Five Hot Topics Employers and Their Lawyers Need to Know Current Developments In Retaliation Issues In Employment Law Common Wage and Hour Issues in the Oil and Gas Industry Supreme Court Clarifies the Compensability of Pre- and Post-Shift Activities Under Federal Law Key Issues When Employees Leave to Compete
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THE HOUSTON
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Volume 52 – Number 4
January/February 2015
Labor & Employment Law
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contents Volume 52 Number 4
January/February 2015
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16
FEATURES Hot Topics Employers and 10 Five Their Lawyers Need to Know By Matthew T. Deffebach and Modinat “Abby” Kotun
Developments 16 Current In Retaliation Issues In Employment Law By Mark Oberti
Wage and Hour Issues 20 Common in the Oil and Gas Industry
20
26
By Punam Kaji, Meghaan McElroy and Arrissa Meyer
Court Clarifies the 26 Supreme Compensability of Pre- and Post-
Shift Activities Under Federal Law By Esteban Shardonofsky
Issues When Employees 30 Key Leave to Compete By Zach Wolfe
Media Issues in 33 Social Employment By Matthew Walker
The Houston Lawyer
30
The Houston Lawyer (ISSN 0439-660X, U.S.P.S 008-175) is published bimonthly by The Houston Bar Association, 1111 Bagby Street, FLB 200, Houston, TX 77002. Periodical postage paid at Houston, Texas. Subscription rate: $12 for members. $25.00 non-members. POSTMASTER: Send address changes to: The Houston Lawyer, 1111 Bagby Street, FLB 200, Houston, TX 77002. Telephone: 713-759-1133. All editorial inquiries should be addressed to The Houston Lawyer at the above address. All advertising inquiries should be addressed to: Quantum/ SUR, 12818 Willow Centre Dr., Ste. B, Houston, TX 77066, 281-955-2449 ext 16, www.thehoustonlawyer.com, e-mail: leo@quantumsur.com Views expressed in The Houston Lawyer are those of the authors and do not necessarily reflect the views of the editors or the Houston Bar Association. Publishing of an advertisement does not imply endorsement of any product or service offered. ©The Houston Bar Association, 2015. All rights reserved.
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January/February 2015
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contents Volume 52 Number 4
January/February 2015
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35
departments Message 6 President’s A Good Year By M. carter crow the Editor 8 From The Fascinating World of
Employment Law
By Robert Painter
Managing Internet Risks & Benefits
Internet Risks & Benefits 35 Managing Ethical and Practical Considerations
for Publishing Content Online
By Josh King and Taunya Painter
36
37
Lawyers Who Made a Difference 36 Houston John H. Crooker, Sr.
and James A. Elkins
By The Hon. Mark Davidson Profile in Professionalism 37 AShauna Johnson Clark Head of Labor & Employment, US Norton Rose Fulbright
THE RECORD 38 OFF Follow Me, Boys! James Ware
and the Sea Scouts By Jason Goff
SPOTLIGHT 39 COMMITTEE Building Dreams: HBA Habitat for
Humanity Committee
38
39
By Preston Hutson Trends 40 Legal Economic Loss Rule and Negligent
Misrepresentation
By The HON. Jeff Work
10-Year Statute of Repose Held Constitutional for Minor’s Medical Malpractice Claims By Raymond L. Panneton Reviews 42 Media Blog Post Reviews: Social Media
in the Workplace
Reviewed by Matthew J. Heberlein
Social Media in the Courtroom: A New Era of Criminal Justice Reviewed by Kelly L. Fritsch The Houston Lawyer
Thinking, Fast and Slow Reviewed by Sammy Ford IV
44 Litigation MarketPlace 4
January/February 2015
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president’s message
By M. carter crow Norton Rose Fulbright
W
A Good Year
e are now at the mid-point of the HBA
If you would like to nominate your firm, corporate legal de-
bar year. I am very happy to report that
partment or an individual for recognition as a result of their pro
we are having a good year.
bono service, either through our Houston Volunteer Lawyers
One of our key initiatives has been confirming the com-
mitment of the firms that volunteer each year to support our pro bono efforts. These are our Equal Access to Justice Champion Firms.
a nomination for the Harris County Bench
“
All of our
Equal Access
These firms commit each year to taking a cer-
firms have
tain number of pro bono cases, based on the
reaffirmed their
number of lawyers in the firm. Many firms feel more pressure for profits than ever, so it
Bar Pro Bono Awards. Nominations are due by March 2 and a form can be found on our website. Likewise, our Sections have continued to create high-quality programs, including CLE presentations. The HBA has been video re-
pro bono
cording these CLE presentations, and we now
is not easy for them to take many pro bono
commitment.
have 16 hours of free CLE programs available
cases each year. Time is money. But I am very
This volunteerism
on the HBA website. Our plan is to post on
pleased to report that our Houston firms still
our website enough quality CLE programs
believe that they have a duty to help the poor
is a hallmark
that our members have the ability to get all
gain access to justice. All of our Equal Access
of our
the CLE they need each year, free and online,
firms have reaffirmed their pro bono commitment. This volunteerism is a hallmark of our commitment to our profession. It is also more The Houston Lawyer
or through another pro bono service provider, please consider
commitment to our profession.
important now than ever, since there are now
”
just by virtue of their membership in the HBA. We plan to continue to post CLE content, so let us know if your Section has any program that it would like us to record and post.
fewer public funds available to fund pro bono services than in
Finally, spring will soon be here, and the spring holds many of
past years. Thank you for this service to our bar and our com-
our best committee activities. A list of the activities can be found
munity.
on our website. I hope that you will join us!
6
January/February 2015
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Defending Texans Since 1994 Former Assistant United States Attorney Former Assistant District Attorney Founding Member of the National College of DUI Defense of Counsel Williams Kherkher LLP Law Office of Ned Barnett
Gulf Freeway Office: 8441 Gulf Freeway, Suite 600 • Houston, Texas 77017
713-222-6767 • www.nedbarnettlaw.com Board Certified in Criminal Law by the Texas Board of Legal Specialization thehoustonlawyer.com
January/February 2015
7
from the editor
By Robert Painter Painter Law Firm PLLC
Associate Editors
Angela L. Dixon Attorney at Law
Farrah Martinez Attorney at Law
Jill Yaziji Yaziji Law Firm
The Fascinating World of Employment Law
D
onald Trump makes it look so easy on television. He utters “you’re fired,” a sad and embarrassed person walks off set and life goes on. In real life, though, the everyday workplace poses myriad legal issues—and makes employment lawyers very interesting to talk with at cocktail parties. I have heard so many fascinating stories. At a CLE seminar that I attended on computer forensics several years ago, the presenter shared a case in which he was investigating a plaintiff’s sultry story about a written contract under which she was to perform certain unspeakable services for her employer every day. As hard as her story was to believe, it turns out that she was telling the truth. When things went south, the employer deleted the signed contract, but the presenter said you really can never truly delete a file. Once uncovered, the case quickly settled. On the other side of the bar, an employment defense lawyer told me about one of his cases in which the aggrieved employee claimed that a job-related
“
incident left her with permanent disabling injuries. The case quickly settled after the lawyer found a Facebook photo of the employee running past a half-marathon finish line with her hands up in the air—well after the alleged job-related incident had occurred. Employment law is about life and it is an area of law that impacts practically all of our clients. This makes it relevant for all types of attorneys to stay generally informed on developments in employment law. In this issue of The Houston Lawyer, Zach Wolfe covers the key issues that come up when an employee takes a new job to compete with his or her former company. Mark Oberti addresses retaliation issues. Matthew Deffebach and Abby Kotun write about five hot employment law topics. Esteban Shardonofsky analyzes the Supreme Court’s clarification of the compensability of pre- and post-shift activities. Matthew Walker confronts employment issues raised by the ubiquitous social media. And Punam Kaji, Meghaan McElroy and Arrissa Meyer write on wage issues in the oil and gas industry.
Employment law is about life
and it is an area
of law that impacts
The Houston Lawyer
Polly Graham Haynes and Boone, LLP
Taunya Painter Painter Law Firm PLLC
8
January/February 2015
practically all
”
of our clients.
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BOARD OF DIRECTORS President
Secretary
M. Carter Crow
Alistair B. Dawson
President-Elect
Treasurer
Laura Gibson
Neil D. Kelly
First Vice President
Past President
Benny Agosto, Jr.
David A. Chaumette
Second Vice President
Todd M. Frankfort
DIRECTORS (2013-2015)
Hon. David O. Fraga Bill Kroger
Richard Burleson Warren W. Harris
Jennifer A. Hasley Daniella D. Landers
DIRECTORS (2014-2016) Diana Perez Gomez Greg Ulmer
editorial staff Editor in Chief
Robert Painter Associate Editors
Angela Dixon Farrah Martinez Jill Yaziji
Polly Graham Taunya Painter
Nicole Bakare Kimberly Chojnacki Sammy Ford Jason Goff Amy Hargis Matthew Heberlein Jason McLaurin Judy Ney Jeff Oldham Aaron Reimer Matthew Walker Hon. Jeff Work
Editorial Board
Yvette Cano Jonathan Day Kelly Fritsch John Gray Al Harrison Preston Hutson Chance McMillan Angie Olalde Raymond Panneton Hon. Josefina Rendon Zach Wolfe
Managing Editor
Tara Shockley
HBA office staff Executive Director
Director of Projects
Receptionist/ Resource Secretary
Project Assistants
Director of Education
Ashley G. Steininger
Membership and Technology Services Director
Continuing Legal Education Assistant
Membership Assistant
Kay Sim
Bonnie Simmons Rachel Mosley Amanda Pietsche
Lucia Valdez
Ron Riojas
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Communications Director
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By Matthew T. Deffebach and Modinat “Abby” Kotun
Five Hot Topics Employers and Their Lawyers Need to Know I t was a busy year in 2014 in the area of labor and employment law, and 2015 appears to hold more of the same. Enforcement is up on seemingly every front. For example, the Equal Employment Opportunity Commission (“EEOC”) and private litigants are aggressively attempting to enforce background check laws and regulations. The EEOC has also set its sights on pregnancy discrimination and blanket policies regarding maximum leave. Additionally, the National Labor Relations Board (“NLRB”) has a full complement of Senate-confirmed members and, in turn, is geared up to implement its agenda of increased significance in non-union workplaces. Furthermore, several regu-
latory agencies are responding to the new-age “fissured” workplace, with its increased number of temporary workers and layers of separation between a host employer and those working for that employer. This upward trend in enforcement should only continue to accelerate into 2015. Meanwhile, Apple, Nike, Fitbit and a host of other manufacturers are releasing technologies that change how employees interact with the world and their employers. All of these issues are included in our top five labor and employment law issues to watch in 2015. I. Background Checks Under the Fair Credit Reporting Act Several recent class actions have been filed regarding background checks that are purportedly not in compliance with the Fair Credit Reporting Act (“FCRA”).1 Both the Federal Trade Commission and private litigants may seek to enforce the FCRA provisions. The FCRA imposes a number of requirements on employers who wish to investigate applicants for employment through the use of consumer credit reports, criminal record checks or social-media screenings. The applicable regulations require an employer who uses a third party to obtain information about the character and general reputation of an applicant to, among other things: (1) advise an applicant in writing that a background check will be conducted through a third-party agency; (2) procure the applicant’s written authorization to obtain the records;2 and (3) notify the applicant that the results will not automatically result in disqualification from employment.3 These provisions apply to current employees as well. If an employer contemplates taking an adverse employment action and the background report was a factor, then the employer must, before taking the action, provide the applicant a copy of his or her consumer report and the FTC’s “A Summary of Your Rights Under the Fair Credit Reporting Act” document.4 After waiting a reasonable period of time to allow the applicant to discuss the report
include openly discussing wages and with the employer, the company can working conditions, complaining about then take the adverse action and must one’s employer and protesting perceived provide the applicant with oral, written 5 improper treatment.8 Various NLRB enor electronic notice of the action. forcement initiatives have recently chalIn 2014, several nationwide FCRA lenged common employer policies and class action lawsuits were instituted provisions as being overly broad under against well-known companies.6 Among Section 7 and, in turn, chilling employthe claims made, two themes were comees’ Section 7 rights. mon: (1) the initial notice provided was The types of policies at issue include not a stand-alone document, but instead confidentiality clauswas part of the emes, civility proviployment application The FCRA sions, anti-harassor included extraneimposes a number ment policies, at-will ous information or statements, arbitrareleases; and (2) the of requirements tion agreements, forms used did not mandatory class acinclude the words on employers who tion waivers, work“consumer report” wish to investigate place recording prowhen describing the information sought applicants for employment hibitions and social media policies.9 For through the backthrough the use ground check. example, in Flex Frac Purported FCRA Logistics, L.L.C. v. of consumer credit violations can come NLRB, the Fifth Cirreports, criminal with a hefty price tag. cuit Court of Appeals In 2014, Publix, Swift affirmed the NLRB’s record checks or socialTransportation Comruling that Flex Frac’s media screenings. pany of Arizona and policy advising emDollar General setployees not to share tled their class action suits for $6.8 milconfidential information outside of the lion, $5 million and $4 million, respecorganization violated the NLRA.10 The tively.7 The FCRA applies broadly to any confidentiality provision was found to be unlawful despite the fact that employees report about employees but only when did not actually interpret the company’s the employer is paying a third party (e.g., policy to restrict their rights; rather, consumer reporting agency) to compile employees could conceivably interpret the information and not when the emthe policy as restricting their Section 7 ployer conducts the search. An employer rights.11 using such a third-party agency should consider carefully reviewing its backEmployers should consider revisiting ground check forms and procedures. their employee handbooks and work rules, assess the business justifications II. NLRB Assault on Standard Policies for each policy that could be challenged in the Non-Union Context under Section 7, narrowly tailor the poliJust as routine background check docucies for those business necessities and ments have come under attack, so have provide specific examples, where appropolicies found in virtually every employpriate, of the conduct being regulated. ee handbook. The National Labor RelaAdditionally, savings clauses—statetions Act (“NLRA”) covers essentially ments that employees should not interall non-supervisory employees, both pret the employment policies in a way union and non-union. Section 7 of the that would deny them rights under the NLRA protects employees who engage in NLRA—can be helpful, but they are not protected “concerted activities,” which enough if employees are unable to un-
