Sixth Circuit Rejects Enforcement of Non-Compete and Trade Secret Claim Based on Information in Employee Cell Phone

Yesterday, the unanimous Sixth Circuit Court of Appeals affirmed a divided decision concerning the enforcement of a non-compete, trade secret and non-solicitation agreement which the employee was required to sign as a condition of being hired.  Total Quality Logistics LLC v. EDA Logistics, LLC, No. 23-3713 (6^th Cir. 10-2-24).   First, it refused to prevent the employee from working in the logistics industry because it agreed that the employer had failed to produce specific evidence of the “special” training it had allegedly provided to support such a broad restriction even though the employee had absolutely no prior logistics experience.  Second, while it agreed that the employee could not solicit the employer’s customers, it refused to impose any damages because the employer failed to show what efforts it made to keep those customers after the employee’s resignation or what specific profit it lost.  Merely relying on the revenue generated for the employee’s new business was insufficient to justify monetary damages.  Third, it refused to find that the employee misappropriated trade secrets based on contacting specific customer contacts based on his personal knowledge from his prior employment or already in his cell phone. “[I]nformation retained in the [employee’s] cell phone could not support a trade-secret claim.”  There was no evidence that he had taken or used any confidential master customer list or could not have re-created his customer list from cold calling, etc.  Finally, the court refused to enforce the one-sided prevailing party attorney fees provision because it found the provision to be unenforceable in a contract of adhesion. 

Readers may recall that this same employer was able last year  to enforce the same types of restrictions against a former employee even though that employee had been placed on paid leave by her new employer for one year while waiting out the non-compete.  The Clermont County Court of Appeals found that to undermine the purpose of the contract.  In this case, the employee removed the case to federal court in Cincinnati.    The federal courts observed that while the employer was frequently successful in litigating its agreement, it was dissatisfied with the lack of evidence it presented in this particular case.

According to the Court, the employee had been hired with no prior logistics experience.   Prior to starting work, he signed a restrictive covenant protecting trade secrets and preventing him for one year from working in the industry or soliciting customers.  There was testimony that the employer had never once modified the agreement at an employee’s request.   After working for over 4 years, he resigned because of the employer’s COVID return-to-work policies due to his son’s respiratory issues.   He quickly found a job with a small logistics company, working only with that company’s customers, with the plan to take over when the owner died.  However, the owner died earlier than expected just 60 days later.  He then formed his own logistics company and obtained business from customers – particularly one customer -- he formerly served while employed by the employer.  Although the employer had reassigned his accounts to other employees, it noticed that it had lost some business and investigated whether he was responsible.   It then filed suit against him in state court, which the employee removed to federal court.

The trial court refused to award monetary damages because the employer failed to introduce evidence of what business it would have continued to receive from particular customers and what profit it would have made from those customers. Although some courts would find it sufficient to rely on its diminished revenue and the employee’s admission of what profit he made from those customers, the Court indicated that it was not enough in this case where in other cases the employers had utilized experts on the issue of retainage and turnover, etc. :

[The employer] failed to produce evidence that [his] unlawful competition (rather than, say, his mere departure and [its] failure to meaningfully pursue its customers) caused [it] lost profits. [It] continues to ask for the entire profit that [he] made by servicing the at-issue customers, $148,821.80. Yet a factfinder could reasonably conclude that [it] did not demonstrate that, had [he] not serviced those loads, the work would have flowed to [it]. . . .

 . . .  [Its] request for the entirety of [his] total profit, by contrast, does not even account for the commission that [it] would owe [him] in the counterfactual in which [he] secured those loads while still employed for [it].

The Court also affirmed the decision to not enforce an industry-wide non-compete because non-competes can only be enforced to the extent necessary to protect an employer’s legitimate interests, such as confidential information, customer good will and the expense of providing valuable training.  Employers are required to prove with clear and convincing evidence the legitimate interests which require protection by the non-compete’s scope.  In this case, the courts found that the non-solicitation clause was sufficient to protect the customer’s good will.   Because the employer failed to produce evidence regarding (1) the content or extent of the training to the employee, (2) how the training was proprietary or trade secret or (3) how the employee used that training to hurt it or even the cost of the training, it could not rely on that training to support a nationwide and industry-wide non-compete clause.

