We’ve periodically conducted internal reviews to see whether we might have any jobs that would be appropriate for the employee on leave, but we just haven’t had any positions that fit both her qualifications and her limitations.  Moreover, she has not contacted our company at all during her extended leave.  She has not accessed our on-line position listings (we’d know because our system records all site visits), she has not come into the office where she could check bulletin boards with internal job listings, and she has not contacted either her former supervisor or our HR Department.

Given these facts, we terminated her employment at the end of the anniversary of her separation.  She now claims that we have discriminated against her on the basis of her disability.  She further contends that it was our company’s responsibility to determine whether there were any positions she could have performed during her leave of absence.  Frankly, even though we did check periodically to see what might be available, we think that was her responsibility.  Who’s right?

I hope you find this information to be helpful.  Regards, Roy]

Quirky Question # 186:

For many years, our company has required all employees to sign a contract agreeing to arbitrate any employment claims, including discrimination claims.  Last year we changed our form contract to make it clear that any arbitration only would cover the individual employee making the claim.  There would be no “class action” arbitrations or anything like that.  (We were told by another law firm that the Supreme Court had just ruled that this approach was legal.)

Now, we’ve got a terminated employee threatening to bring a class action against us.  His lawyer says our new arbitration contract violates the National Labor Relations Act and something called the Norris-Laguardia Act.  But, we aren’t even a union shop!  What’s going on here?  I thought the Supreme Court just said that we could ban class actions in our arbitration agreements.

David’s Analysis:

Unfortunately, your ex-employee’s lawyer may have a point.  A very recent decision of the National Labor Relations Board (NLRB), D.R. Horton, Inc. and Michael Cuda, Case 12-CA-25764, held that it was a violation of the National Labor Relations Act to require employees to sign an arbitration agreement preventing them from filing class, joint or collective claims.  While that decision has not yet been reviewed by the courts, the NLRB’s analysis of the legal issues was thorough and addressed the relevant statutes and cases in some detail.  In particular, the NLRB considered the recent Supreme Court case you reference (AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011)), but found that it did not apply in this context.

The NLRB’s ruling in the D.R. Horton matter was based on a provision in the National Labor Relations Act that not only protects classic union activity, such as organizing and collective bargaining, but also guarantees employees the right “to engage in … concerted activities for the purpose of … other mutual aid or protection …” 29 U.S.C. § 157.  In other words, employees have the right to work together (or “collectively”) even outside of the traditional union context, for their “mutual aid or protection.”

The NLRB determined that collective litigation, such as class actions, constitutes the type of collective activity protected by the National Labor Relations Act.  Therefore, the NLRB determined that the right to pursue employment claims collectively was protected activity.  According to the NLRB, forcing employees, as a condition of employment, to sign a contract waiving that right was a violation of the Norris-LaGuardia Act, 29 U.S.C. § 101 et seq., which prohibits contracts that force employees to surrender certain protected rights.  The NLRB distinguished this from cases allowing such contracts where the employee had the choice to sign (and receive additional benefits) or not sign but still remain employed.

The NLRB also analyzed the 2011 Supreme Court opinion in Concepcion, which upheld the validity of consumer contracts waiving rights to collective action.  Concepcion involved cell phone customers claiming that certain fees had been fraudulently imposed.  In that context, the NLRB ruled, class action rights were merely “procedural” and could be waived.  In the employment context, by contrast, the right to act collectively for mutual aid and protection is “substantive,” and the employer cannot force employees to waive that right prospectively as a condition of employment.  The NLRB also noted that if the National Labor Relations Act’s protection of collective action is in conflict with the Federal Arbitration Act’s (FAA) provision making arbitration agreements enforceable, the National Labor Relations Act, as the later statute, would control over the earlier FAA.

As noted above, this issue has not been litigated in court yet, so it may be that the NLRB’s ruling in D.R. Horton will be overruled, but it is a thorough and thoughtful opinion and represents the most recent statement on this issue.

As a practical matter, there are a number of issues your company should address going forward:

• Consider dropping the requirement that the waiver of class or collective action rights be a condition of employment.  Instead, you could offer your employees additional consideration if they choose to sign a contract waiving those rights;

• If you can’t absolutely bar class or collective actions by employees, make a decision as to whether you would rather have any such actions brought in court or in arbitration.  Note that some of the procedural protections in class action litigation are quite favorable to employers.  You might decide that those offer better defensive prospects than the more informal rules which often prevail in arbitration;

• Once you have made the decision as to whether class litigation or class arbitration is the lesser of two evils, make sure any agreement you require employees to sign clearly specifies whether the employee is required to litigate or to arbitrate any class claims; and

• More broadly, don’t forget to consider the implications of the National Labor Relations Act and other labor statutes, even if you are not a unionized employer.  As this situation illustrates, those laws can impact even non-union employers in some situations.

We run a manufacturing company.  We are fortunate in that, despite the difficult economy, our products remain in high demand.  One of our employees has a couple of related disabilities, the consequence of which is that he only can work a maximum of 8 hours each day.  In the past, we have been able to accommodate this limitation.  But, given the ever-increasing demand for our products, we have had to convert from 8-hour shifts to 12-hour shifts on all of our production lines.

Our employee has asked us to accommodate him further by allowing him to work just 8 hours each day.  We don’t think that would be fair to our other employees, all of whom have to work 12-hour shifts.  We also think it would be unfair to force us to incur the additional expense associated with this requested accommodation.  What’s your reaction?  Do we have to accommodate this employee by allowing him to work just 8 hours per day?

Roy’s Analysis: 

My first thought is that your company deserves congratulations.  It’s wonderful that your firm has been able to increase sales of your products in the difficult economic conditions of the last several years. 

Although I cannot provide you complete assurance regarding your treatment of your employee, there are reasons for your company to be quite optimistic about your position.  Initially, I like the backdrop facts that you have shared in part.  As you describe, your employee has had a disability for some time.  Even more important, your company has been accommodating your employee’s disability by agreeing not to ask him to work more than 8 hours each day.  This demonstrates that your firm did not discriminate against your employee when you discovered his physical limitations. 

These facts would be enhanced even further if your company hired this individual knowing of his disability.  Similarly, the longer the period you employed him while accommodating his disability, the more persuasive your arguments that your company does not discriminate against employees with disabilities and that your organization attempts to accommodate persons who need an accommodation to perform the essential functions of the job.

Due to your company’s success and the resulting demand for your products, however, it is apparent that the accommodations you have offered in the past (basically, limiting the employee’s workday to just 8 hours) no longer will suffice.  With your new requirement of 12-hour shifts, your employee seemingly will not be able to perform the essential functions of the job.  The job requires 12 hours of work; with an 8-hour limitation, your employee will come up four hours short each day.

As you may know, the basic analytical structure of a failure to accommodate disability discrimination case has four elements.  A plaintiff must show that: a) he has a disability; b) he is a “qualified disabled person;” c) the employer knew of the disability; and d) the employer failed to make a reasonable accommodation of the disability.  Here, you acknowledge that your employee is disabled.  Moreover, your company knew of the disability (and, in fact, have been accommodating it for some time).  Consequently, the potential battleground, if this dispute evolves into litigation, will be the second and fourth elements referenced above.

To determine whether an individual is a “qualified disabled person,” courts examine whether the employee can perform the essential functions of the job.  The EEOC has promulgated regulations to assist employers and employees alike to evaluate whether a job requirement constitutes an “essential function” of the job.  These variables include: 1) the employer’s judgment as to which job functions are essential; 2) the content of the written job descriptions relating to the job; 3) the amount of time spent on the specific function in question; 4) the consequences associated with not compelling the employee to perform the function; 5) the terms of the collective bargaining agreement (if any); 6) the past work experience of other employees in the same job; and 7) the current experience of other employees in the same or similar jobs.  See 29 CFR § 1630.2(n)(3).

Here, an analysis of these factors would appear to support your company’s position that working a 12-hour shift is an essential function of the job you would like this employee to perform.  Many courts have reached this same conclusion, finding that an employer’s standard shift schedule is an essential job function. See, e.g., Rehrs v. Iams Co., 486 F.3d 353, 357 (8th Cir.2007 (rotating shift schedule is an essential function); Kallail v. Alliant Energy Corp. Servs., Inc., 2011 WL 1833347, at * 12-13 (N.D. Iowa 2011) (rotating, 12-hour shift, was an essential function of job); Tompson v.Dep’t of Mental Health, 924 N.E.2d 747 (Mass. Ct. App. 2010) (8-hour shift was essential function). As the Eighth Circuit pointed out in Rehrs, “[i]t is not the province of the court to question the legitimate operation of a production facility or determine what is the most productive or efficient shift schedule for a facility.” Rehrs, 486 F.3d at 357-58.

Further, the fourth element (did the employer failure to make a “reasonable accommodation”) of the failure to accommodate analysis also supports your position that the employee needs to work the full 12-hour shift.  When evaluating whether an employer can make a reasonable accommodation of an employee’s disability, courts examine whether the proposed accommodation would cause an “undue hardship” to the employer.  Here, you should be able to present persuasive evidence that an accommodation that would result in your employee working only two-thirds of the standard shift (8 of the 12 hours) would constitute an undue hardship for your company.

As you point out, were your firm to continue to employ this individual and continue to allow him to work just eight hours daily, you would  have to determine how to cover the four-hour gap.  You undoubtedly have considered a few possible alternatives.  First, you could ask your other employees to work extra to cover the four-hour gap.  But, that might require another employee to work 16 hours (the original 12 hour shift, plus the four additional hours), a schedule that will require your company to expend additional resources for overtime compensation.  Moreover, when employees are working 16 consecutive hours, work quality is likely to deteriorate. 

Second, your company could hire a new employee to cover the extra four hours per day, employing that individual 20 hours per week. Even assuming your firm could find an employee willing to work only 20 hours per week, here too there clearly will be additional expense for your company (recruiting, hiring, training, and potentially, significant benefits). 

Third, another accommodation your company might consider would be to provide your employee an indefinite leave of absence.  Any number of courts have accepted short-term leaves (sometimes as long as a year) as a reasonable accommodation for an individual with a physical or mental impairment.  But, here too, the accommodation is not without costs.  Your firm would have to hire a “temporary” replacement, perhaps for a prolonged period.  Again, hiring and training employees is expensive, especially if the expectation is that this person will not be employed for a lengthy period.  Moreover, this type of accommodation presumes your employee’s disability will improve as a result of the time away from work and as a result of the leave, he later will be able to work the 12-hour shifts.  Here, it sounds as though your employee already has had the 8-hour workday limit for a lengthy period of time.  If there is little prospect of improvement in your employee’s condition and time away from work is unlikely to increase the chances that he will be able to work a longer day, this accommodation may be pointless.

Further, when considering each of the three alternatives above, it is not just the financial consequences that should be assessed when considering “undue hardship.”  The impact on employee morale, the effect on other employees (some of whom may not be too thrilled with having to work 12-hour shifts), and other intangibles also are part of the undue hardship calculus.

The bottom line is that the various hypothetical solutions to this problem would likely cause your company an undue hardship.  Couple that fact with the judicial analyses that schedules or shifts constitute an essential function of the job, and your firm should not have much to worry about.  In sum, your company should be able to require your employee to work the full 12-hour shift.  If you have to terminate your employee because he is unable to do so, your company should not be exposed to liability on a failure to accommodate theory.  Whether you will be able to persuade your employee of that fact before he proceeds with a lawsuit is a question, however, about which I can offer few insights.

As Mark correctly described, the movie I was looking for was “Nine to Five,” starring Lily Tomlin, Dolly Parton, and Jane Fonda.  The abusive boss, played by Dabney Coleman, is tied up and held captive by the women.  For providing these answers, Mark is the latest winner of one of amazing prizes. 

The next question goes up now.  Good luck!  Roy

For me, the first half of 2011 was dominated by my representation of Revis Stephenson III, the former Chairman and CEO of Advanced BioEnergy, LLC.  Along with my colleagues, David Trevor and Marilyn Clark, we were able to achieve an outstanding result for Revis, following an arbitration involving 15 days of testimony.  For a description of that representation, see the article below, “How to Lose $4 Million When Firing an Executive—What Happens When It All Goes Wrong?”

In the second half of 2011, my practice was largely devoted to a new Dorsey client, Edwards Lifesciences LLC, an Irving, California medical device company that has developed a revolutionary, life-saving, transcatheter heart valve.  This new technology, which was approved for commercial sale in the U.S. by the FDA on November 2, 2011, will enable individuals suffering from severe aortic stenosis to have their aortic valves replaced without the need for open heart surgery.  The Edwards’ representation involved litigation in Minnesota, Massachusetts and Colorado, principally relating to the movement of employees from Boston Scientific Corporation to Edwards Lifesciences.  Happily, the two adversarial medical device companies were able to resolve their disputes amicably in December.