“
”
derstand what they can and cannot do in relation to their protected concerted activities.12 III. Regulators Response to Fissured Workplaces The “fissured” workplace is essentially the practice of employers relying on third parties to handle functions that were historically managed “in house” by their own employees. Instead of host employers handling those functions, staffing agencies or contractors handle them. Regulators have become critical of this model as it relates to employment law issues, including in the context of franchisors and their franchisees. For example, in July 2014, the NLRB Office of the General Counsel announced that it authorized numerous complaints alleging that franchisor McDonald’s, USA, LLC is a joint employer with its franchisees.13 Similarly, the Occupational Safety and Health Administration has been targeting host employers who use staffing agencies, contending that both the staffing agency and the host employer are joint employers of temporary workers and, therefore, mutually responsible for providing and maintaining a safe work environment for them.14 Regarding wage and hour issues, the Department of Labor is engaging in directed investigations in low-wage industries where workers are most at risk for violations.15 These actions are part of a growing trend of regulators attempting to combine distinct entities, such as franchisors and franchisees or contractors and subcontractors, as joint or otherwise integrated entities. Employers—especially companies relying on staffing agencies or in the construction or franchise industries—should stay informed of developments in this area. IV. EEOC Initiatives The EEOC has recently pursued the following significant areas: (a) accommodation for pregnancy-related limitations under the Americans with Disabilities Act (“ADA”), as amended, and the Preg-
thehoustonlawyer.com
January/February 2015
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nancy Discrimination Act (“PDA”); (b) extended leave as an ADA “reasonable accommodation”; and (c) preserving access to the EEOC by targeting policies interfering with an employee’s right to remedy employment discrimination through cooperation with the agency.16 Regarding pregnancy discrimination, the EEOC issued guidance recently asserting that employers should provide reasonable accommodations to workers who are disabled by pregnancy, childbirth or a related medical condition just as they would to an employee with a disability under the ADA.17 Moreover, the EEOC filed several pregnancy discrimination cases in 2014, including a case against a Texas pharmacy in September where two pregnant employees were allegedly fired because of their pregnancies.18 In Young v. United Parcel Service, in which the United States Supreme Court heard oral arguments on December 3, 2014, the EEOC submitted an amicus brief asserting its view that employers must treat pregnant employees with
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January/February 2015
work limitations as favorably as other groups of non-pregnant employees who are similar in their ability or inability to work.19 The Supreme Court’s ruling is expected to clarify this issue, making this a case to watch in 2015. With respect to extended leave as an ADA reasonable accommodation, the EEOC has launched a series of actions challenging purportedly unlawful leave policies. For example, in June 2014, the agency settled with Princeton Healthcare for $1.35 million, where the EEOC contended that the employer’s blanket policy of 12 weeks maximum leave did not allow for the interactive process to occur in determining whether granting more leave could conceivably be an ADA reasonable accommodation.20 Shocking many, the EEOC also filed suit against CVS Pharmacy in 2014, alleging that CVS was engaged in a pattern or practice of resistance to the full employment rights secured by Title VII after it conditioned employees’ receipt of severance benefits on using its stan-
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dard severance agreement. Despite provisions in the agreement informing employees that they could cooperate with the EEOC, the agency maintained that non-disparagement and other similar and standard provisions could be viewed by employees as denying them access to the EEOC.21 Although this lawsuit was dismissed by the district court,22 the dismissal was not on the merits, so it remains an open issue whether such provisions are problematic based on the EEOC’s stringent interpretation. Employers should consider including statements in more than one provision of a severance agreement, specifically preserving an employee’s right to file discrimination charges and communicate with the EEOC post-separation and after signing a release of claims. V. Issues with Latest Technologies With the announcement of the Apple Watch, the increased use of Google Glass, and the rise of both the “Internet of Things” and wearable technology,
employers should consider how these technologies impact their employment policies. These technologies can be integrated into an employer’s business to increase productivity, enhance employee training and improve the employee performance assessment. However, they also present unique challenges. Several risks are associated with both employee and employer-sponsored use of these new technologies. Some of these risks include: potential violation of an employee’s privacy rights; wage and hour concerns due to employee use during non-work hours for business purposes; safety risks based on worker distraction; potential disclosure of employer’s trade secrets and confidential information; security breaches; and employee conduct exposing an employer to discrimination, harassment or similar claims. Employers should consider developing and implementing specific policies addressing the use of these technologies. Of course, such policies will need to be appropriately narrowly tailored, espe-
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cially bans on the use of certain technologies, in order to not run afoul of the NLRA and an employee’s right to discuss employment terms and conditions. VI. Conclusion Diligence in reviewing company policies and employee handbooks, strict adherence to the requirements of the FCRA, and close observance of developments in certain NLRB and EEOC “hot” areas can go a long way in minimizing litigation and the potential wrath of the regulators. Employers and their counsel can and should be ready to adapt to this rapidly evolving legal landscape. Matthew T. Deffebach is a partner at Haynes and Boone, LLP, co-chair of the firm’s litigation department, and chair of the firm’s Labor and Employment Practice Group. He is certified by the Texas Board of Legal Specialization as a labor and employment law specialist. Modinat “Abby” Kotun is an associate at Haynes and Boone, LLP and a member of the firm’s Labor
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January/February 2015
and Employment Practice Group. Endnotes 1. 15 U.S.C. § 1681 et seq. 2. 15 U.S.C. §§ 1681(b(a)(3)(B) and 1681b(b). 3. EEOC Enforcement Guidance No. 915.002 (2012), available at http://www.eeoc.gov/laws/guidance/arrest_ conviction.pdf. 4. 15 U.S.C. § 1681b(b). 5. 15 U.S.C. § 1681m(a); FTC Advisory Opinion Letter to Harold Hawkey (Dec. 18, 1997). 6. Denise Trani-Morris, Retailers Facing New Class Action Attack for Routine (but Unlawful) Background Check Practices, LAW.COM (Aug. 7, 2014), http://www. law.com/sites/jdsupra/2014/08/07/retailers-facingne w- c l a s s - act ion- at t ac k-for-rout i ne-but-u nl a w f u l - b a c k g r ou n d - c h e c k- p r a c t i c e s / ?s l r e t u rn=20141103170927. 7. See Allissa Wickham, Publix Seeks OK On $6.8M Deal Over Background Checks, LAW360.COM (Oct. 28, 2014), https://www.law360.com/articles/590992/publixseeks-ok-on-6-8m-deal-over-background-checks; Final Order and Judgment, Ellis v. Swift Transportation Co., No. 3:13-cv-00473-JAG (E.D.Va. Oct.7, 2014). 8. 29 U.S.C. § 157 (2000). 9. See Shannon M. Gibson, Established Employment Rules Are Not Safe from the NLRB, LAW360.COM (July 24, 2014), https://www.law360.com/articles/556182/establishedemployment-rules-are-not-safe-from-the-nlrb. 10. 746 F.3d 205, 207 (5th Cir. 2014). 11. Id. 12. In Three D, LLC (Triple Play), where the employer terminated two employees for participation in a Facebook discussion about their employer, the NLRB found the employer’s “Internet/Blogging” policy, prohibiting
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employees from revealing confidential company information and engaging in “inappropriate discussions” about the company, unlawful despite the existence of a savings clause. 361 NLRB No. 31 (2014). 13. Press Release, NLRB, NLRB Office of the General Counsel Authorizes Complaints Against McDonald’s Franchisees and Determines McDonald’s, USA, LLC is a Joint Employer (July 29, 2014). 14. Press Release, OSHA, Policy Background on the Temporary Worker Initiative Memorandum, OSHA (July 15, 2014). 15. David Weil, The Fissured Workplace, WORK IN PROGRESS, THE OFFICIAL BLOG OF THE DEPARTMENT OF LABOR (Oct. 17, 2014), http://blog.dol. gov/2014/11/05/the-fissured-workplace. 16. EEOC Strategic Enforcement Plan for 2013-2016, available at http://www.eeoc.gov/eeoc/plan/sep.cfm. 17. Enforcement Guidance: Pregnancy Discrimination and Related Issues, EEOC (July 14, 2014), available at http://www.eeoc.gov/laws/guidance/pregnancy_guidance.cfm. 18. Press Release, EEOC, EEOC Sues Pharmacy Solutions for Pregnancy Discrimination (Sept. 9, 2014), available at http://www.eeoc.gov/eeoc/newsroom/release/9-1514a.cfm. 19. Young v. United Parcel Service, 707 F.3d 437 (4th Cir. 2013), cert. granted, 134 S.Ct. 2898 (July 1, 2014) (No. 12-1226). 20. Press Release, EEOC, Princeton Healthcare Pays $1.35 Million to Settle Disability Discrimination Suit with EEOC (June 30, 2014) available at http://www.eeoc. gov/eeoc/newsroom/release/6-30-14.cfm. 21. See Complaint, EEOC v. CVS Pharmacy, Inc., No. 14CV-863, 2014 WL 540344, at *1 (N.D. Ill. Jan. 7, 2014). 22. EEOC v. CVS Pharmacy, Inc., No. 14-CV-863, 2014 WL 5034657, at *1 (N.D. Ill. Oct. 7, 2014).
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Abraham, Watkins, Nichols, Sorrels, Agosto & Friend Boutique Firm Champions Blank Rome LLP Nichols, Sorrels, Agosto Abraham, Watkins, Connelly Baker Wotring LLP & Friend Blank&Rome LLP Edison, McDowell Hetherington LLP ConnellyWilhite • Baker Fullenweider PC• Wotring LLP Edison, McDowell Hicks Thomas LLP & Hetherington LLP Fullenweider Hogan Lovells US LLPWilhite PC HicksAskanase Thomas LLP Hughes Watters LLP Jenkins & Hogan Kamin,Lovells L.L.P. US LLP Hughes Watters Askanase Johnson DeLuca Kurisky & Gould,LLP P.C. Jenkins & Kamin, L.L.P. LeClairRyan Johnson DeLuca McGuireWoods LLPKurisky & Gould, P.C. McGuireWoods LLP Ogden, Gibson, Broocks, Longoria Ogden, Gibson, Broocks, Longoria & Hall, & Hall, L.L.P. L.L.P. Ogletree, Deakins, Nash, Smoak, Ogletree, Deakins, Nash, Smoak & Stewart P.C. & Stewart P.C. ReedSmith LLP ReedSmith LLP Schwartz, Junell, Greenberg & Oathout, L.L.P SuttonSutton McAughan Deaver LLP McAughan Deaver LLP Vorys, Sater, Seymour Pease LLP Weil, Gotshal & and Manges LLP Weil, Gotshal & Manges LLP Weycer, Kaplan, Pulaski & Zuber, P.C. Weycer,Wilson, Kaplan, Pulaski & Zuber, P.C. Cribbs & Goren, P.C. Wilson, Cribbs & Goren, P.C. Yetter Coleman LLP Yetter Coleman LLP
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Coane & Associates Peter J. Bennett Flowers & Frankfort Law Office of J. Thomas Black, P.C. Frye,Law Steidley, & Benavidez, PLLC Office Oaks of Robbie Gail Charette Funderburk Funderburk & Courtois, PLLC Chaumette, PLLC Fuqua & Associates, P.C. Coane & Associates Hunton & Williams DamaniLLP Law Firm Katine & Nechman L.L.P. Helene Dang Katten Law Muchin Rosenman Office of Papa LLP M. Dieye KimLy Law Firm PLLC
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The Jurek Law Group, PLLC Katine & Nechman L.L.P. Solo Champions Katten Muchin Rosenman LLP Alejandro Macias KimLy Law Firm PLLC Angela Solice KoonsFuller, P.C. Brian Albrecht Kroger | Burrus Chaumette, PLLC Gregory S. Lindley Clinton Yu Law Office of Maria S. Lowry Damani Law Firm Macias Alejandro Danielle H. Maya Martin R.G. Marasigan Law Offices Davis Hsu Danielle H. Maya C. Treich TheDiane Law Office of Evangeline Mitchell, PLLC Helene Dang Bertrand C. Moser Karla J. Patel LaFitteErvin Dinn PLLC Law Office of of Bertrand C.Perry, MoserP.C. Law Office Brent C. Law OfficePilgrim of Brent C. Office Perry, P.C. Law Law Office of CindiE. L. Price Robison Robert Law Office Cindi of Gregory S. Lindley L. Robison & Fazel Law OfficeScardino of J. Thomas Black, P.C. Shortt & Nguyen, Law Office of Jeff Skarda P.C. Skarda Law Office of Jeff Maria S. Lowry Strong Pipkin BissellM.& Dieye Ledyard, L.L.P. Law Office of Papa Thompson, Coe, Cousins & Irons, L.L.P. Law Office of Peter J. Bennett Tindall & England, P.C. Law Office of Robbie Gail Charette Travis Torrence Martin R.G. Marasigan Law Offices Pilgrim LawDiane OfficeC. Treich Norma Robert E. Price Levine Trusch Clinton The Ericksen Law FirmYu
The Jurek Law Group, PLLC The Law Office of Evangeline Mitchell, PLLC The Law Office of Norma Levine Trusch Travis Torrence
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R Current By Mark Oberti
Developments In Retaliation Issues In Employment Law
etaliation claims have been hot for decades. But they are sizzling now, with newly reinvigorated federal antiretaliation provisions under statutes like the Sarbanes-Oxley Act and the Dodd-Frank Act. As a result, employees and employers are fighting more battles over retaliation in courts and administrative agencies than ever before. As described in this article, recent decisions have given employees and employers new ammunition and arguments in retaliation cases.
1. Four Decisions Have Made SOX Retaliation Claims by Corporate Whistleblowers More Dangerous to Employers than Ever Before In broad terms, Section 806 of the Sarbanes-Oxley Act of 2002 (“SOX”) prohibits employers from retaliating against employees who report suspected securities fraud. During the first nine years after SOX was passed, however, more than 95 percent of employees who brought retaliation claims lost because the administrative law judge (“ALJ”), administrative review board (“ARB”) or federal district or appellate courts concluded that they had not engaged in “protected activity” under SOX. The decisions commonly reached this conclusion by finding that the alleged fraud that the claimant complained of was not material, the complaint did not specifically and definitively relate to one of the six categories listed in Section 806 or fraud on shareholders, or the complaint was about supposed fraud that may occur in the future, but had not yet occurred.1 Consequently, by 2010 retaliation claims under SOX posed very little threat of liability to employers. In May 2011, that changed with the issuance of Sylvester v. Parexel Int’l LLC, No. 07-123, 2011 WL 2165854 (ARB May 25, 2011). In Sylvester, the ARB dramatically shifted the standards for “protected activity” under Section 806 of SOX in favor of claimants.
