Tuesday, October 15, 2013

North Carolina Court Adopts Hybrid Level of Judicial Review of Non-Compete Provisions in Franchise Agreements

In Outdoor Lighting Perspectives Franchising, Inc. v. Harders, 747 S.E.2d 256 (N.C. App. 2013), the franchisor sought to enforce a provision in its franchise agreement that would have prohibited a former franchisee from involvement in a "competing business" for two years following the termination of the franchise agreement.  The agreement defined a "competing business as any business "operating in competition with an outdoor lighting business" or "any business similar to" the franchisee's business.  The North Carolina Court of Appeals, with Judge Ervin, writing for a unanimous Court, created a "hybrid" level of scrutiny of non-compete provisions in franchise agreements.  In so holding, the court noted other sorts of agreements which, in its view, might be appropriate for resolution under this “hybrid” level of scrutiny, including the dissolution of a professional partnership (citing Beam v. Ruthledge, 9 S.E.2d 476 (N.C. 1940)), a venture capitalist’s purchase of a franchise (citing Keith v. Day, 343 S.E.2d 562 (N.C. App. 1986)), and restrictive covenants in independent contractor agreements (citing Starkings Ct. Reporting Servs., Inc. v. Collins, 313 S.E.2d 614 (N.C. App. 1984)). 

In the lower court, the franchisee had successfully argued that the non-compete provision was overly broad.  In so holding, the trial court had relied, in part, on cases employing the scrutiny standard used in employment cases.  On appeal, the franchisor argued that the sale-of-business standard of review of non-competes should have been used by the trial court, and sought reversal on that basis.  

The Court of Appeals found that the franchisor-franchisee relationship did not fit squarely into either a sale-of-business or an employment-relationship setting.  The Court explained that "practical differences between the typical employer-employee arrangement and the typical buyer-seller arrangement preclude us from concluding that the rules that typically govern either arrangement should be applied with unbending rigidity in this situation."  Those differences included, on the one hand, the fact that, unlike in typical sale-of-business cases, a portion of the good will generated by a franchisee would naturally accrue to the franchisor as well.  Likewise, the specific “job description” of the franchisee, while less relevant than in the employment context, retained some relevance to evaluating the reasonableness of a non-compete in a franchise agreement.

Instead of committing itself to one rigid standard for the enforceability of non-competes, the Court adopted a "hybrid" standard.  The Court found that the standard should insure that such non-compete arrangements are no more restrictive than is necessary to protect the franchisor's legitimate interests.  In articulating this "hybrid" standard, the Court drew from both the employment and sale of business standards.  The resulting standard included consideration of the reasonableness of the restriction's duration, the reasonableness of the restriction's geographic scope, and the extent to which the restriction is otherwise necessary to protect the legitimate interests of the franchisor. 

In applying the new "hybrid" standard to the case at hand, the Court held the agreement was overly broad in geographic scope, as it prohibited the franchisee from doing business in geographic areas related to the franchisor's affiliates that were not competitive in the outdoor lighting market.  In addition, the Court held that the agreement restricted more activities than reasonably necessary to protect the franchisor's legitimate business interests, specifically criticizing the language that prevented the franchisee from involvement in “any business similar to the [plaintiff’s business]”. 

As North Carolina does not blue pencil a non-compete agreement, the Court of Appeals concluded that the agreement was unenforceable and affirmed the trial court. 

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Friday, October 11, 2013

Refusal to Use Biometric Hand Scanner Leads to EEOC Religious Discrimination Lawsuit

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In the latest of many religious discrimination cases involving religious beliefs about the Mark of the Beast, earlier this year, the EEOC filed, in the Northern District of West Virginia, an action under Title VII’s religious accommodation provisions against Consol Energy, Inc. and the Consolidation Coal Company. See Civil Action No. 1:13-cv-00215-FPS.  The charge that precipitated EEOC’s suit was filed by an employee who had been with the company for over 35 years.  The employer implemented a new requirement whereby all employees had to use a biometric hand scanner to track their time and attendance.  The complainant / employee repeatedly declined to use the hand scanner, on the ground that to do so would violate his sincerely held religious beliefs as an evangelical Christian.  The basis for the employee’s sincerely held religious belief is found in the Book of Revelation:

And I beheld another beast coming up out of the earth, and he had two horns like a lamb, and he spake as a dragon… And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads: and that no man might buy or sell, save that he had the mark, or the name of the beast, or the number of his name.  Here is wisdom.  Let him that hath understanding count the number of the beast: for it is the number of a man; and his number is Six hundred threescore and six.
Revelation 13:11, 16-18 (King James Version).  Many religious denominations believe that the above passage is a prophecy, indicating that people will one day be required to get a mark (often called the “Mark of the Beast”) on their person in order to buy or sell goods or services, and that the mark will also serve as a sign of allegiance to the Anti-Christ – a false prophet, and an agent of the devil.

