Employee Breached Implied Duty of Confidentiality When Using Customer List

Last week, the Franklin County Court of Appeals affirmed in part and reversed in part an $81k verdict against a former employee and his new business for misappropriating a client list – which his employer had earlier sold to the plaintiff -- to start his marketing campaign.  MNM & MAK Ents., L.L.C. v. HIIT FIT Club, L.L.C., 2019-Ohio-4017.  The Court found that the employee’s misappropriation of the password protected client information violated Ohio’s Trade Secret Act and that the taking was unlawful based solely on every Ohio employee’s implied fiduciary duty of loyalty.  Nonetheless, the Court remanded for a recalculation of damages because the award was improperly based on gross revenue and mistaken assumptions did not account for expenses for declining growth in new clients.


According to the Court’s opinion, the individual defendant was initially hired as an independent contractor subject to an agreement with a confidentiality clause protecting the employer’s proprietary information, as well an arbitration clause.  He was later hired as an employee, but had not employment agreement.  He was given access to all client contact information, which he eventually downloaded to help start his own competing business in August 2017 a year after the employer closed its New Albany facility.  He was unaware that the employer had sold in October 2016 the customer list to another entity, which clearly objected when those clients signed up with the defendant’s new competing business.   The employer and the buyer asserted claims for misappropriation against the former employee and his new company.  After a bench trial, the court awarded $81,777 in damages.  This appeal followed.


The Court found that the independent contractor agreement was relevant for the purpose of showing that the defendant employee knew that the customer information was confidential, but did not otherwise govern the dispute. “There is no public record of the list, and [the employer] never used the list in a public way or provided the list to any mailing company.”   


The Court rejected the employee’s argument that his downloading of the information was not unlawful misappropriation because he had lawful access to the information by his employer giving him the passwords and did not subject him to a confidentiality agreement. “[E]xpress consent to access trade secret information in the course of employment does not also confer express or implied consent to use the information for non-work, personal purposes.”  Employers are not required to enter into express confidentiality agreements with their employees to protect their trade secrets from misuse:

Employees owe a duty of good faith and loyalty regardless of whether they signed an employment agreement with their employer.   . . . The presence of an explicit, binding confidentiality or employment agreement is not required to find misappropriation of a trade secret.

Victorious plaintiffs are entitled to recover damages for the defendant’s unjust enrichment from the misappropriation. “Regardless of whether the damages calculation is based on a plaintiff's loss or a defendant's gain, the damages figure " 'cannot be based upon a gross revenue amount.'  . . . . Rather, "Ohio law 'requires that evidence of lost profits be based upon an analysis of lost 'net' profits after the deduction of all expenses impacting on the profitability of the business in question.'"  Yet, in this case, the Court found the trial court abused its discretion in awarding damages based the figure on defendants’ gross revenue and speculation tying it to the misappropriation:

Here, appellees requested damages in the amount of $81,776.77 based on their calculation of the membership fees and other revenue HIIT Fit allegedly received from individuals who were previously Knockout members — i.e. appellants' profits, rather than appellees' losses.  Appellees admittedly based their calculation on appellants' gross revenue . . .  The trial court never considered or discussed whether and how to reduce this proposed gross revenue figure by appellants' expenses to try to reach an amount representing appellants' net profits.  The trial court's failure to consider appellants' expenses and net profit was an abuse of discretion.

Further, the plaintiffs admitted that they calculated their damages by extrapolating the defendant’s revenue from its first five months – when it’s biggest month was only its first month – over an entire year even though records showed significant decline in new memberships over that year.   Plaintiff’s also mistakenly attributed non-customer revenue – from merchandise sales, etc. --  to their damages.


NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Ohio Supreme Court Applies Tort Cap to $800K Defamation Judgment Against Employer

This morning, a divided Ohio Supreme Court remanded a $1.55M defamation judgment entered against an employer which a jury found had defamed a nurse who had been involved with a union organization effort.  Wayt v. DHSC, L.L.C., Slip Opinion No. 2018-Ohio-4822.  The Court found that the jury’s $800K compensatory damages award was subject to the $250K non-economic damages cap under Ohio Revised Code §2315.18 because its prior precedent had found defamation to be a personal injury.  

According to the Court’s opinion, the plaintiff nurse was fired by her hospital employer for neglecting her duties and falsifying a medical record. The  head of nursing then reported the plaintiff to the Board of Nursing for patient neglect.  The plaintiff was unable to find another nursing job.   In the meantime, a nursing union filed an unfair labor practice charge with the NLRB asserting that the defendant hospital had  violated the NLRA by refusing to bargain with it and had terminated the plaintiff because of her involvement with the union. After an ALJ ruled in favor of the union, the NLRB successfully petitioned a federal court to order the reinstatement of the plaintiff to her former job at the hospital and the hospital to retract the complaint made to the Nursing Board about the plaintiff.  Nonetheless, one of the plaintiff’s co-workers stated to other nursing that the court order did not make the plaintiff a good nurse or mean that she deserved reinstatement. 

