Racial Slur Sufficient to Support Claim Against Fannie Mae

Judge Kavanaugh, concurring, in Ayissi-Etoh v. Fannie Mae, No. 11-7127, 2013 U.S. App. LEXIS 6870 (D.C. Cir. April 5, 2013) emphatically stated that a single use of the “N word”, in an oral statement from a supervisor to an employee, by itself, “would establish a claim for hostile work environment for the purposes of federal anti-discrimination laws.”  In that case, it was alleged that a Fannie Mae executive, Ms. Jaqueline Wagner, denied the African-American plaintiff a raise because Fannie Mae was already “paying [him] a lot of money” for a “young black man,” and it was further alleged that another Fannie Mae official, Mr. Thomas Cooper, once referred to plaintiff, using the “N word”.  Specifically, it was alleged that Mr. Cooper, at the end of a heated meeting with plaintiff, yelled at him, “get out of my office, n…..”.

Chief Judge Garland and Judge Griffith, in a per curiam opinion, concluded that a reasonable jury could find the aforesaid behavior sufficiently severe or pervasive as to create a hostile work environment, recognizing that Mr. Cooper had used “a deeply offensive racial epithet…”.  The per curiam opinion, recognizing that “perhaps no single act can more quickly alter the conditions of employment” than “the use of an unambiguously racial epithet such as ‘n…..’ by a supervisor.  Rodgers v. Western-Southern Life Ins. Co., 12 F.3d 668, 675 (7th Cir. 1993) (internal quotations omitted).”  Thus, the per curiam opinion recognized that “[t]his single incident might well have been sufficient to establish a hostile work environment.”  “But,” as the per curiam opinion notes, “there was still more here.”  The court went on to discuss, among other items, Ms. Wagner’s alleged “young black man” comment; the fact that the plaintiff had “to continue working with Cooper for nearly three months, until Cooper was ultimately fired”; that this working situation “made Ayissi-Etoh ill and caused him to miss work on at least one occasion”; and that a reasonable jury could find that Fannie Mae taking three months to fire Mr. Cooper did not constitute Fannie Mae promptly correcting the alleged hostile behavior.  Thus, the per curiam opinion found that the plaintiff had provided “sufficient evidence for a reasonable jury to find Fannie Mae liable”, and thus reversed the District Court’s entry of summary judgment against the plaintiff on his hostile work environment claim.

Judge Kavanaugh, in his concurring opinion, disagreed with Fannie Mae’s argument that the “singular [N word] comment” was “insufficient to establish an actionable hostile work environment.”  As Judge Kavanaugh put it, “[i]n my view, Fannie Mae is wrong on the law and wrong on the application of the law to the alleged facts of this case.  The alleged statement by the Fannie Mae Vice President to Ayissi-Etoh by itself would establish a hostile work environment for purposes of federal anti-discrimination laws.”  While Judge Kavanaugh conceded that “cases in which a single incident can create a hostile work environment are rare,” he argued that “saying that a single incident of workplace conduct rarely can create a hostile work environment is different from saying that a single incident never can create a hostile work environment.”  Judge Kavanaugh cited a number of cases in which single verbal (or visual) incidents were found to be sufficiently severe to justify a finding of a hostile work environment, such as Reedy v. Quebecor Printing Eagle, Inc., 333 F.3d 906, 909 (8th Cir. 2003) (racially hostile graffiti that amounted to a death threat); and Jackson v. Flint Ink North American Corp., 370 F.3d 791, 795 (8th Cir. 2004), rev’d on reh’g on other grounds, 382 F.3d 869 (8th Cir. 2004) (a burning cross).

We have also previously written other articles regarding whether and when single incidences of harassment have been held to satisfy the “sufficiently severe or pervasive” standard of a hostile work environment claim – see, for example, here, and here.

