By Michael Wexler, Robert B. Milligan, and Daniel Joshua Salinas

Seyfarth Synopsis:  On Tuesday, January 28 at 12:00 p.m. Central, in the first installment of the 2020 Trade Secrets Webinar Series, Seyfarth attorneys will review noteworthy legislation, cases and other legal developments from across the nation over the last year in the area of trade secrets and data theft, non-competes and other restrictive covenants, and computer fraud. Plus, they will provide predictions for what to watch for in 2020 and provide an overview of the material law changes in Seyfarth’s 2019-2020 Non-Compete Desktop Reference.

Seyfarth attorneys Michael Wexler, Robert Milligan, and Joshua Salinas will address the following topics:

  • Significant new federal and state court decisions and legislation on non-compete and other restrictive covenants that may impact their enforcement
  • Discussion of legislative and regulatory efforts to narrow use of non-competes and how companies should respond and the likelihood and impact of potential federal legislation
  • The Defend Trade Secrets Act and tips for navigating the law and an overview of what we know now that it’s been in effect for more than 3 years
  • Recent trade secret misappropriation decisions
  • Noteworthy data breaches and criminal prosecutions for trade secret misappropriation, data theft, and computer fraud matters and discussion of lessons learned
  • Best practices for updating agreements and policies to adequately protect company assets and trade secrets, including addressing the challenge for multi-state employers of an increasing divergence of state laws

REGISTER HERE

If you have any questions, please contact Colleen Vest at cvest@seyfarth.com and reference this event.

*CLE Credit for this webinar has been awarded in the following states: CA, IL, NJ and NY. CLE Credit is pending for GA, TX and VA. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

By Minh N. Vu

Seyfarth Synopsis:  ADA Title III lawsuits flooded federal courts in 2019 and will likely continue to do so in 2020 with new theories for the courts to consider. 

We are still tallying up the end-of-year numbers, but the number of ADA Title III lawsuits filed in federal courts by the end of November 2019 (10,206) exceeded the number of such lawsuits filed in all of 2018 (10,163).  California courts continue to be the busiest with roughly 43% of the lawsuits, with New York and Florida courts taking second and third place with  24% and 18% of the market share, respectively.  With plaintiffs and their lawyers constantly conjuring up new claims, businesses are not likely to see any relief from these types of suits in 2020.

What types of lawsuits are trending now?

Braille Gift Card Lawsuits.  Starting in October of 2019, more than a dozen blind plaintiffs represented by five attorneys have filed at least 243 lawsuits in the Southern and Eastern Districts of New York alleging that retailers and other businesses have violated the ADA and New York state and city laws by failing to offer for sale gift cards that have all the information printed on the cards shown in Braille. These cases are assigned to at least twenty-nine different judges. A firm in southern California has also jumped on the bandwagon, filing Braille gift card lawsuits in California state court and sending out a number of pre-suit demand letters. Most defendants are digging in for a fight so we expect to see many motions to dismiss filed in the first quarter of 2020.

Website and Mobile App Accessibility Lawsuits.  Although we are still tallying the numbers, lawsuits alleging inaccessible websites and mobile apps accounted for at least a fifth of the total number of ADA Title III lawsuits filed in federal courts in 2019. Most plaintiffs in these cases are blind and claim that the websites in question do not work with their screen reader software which reads website content aloud. A much smaller number of plaintiffs are deaf and are suing about the lack of closed captioning for online videos.

Plaintiffs continue to file these website and mobile app accessibility lawsuits, though the rate at which they were being filed seemed to slow down in the fourth quarter of 2020. The change may be attributable to the fact that some of the lawyers who were filing many of these website accessibility suits in New York have turned their attention to Braille gift card lawsuits.

The big news from 2019 on the website accessibility front was the U.S. Supreme Court’s refusal to hear Domino’s appeal from a Ninth Circuit Court of Appeals decision allowing a blind plaintiff to pursue his lawsuit against the pizza chain for having an allegedly inaccessible website and mobile app. Businesses had hoped that the Supreme Court would hear the case and perhaps take some action to curtail the tsunami of website and mobile app lawsuits.

In 2019, Plaintiffs also made significant headway in persuading California state courts that inaccessible websites violate the state’s non-discrimination statute, including one appellate affirmation of a judgment in favor of blind plaintiff. In fact, one California Superior Court judge decided that the ADA applies to websites of businesses with no physical location where customers go. In reaching this conclusion, this California judge rejected federal Ninth Circuit precedent that the ADA only applies to websites of public accommodations with a nexus to a physical location.

Hotel Accessibility Information on Reservations Websites.  A number of plaintiffs filed lawsuits against hotels for allegedly failing to provide sufficient information about the accessibility of their accessible guest rooms and common areas on their websites, as required by the ADA Title III regulations, to allow travelers with disabilities to make informed decisions about whether a hotel meets their needs. In response to this flurry of lawsuits, many hotels have updated their websites to provide the required information. Now some plaintiffs are filing lawsuits alleging that hotels are not making accessible rooms available for sale on websites operated by third party online travel agencies.

Accessible Hotel Room Dispersion.  Title III of the ADA requires hotels to provide accessible rooms in a range of different room types (e.g. rooms with two beds, premium views, suites) so that people with disabilities have room choices that are comparable to those offered to people without disabilities. One plaintiff in particular has filed more than a hundred lawsuits under this theory, and we have no reason to think she will stop in 2020.

Inaccessible Facilities.  Historically the most prolific category for accessibility lawsuits, we have continued to see in the lawsuit filing numbers and in our practice many lawsuits about allegedly inaccessible physical public accommodations facilities such as hotels, retail stores, restaurants, and shopping centers in 2019. We do not expect this to change in 2020.