The plaintiff filed a defamation action against the hospital.  A jury awarded her $800K in compensatory damages and $750K in punitive damages.  The hospital sought to have the damages reduced under Ohio’s tort reform act, but was denied by both the trial and appellate courts.  The Ohio Supreme Court agreed only to decide the hospital’s appeal of the amount of compensatory damages.  In particular: whether the cap in R.C. 2315.18 that applies to tort actions seeking noneconomic loss as a result of an alleged injury or loss to person or property also applies to defamation.

The Court initially appeared to agree that injuries to reputation are different than personal injuries. 

R.C. 2315.18(A)(7) provides: “ ‘Tort action’ means a civil action for damages for injury or loss to person or property.”  R.C. 2315.18(B)(2) provides that the maximum noneconomic damages that can be awarded to a plaintiff in a tort action is, barring certain exceptions that do not apply here, $ 250,000.

{¶ 17} Property “means real and personal property.”  R.C. 1.59(E).  The term “property” as used in R.C. 2315.18(A)(7) does not include reputation, and neither party argues to the contrary.

The plaintiff asserted that the Ohio Constitution recognizes the four separate types of injuries. Article I, Section 16 of the Ohio Constitution, provides that courts shall be open to redress injuries to “land, goods, person, or reputation.”

That being said, the Court’s majority held that its decision was not resolved by the plain meaning of the statute because

 We have held for 90 years, however, that defamation is an injury to a person.  See Smith v. Buck, 119 Ohio St. 101, 162 N.E. 382 (1928), paragraph two of the syllabus.

                 . . . .

                We hold that under the plain language of R.C. 2315.18(A)(7), defamation is a “civil action for damages for injury or loss to person.”  This holding, as explained above, is in accord with prior decisions of this court and several other courts that were interpreting similar language.  We see no reason to overturn the well-established precedent that defamation is a “personal injury” according to the plain meaning of the term.

                 . . .

                Assuming arguendo only that the court must look to the canons of statutory construction to determine what the legislature intended by using the phrase “injury or loss to person or property,” the result in this case would be the same.  It is well established that the legislature is presumed to have full knowledge of prior judicial decisions. . . . Moreover, the legislature could easily have drafted the statute to prevent the holding from that case from affecting the outcome of this case; the legislature merely needed to add “defamation” to the list of actions enumerated in R.C. 2315.18(A)(7) to which the caps do not apply.

In addition, the Court declined the plaintiff’s invitation to only apply the damages cap to negligence cases.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney. 

Sixth Circuit Affirms $173K Jury Verdict in FMLA Interference Case Where Employee Never Returned Medical Certification Because Employer Failed to Provide Unequivocal Written Notice About Consequences

In a case where a plaintiff-employee had become so emotionally distraught that she refused to tell her employer about her medical/mental problems, to return her FMLA medical certification or to provide updated medical notes from her doctor, she prevailed pro se in a FMLA interference action after her employer terminated her for violating its attendance policy by not reporting off or showing up to work for two consecutive days after the two week period mentioned in her physician’s note.  Wallace v. FedEx Corp., No. 11-5500 (6^th Cir. 8-22-14).  The primary rule from the Sixth Circuit’s case last Friday is that an employer cannot require an employee to provide a medical certification form from her physician unless the employer explains in writing to the employee the consequences for failing to return the completed form.   In this case, the twenty year plaintiff-employee had well documented attendance counseling and generally attributed it to non-medical issues because she was embarrassed.   Exacerbated, the employer provided several FMLA forms to the employee and directed her verbally to return the forms within 15 days.  She had also received a disciplinary notice suggesting that she take medical leave until she could comply with the attendance policy, but not mentioning any medical certification requirement.   She had provided the employer with verbal notice of her need for medical leave and a note from her physician which indicated that she needed to be off work for two weeks before being reassessed.  The Court found this note could reasonably be interpreted to support the plaintiff’s need for additional medical leave following the two week period and the employer interfered with her FMLA leave by terminating her a few days after the two-week period expired.   The jury awarded her $173,000 in compensatory damages (i.e., lost wages) and the Sixth Circuit reversed the magistrate judge’s ruling reducing that amount.

According to the Court’s opinion, the employee’s health had deteriorated, but she transferred to a new department with a strict attendance requirement.  When she was coached about her attendance, she apologized for “slacking.”  Her medical condition caused significant weight loss, stomach problems and interfered with her sleep.  When her physician discontinued a narcotic drug, she experienced severe withdrawal symptoms.  Sometimes, she just sat in the employer’s parking lot and cried instead of going into work and other times she reported to her desk and cried.  She told her supervisor on Monday, August 6, 2007 that she was having personal problems because of her “past/baggage/history,” but wasn’t comfortable going into detail.  He encouraged her to be open and offered to find someone with whom she was comfortable speaking.  She then called off work for the rest of week, which made her supervisor suspicious that she knew in advance that she would be sick for the rest of the week.  He directed her to meet with him promptly when she reported to work the following week. 

