Courts Continue to Expand What Single Events May Constitute Hostile Work Environment

We have written two blogs (here and here) over the past several years on the subject of single-incident acts constituting the basis for a hostile work environment (HWE) claim. 

A host of courts have held in recent years that a single racial slur may well be sufficient to plead a HWE claim.  See Boyer-Liberto v. Fontainebleau Corp., 786 F.3d 264 (4th Cir. 2015) (en banc); Ayissi-Etoh v. Fannie Mae, 712 F.3d 572 (D.C. Cir. 2013); Smith v. D.C. Office of Human Rights, 77 A.3d 980 (D.C. 2013) (the “b-word”).

A series of articles, set forth below, contain citations to scores of other appellate and trial court decisions that have addressed the issue.  See Eugene Volokh, What Speech Does “Hostile Work Environment” Harassment Law Restrict?, 85 Geo. L.J. 627 (1997) (available at: http://www2.law.ucla.edu/volokh/harass/breadth.htm); Karen M. Buesing, Shayla Waldon, Workplace Harassment: When Will a Court Say That Your Employees Have Had Enough?, ABA Section of Labor and Employment Law, Ninth Annual Conference (Nov. 4-7, 2015) (available at: http://www.americanbar.org/content/dam/aba/events/labor_law/2015/november/annual/papers/15.authcheckdam.pdf); Debra D. Burke, Workplace Harassment: A Proposal for a Bright Line Test Consistent With the First Amendment (Available Online at: http://www.hofstra.edu/pdf/law_labor_burke_vol21no2.pdf).

Two recent decisions from Maryland and the District of Columbia underscore the dramatic expansion of HWE claims in the wake of the Fourth-Circuit’s Boyer-Liberto decision and the D.C. Circuit’s decision in Ayissi-Etoh.  In the wake of Boyer-Liberto, Judge James K. Bredar, in Tiffany Jones v. Family Health Ctr. of Balt., Inc., No. JKB-14-762, 2015 U.S. Dist. LEXIS 130818 (D. Md. Sept. 29, 2015) denied summary judgment to the defense, stating that Boyer-Liberto had “changed the landscape” such that a single instance of physical touching was held to be sufficient to overcome a Rule 56 summary judgment motion.  Judge Bredar relied upon the following facts to deny summary judgment:

[Plaintiff] stepped outside [the room]...[o]n her way back, as she walked through the lunchroom and toward a door that opened into the clinic’s waiting room, Plaintiff felt [her supervisor] behind her: he “got up on [her] so close, [she] felt his private parts on…[her] buttocks.”  Plaintiff also felt [supervisor’s] hand on her waist…Plaintiff reported the incident to [another supervisor] who allowed her to “go home” and “get [her]self together.

Judge Emmet G. Sullivan of the federal district court in the District of Columbia, in Kruger v. Cogent Commc’ns, Inc., No. 14-1744, 2016 U.S. Dist. LEXIS 41822, (D.D.C. March 30, 2016) found that the CEO’s alleged reference to Mr. Kruger as a “Nazi” may be severe enough in itself to state a hostile work environment claim.  Based on that finding, relying upon Ayissi-Etoh, the Court denied the defense’s motion to dismiss.  Judge Sullivan further found that an alleged intentional “public display of hostility towards Mr. Kruger” was a factor to consider in determining whether Mr. Kruger had pled a plausible HWE claim.  The public display of hostility was the allegation that the CEO acknowledged other employees with “at least an appropriately cordial greeting” but would “consistently ignore Mr. Kruger and refused to engage in any type of normal workplace pleasantry.”  Judge Sullivan found that the allegation that Mr. Kruger’s “supervisor refused to engage in work place pleasantries added further strength to his hostile work environment claims.”  Possibly, in contrast, see Satterwhite v. City of Houston, 602 Fed. Appx. 585 (5th Cir. 2015) (a single reference to an employee as “Hitler” was found to be insufficient.). 

Based on the continuing expansion of the circumstances that may be sufficient to plead an HWE claim, employers would be wise to have an aggressive zero-tolerance policy; well communicated internal complaint mechanisms; a requirement that co-workers report any inappropriate conduct or comments observed by them; prompt investigations of any such reports; training on a periodic basis to remind employees of their policies in this regard; and discipline, where appropriate, that sends a message to all concerned that the company’s policies are being aggressively enforced and not are merely window dressing.

Please be sure to visit our website at http://RobertBFitzpatrick.com

The Fourth Circuit Loves Plaintiff's Lawyers

Valentine, Valentine, Valentine

O’ won’t you please be mine

You’re such a sweetheart

With love full of sweet tarts

This Valentine’s day is particularly sweet for the plaintiff-employee bar, as the Fourth Circuit repeatedly, in recent times, has been issuing opinions that are quite favorable to employees.  We review a dozen such opinions, maybe better described as a dozen “red roses” or a dozen chocolate coated strawberries:

Our first case is Cruz v. Maypa, 773 F.3d 138 (4th Cir. 2014) in which Judge Gregory, writing for the panel, held that the failure to post the DoL-issued notice of FLSA rights in a conspicuous place in the workplace can result in the tolling of the FLSA statute of limitations.  In doing so, the Court was reaffirming its holding in Vance v. Whirlpool Corp., 716 F.2d 1010 (4th Cir. 1983), in which a panel of that Court had found the 180-day filing requirement of ADEA was tolled by reason of the employer’s failure to post the statutory notice of rights under ADEA.  In addition to the foregoing holding, the panel also held that when a statute of limitations is extended by the legislature, unless the legislature explicitly states otherwise, the extension applies retroactively to any claim under the statute at issue that had not expired under the old limitations statute at the time the legislation extending the statute was enacted. 

Our second case is Lorenzo v. Prime Commc’ns, L.P., 806 F.3d 777 (4th Cir. 2015), in which Judge Niemeyer, writing for the panel, held that an arbitration clause contained in an employee handbook that also contained a contractual disclaimer was unenforceable under North Carolina law.  In addition, the Court held that a class-action certification order is appealable under Federal Civil Rule 23(f) only if the interlocutory appeal is filed within fourteen calendar days of the entry of the class certification order.  In Lorenzo, counsel mistakenly filed seventeen days after the entry of the order, apparently thinking that the client got three extra days for “service”.  The Court emphasized that the language of Rule 23(f) does not permit the three additional days, as time runs from the entry of the order, not from any form of service.  Of course, the appeal is ultimately permissive, as the Court of Appeals must grant permission to review if an interlocutory appeal request is timely made. 

Earlier, in 2013, the Court, Judge Davis writing for the panel, in Noohi v. Toll Bros., 708 F.3d 599 (4th Cir. 2013), applied Maryland law to hold that a one-sided arbitration agreement lacked mutuality of consideration.  There, in a non-employment case, the purchaser was required to arbitrate disputes, but the seller was not.  In so doing, the Court relied on Cheek v. United Healthcare of Mid-Atl., Inc., 378 Md. 139, 835 A.2d 656 (2003) (holding that an “employer’s unfettered discretion to change the arbitration agreement rendered its promise to arbitrate illusory.”)