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Be sure to subscribe to our ADA blog to receive notices of developments throughout the year!

Edited by Kristina Launey

By Lennon B. Haas and Kevin M. Young

Seyfarth Synopsis: In Flaherty v. Entergy Nuclear Operations, Inc., ___ F.3d ___, No. 18-1759, 2019 WL 7046367, at *1 (1st Cir. Dec. 23, 2019), the First Circuit struck a terminated nuclear plant security officer’s self-serving affidavit opposing summary judgment and held that he was not qualified for his position, and thus could not establish a prima facie case of disability discrimination, because his failure to disclose a medical diagnosis demonstrated untrustworthiness and a lack of reliability, both of which his job required.

Background

In 2005, military veteran Mark Flaherty applied for and received a nuclear security officer position with Entergy at a nuclear power station. The U.S. Nuclear Regulatory Commission (NRC) requires that such officers attain and hold special clearances. To obtain and retain the clearance, an individual must, among other things, “provide high assurance” of trustworthiness and reliability and pass annual assessments that evaluate those same traits.

In July 2012, Flaherty filed a claim for disability benefits with the VA based on chronic fatigue syndrome (CFS), PTSD, and other medical issues. Three weeks later, he failed to disclose on Entergy’s annual medical assessment any of the symptoms or conditions for which he was seeking VA benefits. He repeated his failure to disclose in his 2013 and 2014 assessments as well.

In 2015, Entergy asked Flaherty to work overtime. Flaherty refused, claiming he would be too tired to work. Still without knowledge of Flaherty’s medical issues, Entergy suspended him for three days. At that point, Flaherty complained to Entergy’s ethics hotline.

It was only then that Flaherty revealed that he had CFS. That triggered a hold on his clearance and an investigation, which revealed his failures to disclose his conditions. Based on those failures, Entergy found Flaherty untrustworthy and unreliable, and thus unable to hold his clearance. Entergy terminated him.

Flaherty sued for, among other things, disability discrimination. He claimed Entergy terminated him because of his CFS. Entergy moved for summary judgment, arguing Flaherty was not qualified for his position because his failure to disclose CFS until after his suspension demonstrated a lack of the trustworthiness and reliability that his clearance required. Flaherty opposed with an affidavit that, according to Entergy, contradicted Flaherty’s prior testimony about when he was diagnosed with CFS and when he first disclosed it. Agreeing with Entergy, the district court struck the affidavit and held that Flaherty failed to establish that he was qualified for his role because he violated NRC regulations requiring that officers be trustworthy and reliable. The First Circuit affirmed.

The Court’s Analysis

The ADA prohibits employers from discriminating against a “qualified individual on the basis of disability.” Qualified means that an individual can perform the essential functions of his or her position with or without accommodation. Flaherty’s ability to show qualification turned on the timing of his CFS diagnosis disclosure, and that timing turned on his affidavit.

The court first observed that plaintiffs cannot resist summary judgment with testimony that contradicts, without satisfactory explanation, clear answers to unambiguous questions at a deposition. Flaherty’s deposition testimony—he told Entergy about his CFS only after his suspension—said the court, was clear and in response to the unambiguous question: “You never told anyone you had CFS until April 29, 2015, correct?” To explain his contradictory affidavit, Flaherty argued that he misunderstood the question to reference when he disclosed his CFS to his supervisors, not his employer more broadly. The court rejected that explanation, noting that Flaherty had an attorney present at the deposition, the question made no mention of supervisors, and Flaherty had a chance to correct his testimony but declined to do so. Without a sufficient explanation for the testimonial discrepancy, the court affirmed the striking of Flaherty’s affidavit.

Without his affidavit saying that he disclosed his CFS to Entergy prior to April 2015, Flaherty’s discrimination claim crumbled. He conceded that he had to maintain his clearance to remain qualified for his position. He also implicitly conceded that a failure to disclose CFS would support Entergy’s conclusion that he was untrustworthy and unreliable. Without an affidavit to unwind his earlier deposition testimony, the undisputed facts supported only that conclusion. Given that finding, the court found that Flaherty was unqualified for his position and thus could not establish a prima facie case of disability discrimination.

Lessons Learned

Entergy obtained summary judgment even though Flaherty was plainly disabled and even though his unaccommodated disability arguably led to his termination. Key employer takeaways include:

  • Clearly define job prerequisites and anticipate possible alternatives that would achieve the same business result. The trust and reliability requirements that disqualified Flaherty were clearly spelled out and not susceptible to accommodation. Entergy was able to rely on them to avoid a costly trial.
  • Be skeptical and push back against factual assertions where appropriate, including by moving to strike when unexplainable contradictions appear.

For more information on this or any related topic please contact the author, your Seyfarth attorney, or any member of the Workplace Counseling & Solutions Team or the Workplace Policies and Handbooks Team.

By James L. CurtisMark A. Lies, II, Adam R. YoungIlana R. Morady, and Craig B. Simonsen

Seyfarth Synopsis: The U.S. Occupational Safety and Health Administration (OSHA) has issued a standard interpretation cautioning employers on the use of headphones to listen to music on a construction site.

Many employers permit the use of headphones and music in a variety of industrial and construction settings, presumably to improve employee morale and retention. Other employers play music across the workplace with speakers and stereos, such as in a warehouse or operating room. Industry safety sources warn any benefits gained from the use of headphones in the workplace will be overshadowed by safety hazards. Specifically, headphones can present a safety hazard when operating large machinery by impeding the operator’s awareness of surroundings.

There are numerous instances of serious accidents and fatalities where employees were violating rules and wearing headphones, often while operating powered industrial trucks and other vehicles. In the warehousing environment, listening to headphones presents essentially the same risks as distracted driving. The risk is not only to the operators, but also pedestrians who may be in the nearby area. Another risk is that loose headphones can become caught in machinery or pose an electrical hazard.