She was 90 minutes late to work the following Monday.  After she was then 30 minutes late the following Tuesday, the supervisor refused to accept her apology or explanation.  Instead, he gave her a written verbal warning about her repeated poor attendance.  A meeting was held with HR the next day (Wednesday) and the employee attributed her problems to getting her child off to school.  However, she also mentioned that she was having trouble with adjustments in her medication.  She was given the options of coming to work on time, taking medical leave or going through the disciplinary process.  She then met with her doctor who was concerned with her condition and gave her a medical statement covering the prior week’s absence and indicating that she needed to be off work for two more weeks before being reassessed.  She returned to her supervisor, who arranged a meeting with inhouse legal counsel.  He gave her blank FMLA forms and she was verbally directed to return them within 15 days.   The forms stated in part:

that “Family Medical Leave is not automatic” and that “[q]ualification under FMLA will be determined upon timely receipt of the medical certification form (within 15 calendar days) if requested,”   . . . (emphasis added).  In addition, the form stated that “[w]hether your absence is FMLA will be determined upon timely receipt of the medical certification.”  . . . However, the forms were left unmarked. Moreover, the memorandum that [the supervisor] gave [the plaintiff] on August 15 to sign stated: “consider taking a period of time for medical leave until such time as [you] feel[] capable of adhering to the attendance policy and completing [your] work tasks . . .There is no mention of the need for medical certification or the consequences of failing to produce it.

The plaintiff returned to her physician and he promptly completed the FMLA forms.  He also provided her a note that she should remain off work for an additional three weeks.  She never returned the FMLA forms or the updated doctor’s note to her employer.  She later explained that she was experiencing extreme disappointment and was not herself.  She was later diagnosed with depression and ADHD.   When she did not return the FMLA forms or return to work on August 30, her supervisor tried for two days to reach her by telephone and email.  Her line was always busy and she did not respond to the emails warning her of the consequences of not keeping him updated about her medical progress.  The following Tuesday, the plaintiff left a voice mail for HR that she was on her way to the hospital for ear surgery, but her employment was terminated later that day despite that information.  When she received the termination notice, she telephoned the company’s General Counsel that she had the completed medical certification form, but was told it no longer mattered.  At trial, the plaintiff testified that she would have turned in the medical certification form if she had realized the consequences of failing to do so.

On appeal, the Sixth Circuit found that plaintiff need only provide notice of her need for FMLA leave.  She is not required to mention or refer to the FMLA and she is not required to mention the possible duration of the medical leave.  The plaintiff mentioned the problems with the adjustment in her medication and provided her employer with a note from her physician about her need to be off work for two weeks before being reassessed, so she provided sufficient notice of her need for FMLA leave.   The Court rejected the employer’s reliance on the two-week period in the physician’s note:

By focusing on whether [the plaintiff] provided enough documentation for continued leave, [the employer] misses the point of this notice element. The relevant question is whether [the plaintiff] provided [the employer] notice that she needed FMLA leave, not whether she provided notice that she needed a certain amount of FMLA leave.

Granted, “in an ideal world,” the plaintiff would have provided her employer with the updated physician’s note indicating a need for an additional three weeks of medical leave.  However, since his prior note referred to a “reassessment” the jury could reasonably conclude that the two weeks were merely an estimate and that the plaintiff could not return to work before being cleared by her physician.

Being on notice of her need for FMLA leave, it was up to the employer to take action to obtain any necessary information it required about the duration of her leave and any medical certification.  The Court found that the FMLA forms which the employer provided to the plaintiff on August 15 were not clear about there being any consequences if she did not timely complete and return the forms.  There was no unequivocal statement that her FMLA leave could be denied or delayed if she failed to return the forms.  It was irrelevant that she had been verbally instructed to return the forms within 15 days because the FMLA regulations require the warning to be in writing.  Without such written notice to the employee about the consequences of failing to timely return the medical certification, the employer cannot deny or delay FMLA leave based on a failure to provide medical certification.  Accordingly, the plaintiff could not be fired not returning the medical certification.  In other words, she had begun her FMLA leave on August 16 and the employer terminated her during the FMLA leave because it could not object to the lack of information.

[Her] failure to report for work—and her subsequent termination—is a direct result of failing to perfect her FMLA leave, which is a consequence of [the employer] failing to meet its responsibilities under § 825.305. . . .

 . . .