During 2011, I also had the opportunity to continue representing clients, both companies and individuals, with whom I have had a chance to work for years (some, for decades), as well as new clients with whom I established relationships last year.  You know who you are so I won’t list you here.  You also should know how deeply appreciative I have been for the chance to represent you.

One aspect of 2011 that was particularly gratifying was that I was retained by a Fortune 500 company that I had opposed in commercial litigation just two years ago and separately, retained by an opposing counsel who opposed one of my clients in a trade secrets dispute in 2010.  I strive to treat opposing parties and their counsel with dignity and respect, and these two retentions suggest that I achieve that goal, at least some of the time.  I also was pleased by the fact that near the end of last year, I was retained by a client from Chicago solely on the basis of this Blog.

Another aspect of 2011 that was both gratifying and humbling was the honor bestowed upon me by Minnesota Lawyer Magazine, which named me as one of its “2011 Attorneys of the Year.”  This is the second time I have won this award, the first coming in 2006 in connection with my defense of Cisco Systems, Inc. and two individual Cisco employees.  Because this was the second time I received this honor, Minnesota Lawyer Magazine also gave me its “Circle of Excellence Award.”

One consequence of my hectic year, however, was that I had much less time for my Quirky Employment Questions Blog.  I hope to rectify that problem in 2012.  Tomorrow I will post my first 2012 question and I will try to keep up with the weekly questions thereafter.  I also hope to include more submissions from my colleagues, and more submissions from guest contributors. (If you would like to write an article for my Blog, please contact me.)  I also will present a few more polls, and of course, will continue to pose more Employment Trivia Questions (look for a new question on Thursday).  In 2012, I also plan to incorporate more video into the Blog.  More to come on that issue.  Lastly, I hope to publish a few series this year, focusing on issues of importance to employers.

In sum, thanks again to all of you with whom I had the chance to work last year.  I look forward to continuing those relationships this year. I also remain hopeful that 2012 will enable me to establish new client relationships.  If you feel that I could provide assistance or guidance to you or your company, I hope that you will contact me.  Best regards, Roy

We recently terminated one of our employees.  To eliminate the possibility of future litigation with him, we offered him a severance package, conditioned on his execution of a General Release.  He now has asked us to make the release, as well as an unrelated non-disparagement clause, mutual.  Is this a good idea?

Roy’s Analysis:

You have asked whether you should accede to your former employee’s request to make the General Release in the Separation Agreement a mutual obligation. While this might seem like an easy question, warranting a “Yes” or “No” response, the question is a bit more complicated than it might first appear.

As a prefatory matter, let me begin by complimenting your company for the fact that it is insisting on a release in exchange for a severance package. In my view, too many companies offer severance packages, sometimes quite substantial, without conditioning those benefits on a comprehensive release of claims. This is generous, but it also is foolish. In some situations, the company essentially will be funding the former employee’s ensuing litigation against his former employer.

Years ago, I represented a company that had historically been able to offer its employees what basically amounted to “lifetime” employment. Although never characterized in that fashion in any company documents, that employment pattern was common and came to be expected by the employees. Unfortunately, national economics changed: demand for the company’s products diminished and the company was forced to engage in a series of reductions in force. Each terminated employee was offered a substantial severance package based on years of service, which was not conditioned on a release. The unintended consequence of this magnanimous approach was that the company was deluged with age discrimination lawsuits. Fortunately, after we defended these lawsuits, none of which resulted in a plaintiff’s victory, the company began linking its generous severance packages, which it continued to offer, to the ex-employees’ execution of a general release. Since that policy change occurred, nearly every separated employee has accepted the severance and the company has not been forced to defend any subsequent claims.

So, as stated above, I start with the kudos – good work on seeking a comprehensive general release from employees being offered a severance package.

The question you pose – whether you should agree to a mutual release – depends on several factors, including:

a)   how important is it that you obtain a release from your ex-employee;
b)   if you do not offer a mutual release, do you think it likely that your former employee will turn down the severance package and initiate litigation;
c)   would litigating your ex-employee’s claims have ramifications beyond just your ex-employee; and,
d)   are there risks associated with releasing potential claims against your ex-employee?

Let’s take a closer look at each of these inquiries.

There are several parts to the first question I asked – how important is it that you obtain a release. Do you believe that your ex-employee has any compelling claims against your company? Or, even if the claims are compelling, what is the scope of your company’s exposure? Are there other non-economic reasons your company might be desirous of resolving the dispute with your former employee – adverse publicity; the consumption of management time; other variables? Depending on how you answer each of these questions, you could conclude that the most important outcome is obtaining a resolution, regardless of whether this requires your firm to offer a mutual release. Conversely, if you believe your ex-employee had no legitimate claims that he could assert against your firm, that there was little economic risk even if he prevailed, and that the non-economic variables weigh in favor of litigating if necessary, your company might reach the opposite conclusion.

The second question I asked requires you to be somewhat of a clairvoyant. Recognizing that you may not be able to read tea leaves with perfect predictability, here a few thoughts for you to consider. How long has the employee worked for your firm? Has he been a loyal employee? Is he litigious? Was he nearing retirement at the time his employment was terminated? If not, is he likely to find suitable alternative employment sometime soon? Is he angry about the circumstances surrounding his separation? Was his separation handled in a thoughtful, dignified manner that makes him less likely to initiate litigation? Does he still have friends at your company whom he would not want to alienate? As you can see, I’m trying to identify some of the variables that may shed light on the question of whether your ex-employee would be likely or unlikely to reject the settlement offer and instead opt for the uncertain outcome associated with any litigation. Of course, another critical factor in assessing that decision is the size of the severance package. Is it substantial enough that it would deter him from taking actions that would cause him to lose it? Does he have sufficient financial resources to risk losing the severance package?

The third inquiry I posed – the ramifications beyond just this employee – picks up on another part of the “should we settle/should we not settle” calculus. In addition to the non-economic variables mentioned above, there also are other considerations that could influence your decision. This includes the possibility that if your former employee rejects a separation package that does not contain mutual releases, and elects to pursue litigation, the claims asserted may create potential exposure to other employees. For example, if you have a female employee with potential harassment claims who declines to settle absent mutual releases and instead sues out her claims, will her lawsuit precipitate litigation by other women harassed by the same person? Even without the risk of other lawsuits, another factor you may want to consider is the impact of the litigation on employee morale. If the former employee is very popular, forcing him into litigation may alienate his co-workers. The question you have to evaluate is whether refusing to provide a mutual release is worth this risk.

Lastly, while the three previous points have encouraged you to consider the downsides to rejecting a mutual release if it jeopardizes the resolution of potential claims, there may be circumstances where a mutual release should be rejected for other reasons. For example, if you suspect the terminated employee of engaging in any types of serious, wrongful conduct, do not accede to a request for a mutual release. This could include behaviors as diverse as embezzlement, assault, or sexual harassment.

I do not have any magic formula for determining whether it is advisable to reject a request for a mutual release. But, if an employee has been terminated for any questionable conduct, providing a mutual release may be inadvisable. Similarly, if the employee’s personnel file is replete with disciplinary notices, performance improvement plans, or other indicators of past problematic behaviors, a mutual release may not be a brilliant idea.

My only other observation is that you always have the opportunity to test how important a mutual release may be to your former employee. If you simply reject the request for a mutual release, you will quickly learn whether your ex-employee will nevertheless accept your separation package even without a mutual release. If he does and signs your separation package containing a non-mutual release, the problem is solved. If not, you usually will have the option of reconsidering your decision and re-presenting the severance package to your former employee, with the sought-after mutual release.

Finally, in your question, you also inquired about whether non-disparagement provisions should be mutual. This issue implicates some different considerations, only one of which I will touch upon here. The biggest problem with a mutual non-disparagement provision from a corporate perspective is defining which current and/or former employees will be bound by the provision. If the group encompassed by the provision is not defined very, very narrowly, your company will be inviting subsequent problems.

The story of Capote’s writing of that book was portrayed in the movie, “Capote,” starring Phillip Seymour Hoffman.  You will have to watch the movie to see how the word “Bergdorf’s” figures in the portrayal of the author.  For providing all of these answers, Paul is the latest winner of one of our amazing prizes.

The next question goes up now.  Good luck.  Roy

As far as my Trivia Game, after several weeks where readers were getting the answers almost instantly, my current question and its one word clue apparently has you stumped. Thus far, I’ve ignored the standard requests for more clues, but I’ll relent.

Think American author. Or, if you approach the question from the movie perspective, consider the link between Mission Impossible and the Ides of March. Good luck. Roy

I usually work as a defense attorney. However, I also counsel executives regarding their employment and future employment opportunities. On occasion, that counseling morphs into litigation, where I don the hat of plaintiff’s counsel. That is precisely what happened in late 2008, when I had the opportunity to work with Revis Stephenson. Two years later, we had won an interim award of more than $2 Million in an arbitration. Shortly thereafter, the case resolved, with the defendants paying my client $4 Million. This article addresses how this happened and how this outcome could have, and should have, been avoided.

Factual Background

Revis is an extremely bright, competent, dynamic and energetic individual who had spent much of his career in the financial services industry. In his investment banking career, Revis periodically worked with individuals establishing clean energy companies. In late-2004, however, Revis decided that rather than assisting other individuals to establish and run clean energy firms, he instead would do it himself. 

Revis raised approximately $1.5 Million in angel investment, and started an ethanol company called Advanced BioEnergy, LLC (ABE). He then organized a road-show, sought additional investors, and raised more than $60 Million from various individuals throughout the Midwest. Revis became the Chairman of the Board and CEO of ABE. He worked closely with leading ethanol plant design and construction firms. After selecting a location in Fairmont, Nebraska, ABE built a state-of-the-art ethanol plant. Within a short time, ABE also acquired two existing ethanol plants in South Dakota, which ABE renovated and expanded. In short, within four years, Revis had converted his idea into a functioning ethanol company with three plants generating approximately $400 Million in aggregate annual revenue.

So far, this seems like a wonderful success story. But, for Revis Stephenson, the story took a darker turn in late 2008. Although ABE had had a series of outstanding accomplishments, in the tight capital markets for ethanol companies in 2007, it experienced difficulty in raising additional capital for its continued growth and expansion. Consequently, in 2007, ABE accepted a $25 Million convertible debt investment from a group that invests in ethanol companies, making it ABE’s largest shareholder. Unfortunately, by early 2008, that investment group was threatening litigation against ABE, threats which continued and intensified throughout 2008.

In September 2008, the investment group demanded a more favorable conversion price and a correspondingly greater percentage ownership of ABE as a method of resolving its threatened litigation against the Company. Revis, in his capacity as Chairman and CEO, and acting in concert with the Board of Directors, rejected the demand that would have increased the investment group’s already substantial ownership interest in the Company. ABE’s outside counsel also emphatically rejected the group’s demands, stressing in letters to the investment group’s attorneys that ABE would not be intimidated into settlement. As we later discovered, the investment group also demanded that Revis be removed as Chairman of the Board and terminated as CEO. Bizarrely, this settlement proposal was concealed from Revis even while he was Chairman and CEO, and worse, concealed during nearly the entire litigation. (More on that below.)

Upon receipt of the settlement proposal in September 2008, ABE’s Board of Directors had at least three options. First, ABE could have rejected the investment group’s demands and vigorously defended the threatened litigation, if it ever even were instituted. Indeed, this appeared to be the course that ABE was intending to pursue through approximately September 2008, as it stated on multiple occasions. Second, the Board could have agreed to some of the investment group’s demands and attempted to resolve the threatened litigation, while maintaining the status of the visionary leader who had started the Company. Third, the Board could have capitulated. Disappointingly, the Board selected the third option and caved.

At a Board meeting on October 15, 2008, the Board made the surprising decision to remove Revis Stephenson as Chairman of the Board and suspend him as CEO. But that was just the first of its ill-considered actions. The Board then had to decide whether to convert the “suspension” into a “termination,” and if so, whether to characterize the termination as a termination without cause, or a termination “for cause,” the latter of which was carefully defined in the Employment Agreement between ABE and Revis. If the Board terminated Revis without cause, they owed him two years’ severance and benefits. If the Board terminated Revis “for cause,” the severance/benefit obligation was eliminated.

Although the Board had not expressed any written criticisms of Revis’s performance during the preceding three years, although individual Board members had routinely provided him letters and emails praising his skills and achievements throughout this period, and although the Board had made other decisions (bonus, stock options, etc.) that illustrated their strong endorsement of Revis’s actions and leadership, the Board selected the financially expedient (at least in the short-term), though unjustifiable, option of labeling the discharge as “for cause.”

Pursuant to the Employment Agreement, the Board was obligated to provide Revis a Notice of Consideration letter, providing him a written explanation of the reasons why he was being discharged “for cause.” The contract specifically provided that the fact-finder in a subsequent dispute could only consider the reasons articulated by the Board in the Notice of Consideration letter and further provided that the fact-finder would conduct a de novo review of the Board’s decision (in other words, there was a specific directive that the fact-finder would not defer to the Board’s decision under the business judgment rule). The contract also provided Revis the opportunity to address the Board’s articulated justifications for its discharge decision.