The employee requested an exemption from the hand scanning, based on his religious beliefs.  The employer responded by giving the employee a letter written by the scanner’s vendor, Recognition Systems, Inc., which was addressed “To Whom it May Concern.”  The letter noted that the above Bible passage only specifically references the mark being used in either the right hand or the forehead.  The letter suggested that persons with concerns about taking the Mark of the Beast should use the hand scanner with their left hand, and with their palm facing up, and concluded by assuring the reader that the vendor’s scanner did not assign the Mark of the Beast.

Based on the above letter, the employer attempted to require the employee to use the scanner with his left hand, with his palm facing up.  The employee refused, on the grounds that his sincerely held religious beliefs prohibit him from submitting to scanning of either hand.  He proposed that he be allowed to continue submitting his time and attendance records manually, as he had done before the employer adopted the hand-scanning technology.  Alternatively, he suggested that he be permitted to check in and out with his supervisor.  The employer refused the employee’s alternative proposals, and indicated that the only accommodation the employer was prepared to offer was scanning of the employee’s left hand, and that the employee needed to make a decision based on that offer.

In face of the refusals to accommodate his religious beliefs, the employee retired earlier than he had originally intended, specifically indicating to his superiors that he was resigning involuntarily and under protest, and that he felt that he had no choice but to retire because of the employer’s refusal to grant him an exception from the biometric hand scanning.

 After conciliation failed, the EEOC filed suit.  The complaint, which is available on PACER, alleges that “[a]t least two persons employed by Defendants… at the time that [employee] requested religious accommodation were permitted exemptions from biometric hand scanning due to missing fingers,” and that “[t]hese two persons were permitted to submit their time and attendance by other means.”

On September 30, 2013, the EEOC filed an emergency motion to continue the proceedings due to the shutdown of the federal government.  On October 1, 2013, the district court judge, Judge Frederick P. Stamp, Jr., treated the motion as a motion to stay, and granted a stay of the matter until further notice.

For other cases involving employee’s beliefs about the “Mark of the Beast,” both in the U.S. and in other countries, see, e.g.:
  • -          Hover v. Florida Power & Light Co., No. 93-14236-CIV-RYSKAMP, 1994 U.S. Dist. LEXIS 19920 (S.D. Fla. Nov. 14, 1994), magistrate judge’s report and recommendation aff’d, 1994 U.S. Dist. LEXIS 19919 (Dec. 9, 1994) (Employee believed that his social security number was the Mark of the Beast, and claimed religious discrimination based on his employer forcing him to provide his social security number on certain tax and employment documents as a condition of employment as a health physics technician.  The Court granted the employer’s motion for summary judgment, on the basis that the employer was required by federal law to obtain the employee’s social security number for background criminal history checks, security clearances, radiation clearances, and monitoring and tax withholding to the IRS, and that requiring the employer to violate federal law to accommodate the employee’s religious beliefs constituted an undue burden.);
  • -          Hyatt v. Berry Plastics Corp., No. 4:11-cv-278-HLM-WEJ (N.D. Ga.), complaint available here (Employee in a plastics plant claimed that he was fired for refusing to wear a sticker celebrating how many days the plant had been accident free.  Once the number of accident-free days reached six hundred and sixty six (666), employee refused to wear the sticker on the basis of his religious beliefs, on the grounds that 666 is the Mark of the Beast.  The parties jointly stipulated to dismiss the case for no specified reason, presumably indicating that the parties ultimately settled the matter.);
  • -          Kendall v. Arbor Place of Puryer, No. 1:07-cv-01058-JDT-sta (E.D. Tenn.), complaint available here (Two former employees of a nursing home alleged that their sincerely held religious beliefs prevented them from using a biometric hand scanner.  The parties ultimately settled the matter.);
  • -          Amos v. Hertz Corp., No. 1:07-cv-0491 (N.D. Ga.), complaint available here, (Former van driver for Hertz refused to participate in a timekeeping system involving a hand scanner, and was fired a week after notifying his boss of the “religious issues” which he had in using such a system.  In a January 9, 2009 recommended opinion by a magistrate judge (available on PACER), which was later adopted by the Court, the employer’s motion for summary judgment was granted on procedural grounds – i.e., that the employee had failed to properly exhaust administrative requirements, as his initial charge against the employer was for disability discrimination.  The Court found that “Plaintiff has pointed to no facts in his EEOC charge that would have indicated to a reasonable investigator that Plaintiff was complaining about discrimination based on religion.”);
  • -          407 ETR Concession Company v. National Automobile, Aerospace, Transportation and General Workers Union of Canada, CAW-Canada, 2007 CanLII 1857 (ON LA Jan. 29, 2007), opinion available here (Holding by an arbitrator in a Canadian labor grievance case that an Ontario company “never seriously addressed the question of what it could do to accommodate” three employees with regard to the use of a hand scanner, apart from allowing them to use their left hand, which they declined to do.  The arbitrator reasoned that the accommodation which the union and the employees sought, that the employees be allowed to use the biometric scanner with a swipe card and a password, without its biometric features, “does not impose an undue hardship on the Employer.”
  • -        Matthew Heller, Hand Scanners Spark Religion Bias Suits, On Point (March 28, 2007), available here (discussing the above Hertz, Arbor Place, and 407 ETR Concession Company cases, as well as a 2004 decision by the Employment Relations Authority of New Zealand, finding no basis for a religious discrimination claim involving a hand scanner, because the scanner does not stamp a mark on a person, or storage the image of a fingerprint).