[The employer] claims that it terminated [the plaintiff’s] employment because she was absent—without a valid excuse—for two consecutive days, but the reason her absences were unexcused was because [she] failed to perfect her FMLA leave. The reason she failed to perfect her leave was because she failed to return the medical-certification form, and the reason she failed to return the form, according to the jury, was because [the employer] failed to inform her of the consequences of failing to do so as required by 29 C.F.R. § 825.305. Thus, [the employer’s] failure to provide notice was the proximate cause of her termination, meaning that its failure to comply with the regulations prejudiced [her].

The Court rejected the employer’s argument that it was the plaintiff’s mental illness – and not its failure to comply with the FMLA notice regulations – which caused the plaintiff to fail to return the medical certification forms. “In making this argument, [the employer] disregards § 825.305’s equitable-tolling provision, elevates its attendance policy over the protections of the FMLA, and oversimplifies mental illness. It is impossible to recreate how [she] balanced her exertions in August of 2007, and if she had known that returning the certification was necessary to keep her job, she may have rearranged her priorities in dealing with her mental illness to comply with [the employer’s] request.”

 The Court also rejected the employer’s attack on the legality of the FMLA regulations. Finally, there were a host of technical procedural issues dealing with remittitur (i.e., reduction in the plaintiff’s damages), and the timeliness of post-trial motions and notices of appeal.  In short, the Court ultimately affirmed the jury’s initial award of $173,000, chastised the plaintiff for failing to timely argue her right to front pay and liquidated damages and rejected the employer’s remaining arguments.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney. 

Wal-Mart Pays $363,419 to Settle EEOC Sexual Harassment Lawsuit Involving Akron Store

Yesterday, the EEOC announced that it had resolved a sexual harassment lawsuit it filed almost a year ago against Wal-Mart Stores East, L.P in federal court in Akron concerning the sexual harassment and termination of an intellectually disabled employee.  According to the EEOC, Wal-Mart violated Title VII when a co-worker sexually harassed the eleven-year employee of an Akron store  for several years with the knowledge of management.  The disabled employee was fired shortly after she finally complained to management.   The settlement payment consists of $295K in compensatory damages (just under the 1991 Civil Rights Act cap) and full back pay.

The settlement also requires Wal-Mart to provide sexual harassment training to its managers and human resources managers at that Akron store. “The training will include instruction on how to prevent the sexual harassment of intellectually disabled employees, including by working with job coaches and vocational counselors who interact with Wal-Mart on behalf of such employees. Also as part of the settlement, the company must post a notice in the workplace explaining employee rights and employer obligations under Title VII, and it must submit reports to the EEOC during regular intervals throughout the decree's three-year duration.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

A Couple of Recent Trial Court Decisions Shows that Truth Can Be Stranger Than Fiction

There have been a few notable trial court decisions within the last month that may interest you.  One deals with a $500K+ age discrimination award and the other concerns vegans and flu shots.   I usually do not report on these  decisions because they sometimes change on appeal and are not binding on other trial courts.  However, they can be indicative of legal issues invading the workplace and demonstrate why it is often best to avoid litigation if possible. 

The verdict receiving the most local media buzz is the $500K+ age discrimination award in Warden v. Ohio Department of Natural Resources.   The Ohio Court of Claims ruled in favor of a retired employee who was rejected for his application to be rehired into his old job (for which he was undeniably the most qualified applicant) because the ODNR applied a new and unpublicized policy during the last recession of not rehiring retirees into their former jobs while they were also collecting a pension – a practice referred to as “double dipping.”  A review of the court docket shows that this case is even more interesting (to employment attorneys at least) than the significant monetary judgment reflects or the local media has reported.

As explained in the plaintiff’s summary judgment motion, and the Court’s liability opinion, the plaintiff accepted a two-year buy out and retired in 2006. He was re-hired as an independent contractor to essentially perform his old job for a series of short-term contracts.  When a job similar to his old job was posted, he was encouraged to apply and did so.  His application made it through the screening process and he was interviewed.  The plaintiff received the highest interview scores and several managers/directors went to bat for him to be hired (both before and during the litigation).  At no time during the process was he told about a policy to not hire retirees.  (There was also a factual dispute as to whether the interviewers had been informed of the policy).  The HR Director refused to hire him because he was a retiree.  Therefore, the job went to the next most qualified applicant who was 15 years younger.  The plaintiff’s complaint alleged that his age was a motivating factor in the decision.

The ODNR explained that it had enacted the policy because “double dipping creates a distrust with the public.”  Re-employment of retirees was to be allowed only for short-term contracts where the job required specialized knowledge or experience and a number of factors were to be considered in evaluating exceptions. (The Court only noted one exception which had been made).  While the policy was memorialized in a memorandum by one HR Director, there was no written directive distributed to division heads or HR staff.  The court found that the policy -- against re-hiring retirees collecting a pension -- did not constitute direct evidence of discrimination, but rather, was a legitimate and non-discriminatory reason to reject the plaintiff’s application.  Moreover, the Court also concluded that the plaintiff failed to show that the ODNR’s explanation was pretextual for age discrimination.   Accordingly, the Court rejected the plaintiff’s disparate treatment theory of recovery.