In Federal OSHA’s recent standard interpretation, OSHA finds that “there is no specific OSHA regulation that prohibits the use of headphones on a construction site.” However, while the use of headphones on a construction site may be permissible at managerial discretion, such use may create or augment other hazards apart from noise. First, OSHA notes that the added decibels from headphones may cause a hazard to employee hearing and may undermine a hearing conservation program. Second, OSHA notes the related risks of distraction and inability to hear equipment, alarms, or warnings. OSHA cautions that “listening to music may produce a safety hazard by masking environmental sounds that need to be heard, especially on active construction sites where attention to moving equipment, heavy machinery, vehicle traffic, and safety warning signals may be compromised.”  OSHA further explains that “struck-by hazards are one of the four leading causes of death in construction.

OSHA has issued citations to employers following industrial accidents where employees have operated equipment (such as forklifts) while wearing headphones and have been unable to hear horns or other audio warnings. OSHA has cited the employers for failure to adequately train forklift operators or for failure to use the horn or other safety devices. Other OSHA regulations require employers to train employees about audio warning devices, for example, fire alarms, and to have the ability evacuate the workplace. Headphones can create a serious impediment to timely evacuation and result in a tragedy.

The recent standard interpretation echoes other warnings about the use of headphones in the workplace. In its “Protecting Yourself from Noise in Construction” booklet, OSHA indicates that “neither portable music player headphones nor hearing aids are substitutes for hearing protective devices.” In its “Agricultural Safety Fact Sheet,” OSHA directs employers to “instruct workers and operators not to use personal mobile phones, headphones or any items that could create a distraction”, and “never wear earbuds or headphones when working near farm vehicles and equipment.”

In addition, employers have a general duty under the Occupational Safety and Health Act to provide work environments free from any recognized hazard likely to cause serious injury or death. The guidance from OSHA is confused — OSHA advises employers to disallow headphone use where it is used in a way to create a recognized hazard. But the employees with the headphones control the volume and content. Accordingly, employers likely have no knowledge of whether employee music choices would create a hazard. OSHA’s ambivalent enforcement position leaves open the possibility that  an accident with a distracted employee using headphones could result in a General Duty Clause citation to the employer. In terms of safety and OSHA compliance, employers would be wise to limit headphone use and train employees not to use headphones or music in a way that creates a distraction or inhibits their ability to hear alarms or equipment.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the Seyfarth Workplace Safety and Health (OSHA/MSHA) Team.

By Matthew Gagnon and Alexandra Oxyer

Seyfarth Synopsis: In an unusual opinion considering an issue raised by the plaintiff for the first time on appeal, the Second Circuit clarifies that unlike under the Equal Pay Act, Title VII plaintiffs need not show “equal work for unequal pay” to succeed on a pay discrimination claim. This case demonstrates that plaintiffs have options when bringing such claims and underscores the different challenges employers face under the different statutory schemes.

On December 6, 2019, the Second Circuit Court of Appeals vacated in part a summary judgment ruling that had dismissed a plaintiff’s pay equity claims against her former employer. The plaintiff had alleged, in relevant part, violations of the Equal Pay Act (“EPA”) and Title VII related to the setting of her compensation. The District Court for the Eastern District of New York dismissed her claims because she had failed to prove she performed equal work for unequal pay, as she was the only employee in her position at the company. After consideration, the Second Circuit vacated the District Court’s order related to the Title VII claim, clarified the standard for Title VII discriminatory compensation claims, and remanded the case back to the District Court for further proceedings.

Case Background

Plaintiff filed her lawsuit in 2014 alleging violations of the EPA, Title VII, the Pregnancy Discrimination Act, the whistleblower protections of the Consumer Product Safety Improvement Act, and related provisions of New York state law. In sum, Plaintiff’s complaint claimed that Defendant had paid her less because of her gender, retaliated against her when she brought forward concerns about her disparate pay and potential Consumer Product Safety Act violations, and terminated her because she was pregnant. Defendant filed a motion for summary judgment on Plaintiff’s claims in March 2017.

In March 2018, the District Court granted the motion for summary judgment. After analyzing Plaintiff’s pay discrimination allegations, the District Court held that Plaintiff’s Title VII claims, like claims brought under the EPA, required her to show “positions held by her purported male comparators [were] substantially equal to her position.” Lenzi v. Systemax, Inc., No. 18-979, 2019 WL 6646630, at *6 (2d Cir. Dec. 6, 2019) (internal citations omitted). Plaintiff could not make this showing because she was the only employee who held her job title and duties, so her Title VII claims were dismissed. The District Court further noted that Plaintiff had not presented evidence of discriminatory intent in the determination of her pay, as is also required for Title VII wage disparity claims.

Plaintiff subsequently appealed the District Court’s order to the Second Circuit. Notably, in the briefing of the summary judgment motion to the District Court, both Plaintiff and Defendant had agreed that Title VII disparate pay claims shared the same standard as EPA claims but required an additional showing of discriminatory animus; however, on appeal, Plaintiff challenged the District Court’s holding that Title VII discriminatory compensation claims, like EPA claims, required a showing of equal work for unequal pay.

The Court’s Decision

In evaluating the dismissal of Plaintiff’s Title VII claims, the Second Circuit first addressed Plaintiff’s failure to challenge Defendant’s argument at the summary judgment stage that a pay discrimination claim under Title VII required a showing that the Plaintiff’s position was substantially equal to the positions held by her purported comparators (in fact, the Plaintiff adopted this standard in her own briefing on the issue). While the Second Circuit recognized that “[s]uch a concession ordinarily precludes a party from advancing a different argument on appeal,” it ultimately decided that it would exercise its discretion to consider the Plaintiff’s later argument that such standard was not appropriate. Id.