In the case, the complainants reporthave been winning at a much higher ed to company managers that their corate.2 As a result, SOX retaliation claims workers failed to properly record test now present a real threat of liability to times for clinical drug trials the compacompanies. ny performed on behalf of drug manuIn March 2014, SOX retaliation claims facturers; that management responded became even more serious when the it “was no big deal”; and that they were U.S. Supreme Court held that Section then subjected to various forms of retali806 covers employees of private comation. The ALJ dismissed the complaint, panies.3 Prior to Lawson, there was a finding the complainants failed to estabsplit of authority on whether Section lish they engaged in 806 only applied to SOX-protected whisemployees of publicly As described in tleblower activity. traded companies. In this article, However, the ARB Lawson, the Court reversed, making the reached the broadest recent decisions following significant possible interpretaholdings: tion of statutory covhave given employees • The federal erage and held that pleading stanSOX Section 806 apand employers dards do not plies to employees of new ammunition apply to SOX publicly held comwhistleblower panies, employees of and arguments in claims initiated contractors and subwith the Occucontractors and even retaliation cases. pational Safety employees of a public and Health Administration. company’s “officers,” “employees” and • An employee’s complaint need not “agents.” “definitively and specifically” relate The Court noted that Congress enactto the categories listed in Section ed SOX in the wake of the Enron debacle. 806 and need not relate to fraud on In debating that law, Congress observed shareholders. that Enron’s private contractors, such as • The “reasonable belief” standard Arthur Anderson, were “complicit in, does not require the complainant if not integral to, the shareholder fraud to actually communicate the reaand subsequent cover-up.” Enron’s fraud sonableness of his or her belief to continued for so long in part because management or other authorities. these contractors were able to retaliate • Section 806 protects complaints against and even discharge employees about a violation of law that has who tried to report corporate misconnot yet occurred, provided that duct, without any legal consequences. the employee reasonably believes, The Court found that SOX was designed based on facts known to him or to remedy this problem, and thus emher, that the violation is about to be ployees of private companies who comcommitted. plained to their employer and were re• A complainant need not establish taliated against could be protected by the elements of fraud, including Section 806. This holding is sure to lead materiality. to many retaliation claims against private employers. These holdings contradicted many In October 2014, the ARB issued Fordprior rulings from ALJs, federal courts, ham v. Fannie Mae, No. 12-061, 2014 WL and the ARB itself. Since Sylvester, the 5511070 (ARB Oct. 9, 2014), yet another ARB has continued to follow Sylvester decision favoring the plaintiffs’ bar in in numerous cases and SOX claimants SOX cases. By way of context, SOX does
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not follow the familiar Title VII McDonnell Douglas burden-shifting framework.4 Rather, in a SOX retaliation case: [A]n employee bears the initial burden of making a prima facie showing of retaliatory discrimination [by showing that his or her protected activity was a “contributing factor” to the challenged personnel action]; the burden then shifts to the employer to rebut the employee’s prima facie case by demonstrating by clear and convincing evidence that the employer would have taken the same personnel action in the absence of the protected activity.5 In Fordham, the ARB attempted to clarify how Section 806’s two separate burdens of proof should be applied. The ARB held: The determination whether a complainant has met his or her initial burden of proving that protected activity was a contributing factor in the adverse personnel action at issue is required to be made based on the evidence submitted by the complainant, in disregard of any evidence submitted by the respondent in support of its affirmative defense that it would have taken the same personnel action for legitimate, non-retaliatory reasons only. Should the complainant meet his or her evidentiary burden of proving “contributing factor” causation, the respondent’s affirmative defense evidence is then to be taken into consideration, subject to the higher “clear and convincing” evidence burden of proof standard, in determining whether or not the respondent is liable for violation of SOX’s whistleblower protection provisions.6 The ARB reversed and remanded the ALJ’s dismissal order because the ARB determined the ALJ committed reversible error by improperly “weighing evidence offered by Fannie Mae in support of its affirmative defense... against [the] complainant’s causation evidence”
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of how her SOX-protected activity purreason for its action was the sole basis portedly was a contributing factor in or reason for its action; that it would the employer’s adverse employment achave taken the same personnel action tion against her. According to the ARB, based the demonstrated non-retaliatomixing and weighing ry reasons even if the the evidence in this complainant had not Often evidence that fashion impermissiengaged in the probly resulted in applytected activity.7 establishes a legitimate ing to the employer’s reason for terminating evidence the lower A potential probpreponderance of the lem with applying an employee (the evidence standard the ARB’s holding defense’s burden) will that is only properly is that evidence in applicable to the commany cases is not easdeprive the complainant plainant’s evidence, ily compartmentalrather than applying ized. Often evidence of the quantum of proof the higher clear and that establishes a lenecessary to demonstrate convincing evidence gitimate reason for standard required to terminating an emthat the activity protected be applied to the employee (the defense’s ployer’s evidence. As burden) will deprive by SOX was a contributing the ARB further clarithe complainant of factor in the adverse fied: the quantum of proof [S]hould a responnecessary to demonemployment action (the dent seek to avoid strate that the activcomplainant’s burden). liability by producity protected by SOX ing evidence of a lewas a contributing gitimate, non-retaliatory basis or reafactor in the adverse employment action son for the personnel action at issue, (the complainant’s burden). The decision the respondent must prove, not by a contains a strong dissent. Unless Fordpreponderance of the evidence, but by ham is overturned by a federal circuit clear and convincing evidence, that its court, it will militate in favor of plaintiffs evidence of a non-retaliatory basis or in many SOX cases. Finally, in November 2014, the Fifth Circuit decided Halliburton, Inc. v. Admin. Rev. Bd., 771 F.3d 254 (5th Cir. 2014), a SOX case in which the complainant prevailed at the ARB level and Halliburton appealed to the Fifth Circuit. This decision is a sweeping victory for the SOX plaintiffs’ bar. Among its many
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pro-employee holdings, the Court held that, contrary to the conclusions of many district courts, damages for emotional distress are available to employees who prevail in SOX retaliation claims. 2. A Recently Heightened Causation Standard Has Made Retaliation Claims Brought Under AntiDiscrimination Statutes More Difficult for Employees to Establish In Nassar v. Univ. of Texas Southwestern Med. Ctr., 133 S. Ct. 2517 (2013), the U.S. Supreme Court addressed the proper causation standard applicable to retaliation claims. The Court held that Title VII retaliation claims must be proved according to traditional principles of but-for causation, not the lessened “motivating factor” causation test for discrimination claims as stated in 42 U.S.C. § 2000e2(m). This requires proof that the unlawful retaliation would not have occurred in the absence of the alleged wrongful action or actions of the employer. This higher causation standard will weed out some retaliation claims altogether, and make others more difficult to prove. In addition, while discrimination claims that have a “motivating factor” causation standard may rely on the “cat’s paw” theory of causation,8 some courts have held that where the “but for” causation standard applies the “cat’s paw” theory is either unavailable altogether, or is modified in a way that is not nearly as favorable to the plaintiff.9 For this additional reason, the holding in Nassar is a potentially powerful tool for defendants to wield in many retaliation cases. 3. Multi-million Dollar Bounties Offered by the SEC Have Encouraged Employees to Blow the Whistle on their Employers The Dodd-Frank Act of 2010 authorized the SEC to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a SEC enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10 and 30 percent of the money collect-
ed. Individuals who do report such information to the SEC are protected from retaliation by Dodd-Frank’s anti-retaliation provision.10 On September 22, 2014, the SEC announced its largest whistleblower award to date under its Dodd-Frank whistleblower bounty program. It awarded $30-$35 million to an anonymous whistleblower whom the Commission said provided original information about an ongoing fraud that would otherwise have been difficult to detect. That information led to the successful enforcement of an SEC action as well as unspecified related actions. The SEC’s $30 million-plus award received widespread publicity in the mainstream media, and is likely to stimulate employees to make more reports of alleged securities fraud to the SEC in hopes of receiving a large monetary bounty. This, in turn, may lead to more retaliation lawsuits under Dodd-Frank’s antiretaliation provision, which has several employee-friendly provisions including
a long statute of limitations, liquidated damages, and direct access to federal court, with no mandatory administrative exhaustion requirements. Mark Oberti is a founding partner of Oberti Sullivan LLP, where he practices employment law on behalf of employers and select employees. He is board certified in Labor and Employment Law by the Texas Board of Legal Specialization. Endnotes 1. See Richard E. Moberly, Unfulfilled Expectations: An Empirical Analysis of Why Sarbanes-Oxley Whistleblowers Rarely Win, 49 WM. & MARY L. REV. 65 (2007). 2. See, e.g., Barrett v. E-Smart Technologies, Inc., Nos. 11088, 12-013, 2013 WL 1856718 (ARB Apr. 25, 2013) (affirming ALJ’s liability finding and damages award of more than $1.2 million against employer under Sylvester standard); Zinn v. Am. Commercial Lines, Inc., No. 10-029, 2012 WL 1102507, at *4-5 (ARB Mar. 28, 2012) (relying on Sylvester to conclude that the ALJ “legally erred in analyzing the evidence of Zinn’s objective reasonableness of a violation of pertinent law, thus warranting a remand... [partially because] an allegation of shareholder fraud is not a necessary component of protected activity under
Section 806 of the SOX”); Prioleau v. Sikorsky Aircraft Corp., No. 10-060, 2011 WL 6122422, at *5-7 (ARB Nov. 9, 2011) (reversing ALJ’s decision against complainant based largely on Sylvester); Funke v. Fed. Express Corp., No. 09-004, 2011 WL 3307574, at *7 (ARB July 8, 2011) (reversing ALJ’s decision against complainant based in part on Sylvester). 3. Lawson v. FMR LLC, 134 S. Ct. 1158 (2014). 4. McDonnell Douglas v. Green, 411 U.S. 792, 800 (1973). 5. 49 U.S.C. § 42121(B)(2)(b)(ii) (“[N]o investigation otherwise required under subparagraph (A) shall be conducted if the employer demonstrates, by clear and convincing evidence, that the employer would have taken the same unfavorable personnel action in the absence of that behavior.”). 6. Fordham, 2014 WL 5511070, *1. 7. Fordham, 2014 WL 5511070, *14. 8. Staub v. Proctor Hospital, 131 S. Ct. 1186 (2011) (“cat’s paw” causation involved a subordinate with a discriminatory motive who influenced an otherwise nondiscriminatory decision-maker to act in a manner tainted by illegal bias). 9. Goodsite v. Norfolk S. Ry. Co., 573 F. App’x. 572, 585 n.7 (6th Cir. 2014) (Based on Nassar, “it would appear that, at a minimum, the cat’s paw theory of liability must be modified in Title VII retaliation cases.”); Sims v. MVM, Inc., 704 F.3d 1327, 1335-36 (11th Cir. 2013) (“but for” causation standard is incompatible with “cat’s paw” doctrine). 10. See 15 U.S.C. § 78u-6(h)(1).
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By Punam Kaji, Meghaan McElroy and Arrissa Meyer
Common Wage and Hour Issues in the Oil and Gas Industry
T
he oil and gas industry has experienced a notable increase in wage and hour litigation initiated by both the U.S. Department of Labor (“DOL”) and plaintiffs’ lawyers. The DOL’s recent emphasis has resulted in a number of investigations into energy companies’ wage and hour practices, precipitating heavy-hitting damages ranging from the tens of thousands to multi-millions of dollars.1 For example, a recent DOL investigation into a number of Shell Oil Co. (“Shell”) and Motiva Enterprises, LLC (“Motiva”) facilities resulted in a $4 million settlement when it was revealed that over 2,000 employees were not receiving overtime for mandatory preshift meetings.2 Any company failing to comply with the Fair Labor Standards Act (“FLSA”) risks similar costly damages, including back pay for two to three years, liquidated damages and attorney’s fees and costs.3 Moreover, the ability of employees to join together in a collective action only increases the potential damages for employers.4 As illustrated above, many noncompliance issues stem from the employer’s misapplication of the legal requirements. Common issues under the FLSA in the oil and gas industry include classifying workers as independent contractors, applying particular exemptions, using various pay methods such as “day rate” or “fluctuating work week,” and understanding how to calculate travel time and when to include bonuses in the regular rate. This article provides an overview of common issues in the oil and gas industry which employers should be aware of, especially in light of the current climate of strict enforcement. I. Misclassification A. Independent Contractor/Employee Classifying workers as independent contractors is tempting to many companies because most labor and employment laws, including the FLSA, only apply to
employees, meaning they can avoid paying minimum wage and overtime, withholding federal and state taxes, providing workers’ compensation insurance and fringe benefits and save administrative costs. The use of properly classified independent contractors is a legitimate business model, but the DOL has made it one of its enforcement initiatives because misclassification denies workers access to critical benefits and protections.5 There is no one definition of independent contractor under the FLSA, nor is the determination of the relationship based on a single characteristic. The goal of the analysis is to determine the underlying “economic reality” of the situation and whether the worker is economically dependent on the supposed employer based on the totality of the circumstances. The courts and the DOL generally look at the following factors: (1) the degree of control exercised by the alleged employer; (2) the permanency of the relationship; (3) the relative investments of the worker and the alleged employer; (4) the skill and initiative required to perform the job; (5) the degree to which the worker’s opportunity for profit and loss is determined by the alleged employer; and (6) the extent to which the worker’s services are an integral part of the company’s business. Given the legal ramifications for misclassification, companies that classify their workers as independent contractors should carefully analyze the above factors before making any classification decision. And remember, whether someone is an employee is determined by the actual relationship between the worker and the business—and not by the label given to the worker, the independent contractor agreement signed by the worker, or the 1099 form provided to the worker. B. Exemptions Another type of misclassification problem in the oil and gas industry is improper classification of employees as
exempt from the minimum wage and overtime provisions of the FLSA. While many energy workers are well paid or have high-level titles, they are still entitled to overtime compensation unless they meet all the applicable exemption requirements. Plus, a company with operations in various states must ensure compliance with the FLSA requirements as well as the state wage and hour requirements where it does business. As some states do not recognize all of the FLSA overtime exemptions, a company may have to pay overtime compensation to employees who are otherwise exempt under federal law. Below, some of the exemptions that employers often apply to energy workers are discussed. 1. Professional Exemption Many oil field workers have extensive technical knowledge and years of experience, making them seem like candidates for the professional exemption. However, the professional exemption requires that an employee’s primary duty must be the performance of work requiring advanced knowledge, which is defined as work that is predominantly intellectual in character and requires the consistent exercise of discretion and judgment. The exemption does not apply to occupations in which knowledge can be obtained at the high school level or where “the bulk of the employees have acquired their skill by experience.”6 Thus, in Smith v. Frac Tech Servs., Ltd., 7 the court found that field engineers were not exempt professionals where they were not required to have engineering degrees or any other specific degree. For the professional exemption, an advanced academic degree is a standard (if not universal) prerequisite and the best prima facie evidence of professional training.8 Accordingly, it is unlikely that energy industry occupations requiring only a bachelor’s degree, an associate’s degree, or completion of a training course will qualify for the professional exemption, regardless of the employee’s job title.
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2. Executive Exemption Supervisory employees in the energy industry may be exempt under the executive exemption. However, problems may arise with this exemption because oil field supervisors frequently supervise independent contractors, rather than other employees of the employee’s employer. Interpreting the requirement of 29 C.F.R. § 541.104 that an exempt executive must customarily and regularly direct the work of “two or more other employees,” Section 22b02(b) of the DOL’s Field Operation Handbook states that “only other employees of the employer may be considered when determining if the two full-time employee equivalency is met; supervision of volunteers, employees of independent contractors, or any other “non-employees” (e.g., trainees or interns) in relation to the employer are not considered for purposes of this test.”9 Thus, employers relying on the executive exemption should confirm that the employees classified as exempt supervise the equivalent of two full-time employees. 3. Highly Compensated Exemption Given the substantial salaries paid in the energy industry, it is possible that some employees may be exempt under the highly compensated exemption. Under federal law, the highly compensated exemption applies to employees who earn $100,000 or more per year (which includes at least $455 per week paid on a salary basis), whose primary duty includes performing office or non-manual work, and who customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee. Although many energy industry workers do not work in a traditional office environment, they may still qualify as exempt under the highly compensated exemption. For example, in Allen v. Coil Tubing Servs., LLC, the court found that a service supervisor for an oil well service company was a highly compensated 22
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employee even though he occasionally performed manual duties alongside the service technicians he supervised in the field. Thus, supervising or working closely with other workers engaging in physical labor will not necessarily disqualify energy industry workers from the highly compensated exemption.11 II. Payment Options for Non-Exempt Employees For employees who do not meet the requirements of any exemption, the FLSA and DOL regulations provide four primary compensation options. Regardless of the compensation method used, however, the employer still must pay its nonexempt employees overtime for all hours worked over 40 each workweek as well as minimum wage for all hours worked. A. Salary for fixed weekly hours An employer may pay its non-exempt employees a salary that is meant to compensate the employees for an agreed upon number of hours the employees regularly work each workweek.12 The salary must be converted to its hourly equivalent to determine the regular rate of pay on which the overtime rate is calculated. Because the FLSA does not prescribe how many hours per week of straight time a salary must be intended to compensate an employee, the employer could pay its non-exempt employees a salary for a 40 hour workweek, 60 hour workweek, or even 80 hour workweek, provided that the salary (and any other compensation paid to the employee for his or her work) divided by the weekly number of hours does not result in a regular rate below minimum wage. To utilize this payment method, the weekly hourly amount for which the salary is meant to compensate should approximate the average number of hours worked by the non-exempt employees per week. Since the nature of nonexempt employees’ work in the oil and gas industry typically results in their hours fluctuating from week to week, this compensation scheme is not recom-
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mended because the employer’s labor costs will not approximate the actual hours worked by its employees. B. Salary for Fluctuating Workweek The FLSA also allows for non-exempt employees that work fluctuating hours to be paid a salary on a fluctuating workweek basis, which provides for a fixed salary regardless of the number of hours worked.13 This payment method can be used only where the following requirements are met: 1) The employee is paid a fixed salary each week that does not vary with the number of hours worked (excluding overtime); 2) The salary must be large enough to compensate the employee at minimum wage for the workweek in which the employee works the maximum amount of hours; 3) The employer and employee share a “clear and mutual understanding” that the salary covers all hours worked during the workweek, regardless of the number; and 4) The employee’s hours fluctuate from week to week. If these requirements are met, then the employee receives the fixed salary for weeks in which the employee works between zero and forty hours. For hours in excess of forty (i.e., overtime), the employee receives one-half of the employee’s regular rate of pay, rather than one and one-half times the regular rate. If the employer pays its non-exempt employees under this model, it cannot pay them any additional compensation on top of their fixed salary. Several courts, as well as the DOL, have held that paying employees a bonus for hours worked or the type of work performed on top of their salary violates the fluctuating workweek requirement that the employee be paid a fixed salary.14 Because of the industry practice to pay oilfield workers rig bonuses, job rates and other premiums, this compensation method is not suitable for many
non-exempt employees in the oil and gas industry. C. Day rate The FLSA allows for non-exempt employees to be paid on a day-rate basis, meaning the employees receive a flat sum for a day’s work without regard to the number of hours worked in the day.15 The employee’s regular rate is calculated by totaling all the sums received at such day rates in the workweek and dividing by the total hours actually worked. The employee is then entitled to extra halftime pay (of the regular rate) for all overtime hours. The FLSA regulation on day-rates, however, includes a provision that arguably limits the application of the regulation to employees who only receive a day-rate and no other forms of compensation for their work.16 Unfortunately, there is very little case law or DOL guidance interpreting this provision of the regulation. At least one federal district court in Texas has found that this provi-
sion prohibits an employer from relying on the day-rate regulation (and, thus, paying overtime at a half-time rate) if the employer uses additional compensation methods besides the day-rate.17 Given the ambiguity and lack of guidance by the courts and the DOL, this payment method is not recommended if the employer intends to pay its non-exempt employees amounts on top of the dayrate to compensate them for their work. D. Hourly rate The most common method for compensating non-exempt employees is on an hourly basis. Because of the potential pitfalls with the other methods described above, paying non-exempt employees an hourly rate is the safest course of action. Further, many oil and gas companies who previously paid their oilfield workers a day rate or salary are moving to an hourly compensation model. When paying non-exempt employees on an hourly basis, the employer is free to pay the employees additional amounts for their
work on top of the hourly rate, provided that the employer includes these additional amounts in the regular rate.18 III. Bonuses Bonuses for safety, attendance and hitting production goals are common in the oil and gas industry, but not all employers are treating them correctly when it comes to their effect on an employee’s overtime compensation.19 The general rule is that bonuses must be included in an employee’s regular rate unless they are “discretionary,” meaning “both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.”20 Accordingly, any bonus announced to induce employees to work more steadily or more rapidly or more efficiently or to remain with the company is non-discretionary and may not be excluded from
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the regular rate. A prior promise regarding the method or criteria for calculating a bonus may also render the bonus nondiscretionary. Additionally, a longstanding practice of paying a bonus may give rise to an implied bonus contract because the employees come to expect it. Applying these criteria, some bonuses are easy to classify as non-discretionary, but others, such as safety bonuses or those paid by a third party, are not as obvious. A. Safety Bonuses Many energy companies pay their employees safety bonuses if the individual employee or the crew has worked a certain period of time without any accidents or safety violations. Although the DOL’s regulations do not specifically mention safety bonuses, a bonus to encourage employees to work more safely appears analogous to the DOL’s examples of other nondiscretionary bonuses that are given to encourage improvement in the quality of an employee’s performance.21 Following this reasoning, plaintiffs have filed lawsuits alleging that safety bonuses must be included in the regular rate.22 Accordingly, the best approach, and one blessed by the DOL, is for employers to include announced or regularly-paid safety bonuses in the regular rate.23 B. Customer Bonuses Another energy-industry bonus that may seem difficult to classify is a bonus paid to employees by a third-party, such as a customer, who determines the criteria for and the amount of the bonus. The DOL addressed a very similar situation in a 2005 opinion letter when it determined that a bonus paid to an employee by an employer under a vendorsponsored bonus program must be included in the employee’s regular rate.24 The fact that the bonus originally came from the vendor had no effect on the excludability of the bonus because the key inquiry was whether or not the bonuses were discretionary. Because the vendor informed the employees of the require24
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ments for the bonus prior to the work being performed and the bonuses were promised to the employees who met the requirements, they were not discretionary.25 Thus, employers should include non-discretionary bonuses originating from a third-party in their employees’ regular rates. As the plaintiffs’ bar and the Department of Labor continue to target the oil and gas industry, it is imperative that employers review their wage and hour practices to ensure compliance with federal and state law. The issues highlighted above are just some of the common wage and hour traps in the oil and gas industry, so employers should seek assistance from legal counsel to ensure full compliance with the law. Punam Kaji and Meghaan McElroy are labor and employment associates in the Houston office of Haynes and Boone, LLP. Arrissa Meyer is a labor and employment associate in the Dallas office of Haynes and Boone, LLP. Endnotes
1. See Howard et al v. J&A Services, Inc. et al., No. 12 Civ. 2987 (D. Colo. Nov. 13, 2012) (settling a lawsuit involving the common issue of misclassification of employees as independent contractors for two million dollars). 2. See Shell Oil and Motiva Enterprises pay nearly $4.5M in overtime back wages to employees after US Labor Department investigation, United States Department of Labor (September 16, 2014), http://www.dol.gov/opa/media/press/whd/ WHD20141645.htm. 3. A DOL investigation into B & D Contracting Inc. resulted in a settlement requiring the company to pay over one and a half million dollars in damages. See More than $1.6M in unpaid overtime for 1,543 workers in the Gulf Coast recovered by US Labor Department, UNITED STATES DEPARTMENT OF LABOR (July 10, 2014), http://www.dol.gov/whd/media/ press/whdpressVB3.asp?pressdoc=Southwest/20140710. xml; see also Appalachian Oilfield Services agrees to pay $129,802 in overtime back wages to 29 workers at oil fracking sites, United States Department of Labor (June 10, 2014), http://www.dol.gov/whd/media/press/whdpressVB3. asp?pressdoc=Midwest/20140610.xm (finding that paying employees a daily flat rate without overtime compensation violated the FLSA). 4. See Thomas v. Allis-Chalmers Energy, Inc. et al., No. 10 Civ. 1591 (W.D. Pa. Nov 30, 2010) (misclassification class action cost employer two million dollars. 5. In 2012 and 2013, the DOL collected more than $18.2 million in back wages on behalf of 19,000 employees who had been misclassified as independent contractors. 6. 29 C.F.R. § 541.301(d). 7. No. 4:09-cv-00679-JLH, 2011 U.S. Dist. LEXIS 3165 (E.D. Ark. 2011). 8. 29 C.F.R. § 541.301(e)(1). 9. See WHD Opinion Letter FLSA 2007-03 (Jan. 25, 2007) (stating construction project superintendent would only be exempt if at least two of the individuals he supervised were employed by the superintendent’s employer). 10. 846 F. Supp. 2d 678 (S.D. Tex. 2012) aff’d by 2014 U.S. App.
