The Failure to Rehire After a Release - A Common Sense View from the 6th Circuit

Just 3 days before Christmas, the 6th Circuit held that an employee who had signed a release of his age claim in return for an enhanced severance could not claim that the failure to rehire him was age discrimination. The Kellogg Company v. Sabhlock (6th Cir. 12/22/06) [pdf].

Although the Court was careful to point out that it was not setting an all encompassing rule — "Under some facts a general release will bar a subsequent failure to rehire claim and under other facts it will not. It depends on how closely related the rehire is to the original termination in terms of time and subject matter." — and Kellogg had done its job by including an agreement that it had no obligation to rehire him at any time in the future, it was still a nice Christmas gift for employers faced with a problem that appears almost insoluble if discrimination and retaliation statutes are interpreted literally.

Here the 6th Circuit avoided both an unfair result and perhaps more importantly for others a rule that would discourage enhanced payments in return for releases, by holding that "his claim of age discrimination in the failure to rehire arose out of his termination and cannot be the basis for a separate claim. After releasing an age discrimination claim, the employee cannot resurrect the age discrimination claim by reapplying for employment." (my emphasis)

USERRA Uses 2 not 3 Prong Burden Shifting Approach - 1st Circuit

Reversing a district court's summary judgment, the 1st Circuit today joined what it found all other circuits to have considered the issue and holds that the burden shifting analysis in USERRA cases is the 2 prong standard used for the NLRA, rather than the 3 prong McDonnell Douglas standard used in Title VII. Velasquez-Garcia v. Horizon Lines of Puerto Rico, Inc. (1st Cir. 1/4/07) [pdf].

Garcia complained he was terminated because of his military service. The company claimed he was terminated for violating its Code of Business Conduct because he was cashing other employee's paychecks for a fee. He had not been warned about his conduct nor did he have any prior disciplinary action. He claimed discrimination in violation of USERRA. The Court of Appeals after reviewing the legislative history found that the appropriate test for burden shifting was that used under the NLRB:

The employee first has the burden of showing, by a preponderance of the evidence, that his or her protected status was ‘a substantial or motivating factor in the adverse [employment] action’; the employer may then avoid liability only by showing, as an affirmative defense, that the employer would have taken the same action without regard to the employee's protected status.

Emphasizing its point, the Court stressed "this two-pronged burden-shifting analysis is markedly different from the three-pronged burden-shifting analysis in Title VII actions."

And in this case decisive. Once Garcia established that his military service may have played a role in his termination, the employer could win only by showing that it would have taken the action regardless of his military service. Since all that was required at the summary judgment stage was for Garcia to show there were triable issues of fact on both, the appeals court sent the case back for a jury to decide.

The case also has a good study of how courts can differ in the way they view evidence. It may also be a reflection that at times certain plaintiffs' claims are more in favor, for lack of a better term. Unlikely that it is on a conscious level, but judges are humans (at least most are) and are influenced by the same things as all other citizens, including at this particular moment great gratitude for those who serve in the military.

Chicago School of Economic Analysis in 1st Cir. FMLA Case

Deciding that two related entities are not one employer for purposes of the FMLA, the 1st Circuit relied heavily on the type of economic analysis more regularly seen in the 7th Circuit. Engelhardt v. S.P. Richards Co. (1st Cir. 12/22/06) [pdf]. The primary argument for combining the two in order to reach the magic 50 employees within 75 mile radius number needed for coverage, was that S.P. Richards used employment forms and policies of its parent company, Genuine Parts Company.

The Court even quoted the most famous practitioner of the Chicago School, Judge Posner:

Firms too tiny to achieve the realizable economies of scale or scope in their industry will go under unless they can integrate some of their operations with those of other companies, whether by contract or by ownership. The choice between the two modes of integration is unrelated to the exception. Take contractual integration first. A firm too small to have its own pension plan will join in a multi employer pension plan or will in effect pool with other employers by buying an insurance policy. . . . It will hire an accounting firm to do its payroll rather than having its own payroll department. It may ask the Small Business Administration for advice on how to maximize its profits by pruning its least profitable operations. None of these forms of contractual integration would subject tiny employers to [liability], because the integration is not of affiliated firms. Why should it make a difference if the integration takes the form of common ownership, so that the tiny employer gets his pension plan, his legal and financial advice, and his payroll function from his parent corporation without contractual formalities, rather than from independent contractors?

The bottom line — no integrated employer, no liability.

The Pesky World of Torts Strikes Again

Most of the time employment lawyers delve in the statutory world — discrimination, retaliation, harassment — all created by a legislative body. But there also exists the common law, developed over hundreds of years, rarely in the employment context. Still there is no workplace wall that excludes the common law, a fact that more often than employers would like leaves them at risk.

Negligent misrepresentation is one such common law cause of action which occasionally pokes its head in the employment law setting. A recent example, The First Marblehead Corp. v. House(1st Cir. 12/22/06) [pdf] shows just how costly words spoken, or in this case unspoken, have the potential to be.