Shockingly, the Court then concluded that the plaintiff should prevail on a disparate impact theory of liability even though this theory was not plead in the Complaint or  even mentioned in the plaintiff’s post-trial brief and no statistical evidence had been presented.  (In fact, the plaintiff’s post-trial brief even cites in its first footnote  to another Court of Claims summary judgment opinion from three years ago which had saved a similar policy from legal challenge).  The Court concluded that any policy which precludes employment on the basis of retirement under Ohio Revised Code § 145.32 necessarily is based on the fact that the individual is over the age of 40 (because no one is eligible to retire below the age of 55 or 30 years of service).  It then disputed the whole basis for public condemnation of double-dipping on the premise that it is legal and saves money because the state contributes less to the pension accrual of an already-retired employee, etc.   Therefore, the  Court found that the policy did not constitute a reasonable factor other than age which could justify the non-hire of the plaintiff.

The defendant employer argued in its Motion for Reconsideration that the evidence showed that the plaintiff was the only individual adversely affected by the ODNR policy.  (It even pointed out that the only time that the plaintiff’s counsel ever mentioned the words “disparate impact,” it was done by mistake and he quickly corrected himself).   Nonetheless, the Court ruled that the plaintiff could prevail on any legal theory supported by the facts and that statistical evidence was not necessary in a disparate impact claim.

Instead of ordering the ODNR to hire the plaintiff, the Court ordered the payment of back and front pay instead.  The plaintiff had indicated that he had only intended to work another five years and the new employee had been working in the job for three years at this point.   This judgment amounted to more than $507K and included his $64K annual starting salary, presumed annual step increases, fringe benefits calculated to equal 34.5% of his salary, $17.3K for the increased tax liability from a lump sum payment, pension accrual, repayment of court costs (including the costs of litigating) and attorney fees of $53,545.   He was also awarded 3% judgment interest.

I expect this decision to be appealed.

Religious Discrimination/Vegans/Flu Shots.  In an opinion written by federal Judge Spiegel in Cincinnati, the Court refused to dismiss a complaint which alleged that a hospital employer violated the plaintiff’s rights under Title VII to exercise her vegan religion by firing her in 2010 for refusing to take a flu shot. (Until the last week, most flu shots could only be manufactured using eggs).   Chenzira v. Cincinnati Children’s Hospital Medical Center, No. 11-CV-917 (S.D. Oh. 12-27-12).  Complaints such as this can only be dismissed if there is no set of facts which could sustain the legal theory.  This is a difficult standard to meet, but many observers were still surprised because veganism is not usually considered to be a religion and a hospital ‘s undue hardship for such a religious accommodation seems to be obvious (although, here, the hospital allegedly used to accommodate the plaintiff in the past).  The result of the Court’s opinion is that the case will proceed with discovery, summary judgment motions and possibly trial if the parties do not first settle the case. 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Franklin County Court of Appeals Affirms $105K in Damages for Same Sex Harassment

Earlier this month, a unanimous Franklin County Court of Appeals affirmed $105,000 in damages for a same sex hostile work environment harassment claim. Tod v. Cincinnati State Technical & Community College, 2011-Ohio-2743. In Tod, the female plaintiff complained about her female manager referring to her "Barbie doll figure," the size of her chest, her figure, as a "bit**" and other similar comments throughout her employment. After 14 months of documenting the problems, she finally reported the problem to human resources and then began to feel retaliated against. She then found another job, but did not report her present employment out of fear of further retaliation. She was then fired from both jobs. The Court rejected the employer's attempt to argue that the harassment was welcomed, not reported in a timely basis, or sufficiently hostile. The Court also rejected the contention that the harassment was not based on sex because the manager's comments were inherently sexual.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Ohio Court of Appeals Shows that Violating a Non-Compete and Court Order Can Be More Trouble Than It’s Worth

In my experience, there are few industries where employers are more aggressive in enforcing non-competition agreements than in than beauty salons. This week, the Hamilton County Court of Appeals addressed another case involving a hair stylist who just could not say no to his former clients for the non-competition period and ended up paying a steep price for breaching his former employment agreement. Mitchells Salon & Day Spa, Inc. v. Bustle, 2010-Ohio-1880 (4/30/10).

