sources with the intent of finding genetic information;
5. acquisition through a genetic monitoring program that monitors the biological effects of toxic substances in the workplace is permitted where the monitoring is required by law or, under carefully defined conditions, where the program is voluntary; and
6. acquisition of genetic information of employees by employers who engage in DNA testing for law enforcement purposes as a forensic lab or for purposes of human remains identification is permitted, but the genetic information may only be used for analysis of DNA markers for quality control to detect sample contamination.
The “inadvertent” exception likely poses the biggest risk for employers. The proposed regulations state that Congress intended the “inadvertent” exception to address what it called the “water cooler problem” when an employer unwittingly receives otherwise prohibited genetic information in the form of family medical history through casual conversations with an employee or by overhearing conversations among co-workers.
If an employer possesses genetic information about an employee, such information must be kept confidential and, if the information is in writing, it must be kept in a separate medical file and be treated as a confidential medical record of the employee.
Remedies for Title II Violations
The same remedies available under Title VII are available under Title II of GINA. An aggrieved individual may seek reinstatement, hiring, promotion, back pay, injunctive relief, pecuniary and non-pecuniary damages (including compensatory and punitive damages), and attorneys’ fees and costs. Title VII’s cap on combined compensatory and punitive damages applies under Title II of GINA.
Title II does not preempt any state or local law that provides equal or greater protections from employment discrimination on the basis of genetic information or improper access or disclosure of genetic information.
What Employers Should Do Now to Comply With Title II
1. Educate human resource personnel and supervisors about GINA restrictions.
2. Update workplace posters, employee manuals, and other internal documents to reflect that you do not discriminate on the basis of genetic information. The EEOC issued a revised version of its standard anti-discrimination poster that covered employers must display. The updated poster is available on the EEOC website.
3. Review employment applications and employee questionnaires to ensure that those documents are not intentionally or inadvertently requesting genetic information, including information about an applicant’s or employee’s family medical history.
4. Review forms used for employee leaves of absence requests and accommodation requests under the FMLA, the ADA, and similar state laws to ensure they request only what you need to know to make a determination about the leave or accommodation.
5. Separate health information from other personal information and restrict access to the information.
6. Consult with your health insurance providers to ensure they are not soliciting prohibited genetic information.
7. Make sure appropriate policies and procedures are in place to prevent inadvertent disclosure of genetic information when responding to litigation discovery requests.
If you have questions about Title II, please don’t hesitate to contact us.
ADA and ADHD, Quirky Question # 125
I am familiar with the issue of “attention deficit disorder,” but I trust that this cannot constitute a disability under the ADA. I mean, this guy cannot perform his job responsibilities. Moreover, I don’t see how we can “accommodate” his limitations, short of hiring another employee to help him do his job. Got any advice?
Roy’s Analysis:
As I have suggested in other analyses, in my view, evaluating accurately and addressing properly mental disabilities is perhaps the most difficult challenge under the ADA. Even more than physical disabilities, mental disabilities simply do not present a neat “one size fits all” response. There are numerous moving and interactive parts involved in these situations, including, by way of illustration, the following ten questions:
o What is the alleged mental disability?
o Is the mental health condition recognized in the DSM IV?
o How severe is the mental health impairment?
o How long has the employee suffered from the impairment?
o Is the employee’s behavior constant or has the health impairment and its consequences been worsening?
o Is the employee receiving psychological or psychiatric counseling for the mental health condition?
o Is the employee using prescription (or, for that matter, non-prescription) medication to control the problems caused by the condition?
o How does the mental health impairment affect the employee’s job performance?
o What is the nature of the job being performed?
o Does the employee’s health condition make him a danger to himself, co-workers or members of the public?
Of course, these illustrative questions also lead to the typical inquiries involved in every disability discrimination case: a) does the mental health impairment substantially limit a major life activity; b) is the employee regarded as having a disability; c) can the employee perform the essential functions of the job, with or without a reasonable accommodation; and d) even if the employee could perform the job with a reasonable accommodation, would the accommodation cause the employer an undue hardship? As you likely know, evaluating each of these questions is a fact intensive exercise that can vary dramatically from employer to employer and situation to situation, depending on a host of dissimilar variables.