Similar cases have also been brought in the context of education.  For example, in Hernandez v. Northside Indep. Sch. Dist., 916 F. Supp. 2d 757 (W.D. Tex. 2013), the plaintiff challenged a school district’s mandatory rule that every student on campus carry the same radio-chipped student ID badge for identification, safety, and security purposes, on the grounds that the requirement violated the student’s First Amendment free speech and free exercise rights, her rights under the Texas Religious Freedom Act, and her Fourteenth Amendment due process and equal protection rights.  The student and her family believed that the chip in the badge was the Mark of the Beast, and had a religious objection to the student carrying the badge.  The school offered to allow the student to wear the badge like other students, but without the radio chip.  The student and the family still objected, on the grounds that doing so would make it appear that the family was part of the chip ID program, which would signal their approval of what they saw to be the Mark of the Beast.  The judge, District Judge Orlando Garcia, denied the plaintiff’s motion for a preliminary injunction, on the grounds that it was unlikely that the plaintiff would prevail on the merits of her claims.

In view of all of the above, it is even more important than ever for organizations to develop strong anti-discrimination practices.  While well drafted anti-discrimination and complaint policies are certainly a part of that, it is equally crucial for employers to train its employees on how to respond to complaints:
  • All Complaints Should be Treated Seriously: Regardless of an employer’s personal beliefs or background, all complaints should be treated the same.  Preferably, all complaints should be promptly directed to trained, Human Resources personnel who are sufficiently experienced and qualified to resolve them promptly and appropriately.  There should be a well-oiled process for escalating disputes to upper management in a timely fashion.  The most serious complaint is the one the appropriate management official doesn’t hear about until it is too late.
  • Don’t Ask “Why” – Ask “Why Not”: Employers would be well advised to accommodate the restrictions of its employees, whether based on their convictions or their disabilities, unless the employer would suffer a demonstrable undue hardship.  Only if the employer can demonstrate that accommodating the employee would involve an undue hardship should the employer ask whether the employee is actually “disabled” or has a “genuinely held religious belief”.
  • Keep an Open Mind: Especially in cases of religious accommodations, it is important for employers to keep an open mind.  Remember, to qualify for protection, an employee’s religious belief need only be “genuinely held.”  It need not be objectively – or even subjectively – reasonable.  If an employer must assess whether its employee’s beliefs are “genuine” and “deeply held” (and see point 2 “Don’t Ask Why – Ask Why Not”, above), the employer should carefully separate its own, personal, views, from those of its employees.
  • Training: All management employees should be well trained in the law and in the employer’s policies.  Anti-retaliation training is especially important.
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Tuesday, October 8, 2013

In Honor of Malala Yousafzai

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