According to the Court’s opinion, the defendant stylist began working for the employer salon soon after graduating from cosmetology school and before he had developed any clients. He signed an employment agreement with a non-competition clause barring him for one year from providing any hair styling, hair care or related services to any client which he had served at the employer at any point during his employment. After working for the employer salon for more than 12 years, he quit in August 2007 and opened his own salon. The employer became suspicious when most of the stylist’s former clients ceased patronizing the employer’s salon and filed suit in January 2008 to enforce the non-competition clause. The trial court entered a TRO in February 2008 prohibiting him from providing any beauty services to the employer’s former clients. The parties then negotiated an injunction which prohibited the stylist from providing for one year – from the date of the February 2008 injunction –any hair styling, hair care or related services to any of the employer’s clients which the stylist had ever served. He also agreed to send each of his clients a letter prepared by the salon informing them that he could no longer serve them and recommending another stylist currently employed by the salon.

The employer salon even offered these clients a discount or free service if they returned. However, it was apparently not enough to shake their loyalty to the errant hair stylist. (I can certainly relate to this). When most of the former clients did not return, the employer hired a private investigator in September 2008 which apparently confirmed that the hair stylist was continuing to routinely serve former clients of the employer. Accordingly, in December 2008 the employer filed a motion to hold him in contempt of the agreed injunction. During the April 2009 contempt hearing, the stylist admitted that he had violated the non-compete and unintentionally violated the TRO and agreed injunction because he had trouble saying “no” to his former clients. He produced a list of 180 clients whom he had served since August 2007 which had been former clients of his employer, but argued that 63 of them were procured personally by him and not by any advertising or promotional campaign by the employer. In all, he claimed that he had made a profit of approximately $37K by serving former clients of his employer in violation of the non-compete, the TRO and the injunction. In response, the employer produced evidence of 39 additional clients which were not on the stylist’s list which the PI had found on a paper calendar in the stylist’s trash.

The employer wanted to be paid for the entire lost profit of $74.1K caused by the stylist’s resignation (i.e., by taking the entire profit he had generated during his last year of employment less the cost of his commission and products) and did not limit itself to the profit lost by the 219 clients served in violation of the non-compete agreement. It also asked to be reimbursed for the $52.6K cost of the PI firm hired to uncover and prove his duplicity and $15.8K in legal fees. The trial court found the stylist in contempt, ordered the stylist to reimburse his former employer only $139K (of the requested $142.5K) and again ordered him to cease serving the clients of his former employer for one year from the date of the contempt order – i.e., until April 2010.

On appeal, the Court affirmed the contempt order. It rejected the stylist’s objections to the salon’s calculation of lost profits on the grounds that he was not provided with the underlying original documents. There is no discussion of the fact that the salon could not have lost all of the profit from his resignation when it still continued to serve and profit from some of his former clients. There is also no discussion of the fact that many – if not most -- of the disputed customers would likely refuse to return to the salon under any circumstances after learning that the salon was more interested in its profits than the condition and style of their hair. However, the court found the salon’s estimate was reasonable in light of the fact that the stylist’s list of the employer’s former clients was materially incomplete in leaving off 39 names.

The court also rejected the stylist’s objection to being required to both pay $139K and cease serving the employer’s former clients for a year. A double penalty is not something that would have been enforced if it had merely been an obligation of the contract. He felt that this was a double punishment and he should only have to pay or cease serving the clients; not both. However, the court of appeals saw it differently:

This is exactly what the trial court did here. The trial court required [the stylist] to disgorge his profits and then ordered [the stylist] to comply with the noncompete clause, which was incorporated into the trial court's agreed entry, for the period of time that [the stylist] had disobeyed the TRO and the agreed entry. These sanctions essentially put the parties in the position they would have been in if [the stylist] had abided by his original agreement for a period of one year not to serve clients to whom he had provided hairstyling services while employed at [the salon]. The extension of the agreed entry for an additional 11 months compensates [the salon] for its future loss of profits. The whole point of the noncompete clause was to give [the salon] the opportunity to retain a client base that it had built through its investment of time, money, and training. The extension gives [the salon] the benefit of its bargain. Accordingly, we cannot say that the trial court abused its discretion in ordering [the stylist] to disgorge his profits and in extending the agreed entry for an additional 11 months. The fourth assignment of error is overruled.

Thus, if the stylist had complied with his non-compete, he would have been free to serve anyone and everyone beginning in August 2008 and would not have owed anything to his former employer. Instead, by continuing to violate the non-compete after agreeing to an injunction, he was barred from serving his former clients until April 2010 and required to pay his former employer over $139K. While it is true that an employer cannot have both an injunction and damages as a matter of contract law, the court refused to permit him to benefit from violating both his contract and a court order. Therefore, he was ordered to comply with his contract, to disgorge any profit he made from violating the contract and court order and to compensate the employer for having to enforce the agreement.

Interestingly, one of the appellate judges indicated that he had sympathy for the stylist’s double penalty argument and would have preferred that the employer elect between the two remedies, but could not undo the injunction period once it had already been completed. In other words, the injunction expired before the court of appeals issued its decision.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Puts Burden on Employer to Assure that Harassment Stops After Employee’s First Complaint.

