Retaliatory Opposition to Employee’s Application for Unemployment Benefits

 

An interesting split has developed in the federal district courts as to whether an employer’s opposition to a former employee’s application for unemployment benefits, if motivated by a retaliatory animus, is actionable.  The weight of authority, particularly after Burlington N. & Sante Fe R.R. Co. v. White, 126 S. Ct. 2405 (2006), has been to find that such conduct is actionable.  Indeed, as it arises after the termination of the employment relationship – and thus potentially after the execution of the waiver of claims contained in a separation agreement – such claims may be difficult to extinguish.  See Steele v. Schafer, 535 F.3d 689, 696 (D.C. Cir. 2008) (noting in dicta that plaintiff’s claim that employer retaliated by falsely contesting plaintiff’s unemployment benefits “involve[d] conduct that… the Supreme Court has already indicated can support a retaliation claim” in Burlington v. White); Koger v. CT. Woody, No. 3:09-cv-90, 2009 U.S. Dist. LEXIS 77433 (E.D. Va. Aug. 28, 2009) (protection under Title VII extends to both employees and “former employees” and a frivolous denial of unemployment benefits may constitute retaliation); Roa v. LAFE, 955 A.2d 930 (N.J. App. Div. 2008) (employer’s post-termination conduct in terminating medical benefits and opposing request for unemployment stated cause of action); Petrunich v. Sun Bldg. Sys., Inc., 2006 U.S. Dist. LEXIS 69043 (M.D. Pa. Sept. 26, 2006) (“under the standard articulated in [Burlington Northern], the opposition to [a plaintiff’s] claim for unemployment compensation benefits [may be] an adverse employment action because it [could]).

In Williams v. W.D. Sports, N.M., Inc., 497 F.3d 1079 (10th Cir. 2007) the Tenth Circuit addressed a situation in which an employee was terminated after filing a grievance regarding gender discrimination with the Human Rights Division of the New Mexico Department of Labor.  Shortly afterwards, the employee was terminated, and was told by the employer’s President that, if she challenged him, he would “ruin your marriage.”  Subsequently the employer opposed plaintiff’s request for unemployment benefits on the basis that plaintiff was terminated “for cause” due to sexual misconduct, drinking, and theft of company property.  No evidence was provided to substantiate these charges.  During the hearing on plaintiff’s unemployment benefits application, the employer’s attorney allegedly said “[i]f you will drop your Human Rights [discrimination] claim, I won’t fight you on your unemployment.”  Williams was later awarded unemployment benefits.  The district court, in a ruling handed down prior to Burlington Northern, dismissed plaintiff’s claim for retaliation with respect to unemployment benefits, finding that because plaintiff had suffered no delay or cessation of benefits that the employer’s opposition did not constitute an adverse influence.  Williams v. W.D. Sports N.M., Inc., 2005 U.S. Dist. LEXIS 46146 (D.N.M. Feb. 25, 2005).  The Tenth Circuit reversed under the holding of Burlington Northern, holding that a jury could have concluded that the employer’s conduct was sufficiently adverse that it might have dissuaded plaintiff from making or supporting a charge of discrimination.   Williams, 497 F.3d 1079 (10th Cir. 2007); See also Michael R. Lied, Employer’s Challenge to Unemployment Benefits May be Evident of Unlawful Retaliation, Illinois State Bar Assoc., Section on Labor & Employment Law Newsletter (Feb. 8, 2008) (available at: http://www.howardandhoward.com/news/pub.asp?id=94); Daniel M. Combs, Employer’s Stated Willingness Not to Oppose Unemployment Benefits Claim if Employee Dropped Lawsuit Could be Retaliation, Sherman & Howard Client Advisory (Oct. 2008) (available at: http://www.sah.com/docs/news/UnemploymentRetaliationAdvisoryOct2008.pdf).