The Second Circuit then acknowledged that one of its opinions from 1995, which held that“[a] claim of unequal pay for equal work under Title VII . . . is generally analyzed under the same standards used in an EPA claim,” is commonly used by district courts in their analyses of Title VII pay discrimination claims. Id. (quoting Tomka v. Seiler Corp., 66 F.3d 1295, 1312 (2d Cir. 1995)). The Court expressed a desire to “take this opportunity to clarify that a Title VII plaintiff alleging a discriminatory compensation practice need not establish that she performed equal work for unequal pay,” as is required by the EPA. Id. at *7 (emphasis added). While affirming that a plaintiff could bring a claim for equal work for unequal pay under Title VII if they could show a discriminatory animus behind the pay determination, the Court emphasized that such a claim was not the only kind of Title VII claim available related to pay.

The Second Circuit gave examples of several variants of disparate pay claims that could be alleged under Title VII that would not require an equal work for unequal pay showing: “[f]or example, an employer might hire a woman for a unique position in the company, but then pay her less than it would had she been male . . . [s]imilarly, if an employer used a transparently sex-biased system for wage determination, women holding jobs not equal to those held by men would be denied the right to prove that the system is a pretext for discrimination [if required to make such a showing].” Id. Ultimately, the Second Circuit rejected the notion that plaintiffs can only succeed on discriminatory pay claims under Title VII if there is an employee of the opposite sex in an equal position earning a higher rate of pay.

The Court concluded its holding by reiterating that “all Title VII requires a plaintiff to prove is that her employer ‘discriminate[d] against [her] with respect to [her] compensation . . . because of [her] . . . sex.” Id. (quoting 42 U.S.C. § 2000e-2(a)(1)). Discriminatory pay claims can be brought successfully under Title VII even if the plaintiff cannot show a purported comparator of the opposite sex earning a higher wage (provided that the challenged pay rate is not based on seniority, merit, quantity or quality of production, or any other factor besides sex). The Second Circuit then found that the Plaintiff had sufficiently shown discriminatory intent with respect to her pay and vacated the District Court’s order granting summary judgment on her Title VII claim.

Implications For Employers

The Second Circuit’s opinion is, in effect, a reaffirmation of the U.S. Supreme Court’s 1981 holding in Washington County v. Gunther. 452 U.S. 161 (1981) (“[C]laims for sex-based wage discrimination can also be brought under Title VII even though no member of the opposite sex holds an equal but higher paying job.”). However, this case serves as a good reminder that employers should not expect to rely exclusively on the fact that there is no comparator in an equal position as a defense to a pay discrimination claim. Plaintiffs in such positions have options as to how to structure their theory of the case. And the oft-repeated mantra that Title VII is to be interpreted in line with the EPA clouds important, substantive differences between those two statutory schemes. When performing pay equity audits or setting employee compensation, employers should be mindful of those differences, particularly employers with more specialized positions or smaller operations that may have only one or two employees in senior leadership roles or performing the same kind of work. Such employers may also want to check market analyses and reporting when setting compensation. This case shows how pay equity claims can be brought even where there are no purported comparators, perhaps especially when it comes to high-level or specialized positions that are unique within a company.

Please feel free to reach out with any questions to the author, your Seyfarth attorney, members of Seyfarth’s Pay Equity Group, or the Group’s co-chairs Christine Hendrickson and Annette Tyman.

By Robert A. Fisher, James M. Hlawek and Michael E. Steinberg

Seyfarth Synopsis: On November 27, 2019, the United States Court of Appeals for the First Circuit held that, under Massachusetts law, a terminated employee asserting a claim for being deprived of lost compensation in breach of the implied covenant of good faith and fair dealing must demonstrate that the lost compensation was clearly related to past services that were already performed. The Court concluded that a former executive’s implied covenant claim failed where he had made progress in achieving, but had not fully achieved the milestone that would have entitled him to additional equity compensation under his employment agreement.

Under Massachusetts law, the general rule is that at-will employees may be terminated at any time for any reason or no reason at all, and with or without notice. But what about an employee close to receiving a bonus or some form of equity compensation? Some might see terminating such an employee as inequitable under certain circumstances. Accordingly, Massachusetts courts have allowed terminated at-will employees close to receiving a bonus or other compensation to bring claims for breach of the implied covenant of good faith and fair dealing. The claim is generally limited to instances where the at-will employee is terminated without cause and where the employee has been deprived of compensation that is clearly related to services that the employee has already performed.

In its recent decision in Suzuki v. Abiomed, Inc., the First Circuit clarified the narrow scope of such implied covenant claims. The defendant, a company that designs, manufactures, and markets medical devices, hired plaintiff in April of 2010 as its vice president of Asia. In this position, the plaintiff was responsible for shepherding one of the company’s heart pumps through the Japanese regulatory approval process. The plaintiff executed an offer letter and non-disclosure agreement which provided for, among other forms of compensation, the issuance of shares of the company’s common stock, but only upon approval of the heart pumps by a Japanese regulatory agency. The documents specified that the plaintiff must be actively employed at the time of the regulatory approval to receive the equity award. The documents also made clear that the plaintiff’s employment could be terminated at any time and for any reason, subject to a 28-day written notice provision.

After significant delays in obtaining Japanese approval of the heart pumps, Abiomed fired the plaintiff. Although the plaintiff took steps towards obtaining regulatory approval for Abiomed, he had not obtained regulatory approval at the time he was fired. Abiomed, therefore, did not pay him the equity compensation. Abiomed did not obtain regulatory approval for another fifteen months after the plaintiff was fired.