Having terminated its Chairman and CEO, and having made the tentative, foolish decision to characterize the decision as a “for cause” discharge, the Board still could have extricated itself from this deteriorating situation. At that point, the Board had the opportunity to resolve its incipient dispute with its Revis and settle the matter by paying a substantial portion of the severance compensation he was owed, while simultaneously characterizing the separation in a way that would not damage his future career opportunities. Once again, ABE’s Board made the wrong choice, offering a paltry sum to resolve the dispute and threatening to go public with the “for cause” discharge decision to pressure him into an unfair resolution of his severance claim. While that approach might have intimidated other executives, it did not intimidate Revis.

To his credit, he did not capitulate. The Board then carried through on its misguided threat, finalizing its tentative determination and publicizing its decision to terminate Revis “for cause,” both in its SEC filings posted on the Internet, and in other Board and Company communications. This action not only increased the emotions and tension associated with the Board’s unwarranted decision, it guaranteed litigation.

As a result of this series of ill-conceived decisions, my role as counselor shifted to my more typical role as a trial lawyer. We filed a Complaint in arbitration against ABE in June 2009 (the Employment Agreement had a mandatory arbitration clause). After approximately one year of discovery, the arbitration hearing commenced in September 2010. The hearing was conducted by Richard Pemberton, a highly regarded attorney from out-state Minnesota who has been practicing for more than 40 years. Mr. Pemberton has a long list of accomplishments, including a stint as the President of the Minnesota Bar Association and a member of the American College of Trial Lawyers.

The arbitration involved 15 days of testimony and the introduction of nearly 1000 exhibits. Thereafter, the parties briefed the issues extensively, submitting Findings of Fact and Conclusions of Law in early 2011. (ABE’s brief, for example, was nearly 200 pages in length.) In February 2011, the Arbitrator issued his Interim Award.

The Arbitrator found for Revis on every important issue. First, the Arbitrator found that ABE had breached its contract with Revis by terminating him “for cause” and refusing to pay him the severance compensation he would have been owed under the Employment Agreement had he been discharged without cause. Second, the Arbitrator found that ABE’s characterization of the discharge as a “for cause” discharge was defamatory. Third, the Arbitrator awarded substantial damages – approximately $900,000 for the breach of contract claim (two years’ severance compensation, plus two years of benefits), and $1,000,000 for defamation. With interest and costs, these awards rose to approximately $2.1 Million. Fourth, for reasons explained further below, the Arbitrator invited Stephenson to submit a request for attorneys’ fees.

There are many lessons that can be learned from this dispute and the way ABE approached it, some of which I’ve touched on briefly above. Set forth below are the key mistakes I would identify.

First, ABE disregarded the critical language of its CEO’s Employment Agreement when determining how to proceed. Perhaps I belabor the obvious to point out that the language used in executives’ employment agreements is important. When companies craft this language, they should expect that it will be followed. Moreover, given the standard principle of contract construction that ambiguities are construed against the drafter, it should be assumed that if the contract is unclear or ambiguous, the executive will be the beneficiary of that ambiguity when courts (or arbitrators) are interpreting the agreement.

In this case, for example, the contract language was clear that only the discharge reasons set forth in the Notice of Consideration letter could be considered by the Arbitrator. The defendant foolishly attempted to argue that the arbitrator could consider other reasons, an interpretation with which the arbitrator disagreed. Similarly, as noted above, the employment agreement at issue established a de novo standard of review. That provision, however, did not mean that the arbitrator was entitled to start anew, and disregard the information set forth in the Notice of Consideration letter. The language simply was designed to eliminate the standard deference to Board decisions. ABE argued otherwise, which our team felt diminished its credibility with the tribunal.

Second, just as ABE tried to wish away the problematic language of the contract establishing due process protections, the Company disregarded the specific language of the “for cause” standard set forth in the contract. Like many executives’ employment agreements, Revis’s Employment Agreement contained a high threshold for a “for cause” discharge. The contract included the following language,

“For the purposes of this Section 10(d), no act or failure to act on Executive’s part shall be considered “dishonest,” “willful” or “deliberate” unless done or omitted to be done by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interests of the Company. . . .”

This is a tough standard to meet. The Company’s attorneys crafted an agreement that provided both the CEO and the Company substantial protections. Later, however, when the dispute arose, the Company proceeded as though those protections for the CEO did not exist. That too was a mistake.

Third, perhaps because the Company recognized (at least initially) that the Notice of Consideration letter would define the boundaries on which the discharge was to be judged, ABE included twelve different reasons to justify the “for cause” termination. Really? Twelve reasons? I’d assert that if a company has to concoct 12 separate reasons to justify firing a senior executive, the reasons already are suspect.

This is particularly true in the context of: a) a CEO who has received numerous, effusive compliments from his fellow Board members, many of which were in writing; b) a number of the reasons related to conduct that occurred more than a year before (with a substantial bonus paid in the interim); and c) a “cause” definition that required performance based problems to be communicated in writing, along with an appropriate “cure” period. In the Stephenson dispute, ABE had never communicated performance criticisms, in writing or otherwise. Yet, at the time the discharge decision was made, the Company suddenly alleged that its CEO had engaged in various types of problematic conduct throughout the preceding three years. (Imagine my restrained enthusiasm when, in the first Board member deposition – the deposition of the Board member who chaired the committee investigating the termination issues – the witness repudiated 11 of the 12 reasons as lacking substance and failing to meet the contract’s “cause” definition.)

Fourth, not only did the Board include too many reasons in the Notice of Consideration letter, it failed to conduct an appropriate investigation into the reasons it advanced. For example, although it stated on several occasions that it intended to interview Revis Stephenson, it never did so. Likewise, the Board failed to interview others, even though they could have provided insights and information into the reasons that were later included in the letter in the labored attempt to justify the discharge. In general, its “investigation” (a charitable characterization) was so inadequate that it did not satisfy even minimal due process guarantees. Even though a contract may not mandate an “investigation,” the atmospherics of disregarding any due process can undermine a Board’s actions, as it did here.

Fifth, the Board included many reasons in its effort to justify the discharge that simply were factually incorrect. Moreover, this information was brought to the Board’s attention after the Notice of Consideration letter was sent out but before the “for cause” discharge decision was finalized. For example, the Board claimed that Revis had signed a contract with a third-party after a certain date that obligated the Company to make substantial payments. This simply was not true: no such contract was ever signed and ABE never had to make the payments, facts that were easily verifiable. Yet, the Board continued to assert this reason throughout the arbitration proceeding, including at the hearing. It was one of many inexplicable decisions that undermined the credibility of the Company’s witnesses.

Sixth, not only were some reasons factually incorrect, other reasons articulated in the Notice of Consideration letter were either trivial or involved actions or decisions for which the CEO was not responsible. Even worse for the Company, one of the reasons involved conduct which the Board specifically ratified through a formal Board resolution. As set forth in the contract, actions ratified by the Board precluded the conduct being characterized as “bad faith” conduct, essential to the “for cause” definition. Other reasons involved issues known to the Board, where the Board or other executives contemporaneously complimented the CEO on his handling of the problem. It mystifies me to this day why these reasons continued to be asserted as justifications for the discharge decision. The only plausible, though ill-conceived, justifications for advancing these reasons throughout the arbitration was the mistaken perception that a litany of complaints would either complicate the plaintiff’s case or bias the arbitrator. Here, however, the infirm reasons undermined the defense case and the arbitrator was far too smart to be influenced by the disprovable justifications the defendant advanced.

Seventh, as noted above, the contract provided the Board the right to terminate the CEO without cause. While I personally felt that even a “without cause” firing would have been unjust, ABE indisputably could have taken this step without recourse. It was coupled, however, with the payment of severance compensation. As noted above, the Board made the expedient, though very short-sighted decision, electing to discharge the CEO “for cause” as a way of avoiding its contractually mandated financial obligations. Generally, an effective Board needs to make ethical and legally required decisions, however financially painful they may be in the short run. Disregarding this duty can lead to far more serious problems at a later date. Here, for example, as specifically referenced in the Award, the arbitrator concluded that the Board had treated Revis “reprehensibly.”

Eighth, once the Board made the poor decision to discharge Revis Stephenson “for cause,” it had to determine how to publicize its decision, or conversely, how to limit publication appropriately. As a public-reporting company, ABE had to make certain disclosures to the SEC. The Company made this disclosure in the most damaging conceivable fashion; in both its SEC disclosures and in other communications between the Board members and others in the industry, the Board stated that Revis was discharged “for cause.” There is a substantial body of case law standing for the proposition that describing a discharge as “for cause” constitutes defamation when the reasons articulated for the termination are untrue. That is precisely the determination the arbitrator reached here, awarding Revis One Million Dollars in defamation damages.

Ninth, the case also illustrates the importance of complying with court (or, arbitrator) orders. As referenced above, the company that had invested in ABE threatened to sue. We sought discovery from ABE relating to the negotiations between the investment firm and ABE regarding the threatened litigation. We believed, correctly, that the firm which had invested in ABE was attempting to squeeze out Revis as a condition of resolving its threatened claims. ABE, however, took the position that the information relating to these negotiations was irrelevant and refused to respond to our discovery requests. Consequently, we brought a Motion to Compel the production of this data. The arbitrator agreed with our position, ordering the production of this information. ABE, however, did not produce all of the relevant information during the discovery period. Indeed, the most critical information was not produced until we had concluded the twelfth day of the arbitration hearing. With 4/5ths of the hearing over, ABE unexpectedly produced 131 pages of never-before-produced documents, including a “settlement proposal” submitted by the investment company that, among other demands, insisted that Revis Stephenson be removed from the CEO position. Then, compounding the flagrant abuse of the discovery process, when a witness testifying at the hearing was asked why the documents had not been produced during discovery, defense counsel instructed him not to answer on the grounds of “attorney-client privilege.” That witness was then a partner in the law firm defending the arbitration; in fact, he was the very person to whom the settlement proposal had been provided more than two years before, in September 2008.

At this point, we moved for dispositive sanctions, seeking a determination that Revis Stephenson should prevail simply on the basis of the discovery abuse. The arbitrator did not grant our motion, but when he issued his merits-based decision, he observed that the ABE Board members “maliciously feigned ignorance of what they were doing right up to and including the hearing which I conducted, with the direct consequence not only of breaching ABE’s contract with Stephenson, but of defaming him, causing him inability to find comparable employment, pain, suffering, and emotional distress to this day and into the future.” (Emphasis added.) Given that perspective, it is perhaps unsurprising that the arbitrator invited Stephenson to brief his request for attorneys’ fees. As this fact pattern illustrates, it is critical for parties to comply with court orders and equally critical for witnesses to testify truthfully.

Tenth, the case also illustrates the mistake of arrogance. Before the hearing commenced, the parties met to explore informally whether the matter could be resolved. This effort was not successful. At that juncture, defense counsel stated emphatically that Stephenson’s case was a “loser,” expressing sympathy for the fact that we had to take the case to trial, and stating that he “hoped” we did not have the case on a contingency fee. (We did, as he likely knew.)

So what was the final outcome? After the arbitrator found for Revis Stephenson on both the breach of contract and defamation claims, and awarded approximately $2.1 Million, when interest and costs were included, the parties agreed to mediate informally the issue of attorneys’ fees and a related dispute against the company that had invested in ABE. At the conclusion of the day-long mediation, ABE and the other parties agreed to pay the total amount of $4 Million to Revis Stephenson.

In addition, we subsequently were informed by the law firm that took over the defense after the arbitration was lost, that ABE had spent approximately $2 Million in attorneys’ fees defending the case. So, juxtapose, the financial outcomes. Even assuming that ABE decided to proceed with a discharge “without cause,” the Company would have had to pay Revis about $600,000 to $700,000 (or less had he decided to compromise his claims slightly). Without the black mark of the highly publicized “for cause” discharge, Revis would not have been defamed and the Company would have had no exposure for defamation damages.

Instead, ABE and its insurers paid its own substantial attorneys’ fees, and ultimately settled for $4 Million, an aggregate amount roughly ten times higher than the amount of severance the Company would have owed Revis. In my opinion, the Stephenson case provides a stark illustration of poor decision-making by a Board and the corresponding expense associated with its actions.

Finally, I should note that the outcome we were able to achieve for Revis was not solely attributable to me. Like all good trial outcomes, this result reflected a team effort. Our trial team consisted of me and my colleagues David Trevor, Marilyn Clark, Sarabeth Ackerman, and paralegal, Chris Jenssen. All of these individuals contributed significantly to the outcome we were able to achieve for Revis.

If you have any questions about this case, don’t hesitate to contact me at ginsburg.roy@dorsey.com.