The second to last paragraph in Judge Kavanaugh’s opinion, which cites to authorities including case law, a dictionary, and To Kill a Mockingbird, is quoted in full here, because to paraphrase it would be to do a disservice to Judge Kavanaugh’s strong and succinct argument:

It may be difficult to fully catalogue the various verbal insults and epithets that by themselves could create a hostile work environment. And there may be close cases at the margins. But, in my view, being called the n-word by a supervisor — as Ayissi-Etoh alleges happened to him — suffices by itself to establish a racially hostile work environment. That epithet has been labeled, variously, a term that “sums up . . . all the bitter years of insult and struggle in America,” Langston Hughes, The Big Sea 269 (2d ed. 1993) (1940), “pure anathema to African-Americans,” Spriggs v. Diamond Auto Glass, 242 F.3d 179, 185 (4th Cir. 2001), and “probably the most offensive word in English,” Random House Webster's College Dictionary 894 (2d rev. ed. 2000). See generally Alex Haley, Roots (1976); Harper Lee, To Kill a Mockingbird (1960). Other courts have explained that “perhaps no single act can more quickly alter the conditions of employment and create an abusive working environment than the use of . . . [the “N word”] by a supervisor in the presence of his subordinates.” Spriggs, 242 F.3d at 185. No other word in the English language so powerfully or instantly calls to mind our country’s long and brutal struggle to overcome racism and discrimination against African-Americans.

A tip of the hat to Judge Kavanaugh for saying what needed to be said.

For more resources on this topic, see:

(a)    The following article (here) regarding a new study by Professor Ashleigh Shelby Rosette of Duke University’s School of Business, exploring workplace racial slurs. You can also find the full study here (subscription required); and

(b)   The following 2003 article (here) by Debra S. Katz and Alan R. Kabat of Bernabei & Katz, PLLC, on Harassment in the Workplace, particularly the “Single Incident Harassment” section, starting at page 25 of the article.

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Parties Settling Employment Reduction-in-Force Disputes Should Take Into Account Circuit Split on FICA Taxes

On March 25, 2013, the Supreme Court granted the Solicitor General’s request for a one-month extension to file a petition for certiorari in United States v. Quality Stores, Inc., 693 F.3d 605 (6th Cir. 2012), reh’g en banc denied 2013 U.S. App. LEXIS 882 (6th Cir. Jan. 4, 2013).  In Quality Stores, the Sixth Circuit, in contrast to the Federal Circuit, held that, under certain circumstances, severance payments in a reduction-in-force should be viewed as supplemental unemployment compensation benefits (“SUB”) payments, rather than “wages” and, thus, not susceptible to FICA withholdings and payments under I.R.C. § 3402(o).  After the Sixth Circuit denied the government’s petition for rehearing en banc, it was widely anticipated by the tax bar that the Solicitor General would file a petition for certiorari on or before the original deadline of April 4.  See, e.g. Stuart J. Bassin, “Sixth Circuit Denies Government Motion for Rehearing in Quality Stores Employment Tax Challenge”, Lexology (Feb. 1, 2013); Alan Horowitz, “Rehearing Denied in Quality Stores”, Tax Appellate Blog (Jan. 7, 2013); Thomas M. Cryan, Jr., Esq., “Sixth Circuit Affirms Quality Stores Decision in FICA Taxation of Severance Pay”, Bloomberg BNA (October 1, 2012);  Instead, the Solicitor, indicating that his office needed further time to determine whether or not to file, sought a one-month extension until May 3, which was granted.  See United States v. Quality Stores, Inc., No. 12-A-921 (March 25, 2013).

The Federal Circuit, in CSX Corp. v. United States, 518 F.3d 1328 (Fed. Cir. 2008), in contrast to the Sixth Circuit, rejected the argument, and found RIF severance payments to be “wages” within the meaning of I.R.C. § 3402. 