The courts also rejected the employer’s trade secrets claim based on its pricing and customer information.  There was no evidence that the employee took a confidential master compilation of customer names and information.  Rather, he relied on his own memory of the customers he served.  Although “it is true that Ohio law treats customer lists as presumptively entitled to trade-secret protection,” it is also true that “Ohio limits that protection when the identity of the customers is “readily ascertainable through ordinary business channels.’” “Though [he] retained contact information for some customers that he directly serviced, the district court noted that “telephone numbers for a small number of companies are ‘readily ascertainable by proper means,’” and “easily discovered as part of the cold-calling process.’”  Moreover, “to be a protectable trade secret under Ohio law, a customer list “must contain information not generally known to or readily ascertainable by the public.” Id. (emphasis added). Ohio courts have applied this principle in declining to recognize a protectable trade secret in customer-contact information that a departing employee retained in a cell phone.”

While the court agreed that knowledge of its pricing margins and ”pricing policies can rise to the level of a protectable trade secret under Ohio law”  and enable a departing employee to better compete against it, the employer “failed to articulate precisely what concrete “pricing information” it thinks [he] misappropriated. The record is unclear whether [it] had any standard route pricing or margin expectation that [he] could have misused.”  In addition, its employees had wide latitude in setting prices, even authority to price at a loss to maintain a client relationship.

The Court also affirmed that “the fee-recovery provision was unilateral, allowing only [the employer] to recover fees” and thus, was “unenforceable under Ohio law because it resulted from a “contract of adhesion,” in which [the employee] had little or no bargaining power and no realistic choice as to terms.”   The Court also agreed that “unenforceability under Ohio law is not limited to instances of duress.”

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 Refuses Employee Claim for Age Discrimination and to Award Attorneys Fees to Prevailing FMLA Plaintiff

This morning, the Sixth Circuit issued a few employment decisions that may be of interest to employers and employees.  In the first case, the Court rejected the plaintiff’s age discrimination claim where she had been fired for insubordination.   Pelcha v. MW Bancorp, Inc.,  No. 20-3511 (6^th Cir. 1-12-21, amended 2-19-21).  The Court reiterated that the Supreme Court has held the ADEA does not permit mixed-motive cases, unlike Title VII.  Further, her evidence of stray remarks by the Bank’s president about an employee who was 40 years older than her were too vague and unrelated to her situation to constitute direct evidence that she had been fired because of her age.    In the second case, the plaintiff physician was denied prevailing party attorney fees in his FMLA claim by the arbitrator because he had failed to educate the arbitrator that the statute prevailed over contrary language in the arbitration clause and because he failed to submit any definitive evidence of the fees he was claiming.

In the first case, the plaintiff teller was fired by her long time banking employer for insubordination for refusing to submit a written request for time off until the day before her day off even though such requests were due a month in advance.  She argued that this was pretext for age discrimination.  The district court granted summary judgment to the employer and she appealed.

The plaintiff attempted to argue that she had proved age discrimination with direct evidence based on a few inflammatory statements that the Bank’s president made about another employee who was 40 years older than the plaintiff and that he wanted to hire younger tellers.  The Court disagreed.  “In reviewing direct evidence, we look for “evidence from the lips of the defendant proclaiming his or her . . . animus.”  . . .Inferences are not permitted.”

“Direct evidence is evidence that proves the existence of a fact without requiring any inferences” to be drawn.  . . . In other words, direct evidence is “smoking gun” evidence that “explains itself.”

                . . .

In determining the materiality of allegedly discriminatory statements, we consider four factors, none of which are dispositive: “(1) whether the statements were made by a decisionmaker . . . ; (2) whether the statements were related to the decision-making process; (3) whether the statements were more than merely vague, ambiguous or isolated remarks; and (4) whether they were made proximate in time to the act of termination.”

             . . . None of the statements were related to [the plaintiff]’s termination. In fact, they were not made in relation to any termination decision and were about an entirely different employee. Additionally, nothing in the record suggests that the statements were more than isolated remarks. Here, it appears as though these statements were only made once or twice to certain higher-level management employees.

                . . . Hiring younger tellers does not require the termination of older employees.

 . . ., in terms of timing, the comments in question come from late 2015 or early 2016, more than six months before her termination. We have previously suggested that time spans of six or seven months can be temporally distant.

That being said, such statements could be considered as circumstantial evidence to argue pretext if the plaintiff attempted to prove her case through burden shifting and to raise a “plausible inference of discrimination.”     Nonetheless, the Court found that the plaintiff failed to prove that the employer’s explanation for her termination – that she was insubordinate – was pretext for age discrimination.

First, the plaintiff could not prove that the explanation had no basis in fact.  She argued that she was not insubordinate because she had submitted a written request one day in advance and had obtained verbal approval a month in advance.  However, the Court pointed out that she had been required by her manager’s policy to submit the written request a month in advance and she had admittedly told her manager that she refused to do so because she disagreed with the policy.  She did not ultimately submit her written request until the day before her took time off.  Her “late completion of the form could not cure her original refusal to follow Sonderman’s directive.”