Today, the federal Sixth Circuit of Appeals released an unanimous opinion affirming the award of $1,039,504 in compensatory and punitive damages, back pay, and front pay (but which does not yet include court costs or attorney fees) to a female plaintiff who quit her job paying less than $10/hour after only five weeks on the job because she was sexually harassed by co-workers. West v. Tyson Foods, Inc., No. 08-6516 (6^th Cir. 4/16/10). While the amount of the verdict is enough by itself to get an employer's attention, this case is particularly instructive in watching how many times management dropped the ball despite having good policies and procedures in place because apparently no one was enforcing those policies or administering those procedures when it came to this plaintiff. Moreover, the Court found that the employer was on notice of the continuation of the sexual harassment following the employee's first complaint even though she did not complain to her supervisor again before walking off the job permanently. Therefore, this is a particularly instructive case for human resources professionals.

According to the Court's opinion, the plaintiff worked on an assembly line. She attended an employee orientation which covered the employer's sexual harassment policy twice, and was informed that all sexual harassment complaints would be investigated within two weeks and that the investigation would be kept confidential. Nonetheless, in that same first week, she was harassed verbally by a number of co-workers and within two more weeks the harassment escalated to inappropriate touching which put her in tears. When she reported the harassment to the lead lineperson and her supervisor – giving names and examples of the offending the conduct, she was advised not to take it personally because they're like that to all women and it was because she was "hot." When they saw she was not amused, they said they would look into it, asked her not to report this to HR and then later offered her a transfer to a different location. While the plaintiff thought that her supervisor would report this to HR, instead he just watched out for her for a few days. Nonetheless, the harassment continued for the next two weeks, escalated to groping and she stopped going to work after being followed out to the parking lot by the alleged harassers because she feared getting raped. The employer notified her that it was treating her absence as job abandonment and fired her.

The employer refused to give her the last paycheck until she completed an exit interview. At that point, she met with her first HR employee for 45 minutes and recounted in detail how she had been harassed, how she had reported it to her supervisor and how it had continued even after he transferred her to another location. He promised that an investigation would be conducted within two weeks in accordance with company policy. However, instead of specifically alerting someone or investigating it himself, the HR employee passed on his notes (on the exit interview form) to the inbox of an HR clerk and the form was never seen again. Yet another employee quit because of sexual harassment shortly thereafter and, again, no investigation was conducted.

More than a month later, the plaintiff filed a Charge with the EEOC and the employer received it a few weeks later. At that point, an investigation commenced and a search of over 2300 files was made to find the missing exit interview form. When the form could not be found, a cursory investigation was conducted, but it did not include the HR employee who conducted plaintiff's exit interview, or the offending employees. The employer told the EEOC that it had conducted an investigation after the plaintiff's exit interview, that her complaints to her supervisor had been nonspecific and that she asked him not to report it to HR. Apparently, however, the employer disciplined a number of employees for not reporting the plaintiff's concerns to HR, but not the HR employee who conducted her exit interview.

Most of these facts did not come out, however, until litigation commenced at the end of the year and the employees and supervisors testified under oath. The Court refused to exclude evidence of the employer's post-termination investigation on the grounds that it showed how the employer failed to take prompt remedial action and had shown manifest indifference to her concerns (which was relevant to punitive damages). It also instructed the jury that it was permitted to conclude that the employer "lost" the exit interview notes because the information was favorable to the plaintiff. The jury found in favor of the plaintiff and the trial court agreed during post-trial motions.

The Supervisor's Response to the Plaintiff's Complaint Was Ineffective and He Was at Fault for Not Confirming with Her that the Harassment Had Stopped.

The Court of Appeals affirmed because "[v]iewing the evidence in the light most favorable to [the plaintiff], the jury reasonably could have found that [the employer] knew or should have known of the harassment and that [the employer's] response reflected an attitude of permissiveness." In addition,

a reasonable jury could have concluded from the evidence that [her supervisor] failed to take a number of steps that would clearly be necessary to establish a base level of reasonably appropriate corrective action under the circumstances, such as speaking with the specific individuals identified by [the plaintiff], following up with [the plaintiff] regarding whether the harassment was continuing, and reporting the harassment to others in management. [The supervisor's] failure to do these things at any time supports the conclusion that his response was neither prompt nor appropriate.

The Court had little sympathy for the supervisor when he testified that he thought the harassment had stopped because the plaintiff never complained to him again because she could have relied on his promise to "take care of it." This finding alone should trouble employers because other court decisions have protected employers from continuing harassment claims when the plaintiff failed to notify the employer that the initial remedial actions were insufficient. This case puts the burden on the employer to check back with the complaining employee to ensure that the remedial actions were effective.