We recently made an offer to an applicant for an important job at our company. The offer was conditioned on a satisfactory background check and her passing our standard drug test. She had no problem with the drug test. But, when we did the background check, we discovered that she had sued her former employer for violations of the Fair Labor Standards Act. Based on that fact, we want to pull the offer. Do you see any problems with that decision? Are we buying litigation?

Roy’s Analysis:

You ask whether you are “buying litigation” if you reject an otherwise qualified candidate for employment solely because you have discovered that she previously sued a former employer for alleged violations of the Fair Labor Standards Act (FLSA).  In one important respect, your question is incomplete.  Another way to frame your inquiry is whether you are “buying litigation you cannot win?”  Whereas you may be setting your company up for a lawsuit by withdrawing your conditional job offer, this is a lawsuit that you can and should win. Before addressing that topic more specifically, let me flag a few other issues for your consideration.

First, why is it so important to you that your applicant previously sued a former employer for FLSA violations?  Have you concluded that this fact alone makes it more likely that she will institute litigation against your company?  If so, why?

It could be that her former employer did violate the FLSA.  Perhaps her former employer did not pay her, or other employees, the minimum wage.  Perhaps her former employer did not provide overtime compensation for hours she or others worked over 40 each week. Perhaps her former employer misclassified her as an exempt employee to avoid the overtime obligation?  Assuming that any of these hypotheticals were true, and she sought redress for these statutory violations, why would those facts disqualify her from working for your company?

Although, as discussed further below, you may not have a legal obligation to explore these issues, you might want to gain a better understanding of the facts that precipitated her prior litigation.  Did she try to rectify the statutory violations before initiating suit?  Did the employer admit that it had ignored key FLSA provisions?  Did the lawsuit settle promptly?  Did she prevail in the litigation?  Or, conversely, was the lawsuit frivolous and quickly dismissed?  In this last context, I could understand your concern about retaining the former disappointed litigant.  In the former fact patterns, not so much.

Second, you said that you made an offer to this candidate for an “important job at your company.”  Apparently, given the fact that your company made her an offer, you also concluded that she was qualified for the position.  Do you really want to pass on an applicant who is qualified for an important position at your company because she previously was involved in litigation against a former employer?  How would you feel if this otherwise qualified candidate went to work for one of your key competitors?

Third, and I touched on this above, what risk are you trying to protect against by not carrying through with your offer of employment.  Do you feel that your own company is engaging in some borderline practices where the FLSA is concerned, practices that might be exposed if you hire a former FLSA litigant?  If that is driving your decision, I think you are focusing on the wrong issue.  You instead should be investing your efforts in ensuring compliance with the FLSA.  If you have concerns about how your employees are being classified (exempt or non-exempt) or whether you are calculating hours worked correctly, or whether your company is obligated to compensate your employees for the time they spend donning and doffing their uniforms, you should obtain the requisite legal guidance and address these issues.  There are quite a few plaintiffs’ law firms trolling for companies that fail to comply with the FLSA.  Sooner or later, they will focus on problematic practices at your company (assuming there are any), regardless of whether you hire a former FLSA plaintiff.

Fourth, is this an approach to which your company generally adheres, i.e., not hiring someone who has sued a former employer?  If so, you may be violating other statutory schemes, which have broader protections than the FLSA with regard to applicants.  To the extent this is a general practice, you should move very cautiously to avoid potential liability.

But, with all of those observations in mind, let’s focus on the specifics of your question – is it a violation of the FLSA to retaliate against an applicant because she previously initiated an FLSA suit?  Although the final verdict may not have been delivered on this subject, the current state of the law is that the FLSA is NOT violated by a company that retaliates against an applicant by withdrawing a conditional offer of employment.

The United States Court of Appeals for the Fourth Circuit had an opportunity to examine this precise issue in the recent case of Dellinger v. Science Applications International Corporation, No. 10-1499 (August 12, 2011). In that case, the plaintiff, Natalie Dellinger, applied for a position with the defendant company.  The company made her a contingent job offer, conditioned on her passing a drug test and completing various forms.  One question on one of the forms inquired about past civil litigation in which she had been a party and Dellinger revealed that she had sued her prior employer for a violation of the FLSA.  On that basis, Science Applications International (SAI) withdrew her pending job offer.

Dellinger sued under the retaliation provisions of the FLSA.  Her prospective employer, SAI, brought a motion to dismiss her lawsuit.  The District Court granted the employer’s motion to dismiss on the grounds that the FLSA anti-retaliation provision did not extend to applicants, but rather was limited to “employees.”  That decision was appealed to the Fourth Circuit, which affirmed the lower court by a 2-1 decision.

While recognizing that retaliating against an applicant because of her prior FLSA lawsuit might constitute “morally unacceptable retaliatory conduct,” the appellate court found the statutory language of the anti-retaliation provision clear, concluding that it “was not free to broaden the scope of a statute whose scope is defined in plain terms . . ..”

To reach this conclusion, the court parsed through the specific language of the statute’s anti-retaliation provision, as well as the general purpose of the statute.  The anti-retaliation provision prohibits discrimination against “any employee because such employee has filed any complaint or instituted . . . any proceeding under or related to this chapter.”  29 U.S.C. § 215(a)(3).  The case implicated the question of whether an applicant is an “employee” authorized to sue under the statute.  The Fourth Circuit stated, “we conclude that only employees can sue their current or former employers for retaliation under the FLSA and that an applicant is not an employee.”  The circuit court found that “an applicant who never began or performed any work could not, by the language of the FLSA, be an ‘employee.’”  This conclusion, the court observed, was linked to the underlying purposes of the statute and framed in the context of the relationship between employer and employee.

In reaching this determination, the appellate court noted that it had been unable to find any case that extended FLSA anti-retaliation protections to applicants as well as employees.  Moreover, there have been a number of cases that reached the same conclusion adopted by the Fourth Circuit.  Given the statutory language and these other decisions, the appellate court stated, “we hold that the FLSA anti-retaliation provision, 29 U.S.C. § 215(a)(3), does not authorize prospective employees to bring retaliation claims against prospective employers.”

In short, if your company elected to withdraw an employment offer to an applicant because she previously had instituted litigation under the FLSA, she could not successfully sue your company for retaliation under the FLSA.  So while this decision may result in your company “buying litigation,” your firm is not buying litigation it will lose.

Finally, one last admonition – while you may be free to retaliate against an applicant who previously filed an FLSA lawsuit against a different employer, you may not retaliate against an employee, or a former employee, who once brought an FLSA suit against your company.  In this context, the FLSA’s anti-retaliation could reach even a decision to communicate to a prospective employer of your ex-employee that she once sued your firm.  This would be particularly true if you communicated this information to penalize the ex-employee for suing your firm.  Although your ex-employee could not successfully sue the prospective employer who rejected her application based on the information shared by your company, she could sue your firm in her capacity as your former employee.

These inquiries proved too easy for Tom Hannant, another researcher at Lexology, the Association of Corporate Counsel’s on-line legal research service.  As Tom correctly pointed out, the North American mammal being studied by the naturalist was the grizzly bear.  Perhaps unsurprisingly, the naturalist, Timothy Treadwell, called himself, “Grizzly Man,” which was made into a documentary film of the same name by Werner Herzog.  The movie is an interesting exploration of both the animals being studied and Treadwell himself, whose grip on reality seemingly diminished as he spent time in the wild.  Sadly, as Tom noted, Treadwell’s life came to an end when he was killed and partially consumed by one of the bears he was observing.

For providing all of this information, Tom is the latest winner of one of our amazing prizes.  The next question goes up now.  Good luck.  Roy

One of our management employees has a spouse with some serious health problems.  Until recently, this fact has not had an impact on his job performance.

Of late, however, he has been distracted by his wife’s recurrent illness (understandably) and her associated treatment.  This problem now is affecting his performance.  After a failed attempt to work with him to improve his performance, we fired him.  He now claims that we violated the ADA and that we were obligated to accommodate him with regard to his care for his wife.  He also claims that we violated the “associational” discrimination component of the ADA.

Did we screw up by ending his employment relationship with our company?

Roy’s Analysis:

Last week, my former partner, David Lauth, now Senior Associate General Counsel at UnitedHealth Group, and I conducted the Eighth Annual Quirky Employment Questions seminar.  We used Question 182 during the session.  Interestingly, I asked for a show of hands to ascertain how many members of audience believed that their companies were obligated to accommodate, under the Americans with Disabilities Act (ADA), an employee whose spouse was disabled.  About 50 percent of the audience thought their companies had a legal obligation to do so in the context of the fact pattern above.  They were wrong.

Of course, this is not to suggest that companies should not offer an existing employee some accommodation to help him or her deal with a serious health condition of a family member.  There may be compelling ethical or moral reasons to make that kind of accommodation.  Moreover, there may be persuasive practical reasons to accommodate an employee confronting this type of family crisis.  These include, without limitation: a) the company’s desire to retain a skilled employee, which may not be possible without some kind of accommodation; b) the appreciation that the employee will feel for the employer’s actions, strengthening the employee’s commitment and loyalty to the company; c) the good will the company’s actions may generate among the employee’s co-workers, who recognize how the accommodation was consistent with the articulated values of the company; d) the avoidance of the costs associated with having to replace a highly skilled employee (from hiring to training to retention); and e) the avoidance of the resentment other employees may feel when one of their colleagues is fired as the result of assisting an extremely ill family member.

But, is there a LEGAL OBLIGATION to accommodate, under the ADA, an existing employee who has to care for a disabled family member?  Nope! 

Having made that statement, there may be legal obligations to provide an employee leave to assist a disabled family member under the Family and Medical Leave Act (FMLA).  But, the qualifying FMLA criteria and the nature of the “accommodation” (12 weeks of unpaid leave), are quite different from a reasonable accommodation of a disabled employee under the ADA.

Moreover, the question above posits that the individual whose family member is disabled, and who needs some type of accommodation to provide the requisite care, already is employed.  This is quite different from the context where an individual is being considered for a position and the company rejects the applicant because of a perception about how the individual might be affected by his/her family member’s disability or by his/her “association” with the disabled family member.  Different standards apply with respect to an applicant (and a company’s perception of how that person might perform the job), and an existing employee.

As described in the question above, your company has an employee who for at least a period of time (potentially a significant variable, as discussed further below), has had a spouse with “some serious health problems.”  And, although the spouse’s serious health problems have not affected your employee’s performance in the past, that has changed of late.  As you state, your employee’s performance now is being adversely affected by the care he is providing his spouse.  You also noted that you attempted to work with your employee to improve his performance but your efforts were not successful.  Consequently, your company made the difficult decision to terminate your employee’s employment.

Your employee contends that your company violated the ADA and that your organization disregarded the associational discrimination component of the ADA.  He’s wrong.

The pertinent provision of the ADA is §12112(b)(4), which prohibits “excluding or otherwise denying equal jobs or benefits to a qualified individual because of the known disability of an individual with whom the qualified individual is known to have a relationship or association.”  In short, you cannot deny this applicant (the “qualified individual”) a job because the applicant has a relationship or association with someone who has a known disability.

As described in a recent case, the legislative history of this provision helps explain the prohibited conduct:

“[A]ssume, for example, that an applicant applies for a job and discloses to the employer that his or her spouse has a disability.  The employer believes the applicant is qualified for the job.  The employer, however, assuming without foundation that the applicant will have to miss work or frequently leave work early or both, in order to care for his or her spouse, declines to hire the individual for such reasons.  Such a refusal is prohibited by this subparagraph.

In contrast, assume that the employer hires the applicant.  If he or she violates a neutral employer policy concerning attendance or tardiness, he or she may be dismissed even if the reason for the absence or tardiness is to care for the spouse.  The employer need not provide any accommodation to the nondisabled employee.  The individuals cover under this section are any individuals who are discriminated against because of their known association with an individual with a disability.”  (Emphasis added.)

The recent case of Stansberry v. Air Wisconsin Airlines Corporation, File No. 11a0177 (Sixth Circuit July 6, 2011), provides a good illustration of the points involved in your inquiry.  Stansberry sued his employer, Air Wisconsin Airlines (AirWis) alleging “associational discrimination” under the ADA, based on the fact that his wife suffered from a rare and debilitating autoimmune disorder.  Stansberry contended that AirWis fired him because of unfounded fears that he would be distracted at work.  The trial court granted the employer summary judgment.  The Sixth Circuit affirmed.

Stansberry had worked for AirWis for about 8 years at the time he was fired.  During this period, his wife’s serious health condition had progressively worsened.  Near the end of his employment, there were several serious problems at AirWis’s Kalamazoo location, where Stansberry was the highest ranking AirWis manager. 

There was disputed testimony about what caused these problems (six different employees in Kalamazoo receiving a total of nine security violation letters, resulting in a TSA letter of investigation).  These problems exacerbated an already strained relationship between Stansberry and his supervisor, Marvin Mulder.  Due to the security violations, the TSA investigation, and other performance-related issues, Mulder made the decision to fire Stansberry.  Stansberry then sued, as described above.