So, what does all of this mean for employers and employees when they are negotiating and settling disputes arising out of the RIF of an employee?  The tax bar has been advising its corporate employer clients to file protective claims for refunds of FICA payments by filing IRS Form 941-X.  See, e.g., Vicki M. Nielsen, “April Deadlines Relating to FICA Tax Treatment of Severance Pay in Quality Stores are Quickly Approaching”, Ogletree Deakins (March 13, 2013); Brittany Blackburn Koch, Esq., “Employers’ Deadline to File Protective Claim for 2009 FICA Taxes is April 15, 2013”, McBrayer Employment Law (April 3, 2013); Gail Goodman & Erwin D. Kratz, “ERISA and Employee Benefits Update” Fennemore Craig Attorneys (Feb. 20, 2013); Daved E. Rogers, Ruth Wimer, Esq., CPA, “Quality Stores Decision Could Lead to Significant Refunds of FICA Tax”, McDermott Will & Emery (Sept. 19, 2012).  Thus, in the run up to the recent April 15 tax filing deadline, many tax lawyers were advising their employer clients to file said forms on or before April 15, 2013, for any FICA payments made during 2009, the statute of limitations being three years.  Accordingly, it seems to me that employee counsel in settlement negotiations of severance claims should insist, as a condition of settlement, that the employer file such a protective claim so that, in the event the Supreme Court eventually resolves the Circuit split, and resolves it in the taxpayers’ favor, the employee would be in a position to obtain a refund of his/her share of FICA taxes.  

The Quality Stores decision suggests that there are five conditions that may need to be met in order for such payments to be treated, not as “wages”, but rather as SUB payments.  Those five conditions are as follows:

1. An amount paid to an employee;
2. Pursuant to an employer’s plan;
3. Because of an employee’s involuntary separation from employment, whether temporary or permanent;
4. Resulting from a reduction in force, the discontinuance of a plant or operation, or other similar conditions; and
5. Is included in the employee’s gross income.

As Ms. Vicki Nielsen of Ogletree Deakins indicates in her blog on this subject, referenced above, whether a formal ERISA severance plan would be a pre-condition for SUB treatment is very much an open question. 

Disclaimer:

Robert B. Fitzpatrick, PLLC, is not a tax law firm, and does not practice or provide legal advice regarding tax law.  The information contained herein is general in nature and based on authorities that are subject to change. Robert B. Fitzpatrick, PLLC guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Robert B. Fitzpatrick, PLLC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

 

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Recent Legislative and Regulatory Developments Regarding Non-Competes

While the enforceability and interpretation of restrictive covenants, and perhaps especially non-competition agreements, remains a major issue in courts across the country, it is important not to overlook the important legislative and regulatory developments that occurred this year.  Here, we summarize six of the most significant such events.  The disparate treatment of restrictive covenants from state to state, and the fact that there is often some question as to which law should apply to a given matter, makes it particularly important to monitor legislative developments in this area.  There is also increasing regulatory interest in the impact of these agreements, including actions by both the DOJ and FTC.

I. The Trade Secrets Clarification Act

On December 28, 2012, the President signed into law the Theft of Trade Secrets Clarification Act, Pub. L. No. 112-236 (2012).  The principal raison d’etre of the statute is to overrule the Second Circuit’s holding in U.S. v. Aleynikov, 676 F.3d 71 (2d Cir. 2012), in which the Court, construing the Economic Espionage Act (18 U.S.C.  1832(a)) held that a computer programmer who copied the source code of a proprietary computer program belonging to his employer onto his home computer for the purposes of creating a similar program did not violate the Economic Espionage Act.  The Court based its holding on the determination that the source code was not related to a product “produced for…interstate or foreign commerce” as required by the Act.  The new statute extends coverage from “products” which are “produced for” interstate or foreign commerce to “products or services” which are “used in or intended for use in” interstate or foreign commerce.

·        Russell Beck, “Theft of Trade Secrets Clarification Act of f2012 is Law”, Fair Competition Law Blog (Jan. 7, 2013) available at: http://faircompetitionlaw.com/2013/01/07/theft-of-trade-secrets-clarification-act-of-2012-is-law/

·        Robert B. Milligan, “President Obama Signs Trade Secrets Clarification Act and House of Representatives Considers Enhancing Economic Espionage Act Penalties”, Trading Secrets (Dec. 31, 2012) available at: http://www.tradesecretslaw.com/2012/12/articles/trade-secrets/president-obama-signs-trade-secrets-clarification-act-and-house-of-representatives-considers-enhancing-economic-espionage-act-penalties/