The plaintiff brought suit against Abiomed in the United States District Court for the District of Massachusetts, claiming that, in not paying the equity compensation, Abiomed breached the implied covenant of good faith and fair dealing. The plaintiff’s argument was that he had worked towards regulatory approval and was entitled to be compensated for that. The district court granted summary judgment to Abiomed, concluding that the plaintiff did not have a valid implied covenant claim because he was not on the brink of earning the equity compensation at the time he was fired.

On appeal, the First Circuit first found that despite the fact that the plaintiff’s employment could only be terminated with 28 days written notice, the plaintiff was still an at-will employee. Thus, the plaintiff could bring an implied covenant claim if he could establish that he had been deprived of compensation clearly related to services that had already been performed. However, the court found that, while the plaintiff did some groundwork to achieve regulatory approval, Abiomed still had to do significant work — fifteen months’ worth of work — after the plaintiff’s discharge to obtain approval. The court further found significant that regulatory approval was not inevitable when the plaintiff was fired. In short, the equity compensation at issue was for obtaining regulatory approval, and the ultimate achievement of regulatory approval was not clearly related to services that the plaintiff had performed before he was fired. Therefore, the First Circuit agreed with the district court in ruling against the plaintiff.

This decision serves as a reminder that employees who are fired while on the brink of receiving a bonus or other compensation may have a claim under the implied covenant of good faith and fair dealing, but only under limited circumstances. To avoid such a claim, employers who fire an employee on the brink of receiving bonuses or similar compensation should carefully review whether the employee may have earned the compensation based on services that the employee has already performed. While the plaintiff in Suzuki did not have a viable claim because achievement of the compensation milestone was not inevitable when he was fired, the result may have been different if achievement of the milestone had been inevitable or imminent at that time.

Tags: First Circuit, equity compensation,

 

 

By Robert A. Fisher, James M. Hlawek and Michael E. Steinberg

 Seyfarth Synopsis: On November 27, 2019, the United States Court of Appeals for the First Circuit held that, under Massachusetts law, a terminated employee asserting a claim for being deprived of lost compensation in breach of the implied covenant of good faith and fair dealing must demonstrate that the lost compensation was clearly related to past services that were already performed. The Court concluded that a former executive’s implied covenant claim failed where he had make progress in achieving, but had not fully achieved the milestone that would have entitled him to additional equity compensation under his employment agreement.

Under Massachusetts law, the general rule is that at-will employees may be terminated at any time for any reason or no reason at all, and with or without notice. But what about an employee close to receiving a bonus or some form of equity compensation? Some might see terminating such an employee as inequitable under certain circumstances. Accordingly, Massachusetts courts have allowed terminated at-will employees close to receiving a bonus or other compensation to bring claims for breach of the implied covenant of good faith and fair dealing. The claim is generally limited to instances where the at-will employee is terminated without cause and where the employee has been deprived of compensation that is clearly related to services that the employee has already performed.

In its recent decision in Suzuki v. Abiomed, Inc., the First Circuit clarified the narrow scope of such implied covenant claims. The defendant, a company that designs, manufactures, and markets medical devices, hired plaintiff in April of 2010 as its vice president of Asia. In this position, the plaintiff was responsible for shepherding one of the company’s heart pumps through the Japanese regulatory approval process. The plaintiff executed an offer letter and non-disclosure agreement which provided for, among other forms of compensation, the issuance of shares of the company’s common stock, but only upon approval of the heart pumps by a Japanese regulatory agency. The documents specified that the plaintiff must be actively employed at the time of the regulatory approval to receive the equity award. The documents also made clear that the plaintiff’s employment could be terminated at any time and for any reason, subject to a 28-day written notice provision.

After significant delays in obtaining Japanese approval of the heart pumps, Abiomed fired the plaintiff. Although the plaintiff took steps towards obtaining regulatory approval for Abiomed, he had not obtained regulatory approval at the time he was fired. Abiomed, therefore, did not pay him the equity compensation. Abiomed did not obtain regulatory approval for another fifteen months after the plaintiff was fired.

The plaintiff brought suit against Abiomed in the United States District Court for the District of Massachusetts, claiming that, in not paying the equity compensation, Abiomed breached the implied covenant of good faith and fair dealing. The plaintiff’s argument was that he had worked towards regulatory approval and was entitled to be compensated for that. The district court granted summary judgment to Abiomed, concluding that the plaintiff did not have a valid implied covenant claim because he was not on the brink of earning the equity compensation at the time he was fired.

On appeal, the First Circuit first found that despite the fact that the plaintiff’s employment could only be terminated with 28 days written notice, the plaintiff was still an at-will employee. Thus, the plaintiff could bring an implied covenant claim if he could establish that he had been deprived of compensation clearly related to services that had already been performed. However, the court found that, while the plaintiff did some groundwork to achieve regulatory approval, Abiomed still had to do significant work — fifteen months’ worth of work — after the plaintiff’s discharge to obtain approval. The court further found significant that regulatory approval was not inevitable when the plaintiff was fired. In short, the equity compensation at issue was for obtaining regulatory approval, and the ultimate achievement of regulatory approval was not clearly related to services that the plaintiff had performed before he was fired. Therefore, the First Circuit agreed with the district court in ruling against the plaintiff.

This decision serves as a reminder that employees who are fired while on the brink of receiving a bonus or other compensation may have a claim under the implied covenant of good faith and fair dealing, but only under limited circumstances. To avoid such a claim, employers who fire an employee on the brink of receiving bonuses or similar compensation should carefully review whether the employee may have earned the compensation based on services that the employee has already performed. While the plaintiff in Suzuki did not have a viable claim because achievement of the compensation milestone was not inevitable when he was fired, the result may have been different if achievement of the milestone had been inevitable or imminent at that time.