A minority of courts, including several decisions which predate Burlington Northern, adhere to the view that an employer’s decision to exercise its legal right to oppose unemployment benefits does not constitute prohibited retaliation.  Among those authorities is Judge Mae A. D’Agostino of the Northern District of New York who held, in Burnett v. Trinity Inst. Homer Perkins Ctr., Inc., 2011 U.S. Dist. LEXIS 48999 (N.D.N.Y. May 6, 2011) that “defendant’s decision to exercise its legal rights and oppose plaintiff’s receipt of unemployment benefits… cannot serve as a basis for a retaliation claim.”  See also Powell v. Honda of Am., No. 06-cv-979, 2008 U.S. Dist. LEXIS 56991 (S.D. Ohio July 22, 2008) (refusing as futile for failure to state a claim plaintiff’s request to amend complaint to include cause of action for retaliation for opposition to request for unemployment benefits – the court, relying on pre-Burlington Northern authority, found that opposition was “not retaliatory in nature” because it was “clearly the employer’s right and duty.”); Roman v. Cornell Univ., 53 F. Supp. 2d 223, 245 (N.D.N.Y. 1999) (holding that a retaliation based on opposing plaintiff’s application for unemployment benefits could not survive a motion for summary judgment because it was “not an adverse employment action”); Kowalski v. Kowalski Heat Treating, Co., 920 F. Supp. 799, 805 (N.D. Ohio 1996) (opposition to unemployment benefits was not the sort of adverse action contemplated by Ohio Legislature); Baker v. Summit Unlimited, Inc., 855 F. Supp. 375 (N.D. Ga. 1994) (granting summary judgment for the defendant because it had a right to defend the unemployment action after plaintiff pursued benefits); As noted in Adamchik v. Compservices, Inc., No. 10-949, 2010 U.S. Dist. LEXIS 130133 (W.D. Penn. Dec. 9, 2010), the viability of these decisions, many of which predate Burlington Northern or rely upon pre-Burlington Northern authority to support their conclusions, is an open question.  See also Mohamed v. Sanofi-Aventis Pharms., 2009 U.S. Dist. LEXIS 119871 (S.D.N.Y. Dec. 22, 2009) (“[i]n the wake of Burlington…, there is now a substantial question as to the validity of precedent holding that a post-termination [event] may not be an adverse employment [action]”) (citations omitted).  

            Retaliation is particularly likely to be found where opposition to unemployment benefits is meritless.  For example, in Williams, the President admitted at trial that the grounds asserted during the unemployment hearing did not form the basis for plaintiff’s termination.  Similarly, in Wright v. Life Start Ctrs., Inc., 2000 U.S. Dist. LEXIS 16424 (N.D. Ill. Oct. 19, 2000) the defendant-former employer made false statements during an unemployment hearing which resulted in the initial denial of plaintiff’s unemployment benefits.  The Court, in a pre-Burlington Northern decision, reasoned that this constituted a sufficient adverse action to give rise to a cause of action for retaliation.  Many other courts have reached similar conclusions.  See Betts v. Container Corp., No. 95-1064, 1997 U.S. App. LEXIS 10648 (7th Cir. May 7, 1997) (holding that Robinson v. Shell Oil Co., 117 S. Ct. 843 (1997) made clear that Title VII extends to former employees, and thus that it could apply to opposition to unemployment benefits); Liverpool v. Conway, Inc., 2009 WL 1362965 (E.D.N.Y. May 15, 2009) (refusing to dismiss for failure to state a claim plaintiff’s claim for retaliation based on allegedly meritless opposition to unemployment benefits); Grace v. Starwood Hotels & Resorts Worldwide, Inc., C.A. No. 6-1203, 2008 U.S. Dist. LEXIS 10951 (W.D. Pa. Feb. 14, 2008) (opposing unemployment benefits can constitute retaliation however, here the Court found that defendant-former employer established that its conduct was in accordance with its regular practice and plaintiff failed to meet his burden of proof under McDonnell Douglas).  However, even post-Burlington Northern, if the employer possessed a legitimate reason for terminating Plaintiff, it is unclear whether opposing unemployment benefits can constitute retaliation.  See Spencer v. CSL Plasma, Inc., No. 3:10-cv-00262, 2011 U.S. Dist. LEXIS 102846 (W.D. Ky. Sept. 12, 2011) (while opposition to unemployment benefits can constitute retaliation, if defendant has legitimate, non-discriminatory basis for its actions plaintiff must still meet burden-shifting obligations under McDonnell Douglas); Hatton v. United Parcel Serv., No. 05-97-JBC, 2006 U.S. Dist. LEXIS 47734 (E.D. Ky. July 7, 2006) (no claim for retaliatory denial of unemployment benefits, at least where employee presented no evidence to rebut employer’s contention that opposition was made in good faith).