House, along with other employees, received a memo from the General Counsel of Marblehead outlining the terms of his stock options, including a provision that they could be exercised over a period of 10 years. Shortly after that memo, the General Counsel realized he should also have noted that upon termination of employment, an employee had only 3 months to exercise the options. Realizing his error, he submitted another memo noting it was important that it be given to all employees who had received the first memo.

By now it is no surprise that the 2nd memo never made it to House. He quit, the 3 months passed, and six years later when the company went public, options with a face value of $75,000 when issued were now worth over $7 million. Not surprisingly House attempted to exercise the options, First Marblehead resisted, and litigation ensued.

Bottom line House lost his breach of contract and promissory estoppel claims, since under Delaware law those causes of action cannot prevail if they would run counter to a written plan approved by the Board of Directors. But House gained at least a temporary victory when the Circuit reversed the district court's grant of summary judgment on his negligent misrepresentation claim. According to the court under Massachusetts law, House had to show that Marblehead:

1. in the course of [its] business,
2. supplie[d] false information for the guidance of others
3. in their business transactions,
4. causing and resulting in pecuniary loss to those others
5. by their justifiable reliance on the information, and
6. with failure to exercise reasonable care or competence in obtaining or communicating the information.

Top that off with Massachusetts case law making it clear that a failure to disclose can be a "misrepresentation" and there is another valuable lesson why employers' — and their lawyers — forget about the common law of torts at their peril.

Too Good to Be True - D.C. Circuit to Rehear Controversial Tax Case

For those in the employment law world who were heartened by the D.C. Circuit's decision that the taxation of compensatory damages recovered in a suit against an employer was unconstitutional — that relief may turn out to be temporary. In August of this year, when the court decided Murphy v. IRS (8/22/06) [pdf], there was hope that settlement of employment law cases would be cheaper, at least in the D.C. Circuit — since no money would be owed for taxes, a lower settlement amount would put the same net dollars into the plaintiff's pocket.

But that prospect is now on hold as the panel has on its own motion vacated its earlier opinion, issued a new briefing schedule, and ordered it to be re-argued on April 23rd. Ross Runkel at Ross' Employment Law Blog has this prediction:

Never underestimate the governments' power to tax. I expect that if the panel does not change its position, then the whole court will sit en banc and hold that the tax passes constitutional muster.

He also notes that much more detail and background can be found at the The Tax Prof Blog's post, D.C. Circuit Panel Agrees to Rehear Murphy.

The Press and Employment Law Litigation

As a relatively young lawyer I was involved in a lengthy trial in Laredo, Texas involving a junior college and one of its faculty members. At the time Laredo had two daily newspapers, the Laredo Express Times and the Laredo News.

Being a small town, where litigation was second only to politics as a spectator sport, the trial was subject to front page and lengthy press coverage by both papers. As I would go back to the hotel and read the papers' stories of the previous day's happenings one could hardly tell they were covering the same trial, and in fact, neither of them was very close to what actually happened in the court room.

I couldn't help but remember that experience as I noticed the very different headlines appearing about a recent Phoenix case brought by the EEOC against Go Daddy, one of the leading domain registration companies. Here's a google news search as of Wednesday morning:

1. Go Daddy Made to Pay Former Employee — Web Host Industry Review - 26 minutes agoDecember 20, 2006 -- (WEB HOST INDUSTRY REVIEW) -- A federal court ruled on Friday that Web host Go Daddy Software (godaddy.com) should pay damages to an ...
2. Jury Agrees Web Host GoDaddy Did Not Discriminate — Tophosts, Canada - Dec 19, 2006December 19, 2006 – A US District Court jury of eight women returned its verdict in just four hours today, finding GoDaddy.com® did not discriminate against ...
3. Go Daddy ordered to pay ex-employee $390,000 — KOLD-TV, AZ - Dec 19, 2006PHOENIX Go Daddy Group has been ordered by a federal court jury to pay 390-thousand dollars damages to a former employee. Jurors ...
4. Go Daddy ordered to pay former employee — East Valley Tribune, AZ - Dec 19, 2006By Tony Natale, AP. A federal court jury of eight women agreed with the US Equal Employment Opportunity Commission that an employee ...
5. Federal Jury Agrees Unanimously - GoDaddy.com Did Not Discriminate — PR Newswire (press release), NY - Dec 18, 2006SCOTTSDALE, Ariz., Dec. 18 /PRNewswire/ -- A US District Court jury of eight women returned its verdict in just four hours Friday ...
6. Muslim wins $390,000 in Go Daddy bias case — Arizona Republic, AZ - Dec 18, 2006Go Daddy Group Inc. wrongfully terminated a Muslim employee from Morocco for complaining of discrimination and must pay the man ...
7. Go Daddy ordered to pay ex-employee $390,000 — AZ Central.com, AZ - Dec 18, 2006SCOTTSDALE - Go Daddy Group Inc. wrongfully terminated a Muslim employee from Morocco for complaining of discrimination and must ...
8. Jury finds GoDaddy did not discriminate — Phoenix Business Journal, AZ - Dec 18, 2006A US District Court jury found that GoDaddy.com did not discriminate when it denied a management position to Youssef Bouamama, a Muslim Moroccan who speaks ...
9. Jury awards $390K to Muslim fired by Scottsdale company —Tucson Citizen, AZ - 9 hours agoAP. PHOENIX - Go Daddy Group Inc. wrongfully terminated a Muslim employee from Morocco when he complained of discrimination and must ...
10. Go Daddy ordered to pay ex-employee $390,000 —KVOA.com, AZ - Dec 19, 2006PHOENIX Go Daddy Group has been ordered by a federal court jury to pay 390-thousand dollars damages to a former employee. Jurors ...
11. Federal Jury Agrees Unanimously - GoDaddy.com Did Not Discriminate — Domain informer, IL - Dec 19, 2006A US District Court jury of eight women returned its verdict in just four hours Friday, finding GoDaddy.com® did not discriminate against a former employee. ...
12. Go Daddy ordered to pay ex-employee $390,000 — KVOA.com, AZ - Dec 19, 2006PHOENIX -- Go Daddy Group Inc. wrongfully terminated a Muslim employee from Morocco when he complained of discrimination and must ...
13. Jury finds GoDaddy did not discriminate — Milwaukee Business Journal, WI - Dec 18, 2006A US District Court jury found that GoDaddy.com did not discriminate when it denied a management position to Youssef Bouamama, a Muslim Moroccan who speaks ...
14. Jury finds GoDaddy did not discriminate — Charlotte Business Journal, NC - Dec 18, 2006A US District Court jury found that GoDaddy.com did not discriminate when it denied a management position to Youssef Bouamama, a Muslim Moroccan who speaks ...
15. Go Daddy ordered to pay ex-employee $390,000 — Arizona Republic, AZ - Dec 18, 2006SCOTTSDALE - Go Daddy Group Inc. wrongfully terminated a Muslim employee from Morocco for complaining of discrimination and must ...
16. Jury finds GoDaddy did not discriminate — Bizjournals.com, NC - Dec 18, 2006A US District Court jury found that GoDaddy.com did not discriminate when it denied a management position to Youssef Bouamama, a Muslim Moroccan who speaks ...