·        Jessica Mendelson, “United States Senate Unanimously Approves the Theft of Trade Secrets Clarification Act”, Trading Secrets (Dec. 3, 2012) available at: http://www.tradesecretslaw.com/2012/12/articles/trade-secrets/united-states-senate-unanimously-approves-the-theft-of-trade-secrets-clarification-act/

·        Mitchell Boyarsky, “Federal Government Taking More Steps to Protect Trade Secrets”, IP Law Alert (Jan. 23, 2013) available at: http://www.iplawalert.com/2013/01/articles/trade-secret/federal-government-taking-more-steps-to-protect-trade-secrets/

II. New Jersey Adopts Uniform Trade Secrets Act

On January 9, 2012, New Jersey finally adopted a version of the Uniform Trade Secrets Act, leaving only three states, Texas, New York, and Massachusetts, that have not yet adopted some form of the uniform statute.  See Robert B. Milligan, “New Jersey Adopts Variation of Uniform Trade Secrets Act”, Trading Secrets Blog (Feb. 3, 2012) available at: http://www.tradesecretslaw.com/2012/02/articles/trade-secrets/new-jersey-adopts-variation-of-uniform-trade-secrets-act/

III. New Hampshire Statute Requires Employers to Disclose Non-Compete Requirements to Job Applicants

On May 15, 2012, then-New Hampshire Governor John Lynch signed HB 1270 into law which, effective July 14, 2012, requires that employers disclose non-compete and non-piracy agreements to potential employees prior to making offers of new employment.  The law also requires that such policies be disclosed to current employees with any offer of change in job classification.  At the moment, New Hampshire appears to be unique among the states in requiring such disclosures. 

For additional information, see

·        Robert B. Mulligan, Ryan Malloy, “New Hampshire Enacts New Law Requiring Disclosure of Non-Compete and Non-Piracy Agreements Prior to Job Offer and Change in Job Classification”, Trading Secrets (June 20, 2012) available at: http://www.seyfarth.com/publications/OMM062012

·        Diane M. Saunders “New Law in New Hampshire Requires Employers to Disclose Non-Compete Agreements at the Time of Hire or Change of Job”, Ogletree Deakins Blog (Aug. 17, 2012) available at: http://www.ogletreedeakins.com/publications/2012-08-17/new-law-new-hampshire-requires-employers-disclose-non-compete-agreements-tim

IV. Maryland Legislature Considering Making Non-Competes Unenforceable Where former Employee Qualifies for Unemployment Compensation

On January 9, 2013, the Maryland Senate introduced SB 51 which would invalidate the “noncompetition covenants” for ex-employees who obtained unemployment benefits.  If ultimately signed into law, the Act, which would apply only prospectively, would become effective on October 1, 2013.  SB 51 applies only to “noncompetition covenants”, but it is unclear whether that definition would be extended to all restrictive covenants and, if not, how the Courts would differentiate between “noncompetition” covenants and other restrictive covenants. 

For further commentary, see:

·        Scott A. Schaefers, “To Work or Not to Work – Maryland’s Senate Considers Changes to Non-Compete Law for Those on Unemployment”, Trading Secrets (Jan. 17, 2013) available at: http://www.tradesecretslaw.com/2013/01/articles/restrictive-covenants/to-work-or-not-to-work-marylands-senate-considers-changes-to-non-compete-law-for-those-on-unemployment/

·        Randi K. Hyatt, “Proposed Maryland Legislation Would Eliminate Non-Compete Obligations For The Unemployed”, The Employment Brief (Dec. 31, 2012) available at: http://theemploymentbrief.com/2012/12/31/proposed-maryland-legislation-would-eliminate-non-compete-obligations-for-the-unemployed/              

V. Federal Trade Commission Exhibits Interest in Non-Competes as a Regulatory Matter

On January 18, 2013, the FTC issued a press release in In the Matter of Oltrin Solutions, LLC, JCI Jones Chems., Inc., Olin Corp.; & Trinity Mfg., Inc., FTC File No. 111:0078 (Jan. 18, 2013) indicating that it was seeking public comment on a proposed consent order designed to reverse a transaction between JCI Jones Chemicals, Inc., and Oltrin Solutions, LLC in March 2010 which included an agreement between the two companies that JCI would not sell bulk bleach in North or South Carolina for a period of six years.  The FTC’s proposed consent order indicates that the Commission determined that the agreement was in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45.  The period for public comment closed on February 21, 2013. 