As the Sixth Circuit pointed out, the courts that have examined the “associational” discrimination provisions of the ADA have focused on three component parts of that theory: a) expense; b) disability by association; and c) distraction.  As the name implies, the “expense” theory is that the employee’s association with the disabled spouse or other family member will result in additional costs to the company, such as through the company’s health care program.  Stansberry did not base his claim on this part of the theory, despite the fact that his wife’s treatments were quite expensive.

The “disability by association” theory is grounded on the notion that the employee is connected with someone who has a communicable disease (e.g., HIV) and, therefore, could become “disabled” in the future.  Stansberry’s wife did not have a communicable disease so his claim was not based on this argument.

The “distraction” theory is based on the notion that the employee will be distracted by his/her spouse’s disability, and therefore be a less productive employee.  Stansberry based his claim on this analytical framework.

The modified McDonnell-Douglas analysis that applies to this type of claim involves four elements: a) the employee was qualified for the position; b) the employee was subject to an adverse job action; c) the employee was known to be associated with a disabled individual; and d) the adverse action occurred under circumstances raising a reasonable inference that the relative’s disability was a determining factor in the decision.  Both the trial and appellate courts found that Stansberry could not satisfy the fourth element – “the record is replete with evidence that Stansberry was not performing his job to Air Wisconsin’s satisfaction and devoid of evidence to suggest that his discharge was based on any unfounded fears that his wife’s illness might cause him to be inattentive or distracted in the future.”

Here, as referenced above, the fact that Stansberry had been a long-term employee AND the fact that AirWis had long been aware of his wife’s physical condition undermined his claim.  As the circuit court observed, “Because Air Wisconsin knew of her disability for a long period of time, this undercuts the inference that Stansberry’s termination was based on unfounded fears that his wife’s disability might cause him to be inattentive at work.”  (Citations omitted.)

The keys to the Stansberry decision are two-fold.  First, Stansberry’s performance had declined.  Thus, AirWis could point to this factor as the motivating basis for its decision.  Second, the ADA did not provide Stansberry the protection he sought.  The Sixth Circuit made clear:  “Importantly, while Stansberry’s poor performance at work was likely due to his wife’s illness, that is irrelevant under this provision of the Act.  Stansberry was not entitled to a reasonable accommodation on account of his wife’s disability.”  (Emphasis added.)

Returning then to your question, I do not believe that you “screwed up” by terminating your employee’s employment.  As long as you can justify your decision by demonstrating the decline in your employee’s performance, and his inability to improve his performance despite your efforts to work with him, you should prevail in the litigation.  This is true even if, as the Sixth Circuit’s Stansberry analysis illustrates, your employee’s performance declined BECAUSE OF his wife’s illness.  That may appear to be a harsh result but your company has not violated the ADA by making this decision.

“This movie character was an enthusiastic fan of the HBO TV show, “The Wire.” What job did the movie character hold? What was the movie and who were its lead actors? What character in “The Wire” did the movie character admire? What was the inside joke?”

Asmaa Butt, a Legal Researcher for Lexology, was able to answer all of these inquiries.  Asmaa, our second Employment Trivia winner from across the pond, lives in London.

The movie I asked about was the Indie film, “Cedar Rapids,” a humorous, but thoughtful, portrayal of an insurance agent attending an insurance conference in Cedar Rapids, Iowa.  The movie starred Ed Helms (hence my clue about the TV Show, The Office), as well as Anne Heche, John C. Reilly and Isiah Whitlock, Jr.  As Asmaa pointed out in response to my questions, the movie character, Ronald Wilkes (played by Whitlock), stated that he liked the TV show, The Wire, and its character, Omar Little.  The inside joke was that Whitlock himself starred in The Wire, playing a corrupt politician named Clay Davis.  Kudos to Asmaa for answering all of these questions!  She wins one of our incredible prizes. 

My other, perhaps obscure clue, was that if the readers did not get the questions, I would Owe the World an Apology.  This stems from a standard Minnesota joke (often heard around the time the Iowa football team is once again crushing the Minnesota Gophers), that Iowa is merely an acronym, for “I Owe the World an Apology.” 

Congrats to Asmaa.   The next question will go up shortly.  Good luck.  Roy

Our company operates seven days a week. Periodically, employees advise us that working on Saturdays or Sundays interferes with their religious beliefs. When possible, we let employees juggle their schedules to accommodate the belief systems of their co-workers. And, sometimes, we require our employees to adjust their schedules to accommodate their co-workers.

Every now and then, however, accommodations are hard to reach. This is particularly true when the employees who otherwise might be available to adjust their schedules have greater seniority than the employees who are requesting the accommodation. They point out that their collective bargaining agreement gives them the right to reject our company’s request for the accommodation.

How should we reconcile the conflict between the religious beliefs of certain employees and the seniority rights of other employees? Do we have to accommodate the religious beliefs or risk a Title VII violation?

Roy’s Analysis of Quirky Question # 181:

There are a number of parts to your inquiry, some of which are slightly confusing to me.  As you clearly are aware, you have an obligation to accommodate bona fide religious beliefs of your employees.  Your accommodation obligation, however, is not without limits, a fact that I will address further below.

As you observed, your company operates seven days a week.  Your company’s success, however, means that your firm is open for business both Saturday and Sunday.  This seven-day-week schedule means that some of your employees have religious conflicts with working on either Saturday or Sunday. 

This is where your question confuses me slightly.  You state that “when possible, we let employees juggle their schedules to accommodate the belief systems of their co-workers.”  While I compliment the sensitivity your flexible attitudes reflect, your approach strikes me as problematic for at least five reasons.

First, what does this informal accommodation do to your payroll costs?  Does the fact that certain employees pick up an extra day (or two) on the weekend mean that some of your employees are working more than forty hours per week?  Assuming that these employees are non-exempt, that additional time investment means potentially significant payroll expenses since these workers will be entitled to overtime compensation under both federal and state wage and hour laws.

Second, your flexibility also is potentially problematic from a practical perspective.  You will need to ensure that you carefully record the extra time certain employees invest on the weekends or you risk potential exposure under the FLSA and/or parallel state statutes.

Third, perhaps counter-intuitively, the informal “accommodation” you extend to these employees may, in part, undermine your position that the religious beliefs cannot be accommodated.  As with disability accommodation cases, an employer may take the position that the accommodation will constitute an “undue hardship.”  (In the religious accommodation arena, it typically is easier to meet the undue hardship burden than in disability accommodation contexts.)  But, if your organization already has made the accommodation (for example, by allowing employees to have others fill in on the weekends notwithstanding the impact on your payroll), it will be more difficult for your company to argue that those extra payroll costs constitute an undue hardship. 

Fourth, in this area, like other aspects of discrimination law, a fundamental measure of your actions is whether your conduct represents differential treatment.  Perhaps I am being unduly pessimistic but let’s just suppose, hypothetically, that you routinely were able to find employees to swap shifts (or work an extra day) for individuals whose belief systems treated Saturday as a holy day.  Would an employee who wanted the company to accommodate his/her day off on Sunday have a complaint that he/she was treated discriminatorily if the company could not find someone to fill in on that day?

This idea bumps into the second part of your inquiry that confuses me somewhat. You state that “sometimes,” you “require your employees to adjust their schedules to accommodate their co-workers.”  When?  If “sometimes,” why not all the time?  What standards do you apply?  Are they uniform?  Are all of your employees’ belief systems treated equally?  Your question does not provide me enough information to offer any insights into these issues, but I confess that the context makes me slightly uneasy.

Fifth, you also state in your question that at times, your approach may conflict with the rights set forth in your company’s collective bargaining agreement.  You observed that at times, it is difficult for your company to accommodate those who would prefer to avoid working on the weekend, a problem exacerbated when the individuals you are asking to adjust their schedules have greater seniority than those who wish to take time off.  It is unclear to me whether all of the employees affected by this issue are unionized employees, but whether this problem only involves your collective bargaining employees or a subset of some collective bargaining employees, this does present a problem.  Sooner or later, a conflict between religious accommodation and bargained-for union rights will likely lead to litigation.

Although not the focus of an earlier religious accommodation Quirky Question, I have touched on this topic at least once in the last several years.  (To access prior analyses, you can either search by category – here, “Reasonable Accommodations of Religious Beliefs” – or you can search by word.  In Quirky Question # 57, I briefly commented on this issue, when responding to a question from a retailer that operated six days each week. I won’t repeat the observations I made in that analysis, but you might want to take a look at the earlier question if you are interested in this issue.)

With that backdrop, let’s quickly review some of the basics of religious accommodation law.

First, the religious belief for which the employee seeks accommodation must be sincere, or bona fide. This usually is not an issue but at times it can be.  For example, I previously described a case involving a woman who wanted the company to accommodate her facial piercings despite the company’s appearance policy that prohibited this type of facial jewelry.  The affected employee tried to justify her request by pointing out that she belonged to the “Church of Body Modification.”  The court didn’t buy it.  Another way in which the sincerity of the religious beliefs issue sometimes arises is when a person who has largely been non-religious suddenly offers his deep-seated religious beliefs as an explanation for why he does not want to work on the weekend.  If there are collateral facts that cast doubt on those beliefs (e.g., the employee coaches his son’s or daughter’s traveling sports teams and they typically play on the weekends), the employer may elect to challenge the accommodation request simply on the basis of the sincerity of the belief systems.  (Of course, as a long-time coach of youth sports, I personally believe that parents who coach or attend their kids’ games on the weekend should be supported.  I “worshipped” at the ball park, although I’m not sure an employer would see it the same way.  That, however, is a topic for another day.)

Second, as referenced above, an employer is not obligated to accommodate an employee’s request for a religious accommodation, even when based on a sincerely held religious belief, if doing so would cause an “undue hardship.”  Like so much of employment law, determinations of what constitutes an undue hardship are made on a case-by-case basis.

One type of undue hardship is a conflict with an established collective bargaining agreement.  For example, take a look at the relatively recent Eighth Circuit decision of Harrell v. Donahue, 638 F.2d 975 (March 31, 2011).  In Harrell, a letter carrier who was a Seventh-day Adventist sought an accommodation from the US Postal Service that would have enabled him to avoid the rotating schedules in his post office branch that periodically required Saturday work.  The appellate court affirmed the trial court’s analysis that such an accommodation would have constituted an undue hardship: “However, the CBA prohibited the [United States Postal Service] from making this accommodation, and doing so would have therefore imposed an undue hardship.”

Harrell recognized that an accommodation that conflicted with the collective bargaining agreement might not fly, and proposed, as an alternative that he simply be given periodic Saturdays off, without pay.  The court found that this too would have constituted an undue hardship because of its impact on his co-workers.  “In addition to the violation of a collective bargaining agreement, an accommodation creates an undue hardship if it causes more than a de minimus impact on co-workers.” (Case citations omitted.)

The Eighth Circuit recognized that nearly every accommodation has some impact on co-workers (“every religious accommodation will inevitably cause some differences in treatment among employees”), but not every impact rises to the level of an undue hardship.  The court stressed, however, that “if accommodating an employee’s religious beliefs also causes ‘real’ and ‘actual’ imposition on co-workers, . . . Title VII does not require an employer to make such an accommodation.”

Third, the appellate court also examined the issue of whether a seniority system that was not established by a collective bargaining agreement, even a system unilaterally imposed by an employer, warranted deferential treatment when considering a religious accommodation issue.  The court concluded it did.  “The relevant seniority system advantages, and related difficulties that result from violations of seniority rules, are not limited to collectively bargained systems.” (Citations omitted.)

Simply because your company likely does not need to accommodate your employees’ requests for accommodation with respect to weekend work does not mean that you should stop thinking creatively about whether there is a mutually acceptable solution.  For example, is there another facility to which the employee could be transferred, which does not operate seven days per week?  Or, are there other jobs, for which the affected employee is qualified and for which there is a vacancy, that do not require weekend work?  These kinds of ideas may be worth exploring, particularly given the attitudes reflected by your current, albeit somewhat haphazard approach to this issue.  Who knows – you may arrive at a solution that works well for your company and your employee alike, one that enables you to keep a qualified, contributing employee gainfully employed at your company.  And though I don’t have all of the relevant facts, you have shared enough to lead me to conclude that your company should explore an alternative to your current approach, which has the potential to create considerable mischief for your firm.

We are a national company. We sell products through a network of sales representatives. Sometimes they’re great. Sometimes they aren’t. When they aren’t, we fire them and move on.

Recently, we learned that dumping underperforming sales representatives in Minnesota may not be so easy. Can you enlighten us? Is this regulated by statute?