 

By Condon McGlothlen, Marc Jacobs, and Adam R. Young

Seyfarth Synopsis:  Earlier this month, Governor Pritzker signed into law SB 1557, revising the Recreational Cannabis Law to expand permissible marijuana testing and related adverse action.

The Original Legalization Bill As Enacted

The Illinois Cannabis Regulation and Tax Act (410 ILCS 705) (the “Legalization Act”) legalizes recreational cannabis for Illinois adults starting January 1, 2020. The Legalization Act specifically allows Illinois employers to enforce “reasonable zero tolerance or drug free workplace policies, or employment policies concerning drug testing, smoking, consumption, storage, or use of cannabis in the workplace or while on call provided that the policy is applied in a nondiscriminatory manner.” The Act also permits employers to prohibit employees from being under the influence of or using cannabis in the employer’s workplace or while on call. Further, the Act (i) allows employers to discipline or terminate an employee who violates the employer’s workplace drug policy, and (ii) specifically insulates employers from liability for disciplining or terminating employees based on the employer’s good faith belief that the employee was either impaired at work (as a result of using cannabis) or under the influence of cannabis while at work.

However, when the Legalization Act was passed in November, it threatened to increase exposure for Illinois employers who test for marijuana and act on a positive test result. First, the Legalization Act created a potential cause of action for applicants who test positive for marijuana at the post-offer, pre-employment stage, and are therefore rejected for hire. The Act expressly amended the Illinois Right to Privacy in the Workplace Act, which prohibits discrimination against employees for their use of “lawful products” outside of work (defined as lawful products under state law), to include cannabis and marijuana. Because applicants have not started working, applicant testing could only detect marijuana use outside the workplace. Return-to-duty drug testing raised similar issues, typically detecting off duty drug use during a leave.

Second, employers who test current employees, e.g., post-accident or based on reasonable suspicion, faced new exposure if a discharged employee claimed the employer lacked a “good faith belief” that the employee had been impaired by or under the influence of cannabis.  For example, if the employer discharged some employees who tested positive but not others, a discharged employee could claim the employer lacked a “good faith belief” regarding impairment. Alternatively, because there currently is no legally or medically accepted definition of what constitutes “impairment” (or being “under the influence” of marijuana), the former employee could assert: (i) he or she was not in fact impaired at work; (ii) a positive test result alone cannot prove otherwise; and (iii) the employer still acted based solely on the test result, thus showing it lacked a good faith belief regarding the employee’s impairment.

Eleventh Hour Amendments Protect Employer Drug Testing

With the January 1, 2020 deadline approaching, Illinois business community representatives raised numerous concerns with lawmakers and proposed revising the Act to clarify permissible drug testing and limit possible causes of action against employers. On December 4, 2019, Governor Pritzker signed amendments into law that (among other things) provide:

Nothing in this Act shall be construed to create or imply a cause of action for any person against an employer for:

(1) actions taken pursuant to an employer’s reasonable workplace drug policy, including but not limited to subjecting an employee or applicant to reasonable drug and alcohol testing, reasonable and nondiscriminatory random drug testing, and discipline, termination of employment, or withdrawal of a job offer due to a failure of a drug test.

P.A. 101-0593, Sec. 705-10(50)(e)(1). This new provision is separate from the Act’s safe harbor for decisions based on the employer’s good faith belief that an employee was impaired or under the influence of marijuana while performing his or her job duties.

With regard to pre-employment, post-offer testing, the Legalization Act amendments seemingly eliminate employer liability for revoking an offer due to a positive marijuana result. The Legalization Act as amended explicitly permits “withdrawal of a job offer due to a failure of a drug test.” Section 705-10(50)(e)(1). Potential employer liability under the Right to Privacy in the Workplace Act for rejecting applicants who test marijuana-positive also effectively has been eliminated. While the original law amended the Privacy in the Workplace Act to permit discrimination claims founded on the use of “lawful products” (e.g. cannabis) outside work, the Privacy in the Workplace Act specifically invokes 705-10(50)(e)(1) of the Legalization Act. With that section amended, Privacy in the Workplace Act claims related to marijuana testing should no longer be viable.

For post-accident, random, or other forms of current employee testing, the amended Legalization Act better protects employer interests by expressly limiting causes of action based on discipline or termination on account of a failed drug test. However, the statute still contains language regarding an employer’s “good faith belief”. Employees may therefore still pursue litigation alleging such a belief is required for lawful termination, and that the employer lacked this requisite belief in discharging the individual.

Employer Takeaways

Given imminent cannabis legalization, many Illinois employers are presently updating their policies and procedures.  Other states’ experience suggests Illinois employers may soon confront increased recreational marijuana usage, as well as additional workplace marijuana possession, use, and impairment.  Employers should consult outside counsel for help in revising policies and addressing new marijuana challenges in the workplace.

Medical marijuana developments present another set of challenges for employers in many states, Illinois included. Those issues are not impacted by the Legalization Act as amended.

The Illinois amendments both clarify and expand employer options by comparison with the original Legalization Act. Fundamental questions remain across the country, however, about how employers should view marijuana and its effect on work. Is widespread marijuana use in one form or another inevitable, in which case should employers continue investing the time, effort, and expense associated with rigorous pre-employment and employee testing efforts? Or is that question misguided because it ignores employer needs (safety and productivity among others) to test for other drugs no matter what happens with marijuana-related developments? Either way, recent marijuana developments and related uncertainty about developments to come are forcing companies to re-think when to test, whom to test (what positions or job categories), what to test for, and how to make sure decisions based on test results comply with the varied but generally expanding protections for both recreational and medical marijuana use.

