New Website Allows In-House Counsel To Rate Law Firms

In another indication that the relationship between corporations and their outside counsel is changing, an article in the Virginia Lawyers Weekly investigates a new website hosted by the Association of Corporate Counsel that lets in-house counsel rate their outside law firms.  Cost concerns are a driving factor, as well as the ability of law firms to work within a budget.  Law firms that prided themselves on their size, scope, and expertise may find themselves dinged if they aren’t responsive to corporate counsel concerns.

Naturally, some law firms are worried about this, especially since the ratings will be hidden from non-members, at least for now.  This article in the ABA Journal reflects the potential uncertainty of such rankings.  However, this site may be an important tool in encouraging corporate law firms to better meet the expectations of in-house counsel.

H1N1 In The Workplace

Given the H1N1 scare that has been circulating, along with the fact that it is flu season anyway, employers have been asking employment lawyers how they should deal with sick employees who come to work anyway — referred to as “presenteeism” in this Recorder article.  As one lawyer said for the article, “If you have someone with a communicable disease that is spread by breathing on people, and you’re allowing that to continue, you’re not creating a safe workplace.”  So can an employer simply send a sniffling employee home?  Not necessarily, since the employee might have a claim against the employer if it turns out the employee didn’t have a communicable disease after all.  However, one potential solution is to require that employee to provide a doctor’s note stating that they are safe for the workplace.

More information on flu policies at the workplace is available at our previous blog posting on the topic here.

FedEx Ground Drivers Are Independent Contractors According To IRS

This BusinessWeek article reports on how the Internal Revenue Service, without explanation, decided that some 12,000 delivery people working for FedEx Ground were properly classified as independent contractors instead of employees, thus enabling FedEx to not have to pay $319 million in unpaid employment taxes.  While that is good news for FedEx, the IRS also announced that early next year it will be undertaking extensive audits of some 6,000 other companies, yet to be determined, to see if they are properly categorizing their workers.

The holiday season often features an increase of hiring to handle Christmas shopping, and some economists are predicting that most laid off workers that get rehired will be rehired as independent contractors instead of employees when the economy improves.  As a result, it is important for employers to understand the difference between employees and independent contractors so that they won’t run afoul of the IRS.  We blogged earlier on the IRS’s tips on distinguishing between these types of hires here.

New Opinion: Anticipatory Breach Defense Fails When There Is Any Performance

The “anticipatory breach” defense is fairly simple: when one party to a contract informs the other that they will not perform on the contract, the other party can sue for breach even though the actual breach has not yet occurred.  So if, say, you have a contract with Sony in which Sony will deliver to you a television by January 1, 2010, but Sony then tells you today that it will not give you a television at any time, you can immediately sue Sony — you do not have to wait until January 2, 2010, assuming you have not breached the contract yourself.  And once Sony has anticipatorily breached the contract, you are no longer obligated to perform under the contract.

In Tandberg, Inc. v. Advanced Media Design, Inc., Tandberg had shipped roughly $3 million in videoconferencing equipment to AMD through June of 2009, which AMD had failed to pay for.  On May 8, 2009, Tandberg told AMD that it was terminating the contract between them, effective June 30.  On May 20, Tandberg refused to ship certain equipment that AMD had ordered.  When Tandberg sued, AMD claimed that Tandberg’s refusal to send the equipment was an anticipatory breach of the contract, thus exonerating AMD from having to pay some or all of its outstanding debt to Tandberg.

Judge T. S. Ellis, III easily dispatched AMD’s defense, and granted summary judgment to Tandberg.  In order to benefit from the anticipatory breach defense, the defendant must prove that the “plaintiff . . . unconditionally refused to perform the contract in all circumstances.”  (Emphasis in original.)  Any continued performance on the contract precludes the defense.  Although Tandburg refused to ship certain orders around May 20, it still shipped some other orders through June, and thus had not unconditionally refused to perform. 