With respect to the question you posed, I am missing some of the most critical facts relating to the nature of the job, the severity of the mental impairment, the treatment (if any) the employee is receiving, the potential accommodations, etc. Nevertheless, I do have a few thoughts based on the information you provided.
You state that your employee is “unable to focus,” “unable to complete a task that he has started,” and is “easily distracted.” It would appear that based on these observations, you have begun speculating about whether your employee has attention deficit disorder (ADD) or attention deficit hyperactivity disorder (ADHD). Has your employee ever suggested that he suffers from ADD or ADHD? Have any of your other employees ever informed you that their co-worker has told them that he suffers from ADD or ADHD? Has your employee ever advised you, directly or indirectly, that he suffers from some type of mental disability, even if he did not specify what it might be? Has your employee ever suggested that he needs some type of accommodation to perform his job effectively?
If all of those questions were answered negatively, you may not be confronting an Americans With Disabilities Act (ADA) question at all. Rather, you simply may be employing a worker who, for a multitude of reasons, is not fulfilling your company’s legitimate performance expectations. You need to evaluate his performance, communicate your performance expectations, and if necessary, work with your employee to improve his performance or, if that approach does not yield the results you hope for, impose discipline, up to and including termination.
But, let’s assume that not all of the questions are answered in the negative, and that there is a sound factual foundation for your suspicion that your employee suffers from ADD or ADHD. The DMS IV (the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition – essentially, the mental health professional’s Bible) defines these mental conditions as follows:
“The essential feature of Attention-Deficit/Hyperactivity Disorder is a persistent pattern of inattention and/or hyperactivity-impulsivity that is more frequent and severe than is typically observed in individuals at a comparable level of development. * * * Inattention may be manifest in academic, occupational, or social situations. Individuals with this disorder may fail to give close attention to details or may make careless mistakes in schoolwork or other tasks. Work is often messy and performed carelessly and without considered thought. Individuals often have difficulty sustaining attention in tasks or play activities and find it hard to persist with tasks until completion. . . . There may be frequent shifts from one uncompleted activity to another.”
The DSM IV goes on to describe, over 8 additional pages, the differences in these conditions, the influences of external factors (culture, age and gender), and many other variables bearing upon an ADD or ADHD diagnosis. In short, mental health issues are nuanced. Employers’ responses must be correspondingly nuanced.
Depending on the nature and severity of your employee’s mental health impairment, his condition well may rise to the level of a qualifying disability under the ADA or parallel state anti-discrimination statutes. But, as suggested above, there are many factors that should be considered before reaching that conclusion. Moreover, as you likely know and as referenced above, the ADA and its enforcement agency, the EEOC, mandates that employers engage in an interactive process with their employees to better understand the nature and impact of an employee’s physical or mental disability and thoughtfully evaluate whether that disability can be accommodated.
It would appear from your question that you have prejudged the issue of whether your company could offer your employee a reasonable accommodation. You wrote, “I don’t see how we could accommodate his limitations, short of hiring another employee to help him do his job.” This observation begs a few related inquiries: a) how long has he been employed; b) how has he been able to perform his job in the past; c) have his supervisors previously identified any performance deficiencies by this employee; d) did his job responsibilities recently change in a way that required him to perform different job functions; etc. As these questions may suggest to you, if he has been able to perform satisfactorily in the past and his job responsibilities have not changed meaningfully, or if he has been a long-term employee and his performance has not been criticized, your company may have some difficulty persuading a fact-finder (whether judge or jury) that this employee is not capable of adequate performance in the future, with or without a reasonable accommodation.
You somewhat flippantly suggest that the only accommodation would be to hire another employee – I suggest that you consider other options. Many individuals who experience ADD or ADHD receive medication that helps significantly. There also may be options available to your company that involve more private work space, elimination of distractions, allowing your employee to focus on one primary task at a time, and other creative solutions. (For those of you who are fans of the TV show, The Office, I recommend against Jim’s solution of moving Ryan’s (the distractable employee) desk into the closet as was depicted several episodes ago.) In short, there may be a variety of creative ideas that could be explored that would enhance your employee’s ability to contribute productively.