In a sense, Illinois employers caught a break with the Legalization Act amendments —  a break not only from the original Legalization Act, but also from a larger state law trend towards always requiring employers to prove impairment to justify adverse action based on marijuana use. This follows from the widely recognized view that  a marijuana-positive result by itself says virtually nothing about impairment at work. Though it may no longer be required in Illinois, a best practice for employers who test current employees for marijuana is to establish a strong record of impairment independent of a marijuana-positive result. That would include thorough, contemporaneous documentation of the reasons employees are sent for reasonable suspicion testing. It could include an accident investigation report that rules out non-drug-related causes where circumstances warrant that conclusion.

Marijuana testing may remain a valuable tool for helping employers maximize productivity, reduce turnover, and avoid workplace accidents and injuries. But it is only one tool, and one met with skepticism if not outright antipathy in a growing number of jurisdictions. For now, Illinois is no longer among those. In this uniquely evolving area (many would say industry), however, change is the only agreed upon constant.

For more information on this or any related topic, please contact the authors, your Seyfarth attorney, or any member of the Workplace Safety and Health (OSHA/MSHA), or Cannabis Law Practice Team, or the Employment Law Practice Group.

By Brandon L. Dixon and Erin Dougherty Foley

Seyfarth Synopsis:  The Americans with Disabilities Act (ADA) not only provides protection to individuals who have physical or mental impairments, but to individuals an employer may perceive to have such impairments.  These cases can be challenging for employers to defend, and the recent Sixth Circuit case, Babb v. Maryville Anesthesiologists, P.C., demonstrates how failure to appropriately identify and communicate about an employee’s perceived (or actual) impairment can create obstacles to a successful defense.

Maryville Anesthesiologists employed Paula Babb as a Certified Registered Nurse Anesthetist (CRNA).  About a month into her employment with Maryville, one of its physician-owners, Dr. Coleman, noticed that Babb was placing her face usually close to a computer screen at work.  Babb explained to Dr. Coleman that she suffered from a degenerative eye condition.  While it meant she had to hold medical records close to her eyes to read them, Babb assured Dr. Coleman that her eye condition did not impede her ability to safely perform her duties as a CRNA.

As time passed, other reports of issues related to Babb’s vision began to surface, which ultimately led a few physician-owners to meet with Babb. She tearfully explained to them her eye condition diagnosis, and that it did not impact her ability to do her job. The physician-owners calmed her by telling her that she was a “good fit” and “doing well.” They then asked her to schedule an appointment with her ophthalmologist and report back.  Babb agreed to do so. They also asked Babb if she had disability insurance because one of the owners believed she “might have a disability.” A physician-owner then emailed the other owners to report about the meeting with Babb, concluding with a note that they may need to speak with their attorney about Babb’s visual impairment.

In the next few months, Babb committed two separate errors at work that were unrelated to her vision.  At the next meeting of the Maryville’s physician-owners, they made the decision to terminate Babb based on the two “clinical errors,” which they argued evidenced a lack of ability to provide safe patient care. The decision, which came only two months after the meeting during which Maryville told Babb she was doing well, came as a surprise to Babb.  Hours after her termination, and at the direction of a physician-owner, a first-year CRNA circulated an email to Maryville employees announcing Babb’s termination.  In it, the CRNA noted Babb had been “having major issues with her eyesight,” and, critically, “[Babb’s eyesight problems], in addition to other issues, has forced the group to make a very difficult decision” to let her go.

Maryville prevailed at summary judgment.  The district court first deemed inadmissible Babb’s expert testimony.  The expert called into question the reasonableness of Maryville’s decision to terminate Babb over the two clinical errors, explaining that they were not gross violations of the standard of care for CRNAs. It then found that there was a genuine issue of material fact concerning whether Maryville regarded Babb as “disabled.”  Nevertheless, the court granted summary judgment in favor of Maryville, reasoning that there was “no evidence that [Maryville] did not honestly believe” the clinical errors cited in support of Babb’s termination did not render her unsuited for a CNRA position.  Further, the court concluded that Babb could not show that the real reason for her termination was discrimination based on her perceived visual disability.

The Sixth Circuit reversed, first observing that the district court erred by disregarding the entirety of the expert witness’s testimony simply because there were some objectionable elements of the expert report.  It then moved on to find that while it agreed with the lower court’s conclusion that fact issues existed about whether Maryville regarded Babb as disabled, the district court had used the incorrect “substantially limits one or more major life activities” standard.  The correct inquiry, the appellate court explained, is whether the plaintiff has shown the employer believed the he or she had a “physical or mental impairment” (regardless of whether the impairment limits or is perceived to limit a major life activity).  An employer may rebut this by showing that the perceived impairment is both transitory and minor.  Here, the court found ample evidence establishing that Maryville may have regarded Babb as disabled, including Maryville’s query into whether Babb had disability insurance and expressing that they may need to meet with their attorney about Babb’s vision issues. Thus, there was indeed a genuine issue of material fact as to whether Maryville regarded Babb as disabled, even when using the correct standard.

Next, the circuit court reversed the district court’s ultimate holding that the evidence supported summary judgment in favor Maryville.  The focus here was on whether there was a genuine issue of material fact as to Babb’s position that the “clinical errors” cited by Maryville as the reason for her termination were pretext. It held that there were two fact disputes sufficient to allow Babb to survive summary judgment.  First, it determined there were fact issues surrounding the reasonableness of Maryville’s decision to terminate Babb for the clinical errors;  the less serious the errors, the more likely they were not the true motivation for her termination.  This is where the expert testimony the lower court improperly excluded was relevant, and when properly considered, created a fact issue precluding summary judgment.