Our third case is Pryor v. United Airlines, Inc., 791 F.3d 488 (4th Cir. 2015).  In Pryor, the Fourth Circuit, with Judge Gregory writing for the panel, held that the employer could be held liable for a hostile work environment created by an anonymous harasser.  Here, an African-American flight attendant received a racist death threat anonymously left in her company mailbox.  She alleged that United failed to adequately respond.  The panel reversed Judge Brinkema, of the Eastern District of Virginia, who had granted summary judgment, and remanded to the lower court for further proceedings.  Earlier, in 2014, in Freeman v. Dal-Tile Corp., 750 F.3d 413 (4th Cir. 2014), Judge Shedd, writing for the panel with Judge Niemeyer concurring in part and dissenting in part, the Court denied the employer’s motion for summary judgment in a Title VII and Section 1981 race and gender hostile work environment case, holding that there was a triable issue of fact as to whether the employee was repeatedly subjected to unwelcome statements and conduct by a customer, which created an abusive atmosphere, of which the employer should have known and to which the employer failed to adequately respond. 

Our fourth case is Jacobs v. N.C. Admin. Office of the Cts., 780 F.3d 562 (4th Cir. 2015).  In Jacobs, Judge Floyd, writing for the panel, held that the employer had not properly accommodated the plaintiff’s disability, social anxiety disorder.  In doing so, the Court made a number of important holdings, including:

1. “Interacting with others” is a major life activity;
2. The amended ADA rejected, as imposing “too high a standard” the old rule that to prove a disability, one needed to show that the plaintiff was “significantly restricted” in a major life activity.  Here, the Court held: “A person need not live as a hermit in order to be ‘substantially limited’ in interacting with others”;
3. Temporal proximity of three weeks, alone, can establish causation;
4.  Piling on can be proof of pretext where, as here, the defense stated multiple reasons for termination at the time of termination, and then added more before EEOC, and yet more before the district court;
5. The failure to document may be evidence of pretext.  As the Court noted here: “Even more striking is that no one at the [employer] documented any of the justifications (including those raised at the time of termination) in any way”; 
6. The Court permitted surreptitious tape recordings into evidence, and heavily relied upon them in finding genuine factual disputes;
7.  A reasonable accommodation may require job restructuring; and
8.  A failure to discuss Plaintiff’s accommodation request could be found to be an act of bad faith.

Our fifth case is Reyazuddin v. Montgomery Cnty., Md., 789 F.3d 407 (4th Cir. 2015), in which Judge Diaz wrote for the panel.  In this Rehabilitation Act case, under Section 504 thereof, a blind employee challenged the manner in which the County utilized software in a new call center, software that was not accessible to blind employees.  Summary judgment having been entered below, the panel found that the lower court, on remand, should further explore the undue hardship defense put forth by the County.  In addition, there is one subsidiary holding favorable to the defense in which the Court held that public employers are not subject to suit for disability employment discrimination under Title II of the ADA.

Our sixth case is Butler v. Drive Automotive Indus. of Am., Inc., 793 F.3d 404 (4th Cir. 2015), Judge Floyd writing for the panel.  In Butler the Court held that Title VII provides for joint employer liability.  In so holding, the Court articulated the so-called “hybrid” test for joint employment.

Our seventh case is Brown v. Nucor Corp., 576 F.3d 149 (4th Cir. 2015), Judge Gregory writing a sixty-three page opinion for the majority, and Judge Agee writing a ninety-page dissent.  The majority, Judges Gregory and Keenan, vacated the lower court’s decertification of a discriminatory job promotion class action and remanded to the District Court with instructions to certify the class. 

Earlier, the Court, in 2013, in Scott v. Family Dollar Stores, Inc., 733 F.3d 105 (4th Cir. 2013), with Judge Gregory writing for the majority and Judge Wilkinson dissenting, the majority distinguished Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), finding that the district court erred in holding that Wal-Mart precluded allegations of “general policy” discrimination. 

Our eighth case is Foster v. Univ. of Md.-E. Shore, 787 F.3d 243 (4th Cir. 2015), Judge Floyd writing for the panel, in which the Court held that the 2013 Supreme Court decision in Univ. of Tex. Sw. Med. Ctr. v. Nassar, 133 S. Ct. 2517 (2013) did not alter the McDonnell-Douglas analysis for retaliation claims. 

Our ninth case is DeMasters v. Carilion Clinic, 796 F.3d 409 (4th Cir. 2015), a highly unusual case in which all members of the Fourth Circuit recused themselves and a panel composed entirely of judges from the Third Circuit heard the case.  Judge Krause, writing for that panel, rejected the so-called “Manager Rule”, a rule invoked by management to prevent an employee whose job responsibilities include reporting discrimination claims from seeking protection under Title VII’s anti-retaliation clause. 

Our tenth case is Bland v. Roberts, 730 F.3d 368 (4th Cir. 2013) in which Chief Judge Traxler, wrote for the majority (Judge Hollander concurred in part and dissented in part) and held that, where a sheriff refused to reappoint one of his deputies because the deputy had “liked” his opponent on Facebook, the Facebook “like” constituted “pure speech” and a form of “symbolic expression” which was protected under the First Amendment. 

Our eleventh case is Summers v. Altarum Inst., Corp., 740 F.3d 325 (4th Cir. 2014), Judge Motz writing for the panel, held that the Congress, amending the ADA, intended to cover temporary disabilities, thus permitting the plaintiff, who had been injured while exiting a commuter train on the way to work, to proceed with his ADA case. 

Our twelfth case is Boyer-Liberto v. Fontainebleau, 752 F.3d 350 (4th Cir. 2014), reh’g en banc 786 F.3d 264 (4th Cir. 2015).  Judge King writing for twelve judges, with Judge Niemeyer dissenting writing for three judges, held that a co-worker’s use of the epithet “porch monkey”, standing alone, was sufficiently severe such that a reasonable jury could find there to be a racially hostile work environment. 

Please be sure to visit our website at http://RobertBFitzpatrick.com

Never Darken My Door Clause Stricken by Federal Court

            On January 6, 2016, U.S. District Court Judge Lorna G. Schofield of the Southern District of New York rejected a proposed FLSA settlement agreement which contained a no-rehire clause.  Reyes v. HIP at Murray Street, LLC, S.D.N.Y. Jan. 6, 2016 (unreported online; copy attached tothis blog). 