AMD also tried to argue that Tandberg had waived its right to the sums owed on the basis that when Tandberg terminated the agreement on May 8, it did not reference AMD’s failure to pay as the reason for termination.  That, too, fell far short of the standard for waiver, which requires “clear, precise and unequivocal evidence” of an “intent to relinquish that right.”

The key lesson from this case is for companies to note that the “anticipatory breach” defense is not a broad one, and must be total and unambiguous before anybody is off the hook.  Companies should be cautious in relying on this defense and foregoing their remaining contractual obligations.

Justices Appear To Favor Using The Headquarters As A Corporation’s “Principal Place Of Business”

In oral arguments for Hertz, Inc. v. Friend, a majority of justices on the U.S. Supreme Court appeared to favor using a company’s headquarters as its “principal place of business” for the purposes of determining where a company resides, and rejecting the 9th Circuit’s approach that considered where the company does the most business, according to this article by the National Law Journal.  Justice Ginsburg noted that under the 9th Circuit’s test, “California is going to be the big winner in this. It’s going to be able to keep all those cases in its state court because so many multistate corporations, I would imagine, would come out, just the way Hertz does[, and do more business in California than in any other state].”  In other words, simply by being a big state with a lot of people it means that corporations will tend to do more business in California, and thus be stuck in California’s plaintiff-friendly state courts when sued there under the 9th Circuit’s test.  That seemed to not sit well with the justices.  In a follow-up question by Chief Justice Roberts, he asked counsel for the trial court plaintiffs where Seattle-based Starbucks’ principal place of business would be under the 9th Circuit’s test.  The answer: California.  “That’s a surprise,” retorted Justice Scalia.

New Opinion: Employee Eligible For Workers’ Compensation After Being Struck By Car

July 19, 2006 was a bad day for Betsy Loveless.  As she was performing her job duties at a nursery garden shop, shutting off sprinklers that abutted Route 17 in Gloucester County, she heard the screeching of tires and looked up to see a vehicle “flying off” the highway in her direction.  She made a run for some trees to dodge the oncoming car, but had to also get around some slippery weed mats and potted plants that were in her way.  Poor Betsy was but a foot from a protective tree when the car hit her, causing injuries.  She thereupon made a claim for workers’ compensation, and the Commission ruled that since the injury “arose out of the course of her employment,” she was eligible.  The employer, who was probably wondering how a random out-of-control car accident could be considered part of her employment as a nursery employee, appealed to the Virginia Court of Appeals.

The Court, in Green Hand Nursery, Inc., et al. v. Loveless, affirmed the Commission’s determination.  Judge Robert P. Frank, on behalf of a unanimous panel, reaffirmed that Virginia courts use the “actual risk” test to determine whether an injury “arises out of” the employment.  That test holds that “if the injury can be seen to have followed as a natural incident of the work and to have been contemplated by a reasonable person familiar with the whole situation as a result of the exposure occasioned by the nature of the employment, then it arises ‘out of’ the employment.”  Surely it could not be argued that it was a natural incident of working at a nursery that cars would jump off the road to hit the employees, or that reasonable people would assume that would happen, right?

But as the Court explains, we’re looking at the wrong thing.  The car isn’t the focus of the inquiry — it’s the slippery weed mats and potted plants that are.  If not for those obstructions, which were all clearly work-related, our friend Betsy would have made it to the trees and perhaps escaped injury.  In other words, the fact that a nursery employee works around items that make it difficult for the employee to evade incoming harm shows that any injury thereafter suffered as a result of having to dodge those items is work-related, and thus subject to workers’ compensation.

Perhaps the most important caveat of this published opinion came in the first sentence of the second paragraph: “On appeal, we view the evidence in the light most favorable to the prevailing party before the commission.”  Given that edge, the Court was pretty well obligated to believe that Betsy would have been fine (although a little shaken) if she had a fraction of a second more to get behind a tree.  That may have made the biggest difference in the outcome of this case.

Litigation Not The Best Answer To “Gripe Sites”

The Internet has made it easier than ever for disgruntled consumers and employees to vent their opinions online, whether by creating their own website like www.[name of company]sucks.com or using a site like Ripoff Report.  Often these critics choose to remain anonymous.  Naturally, companies don’t tend to like this kind of attention, and frequently ask us what can be done about it. 