She also could not prove pretext with the isolated and sparse comments that the Bank president had made about another situation. Those comments “were not directed towards Pelcha, not directed towards anyone near Pelcha’s age, and not made in connection with any termination decision at all.”

She also could not show that her employer changed its explanation for her termination by also later documenting issues with her negative attitude and contribution to a negative work environment.  Prior decisions have held that “providing “additional, non-discriminatory reasons that do not conflict with the one stated at the time of discharge does not constitute shifting justifications”.

In addition, she could not show pretext by arguing that the employer failed to comply with its own progressive disciplinary policy.   The policy was clear of the typical steps in the process and clarified that some offenses would justify skipping some or all of the steps.  In conclusion, “an ‘employer may fire an employee for a good reason, a bad reason, a reason based on erroneous facts, or for no reason at all, as long as its action is not for a discriminatory reason.’”

Ultimately, she also could not satisfy the prima facie case because she could not prove that she was treated more harshly than another, younger employee because the fact that a younger co-worker may have neglected to turn in the form is not the same as insubordination in refusing to turn in the form. “Neglecting to complete a time off form and defiantly refusing to do so upon being asked by a superior are significantly different actions.”

In the second case, the Court denied the appeal of a physician who was denied in arbitration attorney’s fees as the prevailing party on his FMLA claim.  Gunasekera v. War Memorial Hospital, No. 20-1340 (6^th Cir. 1-12-21).   The physician asserted (correctly) that attorneys’ fees are awarded under the FMLA statute to prevailing plaintiffs.  However, the arbitrator reasoned that the arbitration agreement provided that each party would pay its own fees and, in any event, his attorney had failed to submit evidence of the attorneys’ fees accrued to that point during the hearing.    The Sixth Circuit found that a mere error of law by the arbitrator does not constitute the necessary manifest disregard of the law (if that standard even still applied) as required to overturn an arbitration award.  This was particularly true when the arbitration briefs failed to argue that the FMLA provision overrode the terms of the parties’ agreement.    More importantly, the physician failed to submit any evidence to the arbitrator of the amount of his fees. “In that brief, Dr. Gunasekera merely asserted that he was entitled to receive ‘all of his legal fees,’ which exceeded $35,000.”  Without concrete evidence upon which to base an award of a specific sum, the arbitration could not have erred in failing to award fees to a prevailing party under the FMLA.  

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. 

Employer Ordered to Pay $572K for Retaliation Claim

Last week, the federal Sixth Circuit Court of Appeals affirmed a $414,600 jury verdict for compensatory and punitive damages, back pay and front pay as well as $157,734 in attorney’s fees for retaliation claim brought by a former supervisor who claimed that she had been demoted on account of her gender and retaliated against when she complained internally and to the EEOC.   Hubbell v. FedEx Smart Post, Inc., No. 18-1373 (6^th Cir. 2019).   The plaintiff produced sufficient evidence to show that the employer had engaged in conduct towards her that would deter a reasonable person from exercising their protected rights through discriminatory disciplinary actions, surveillance and payroll policies.  Further, some of the actions occurred close in time to her protected conduct.  Finally, “the law in this circuit, however, is that a written anti-discrimination policy does not by itself shield an employer from punitive damages,” especially when there is evidence that the employer did not necessarily follow its own policies or investigate the plaintiff’s internal complaints of discrimination.


According to the Court’s opinion, the plaintiff had been working as a supervisor without any disciplinary record when the new hub manager suggested that women were better suited for administrative roles and she should seek a demotion.  When she refused, she claimed that he assigned her and other female supervisors the worse employees.  She was also given poor performance reviews and disciplinary actions.  When she objected and claimed to HR that he was discriminating against her, no formal or documented investigation was conducted.   After she was demoted, she was told that she – and she alone – could not clock into work more than three minutes early when all other employees were allowed to clock in and be paid 15 minutes early.    She subsequently filed an EEOC Charge.  She was then subjected to closer scrutiny, and was issued multiple disciplinary actions.  She was also restricted from working more than 8 hours/day.   When she filed another EEOC Charge, the guards were told to monitor her restroom breaks and other employees were interrogated about their conversations with her.   She was issued a disciplinary action for attendance even though she had doctor’s notes and was on medical leave.   Finally, she was not even assigned to work overtime during peak periods.  She was fired shortly after she initiated her lawsuit and then amended her complaint to include retaliatory discharge.  