            The Court found that the clause precluding future employment was “a highly restrictive provision in strong tension with the remedial purposes of the Fair Labor Standards Act (‘FLSA’)…”  In so holding, the Court relied on Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), cert. denied No. 15-605, 2016 U.S. LEXIS 356 (Jan. 11, 2016).  See Jessica Perry, Kathryn Mantoan, and Clayton Flaherty, “Please Pass the Settlement”, Employment Law and Litigation Blog (Dec. 7, 2015) (available at: http://blogs.orrick.com/employment/2015/12/07/please-pass-the-settlement-second-circuit-widens-split-over-stipulated-flsa-dismissals/).

            Cheeks described various other cases that had found various clauses of proposed FLSA settlements to be offensive.  For example, in Lopez v. Nights of Cabiria, LLC, a proposed FLSA settlement included a confidentiality provision, a global release, and a clause establishing that the plaintiff’s attorney would receive between 40% and 43.6% of the total settlement payment without adequate documentation to support such a fee award. 96 F. Supp. 3d 170 (S.D.N.Y. March 30, 2015) (Kaplan, J.).  In Lopez, Judge Lewis A. Kaplan disapproved the settlement.  The Court similarly found that the “highly restrictive confidentiality provisions…are in strong tension with the remedial purposes of the FLSA.”  Id. at 177.  While criticizing many aspects of the confidentiality provisions, the Court took particular aim at those provisions which would “bar plaintiffs from openly discussing their experiences litigating this wage-and-hour case.”  Id.  While recognizing the parties’ interest in confidentiality to encourage settlement, the Court nonetheless concluded “the congressional purposes underlying the FLSA change the calculus in cases like these.  The FLSA evinces ‘Congress’ intent…both to advance employees’ awareness of their FLSA rights and to ensure pervasive implementation of the FLSA[.]’”  Id. at 179-180.

The Court in Nights of Cabiria further held that global releases were inappropriate in the context of FLSA settlements, remonstrating that “[t]he Court will not countenance employers using FLSA settlements to erase all liability whatsoever in exchange for partial payment of wages allegedly required by statute.”  Id. at 181.  As to the attorneys’ fees, Judge Kaplan explained that “[i]t may be that counsel’s fee request is entirely commensurate with the amount of time that the lawyers spent on this case.  But such determinations require evidence, and plaintiff’s counsel has provided none.  The fee request therefore cannot be approved.”  Id. at 182.

            In Guareno v. Vincent Perito, Inc., Judge William H. Pauley of the United States District Court for the Southern District of New York also rejected a proposed FLSA settlement.  No. 14-cv-01635, 2014 U.S. Dist. LEXIS 144038 (S.D.N.Y. Sept. 26, 2014).  In Guareno, the Court listed numerous concerns with the proposed settlement agreement, but appeared particularly concerned about the presence of an unethical agreement that the plaintiff’s attorney would not represent, in the future, any person bringing similar claims against the defendant.  Id. at *3-*4.  Finding that such a restriction “contravenes the FLSA’s intent to permit plaintiffs to bring suit on behalf of themselves and ‘other employees similarly situated[,]’” the Court noted that “[s]uch a provision raises the specter of defendants settling FLSA claims with plaintiffs, perhaps at a premium, in order to avoid a collective action….from other employees whose rights have been similarly violated.”  Id. at *4. 

            In Nall v. Mal-Motels, Inc., the Court first determined that the principle in Lynn’s Food applied to settlements involving former employees, in addition to those involving current employees.  723 F.3d 1304, 1306-07 (11th Cir. 2013).  The Court went on to reject the settlement, focusing on concerns regarding inequalities in bargaining power between current or former employees and employers.  Id.  In Nall the settlement was reached between the defendant and the plaintiff, apparently without the “knowledge or participation” of plaintiff’s counsel.  Id. at 1308.  In rejecting the settlement, the Court reasoned that the FLSA’s protections were “mandatory” and “not subject to negotiation or bargaining between employers and employees.”  Id. at 1307 quoting Lynn’s Food, 679 F.2d at 1352.  Finally, the Court reasoned that “[a]llowing the employer to escape liquidated damages by simply giving an employee the wages she was entitled to earn in the first place – or in some cases, less than that – would undermine the deterrent effect of the statutory provisions.”  Id.

            In Walker v. Vital Recovery Servs., the Court declined to accept offers of judgment because “the record [was] presently insufficient to perform the judicial review required by Lynn’s Food.  300 F.R.D. 599 at 604 (M.D. Ga. 2014).  The Court also noted that the offers of judgment were, for the most part, of $100.00, compensated plaintiffs for only one of several of their theories of recovery, and that many of the accepting plaintiffs “are unemployed and desperate for any money they can find.”  Id.

            In most cases, the Plaintiff is free to voluntarily dismiss his suit, without court order, by “entering a stipulation of dismissal signed by all parties who have appeared.”  Fed. R. Civ. P. 41(a)(1)(A)(ii).  This avenue has long been unavailable to FLSA plaintiffs.  See Lynn’s Food, 679 F.2d at 1353 (citing D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 n.8 (1944)).  The issue in Cheeks was whether, and when, the courts or the U.S. Department of Labor must review and approve FLSA settlements and attendant stipulated dismissals of FLSA claims.  In Cheeks, the parties attempted to settle their FLSA claims by filing a stipulation of dismissal with prejudice pursuant to Rule 41(a)(1)(A)(ii).  In so doing, they argued that FLSA actions may be settled by stipulation without court review.  The Rule provides that actions may be dismissed without a court order “[s]ubject to…any applicable federal statute”.  In other words, Rule 41 recognizes that some actions (those subject to an “applicable federal statute”) may not be dismissed by stipulation without a court order.  The Court in Cheeks solicited the view of the Department of Labor and it opined that the Fair Labor Standards Act falls within the “applicable federal statute” exception.  In Cheeks, Judge Pooler joined by Judges Parker and Wesley, found that the FLSA is an “applicable federal statute” within the meaning of Rule 41, and that, therefore, the settlement needed to be reviewed and approved by the district court.  Other courts have similarly so held.  Lynn’s Food Stores, Inc. v. United States Dept. of Labor, 679 F.2d 1350, 1354-55 (11th Cir. 1982); Copeland v. ABB, Inc., 521 F.3d 1010, 1014 (8th Cir. 2008); Taylor v. Progress Energy, Inc., 415 F.3d 364, 374 (4th Cir. 2005) aff’d 493 F.3d 454, 460 (4th Cir. 2007) superceded by regulation on other grounds as stated in Whiting v. Johns Hopkins Hosp., 416 Fed. Appx. 312 (4th Cir. 2011); Walton v. United Consumers Club, Inc., 786 F.2d 303, 306 (7th Cir. 1986).

            This area has remained unaddressed by the Supreme Court for decades.  The Court has noted, for example, that:

Our decision of the issues raised [in liquidated damages waiver cases] has not necessitated a determination of what limitation, if any Section 216(b) of the Act places on the validity of agreements between an employer and employee to settle claims arising under the Act if the settlement is made as the result of a bona fide dispute between the two parties, in consideration of a bona fide compromise and settlement.

Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 714 (1945).  See also D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 113 n.8, 116 (1946) (holding that “neither wages nor the damages for withholding them are capable of reduction by compromise of controversies over coverage,” but drawing a distinction in dicta between a settlement agreement and a stipulated judgment entered in the adversarial context of an employee’s suit for FLSA wages). 

Although courts are generally agreed that settlement is permissible when there is a bona fide dispute over liability, there is disagreement over whether, and when, the settlement must be reviewed by a court to make that determination.  See, e.g., Jarrard v. Se. Shipbuilding Corp., 163 F.2d 960, 961 (5th Cir. 1947) (holding that the Supreme Court’s decisions in O’Neil and Schulte regarding settlements did not prohibit approval of a “solemn and binding stipulated judgment entered upon disputed issues of both law and fact” in an FLSA suit brought by employees); Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1353 (11th Cir. 1982) (“When employees bring a private action for back wages under the FLSA, and present to the district court a proposed settlement, the district court may enter a stipulated judgment after scrutinizing the settlement for fairness.”) (citing Schulte, 328 U.S. at 113 n.8; Jarrard, 163 F.2d at 961).

The Fifth Circuit stands in conflict on this issue with most other courts to have considered this question.  In Martin v. Spring Break ’83 Prods., LLC, the Fifth Circuit held that private settlement of FLSA claims is permissible when either the settlement “gave employees everything to which they are entitled under the FLSA at the time the agreement is reached[,]” or, more significantly, when “there exists a bona fide dispute as to liability.”  688 F.3d 247, 255 (5th Cir. 2012) quoting Martinez v. Bohls Equip. Co., 361 F. Supp. 2d 608, 633-34 (W.D. Tex. 2005) (bona fide dispute) and Thomas v. Louisiana, 534 F.2d 613, 615 (5th Cir. 1976) (full relief).  In Martin, the Court approved a private settlement agreement containing a release of FLSA claims which had not been submitted for review and approval by the district court or the Department of Labor, and found that the employees had effectively waived their rights.  Martin, 688 F.3d at 255.

Furthermore, even in cases where courts have required court review and approval of FLSA settlements, it is not entirely clear what standard should be followed in conducting such a review.  Some courts have held that District Courts may enter a stipulated judgment approving the settlement of FLSA claims only after the court has scrutinized the settlement for fairness and reasonableness, and has expressly approved the settlement as fair and reasonable.   See, e.g., Lynn’s Food Stores, 679 F.2d at 1353-55 (“When employees bring a private action for back wages under the FLSA, and present to the district court a proposed settlement, the district court may enter a stipulated judgment after scrutinizing the settlement for fairness.”) (citing Schulte, 328 U.S. at 113 n.8; Jarrard, 163 F.2d at 961).  See also Mosquera v. Masada Auto Sales, Ltd., No. 09-CV-4925 (NGG), 2011 U.S. Dist. LEXIS 7476, at *2-*3 (E.D.N.Y. Jan 25, 2011) (requiring an evaluation of FLSA settlements for fairness and reasonableness); Lee v. Timberland Co., No. C 07-2367 JF, 2008 U.S. Dist. LEXIS 108098, at *4-*5 (N.D. Cal. June 19, 2008) (same); Boone v. City of Suffolk, 79 F. Supp. 2d 603, 605 n.2 (E.D. Va. 1999) (“Because the FLSA was enacted to protect workers from sub-standard wages or oppressive working conditions, employees cannot waive their right to overtime wages unless such a settlement is overseen by the Department of Labor or approved for fairness and reasonableness by a district court.”) (citing Lynn’s Food Stores, 679 F.2d at 1355).

Some courts have further defined this fairness test by setting forth a list of factors that courts should consider.  For example, the United States District Court for the Eastern District of Virginia has held that:

To determine whether a proposed settlement is fair and reasonable under the FLSA, courts should consider: “(1) the extent of discovery that has taken place; (2) the stage of the proceedings, including the complexity, expense and likely duration of the litigation; (3) the absence of fraud or collusion in the settlement; (4) the experience of counsel who have represented the plaintiffs; . . . and ([5]) the probability of plaintiffs’ success on the merits and the amount of the settlement in relation to the potential recovery.”

Belcher v. CHA Cos., Inc., No. 3:10cv420, 2011 U.S. Dist. LEXIS 39063, at *2 (E.D. Va. Mar. 16, 2011) (quoting Lomascolo v. Parsons Brinckerhoff, Inc., No. I:08cv1310 (AJT/JFA), 2009 U.S. Dist. LEXIS 89129, at *10 (E.D. Va. Sept. 28, 2009)).

Until the Supreme Court might rule otherwise – unless you are in the Fifth Circuit – counsel should assume the following:

·         A private FLSA settlement agreement must be approved by a district court or the Department of Labor. 

·         After Reyes, assume that a no-rehire clause, colloquially known as a “do not darken my door again” clause, will be increasingly subject to attack.

·         Attorneys’ fees in any such settlement must be justified.  In the District of Columbia, after the Circuit’s recent opinion in Eley v. District of Columbia, the District’s bench is increasingly requiring substantial justification of hourly rates.  See 793 F.3d 97 (D.C. Cir. 2015) (Laffey matrix and affidavit that counsel’s rates charged clients were within the Laffey matrix found to be insufficient evidence to demonstrate that the requested rates were the rates prevailing in the community for similar services); see also Collins v. District of Columbia, No. 15-cv-00136, 2015 U.S. Dist. LEXIS 159890 (D.D.C. Nov. 30, 2015) (Judge Jackson adopts MJ Kay’s report and recommendations regarding Fee Award in the wake of Eley); Devore on behalf of A.M. v. District of Columbia, 89 F. Supp. 3d 113 (D.D.C. 2015) (plaintiff could have done more to meet her burden to establish the reasonableness of rates); Briggs v. District of Columbia, 73 F. Supp. 3d 59 (D.D.C. 2014) (Laffey rates are presumptive maximum rates for complex federal litigation); Robinson v. District of Columbia, 61 F. Supp. 3d 54 (D.D.C. 2014) (Laffey-matrix is appropriate starting point for the “case by case analysis”); Brighthaupt v. District of Columbia, 36 F. Supp. 3d 1 (D.D.C. 2014) (Laffey rate can be used as “an appropriate starting point for determining rates of reimbursement for attorneys…” but Court declines to award Laffey rates because plaintiff failed to demonstrate that such rates are the prevailing market rate); McAllister v. District of Columbia, 21 F. Supp. 3d 94 (D.D.C. 2014) (affidavits did not provide sufficient information for the Court to determine whether the Laffey rates represented the market rate).