A new article in the New York Law Journal examines efforts by businesses to sue the posters and the website hosts to quell such speech, and concludes that litigation is rarely the best answer.  Even when a post might actually be legally defamatory, reaching out to the consumer/former employee or being more proactive in pushing the company’s message online may be better (and cheaper) solutions.  Given that the Communications Decency Act has rendered Internet service providers immune from liability, and courts have generally declined to force those providers to disclose the identities of users that post critical or defamatory material, it may be just the cost of doing business today that company deal with some amount of online criticism.

UPDATE: Just to show that law firms are not immune to this problem, the New Jersey Law Journal reports that Levinson Axelrod has sued its former associate, Edward Heyburn, for creating and maintaining a gripe site aimed specifically at the law firm.  Heyburn apparently did not take too well at being fired by the firm, and created the site to mock pretty much everything about his former employer, including the appearance of several partners.  The firm has alleged claims of cybersquatting and unfair competition, among others, but has interestingly not alleged defamation.  Heyburn has no intention of removing the gripe site, and reports a huge increase of traffic.  This case may prove the limitations of litigation, but we will continue to monitor the matter.

Paying Wages In Virginia Through Pre-Paid Debit Cards Instead Of Checks

Via the Laconic Law Blog, legislation passed this year by the General Assembly will allow an employer to pay its employees by a pre-paid debit card instead of a regular check in certain instances:

In Virginia, employers will be authorized to pay wages and salaries to employees hired after January 1, 2010, via credit card to a prepaid debit card or card account, without affirmative employee consent, if an employee fails to designate a financial institution to which payment could be made by electronic automated fund transfer and the employer arranges for an employee to have the ability to make at least one free withdrawal or transfer per pay period using the card at participating financial institutions (Ch. 728 (S. 1264), L. 2008, enacted March 30, 2009).

The amended language of Virginia Code § 40.1-29 is available here.

SBA Proposes Changes To The 8(a) Program

The Small Business Administration recently proposed “major revisions” to its 8(a) program, according to this article in the Government Executive.  The new regulations mandate that 8(a) owners reside in the United States, ease restrictions on family members of 8(a) participants from entering the program, and determine how many contracts a joint venture can win in a two-year period, among other changes. 

The proposed regulations can be reviewed here.  The comment period expires on December 28, 2009, after which the SBA will decide whether to implement the regulations.  You can file your comment with the SBA here.

When An Employee Uses Work Email To Contact Her Lawyer, Is The Communication Privileged?

Previously this blog has examined the extent an employer can monitor employee activity, including emails an employee sends out through her work email.  A commenter to that post noted a case involving an employee who emailed her attorney while at work, using a work computer but through her own personal, password-protected email account.  The employer obtained those emails and wanted to use them in a subsequent lawsuit initiated by the employee, but the employee claimed that the emails were subject to the attorney-client privilege and thus were protected from use.  The Superior Court of New Jersey, in Stengart v. Loving Care Agency, Inc., upheld the privilege.  So from that decision, it appears likely that an employee sending an email through her Gmail account while on her work computer would be protected, while sending an email through her work email would not be.

But as a new article in the New York Law Journal explains, courts have been all over the place on this issue.  The article summarizes a number of opinions on the matter to try and distill basic rules for employees and employers to govern themselves by.

“These cases hold two clear lessons for counsel for employers,” the article states.  “First, employers need to have very carefully formulated, broadly worded policies regarding employees’ lack of expectation of privacy, that are diligently and repeatedly circulated to all employees.  This will maximize the likelihood that it will be permissible to capture and use employees’ personal communications both for internal administrative, disciplinary and, if necesssary, litigation purposes — and will minimize the risk of an allegation of violation of the Stored Communications Act.  The second lesson to be learned from these cases . . . is that whenever an attorney receives potentially privileged or confidential information relating to the opposing party, that attorney should carefully consider how that information was obtained. . . . The safest course of action may be to promptly notify opposing counsel about a lawyer’s receipt of any confidential or privileged information.”