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LEXIS 11069 (5th Cir. June 13, 2014). 11. See Zelenika v. Commonwealth Edison Co., No. 09-C-2946, 2012 U.S. Dist. LEXIS 101784 (N.D. Ill. July 23, 2012) (holding that although dispatchers for an electricity company worked with the electricians in the field crews, they were not responsible for the physical act of conducting the maintenance or installation of electrical systems); see also WHD Opinion Letter, 2009 DOLWH 33 (2009) (construction project supervisor performed “non-manual” work when he served as company’s representative at worksite). 12. 29 C.F.R. § 778.113. 13. 29 C.F.R. § 778.114. 14. See Switzer v. Wachovia Corp., 2012 U.S. Dist. LEXIS 120582 (S.D. Tex. Aug. 24, 2012) (listing cases and DOL opinion letters); Brantley v. Inspectorate Am. Corp., 2011 U.S. Dist. LEXIS 128785 (S.D. Tex. Oct. 17, 2011); 76 Fed. Reg. 18,832 (Apr. 5, 2011) (DOL’s May 2011 Final Rule taking the position that bonus payments “are incompatible with the fluctuating workweek method of computing overtime”); Adeva v. Intertek USA, Inc., 2010 U.S. Dist. LEXIS 1963 (D.N.J. Jan. 11, 2010); Ayers v. SGS Control Servs., Inc., 2007 U.S. Dist. LEXIS (S.D.N.Y Feb. 27, 2007). 15. 29 C.F.R. § 778.112. 16. The regulation states as follows: “If the employee is paid a flat sum for a day’s work..., without regard to the number of hours worked in the day... and if he receives no other form of compensation for services, his regular rate is determined by totaling all the sums received at such day rates or job rates in the workweek and dividing by the total hours actually worked.” 29 C.F.R. § 778.112 (emphasis added). 17. Rodriguez v. Republic Servs., Inc., 2013 WL 5656129, at *2-3 (W.D. Tex. Oct. 15, 2013). 18. The FLSA defines “regular rate” as “all remuneration for employment paid to, or on behalf of, the employee,” and specifically excludes eight types of payments, such as sums paid as gifts, payments made for occasional periods when no work is performed due to vacation, holiday, illness, or failure of the employer to provide sufficient work, discretionary bonuses, premium payments for holiday or weekend work, or benefits contributions, among others. 29 U.S.C. § 207(e). 19. In 2011, Kinder Morgan agreed to pay $830,422 in back wages to 4,659 employees to settle a lawsuit accusing the company of failing to include an annual bonus as part of the regular rate upon which overtime compensation was calculated. See Kinder Morgan to pay more than $830,000 in overtime back wages to 4,659 employees, resolving US Labor Department lawsuit, United States Department of Labor (July 26, 2011), http://www.dol.gov/opa/media/press/whd/ WHD20111039.htm. 20. 29 U.S.C. § 207(e)(3)(a). 21. See Acton v. City of Columbia, Mo., 436 F.3d 969 (8th Cir. 2006) (rejecting employer’s argument based on FMLA regulations that a bonus for “perfect safety” is not a reward for performance). 22. See Molina v. Nabors Drilling USA, LP, No. 3:12-cv-00376 (S.D. Tex. Dec. 24, 2012) (alleging defendants failed to include safety and performance bonuses in oil field workers’ regular rate of pay). 23. WHD Opinion Letter, FLSA2009-21 (Jan. 16, 2009) (finding employer’s practice of including non-discretionary safety bonuses in the regular rate to be compliant with the FLSA). 24. See WHD Opinion Letter, FLSA2005-4NA (July 5, 2005). 25. 29 C.F.R. § 778.211(c) (“bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarde as part of the regular rate of pay”).
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By Esteban Shardonofsky
Supreme Court Clarifies the Compensability of Pre- and Post-Shift Activities Under Federal Law I. The FLSA Does Not Define the Term “Work” The Fair Labor Standards Act (“FLSA”), enacted in 1938, established minimum wage and overtime requirements for each hour worked in excess of 40 hours per workweek.1 Although the FLSA defines the term “employ” to “include[] to suffer or permit to work,”2 the statute does not define the terms “work” or “workweek.”3 Because the FLSA is almost silent on what constitutes work time for purposes of minimum wage and overtime compensation, employers over the years have had to rely on ambiguous regulatory guidance and conflicting court rulings to determine whether certain activities are compensable. For example, employees often perform and engage in activities—like traveling for work or being “on call”—that may not relate to their main job function, but may still be considered “work” and may therefore be compen-
sable under the FLSA. Recently, in Integrity Staffing Solutions, Inc. v. Busk, the United States Supreme Court clarified the test to determine the compensability of certain work-related activities under federal law, and ruled unanimously that the FLSA does not require employers to pay employees for time spent passing through mandatory, anti-theft security screenings at the end of their shifts. Justice Clarence Thomas delivered the lead opinion, while Justice Sonia Sotomayor and Justice Elena Kagan filed a concurring opinion. II. The Portal-to-Portal Act: An Early Attempt to Clarify the Definition of “Work” As Justice Thomas recognized in Integrity Staffing, the Supreme Court’s early interpretations of the term “work” were overly expansive.4 In Tennessee Coal, Iron & R. Co. v. Muscoda Local No. 123,5 for example, the Court defined “work” as “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business.” Based on this broad interpretation, the Supreme Court found in Tennessee Coal that time spent traveling between mine portals and underground work areas was compensable.6 This and other early rulings, Justice Thomas recently noted, provoked a flood of litigation: “In the six months following th[e] Court’s decision in Anderson [v. Mt. Clemens Pottery Co.], unions and employees filed more than 1,500 lawsuits under the FLSA.”7 In response to the Supreme Court’s broad interpretations of the FLSA and the resulting flood of litigation, Congress passed the Portal-to-Portal Act in 1947.8 In general terms, the Portal-to-Portal Act says that activities that are “preliminary or postliminary” to a worker’s principal tasks (i.e., those that take place before or after the principal activities on a particular workday) are not compensable under the FLSA.9 The Act also excludes from the definition of compensable time “walking,
riding, or traveling to and from the actual customers.12 At the end of each shift, the warehouse workers were required to place of performance of the principal acundergo security screening before leavtivity or activities.”10 Almost a decade afing the warehouses.13 The screenings reter the enactment of the Portal-to-Portal 11 Act, in Steiner v. Mitchell, the Supreme quired them to remove wallets, keys and belts, and pass through a metal detector.14 Court clarified that activities that are “integral and indispensable” to principal The plaintiffs sued, claiming they were activities are themselves principal activientitled to compensation under the FLSA ties—and therefore compensable—under for the roughly 25 minutes each day the Portal–to-Portal they spent waiting Act. Thus, under the for and undergoing Because the FLSA Portal-to-Portal Act those screenings. Acand Steiner, all “precording to the plainis almost silent liminary and posttiffs, the screenings on what constitutes liminary activities” were done to prevent are excluded from employee theft and work time for purposes compensable time were therefore solely unless they are “infor the benefit of the of minimum wage tegral and indispensemployer and its cusand overtime able” to the principal tomers.15 In addition, activities an employee they argued their compensation, is hired to perform. employer could have The Supreme Court’s dramatically shortemployers over Integrity Staffing takes ened the screenings a significant step toto make them de mithe years have ward clarifying the nimis (and therefore had to rely contours between arguably non-comnon-compen sable pensable) by adding on ambiguous preliminary and postscreeners or staggerliminary activities, ing shift terminaregulatory guidance on the one hand, tions.16 and conflicting and those activities The U.S. District that are “integral and Court in Nevada inicourt rulings to indispensable” to a tially dismissed the principal activity, on putative FLSA coldetermine whether the other. lective action, holding that the time certain activities III. The Supreme spent on the security are compensable. Court’s Integrity screenings was not Staffing Decision compensable because the screenings were not integral and inA. Employees Were Not Paid For Mandadispensable to the employee’s primary tory, Post-Shift Security Screenings activity (i.e., retrieving and packaging Integrity Staffing Solutions, Inc., provides products), but were instead non-compenstaffing to Amazon.com at various waresable postliminary activities under the houses throughout the United States. Portal-to-Portal Act.17 The U.S. Court of Plaintiffs Jesse Busk and Laurie Castro Appeals for the Ninth Circuit reversed in worked as hourly employees of Integrity part, ruling that the claim for securityStaffing at warehouses in Las Vegas and screening time was plausible and could Fenley, Nevada. They retrieved products proceed to trial because the screenings from warehouse shelves and packaged were “necessary to the principal work those products for delivery to Amazon performed” by the workers because they
“
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were mandatory and done solely for the benefit of the employer, thus making the time “integral and indispensable” to the employees’ work.18 B. The Supreme Court Says Post-Shift Security Screenings Were Not “Integral and Indispensable” to the Workers’ Principal Activities The Supreme Court reversed the Ninth Circuit’s ruling. In doing so, the Court narrowed the definition of “integral and indispensable” to cover only those activities that are an “intrinsic element” of an employee’s principal activity(ies), and clarified that preliminary and postliminary activities done at the employer’s request or for the employer’s benefit will not necessarily result in compensable time. An activity is “integral and indispensable” to a worker’s principal duties, the Supreme Court held in Integrity Staffing, if it is an “intrinsic element” of the employee’s principal activities and is one with which the employee cannot dispense if he is to perform his principal activities.19 Passing through a security screening was not a “principal activity” in this case, explained Justice Thomas, because “Integrity Staffing did not employ its workers to undergo security screenings, but to retrieve products from warehouse shelves and package those products for shipment to Amazon customers.”20 In the Court’s view, “[t]he screenings were not an intrinsic element of retrieving products from warehouse shelves or packaging them for shipment.”21 Moreover, according to the Court, the screenings were not “integral or indispensable” to the employees’ principal activities because products could be retrieved and packaged without security screening. As Justice Thomas observed, the employer “could have eliminated the screenings altogether without impairing the employees ability to complete their work.”22 Notably, the Supreme Court also rejected the Ninth Circuit’s broad interpretation of an “integral and indispensable” activity as those that are done at the
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request of the employer or solely for the benefit of the employer. “If the test could be satisfied merely by the fact that an employer required an activity,” wrote Justice Thomas, “it would sweep into ‘principal activities’ the very activities that the Portal-to-Portal Act was designed to address.”23 On appeal, the workers also argued that time spent waiting to undergo the security screenings is compensable under the FLSA because Integrity Staffing could have re-
duced that time to a de minimis amount. The Court also rejected this argument: “The fact that an employer could conceivably reduce the time spent by employees on any preliminary or postliminary activity does not change the nature of the activity or its relationship to the principal activities that an employee is employed to perform.”24 Reducing the time for security screenings, the Supreme Court concluded, is an issue “properly presented to the employer at the bargaining table... not to a
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court in an FLSA claim.”25 C. The Outlook After Integrity Staffing Given the U.S. Department of Labor’s pro-employer position in this case and Supreme Court’s proemployer ruling during the last term in Sandifer v. US Steel Corp. that time spent putting on and taking off certain protective gear is not compensable, the result in Integrity Staffing was perhaps expected. The ruling removes any lingering uncertainty regarding the non-compensability of post-shift security screenings under federal law. It also clarifies once and for all that an activity is not necessarily compensable under federal law simply because it is required by the employer or done solely for the employer’s benefit. But more importantly, the Court’s narrow definition of what are “integral and indispensable” activities gives the lower courts and anxious employers much needed guidance to determine whether other pre- and postshift activities—like donning and doffing claims and claims for compensation for computer “boot up” time—are compensable under the FLSA. Like the Portalto-Portal Act before, this ruling may also curtail the current and ever-increasing tide of FLSA litigation.26 Esteban Shardonofsky is a partner in Seyfarth Shaw’s Houston office. He focuses his practice in the firm’s Wage & Hour Practice Group. He is board certified in Labor & Employment Law by the Texas Board of Legal Specialization. Endnotes
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1. 29 U.S.C. § 207 (Some state laws impose additional requirements, including compensation for daily overtime and may require employers to provide meal periods and/or rest breaks during the workday.) 2. 29 U.S.C. § 203(g). 3. The U.S. Department of Labor’s (“DOL”) regulations interpreting the FLSA also do not define work. Instead, the DOL regulations define “workday” broadly and anachronistically as “roughly . . . the period ‘from whistle to whistle.’” 29 C.F.R. § 790.6. 4. Integrity Staffing Solutions, Inc. v. Busk, 547 U.S. ___, No. 13-433, slip. op. at 3. (U.S. December 9, 2014). 5. 321 U.S. 590, 598 (1944). 6. Id. at 598. 7. Integrity Staffing, slip op. at 4. 8. 29 U.S.C. §§ 251-62. The title of the Portal-to-Portal Act was not, as some may believe, designed to evoke intergalactic travel or an early precursor to the “transporter” from the Star Trek series. Instead, in the context of the statute, the term “portal” refers to the entrance or mouth of a mine.