            One of the remaining questions is whether a non-frivolous opposition to unemployment benefits, animated by retaliatory intent, gives rise to a violation, or whether only challenges to unemployment benefits which are both frivolous and retaliatory in nature are prohibited.  This debate mirrors that which is discussed in our paper on retaliatory counterclaims.

For further information and discussion on this subject, see the following materials:

·        Michael R. Lied, Employer’s Challenge to Unemployment Benefits May be Evident of Unlawful Retaliation, Illinois State Bar Assoc., Section on Labor & Employment Law Newsletter (Feb. 8, 2008) (available at: http://www.howardandhoward.com/news/pub.asp?id=94);

·        Daniel M. Combs, Employer’s Stated Willingness Not to Oppose Unemployment Benefits Claim if Employee Dropped Lawsuit Could be Retaliation, Sherman & Howard Client Advisory (Oct. 2008) (available at: http://www.sah.com/docs/news/UnemploymentRetaliationAdvisoryOct2008.pdf) ;

·        Aaron Clark, Avoid Thoughts of Revenge When Your Employee Leaves, McGrath North Firm Publications (available at: http://www.mcgrathnorth.com/firm_publications_view.asp?pubID=324)

·        Nina Pirrotti, Retaliation After Employment Ends: The Former Employer’s “Parting Shot.”, National Employment Lawyers Association Annual Conference (2012)

·        Stark & Stark, It Ain’t Over, Even After It’s Over: New Jersey Curt Extends Retaliation Claims Under Law Against Discrimination (NJLAD) For Post-Termination Actions, New Jersey Law Blog (Nov. 6, 2008) (available at: http://www.njlawblog.com/2008/11/articles/employment/it-aint-over-even-after-its-over-new-jersey-court-extends-retaliation-claims-under-law-against-discrimination-njlad-for-posttermination-actions/)

 


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Material Change in Employment Terms Voids a Non-Compete

           In Grace Hunt IT Solutions, LLC v. SIS Software, LLC, 29 Mass. L. Rep. 460, 2012 WL 1088825, 2012 Mass. Super. LEXIS 40 (Mass. Super. Feb. 14, 2012), the Court denied the plaintiff-employer’s motion for a preliminary injunction against former employees and their new employer for allegedly violating their non-compete agreements.  In denying the motion, the Court held that material changes in the employees’ terms of employment had voided their non-competes.  While the Court found that an asset purchase, in and of itself, did not void the non-competes, it did hold that changed terms of employment for the employees after the acquisition transaction were material and voided their non-competes.  The new entity, the plaintiff in this litigation, decreased the employees’ salaries by twenty percent even though it put in place a bonus program that it contended would adequately substitute for the salary decrease – a contention that the employees disputed.  Finally, of significance to the Court was the fact that the new company requested that the employees sign new non-competes, a request rejected by the employees.  

This decision showcases a recent renewal of interest in the material change doctrine, which was first articulated in Massachusetts in F.A. Bartlett Tree Experts v. Barrington, 233 N.E.2d 756 (Mass. 1968), but has come into increasing use recently.  As in Grace Hunt, in Protégé Software Servs., Inc. v. Colameta, 30 Mass. L. Rep. 127, 2012 Mass. Super. LEXIS 190 (Mass. Super. July 16, 2012), Judge Maynard M. Kirpalani found that a material change in defendant’s compensation had voided his non-compete agreement.  While both Grace Hunt and Protégé Software dealt with adverse changes, the court in Grace Hunt noted that “it is the existence of a material change in the relationship that voids the prior non-compete agreement, not the nature of that change[,]” suggesting that even advantageous changes, if material, could necessitate a new non-compete agreement.  The application of the “material change” doctrine to beneficial, as opposed to adverse, changes remains an area of controversy.  In a bench ruling in Sentient Jet LLC v. Mackenzie Judge Susan Garsh reportedly refused to endorse the notion that a positive change in the terms and conditions of employment can trigger the “material change” doctrine.  See Daniel S. Tarlow, The Material Change Doctrine and Its Implication for Non-Competes, Prince Lobel Client Alert (Aug. 10, 2012) (available at http://www.princelobel.com/news-publications-285.html) (discussing a ruling in Sentient Jet LLC v. Mackenzie).  