This article is required reading for GCs and employers that seek to enforce policies allowing employer monitoring of employee email use.  The course of the law is still in flux, so employers need to stay current in order to have the best chance of enforcement.

Wal-Mart Settles Largest Wage-And-Hour Class Action

The Nevada U.S. District Court approved a settlement resolving 39 class action cases brought on behalf of roughly three million employees against Wal-Mart for allegedly failing to compensate for off-the-clock work and overtime, denying them rest breaks, and falsifying time records.  It’s the largest wage-and-hour class action on record, according to an article in the National Law Journal. 

Wage-and-hour claims against employers are multiplying in number, and employers need to make sure that their employment and compensation policies are consistent with federal and state law, especially the Fair Labor Standards Act.  If you have questions about whether your company’s policies are compliant, please contact Jessica M. Kelty.

New Opinion: Uniform Trade Secrets Act Does Not Preempt Business Torts When Trade Secrets Are Disputed

Often when a company discovers that its trade secrets and confidential proprietary information has been stolen by a competitor, the resulting lawsuit typically includes several causes of action, from a count alleging violation of Virginia’s Uniform Trade Secrets Act (“VUTSA”), to tortious interference with business/contractual relations, to statutory conspiracy to harm another’s business.  Tucked into the VUTSA is oft-overlooked preemption provision, Va. Code § 59.1-341, that mandates that except for contractual and criminal claims, “this chapter displaces conflicting tort, restitutionary, and other law of this Commonwealth providing civil remedies for misappropriation of a trade secret.”  Litigants often wonder whether this provision forces them to choose between a VUTSA claim and the business tort claims when drafting their complaints.

The short answer is no, at least depending on how the defendant responds.  In E.I. DuPont de Nemours and Co. v. Kolon Industries, Inc., et al., DuPont sued Kolon under the VUTSA and had counts for the other business torts as well, alleging that Kolon hired a DuPont employee and then got that employee to divulge DuPont’s trade secrets and other confidential information, in violation of the employee’s contract with DuPont to safeguard those secrets.  Kolon argued that DuPont could not maintain the VUTSA claim and the other business tort claims at the same time, and moved to dismiss the business torts.  The U.S. District Court for the Eastern District of Virginia, Senior Judge Robert E. Payne presiding, denied Kolon’s motion to dismiss because Kolon was contesting whether the information divulged constituted a trade secret.  Thus, DuPont was able to maintain alternative claims — DuPont could not recover under the VUTSA and any business tort claim, but could maintain both kinds of claim so long as it was a question whether trade secrets were at issue.  Had Kolon admitted that the information at issue was a trade secret, Kolon may well have succeeded in forcing DuPont to give up its alternative remedies.  Of course, that would have meant that Kolon would have admitted one of the two prongs to show liability under the VUTSA, which may not have been a good idea strategically.  The court also noted that business torts that did not depend on the use or theft of trade secrets

Hat tip to the Unfair Business Practices Blog.

FTC’s “Red Flags” Regulation Does Not Apply To Lawyers

A federal district court judge has ruled that the Federal Trade Commission’s new “red flags” identity fraud regulation — which goes into effect on November 1 and affects a wide swath of businesses — is not enforceable against lawyers and law firms.  The U.S. District Court for the District of Columbia granted judgment to the American Bar Association in its lawsuit against the FTC, and rejected the agency’s argument that lawyers who accepted deferred payments from clients were “creditors” under the law, and thus would be required to institute identity fraud procedures.

Hat tip to LawyersUSA and the VLW Blog.  Our previous coverage of the new “red flags” regulation is available here.