9. 29 U.S.C. § 254(a). 10. Id. As Justices Sotomayor and Kagan explain in their concurrence to the Integrity Staffing decision, “the Portal-toPortal Act of 1947 is primarily concerned with defining the beginning and end of the workday.” Integrity Staffing, slip. op. at 2 (Sotomayor, J., concurring). 11. 350 U.S. 247, 252-53 (1956). 12. Integrity Staffing, slip op. at 1. 13. Id. at 2. 14. Id. 15. Id. 16. Id. 17. Id. 18. Busk v. Integrity Staffing Solutions, Inc., 713 F.3d 525, 530-31 (9th Cir. 2013). 19. Integrity Staffing, slip op. at 6. 20. Id. at 7. 21. Id. 22. Id. Justice Thomas acknowledged in passing that this conclusion was consistent with DOL guidance from a 1951 opinion letter, which found “noncompensable under the Portal-to-Portal Act both a preshift screening conducted for employee safety and a postshift search conducted to prevent employee theft.” Id. at 8. Justice Thomas also found instructive that the DOL—which sided with Integrity Staffing and submitted an amicus brief in support of the company’s position—”drew no distinction between the searches conducted for the safety of the employees and those conducted for the purpose of preventing theft—neither were compensable under the Portal-to-Portal Act.” Id. 23. Id. 24. Id.. at 9. 25. Id. 26. Of course, these issues may be more complicated and may require a different analysis in states that impose more burdensome wage-hour requirements and those that do not have a state-law equivalent to the Portal-to-Portal Act.
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By Zach Wolfe
Key Issues When Employees Leave to Compete
W
hat do non-competes, trade secrets and spoliation of evidence have in common? All three issues tend to come up when a key employee leaves a company to work for a competitor. Often the employer will also assert claims for tortious interference and participation in breach of fiduciary duty. This article addresses the key things you need to know about five big issues that tend to arise in this type of case. 1. Is There an Enforceable Non-Compete? The history of non-compete law from the Light v. Centel Cellular, in 1994 through Marsh USA v. Cook, in 2011, has been well documented and will not be repeated here.1 Two big questions concerning enforceability of a non-compete remain unchanged. First, is the non-compete “ancillary to an otherwise enforceable agreement at the time that the agreement is made”? Second, does the non-compete contain “limitations as to time, geographical area, and scope of activity that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest” of the employer?2 Whether a non-compete is “ancillary to” an “otherwise enforceable agreement” kept lawyers guessing for almost 20 years after Light. Here is what we know now: • Generally, an at-will employment arrangement, by itself, is “illusory” (because either side can terminate at will) and therefore not an “otherwise enforceable agreement.”3 • Especially after Light specifically cited it as an example,”4 a confidentiality agreement became the most common type of 30
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“otherwise enforceable agreement.” • Employees sometimes argued that a confidentiality agreement is illusory because the employer can immediately fire the employee after the agreement is signed. But Alex Sheshunoff Management Services, L.P. v. Johnson, 209 S.W.3d 644, 655 (Tex. 2006), held that the employer does not have to provide the confidential information simultaneously with execution of the agreement, so long as the employer actually provided the confidential information later. • An express agreement to provide confidential information is not necessarily required. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 850 (Tex. 2009), held that an implied agreement to provide confidential information, which exists when the nature of the work requires confidential information to be provided, can be an “otherwise enforceable agreement.” When is a non-compete “ancillary” to another agreement? Light interpreted “ancillary” narrowly to mean (a) the consideration “gives rise to” the employer’s interest in enforcing the non-compete and (b) the non-compete is designed to enforce the employee’s return promise.5 But this “gives rise to” formulation no longer applies. Marsh simplified the issue by overruling Light and interpreting “ancillary” broadly to mean “reasonably related” to an “interest worthy of protection.”6 Specifically, Marsh held that a non-compete was reasonably related to a stock option agreement.7 The non-compete must still be reasonable in time period, geographic area and scope of activity to be restrained. The underlying is-
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sue is whether the scope of the non-compete goes beyond what is necessary to protect the employer’s goodwill or other business interests. If so, the agreement as written will be unenforceable, although the court can grant reformation to narrow the scope.8 2. Did the New Employer Tortiously Interfere with a Non-Compete? If an employee signs a non-compete and then leaves the company to work for a competitor, the company will often claim that the competitor tortiously interfered with the noncompete. (Note that Texas does not recognize a cause of action for “tortuous” interference, whatever Microsoft Word may think.) The elements of tortious interference are fairly simple: (1) a contract; (2) intentional interference; (3) proximate cause; and (4) damages.9 The more difficult issue in a tortious interference case involving a non-compete will be the affirmative defense of justification. Justification can be based on either (1) the exercise of one’s own legal rights or (2) a good-faith claim to a colorable legal right, even though that claim ultimately proves to be mistaken.10 Suppose the competitor obtains a legal opinion on the enforceability of the non-competes and, based on that opinion, believed the non-competes were unenforceable. Would that belief establish justification? Here is how the issue breaks down: 1. Is the non-compete enforceable? If not, then generally the competitor will have a legal right to interfere. 2. If the non-compete is enforceable, then the issue is whether the competitor had a good-faith claim to a “colorable” legal right to interfere, even if that claim ultimately proved to be mistaken. This leads to a further two-step process: a. The judge will determine whether the competitor was exercising a “colorable” legal right. If the answer is no, then the justification defense is not established. b. But if the trial court decides that the competitor had a “colorable” legal right to interfere, then the jury will decide whether the competitor ex-
ercised that colorable legal right in “good faith.”11 Justification is a potentially powerful defense for a competitor accused of tortious interference with a non-compete. Given the complexity and uncertainty of non-compete law, if a competitor believes that a noncompete is unenforceable, and has at least a plausible (i.e., non-frivolous) argument against enforceability, how could the judge find there was no “colorable” right to interfere? And if the judge finds there was at least a “colorable” basis to interfere, then the issue of “good faith” (whatever that means) must go to the jury. 3. Does the Conduct of the Employees Constitute a Breach of Fiduciary Duty? When key employees leave an employer to work for a competitor, breach of fiduciary duty is a potentially powerful theory for the employer, for at least three reasons: (1) a potential cause of action against the competitor for participation in breach of fiduciary duty; (2) the availability of disgorgement as a remedy; and (3) decades of case law setting a high bar for meeting a “fiduciary duty.” But do all employees actually owe a fiduciary duty to their employer? The traditional concept of fiduciary duty seems ill suited for the ordinary employer-employee relationship. It is a big stretch to say that an employee owes his employer the same duties that a lawyer owes to a client, or that a trustee owes to a beneficiary. The Texas Supreme Court has recognized that all fiduciary duties are not created equal. In Johnson v. Brewer & Pritchard, PC, 73 S.W.3d 193, 199-201 (Tex. 2002), the court said it is impossible to comprehensively define fiduciary duty, and that “courts have been and should be careful in defining the scope of the fiduciary obligations an employee owes when acting as the employer’s agent in the pursuit of business opportunities.” Thus, the court seems to have endorsed a flexible, realistic view of fiduciary duty in the employer-employee relationship. Texas courts have tended to focus on whether specific types of conduct constitute a breach of fiduciary duty. Some of these are obvious. Misappropriating the employer’s trade
secrets or confidential information will generally establish a breach of fiduciary duty.12 But what kinds of things can an employee do before leaving an employer without breaching a fiduciary duty? Here are examples of what Texas courts have said employees can or cannot do while still employed:
faith claim of misappropriation.26 • TUTSA broadly authorizes the court to grant protective orders to preserve the secrecy of trade secrets.27 It appears this allows the court to dispense with following the procedures of Texas Rule of Civil Procedure 76a for sealing court records.28
Not a Breach of Employee Fiduciary Duty:
Breach of Employee Fiduciary Duty:
Plan to go into competition with the employer and take “active steps” to do so.”13
Solicit the employer’s customers or other employees while still working for the employer.14
Form a competing business without telling the employer, if the employee does not actually compete until after resigning.15
Accept a fee for diverting a business opportunity away from the employer to another company.16
Hide plans to compete and secretly join with other employees in making preparations to compete.17
Use the employer’s resources to establish a competing business.18 Destroy the employer’s business by luring all of its personnel away.19
4. Did the Employees Misappropriate “Trade Secrets”? Texas adopted the Uniform Trade Secrets Act (“TUTSA”) in 2013. Here are some key points about TUTSA: • It displaces any conflicting common law or statutory provisions concerning civil remedies for trade secret misappropriation.20 Thus, for civil cases there is now one statutory definition of “trade secret” rather than a common law definition and a Theft Liability Act definition. • A civil claim for misappropriation of trade secrets is now governed by TUTSA, not the Theft Liability Act.21 • TUTSA generally requires showing that the defendant knew or had reason to know that the trade secret was improperly acquired.22 • The statute provides for remedies of injunctive relief, damages and attorneys’ fees.23 • Damages under TUTSA can include both the actual loss and unjust enrichment that is not included in the actual loss.24 • TUTSA allows exemplary damages to be awarded if “willful and malicious” misappropriation is proven by clear and convincing evidence.25 • The court may award attorneys’ fees to the prevailing party for willful and malicious misappropriation or for a bad
Often the crucial question is whether the information at issue is actually a “trade secret.” TUTSA changed the definition of a trade secret, but not fundamentally: Texas common law definition of trade secret: A trade secret is “any formula, pattern, device or compilation of information which is used in one’s business and presents an opportunity to obtain an advantage over competitors.” In re Bass, 113 S.W.3d 735, 739 (Tex. 2003). There was a list of six nonexclusive factors from the Restatement of Torts used to determine if the information was a trade secret. Id. TUTSA definition of trade secret: SA trade secret is “information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers, that: (A) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” TEX. CIV. PRAC. & REM. CODE § 134A.002(6).14 Note that the TUTSA definition expressly includes a customer list as information that can be a trade secret, provided the rest of the definition is met.
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5. Was There Spoliation of Evidence? Spoliation of evidence tends to be especially important in cases where employees leave a company to work for a competitor. In such cases, electronically stored information (ESI) is not just evidence relevant to some other issue; whether an employee accessed, transferred or stored certain ESI is often an issue in itself. Lawyers will need to act quickly to issue litigation holds and to follow up on those holds to make sure potentially relevant ESI is not lost, deleted or altered. The consequence of failing to preserve ESI could be the dreaded adverse inference instruction to the jury. Obtaining an adverse inference instruction is not easy. Regardless of the jurisdiction, the party claiming spoliation generally must show: (1) the spoliating party had a duty to preserve at the time the evidence was lost or altered; (2) it breached the duty; (3) it acted with a culpable mental state; (4) the non-spoliating party was prejudiced; and (5) an adverse inference instruction is the appropriate sanction. But different jurisdictions and courts disagree on how each element is defined. The Texas Supreme Court recently clarified Texas law on spoliation in Brookshire Brothers, Ltd. v. Aldridge, 438 S.W.3d 9 (Tex. 2014). Before Brookshire, there was no definitive Texas Supreme Court case on spoliation, and Texas lawyers had to find guidance in the concurring opinion in Trevino v. Ortega, 969 S.W.2d 950 (Tex. 1998), and courts of appeals opinions such as Adobe Land Corp. v. Griffin, 236 S.W.3d 351 (Tex. App.—Fort Worth 2007, pet. denied). But Brookshire resolved or clarified a number of issues in Texas spoliation law: (1) Determining whether there was spoliation and the appropriate remedy is a question for the trial court judge, not the jury.29 (2) The duty to preserve relevant evidence arises when a party “knows or reasonably should know” that there is a “substantial chance of litigation.”30 (3) With respect to the required culpable mental state, the breach may be intentional or negligent.31 (4) Intentional spoliation may be suf32
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ficient by itself to support a finding of prejudice to the other party. Conversely, merely negligent spoliation is insufficient to show prejudice; in that case some other evidence of prejudice is needed.32 (5) While negligent spoliation can be sufficient to support a sanction, only intentional spoliation (which includes “willful blindness”) will support the harsh sanction of giving a spoliation instruction to the jury. There is one narrow exception: spoliation that “so prejudices the non-spoliating party that it is irreparably deprived of having any meaningful ability to present a claim or defense.”33 While Brookshire clarifies the legal principles of spoliation, it provides little guidance on how lawyers can meet the duty to preserve ESI. Brookshire was not really an ESI case (the evidence at issue was a store surveillance video), and you will not find in Brookshire any practical guidance on issues like whether you need to have an expert create a forensic copy of the laptop, who should receive the litigation hold, whether you have to preserve backup tapes, etc. On issues like these, Texas lawyers will need to look at nationwide trends in the case law and consult with experts in the ESI field. When a key employee leaves an employer to work for a competitor, the key claims are usually breach of a non-compete, misappropriation of trade secrets, participation in breach of fiduciary duty and/or tortious interference with contract. These claims raise difficult issues because of strong competing interests: the employer’s interest in protecting its confidential information and its investment in employee training, the employee’s interest in making a living and the public’s interest in free competition. Spoliation of evidence often adds another layer of complexity. Whether you represent the employer, the employee or the competitor, be sure to check the latest statutory and case law developments. Zach Wolfe is the founder of Zach Wolfe Law Firm, PLLC. His firm represents clients in busi-
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ness litigation matters and provides litigation support to other law firms. Email: zwolfe@ zachwolfelaw.com. Twitter: @zachwolfelaw. Endnotes 1. Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011); Light v. Centel Cellular Co. of Texas, 883 S.W.2d 642, 647 (Tex. 1994). 2. TEX. BUS. & COM. CODE § 15.50(a). 3. Light, 883 S.W.2d at 644-45. 4. Id. at 647 n.14. 5. Id. at 647. 6. Marsh, 354 S.W.3d at 766, 775. 7. Id. at 777. 8. TEX. BUS. & COM. CODE § 15.51(c). 9. Texas Beef Cattle Co. v. Green, 921 S.W.2d 203, 210 (Tex. 1996). 10. Id. at 211. 11. Id.. 12. Johnson v. Brewer & Pritchard, PC, 73 S.W.3d 193, 202 (Tex. 2002) (citing Augat, Inc. v. Aegis, Inc., 409 Mass. 165, 565 N.E.2d 415 (1991)); Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 512 (Tex. App.— Houston [1st Dist.] 2003, no pet.). 13. Johnson, 73 S.W.3d at 201; Abetter Trucking, 113 S.W.3d at 510; Navigant Consulting, Inc. v. Wilkinson, 508 F.3d 277, 284 (5th Cir. 2007) (citing Johnson and Abetter Trucking). 14. Johnson, 73 S.W.3d at 202 (citing Augat); M P I, Inc. v. Dupre, 596 S.W.2d 251, 254 (Tex. Civ. App.—Fort Worth 1980, writ ref’d n.r.e.). 15. Ameristar Jet Charter, Inc. v. Cobbs, 184 S.W.3d 369, 373-74 (Tex. App.—Dallas 2006, no pet.); see also Abetter Trucking, 113 S.W.3d at 511 (employee was permitted to incorporate or otherwise establish a business entity, obtain permits, and obtain insurance; these were “permissible preparations to compete, not breaches of a fiduciary duty”). 16. Johnson, 73 S.W.3d at 202-3. 17. Abetter Trucking, 113 S.W.3d at 511; M P I, Inc. v. Dupre, 596 S.W.2d at 254. 18. Johnson, 73 S.W.3d at 202 (employee “may not act for his future interests at the expense of his employer by using the employer’s funds or employees for personal gain”) (quoting Augat). 19. Abetter Trucking, 113 S.W.3d at 511-12. 20. See TEX. CIV. PRAC. & REM. CODE § 134A.007(a) (the statute generally “displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret”). 21. See TEX. CIV. PRAC. & REM. CODE § 134.002(2) (defining “theft” under the Theft Liability Act as including violations of various Penal Code sections, but no longer including Texas Penal Code § 31.05, the section that makes theft of trade secrets an offense). 22. See TEX. CIV. PRAC. & REM. CODE § 134A.002(3). 23. TEX. CIV. PRAC. & REM. CODE §§ 134A.003, 134A.004 and 134A.005. 24. TEX. CIV. PRAC. & REM. CODE § 134A.004(a). 25. TEX. CIV. PRAC. & REM. CODE § 134A.004(b). 26. TEX. CIV. PRAC. & REM. CODE § 134A.005. 27. TEX. CIV. PRAC. & REM. CODE § 134A.006. 28. See TEX. CIV. PRAC. & REM. CODE § 134A.007(c) (“To the extent that this chapter conflicts with the Texas Rules of Civil Procedure, this chapter controls.”). 29. Brookshire Brothers, Ltd. v. Aldridge, 438 S.W.3d 9, 20 (Tex. 2014). 30. Id. 31. Id. 32. Id. at 22. 33. Id. at 23-26.