The “material change” doctrine is based on the premise that “far reaching changes [to an employment relationship] strongly suggest that the parties had abandoned their old arrangement and had entered into a new relationship.”  Iron Mt. Info. Mgmt. v. Taddeo, 455 F. Supp. 2d 124, 132 (E.D.N.Y. 2006) (applying Massachusetts law); See also F.A. Bartlett Tree Experts, 233 N.E.2d 756.  For other cases discussing the material change doctrine, See AFC Cable Sys. Inc. v. Clisham, 62 F. Supp. 2d 167 (D. Mass. 1999) (“each time an employee’s employment relationship with the employer changes materially such that they have entered into a new employment relationship, a restrictive covenant must be signed.”); Lycos, Inc. v. Jackson, 18 Mass. L. Rep. 256, 2004 Mass. Super. LEXIS 348 (Mass. Super. Aug. 24, 2004) (defendant-former employee failed to sign a letter which referenced a previously-signed non-compete agreement upon her promotion – the Court found that the promotion was a “material change” and refused to enforce the non-compete); See also TEKSystems, Inc. v. Fletcher, No. 10-1145, 2011 U.S. Dist. LEXIS 22227 (D. Md. Mar. 2, 2011) (refusing to enforce non-compete against employee who had been transferred to employer’s subsidiary); AFC Cable Sys. v. Clisham, 62 F. Supp. 2d 167 (D. Mass. 1999) (refusing to enforce non-compete against employee who had subsequently been promoted to sales manager).  However, the change must be material.  See Zambelli Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412 (3d Cir. 2010) (in the context of determining the enforceability of a covenant not to compete after a stock sale the Court held that “[a] change in corporate culture alone cannot invalidate a legally binding contract.” )  

In the same vein, in Marso v. Bradford Soap Int’l, Inc., C.A. No. PB 07-6054, 2010 R.I. Super. LEXIS 96 (R.I. Super. Ct. June 25, 2010), the Rhode Island Superior Court endorsed the view in F.A. Bartlett that when parties enter into “far reaching changes in an employment agreement” it “strongly suggest[s] that the parties have abandoned their old arrangement and have entered into a new relationship.”  While Bradford did not address non-compete agreements in particular, and while the court, relying on the intent of the parties not to change their relationship, ultimately found the contract which was at issue to be enforceable, Bradford nevertheless illustrates the growing prevalence of this legal theory. 

For further information and discussion on this subject, see the following materials:

·        Daniel S. Tarlow, The Material Change Doctrine and Its Implication for Non-Competes, Prince Lobel Client Alert (Aug. 10, 2012) (available at http://www.princelobel.com/news-publications-285.html)

·        Lee Gesmer, Noncompete Unenforceable Where Employer Changed Terms of Employment, Massachusetts Law Blog (Sept. 2, 2012) (available at: http://masslawblog.com/noncompete-agreements/noncompete-unenforceable-where-employer-changed-terms-of-employment/)

·        Richard Glovsky, Labor: Employers Beware, InsideCounsel (June 25, 2012) (available at: www.insidecounsel.com/2012/06/25/labor-employers-beware)

·        Brian P. Bialas, If the Terms of Employment Change, Employees May Need to Sign New Non-Competition Agreements, Massachusetts Noncompete Law (March 15, 2012) (available at: http://www.massachusettsnoncompetelaw.com/2012/03/articles/noncompetes/if-the-terms-of-employment-change-employees-may-need-to-sign-new-noncompetition-agreements/)

·        David E. Frank, Judge Refuses to Negate Non-Competition Clause, New England In-House (June 11, 2012) (available at: http://newenglandinhouse.com/2012/06/11/judge-refuses-to-negate-non-competition-clause/)

 

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ERISA Section 510 Retaliation Claims: Scope of “Giving Information”