·         Confidentiality clauses may well be stricken.  See Weismantle v. Jali, No. 2:13-cv-01187, 2015 U.S. Dist. LEXIS 53435 (W.D. Pa. April 23, 2015) (“What can be gleaned from this prevailing, if not overwhelming, caselaw trend is that, absent something very special in a very specific case which generates a very good reason above and beyond the desire of the parties to keep the terms of an FLSA settlement out of the public’s view, if the parties want the Court to approve the substance of an FLSA settlement agreement, it cannot be filed under seal”); Baker v. Dolgencorp, Inc., 818 F. Supp. 2d 940 (E.D. Va. 2011) (Judge Henry Coke Morgan, Jr.).

·         Certainly, not only FLSA settlements, but no settlement, should ever have a restriction on counsel’s availability to represent future clients against the defendant.  See, e.g., D.C. R. Prof. C. 5.6(b) (A lawyer shall not participate in offering or making…[a]n agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a controversy between parties.”)

Court Recognizes Claim of National Origin Discrimination Based on Non-Hispanic Status and Rejects Heightened Proof Standard for Non-Minority Discrimination Claims

                Among Title VII’s less-used provisions is its prohibition of discrimination on the basis of “national origin”, but the New Mexico Court of Appeals’ recent decision in Garcia v. Hatch Valley Pub. Schs. may breathe new life into the hoary prohibition.  No. 33,310, 2015 N.M. App. LEXIS 120 (N.M. Ct. App. Nov. 16, 2015).  In Garcia, the New Mexico Court of Appeals addressed two questions under the New Mexico Human Rights Act which the Court held “tracks Title VII”.   Id.  The questions were: 1) is “non-Hispanic” a protected category; and 2) are plaintiffs in “reverse discrimination” cases subject to a heightened standard for making out a prima facie case of discrimination?  Id.  The Court held “non-Hispanic” to be a protected category and rejected the contention that “reverse discrimination” cases, in terms of burdens of proof, should be treated differently than cases brought by African-Americans and Hispanics.

                In addressing the first question, the Court examined the history of the use of “national origin” in discrimination claims.  The Court noted that the Supreme Court originally defined the term as the “country where a person was born, or…from which his or her ancestors came.”  Id. quoting Espinoza v. Farah Mfg. Co., 414 U.S. 86, 88 (1973).  Despite this relatively narrow definition, the Court noted that the Espinoza Court noted that refusing to hire individuals of a “Spanish-speaking background” constituted national origin discrimination.  Garcia, 2015 N.M. App. LEXIS 120 at *7, quoting Espinoza, 414 U.S. at 92, n5, 95.  Examining subsequent caselaw from around the nation, the Court explained that “the concept of national origin…embrace[s] a broader class of people” and is “better understood by reference to certain traits or characteristics that can be linked to one’s place of origin, as opposed to a specific country or nation.”  Garcia, 2015 N.M. App. LEXIS 120 at *8, quoting Kanaji v. Children’s Hosp. of Phila., 276 F. Supp. 2d 399, 401-02 (E.D. Pa. 2003); see also  Pejic v. Hughes Helicopters, Inc., 840 F.2d 667, 672-73 (9th Cir. 1988) (holding that national origin discrimination could include discrimination based on membership in ethnic groups); Beltran v. Univ. of Tex. Health Sci. Ctr., 837 F. Supp. 2d 635, 641 (S.D. Tex. 2011) (stating that "Title VII prohibits employment discrimination against any national origin group, including larger ethnic groups, such as Hispanics" (emphasis, internal quotation marks, and citation omitted). 

                In Garcia, the plaintiff had accused the defendant of discriminating against him on the basis of his national origin, alleging that he was German-descended and non-Hispanic.  Garcia, 2015 N.M. App. LEXIS 120 at *1.  The lower court found that the employer had no knowledge of the plaintiff’s German descent – and so could not have discriminated against him on that basis – but failed to consider whether he had been discriminated against based on being “non-Hispanic”.  Id.  In reversing the lower court’s decision, the Court recognized that “[c]lassifications such as Caucasian, white, and non-Hispanic have been widely accepted as protected in cases involving national origin discrimination claims.”  Id. at *8, citing Turney v. Hyundai Constr. Equip. USA Inc., 482 F. App'x. 259, 260 (9th Cir. 2012) (holding that the plaintiff who identified as Caucasian "belongs to a protected class for purposes of his national origin discrimination claim because Title VII applies to any racial group, whether minority or majority" (internal quotation marks and citation omitted)); Hawn v. Exec. Jet Mgmt., Inc., 546 F. Supp. 2d 703, 711, 717 (D. Ariz. 2008) (holding that the plaintiff who identified his national origin as "Caucasian American of European descent" was a member of a protected class); Mohr v. Dustrol, Inc., 306 F.3d 636, 639-40 (8th Cir. 2002) (treating non-Hispanic as a protected class and reversing summary judgment on the plaintiff's race and national origin discrimination claims), abrogated on other grounds by Desert Palace, Inc. v. Costa, 539 U.S. 90, 123 S. Ct. 2148, 156 L. Ed. 2d 84 (2003); Stern v. Trustees of Columbia Univ., 131 F.3d 305, 306, 312 (2d Cir. 1997) (finding that a "white American male of Eastern European origin" satisfied a prima facie case for national origin discrimination); Cameron v. St. Francis Hosp. & Med. Ctr., 56 F. Supp. 2d 235, 238-39 (D. Conn. 1999) (memo.) (accepting classification of "white, non-Hispanic male of Scottish/European origin" as protected class for national origin discrimination claim (internal quotation marks omitted)).

                Finding that the plaintiff’s contention that he was “non-Hispanic” fell within the meaning of a “national origin” under Title VII, the Court addressed whether the plaintiff had satisfied the elements of a prima facie case.  In so doing, the Court noted that, as a technical matter, the standard set forth by the Supreme Court in McDonnell Douglas Corp. v. Green, that a plaintiff demonstrate that “he belongs to a racial minority” would foreclose a claim of discrimination brought by a non-minority.  Garcia, 2015 N.M. App. LEXIS 120 at *11 to *12. Relying on McDonald v. Santa Fe Trail Transp. Co., 427 U.S. 273 (1976) the Court found that Title VII should not be interpreted to foreclose claims of “reverse discrimination” and moved instead to the more difficult question of whether such claims were subject to a heightened standard.   In so doing, the Court identified essentially two different approaches to this question.

a.       The Heightened Standard Approach

The Court noted that some courts have held that, in cases of “reverse discrimination” the plaintiff can make out a prima facie case only if she can show “background circumstances that support the suspicion that the defendant is the unusual employer who discriminates against the majority.”  Garcia, 2015 N.M. App. LEXIS 120 at *13 quoting Parker v. Baltimore & Ohio R.R. Co., 652 F.2d 1012, 1017-18 (D.C. Cir. 1981).  This approach, with minor differences, is followed by the United States Court of Appeals for the District of Columbia, the Sixth Circuit, and the Eighth Circuit, as well as the states of New Jersey and Ohio.  Woods v. Perry, 375 F.3d 671, 673 (8th Cir. 2004); Murray v. Thistledown Racing Club, Inc., 770 F.2d 63, 67 (6th Cir. 1985); Parker, 652 F.2d at 1017 (D.C. Cir. 1981); Erickson v. Marsh & McLennan Co., 117 N.J. 539, 569 A.2d 793, 799 (N.J. 1990); Jones v. MTD Consumer Group, Inc., 32 N.E.3d 1030 (Ohio 2015). 