Just from the headlines it would appear that the EEOC won 10 times and Go Daddy won 6. And the truth is -- all the headlines are technically correct.

But to really understand, it helps to know that the EEOC alleged that the employee was both discriminated against and then retaliated against when he complained about discrimination. As not infrequently happens, the jury rejected the discrimination claim, but found retaliation. A result so frequent it explains of why many employment lawyers call "retaliation" the most dangerous cause of action.

And of course, if truth be told, one has to give some credit to Go Daddy's spin in their press release:

Federal Jury Agrees Unanimously - GoDaddy.com Did Not Discriminate

Godaddy.com Pleased with Court Victories - Plans News Conference

EEOC's press release to come.

Employers Pick Up Another Defense for Employee's Computer Antics

Although one might shudder on learning that a California court was getting first shot at the question of whether an employer was protected from responsibility for it's employees internet communications, this time it turned out ok. Delfino v. Agilent Technologies, Inc. (Cal. App. - 6th Dist. 12/14/06) [pdf] . In fact in reading the opinion you might even think you weren't in California.

The court was affirming a summary judgment that had been granted Agilent in a lawsuit for intentional and negligent infliction of emotional distress brought by two individuals, Delfino and Day, who were on the receiving end of threatening emails sent via an Agilent employee's company provided connection to the internet. Among its other defenses, Agilent raised the protection of §230 of the Communications Decency Act of 1996.

In order to qualify for protection, Agilent had to show:

1. the defendant [is] a provider or user of an interactive computer service;
2. the cause of action treat[s] the defendant as a publisher or speaker of information; and
3. the information at issue [is] provided by another information content provider.

Noting that it was "aware of no case that has held that a corporate employer is a provider of interactive computer services under circumstances such as those presented here," the Court nevertheless did so.

While the use of the CDA as a defense is the most important aspect of the case, it is interesting reading and shows how far some people are willing to go in using the intnernet for their personal battles. Apparently the underlying dispute arose when Delfino was terminated from Varian Medical and Day resigned two months later in support, all of which was followed by a bitter lawsuit.

The Agilent employee whose conduct was in question here was alleged to have sent emails to Delfino and Day including the following:

‘It’s coming [expletive], and you won’t see it. I seriously hope you have health insurance because you’re going to get your ass stomped by me and some friends. The best part will be you won’t be able to prove it was me. I already have proof I was somewhere else. You can look forward to all your fingers getting broken, several kicks to the ribs and mouth, break some teeth, and a cracked head. Also, your car will be trashed and your computer destroyed. Maybe set your place on fire so you can be evicted. If your [expletive] is there, she’ll take a little ride to the parts of San Jose where they don’t speak [E]nglish . . . Die, [expletive]. You’ll wish you had.’

In his defense, the employee claimed he had been frustrated in part because of the more than 28,000 internet postings of Delfino and Day about the former employer or some of its employees. Those postings were the subject of prior litigation which included a decision by the California Supreme Court finding a judgment in excess of $750,000 against Delfino and Day for their internet postings was void. Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180.)

On second thought — it is pretty clear it is California.

A hat tip to Jon-Erik G. Storms at Storm's California Employment Law for alerting me to the case. His analyis is here.