Section 510 of ERISA, 29 U.S.C. § 1140, prohibits retaliation “against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this [Act]”.   In George v. Junior Achievement of Cent. Ind., Inc., No. 11-3291, 2012 U.S. App. LEXIS 18571 (7th Cir. Sept. 4, 2012), the plaintiff, when he discovered that money withheld from his pay was not being deposited into his retirement account and health savings account, lodged complaints with the defendant’s accountants and some of its executives.  Thereafter, Mr. George was terminated, and he alleged that his internal protests led to his firing.  The question presented was whether unsolicited internal corporate complaints qualify as “giving information” within the meaning of Section 510.  The Seventh Circuit, Chief Judge Easterbrook writing for the panel, held that “the best reading of Section 510 is one that divides the world into the informal sphere of giving information in or in response to inquiries and the formal sphere of testifying in proceedings.”  Noting that the courts have split on this issue, Chief Judge Easterbrook held that the plaintiff had pled a Section 510 complaint, stating that “an employee’s grievance is within Section 510’s scope whether or not the employer solicited information.”  The Court was quick to emphasize that that did not mean “that § 510 covers trivial bellyaches – the statute requires the retaliation to be ‘because’ of a protected activity….”  (citation omitted). 

Some courts have observed, with respect to Section 510, that “testify” and “proceeding” denote formal actions and that “inquiry” should be understood to only encompass a formal proceeding.  See Edwards v. A.H. Cornell & Son, Inc., 610 F.3d 217, 222-24 (3d Cir. 2010); Nicolaou v. Horizon Media, Inc., 402 F.3d 325, 330 (2d Cir. 2005); King v. Marriott Int’l, Inc., 337 F.3d 421, 427-28 (4th Cir. 2003).  In contrast, the Fifth and Ninth Circuits have held that Section 510 applies to unsolicited informal complaints.  See Anderson v. Electric Data Sys. Corp., 11 F.3d 1311, 1313, 1315 (5th Cir. 1994); Hashimoto v. Bank of Hawaii, 999 F.2d 408, 411 (9th Cir. 1993). 

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Seventh Circuit Rejects Constructive Corporate Knowledge in False Claims Act Retaliation Case

The Seventh Circuit, in Halasa v. ITT Educational Servs., Inc., No. 11-3305, 2012 U.S. App. LEXIS 16930 (7th Cir. Aug 14, 2012), Judge Diane Wood writing for the panel, categorically rejected the “broad (and unprecedented) doctrine of constructive knowledge.”  In Halasa, a False Claims Act retaliation case, Judge Wood emphasized that the statute requires that the employee’s termination be “because of” her protected conduct, and thus “[t]he law is clear that it is the decisionmakers’ knowledge that is crucial.”  Further, Judge Wood stated as follows: “Apart from narrow exceptions like the one that has come to be called the ‘cat’s paw’ theory, see Staub v. Proctor Hospital, 131 S.Ct. 1186 (2011), which does not apply here, companies are not liable under the False Claims Act for every scrap of information that someone in or outside the chain of responsibility might have.”

In so holding, the Seventh Circuit is in accord with a prior holding of a panel of the D.C. Circuit, Judge Tatel writing for the panel, in United States v. Sci. Applications Int’l Corp., 626 F.3d 1257, 1274-75 (D.C. Cir. 2010).  In that opinion, the panel held that “under the FCA, ‘collective knowledge’ provides an inappropriate basis for proof of scienter because it effectively imposes liability, complete with treble damages and substantial civil penalties, for a type of loose constructive knowledge that is inconsistent with the Act’s language, structure, and purpose.”

For more on the D.C. Circuit’s ruling in the above SAIC case, see Audrey Strauss, Collective Knowledge Ruling is a Victory for Defendants, New York Law Journal Corporate Update (Mar. 3, 2011), available here; Roderick L. Thomas and Nathan Cardon, D.C. Circuit Rejects FCA Liability for a Company’s “Collective Knowledge”, Wiley Rein LLP (Dec. 7, 2010), available here; Amir C. Tayrani, D.C. Circuit Rejects the Government’s Sweeping “Collective Knowledge” and Damages Theories Under the False Claims Act, Gibson, Dunn & Crutcher LLP (Dec. 6, 2010), available here.

On a related issue under a different statute, for in-depth analysis of the issue of aggregation of knowledge under the Securities Exchange Act, see Craig L. Griffin, Corporate Scienter Under the Securities Exchange Act of 1934, 1989 BYUL. Rev. 1227, 1242-44 (1989), available here.

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