U.S. Supreme Court To Hear Case On Determining A Corporation’s “Principal Place Of Business”

On November 10, 2009, the U.S. Supreme Court will hear argument in Hertz Corp. v. Friend, a case that asks a very simple question: Where is a corporation’s “principal place of business?”  This question is important because federal courts can hear only two kinds of cases: cases raising an issue of federal law, and cases between parties that reside in different states.  Under federal civil procedure, a corporation is deemed to “reside” in the state where it is incorporated as well as its “principal place of business.”  Hertz is a Delaware corporation with its corporate headquarters located in New Jersey, but it does more business in California than in any other state.  When it was sued in California state court by Californian residents, Hertz sought to remove the case to federal court.  The residents objected because if Hertz’s “primary place of business” is California, there is no diversity and thus no federal court jurisdiction. 

Interestingly, the courts of appeal are all over the place on this.  In the Ninth Circuit, the courts use several factors to determine whether a corporation does more business in one state than others, and on that basis held that Hertz was primarily doing business in California.  The Seventh Circuit looks for a “nerve center,” or corporate brain of the company, generally the headquarters.  The Third Circuit looks at the company’s center of activity, while the Fifth, Sixth, Eighth, Tenth, and Eleventh Circuits consider the totality of the company’s activities.  Obviously, companies that operate nationwide would like a single rule for determining the principal place of business so that they can predict more readily where they can expect to be hauled into court.

Hertz favors the Seventh Circuit’s “nerve center” test.  The respondents, however, seem to favor allowing the courts of appeal to consider the totality of a company’s business operations in determining the “principal place of business.” 

SCOTUSblog has a more detailed preview of this interesting and important case.

Providing Reasonable Religious Accommodation To Employees

At the Volokh Conspiracy, law professor Eugene Volokh relates an AP story about an employee at a Home Depot in Florida who was fired for refusing to remove his “One Nation Under God, Indivisible” pin from the distinctive orange apron all Home Depot employees wear.  The employee started wearing the pin in March of 2008, but was told he had to remove it or be fired in October of this year when he started bringing a Bible into the store to read on his lunch break.  The company defended the termination by pointing out that it is company policy that “only company-provided pins and badges can be worn on our aprons.” 

Prof. Volokh opined that the termination likely did not violate Title VII of the Civil Rights Act that requires employers to make reasonable religious accommodations for their employees.  Specifically, under 42 U.S.C. § 2000e(j), employers must (1) give religious employees special exemptions from generally applicable job requirements (2) if the requirements interfere with an employee’s “religious observance and practice,” and (3) such an exemption doesn’t impose “under hardship on the conduct of the employer’s business.”  Prof. Volokh did not see the wearing of the pin as “religious observance and practice,” but more of a political statement, while the wearing of a yarmulke would be something Home Depot would likely have to allow.  Firing the employee for reading the Bible at lunch would be clearly a violation of the Act.

However, what cuts against Prof. Volokh’s analysis is the fact that the employee wore the pin for roughly a year and a half before he was asked to remove it.  What triggered the request to remove the pin appeared to be the employee’s decision to start bringing the Bible to work earlier this month.  The employee could very well argue that the fracas over the pin was a mere pretext for the company’s objection to the Bible being brought to the workplace.

This story highlights some of the difficulties that employers face when making decisions about how to deal with religious practices in the workplace.  Home Depot’s policy on pins was neutral, but the company’s failure to enforce that policy with dispatch may have exposed it to liability in this instance.  If you have questions about these kinds of issues, please contact Jessica M. Kelty.

Upcoming Seminar And Webinar: How To Successfully Exit The SBA 8(a) Program

For those C-level executives at businesses enrolled in the Small Business Administration’s 8(a) program, GCPC is putting on a seminar, “How to Successfully Exit the SBA 8(a) Program,” to help companies manage the transition out of the program smoothly and effectively.  Moderator David Loughran, a Vice President with Access National Bank, will moderate a panel featuring William T. Welch, Chair of GCPC’s Government Contracts Practice Group; J. Patrick McMahon, a GCPC attorney with over 35 years of experience in government contracts; and Kevin R. Learned, Chair of GCPC’s Corporate Practice Group.  The seminar is on October 29, 2009, from noon to 2 p.m. at the Ritz Carlton, 1700 Tysons Boulevard, McLean, Virginia 22102.  Admission is free for executives and owners of 8(a) companies. 