Tom’s and Charles’s Analysis:

[Quirky Question # 180 was posed to my colleagues, Tom Vitt and Charles LaPlante.  Tom and Charles have provided a thoughtful analysis of the Minnesota Termination of Sales Representative Act.  If you have any questions regarding their analysis, don’t hesitate to contact Tom at vitt.tom@dorsey.com, or by phone (612.340.5675); or Charles at laplante.charles@dorsey.com, or by phone (612.492.6648).  Additional information regarding Tom is available at http://www.dorsey.com/vitt_thomas/; additional information regarding Charles is available at http://www.dorsey.com/laplante_charles/.  I hope you find their analysis helpful. Roy]

The MTSRA

By: Tom Vitt and Charles LaPlante

You might believe ending your relationship with your non-performing sales representative would be simple and straightforward.  But since he is a sales representative in Minnesota, where the procedures your company has to follow to terminate him are governed by the Minnesota Termination of Sales Representatives Act (“MTSRA” or “the Act”), Minn. Stat. § 325E.37, the termination process is far more complicated than you have assumed.  The Act is perhaps the most restrictive, complex, and representative-friendly termination scheme in the country, filled with traps for the unwary principal. (“Principal” here is a catch-all that refers to manufacturers, importers, distributors, and anyone else who might retain a sales representative to take orders for goods on a wholesale basis.  Your company is a “Principal” under the statute.)  This article provides a brief primer on MTSRA compliance.

To Whom Does the MTSRA Apply?

Whether the MTSRA applies is a question that turns mainly on the location and business of the sales representative who seeks its protection.  The Act defines a “sales representative” as “a person who contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission.” Minn. Stat. § 325E.37, subd. 1(d).  There are four carve-outs from this general definition: (1) employees of the principal; (2) someone who places orders for his or her own account for resale; (3) someone who holds the principal’s goods on a consignment basis; and (4) someone who distributes, sells, or otherwise offers goods to end users, not for resale.  Id.  Essentially, sales representatives are independent persons or corporations that a principal retains to take orders for goods on a wholesale basis.

The MTSRA is also limited in geographic scope, but again, its applicability depends upon the sales representative, not the principal.  The Act applies when the sales representative’s residence or principal place of business is in Minnesota, or when the representative’s sales territory includes Minnesota.  Minn. Stat. § 325E.37, subd. 6(a). The location of the principal has nothing to do with the Act’s applicability.

So long as these two factors (nature of business and connection to Minnesota) are met, the MTSRA applies to any “sales representative agreement” between a representative and a principal.  The Act defines “sales representative agreement” broadly: it covers “a contract or agreement, either express or implied, whether oral or written, for a definite or indefinite period, between a sales representative and another person or persons, whereby a sales representative is granted the right to represent, sell, or offer for sale a [principal’s] goods by use of the latter’s trade name, trademark, service mark, logotype, advertising, or other commercial symbol or related characteristics, and in which there exists a community of interest between the parties in the marketing of the goods at wholesale, by lease, agreement, or otherwise.”  Minn. Stat. § 325E.37, subd. 1(e).

How Can You Avoid MTSRA Problems Before They Begin?

A.   Choice of Law Clauses

One way to avoid MTSRA problems is to contract out of Minnesota law in the first place.  Although some similar Minnesota statutes, such as the Minnesota Franchise Act, explicitly prohibit choice-of-law provisions that would waive applicability of Minnesota law, see Minn. Stat. § 80C.21, the Minnesota Court of Appeals has explicitly held that choice-of-law clauses in sales representative agreements are valid and enforceable.  See Hagstrom v. Am. Circuit Breaker Corp., 518 N.W.2d 46 (Minn. Ct. App. 1994).  (Note, however, that when the principal-representative relationship concerns the sale of plumbing equipment, choice-of-law clauses are void.  See Minn. Stat. § 325E.37, subd. 6(c).  This explicit carve-out for plumbing sales representatives is further evidence that, in general, choice-of-law clauses are valid in sales representative agreements.)  This is an especially attractive option for principals based outside of Minnesota, who might prefer to have all their contracts with sales representatives governed by their home state’s law.

B.   Best Practices During the Principal-Representative Relationship

The first, and most obvious, suggestion for avoiding MTSRA problems before they begin is to ensure that your company has a written agreement with your sales representatives.  Should you want to end your relationship with a representative, the terms of the written contract should prevent disputes about straightforward matters like the term of the agreement, the commission rate, how and when commissions are earned, and the like, provided the contract is clear on those points.  A written contract can also provide a specific definition of what constitutes “good cause” for termination (discussed in more detail below).

For reasons discussed below, any sales representative agreements should be for a definite time period. Agreements for an indefinite term are treated differently under the statute, requiring a longer notice period for termination, which reduces a principal’s flexibility to remove an underperforming representative.  And, if you want to continue working with a representative after the expiration of the current written agreement, make sure to renew it in writing.  Failure to renew in writing does not prevent formation of an agreement, but ensuring a written renewal is in place can prevent disputes about the terms of the relationship.

What Is the Procedure for Ending the Sales Relationship?

A.   Termination for Cause

The MTSRA differentiates between the decision not to renew a sales agreement and the “termination” of a sales agreement before the end of its term.  Termination is proper only with “good cause.”  Minn. Stat. § 325E.37, subd. 2(a).  The Act defines “good cause” as “a material breach of one or more provisions of a written sales representative agreement . . . or in absence of a written agreement, failure by the sales representative to substantially comply with the material and reasonable requirements imposed by the [principal].”  Minn. Stat. § 325E.37, subd. 1(b).  Again, note the importance of a written agreement: if you set forth in writing what constitutes a material breach, a court will not have to decide whether a particular requirement is “reasonable.”

In order to terminate a representative for good cause, a principal must give 90 days’ notice, and the notice must set forth the reasons constituting good cause for termination.  Minn. Stat. § 325E.37, subd. 2(a).  If the representative fails to correct the stated reasons for termination within 60 days of receiving notice, then the relationship can be terminated on the date set forth in the notice.  Id.

There are six grounds that merit immediate termination, without the 90-day wait: (1) bankruptcy or insolvency of the sales representative; (2) assignment of the sales representative’s income to creditors (or similar disposition of assets); (3) the sales representative’s voluntary abandonment of the business, determined by a totality of the circumstances; (4) the sales representative’s conviction (or plea of guilty or no contest) for a charge of violating any law relating to his or her business; (5) any act of the sales representative that materially impairs the good will associated with the principal’s trademark, trade name, or similar commercial symbol, and (6) failure to forward customer payments to the principal.  Minn. Stat. § 325E.37, subd. 1(b).  In these cases, termination is effective immediately upon the representative’s receipt of a notice setting forth the grounds for termination.  Minn. Stat. § 325E.37, subd. 2(b).

B.   Nonrenewal

If a principal lacks good cause to terminate an agreement, but still wants to end the relationship with a representative, the only option is not to renew the sales agreement upon its natural expiration.  If the agreement is for a definite term, then the representative must be given notice of the intention not to renew 90 days before the agreement expires.  The statute explicitly provides that “no person may fail to renew a sales representative agreement” without 90 days notice. Minn. Stat. § 325E.37, subd. 3.

You may wonder how it’s possible to give 90 days notice of the intention not to renew an agreement for an indefinite term.  The MTSRA solves this problem by providing that “a sales representative agreement of indefinite duration shall be treated as if it were for a definite duration expiring 180 days after the giving of written notice of intention not to continue the agreement.”  Id.  Thus, if a principal has an agreement for an indefinite term, the principal needs to provide 180 days’ notice of intent not to renew an agreement.  Without a definite term, in the event of a nonrenewal, the principal will have to give three months additional notice—and pay the representative three months’ more commissions—than it might otherwise.

Finally, whether you intend to terminate an agreement for cause or simply not renew it, you should be specific and straightforward in the language you use in the notice.  Don’t call a nonrenewal a “termination” in the notice, or vice versa.  Similarly, if you’re terminating a representative for cause, make sure to describe the grounds for termination clearly and correctly – ideally, with specific reference to the MTSRA or your written agreement. Sloppy wording in the notice can invite problems down the road: for example, calling a nonrenewal a “termination” might result in litigation over termination without good cause, when all you intended to do was let the agreement expire.

Handling Commissions:

Another problem that may arise at the end of a sales representative relationship is how to handle commissions. Subdivision 4 of the MTSRA addresses this situation, providing that “the representative is entitled to be paid for all sales as to which the representative would have been entitled to commissions pursuant to the provisions of the sales representative agreement, made prior to the date of termination of the agreement or the end of the notification period, whichever is later, regardless of whether the goods have been actually shipped.”  Essentially, this means that the representative continues making commissions per the terms of the agreement until the day the relationship ends.  (Although subdivision 4 does not explicitly address payment of commissions upon a “non-renewal”, presumably the same rule would apply: commissions should be paid pursuant to the terms of the agreement between the parties, up to the last day the agreement is in force.)  Thus, if the agreement provides that a commission is earned when the representative takes an order, then he or she is entitled to commissions for every order taken through the last day of the relationship, even if the goods won’t ship for another eight months. Conversely, if the agreement provides that a commission is earned when the customer pays the principal, the representative is entitled to commissions for every order for which the principal has been paid through the last day of the relationship.  Again, having a written agreement that is clear on when commissions are due is the critical point.

As to timing of payment, the Act provides that commission payments “shall be paid in accordance with the terms of the sales representative agreement or, if not specified in the agreement, payments of commissions due the sales representative shall be paid in accordance with [Minn. Stat. §] 181.145.”  Id.  Section 181.45 governs the post-termination payment of commissions to salespersons who are independent contractors.  Under that section, if a salesperson is terminated with at least five days’ notice, all commissions earned through the last day of employment must be paid within three days of termination, while termination on less than five days’ notice gives the employer six days to pay commissions. Minn. Stat. § 181.45, subd. 2(b)-(c).  Given the lengthy notice requirements for termination under the MTSRA, in most cases, a sales representative would be entitled to payments within three days.  (Note, however, that if the sales representative was actually responsible for handling customer money, a principal has ten days to audit the representative’s accounts before the representative can demand commissions.  Id.)  Section 181.145 also provides penalties for late payment: for every day the commission payments are late, a penalty of 1/15 the amount due will be assessed, up to a total of fifteen days (that is, the maximum penalty doubles the total amount due).  Minn. Stat. § 181.145, subd. 3.

What if It All Goes Wrong?

Suppose that, despite your best efforts, you find yourself embroiled in a termination dispute with a sales representative.  What procedures govern?  What remedies are available?  The MTSRA answers these questions as well.

If a principal wants to be proactive and seek a declaratory judgment that it has good cause for termination – for example, if the sales representative denies that he or she has voluntarily abandoned the business – then the principal’s “sole remedy . . . is to submit the matter to arbitration.”  Minn. Stat. § 325E.37, subd. 5(a).  If, on the other hand, the representative wants to be the plaintiff, he or she can choose whether to go to court or submit the matter to arbitration.  Id.  If a principal strongly prefers arbitration, however, it can require in the contract that both parties must utilize that process; the Minnesota Court of Appeals has held that a binding arbitration clause in a sales representative agreement trumps the MTSRA and waives the representative’s right to go to court.  See AJ Lights, Inc. v. Synergy Design Group, 690 N.W.2d 567, 569-570 (Minn. Ct. App. 2005).

The arbitrator or court can provide several remedies: “(1) sustainment of the termination of the sales representative agreement; (2) reinstatement of the sales representative agreement, or damages; [and] (3) payment of commissions due [upon termination].”  Minn. Stat. § 325E.37, subd. 5(b) (emphasis added).  The “or damages” language is not superfluous: it reflects the fact that damages other than lost commissions might result from a principal’s breach of the sales representative agreement.

For example, in Wingert & Assocs., Inc. v. Paramount Apparel Int’l, Inc., 458 F.3d 740 (8th Cir. 2006), the Eighth Circuit upheld a damages award that stemmed from the principal’s actions surrounding termination of the sales representative agreement.  Shortly after providing just three days’ notice of termination of an indefinite agreement, the principal hired eighteen of the representative’s twenty sales agents, leaving the representative with no staff to service its other manufacturers or seek out new accounts.  In addition to 180 days of lost commissions, the representative put on competent evidence of 4.5 years’ worth of lost profits resulting from the raid of its sales staff, and the Eighth Circuit held that the plain language of the MTSRA supported the award.  Id. at 742-44; cf. RIO/Bill Blass v. Bredeson Assocs., Inc., 1998 WL 27299 (Minn. Ct. App. 1998) (upholding arbitrator’s award of damages for both lost commissions due to improper termination and lost commissions caused by the principal’s unrelated breach of contract).

The Wingert case is subject to an important limitation, however; if the only damages the representative suffers are lost commissions, the damages should be capped by either the natural expiration date of the agreement or the 180-day period applying to indefinite agreements.  For example, in Mellum v. Bioworld Merchandising, Inc., 2008 WL 4205267 (D. Minn. 2008), the District of Minnesota held that when the only harm the representative suffered due to improper termination was lost future commissions, he was not entitled to claim any other damages.  Id. at *2-*3.

The Act also lists “reinstatement of the sales representative agreement” as a possible remedy.  See Minn. Stat. § 325E.37, subd. 5(b)(2).  It appears, however, that no court has ever ordered a representative reinstated.  This may be because representatives rarely seek reinstatement, choosing money damages and a clean break, rather than working for several more months in an unhappy environment.