Although following the heightened standard approach, the Tenth Circuit has created a “modified” background and circumstances test.  This test permits the plaintiff to make a prima facie case either through the “background circumstances” described above or by showing that there is “indirect evidence sufficient to support a reasonable probability, that but for the plaintiff’s status [as a member of the majority] the challenged [action] would have favored the plaintiff.”   Garcia, 2015 N.M. App. LEXIS 120 at *15, quoting Notari v. Denver Water Dep’t, 971 F.2d 585, 589 (10th Cir. 1992).

The Garcia Court criticized the heightened standard approach for imposing a higher standard on majority plaintiffs than minority plaintiffs, and would require the Court to “determine which groups are socially favored andd which are socially disfavored.”  Garcia, 2015 N.M. App. LEXIS at *17, quoting Collins v. Sch. Dist. of Kansas City, 727 F. Supp. 1318, 1321 (W.D. Mo. 1990).  In so holding, the Court noted that this fact was “difficult to reconcile” with the decision of the United States Supreme Court, which had adopted a broad, holistic interpretation of Title VII.  See  Furnco Const. Corp. v. Waters, 438 U.S. 567, 577, 98 S. Ct. 2943, 57 L. Ed. 2d 957 (1978) (stating that the prima facie case, as stated in McDonnell Douglas, "was never intended to be rigid, mechanized, or ritualistic" and that the "central focus of the inquiry in a [discrimination] case . . . is always whether the employer is treating some people less favorably than others because of their race, color, religion, sex, or national origin" (internal quotation marks and citation omitted)); see also McDonald, 427 U.S. at 279 n.6, 280 n.8 (1976) (holding that "Title VII prohibits racial discrimination against the white petitioners in this case upon the same standards as would be applicable were they [members of a racial minority]" and noting that the specification of the prima facie proof required under McDonnell Douglas “is not necessarily applicable in every respect to differing factual situations" (emphasis added) (internal quotation marks and citation omitted)).

b.      Rejection of the Heightened Standard

The Court noted that many courts, including the Second, Third, Fourth, Fifth, and Eleventh Circuits, have rejected the heigtened standard approach.  McGuinness v. Lincoln Hall, 263 F.3d 49, 53 (2d Cir. 2001); Bass v. Bd. of Cnty. Comm’rs, 256 F.3d 1095, 1103 (11th Cir. 2001); Byers v. Dallas Morning News, Inc., 209 F.3d 419, 426 (5th Cir. 2000); Iadimarco v. Runyon, 190 F.3d 151 (3d Cir. 1999); Lucas v. Dole, 835 F.2d 532, 533 (4th Cir. 1987).  The Third Circuit requires only that the plaintiff provide sufficient evidence “to allow a fact finder to conclude that the employer is treating her less favorably than others based upon a [protected] trait” while the Second, Fourth, Fifth, and Eleventh Circuits merely require that the plaintiff demonstrate that they belong to a protected group, whether or not they are in a “minority class”.  Garcia, 2015 N.M. App. LEXIS 120 at *20.  

c.       The Holding

The Garcia court rejected the heightened standard, and joined the Second, Third, Fourth, Fifth, and Eleventh Circuits in requiring only that the plaintiff demonstrate that he belongs to a “protected group”.  Garcia, 2015 N.M. App. LEXIS 120 at *25.  In doing so, the New Mexico Court of Appeals stated that plaintiff is not required to meet a heightened standard, as the purpose and philosophy behind Title VII holds discrimination and reverse discrimination plaintiffs to the same standards, citing  Wygant v. Jackson Bd. of Educ., 476 U.S. 267, 273 (1986) (O'Connor, J., plurality opinion) (stating that "[r]acial and ethnic distinctions of any sort are inherently suspect and thus call for the most exacting judicial examination" and "the level of scrutiny does not change merely because the challenged classification operates against a group that historically has not been subject to governmental discrimination"); see also Bass, 256 F.3d at 1103 ("`Our constitution is color-blind, and neither knows nor tolerates classes among citizens. In respect of civil rights, all citizens are equal before the law.'") (citing Plessy v. Ferguson, 163 U.S. 537, 559 (1896) (Harlan, J., dissenting); Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 239 (1995) (Scalia, J., concurring in part) ("In the eyes of government, we are just one race here. It is American."); Regents of Univ. of Cal. v. Bakke, 438 U.S. 265, 289-90 (1978) (plurality opinion) ("The guarantee of equal protection cannot mean one thing when applied to one individual and something else when applied to a person of another color."). 

The Court went on to apply this standard.  It found that the plaintiff’s claim of discrimination based on being “non-Hispanic” was a cognizable claim of national origin discrimination, and that the evidence adduced satisfied the elements of a prima facie case.  Id. at *28 to *29.

d.      Take-Aways

As the New Mexico decision is but one decision from an intermediate appellate court from one of our fifty states, it, in essence, only underscores, the plethora of open issues in national origin discrimination cases, including:

1)      What is the standard of proof for Caucasians and/or non-Hispanics, sometimes referred to as majority litigants?

2)      What deference, if any, ought the courts give to the EEOC’s Guidelines on Discrimination Because of National Origin, 29 C.F.R. § 1606.1?

3)      When can national origin preferential treatment be treated as a bfoq?

4)      Is so-called “ethnic discrimination” national origin discrimination under the Act?

5)      After the Supreme Court’s decision in Espinoza, can alienage discrimination be successfully challenged, under Title VII or otherwise?

6)      When is “accent” discrimination recognized as national origin discrimination?

7)      When, if ever, is bi-lingual or multi-lingual discrimination or preferential treatment found to be national origin discrimination?

The New Mexico decision is welcome in that it rekindles the ongoing debate regarding the breadth of the prohibition against national origin discrimination.  Clearly, it is not the last word, and clearly many, many issues remain unresolved.  

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The Cat's Paw Takes A Swipe at But-For Causation

After the Supreme Court’s decision in University of Tex. Southwestern Med. Ctr. v. Nassar, 133 S. Ct. 2517 (2013), holding that but-for causation is the standard for proving retaliation in a Title VII case, many thought that there was an open question as to whether the holding in Staub v. Proctor Hosp., 562 U.S. 411 (2011), the so-called “Cat’s Paw” case, would apply in a but-for causation context.  In Staub the Court held that, if the discriminating employee proximately caused the ultimate decisionmaker’s adverse action, then the “Cat’s” discriminatory intent would be imputed to the ultimate decisionmaker even though the decisionmaker was not consciously discriminating.  