VI. DOJ, in Fits and Spurts, Pursues Sherman Act Theories Regarding “No Poaching” Agreements

On November 17 2012, the Department of Justice filed suit against EBay under the Sherman Act, alleging that EBay and Intuit had entered into both informal and formal agreements not to hire each other’s key employees.  On January 22, 2013, EBay moved to dismiss based, in part, on the theory that such an agreement does not meet the test for a per se Sherman Act violation.  In so doing, EBay argued that no-hiring agreements between competitors should be judged by a “reasonableness” standard, and should not be analogized to price-fixing or bid-rigging schemes.  Essentially, EBay argued that a no-hire agreement was simply a limited form of a non-compete agreement, and should be judged by the same sort of reasonableness test to which other non-compete agreements are subject. 

For more analysis, See

·        Jonathan Lewis, “No Poaching Here – ‘No-Hire/Non-Solicitation’ Provisions in Transactional Agreements”, Antitrust Advocate (Dec. 6, 2012) available at: http://www.antitrustadvocate.com/2012/12/06/no-poaching-here/

·        Kenneth Vanko, “EBay Moves to Dismiss DOJ Antitrust Complaint”, Legal Developments in Non-Competition Agreements (Jan. 25, 2013) available at: http://www.non-competes.com/2013/01/ebay-moves-to-dismiss-doj-antitrust.html

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Virginia Federal District Court Approves a Choice of Law Clause That Provides for Blue-Penciling

Virginia does not permit blue-penciling in non-compete agreements governed by Virginia law.  Lanmark Tech., Inc. v. Canales, 454 F. Supp. 2d 524 (E.D. Va. 2006); Strategic Enter. Solutions, Inc. v. Ikuma, 77 Va. Cir. 179 (Va. Cir. Ct. 2008); Better Living Components, Inc. v. Coleman, 67 Va. Cir. 221 (Va. Cir. Ct. 2005).

In Edwards Moving & Rigging, Inc. v. W.O. Grubb Steel Erection, Inc., 2012 U.S. Dist. LEXIS 56818 (E.D. Va. April 23, 2012), plaintiff, a Kentucky-based company, entered into a non-compete with its then-employee, defendant White, who then resided in Kentucky.  The non-compete prohibited defendant White from working for, either directly or indirectly, any of plaintiff’s competitors within the company’s “market area” for a period of two years after the termination of his employment.  Plaintiff alleged that the “market area” included Virginia. 

The non-compete agreement also contained a “reasonableness” provision, prohibiting defendant White from raising any issue regarding the reasonableness of the agreement’s scope or duration.  Most importantly, for the purposes of this case, the non-compete agreement contained a choice of law clause which provided that the agreement was to be construed under and governed by the law of Kentucky without reference to Kentucky’s conflicts of law rules. 

After defendant White’s employment ended, and within the two-year period following termination, defendant White accepted employment with defendant W.O. Steel Erection, Inc. (“Grubb”).  When plaintiff discovered that defendant had accepted employment with a competitor in Virginia, it advised Grubb of the non-compete agreement.  Defendant Grubb declined to sever its employment relationship with defendant White, and litigation ensued.  When plaintiff filed a two-count complaint in federal district court in Virginia, the defendants moved to dismiss the action, arguing that the choice of law clause ought not be enforced, as they contended it contravened Virginia public policy.  Defendants argued that the Court would be required to re-write, or “blue-pencil” the non-compete, as it was overbroad and that to do so would contravene Virginia public policy. 

Judge Hudson ruled that the fact that Virginia does not allow “blue penciling”, whereas Kentucky does, was immaterial.  The Court, citing Jones v. Dent Wizard Int’l, Corp., No. CL02-386, 2002 WL 32254731, 2002 Va. Cir. LEXIS 463 (Va. Cir. Ct. June 14, 2002) held that to permit “blue-penciling” is not so repugnant to Virginia public policy as to overcome Virginia’s preference for enforcing choice-of-law clauses. 