The second fact dispute was, more generally, whether Babb’s perceived disability was the actual reason for her termination. The court did not mince words, noting that the email the CRNA sent on behalf of the physician-owners referencing Babb’s eye condition as the reason for her termination was “smoking gun” evidence of pretext.  That is, the CRNA’s email was clear evidence that the actual reason for Babb’s termination may have been because of her perceived disability.  While Maryville maintained that the CRNA’s email was based innuendo and rumors, there was contrary evidence that she wrote it at the specific direction of the owners.  The court declared that if this “cannot get an employment discrimination plaintiff past summary judgment on the question of pretext, it is hard to imagine what could.” Accordingly, it reversed the district court’s grant of summary judgment for Maryville, potentially sending this case to trial.

Takeaways

Congress eased the burden on employees bringing a “regarded as” claim by enacting the Americans with Disabilities Amendment Act. Some courts and attorneys are still operating under the old standard, which required a plaintiff to show that an employer “mistakenly believed” an impairment would “substantially limit[] one or more major life activities.”  However, this case reminds us that a plaintiff now need only show that the employer believed that he or she had a physical or mental impairment to satisfy the threshold question in a “regarded as” case.

The case also serves as a reminder of the importance and sensitivity of communications and decisions surrounding an employee’s actual or perceived impairment.  Employers should take great care in identifying, discussing, and documenting any issues that may give rise to an  Americans with Disabilities Act claim.  The same is true concerning any authorized or official communication announcing an employee’s departure. Assuming such communication is deemed necessary, it should be carefully drafted or reviewed by HR and/or an attorney.  Failure to do so can open the door to the type of “smoking gun” evidence that makes surviving a legal challenge to otherwise legitimate personnel decisions far more difficult and costly.

If you have any questions regarding this area or need assistance evaluating personnel decisions relating to potential physical or mental impairment, please contact the authors, your Seyfarth Attorney, or any member of Seyfarth Shaw’s Absence Management and Accommodations Team.

By James L. Curtis, Mark A. Lies, IIMatthew A. SloanAdam R. Young, and Craig B. Simonsen

Seyfarth Synopsis:  Recently the U.S. House of Representatives passed a bill with bipartisan support that would require the Department of Labor to promulgate an OSHA standard specifically aimed at protecting healthcare and social service workers from workplace violence.

The “Workplace Violence Prevention for Healthcare and Social Service Workers Act,” HB 1309, is the most significant step to date by the federal government to address the rise of workplace violence episodes in the healthcare and social service industries.  In 2018, for example, there were 14.8 nonfatal injuries from assaults for every 10,000 full-time workers across the private health-care and social assistance industry in 2018, according to Bureau of Labor Statistics data.  This was a significant increase from 2014, that rate was only 8.2 for every 10,000 full-time workers, still 4 times higher than the rate for workers in the private sector overall.

If passed by the Senate, the U.S. Secretary of Labor would have one year to implement an OSHA standard requiring employers in the healthcare and social service industries to develop and implement comprehensive workplace violence prevention plans to protect their workers from workplace violence.  A new standard would provide specific regulation requirements for employers.  Currently, Federal OSHA regulates workplace violence via the General Duty Clause, which broadly requires employers to take affirmative steps to protect their employees from hazards.  For more information on how Federal OSHA uses the General Duty clause in healthcare and social service workplace violence context, please visit our March 2019 blog post, titled “Commission Decisions Confirm that Employers Must Take Action to Protect Employees from Workplace Violence.”

The Federal OSHA standard proposed in HR 1309 would require employers to develop a workplace violence prevention plan that would include:

  • The individual responsible for implementation of the plan;
  • A risk assessment for each work area or unit at the facility;
  • Security controls such as security and alarm systems, adequate exit routes, monitoring systems, barrier protection, established areas for patients and clients;
  • Reporting, incident response, and post-incident investigation procedures;
  • Procedures for emergency response; and
  • Training for employees on workplace violence hazards.

California’s state plan already has a specific standard that requires employers in the healthcare and social service industries to create and enforce workplace violence prevention plans.  We previously blogged about these California regulations at “CA Nears Adoption of New Workplace Violence Regulations for Healthcare Employers, Home Health Providers, and Emergency Responders.”

The efforts of the House of Representatives track the increased interest by state and federal agencies in the prevalence of workplace violence in healthcare and social service settings over the last five years.  In addition to the aforementioned California legislation, we have noted that “OSHA Issues “Strategies and Tools” to “Help Prevent” Workplace Violence in the Healthcare Setting.”  We have also blogged that “OSHA Updates Workplace Violence Guidance for Protecting Healthcare and Social Service Workers.”  Moreover, in 2016, Federal OSHA considered whether to commence rulemaking proceedings on a new standard for preventing workplace violence in healthcare and social assistance workplaces perpetrated by patients and clients.  Prevention of Workplace Violence in Healthcare and Social Assistance, 81 Fed. Reg. 88147 (December 7, 2016).

The House bill, backed by National Nurses United, passed with the support of a bipartisan group of representatives.  However, the bill faces significant opposition from the healthcare industry and its allies in the U.S. Senate and the White House.  Senate Majority Leader Mitch McConnell has pigeon-holed more than 300 pieces of legislation passed by the Democratic house, and the White House Office of Management and Budget has urged the President to oppose the bill.  We will follow the legislative process closely.  Irrespective of this new legislation, many healthcare employers are already developing workplace violence prevention plans.  In developing an effective plan, healthcare employers should consider their history of workplace violence and consider contacting outside counsel to advise and develop a program.

For more information on this or any related topic, please contact your authors, your Seyfarth attorney, or any member of the Workplace Safety and Health (OSHA/MSHA) Team or the Workplace Counseling & Solutions Team.