You also should be aware of the fact that if you act precipitously or harshly, you may be buying litigation. This point is illustrated by a relatively recent case out of the United States District Court for the Western District of Pennsylvania, Lewis v. UPMC Bedford and UPMC, Civil Action No. 3:2007-13 (March 30, 2009). The Lewis case involved some unusual facts – an Emergency Room physician self-diagnosing that he was suffering from ADD and seeking an accommodation from his employer. I confess that my initial reaction to this fact pattern was, “You’ve got to be kidding.” If ever you need an employee to be able to focus, it would have to be in an ER. The stakes are simply too high for an employee, especially a physician, to be distracted.
But, as one reads the analysis of the federal district court, it becomes clear that the issue may be more complex than would first appear. After the physician self-diagnosed his problem and requested an accommodation, his employer rejected his request and soon thereafter terminated his employment. The reasons the employer offered for the discharge were: a) the physician’s unwillingness to provide a letter from his psychologist regarding his ADD evaluation; b) his failure to park in the physician’s parking lot; c) his missing a department meeting; and d) his failure to complete medical records. But, the physician in question did provide a letter from his psychologist stating that the physician’s neuropsychological evaluation did not “reflect any cognitive deficits that would affect Dr. Lewis’ ability to practice emergency room medicine.” And the other reasons proffered by the employer to justify the discharge either proved to be a “mistake” or were viewed as trivial by the Court.
The plaintiff (Dr. Lewis) brought a number of different claims based on the ADA, the Rehabilitation Act (interpreted largely consistently with the ADA) and common law claims. The case was presented to the court on defendant’s motion for summary judgment.
Interestingly, the plaintiff’s first claim was that the hospital violated Title III of the ADA, the provision stating that no individual shall be discriminated against on the basis of a disability “in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation . . ..” Based on an earlier Third Circuit decision, the Court found that a doctor with staff privileges, who is not an employee of purposes of Title I, may assert a claim under Title III as a person who is denied the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation. Because the plaintiff was denied “staff privileges” at the hospital (a place of public accommodation) as a result of his discharge, the Court found that he could proceed to trial on this claim.
The second claim asserted by plaintiff was that the hospital violated his rights under the Rehabilitation Act by seeking medical information from him and his treating psychiatrist beyond that permitted by the statute. Here too, the Court found that the plaintiff’s claim could proceed to trial, concluding that the requests for medical information were far broader than necessary and that a hospital should have been well aware of the need for confidentiality with respect to medical records.
Finally, the plaintiff contended that the loss of his staff privileges and the overbroad inquiry into his medical condition violated another provision of the Rehabilitation Act which prohibits discrimination in programs receiving federal financial assistance. Section 504 of the statute provides that a violation may be established by proving: a) that the plaintiff is a “handicapped individual” under the Act; b) that he is otherwise qualified for the position sought; c) that he was excluded from the position “solely by reason of his handicap;” and d) that the program receives federal financial assistance. Here too the Court found the plaintiff had a cognizable claim, concluding that the reasons proffered by the hospital for the discharge decision involved disputed material facts.
As the Lewis case illustrates, if confronted with an employee who may have ADD or ADHD, you should not assume that this provides you a free pass to terminate his employment. I recommend that you treat an employee with ADD or ADHD in the same way you would any employee who may have any other physical or mental impairment. Doing so will ensure that you treat the employee as the law requires and will reduce the likelihood that your company will be sued for discrimination.
Employee References, Quirky Question # 124
Quirky Question # 124:
We have a long-standing policy of providing only job title and dates of employment when a prospective employer seeks information about one of our current or former employees. Our policy seems to be “the rule” in the healthcare industry in Alaska.
We know that under Alaska law, we have immunity from liability if we disclose information about a former employee to a prospective employer and act in “good faith” in providing that information. Despite that immunity, we, and virtually everyone else in the industry, continue the policy of supplying only the most basic information about an employee’s work history and avoid any substantive comments, positive or negative, about the employee’s job performance. This situation concerns us for a number of reasons. First, as an employer, we are not receiving information about potential new hires that could affect our hiring decisions. As you are well aware, we have unknowingly hired individuals who turn out to have had “checkered pasts” and we have ended up terminating them for the exact same problems they had with their previous employers. Second, in not sharing substantive information about job performance with a prospective employer, we are potentially passing on a problematic employee to an unsuspecting employer. This situation is not good for our industry or for the patients we serve. Third, it also occurs to us that an employer, or even a patient, could argue that because we have immunity in providing truthful information under Alaska law and fail to provide that information, we may be liable for any harm that a former employee may cause.