By Matthew Walker
Social Media Issues in Employment
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he at-will employment doctrine is alive and well in Texas. This long-standing rule of law provides that, “absent an express agreement to the contrary, employment may be terminated by the employer or the employee at will, for good cause, bad cause or no cause at all.”1 With few exceptions, employers can discharge employees for any reason and employers are not bound by a duty of good faith and fair dealing.2 Essentially, anything an employee says or does can get him or her fired, and the ever-increasing use of social media adds an all-too-easy way for employees to involuntarily end their careers. However, there are occasions where employee activity that would normally result in discipline may be protected by federal labor laws, or the manner in which the employer uses or gains access to the employees’ social media can expose the employer to unexpected liability. Running Afoul of the National Labor Relations Act Employees who have been disciplined because of their social media activity often assert their rights under the National Labor Relations Act (“NLRA”), which gives employees the right to band together with coworkers to improve their lives at work—including joining together on social networking sites, such as on Facebook. Section 7 of the NLRA provides, in part, that “[e]mployees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain
collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection...” Under Section 7, employees have a statutory right to act together “to improve terms and conditions of employment or otherwise improve their lot as employees.”3 This language has been consistently interpreted by the National Labor Relations Board (“the Board”) to include employees using social media to communicate with each other and the public for that purpose. However, the NLRA also recognizes that online employee communications can implicate legitimate employer interests, including the “right of employers to maintain discipline in their establishments.”4 Thus, an employee posting comments on social media can lose the protections of the Act when the comments go so far as to undermine the employers’ authority in the workplace, disparage the employers’ products or services, adversely affect the employers’ public image or are sufficiently defamatory. For example, in the matter of Three D, LLC d/b/a Triple Play Sports Bar and Grille, complainants Jillian Sansonze and Vincent Spinella were employed as a waitress and a cook. In January, 2011, they discovered, along with other employees, that they owed more in state income taxes than they had expected. A meeting was held about this issue in the workplace. Sometime later, Sanzone and Spinella participated in a Facebook discussion with several former employees of the Tri-
ple Play Sports Bar. The former employee complained that Triple Play’s management had “[messed] up the paperwork” and that he considered “calling the labor board to look into it.” Spinella merely “liked” this comment on Facebook without making any comments. Sanzone contributed to the discussion by stating that she owed additional taxes as well and that the manager who prepared the paperwork was an “[expletive deleted].” Both Sanzone and Spinella were fired the day after the posts were made. Spinella was confronted by management and told that his “like” of the other comments was the reason for his discharge. The Board found that the discussion was protected concerted activity because it involved current employees and was part of an ongoing sequence of discussions that began in the workplace about Triple Play’s calculation of employee tax withholding. Additionally, the Board found that the discussion was not directed at the general public, but was instead conducted on an individual private page. The Board decided that Spinella’s single use of an expletive to describe her manager was made “in the course of a protected discussion on a social media website,” and did not sufficiently implicate Triple Play’s legitimate interest in maintaining discipline and order in the workplace. Ultimately, the Board found that Triple Play violated Section 7 of the Act and ordered the relief requested by the employees, which included compensation for lost pay and reinstatement to their jobs. The NLRB has found employee social networking activity to be concerted activity protected by the Act in numerous cases where employees have: • Posted comments on Facebook accusing co-workers of poor job performance.5 • Made negative comments about a supervisor on a personal Facebook page, when made during an online discussion of supervisory action, which was a protected activity.6 • Criticized a sales event held by an employer for not having better re-
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freshments and food, where the employee concerns were that the event would send the wrong message to clients and negatively affect sales.7 But not every online rant between employees about their workplace will gain the protections of the Act. The matter of Richmond District Neighborhood Center and Ian Callaghan, Case 20-CA-091748 (October 28, 2014) is a good example. Richmond District Neighborhood Center operated a teen center providing afterschool activities. Kenya Moore and Ian Callaghan were activity leaders. During a staff meeting, staff members were asked to write down the pros and cons of working for the neighborhood center. The employees documented numerous complaints. Later, Callaghan and Moore continued the discussion on Facebook, where they made numerous statements about management and their plans to disregard their duties. The Board ruled that their postings were not protected concerted activity. The Board found that their exchange contained numerous statements advocating insubordination by refusing to obtain permission before organizing youth activities and that they would willfully neglect their duties. The Board wrote: “We find the pervasive advocacy of insubordination in the Facebook posts, comprised of numerous detailed descriptions of specific insubordinate acts, constituted conduct objectively so egregious as to lose the Act’s protections and render Callahan and Moore unfit for further service.” The NLRB has also found employee conduct to fall outside of the protections of the Act where: • An employee of a newspaper posted a tweet critical of the newspaper’s copy editors and wrote other offensive tweets, where there was no evidence that he had discussed his concerns with any co-workers and his tweets did not relate to the conditions of his employment.8 • A bartender who wrote on Facebook that his employer’s customers were 34
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“rednecks” and hoped they would drive home drunk.9 • An EMS employee posting negative comments about her employer on her Senator’s Facebook “wall” complaining that her employer was cheap and cut corners.10 The lesson to be learned is that under certain circumstances, an employee’s use of social media can be the type of protected activity that acts as an exception to the “at will” employment doctrine. Employees have the right to address work-related issues and share information about pay, benefits, and working conditions with coworkers on Facebook, and other social media sites. However, individual complaints about some aspect of work are typically not considered to be “concerted activity.” To fall under the protection of the NLRA, what the employee writes on social media must typically have some relation to group action, or seek to initiate, induce, or prepare for group action, or bring a group complaint to the attention of management. Employers must be careful how to gather evidence of an employee’s social media activity Even the act of gathering information on an employee’s social media activity can cause problems for an employer. Indeed, there are some situations where employers may run afoul of federal laws designed to protect electronic communications if the employer obtains the information from their employees’ social networking sites in the wrong manner. For example, the Stored Communications Act (“SCA”), 18 U.S.C. §§ 2701-11 makes it an offense to intentionally access stored communications without authorization or in excess of authorization. The SCA defines “electronic communication” as “any transfer of signs, signals, writing, images, sounds, data or intelligence of any nature transmitted in whole or in part by a wire, radio, electromagnetic, photoelectronic or photooptical system.”11 The punishment for violation
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of the SCA includes a fine or imprisonment, but the victim of such a violation can also initiate a civil action and recover damages in the amount of actual damages, profits made by the violator, punitive damages and reasonable attorney’s fees.12 A few employers have found themselves in hot water after taking an employment action against an employee based on information learned after accessing the employee’s social media account. In Ehling v. Monmounth, 961 F. Supp. 2d 659 (D.N.J. 2013), a paramedic sued her employer after being disciplined for comments she posted on her Facebook wall that were critical of Washington, DC paramedics’ response to an emergency. The Plaintiff selected privacy settings for her account that limited access to her Facebook wall only to her Facebook friends. None of her managers were her Facebook friends. However, a coworker with access to her Facebook wall alerted the Plaintiff’s manager about the Plaintiff’s wall posts. The Plaintiff was suspended for her comments and later terminated. In her lawsuit, she asserted that her employer violated the SCA. The Court determined that a Facebook wall was an electronic communication and a user who enables Facebook’s privacy settings is not making the electronic communication accessible to the general public. The employer avoided liability, however, because the coworker had authorized access to the Plaintiff’s Facebook wall and the employer had not solicited the information. Similarly, in Pietrylo v. Hillstone Restaurant Group, 2008 WL 6085437 (D.N.J. July 25, 2008), a group of employees created a MySpace page in order to socialize and share complaints about their employer Hillston Restaurant Group. The MySpace group was entirely private and could only be joined by invitation. A manager caught wind of the MySpace page and strong-armed an employee into giving him access to the page. Once the restaurant managers had access to the account, they were able to view posts from some employees making offensive comContinued on page 45
By Josh King & Taunya Painter
Managing Internet Risks & Benefits
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Ethical and Practical Considerations for Publishing Content Online
he last three Tech Savvy columns about developing a positive online presence both personally and professionally showed how there is great value in authoring original content that is specific to your areas of practice. This column outlines further practical and ethical considerations related to publishing that content on a website or a legal blog.1 An old advertising adage credited to David Ogilvy from the pre-“Mad Man” days is: “long copy sells.” People purchasing valuable services or big ticket items, generally, are more influenced by more information than a brief sales pitch. The two most accessible online publishing outlets for long copy are a firm website or a legal blog, and from there, mass dissemination can be further advanced to groups or the general public through social media platforms such as Twitter, LinkedIn, Facebook and Google+. Know what you are choosing: a website and/or a blog. A website can market an attorney or firm and provide enough background material—articles, white papers, FAQs, commentary— to satisfy any potential client looking for detail before retaining counsel. A law firm website is advertising, so it is commercial speech and thus subject to the Texas Disciplinary Rules of Professional Conduct (TDRPC) relating to attorney advertising. A blog can also be long copy but should not be considered advertising under the rules, even if it has an underlying business development motive. A legal blog, though, cannot be a blog in name only. It should educate, engage, and hopefully on some level entertain. It should advance a discussion of an area of the law, be open to public input, have a community of commenters and have an author who is engaged with those commenting. An instructive example of an attorney with a blog in name only is a case out of Virginia.2 A criminal lawyer wrote and posted in a “blog” on his website, but: • Virtually every post described cases where he got a favorable result for a client; • Most posts mentioned the firm name;
• The blog was a section on the firm’s marketing website, not on a stand-alone site; • The blog had the same look and feel as the marketing website; and • The blog lacked any interactivity because readers could not comment on posts. No single one of these factors is necessarily a problem, but in combination they led to the finding that what the attorney called a blog was actually advertising. While there is no guarantee that the same result would be reached in Texas, the decision provides a good framework for understanding where blogs cross the line into advertising. A website and/or a blog can be equally effective in developing a professional reputation and bringing in new clients, but if you do not have the typical elements of a blog, it is advisable to comply with the ethics rules on attorney advertising. Be an author. For a website, getting help writing long copy content is fine, although Google may not reward you as much in your ranking. This is because when we write, versus having someone else do it, the language will tend to be more specific, more focused on the type of cases you want, and more original. Also, it will appear to potential clients as more authentic. For blogging, however, it is imperative that you not use ghost writers from both a credibility and ethical standpoint. In the blogging community, there is a presumption that the blogger is an individual unless stated otherwise on the blog. It is similar for other social media such as Twitter, Facebook, LinkedIn and Google+, unless the account is under a company name. There is a growing field of service providers offering “ghost blogging” services. While ghost writing has always had its perils from a credibility standpoint, attorneys have an additional ethical consideration because TDRPC 8.04(a)(3) prohibits “conduct involving dishonesty, fraud, deceit or misrepresentation.” If you add a disclaimer in the fine print, you address the issue of deception, but you also eliminate your free speech defense to advertising rules. Be yourself, not anonymous. It has become a common practice in social
media for people to make comments from “anonymous” accounts or from a username that is nondescriptive as to their identity. When you are online more, whether responding to comments on your own blog or writing comments on other people’s articles, it may be tempting to do this. What may seem like privacy protection in the name of free speech for the general public, can be an ethical violation for a lawyer. It goes without saying that it is deceptive for an attorney to represent himself as someone else, but there are far too many examples of attorneys stumbling over this one. Lawyers have been caught leaving “client reviews” under a bogus or anonymous name or trying to influence the outcome of a case by leaving comments online.3 Online services make it very easy to say whatever you want online - but as an attorney, if you cannot attach your name to it, maybe you should not say it in the first place, either from an ethical or reputational standpoint. It is also important to remember that you cannot be truly anonymous online. Educate; do not advise. If you publish your content in a forum that allows comments, people will often ask specific questions on that same forum. Even if you transition into a private format, it is still only a click away from public broadcast. The informal and viral nature of these platforms invites abundant sharing. As client confidentiality concerns are of paramount importance to attorneys, it is critical to understand the settings and purpose of a given platform. While a blog, Facebook, Twitter, and LinkedIn can be tools for mass communication or relationship building, there is not really confidentiality, and it calls into question whether an attorney-client relationship has been established. Develop and demonstrate technology competence. As you continuously update your educational materials on your website, you may increase your tech savviness. You would need to be engaged in the process, though, and also consider using multiple social media platforms to distribute links to the educational articles. But if you have an effective blog, you definitely will increase your savviness. Those who blog may start out thinking solely as writers, but tend to transition quickly to techies and communicators because they start to look for ways to distribute a stream of content, engage readers in real time and increase sharing of their work. This is near impossible to accomplish without effective use of multiple social media platforms. Increasing your use of technology is beneficial in multiple ways. First, 67 percent of Americans are using social media, and would naturally have some expectation that a professional they hire be engaged. Second, the ABA
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recently amended Comment [8], to Model Rule 1.1 (competence) to include a requirement that lawyers stay abreast of “the benefits and risks associated with relevant technology.” Texas lawyers should not be surprised if the comments to TDRPC 1.01 are amended to include similar language. As potential clients, current clients, experts, and witnesses increasingly rely on social media platforms to communicate, it is impossible for a lawyer who is anti-social media to engage them and remain highly competitive, and it is probable that such a lawyer would increasingly lose competence. Develop relationships. A Luddite existence is not a more noble way. We have all heard: “Call me old fashioned, but I like to talk to people face-to-face.” Regardless of how you “meet” someone (a networking event vs. in a Google+ Community), you still have the opportunity if you take the time to develop rewarding relationships. A firm website is not a friendly vehicle for engaging; although, a non-blogging attorney can use social media platforms for this purpose. A blogging attorney, however, will definitely be out there. Many social media articles targeted at attorneys are hyped with the risks of engaging, which are easily avoided. Attorney websites, legal
blogs and other social media platforms can produce excellent results. With a little common sense —and an eye toward being authentic and connecting with people— members of the bar can stay abreast of these new forms of communication and perhaps even thrive in the process. Josh King is General Counsel and VP, Business Development at Avvo. He is a frequent speaker and writer on the intersection between digital media and legal ethics, and blogs at www. sociallyawkwardlaw.com. Taunya Painter is a member of Painter Law Firm PLLC, where she specializes in business, contract and international law. She is an associate editor for The Houston Lawyer. Endnotes
1. For a comprehensive analysis of all ethics rules that apply to Texas attorneys using social media, consult: The Texas Young Lawyers Association, Pocket Guide: Social Media 101, http://www.texasbar.com/AM/Template.cfm?Section=Resource_Guides3&Template=/ CM/ContentDisplay.cfm&ContentID=24352 2. Hunter v. Virginia State Bar, No. 121472, (Supr. Ct. of VA, Feb. 28, 2013). 3. Judge Throws Out Officers’ Convictions in Killings After Hurricane Katrina, The New York Times, Sept. 17, 2013, http://www.nytimes.com/2013/09/18/us/judge-throwsout-officers-convictions-in-killings-after-hurricane-katrina.html?pagewanted=2& _ r=2&pagewanted=all&
Houston Lawyers Who Made a Difference
John H. Crooker, Sr. and James A. Elkins By The Hon. Mark Davidson
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ew institutions in Houston have made more of a difference in more people’s lives than the Texas Medical Center. From the lives it has saved, to the medical research conducted there every day, to many, many more accomplishments, the Texas Medical Center has helped millions of people from every corner of the world live longer and happier lives. Few of those people know of the critical role two Houston Lawyers played in overcoming powerful opposition to assist in its creation. George Hermann was a wealthy entrepreneur who had purchased thousands of acres of land in Houston, and was then fortunate enough to have oil discovered on some of that land. When he died in 1914, he left the bulk of his estate to a trust to create a charity hospital for the people of Houston. The trust was to be managed by a board of seven people —three that he named in his will and four more that they selected. Five years after his death, no effort had been made to build a hospital or, for that matter, even complete the 36
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appointment of a seven person board. The three men Hermann trusted had spent some of the money and sold some of the estate’s land to friends for notes that were unpaid.