There are cases where reinstatement might make sense from the representative’s perspective.  For example, suppose a principal and a representative have an agreement with a three-year term, and the principal tries to terminate the representative after just three months because it has decided to take all accounts in-house.  In that case, the representative might seek reinstatement for two reasons: first, because there are thirty-three months remaining in the agreement, and second, because it might be difficult for the representative to provide non-speculative evidence about commissions so far in the future.

The Act also provides for arbitrator’s and attorneys’ fees.  If “the sales representative’s resort to arbitration . . . or the [principal’s] defense in arbitration was vexatious and lacking in good faith,” the losing party can be ordered to pay “the full amount of the arbitrator’s fees and expenses.”  Minn. Stat. § 325E.37, subd. 5(b)(6).  The standard for attorneys’ fees is not so evenly matched.  As befits such a pro-representative statute, it’s much easier for a representative to recover fees than a principal.  So long as a sales representative prevails, he or she is entitled to reasonable attorneys’ fees.  Minn. Stat. § 325E.37, subd. 5(b)(4).  However, a principal is entitled to reasonable attorneys’ fees only if the sales representative’s complaint was “frivolous, unreasonable, or without foundation.” Minn. Stat. § 325E.37, subd. 5(b)(5).

Conclusion:

The MTSRA is a complex statute that might make your company’s attempt to end its relationship with your sales representative a much bigger headache than it would be in other states.  Its notice requirements are unforgiving, and its procedural and remedial components strongly favor sales representatives.  But with careful planning and close adherence to the statute, you can minimize the problems involved in terminating its Minnesota-based sales representatives.

Our company has a sales force composed of individuals located throughout the U.S.  When we hire sales employees, we use a term employment agreement, typically of three years’ duration.  Our employment contracts include post-employment restrictive covenants, the most important of which are non-competes and non-solicits with respect to our customers.  Each restrictive covenant last two years.

We try to negotiate new agreements for the sales employees who are doing a good job.  Our goal is to get the new agreements in place at least one month before the existing agreements expire.  Sometimes, however, things fall through the cracks and we find ourselves negotiating a new agreement following the expiration of the former contract.  In the interim, the employees usually just keep working for us under the terms of the prior agreement. Then, if there are compensation changes, we make them retroactive to the date the prior contract expired.

One of our best salespeople recently advised us she was resigning to join a competitor.  Her contract apparently expired about three months ago but we failed to notice and did not negotiate with her regarding a new agreement.  Nevertheless, she continued working under the terms of her old contract and did not raise any concerns.

When she told us she was leaving, we tried to sweeten the offer to persuade her to stay.  We were not successful. We then told her we expected her to abide by the two-year non-compete and the two-year non-solicit.  Her response was that those provisions expired with the contract’s expiration.  That can’t be right, can it?  The contract specifically provides that the restrictive covenants continue for two years after the contract’s termination.

Roy’s Analysis:

There are a number of interesting aspects to your question.  But, let’s start with the basics.

First, as you noted in the first sentence of your question, your employees are located throughout the U.S.  As I’ve remarked in many prior Blog posts, it is critical to understand that post-employment restrictive covenants are governed by state law.  Moreover, state laws vary widely with respect to the these covenants – some states repudiate the restrictive covenants except in very limited circumstances, some states enforce them but only where they are justified by a legitimate corporate interest, and some states largely enforce the contracts as written.  Thus, your first task is to ensure you understand the law of the state where the issue you identified has arisen.

Second, perhaps I belabor the obvious to state that in any question involving contract interpretation, it is crucial to carefully parse through the language of the contract.  What did the parties intend?  Were the parties’ intentions accurately represented in the contract?  More specifically here, did the contract differentiate between termination and expiration?  Did the contract address the question of whether the post-employment restrictive covenants would survive the expiration of the contract?

Third, as you acknowledged, your employee’s contract “expired about three months ago but [you] failed to notice.”  As you seemingly understand, this is not a helpful fact.  Although your employee continued working without a contract for the last several months, her continued employment following the expiration of her contract likely has little impact on the legal issue you now confront.

Turning then to the specifics of your question, let’s start with the first issue I referenced above – what state’s law applies to the contract interpretation issue.  Where does this employee work?  Where was the contract executed? Is there an enforceable choice of law provision in the contract (i.e., a provision specifying that the law of a certain state will govern the enforcement of the contract)?  (It’s beyond the scope of this Blog analysis for me to provide you a state-by-state survey of this issue. For the purposes of your question, in a moment I’ll reference a couple of Minnesota cases that shed some light on this issue.)

As also referenced above, the contract language is critical.  Since you have not referenced the specific language in question, I’ll make some assumptions.  In my experience, term employment contracts (i.e., a contract that includes a term specifying the duration of the employment contract), often do not address what obligations the parties (employer and employee alike) may owe each other when the contract expires.  This omission may reflect the fact that companies and employees utilizing term employment agreements expect the contract to be renewed prior to its expiration.  Indeed, contracts often include provisions mandating automatic renewal unless one of the parties to the agreement notifies the other of its/her intention not to renew by a certain date (often several months before the contract’s scheduled expiration date).  Here, however, it does not sound as though your contract had an automatic renewal provision.

Alternatively, companies simply may not have given sufficient thought to the issue of the end of a term contract due to “termination,” as opposed to the end of a term contract due to its “expiration.”  I have seen many employment contracts that go on for pages defining the different circumstances under which the contract may be “terminated” – terminations for cause, terminations without cause, terminations as a result of a change in control, terminations due to a disability, etc.  Rarely, however, do I see contracts that devote any verbiage to the issue of the expiration of the contract.  This is a mistake.  To the extent that your contract fails to address this issue, you may have a problem.

For example, in the Minnesota case of Burke v. Fine, 608 N.W.2d 909 (Minn. Ct. App. 2000), a dispute arose between two cardiologists regarding a non-compete clause.  Fine hired Burke pursuant to a two-year term contract.  The contract also contained a two-year non-compete that precluded Burke from working for a specific hospital (Abbott-Northwestern) following the termination of his employment.  Burke worked for the two years set forth in his contract.  He continued working following the end of the contract’s term, notwithstanding the fact that his agreement had expired.

Burke then sought a position with the hospital system specifically referenced in his employment contract.  When the hospital sought information on his pre-existing restrictive covenants, Burke brought a declaratory judgment action, seeking a declaration that because his contract had expired, the restrictive covenant was unenforceable. The District Court ruled in Burke’s favor, holding that when the employment agreement ended, the restrictive covenant also ended, rendering it unenforceable.  Fine appealed this determination but the appellate court affirmed.

Note that the contract in question in the Burke litigation did have an automatic renewal provision.  But, the language of that provision stated, “any extension of this agreement must be in writing and executed by both parties.”  Although Burke had continued to work with Fine following the end of their agreement, the parties had not extended the agreement in writing.

The intermediate appellate court found, “When the employment contract expired, its terms were no longer binding on the parties.  Appellant has not cited any language in the employment contract that indicates the noncompete was to survive the termination of the underlying contract.  Consequently, the proper construction of the noncompete agreement is irrelevant because there is no longer any contract to construe.”

The appellate court went on to differentiate between termination and the expiration of the contract.  “There is no language in the noncompete provision that indicates that the provision survives the expiration of the underlying contract.  The provision says no more than if employment terminates, the employee agrees not to practice medicine or cardiology at Abbott-Northwestern Hospital for a period of two years.  The fact that, if there is a termination during the two-year contract period, the agreed-upon, two-year noncompete period will necessarily extend beyond the two-year contract period, does not mean that the noncompete provision remains applicable to a termination that occurs after the two-year contract period ends.”

As the court held, “When the parties’ two-year employment contract expired at the end of the two-year contract period, the noncompete provision in the contract also expired.  Therefore, the noncompete agreement was not enforceable when the respondent employee later terminated his employment.”

The Burke court cited to a number of similar holdings, both from Minnesota and other jurisdictions. Given these holdings, I think your ex-employee may have the better arguments with respect to the ongoing validity of her non-compete provisions.  I suspect you would have a difficult time persuading a court that the post-employment restrictive covenants of an expired contract nevertheless should be enforced.  This will be a particularly tough argument in those states (like Minnesota) which view restrictive covenants with skepticism, recognizing that they are anti-competitive and restrict employee’s mobility.

In my view, the fact that your agreement provided that the restrictive covenants continue for two years after the contract’s “termination” will not salvage the situation, particularly if your agreement defined with some precision the different types of “termination,” none of which apply to your current situation.  Your company’s failure to address in the agreement the consequences of the contract’s “expiration” on the validity of the restrictive covenants, particularly when coupled with your failure to focus on this issue with your employee before her contract ended, well may doom your attempts to enforce the restrictive covenants.

Solo Leadership!

By: Michael R. Hoffman

How can we be leaders if it’s only us on the floor? And what is “leadership” anyway? Elusive, that’s what it is … at least in definition.

I’m a sucker for the Barnes & Noble business section.  It used to be a simpler world there; but now the sections have sections . . . Management, Marketing, Personal stories, Self help, Trends, etc.  What doesn’t have a section however, is “Leadership.”  Can you imagine . . . no leadership section?  Who knows why, but my guess is that ‘leadership’ is woven into all the ‘disciplines’ . . .  and what the heck is leadership, anyway?  If it were that easy, why are there so darn many books, articles, treatises, on the elusive subject  . . . in all the sections?

I once saw this definition of leadership: “We must turn around and look behind us – if there’s anyone following us, we then must be their leaders.”  Even Peter Drucker says, “a leader is someone who has followers.”  So . . . how can we be leaders if there’s no one following us?  I’m a business strategies coach, and many of my clients are running solo practices – even if they’re in a firm of scores of other practioners, selling or providing similar services.  They run their own little businesses, requiring all the same considerations that any business faces . . . personnel, budgeting, marketing, resource allocation, profits, prospecting, etc.  Even if there is “no one else in the room” to listen, we have to lead . . . ourselves!  A daunting task, especially because we have only ourselves to answer to, and only ourselves to hold ourselves accountable.  We leaders can have managers, managing partners, executive committees, etc.; but at the end of the day, it’s ourselves we have to answer to.

We’re in business.  We have to create customers.  To Drucker, that’s what business is all about.  We are knowledge workers, and as such, we are expected to get the right things done.  He chides: “Brilliant men are often strikingly ineffectual; they fail to realize that the brilliant insight is not by itself achievement.  They never have learned that insights become effectiveness only through hard systematic work.”  He continues, “While some rush around in the frenzy and busy-ness that very bright people so often confuse with ‘creativity,’ the plodder puts one foot in front of the other and gets there first, like the tortoise in the old fable.”

So who’s going to make sure we “get the right things done”?  WE are.  And who’s looking to make sure we do?  No one, really – just us.  And that, I maintain, is ‘leadership.’  Our leadership requires that we create our mission and vision for our practice.  WE do that.  That takes leadership.  ‘We the leader must define the mission, establish it clearly and visibly.’  The leader in us sets the goals, priorities and our standards of practice.  We the leader must be the ‘trumpet’ that sounds the clear sound.  As leaders, it’s our responsibility!

We must realistically examine our strengths so we can play to them as often as possible.  Usually, that’s when we’re happiest . . .  ‘most effective, getting the right things done’!  We have to explore our weaknesses, and decide if they’re keeping us from the progress we want to achieve; if they are, we have to employ our leadership to polish them up, improve our skills.  To return for a moment to Drucker, he maintains “if leadership is not charisma or a set of personality traits, then what it is, is – work.  And responsibility.  The effective leader is, ultimately, the responsible party.  And she must earn trust.  Leadership is a busy business . . . and we, the professional, come to work every day – to lead, even tho’ sometimes we’re the only ones in the room.

We are leaders because we have needed to hone our strengths and competencies.  And leadership rests on the talent to do what others can’t or find hard to do, even poorly.  But mostly it all boils down to hard work . . . tedious, unromantic and mundane.  The essence of our leadership skills rests on performance . . . and so leadership is the means to that end.  Don’t you set your own goals, your own priorities . . .  your own standards? THAT’s leadership.  You design them yourselves . . . chart a path . . .  set your direction and then work . . . hard.

The big word this all comes to is responsibility.  The leader is ultimately responsible . . . your achievements, your failures, your courage to proceed; and then sometimes after all those ‘victories,’ you return to no parades, no balloons and streamers, no standing ovations . . . just the thrill of knowing that you did it!  Remember ABC’s opening to its sports programming – “The Thrill of Victory, and the Agony of Defeat”?  Leadership is tough sometimes.