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When Do Forum Selection Clauses Preclude Federal Forum? A Split in the Fourth Circuit

In Ruifrok v. White Glove Rest. Servs., LLC, No. DKC 10-2111, 2010 U.S. Dist. LEXIS 110369 (D. Md. Oct. 18, 2010), Judge Chasanow issued a detailed decision in which he found that, while a forum selection clause specifying a state-court forum does not divest a federal court of jurisdiction, as a prudential matter, federal courts “should give effect to a valid and enforceable forum-selection clause” and remanded the otherwise properly removed case to state court.  See Robert B. Fitzpatrick, Choice of Forum Clauses: Judge Chasanow’s October 18 Opinion in Ruifrok v. White Glove Rest. Servs., LLC, “Fitzpatrick on Employment Law” (Oct. 27, 2010) (available at: http://robertfitzpatrick.blogspot.com/2010/10/choice-of-forum-clauses-judge-chasanows.html) 

Judge Motz faced a similar issue in Rihani v. Teen Express Distrib., LLC, 711 F. Supp. 2d 557 (D. Md. 2010).  In Rihani, Judge Motz granted employer’s motion to dismiss under Rule 12(b)(3) for improper venue based on its argument that the forum selection clause precluded a federal forum.  Judge Motz’s decision in this regard departs from that of Judge Cacheris in Nahigian v. Juno-Louduon, LLC, 661 F. Supp. 2d 563 (E.D. Va. 2009), in which Judge Cacheris found that a similar forum selection clause limited only the geographic location of the suit, and did not contain any limit on the sovereign able to decide the suit. 

In Match Factors, Inc. v. Mickey B. Henson Enters., No. 4:10-cv-00062, 2011 U.S. Dist. LEXIS 36931 (E.D.N.C. March 1, 2011), Magistrate Judge David W. Daniel of the federal district court for the Eastern District of North Carolina noted disagreement between Judge Motz’s decision in Rihani, and that of Judge Cacheris in Nahigian.   Match Factors, 2011 U.S. Dist. LEXIS 36931 at *25-*27.  The Match Factors court noted the conclusion in Rihani that the Nahigan court had “relied implicitly on one of two unacceptable premises: (1) that “the sole venue shall be Loudoun County” actually meant “the sole venue shall be Loudoun County or a court with venue over Loudon County,” or (2) that a geographic forum selection clause could not also create a de facto sovereignty limit[]” and went on to apply the reasoning in Rihani, rather than Nahigan to the facts before it.

 


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Individual Liability and the Joint Employer Doctrine Under the FLSA

Judge Matricciani, writing for the panel, issued an interesting analysis of the joint-employer doctrine in Campusano v. Lusitano Const. LLC, No. 1529, 2012 Md. App. LEXIS 125 (Md. Ct. Spec. App. Nov. 21, 2012).  In Campusano plaintiff had brought an action for unpaid wages and overtime under the Fair Labor Standards Act and the Maryland Wage Payment and Collection Law (the “MWPCL”) against his employer, Lusitano Construction; the sole owner of Lusitano, Mr. Geoffrey de Oliveira; and Mr. Francisco de Oliveira, a project supervisor employed by Lusitano.  The Court held that Mr. Francisco de Oliveira could not be liable under a joint-employer theory (the Court did not disturb the trial court’s conclusion that Mr. Geoffrey Oliveira was liable under the FLSA and MWPCL).  In so holding, Court applied the “economic realities” test to the Maryland Wage Payment and Collection Law for the first time, and found that Mr. Francisco de Oliveira was not an “employer” within the meaning of either the FLSA or the Maryland wage Payment and Collection Law.  The court explained his holding by noting that Geoffrey, not Francisco had the power to hire and fire, that Geoffrey’s line of credit with Francisco was unrelated to the Company, and that Francisco was uninvolved in paying employees. 

 


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