Do you have any suggestions on how we can address these concerns and reach a balance that protects us and other similarly situated employers?
John’s Analysis:
[Readers: Set forth below is the analysis of Quirky Question # 124. This question was posed to my colleague, John Treptow, in our Anchorage Office. If you would like additional information regarding this analysis, please do not hesitate to contact John at 907.257.7820 or via email at treptow.john@dorsey.com. Additional information regarding John is available at http://www.dorsey.com/treptow_john/. I hope you find John's analysis informative. Roy]
For over 25 years, Alaska healthcare employers, as well as almost every other employer in Alaska, have followed a policy of providing only “name, rank and serial number” in response to requests for information about job applicants. This policy is followed despite the fact that: (1) since 1993, AS 09.65.160 provides an employer with immunity from legal liability for the good faith disclosure of information about the job performance of a current or former employee to a prospective employer; (2) Alaska employers have numerous defenses available under the common law for any defamation claim including the “absolute” defenses of truth and employee consent; and (3) prior to 1993, there were no significant court decisions or jury verdicts finding in favor of an employee on a defamation claim against his or her employer.
Virtually every state with an immunity statute appears to be in the same position as Alaska. The time has come from employers, employment lawyers, and HR consultants to review and change this policy before either legislatures or courts (or both) force changes that could be very difficult to live with. While the policy of “name, rank and serial number” developed as a strategy to limit employer liability for defamation claims and reduce the cost of potential litigation, the policy has had far-ranging adverse consequences. At the end of the day, following that policy may create greater legal liabilities and costs to employers than those it was intended to address. As two commentators have observed, “As a society, we are all harmed by the on-going reality that employees cannot show how well they are qualified for positions, and that employers cannot quickly identify the right people for the right positions. The problem…undermines everyone’s standard of living and continuously is a steady drain on our economy. Like a slow-acting carcinogen, it does much of its damage just beneath our communal consciousness.” Halbert & Maltby, Reference Check Gridlock: A Proposal for Escape to Employee Rts. and Emp. Pol’y J. 395, 401 (1998)
In the mid-1980’s, a handful of high profile defamation cases brought by former employees against their employers made the headlines. In those cases, the employer was found liable for making an unprivileged false statement concerning the employee that injured the employee’s reputation. In one case, Frank B. Hall & Co., Inc. v. Buck, 678 S.W.2d 612, 617 (Tex. App. 1984), cert. denied, 472 U.S. 1009 (1985), an insurance salesman sued his employer, an insurance broker, after the employee was abruptly fired and later was unable to find suitable employment. The salesman sought damages for defamation, misrepresentation, and breach of contract. The employer had told a prospective employer that the employee “was horrible in a business sense, irrational, ruthless, disliked by office personnel…a ‘classical sociopath’ who would verbally abuse and embarrass employees. [He] had stolen records and files and was a ‘zero’, ‘a Jekyll and Hyde person’ who was lacking in compucture [sic] or scruples.” A Texas jury awarded the former employee $1.9 million in compensatory and punitive damages. The case went to the U.S. Supreme Court and the jury verdict stood.
In response to client concerns about these cases, employment attorneys and HR consultants advised their clients that the best way to minimize potential exposure for defamation suits was to simply supply “name, rank and serial number” when asked by a potential employer. This approach, while founded on the legal principle that there is no duty to control the conduct of another, absent a special relationship, or to warn those endangered by such conduct, was an overreaction to what was arguably a relatively minor problem.
Starting in the early 1990’s a number of states, including Alaska, enacted legislation providing employers with qualified immunity when responding to requests for information regarding current or former employees. Now, 37 states have such legislation.
Alaska’s statute was enacted in 1993 and has remained unchanged since then. The legislative history of the statute shows that the Legislature intended that the statute was to “free up the exchange of information in the workplace, assure reasonable protection to employers, and protect only employers who give honest, well intention reference.” Testifying in support of the bill, the president of the Alaska State Chamber of Commerce (ASCC) stated, “While ASCC fully recognizes the value of good employees, it is important that employers be able to share all pertinent information without fear of repercussion, while acting in good faith.”