In 1918, four years after Hermann’s death, the District Attorney of Harris County, John H. Crooker, Sr., brought an action against the three powerful and influential trustees. They raised procedural defenses which Crooker overcame. A month before trial Crooker joined the army. His departure did the defendants little good. Crooker enlisted, but helped arrange for a young lawyer at another firm —James Elkins— to be appointed acting District Attorney.
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Two weeks after taking the job, Elkins appeared in court and announced ready for trial The trustees resigned their positions on the spot, signing their names in pencil on a piece of legal paper. New trustees were appointed, and Hermann Hospital opened eighteen months later. The land that Hermann left nearby became the foundation of the Medical Center. The courage of two young lawyers taking on some of the most powerful men in Houston, and the legal skill they showed in assembling the evidence and settling the case, are acts that deserve continuing credit. Both used the law to make a difference that will continue for as long as the Texas Medical Center saves lives. The Hon. Mark Davidson is an MDL judge and judge (retired) of the 11th District Court. His column for The Houston Lawyer focuses on Houston attorneys who have had significant impact on the law, the legal profession and those served by the law.
A Profile
in pro f e s s io n ali s m
he United States legal system is the best in the world. The defining feature of our legal system is an adversarial system of justice which demands that the lawyers for each side provide zealous representation to their respective clients. Through this battle of opposing advocates, there is a risk that we as the advocates develop a “win-at-all-cost” mentality. As I contemplate this ethical predicament, I am reminded of an important lesson in professionalism I learned early in my career. While a second year lawyer, a more senior lawyer was called away on an emergency and asked me to prepare a potential witness for deposition. During a late night meeting, the witness confessed that—not only had he mistreated the plaintiff—he had also mistreated other employees. After his confession, it dawned on the witness the gravity of both his actions and his confession. He realized that if he confessed his mistreatment during the deposition, his employer and our client, was likely to be found liable. At that time, he earnestly sought my advice. “What should I say tomorrow when the lawyer asks whether I did it?” he asked. I took a mo-
ment and then countered, “What is the answer to the question?” He looked me square in the eye and answered, “I did it.” I explained to the witness that he was required to tell the truth during the deposition. We both were alarmed, albeit for different reasons. The witness was alarmed because he realized that he had misused the trust and authority his employer had conveyed to him, and as a result, he knew all too well that he would face severe consequences. As a young lawyer, I was concerned that I would somehow be blamed for this individual’s actions even though I was not involved. Early the next morning, I advised my partner of the individual’s misconduct. We immediately reported the situation to the client. As this was my first experience with such a situation, the client’s reaction was shocking to me: he thanked me profusely for the information and asked for my advice on how to resolve the lawsuit. I am often reminded of this encounter, and have since experienced it in different forms with other clients again and again. For this client, and for many clients, doing the right thing is more important than winning a lawsuit. thehoustonlawyer.com
January/February 2015
The Houston Lawyer
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Shauna Johnson Clark Head of Labor & Employment, US Norton Rose Fulbright
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OFF THE RECORD
Follow Me, Boys!
James Ware and the Sea Scouts
By Jason Goff
The Houston Lawyer
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happens at Sea Scout Base Galveston, and hopefully this article only n the 1966 Walt Disney movie classic, Follow Me, Boys!, the main serves as a tickler, inspiring greater interest in learning more about the character, Lem Siddons (played by Fred MacMurray), finds himself opportunities provided for both boys and girls. in a town meeting where the topic of discussion is keeping the Sea Scout Base has a fleet of boats, ranging from a former Coast town’s boys occupied and out of trouble. Lem stands up and offers Guard cutter, to a 100-foot-long Bay Smart the idea of the Boy Scouts as a good soluExpress (the Bay Smart alone is worthy of its tion. And just like that, Lem became scoutmasown article), to numerous schooners, racing ter. James Ware can relate to this story, though dinghies, single person sailboats, and kayaks. his story is probably even more dramatic. Ware There are programs that teach sailing from start only offered to drive a few scouts to a scout to finish, and kayak trails all throughout the event, et voila! He is now an Executive Board bay area. There are scuba classes and sailing Member of the Bay Area Council of the Boy competitions. There are week long scout camps Scouts of America. Ware has been practicing law for 40 years From left, James Ware and his sons, Lane and during the summer and after school programs and is a named shareholder at Sheehy, Ware and Carter, along with Chuck Herrera, CEO of the Bay during the other months. Council of Boy Scouts of America, in front of Sea Scout Base also hosts a number of colPappas. In addition to law, Ware has had a great Area the Ware Family Honor Wall at the Bay Area Council legiate outreach programs such as Texas A&M interest in Scouting for many years. Ware will building in Galveston. and San Jacinto Community College’s Merchant Marine credentials tell you that he was a scout himself, but that the opportunities for adprograms. There is even a culinary institute for Galveston Community vancement were few and far between. Scouting is a two party endeavor College which takes place in the ample “galley” of the Base. There also – there is only so far a young scout can go on his own will power; there is a forum for various national competitions and regattas, including the must be volunteers and leaders who create the opportunities so that US Disabled Sailing National Championship. The Base even plays host scouts can earn merit badges and advance along the path. This created to groups above and beyond the Scouts such as church groups, high an impetus for Ware to insure that those opportunities were available school clubs, and even individuals or families interested in sailing. for his two sons and other boys. The Sea Scout Base building itself is a multi-story enclosure comWhen Ware first offered that ride, he was quickly shuttled into the plete with offices, conference/teaching rooms, and enough housing for position of an assistant scoutmaster, and the rest, as they say, is history. more than 200 persons. The Base building is right on the water with He has served in a number of Scout roles and has participated in nearly its own dock area to house its fleet. And the building is “green,” which every type of Scout extravaganza that you can imagine. And Ware was means that every precaution is taken to protect the environment —inproud to see his two sons achieve the rank of Eagle, the highest Boy cluding generating some of its own power, the use of new construcScout rank. But his commitment to the Scouts did not end when his tion materials from recycled products, water conservation measures, sons achieved their Eagle rank, or even when they stopped participatpower efficiency technology, etc. ing in the program. Ware has been there for every step of the Sea Scout voyage, from the What really puts a gleam in Ware’s eyes is when he talks about the seed of an idea, through various stages of growth along the way, to the Sea Scouts. The Sea Scouts are an arm of the Boy Scouts of America. large and sturdy oak that the program has become today. At this point, However, about the only thing the two programs share in common is Ware and the rest of the Sea Scout crew are on a mission to get the merit badges. The purpose of the Sea Scouts is to educate the young word out. Perhaps “Follow Me, Mateys!” is a more fitting cry. scouts on maritime activity, the ocean environment and seamanship. Please visit http://ssbgalveston.org for more information on the Ware will tell you that the initial concept of the Sea Scout program numerous opportunities for Scouts, youth, families, and many other began with the idea to get a few sailboats and take Scouts out on an groups. overnight trip or two over the summer. What emerged can only be described as Sea Scout paradise. Ware is quick to credit the many people and enormous charitable Jason D. Goff is an attorney with Sheehy, Ware and Pappas. His praccontributions that came together to create what is now known as Sea tice is dedicated to trial work where he defends clients in civil litigation Scout Base Galveston. It would take a novel to describe everything that claims. He is a member of The Houston Lawyer Editorial Board. 38
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COMMITTEE SPOTLIGHT
Building Dreams:
HBA Habitat for Humanity Committee
By Preston Hutson
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of 21 Houston Bar Association memhe Houston Bar Association’s Committee encourages Houston lawyers bers who will oversee a team of volunHabitat for Humanity Comand staff to volunteer for one of the eight teers throughout eight Saturday work mittee on February 1 wrapped work days. Family members over the age up its fund drive to raise of 16 are welcome, so feel free to $75,000 to construct its bring along your restless teenaged 18th home for a deserving Houston children and Habitat personnel family. Since its inception in 1997, will direct that energy to a worthy the Habitat Committee has raised cause. over $1,000,000 in support of its Work day volunteers need not worthy goal of providing safe, afhave any construction skills. Habfordable housing to hardworking itat for Humanity will provide Houston families. Every year its task knowledgeable employees to direct gets more difficult. The $75,000 reand supervise the build project. quired to build a new home this year Over the eight weeks, the home will represents a $30,000 increase in the be framed, roofed, and sided. It is an price of a new home since 1997. incredible process to watch as these To date, Habitat for Humanity homes spring from the ground. For Houston has constructed more than more information concerning build 960 area homes housing over 3,600 dates, please contact Bonnie SimHoustonians. The 17 homes built by mons at 713-759-1133 or bonnies@ the HBA have served 77 people, inhba.org. cluding 51 children. While Habitat While Habitat for Humanity offers three- or four-bedroom homes Houston will accept various types to deserving families with no down of in-kind donations, monetary dopayment and no interest rate, those nations are always welcome and can families must still pay for their be made online. The HBA is still achomes. Interested families must apcepting donations, with any funds ply through bi-annual “application raised over the cost of the house gofairs.” Once selected, the chosen ing toward gifts to help the family. family must perform 300 hours of Donations can be made by visiting “sweat equity” on either their home www.houstonhabitat.org and seor other Habitat projects before lecting “Houston Bar Association,” taking possession of their home. or by mailing a check payable to Additionally, the applicant family the Houston Bar Foundation to the must participate in the “Pre-Closing HBA office. Program,” which includes financial Volunteers on the April 26, 2014 build day for the HBA’s counseling and guidance for home 17th Habitat home included 20 volunteers from Norton Preston Hutson is an officer with Rose Fulbright. management and maintenance. LeClairRyan, a member of The The Habitat Committee, chaired by days from April 11th through June 6th. Houston Lawyer editorial board and a Rick Burleson of Burleson LLP, consists In addition to monetary donations, the member of the HBA Habitat Committee. thehoustonlawyer.com
January/February 2015
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LEGAL TRENDS
Economic Loss Rule and Negligent Misrepresentation
petitive bids for a general contractor to build the rail line. These bids were submitted, in part, by relying on LAN/STV’s drawings and plans. DART awarded the contract to Martin K. Eby Construction Company (“Eby”), who had previously performed similar work for DART, based on Eby’s low bid of slightly less than $25 million. It should be remembered, Eby did not have a contract with LAN/STV. Eby and LAN/STV each had their own separate contract with DART so they were By The HON. Jeff Work “contractual strangers” to each other. Typically, a general contractor assumes espite compelling reasons preliminary architectural drawings will advocating the opposite posihave some errors but no more than 10 pertion, the Texas Supreme Court cent, at most, and the general contractor recently ruled an architect or usually subsumes these potential errors engineer could not be sued, in their bid. However, based on negligence, on this DART project, by a non-party to a Typically, a general after Eby commenced contract, when that construction, it disnon-party incurred contractor assumes covered that 80 peronly financial damcent of LAN/STV’s age arising from preliminary architectural drawings included performance of that drawings will have errors which eventucontract. On June 20, ally caused losses to 2014, the court desome errors but no Eby totaling nearly livered its opinion in $14 million. Eby sued LAN/STV v. Martin K. more than 10 percent, DART for breach of Eby Constr. Co., No. contract and LAN/ 11-0810, 2014 WL at most, and the STV for negligence 2789097 at 1 (Tex. and negligent misJune 20, 2014). The general contractor representation. Eby case’s main emphasettled with DART sis is on the “ecousually subsumes for $4.7 million and nomic loss rule” but continued its lawsuit an underlying issue these potential errors against the archiis whether there still tect. At trial, Eby was truly is a cause of acin their bid. awarded judgment tion for negligent misfor $2.25 million against LAN/STV. Both representation. parties appealed and the court of appeals The Dallas Area Rapid Transportation affirmed. Authority (“DART”) hired an architect, The Texas Supreme Court reversed and LAN/STV, to prepare plans and specificarendered judgment that Eby take nothing tions to build a light rail line from downfrom LAN/STV. In doing so, the court town Dallas’ West End District to the removed any confusion about whether American Airlines Center where the Dalarchitects should be treated differently las Mavericks play. The rail line itself was from other professional services for neglionly a mile long. DART solicited com-
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gent performance or misrepresentations. When applying the economic loss rule to the facts in Eby, the court admitted it was completely foreseeable Eby would suffer losses for the architect’s negligent acts in drawing the plans. The more important necessity was to draw a thick, bold line quarantining tort actions from contractual actions. The court explained DART was contractually responsible to Eby for providing accurate plans for the job. In its contract, Eby agreed with DART to specified remedies for disputes and settled its claims with DART for $4.7 million. The court stressed Eby was not a party to the contract between DART and the architect. In addition, Eby did not have any physical injuries or property damage but, instead, only suffered economic loss. Therefore, Eby should be precluded from seeking a claim against the architect. At the same time, the court affirmed there are still valid negligent misrepresentation claims against providers of various professional services including: (1) an attorney and client when no contract is produced; and (2) an accountant and a limited small group of potential investors who rely on a false audit report. A construction project is different because of typical multiple vertical contracts with the owner. While the DART v. Eby case may be sighted as concrete authority for architects and engineers alike, it also affirms the broader definition of the economic loss rule. For a claim sounding in negligence, a party must plead and prove more than mere economic harm to be entitled to damages. For recovery under negligence, a party must prove either a personal injury or property damage. The Hon. Jeff Work is a former judge of Harris County State District Courts. He practices with the Law Offices of Susan Cartwright/Zurich Insurance Group Staff Counsel, litigating for the Major Claims Unit.