So far, four circuits have weighed in on this question, unanimously concluding that even after Nassar, plaintiffs may use a “Cat’s Paw” theory even in Title VII retaliation cases.  See Zamora v. City of Houston, 798 F.3d 326 (5th Cir. 2015); EEOC v. New Breed Logistics, 783 F.3d 1057, 1070 (6th Cir. 2015); Ward v. Jewell, 772 F.3d 1199, 1203, 1205 (10th Cir. 2014); Bennett v. Riceland Foods, Inc., 721 F.3d 546, 551 (8th Cir. 2013); see also Godwin v. WellStar Health Sys., Inc., 615 Fed. Appx. 518 (11th Cir. 2015) (using Cat’s Paw analysis in an ADEA case that required but-for causation).  

Judge Clement, writing for the Fifth Circuit panel in Zamora, stated the holding as follows: “…the applicable standard of causation is relevant only to the latter portion of this Staub test – instead of being a proximate cause, the supervisor’s act must be a ‘[but-for] cause of the ultimate employment action.’” (citation omitted) Zamora v. City of Houston, at 332.  In doing so, Judge Clemente references Seoane-Vazquez v. Ohio State Univ., 577 F.App’x 418, 427-29 (6th Cir. 2014), where the Sixth Circuit substituted but-for causation for motivating factor causation in applying "Cat’s Paw" analysis in a post-Nassar case.  With decisions like Zamora and the Fourth Circuit’s blockbuster holding in Foster v. Univ. of Md. – E. Shore, 787 F.3d 243 (4th Cir. 2015), which held that Nassar’s but-for analysis only applies to direct-evidence cases, and not to McDonald-Douglas cases, the bar and the courts are confronted with the herculean task of drafting jury instructions that the jury can comprehend and that will pass muster in the appellate courts.  Undoubtedly, some of these issues regarding causation will filter back up to the Supreme Court, and, hopefully, we will get more clarity on what causation scheme applies to the alphabet soup of statutory employment claims.  

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Non-Competition "In Any Capacity": Broad Scope Can Sink Your Non-Compete

A recent opinion from the Calvert County Circuit Court in Maryland highlights a common drafting error which can undermine the enforceability of non-compete agreements. In Electronic Security Servs., Inc. v. Higgs, Judge Chandlee ruled that a non-compete which precluded the former employee from working for a competitor “in any capacity” was overly broad and thus unenforceable. See Case No. 04-C-15-304 (Calvert Cnty. Cir. Ct. Md. Sept. 2, 2015) (hereafter “Higgs”). 

In Higgs, a company sued a former employee and the former employee’s new employer, alleging that the employee breached a non-compete agreement and the employee’s employment with the new employer was prohibited by a confidentiality agreement.  The non-compete agreement forbade Mr. Higgs from “compet[ing] directly or indirectly with the company by serving as an officer, partner, director, agent, employee, or consultant with any firm or entities substantially engaged in a business similar to or competitive to the business of the company or an active client of the company in the last 2 years with the company.” It “extend[ed] to the geographic area for the entire states of Maryland and Virginia, The District of Columbia, and any other area that falls within a 150 mile radius of Upper Marlboro.”  Notwithstanding these restrictions, the employee went to work for a competitor in a neighboring county.

The court found the agreement overbroad and unenforceable as a matter of law, noting that it “effectively restricts [the former employee] from obtaining employment from a competitor . . . in any role conceivable.”  The court further held that, even if such a broad restriction were somehow necessary to protect the company’s legitimate business interests, the “need [was] not remotely demonstrated in the complaint.” As a result, the court severed the clause from the non-compete agreement, which “render[ed] the entirety of the agreement void.”

The decision in Higgs reflects a trend in non-compete litigation in favor of scrutinizing the scope of the restrictions to which employees are subject. Several other states have held that language similar to that present in Higgs is overly broad and therefore unenforceable – though some courts have applied blue-penciling rules to save the agreement in a less restrictive form.

In CopyPro, Inc. v. Musgrove, the North Carolina Court of Appeals held that a non-compete agreement that prohibited a former sales representative from working at a competitor in any capacity, “even as a custodian,” was overly broad and unenforceable. 754 S.E.2d 188 (N.C. App. 2014).  In CopyPro the defendant, former employee, Mr. Musgrove, had signed a non-compete agreement that precluded affiliation with a competitor of CopyPro, a purveyor of office equipment systems, for three years following the termination of his employment.  The substantive scope of the agreement was limited to “any business of the type and character of the business engaged in by the Employer at the time of such termination.”  Id. at 192.

During his employment with CopyPro, Mr. Musgrove primarily worked in Pender and Onslow County.  After he resigned, Mr. Musgrove joined a competitor to work in a different county, and he refrained from contacting CopyPro’s customers in the two counties he had covered for CopyPro.  Further, his new employer forbade him from contacting CopyPro’s customers in said counties.

CopyPro nevertheless brought suit against Mr. Musgrove seeking, among other things, a permanent injunction to enforce the terms of the non-compete agreement that he had signed.  CopyPro prevailed in the Superior Court and obtained an injunction preventing Mr. Musgrove, in pertinent part, from working for the allegedly competitive entity.  The Court of Appeals reversed, explaining that “[a]s our decisions reflect, we have held on numerous occasions that covenants restricting an employee from working in a capacity unrelated to that in which he or she worked for the employer are generally overbroad and unenforceable.” CopyPro, 754 S.E.2d at 192 (citing VisionAIR, Inc. v. James, 167 N.C. App. 504, 508-09, 606 S.E.2d 359, 362-63 (2004) (holding that a covenant that prohibited an employee from “own[ing], manag[ing], be[ing] employed by or otherwise participat[ing] in, directly or indirectly, any business similar to” the employer’s business was overly broad and unenforceable)).  The Court went on to hold that “such overly broad restrictions are generally not enforceable in the employer-employee context on the grounds that the scope of the restrictions contained in such agreements far exceeds those necessary to protect an employer’s legitimate business interests.” CopyPro, 754 S.E.2d at 193.

The Court noted that its decision here was distinguishable from prior holdings:

Aside from the fact that the restriction at issue in Precision Walls was to remain in effect for only one year while the noncompetition agreement at issue here will remain in effect for three years, the present record contains no indication that Defendant ever had either the same level of responsibility or the same level of access to competitively sensitive information as the defendant whose conduct was at issue in Precision Walls. Simply put, the record developed in this case, unlike the record developed in Precision Walls, contains no evidence that Defendant had the responsibility for developing client-specific pricing proposals or adjusting prices for competitive reasons or that Defendant was involved in the development and operation of his employer’s bidding or pricing strategies. Although Plaintiff contended in the court below that Defendant might share vital information even if he were hired by a competing business as a custodian, nothing in the present record indicates that Defendant actually possessed sufficiently important information to render him a competitive threat regardless of the position he held with a subsequent employer.”   