AS 09.65.160 provides that an employer who discloses information about the job performance of employees or former employees to a prospective employer of the employee or former employee, at the request of prospective employer or employee is “presumed to be acting in good faith, unless lack of good faith is shown by a preponderance of the evidence and not be held liable for the disclosure or its consequences.” (Emphasis added.) The statute does not define “job performance.” While the statute provides immunity from liability, it does not bar the filing of defamation lawsuits. In short, the employer still faces the costs of defending the defamation lawsuit.
While providing immunity from liability, the statute does not provide any protection for employers that was not already in place. The statute is simply a codification of common law defenses to defamation. Traditionally, truth, consent of the employee, opinion, and qualified privilege have been defenses to a defamation claim. Under Alaska law, truth and the consent of the employee are “absolute” defenses to defamation.
It is my opinion that issues such as attendance, attitude, awards, demotions, duties, evaluations, promotion, and disciplinary action all fall within “job performance” as the term is used in the statute.
The failure to share information amongst employers can result in a number of adverse consequences: (1) the potential employer is denied access to important information that the employer needs to make a fully informed decision on whether or not to hire the applicant; (2) applicants may be denied jobs because of the lack of a good reference; (3) societal goals and purposes may be frustrated; and (4) the former employer is exposing itself to more serious legal claims for negligent hiring, negligent referral and misrepresentation.
While legislative immunity and strong common law defenses have done virtually nothing to dissuade employers from providing “name, rank and serial number” recent developments in tort law may force employers to change.
Tort law is intended to: (1) redress past wrongs and compensate victims for those wrongs; and (2) prevent harmful conduct in the future. Courts have drifted away from focusing on blame and instead consider which party can best bear responsibility for compensating victims. Accordingly, the majority of jurisdictions have recognized torts for negligent hiring, supervision, and retention. The significance of these developments cannot be overlooked.
The tort of negligent hiring (a topic addressed previously in this Blog) greatly expands an employer’s liability and makes the employer liable for all acts of an employee, including acts beyond the scope of employment and those occurring outside of business hours. This is a dramatic departure from the doctrine of respondeat superior or vicarious liability which is derivative liability. The tort imposes on employers the duty to exercise reasonable care in hiring employees. This is an independent duty that can run to fellow employees and to third parties.
When an employee comes in contact with the public, either on or off business premises, the investigation must be sufficient to determine whether there is anything in the applicant’s past that would indicate that the employee poses a potential threat to a patient, customer, or the general public. In negligent hiring cases, evidence of prior specific acts of the employee, as well as evidence of reputation, are admissible.
The defense of a negligent hiring claim will hinge on the employer’s ability to conduct a reasonable pre-hiring investigation of the employee. Obviously, past job performance and references documenting that performance are the most helpful information on that subject. Without that information, the employer’s ability to evaluate the suitability of an applicant for a position is compromised as well as the ability to present a strong defense.
In addition, commentators have been calling for legislatures to pass legislation that would impose an affirmative duty on employers to provide information about former employees to prospective employers. Some of these commentators have even gone as far as to draft a model of legislation. The gist of this legislation is that a former employer must disclose any and all information that it may have to warn an inquiring prospective new employer of the current or former employee’s propensity to engage in violent or dangerous conduct that poses a threat of physical injuries to others. The concern in this regard is presently directed to acts of violence or sexual harassment of which the former employer is aware.
From my perspective, employers in Alaska and in other states with immunity statutes face the prospect of having new statutes pass that impose strict requirements regarding what information must be disclosed to prospective employers and when it must be disclosed. One can imagine a legislator considering this issue and asking the question, “Since we have provided employers with immunity from legal liability if they provide truthful information about past employees, why are they not providing that information to prospective employers?” Frankly, there is no satisfactory answer to that question. The remote prospect of being sued by an employee for defamation and ultimately having to pay a judgment entered in favor of the employee is hardly justification for that policy. If an employer properly documents an employee’s history and truthfully relates the important aspects of that employee’s job performance, an employer will rarely be found liable for defamation.
It is clear that legislation alone will not result in change. Employers need to be educated on the risks that they face when withholding information. Employers must be convinced that the benefits of exchanging information freely with other employers outweighs any potential risk. Employers need to address this issue head-on and work together to insure that there is a free flow of information.
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