Finally, leaders – especially solo leaders, have to manage their own professional lives.  And it can’t be simply “chasing” the next ‘deal’, the next case, the next assignment.  It’s an entire “mosaic” we solo leaders weave.  Leaders must keep themselves engaged, productive and learning.  It’s an imperative that we know ourselves well . . . what are our most valuable strengths, and what is there about ourselves that can become an obstacle to progress.  We need to know not only how we learn, but how we work with others and how we can add to the trust that needs to be present in all our professional relationships.  The thing that often drives us to “be our own person” and work only for/by ourselves, is the very thing that can de-rail us most quickly.  We have to be responsible for ourselves . . . but oh the joy as we succeed!

If you haven’t read “Good to Great” by Jim Collins, consider including it in the next few weeks.   May I end with a quote from his chapter on ‘Level 5 leadership’: “Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company (a great book of business, a great practice).  It’s not that level 5 leaders have no ego or self-interest.  Indeed, they are incredibly ambitious – but their ambition is first and foremost for the institution, not themselves.”  And it’s up to us to be responsible, effective and accountable for the results.  Leadership!

Quirky Question # 178:

We are a large company with operations in several states. Three of the states in which we operate permit medical marijuana use: California, Oregon, and Washington. One of our factory employees, working in an Oregon location, recently requested that we accommodate his medicinal use of marijuana. The employee claims that even if state medical marijuana law and discrimination law does not require accommodation, accommodation is required under the Americans with Disabilities Act because the marijuana is treatment for a disabling medical condition. Is this true? We have not been accommodating any employee use of medical marijuana. Are we going to be in trouble under the ADA?

Sarabeth’s Analysis: 

Your questions provide a great example of the sometimes conflicting intersection between state and federal employment law. As a general matter, it is important to remember that conduct permissible under state law may not permissible under federal law, or vice versa. Thankfully here, however, the federal ADA appears to agree with the California, Oregon, and Washington state law on medical marijuana: An employer does not need to accommodate an employee’s use of medical marijuana.

It appears you are familiar with, and conform your practices to, California, Oregon, and Washington state law on employee medical marijuana use. The California Supreme Court was the first to hold that state employers are not required to accommodate employee medical marijuana use under the California Fair Employment and Housing Act (which prohibits discrimination on the basis of disability). We previously wrote about that decision, Ross v. RagingWire Telecommunications, Inc., 174 P.3d 200 (Cal. 2008), in Quirky Question #21. (All past Quirky Questions are accessible by using the search features above.) 

The Oregon Supreme Court held similarly last year, in Emerald Steel Fabricators v. Bureau of Labor & Industry, 230 P.3d 518 (Or. 2010), deciding that the Oregon discrimination statute did not require employer accommodation of medical marijuana use. Most recently, in Roe v. TeleTech Customer Care Management (Colorado) L.L.C., No. 83768-6 (June 10, 2011), the Washington Supreme Court held that Washington public policy and the state medical marijuana statute do not impose on employers the duty to accommodate medical marijuana use.

Turning to your ADA question, although some commentators have speculated that an employee who is terminated due to medical marijuana use might be able to pursue an ADA claim (see, e.g., 26 Hofstra Lab. & Emp. L.J. 619, 633 (2008)), courts that have addressed the issue have held otherwise. These courts conclude that because the ADA does not cover employees who use illegal drugs, and because marijuana remains illegal under federal law, the ADA does not protect medical marijuana users. This is so even though the ADA otherwise protects employees who use controlled substances under the supervision of a medical professional as authorized by federal law. See 42 U.S.C. § 12210(d).

Because the Controlled Substances Act does not allow medicinal use of marijuana, however, courts have concluded that a medical professional cannot legally, as a matter of federal law, supervise medical marijuana use so as to bring an employee under the ADA’s protection. See, e.g., James v. City of Costa Mesa, 2010 U.S. Dist. LEXIS 53009, at *8-11 (C.D. Cal. Apr. 30, 2010); Barber v. Gonzales, 2005 U.S. Dist. LEXIS 37411, at *2-5 (E.D. Wash. July 1, 2005); Johnson v. Columbia Falls Aluminum Co., 2009 WL 865308, at *4 (Mont. Mar. 31, 2009).

For employers, then, even in states permitting medical marijuana use (and even in such states where the accommodation issue has not yet been definitively decided under state discrimination laws), employers may remain confident that the federal ADA does not require accommodation of medical marijuana use, whether the employee uses marijuana on the job site or off the job site. Thus, for example, an employer generally may condition an offer of employment on the results of a drug test, as a legitimate business interest (although keep in mind that different states regulate employee drug testing with varying degrees of stringency). Of course, if an employer requires conditional drug testing and rejects job applicants who test positive for illegal drug use, it is important to apply that rule fairly and evenly to the applicant pool. Moreover, applicants should be given notice of the employer’s testing policy, including the consequences of a positive test result or of refusing to take the test.

State laws vary on drug and alcohol testing, and therefore you should be sure to comply with applicable law in each of the states in which you operate. For example, in Minnesota, where I practice, if a job offer is withdrawn, the employer must inform the job applicant of the reason for its action. See Minn. Stat. § 181.951, subd. 2.

The number of patients authorized for medicinal marijuana use is growing. Over one-quarter of states have enacted laws approving the use of medical marijuana. In 2007, national estimates placed medical marijuana patient totals at approximately 300,000. Stephanie Armour, Employers grapple with medical marijuana use, USA Today, April 18, 2007, http://www.usatoday.com/money/workplace/2007-04-16-medical-marijuana-usat_N.htm. In 2005, there were over 100,000 patients using medical marijuana in California alone. Dean E. Murphy, California Reins In Clinics Using Marijuana for Medical Purposes, N.Y. Times, June 15, 2005, http://www.nytimes.com/2005/06/15/national/15marijuana.html. Roughly the same amount of users are currently registered in Colorado. Colo. Dep’t of Pub. Health & Env’t, http://www.cdphe.state.co.us/hs/medicalmarijuana/statistics.html.

In view of these numbers, while employers may remain confident that medical marijuana accommodation is not required under federal law, employers should expect medical marijuana issues to continue to be raised by their employees and job applicants, with increasing frequency. Employers should reflect on their position on medical marijuana, draft and utilize reasoned, comprehensive policies, and fairly and effectively implement those policies with their workforces.

Quirky Question # 177:

I work for a company called Star Registered, Inc. We employ sales employees who perform door-to-door direct sales. Customers can register stars to their names (we copyright the name with the telescopic coordinates and provide a personalized certificate). We have learned that some of our employees would like to form a labor union, and are now wearing t-shirts during their field sales activities that read on the front “Registered Offender” and on the back “I offended Registered by trying to unionize.” We can prohibit these offensive t-shirts, right?

Doug’s and Joel’s Analysis:

As crazy as it sounds, probably not. Especially under the current leadership of the National Labor Relations Board (NLRB), employer prohibitions against the wearing of union insignia are scrutinized heavily, even for employers that are not currently union workplaces.

First, let me address the fact that your workforce is not currently represented by a union. Many employers are under the misconception that since their employees are not currently unionized, labor law (namely, the National Labor Relations Act (NLRA)) does not apply to them. The reality is that the NLRA applies to virtually all private sector employers and employees, whether or not they are unionized. Coverage under the NLRA, specifically Sections 7 and 8 of the Act, means those employees are protected against adverse action for engaging in concerted protected activities to improve their working conditions, again, whether or not a union is involved. In addition, employers are prohibited from discouraging such activity, or discriminating against employees on the basis of their engaging in concerted protected activity.

One activity that has long been recognized by the NLRB and by courts as protected is the practice of employees, during work, to don union insignia, whether it be buttons, pins, hats, t-shirts, etc. Employers typically want to know how they can lawfully limit this activity, especially when employees are otherwise obliged to wear company uniforms. Employers can set limits, but only if they establish “special circumstances” justifying the limitations. See Republic Aviation Corp. v. NLRB, 324 U.S. 793, 801-03 (1945). The Board has found special circumstances exist most often when union apparel has the potential to exacerbate employee dissension or unreasonably interfere with the employer’s public image.

Turning, then, to the “Registered Offender” situation, it is likely a prohibition against wearing the t-shirts would not be lawful. For those who keep attuned to labor law developments, you likely recognize that this quirky question is playfully inspired by a recent decision by the Board siding with AT&T employees and their union regarding the wearing of controversial t-shirts. S. New England Tel. Co., 356 NLRB No. 118 (Mar. 24, 2011). AT&T and its employees were negotiating a new collective bargaining agreement when, as a public demonstration of union solidarity, employees began wearing t-shirts to work that had potentially troublesome language on both the front and back.  The front said “Inmate #” and the back said “Prisoner of AT$T.”

The employees were field technicians who assisted customers in their homes. What’s worse, at the time of the negotiations and t-shirt campaign, there was statewide pretrial publicity about a recent home invasion by two paroled felons that resulted in a family’s death. AT&T sought to prohibit its employees from wearing the t-shirts, believing that customers might think the employees were escaped prisoners. The union disagreed, and the case made its way to the Board for decision. Over a vigorous dissent by one Board member, a Board majority held special circumstances did not exist for AT&T to limit employees’ rights to wear the t-shirts. The t-shirts “would not have been reasonably mistaken for prison garb,” in part because the employees came to customer homes in response to customer appointments and were also wearing AT&T identification cards.

The Board’s decision is particularly troubling given its prior position in similar cases. For example, just seven years ago, the Board allowed a grocer employer to prohibit employees, who were not otherwise required to wear uniforms, from wearing t-shirts at work reading “Don’t Cheat About the Meat!” The Board recognized the phrase reasonably could create concern among customers about being cheated. Pathmark Store, 342 NLRB 378 (2004). In an older case, the Board allowed an employer to prohibit employees from wearing t-shirts that read “Ma Bell is a Cheap Mother.” The parties agreed the phrase had a obscene double meaning. Sw. Bell Tel. Co., 200 NLRB 667 (1972). As labor law followers know, though, such inconsistency by the Board – a highly political body – is not unexpected.

Thus, it looks like, at least under the Board as currently constituted, an employer could not prohibit its employees from wearing t-shirts that risk customers thinking employees are registered sex offenders, even when the employees are the public face of the company.

The game changes significantly, however, when the employer has a well-defined uniform requirement, applied without exception, and those uniforms are meant to project a particular public image. See W San Diego, 348 NLRB 372 (2006). In that situation, the employer usually can demonstrate that obtrusive or objectionable insignia detract from the employer’s image and may be prohibited. Stated differently, and to give comfort to employers with uniformed employees: if you as an employer require your employees who deal with the public to wear uniforms, you may prohibit those employees from donning t-shirts suggesting they are escaped convicts. Small solace, perhaps, but that’s the best we can do given the current Board’s makeup.

Decisions involving union buttons provide good examples that certain insignia worn by uniformed employees need not be permitted. Generally, the Board has permitted small, plain buttons to be worn by uniformed employees dealing with the public. See, e.g., Nordstrom, Inc., 264 NLRB 698 (1982) (permitting buttons that were “muted in tone, discrete in size, and free from provocative slogans or mottos”). Employers may, however, prohibit large, brilliantly colored buttons, or buttons that contain offensive content. The larger buttons have been held to potentially detract from an employer’s public image, invite unprofitable employee/customer discussions regarding the buttons’ meanings, or produce adverse reactions among customers who may have strong anti-union views. In one case, an employer was permitted to prohibit large buttons that detracted from the employees’ all-white uniforms. Evergreen Nursing Home & Rehab. Ctr., Inc., 198 NLRB 775 (1972). In another case, a retail department store was permitted to prohibit large, colorful buttons where the employees were asked to wear businesslike attire to model the employer’s merchandise. Davison-Paxon Co. v. NLRB, 462 F.2d 364 (5th Cir. 1972). And in Leiser Construction, LLC, 349 NLRB 413 (2007), the Board allowed an employer to prohibit an employee from displaying a sticker on his hardhat depicting someone urinating on a nonunion rat.

The ability to prohibit uniformed employees from wearing wild t-shirts or offensive buttons extends only so far as an employer’s application of its uniform policy is, well, uniform, and not enforced with particular fervor against unions. That is, if union insignia are prohibited, all kinds of pins, buttons, or clothing supporting any organization should be prohibited. Additionally, an existing policy requiring uniforms should not suddenly be enforced with vigor once union activity is detected. Without this consistency, an employer may be accused of discriminating against employees on the basis of their union support in violation of their rights under the NLRA. See, e.g., Cintas Corp., 353 NLRB 752 (2009); Airport 2000 Concessions, LLC, 346 NLRB 958 (2006).

In the end, unless the employer has a consistently enforced uniform policy, both union and non-union employees will have a broadly construed right to don pro-union apparel that pushes the limits of provocation, at least as long as the current Board is seated. The best employer practice to avoid these displays is to do your best to maintain positive employee relations such that employees have no incentive to publicly proclaim their pro-union sentiments. If potentially objectionable apparel do come to light, it’s advisable to involve your attorney, as the rules regarding union insignia and whether “special circumstances” exist to limit employees’ rights typically call for a careful consideration of conflicting Board precedent.