See Precision Walls, Inc. v. Servie, 568 S.E.2d 267 (N.C. App. 2002).

Of course, it is well established that non-competes such as those described above are unenforceable in Virginia under the so-called “Janitor Rule.”  In Home Paramount Pest Control Cos., Inc. v. Shaffer, the Supreme Court of Virginia found a non-compete provision in an employment agreement overbroad on its face and therefore unenforceable. 718 S.E.2d 762 (Va. 2011).  Mr. Shaffer, the Plaintiff, was an employee of Home Paramount Pest Control Companies, Inc. In January 2009, he signed an employment agreement containing the following provision:

The Employee will not engage directly or indirectly or concern himself/herself in any manner whatsoever in the carrying on or conducting the business of exterminating, pest control, termite control and/or fumigation services as an owner, agent, servant, representative, or employee, and/or as a member of a partnership and/or as an officer, director or stockholder of any corporation, or in any manner whatsoever, in any city, cities, county or counties in the state(s) in which the Employee works and/or in which the Employee was assigned during the two (2) years next preceding the termination of the Employment Agreement and for a period of two (2) years from and after the date upon which he/she shall cease for any reason whatsoever to be an employee of [Home Paramount].

Id. at 414-415.

The Court explained that, in Virginia, a provision that restricts competition “is enforceable if it is narrowly drawn to protect the employer’s legitimate business interest, is not unduly burdensome on the employee’s ability to earn a living, and is not against public policy.” Id. at 415. The burden of proving each factor rests with the employer seeking court enforcement of the restriction. Id. “When evaluating whether the employer has met that burden, we consider the function, geographic scope, and duration elements of the restriction.  These elements are considered together rather than as three separate and distinct issues.” Id.  In Home Paramount,  the Court held that the provision was unenforceable, noting that “[o]n its face, it prohibits Shaffer from working for Connor's or any other business in the pest control industry in any capacity. It bars him from engaging even indirectly, or concerning himself in any manner whatsoever, in the pest control business, even as a passive stockholder of a publicly traded international conglomerate with a pest control subsidiary. The circuit court therefore did not err in requiring Home Paramount to prove it had a legitimate business interest in such a sweeping prohibition.” Id. at 418.

In NanoMech, Inc. v. Suresh, U.S. Court of Appeals for the Eighth Circuit, applying Arkansas law, affirmed the district court’s decision that a non-compete agreement which prevented the employee from performing any work for any competitor anywhere in the world was overbroad and unenforceable under Arkansas law.  777 F.3d 1020 (8th Cir. 2015) (Colloton, J.).  In NanoMech, defendant, former employee Ms. Suresh, had signed a non-compete agreement before being hired at NanoMech, a company involved in the research and development of nanotechnology.  The non-compete agreement prohibited her from “directly or indirectly” entering into, being employed by or consulting “in any business which competes with the Company” for two years after her departure.  The covenant contained no geographic limitation and did not define “any business which competes with” NanoMech.  Ms. Suresh eventually left NanoMech and joined a competitor as a chemist within the two-year departure term.  NanoMech sued to enjoin her from working there for the remainder of the term of the non-compete and to prevent her from disclosing any of NanoMech’s confidential information.

Generally, a non-compete agreement is enforceable under Arkansas law if the employer has a valid interest to protect, the geographical restriction is not overly broad and a reasonable time limit is imposed. The covenant’s plain language prohibited the employee from working for any competitor of NanoMech, in any capacity, worldwide. The Court rejected NanoMech’s argument that the covenant was reasonable due to the global nature of the business and the employee’s broad access to trade secrets, and refused to enforce the covenant, finding it was overbroad.  The Court held that global non-compete agreements may be permissible if the prohibitions on employee activities are narrowly drawn.

Finally, in Clark’s Sales and Service, Inc. v. Smith and Ferguson Enterprises, Mr. Smith, Defendant, was required to sign a non-compete agreement by employer Clark's Sales & Service, Inc. after several years of employment as a salesman.  4 N.E.3d 772  (Ind. Ct. App. 2014)

The key provisions of the agreement stated that for two years after the employee’s termination from employment, he was prohibited from, in any capacity:

[S]oliciting or providing services competitive to those offered by his employer to any business account or customer who was a business account or customer at any point in time during his employment;” and “working in a competitive capacity with a named competitor of the employer in the state of Indiana, in any city or state in which the competitor conducts business, or to work for any business that provides services similar or competitive to those offered by the employer during the term of his employment, including but not limited to within the state of Indiana, Marion County, the counties surrounding Marion County, or within a 50 mile radius of his principal office with the employer.

Id. at 780.  After the employee resigned and went to go work for one a competitor, the employer filed suit to enforce the non-compete and sought injunctive relief. The Court noted that its Supreme Court has “long held that noncompetition covenants in employment contracts are disfavored in the law, and we will construe these covenants strictly against the employer and will not enforce an unreasonable restriction.” Id.

The Court of Appeals took issue with several parts of the agreement. First, the Court found that the restriction on contacting or serving customers was overbroad and unreasonable because it prohibited the employee from servicing anyone who had been a customer at any point in time during his employment. Id. at 782.  Second, the Court viewed the scope of prohibited activities as too broad because it went beyond the sales job he had with his prior employer and prohibited him from engaging in any service that offered but which he personally never performed during his employment-- i.e., drafted so as to prohibit “seemingly harmless conduct.” Id.   Third, the Court viewed the geographic restriction as “unquestionabl[ly] unreasonable as written”, and stated that the 50-mile restriction alone might have been acceptable, as “it is reasonable for individuals in the community to travel up to 50 miles to visit Clark's.” Id.

If you’re considering having your employees sign a non-compete, you should ensure that the restrictions are narrowly drawn to address legitimate business needs.  In other words, the primary inquiry should be what relationships and knowledge the employee gained while employed by your organization and what legitimate business concerns about the use of the knowledge and relationships you hope to address.  The more you can tailor your non-compete so that it addresses your concerns but isn’t overly broad, the greater the chances that it will be enforceable in most jurisdictions.

While much could be said about the appropriate duration and scope of a restrictive covenant, those are subjects for another day.  What the decisions above make clear is that, in drafting the substantive restrictions in a non-compete agreement – or any other restrictive covenant – you should focus on areas of actual concern.  These might include preventing an employee from working for a specific list of competitors, preventing an employee from performing a specific job or function for entities in similar line(s) of business, and soliciting current customers, vendors, or employees.  As demonstrated above, courts are skeptical of sweeping language which prevents an individual from working for a competitor “in any capacity.”  Including such language, especially in states which do not blue-pencil agreements, raises the very real possibility that the entire clause or agreement will be stricken.  Regardless of a state’s blue-penciling rules, it is never advisable to gamble on how a court might re-write your agreement. Instead, you should use language such as “in any position or performing any function substantially similar to any position held or function performed by the employee during the twelve-month period prior to the termination of her employment.”

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