LEGAL TRENDS
10-Year Statute of Repose Held Constitutional for Minor’s Medical Malpractice Claims By Raymond L. Panneton
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n an 8-to-1 decision, the Texas Supreme Court found the ten year statute of repose provision of the Texas Medical Liability Act constitutional as applied to a minor’s medical malpractice action. Tenet Hospitals Ltd. v. Rivera, No. 13-0096, 2014 (Tex. August 22, 2014) The precedent case involved a claim of negligent healthcare received by Elizabeth Rivera during the labor and delivery of her daughter, “M.R.” In 1996, while nine months pregnant, Ms. Rivera went to the emergency department of Providence Memorial Hospital (“Providence”) after experiencing a cough and fever. She was evaluated, treated, and discharged the same day by Dr. Michael Compton. The next day, Ms. Rivera noticed a decrease in fetal movement and returned to Providence’s emergency department. M.R. was delivered via emergency C-section and was born with permanent neurological disabilities due to a lack of oxygen to her brain prior to her birth. In August 2004, Ms. Rivera’s attorney
sent Providence the statutorily required notice of intent to file a healthcare liability claim. Although the pre-suit notice was sent in 2004, eight years after M.R.’s birth, the lawsuit was not filed until March 2011, fifteen years after the injury occurred. However, seven years following M.R’s birth, in 2003 the Texas Legislature enacted the ten year statute of repose, codified as §74.251(b) of the Texas Civil Practice and Remedies Code After Rivera filed suit, the Defendants moved for summary judgment arguing that the negligent act occurred fifteen years ago; therefore, Plaintiffs’ suit was time barred by the statute of repose. The trial court agreed and dismissed the Plaintiffs’ claims. Plaintiffs appealed the trial court’s decision. On appeal, the Eighth Court of Appeals reversed the trial court, finding the ten year statute of repose, as applied to M.R., violated the open courts provision of the Texas Constitution. The court held “the Legislature acted unreasonably in enacting section 74.251(b) with no exception for the claims of minors who are injured before the age of eight because the statute effectively abolishes their right of redress before they are legally able to file suit on their own behalf without providing any adequate substitute.” (Rivera v. Compton, 329 S.W. 3d 326, 333 (Tex. App. – El Paso 2012)). The Defendants appealed this ruling. Providence appealed to the Texas Supreme Court, argued that the Court of Appeals failed to consider the holding in Methodist Healthcare Sys. Ltd. v. Rankin, 307 S.W. 3d 283, 292 (Tex. 2010), which upheld the constitutionality of the 10year statute of repose, even in situations where the injury could not have reasonably been discovered. The Plaintiffs maintained that the statute of repose, as applied to minors, is a violation of the Texas Constitution’s open courts provision. The Plaintiffs also argued that the ten year repose statute operated retro-
actively, as it extinguished M.R.’s claim before she reached the age of majority. The Supreme Court reversed the decision of the Court of Appeals, rendered a take nothing judgment for the Plaintiffs, and upheld the constitutionality of the statute of repose as specifically applied to M.R. The Supreme Court, utilizing the “asapplied” standard, found that the statute of repose did not violate the open courts provision as applied to M.R.’s case. The Court ruled that the open courts provision only applies to those litigants who “use due diligence” in bringing their claims. The Court opined that Ms. Rivera failed to use due-diligence by sending the required pre-suit notice in 2004 and waiting an additional six years before filing suit. Based on this large time-lapse, the Court ruled that the open courts provision could not revive M.R.’s claims. With respect to the claim that the statute was unconstitutionally retroactive as applied to M.R.’s claims, the Court opined that even after the Medical Liability Act was made law, the Plaintiffs had three years before the ten year statute of repose barred the claim. The Court also noted that retroactive statutes may be constitutional if enacted with the intent to serve the public’s interest, as was the case with the Medical Liability Act. In rendering their decision, the Supreme Court left open the possibility that the statute of repose could violate the open courts provision with respect to a minor’s claim where due-diligence was exercised. Given this holding, it is possible, however unlikely, that the Court could reach a different result if they were presented with a different set of facts. Raymond L. Panneton is an associate at The Talaska Law Firm, PLLC where he practices medical malpractice, pharmaceutical and medical device litigation. He can be reached at ray@ttlf.comt.
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January/February 2015
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Media Reviews
Blog Post Reviews: Social Media in the Workplace
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The Houston Lawyer
Reviewed by Matthew J. Heberlein one are the days when social media could be thought of as a secondary concern. Over 58 percent of Americans own a smartphone, promising near-constant access and exposure to social media websites like Facebook, Instagram, Pinterest, Twitter, and LinkedIn. This blog review focuses on two recent blog posts: • Employer Access to Employee Social Media: Applicant Screening, ‘Friend’ Requests and Workplace Investigations, by Melissa Crespo and Christine E. Lyon, March 25, 2014, http://media.mofo.com/files/Uploads/Images/140317-Employee-SocialMedia.pdf • Social Media in the Workplace: Do Employers “Like” What Their Employees Are Doing Online?, Jeffrey Smith, March 3, 2014, http://blog.garlington. com /s oc i a l-me d i a-i n-t he-workplace-do-employers-like-what-theiremployees-are-doing-online/ The authors of these blog posts reject the notion that social media must always be seen as employer versus employee. In fact, certain types of access to social media may be advantageous and even encouraged, but the overriding concern seems to be employees and employers staying within appropriate boundaries the themes of awareness and transparency. Crespo and Lyon focus heavily on the plethora of state and federal laws with which multi-state employers must contend. Over one dozen states have special laws restricting employer-initiated access to personal social media accounts, and similar legislation is being considered in at least 28 other states. State social media laws do not prohibit access to public information. Therefore, private employee social media sites made available to the 42
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public are not off limits. However, employers and their agents are typically not allowed to encourage prospective employees, current employees, or other friends to add someone to his or her or personal contact list in order to gain access to a personal social media account. Additionally, similar rules apply even where the employer is engaging in a workplace investigation. There are limited exceptions, but familiarity with applicable state law and procedure is imperative. Additionally, as the popularity of social media has grown, the interest in potential commercial benefits has also grown. Thus, while employers are concerned about the information being shared by employees on their own respective personal social media sites, employers are also increasingly concerned about their own social media presence. Crespo and Lyon provide tips for navigating social media laws. As Smith addresses in his blog post, what employers “like” and what employers can legally prohibit also presents a federal question. The National Labor Relations Board (“the NLRB”) is receiving increased attention after deciding in favor of employees in a number of social media related cases. Citing the National Labor Relations Act of 1935, the NLRB has determined in a number of high-profile cases that employees’ online comments were protected concerted activities. Although usually reserved for union formation, this broad definition of the term “concerted activities” seemingly includes discussion of workplace issues — however disparaging and public they might be. Many of the memoranda, which Smith has summarized in his article, consider the violation of an employees’ rights to engage in concerted activities, as well as invalidation of social media policies that were found to be overbroad or ambiguous. To minimize social media workplace conflicts, the authors recommend a succinctly-written social media policy that honors all applicable federal and state laws. The policy should avoid restricting protected activities and provide clear examples of unprotected conduct. Additionally, the authors recommend engaging employees in the review and implementation of social media policies by seeking feedback and providing continuing education on the subject.
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Matthew J. Heberlein is a tax associate at PricewaterhouseCoopers LLP and a member of The Houston Lawyer editorial board.
Social Media in the Courtroom: A New Era of Criminal Justice By Thaddeus A. Hoffmeister 2014, ABC-CLIO, LLC
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Reviewed by Kelly L. Fritsch ocial media impacts almost every aspect of our lives. So, it is not surprising that social media would have some impact on the practice of law. Thaddeus E. Hoffmeister, a professor at University of Dayton, School of Law, explores the impact of social media on criminal law in Social Media in the Courtroom: A New Era for Criminal Justice. Although the content focuses on the criminal justice system, this book offers insight on how social media has become a positive tool in the courtroom. Divided into four distinctive parts, Hoffmeister discusses the impact of social media on private citizens, police, attorneys, and judges. Part one, which is devoted to the private citizens, offers an interesting look at how citizens utilize social media to draw attention to crimes, seek assistance in finding perpetrators, and use social media to commit crimes. The most common way citizens use social media in the area of criminal justice is by posting a photo or video depicting an actual crime. Hoffmeister uses real-life examples to show how this method has been helpful in apprehending criminals. Likewise, when posting or sharing activity that has a criminal aspect such, as on-line
Media Reviews
harassment, social media has been instrumental in prosecuting citizens who commit such crimes. The second part focuses on how police utilize social media to improve community relations and how social media has been integrated as a tool in law enforcement. Most police departments now have interactive websites or a Facebook page to broaden their reach to the mass population. As a result, police are able to engage with citizens instantaneously. Hoffmeister emphasizes the benefit of this instantaneous interaction as it has allowed police to prevent crime, investigate crime, and in some instances, apprehend criminals. Part three discusses the impact of social media on attorneys. Hoffmeister shows how social media can be used as a research tool for attorneys investigating a client, a witness, or the opposing party. Hoffmeister also details the numerous ethical considerations attorneys should consider when accessing personal pages on social media sites, communicating with clients on non-secure sites, communicating with the public on social media, divulging confidential case information on personal sites, and advertising on social media. The last part of the book describes the impact of social media on judges. Hoffmeister examines how judges use social media and the ethical impact when judges interact with attorneys appearing before them. He also discusses how judges interpret evidence obtained through social media and to what extent such evidence should be admitted. As a bonus, Hoffmeister provides subpoena points of contact for frequently used social media sites as well as sample instructions to jurors on the use of social media. Overall, according to Hoffmeister, social media has done more to strengthen than weaken the criminal justice system. This is primarily due to the fact that social media allows the key players in criminal justice an opportunity to communicate directly with the public. Even though the book is primarily focused on social media in the criminal justice system, I would recommend it to any litigator, regardless of area of specialty, as its insight and commentary are applicable to all areas of litigation practice. Kelly L. Fritsch is the owner of Kelly L.
Fritsch, P.C. Her practice is dedicated to divorce litigation and family law matters. She is a member of The Houston Lawyer editorial board.
Thinking, Fast and Slow By Daniel Kahneman Farrar, Straus and Giroux, 2011
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Reviewed by Sammy Ford IV awyers are in the business of persuasion: not only judges, juries and opposing counsel, but also clients, colleagues, and governmental agencies. Historically, the art of persuasion has been subsumed under the rubric of rhetoric and salesman slogans. If we are going to persuade, it is important to move past the gimmicks and to know how the human mind works. For that, we must turn to psychology. No one in the last half century has helped us to understand the human mind more than Daniel Kahneman, the winner of the 2002 Nobel Prize in Economic Sciences. Kahneman has a long history of exploring just how humans make decisions and how they interpret data. Thinking, Fast and Slow is a sort of summa of his career, and it is one that every lawyer would do well to become familiar with. Kahneman’s book introduces two characters that correspond to ways of thinking. The first, which he labels System 1, is characterized as fast, instinctive, and emotional. It is also more likely erroneous. It is what we rely on when we aren’t conscious of deciding in the first place. System 2 is slower, more deliberative, and more logical. It is also unlikely to recognize when it is needed. But to be clear, the designation of the two systems is not meant to coordinate to any particular portion of the brain. His argument for their importance gives light to what lawyers may learn about persuasion: according to his research and that of other psychologists, humans have an easier time understanding sentences in which an active agent does something. In the law, this can teach us how to build our client’s
story using actors and actions, instead of concepts and phrases. The first is more comprehensible and memorable to the human mind. Kahneman next turns to biases to which we are all subject. One of the most important is anchoring. In an experiment he and Amos Tversky performed, Kahneman had participants spin a wheel of fortune from 0 to 100. But it was rigged to stop at either 10 or 65. After spinning the wheel, and writing down either 10 or 65, contestants were asked “Is the percentage of African nations among UN members larger or smaller than the number you wrote?” The wheel of fortune of course gave no useful information regarding the answer to the question. But it still affected the contestants’ answers. Those who got 10 guessed 25% and those who got 65 guessed 45%. This is anchoring at work; mere exposure to a number conditions our thoughts on unrelated matters. The anchoring bias can be particularly useful for lawyers when presenting or refuting evidence of damages. In his most recent research Kahneman has looked at how humans perceive their happiness. He has determined that there are really two selves: the experiencing self and the remembering self. The easiest way to understand these two selves is by looking at the results of an experiment. Participants placed their hand in very cold water for 60 seconds, at which point they were asked to remove it. They then placed their other hand in very cold water for 60 seconds, but instead of removing it, the water was heated by 1 degree Celsius for an additional 30 seconds. They were then asked which test they would like to repeat. Eighty percent chose the latter, even though it meant being exposed to cold water for 50 percent longer. Why? In contrast to the experiencing self, which knew at the time that the water was cold, the remembering self looked back on the slightly warmer water at the end and determined that the experience was preferable. Depending on your type of law practice, any or all of these tools of persuasion may be useful. Even if it doesn’t help one’s practice, and it will, it may help your life. Who wants to let their mind trick them? Sammy Ford IV is a trial lawyer at Abraham, Watkins, Nichols, Sorrels, Agosto & Friend. He is also a member of The Houston Lawyer Editorial Board.
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cluded in monthly rent are three conference rooms, receptionist, internet access, telephone system. Toshiba color copier/scanner, postage machine, fax and a fully-stocked kitchen. Covered parking, file storage facilities and secretary/paralegal space are available. Office furniture Downtown. Beautiful offices not included. Call Jim Westin Bank of America build- moreland at 713-759-1188 ing. 700 Louisiana, 48th floor. Amazing views. Office-sharing with established One to four “partner sized” lawyers. Associate 10’x15’ (approx. 15 X 15) offices on offices available with secre- 16th floor of prime Galleriatarial space. Includes recep- area building. Excellent views tionist, phone, internet, copi- (Uptown Park or Memorial ers, postage meter, coffee, etc. Park). Available for rent indiShared reception, conference vidually or as a group. Parkrooms, kitchen. Visit www. ing, reasonable access to firm fb4800.com for photos, etc. conference rooms, phone line Call Tyler 713-255-3225. and access to firm’s wireless router included. Access to existing firm services staff CENTRAL HOUSTON negotiable. Also available (at PRIVATE OFFICES. additional cost) are secreBetween downtown and Gal- tarial station and large corner leria area at I-10 and Shep- conference room. Call 713herd. Internet, phone, utili- 888-2507 or emailjrawls614@ ties, parking included. Peryahoo.com fect for small firms and solos. 713-867-9800 HOUSTON GREENWAY PLAZA. Great office space at 1601 Class A space available for Westheimer at Mandell, min- sublease. 1st floor, vaulted utes from downtown Hous- ceilings, garage parking, ton. Rent includes shared phone system, internet, conaccess to two conference ference room, receptionrooms, kitchens, internet, ist, kitchen area. Available: cable, phones with VM, all 1 window office, 2 interior ofutilities, part-time reception- fices; I hall space; and virtual ist. Window offices rangoffices. Contact Lawrence ing from $400-$1,000 per at 713-650-1222 or month with no long-term email: legal@texas.net commitment. For information, please call Mark Kidd at 713-968-4601 GALLERIA AREA ST. JAMES PLACE Attorney-size office with secretarial work station H O U S T O N / G A L L E R I A . for sublease - AV rated firm, One medium outside office Class A build out. Possibility is available in an office suite for referrals. Please send inshared with nine experienced quiries to houstongallerialaw and established attorneys. Infirm@gmail.com
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Galleria Area Available for sublease to a sole practitioner, a furnished 240 sq.ft. exterior office (wall of windows). Includes use of a conference room, wifi, phone w/vm, receptionist and limited secretarial assistance. Incentives for a commitment of twelve months or more. Call 713-993-9363. Professional Services All things driving and sealing/expunging criminal histories. We defend traffic and ordinance violations, remove arrest warrants, solve DPS license issues, obtain occupational licenses, and handle DWI, racing, reckless driving, evading, and hit and run cases. 4 1/2 YELP stars. Robert W. Eutsler 713-464-6461 www.TheTicketAttorney.com gary 13710
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SOCIAL MEDIA ISSUES IN EMPLOYMENT
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ments about management and complaining about customer service specifications. The owners of the MySpace page were fired, which prompted them to sue the restaurant group for violating the Stored Communications Act. Hillstone argued that they had its employee’s consent to access the MySpace page. However, the Court ruled that a fact question existed on whether consent was given because of the pressure exerted on the employee by management. The Court stated that if the employee’s consent was only given under duress, then Hillstone was not an authorized user under the SCA. The lesson to be learned is that active efforts to snoop on employees through their social media accounts may expose the employer to unanticipated liability for violating federal law. The SCA cannot force an employer to return an employee to work; however, the employer can be fined and forced to pay damages to the fired employee. Practices to avoid by the employer include such tactics as pressuring co-workers to give access to a target employee’s social media accounts, creating fictitious persons to interact with the employee on social media, or obtaining passwords to private accounts from company-owned computers where the password populates automatically. It is likely that employers obtaining the social media activity of their employees through these methods would be in violation of the SCA and could implicate other federal or state laws protecting an employee’s privacy rights. Conclusion The use of social media is an effective way for employees to voice their complaints about work or safety conditions and share information. These sites can benefit the employee, who may gain greater access to information and more collective power, and the employer who may benefit from word-of-mouth advertising and feedback on their products and services. Both employees and employers must be careful in how the information on these sites is generated, how it is used and how it is accessed. Matthew Walker is an attorney in the Houston office of Litchfield Cavo, LLP. His practice is focused on civil litigation, personal injury, insurance and employment matters. Endnotes 1. Sawyer v. E.I. Du Pont De Nemours and Company, 430 S.W.3d 396 (Tex. 2014). 2. Id. 3. Valley Hospital Medical Center, 351 NLRB 1250 (2007), enfd. 358 Fed Appx 783 (9th Cir. 2009). 4. Republic Aviation Corp. v. NLRB, 324 U.S. 793, 798 (1945). 5. “Report of the Acting General Counsel Concerning Social Media Cases”, Office of the General Counsel, Division of Operations-Management, Memorandum OM 11-74, August 18, 2011. 6. Id. 7. Id. 8. Id. 9. Id. 10. Id. 11. 18 U.S.C. § 2510(12) 12. 18 U.S.C. § 2707(a)-(c).
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January/February 2015
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