The Court also rejected the employer's contention that it could not be held liable for the harassment because it did not have knowledge of it. As the court noted: "In the context of sexual harassment claims, actual notice is established by proof that management knew of the harassment." Thus, when the plaintiff told her supervisor, who had authority to receive sexual harassment complaints and to conduct an investigation, the employer was put on notice as well. To the extent that the employer's ignorance was based on the plaintiff's failure to complain a second time to her supervisor about the continuation of the harassment, "management's ignorance was the result of [the employer's] failure to respond appropriately to the original complaint by, for example, investigating the complaint, speaking to the harassers, or checking back with [the plaintiff], and such failure cannot be used as a shield against a claim of sexual harassment."

The Loss of a Key Piece of Evidence Can Be Held Against an Employer.

The Court also found that it was appropriate to instruct the jury that if it:

believe[s] that the [exit interview] notes are missing as the result of the unjustified or careless actions or inactions of [the employer], or any of its agents, then you may, but are not required to, draw an inference that the missing evidence would be favorable to the Plaintiff and adverse to the Defendant.

The Court also rejected the employer's argument that it was an abuse of trial court discretion to permit evidence about the plaintiff's complaint during her exit interview and the employer's post-termination investigation because it was not relevant to her constructive discharge claim and would confuse the jury about when liability attached for the sexual harassment. However, such evidence was relevant to the plaintiff's claim for punitive damages because the employer's post-termination conduct was relevant to its good faith in responding to her complaint. Moreover, considering the significant amount of other evidence about the employer's indifference and the existence of sexual harassment, the prejudicial affect on the jury was found to be minimal.

The Plaintiff's Constructive Discharge Was Foreseeable and Caused by the Employer's Indifference.

The Court also rejected the employer's attack on the plaintiff's constructive discharge claim:

A claim of constructive discharge requires a determination that "working conditions would have been so difficult or unpleasant that a reasonable person in the employee's shoes would have felt compelled to resign." Held v. Gulf Oil Co., 684 F.2d 427, 432 (6th Cir. 1982). "To determine if there is a constructive discharge, both the employer's intent and the employee's objective feelings must be examined." Logan v. Denny's Inc., 259 F.3d 558, 569 (6th Cir. 2001). An employer's intent can be shown if the employee quitting is a foreseeable consequence of the employer's actions. An employee who quits has "an obligation not to assume the worst, and not to jump to conclusions too fast."

In this case, because there was evidence that the employer tolerated "badgering, harassment, or humiliation" in that at least the plaintiff's supervisor was aware of the alleged harassment and failed to adequately address them. "The jury could have reasonably found that this evidenced a deliberate choice to allow intolerable working conditions." Moreover, the Court found it was foreseeable – even likely that the plaintiff would resign under the circumstances.

It is foreseeable that, after weeks of continuous physical and verbal harassment that goes unaddressed, an employee in [the plaintiff's] position would choose to resign. Further, it cannot be said that [she] "assumed the worst" or "jumped to conclusions." She waited beyond the two-week period from her initial complaint to [her supervisor] within which [the employer's] policy assured her an investigation would be completed, and an employee subject to continuous verbal and physical harassment is not "jumping to conclusions" when she resigns under those conditions.

Punitive Damages Were Appropriate.

Finally, the Court found that punitive damages were appropriate in light of the employer's reckless disregard for the plaintiff's civil rights. She could show that her supervisor and the HR manager who conducted her exit interview acted in the risk of violating her civil rights by not reporting her harassment complaint to HR and not conducting an actual investigation because management training had included anti-harassment training. In addition, the jury could believe that the employer attempted to mislead the EEOC by claiming that it had promptly conducted an investigation after her exit interview instead of waiting several weeks until it received her EEOC Charge. Finally, considering the different versions of events given at trial, the jury could also find that the employer was untruthful.

Although the employer could have avoided punitive damages by showing that it acted in good faith, this requires more than proof that a policy has been adopted. Instead, an employer must prove an effective implementation of its antiharassment policy. In this case,

[A]lthough there was evidence that [the employer] communicated its policy to its employees with some frequency, there was also substantial evidence that the policy was disregarded in its implementation and enforcement. There was evidence of widespread disregard of the policy by employees in engaging in harassment, by supervisors in not reporting to HR incidents of harassment or failing to conduct follow-up investigations, by co-workers in not reporting incidents of harassment, and by HR managers in not investigating reports of harassment. Further, the investigation, when it did take place, was, as the district court stated, "notably flawed." [The employer's] complete failure to follow through, twice, on complaints of harassment by [the plaintiff], followed by a deficient investigation in response to the EEOC's inquiry, does not fulfill "Title VII's objective of motivating employers to detect and deter Title VII violations."

Employers can learn from this decision by reminding its own staff – as well as front line management – of the importance of reporting sexual harassment concerns to HR and then promptly investigating them instead of hoping that they will just go away on their own. When even a new employee making just above minimum wage can win in excess of a million dollars after working just five weeks, it is time for production and HR supervisors to understand how important it is to report and fully investigate sexual harassment complaints.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.