If you are unable to attend, the seminar will be available to watch online as a webinar as well.  Sign up for that here.

GCPC Publishes Winter 2009 Edition Of The Employment Counselor

Today GCPC released its Winter 2009 edition of The Employment Counselor, featuring three popular articles dealing with covenants not to compete, updated to reflect recent changes in the law.  Those articles are:

1. Covenants Not To Compete: When Do You Need Them, How Do You Implement Them?
2. The “Reasonable” Covenant Not To Compete
3. When a Competitor Hires Your Former Employee: Enforcing Your Rights

For more information regarding covenants not to compete and how to use them for your business, please contact James N. Markels.

New Virginia Supreme Court Opinion: Slip-And-Fall Case Must Be Heard By Jury

The Virginia Supreme Court gave a strong indication that slip-and-fall cases should go to a jury instead of being stricken by a trial judge in Garlick v. Safeway, Inc., when the Court issued an unpublished order reinstating a plaintiff’s case.  In her complaint, Garlick claimed that she fell and hurt herself at a Safeway supermarket because of water negligently left on the floor.  At trial she offered evidence that a Safeway employee had been unloading refrigerated cheese from a cart in that same area shortly before the fall, that it took between 30 and 120 minutes to stock the cheese, that another Safeway employee noticed water dripping from the carts for refrigerated products on occasion, and that the manager apologized to her after the fall and said that it was store policy for employees to clean up after themselves after stocking products.  Given that Garlick presented no evidence of Safeway’s actual notice of the water, Safeway argued that Garlick had also failed to present any evidence of constructive notice of the condition, and thus could not prove negligence against Safeway.  The trial court agreed and struck Garlick’s evidence at trial, but the Supreme Court reversed and sent the case back for a jury’s consideration, stating, “Garlick’s evidence was sufficient for a jury to reasonably conclude that Safeway’s employee either allowed the water to accumulate on the floor or was standing in or so near water of a sufficient quantity that the employee should have recognized the danger posed by the water and either removed it or warned Safeway’s customers of the danger.”

The underlying point appears to be the Supreme Court’s preference that slip-and-fall cases go to a jury rather than be decided by the trial judge.  Only where the plaintiff fails to show that any of the defendant’s employees could have reasonably known of the danger should the case be cut short.

Bosses Shouldn’t “Friend” Employees On Facebook

A new article in the National Law Journal describes the trend of bosses and employee’s “friending” each other on social networking sites like Facebook, to the consternation of employment lawyers everywhere.  Although popular, “friending” will tend to trigger or exacerbate liability for future discrimination and harassment lawsuits against the employer.  For example, if the boss “friends” some employees but not all of them, those left out might feel discriminated against or subject to a hostile environment.  Alternatively, the article notes, “a supervisor may learn from someone’s Facebook page that he or she belongs to a gay rights group. If the same employee is later fired for a performance problem, the employee could claim he or she were fired for being gay.”  And so on.

One lawyer recommended that companies update their policies on internal “friending” to a very simple standard: “Don’t do this.”

In-House Counsel Becoming Witnesses, Defendants

A new article in the National Law Journal, covering Association of Corporate Counsel’s annual meeting, details how in-house counsel are finding themselves dragged into litigation more often, either as fact witnesses or defendants.  In one case, in-house counsel for World Health Alternatives, Inc. found himself as a defendant against claims that he breached his fiduciary duties to the company, wasted corporate assets, and professional negligence, among other claims, in an adversarial action that was part of the company’s bankruptcy.  Even though the in-house counsel did not benefit personally from any of the alleged acts, the bankruptcy court allowed the claims to go forward, thus demonstrating that in-house counsel won’t always be shielded from personal liability.  Those claims were ultimately settled.

In-house counsel have also found themselves being deposed more often regarding discovery issues like spoliation or destruction, especially if the company does not have an information technology department that can answer any questions about electronic data retention.