While the trial court dismissed her hostile work environment claim on summary judgment, at trial several former co-workers testified in support that she was treated more harshly and more closely scrutinized than any other employee.  The jury found that she had suffered retaliation, and awarded her damages, but also initially found that the employer had acted in good faith, which would relieve it of punitive damages.  The judge told the jury to re-deliberate the issues with conflicting verdicts (i.e., punitive damages and employer’s good faith) and the jury returned by finding that the employer had not acted in good faith.   The trial court denied the employer’s post-trial motions, but reduced the punitive damage award in accordance with the damage caps in the 1991 Civil Rights Act.


On appeal, the Sixth Circuit affirmed the decision and verdict in all respects
.   

Supervisory knowledge.  There was no dispute that the decisionmakers were aware that she had filed EEOC Charges.  However, the court agreed that she did not carry her burden of proving that the decisionmakers were aware of her lawsuit until after she was fired.  One denied knowing about the lawsuit and another testified that he could not recall when he learned about it.  “Although [the plaintiff] argues that the question of whether to believe Jensen’s testimony should be left to the jury, Jensen’s statement that he did not remember when he learned that [she] filed suit is simply not enough to carry her burden of showing knowledge.”


Retaliation.  The trial court had found that the only materially adverse job action which the plaintiff had suffered was the employer’s refusal to let her clock in more than 3 minutes early when her co-workers had no such restriction.   However, regardless of how the trial court ruled on summary judgment, the jury and appellate court were not limited in considering such evidence that was introduced at trial.  Because this pre-dated her first EEOC Charge, the employer argued that she could not prove that she suffered any actionable retaliation from the negative feedback in her disciplinary actions and scrutiny.  The Sixth Circuit disagreed.

“a plaintiff seeking Title VII’s protection against retaliation need show only “that a reasonable employee would have found the challenged action materially adverse, which in this context means it well might have dissuaded a reasonable worker from making or supporting a charge of discrimination.”   . . . .reiterating that the showing required for a Title VII retaliation claim “is less burdensome than what a plaintiff must demonstrate for a Title VII discrimination claim.” 

Accordingly, the closer scrutiny, the unwarranted disciplinary actions over trial matters, and interrogating her co-workers about their conversations with her, etc.  could support a finding of retaliation.

A reasonable factfinder could also find that some or all these acts were taken in retaliation for Hubbell’s EEOC complaint(s).  Trial evidence revealed that Hubbell was repeatedly disciplined within a year of filing her EEOC complaints, starting with three disciplinary writeups within approximately two months of filing her first EEOC complaint—the first one coming a mere four days after she filed her complaint.  Such close temporal proximity, standing alone, may be enough to prove causation.

Punitive Damages.   While a plaintiff is required to show, among other things, that the employer acted with malice or reckless indifference with respect to the plaintiff’s civil rights,  the plaintiff is not required to show that the employer’s behavior was “egregious.” While egregious behavior is sufficient to show malice or reckless indifference, less egregious behavior can satisfy the standard.   Moreover, even if the employer took steps to avoid discriminating by distributing and training on anti-discrimination policies, it can still be held liable for the actions of a manager acting within the scope of his employment who is also acting with malice or reckless indifference.  “The law in this circuit, however, is that a written anti-discrimination policy does not by itself shield an employer from punitive damages.  Tisdale v. Fed. Express Corp., 415 F.3d 516, 532–33 (6th Cir. 2005).”  Moreover, in this case, there was evidence that the employer failed to formally investigate the plaintiff’s allegations.  

Attorney’s Fees.  The court found no abuse of discretion in reducing the amount of fees, even if the employer had not objected to the amount.

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 Fee Award to Employer in Non-Compete Case Without Prevailing on Final Judgment

Yesterday, the Sixth Circuit Court of Appeals affirmed an award of $72, 183 in attorney’s fees to an employer which successfully obtained a preliminary injunction against former employees who had begun working for a competitor in violation of their non-competition agreements.  Kelly Services, Inc. v. De Steno, No. 18-1118 (6^th Cir. 1-10-19).   The Court rejected the employees' arguments that they should not be liable for the fees without a judgment on whether their agreements were enforceable and without a jury trial on the amount of fees.   Their agreements awarded the employer fees incurred in enforcing the agreement and did NOT require the employer to actually prevail before obtaining a fee award.    In other words, the employer was entitled to attorney’s fees regardless of whether the non-compete clauses were actually enforceable and regardless of whether it ultimately prevailed on the merits.  The Court affirmed, but noted that the reasonableness of the fees might depend on the reasonableness of the enforcement efforts.  In any event, it would be “highly impractical” to ask a jury to rule on attorney’s fees earned in a pending action, so a jury trial was not required under the Seventh Amendment.

According to the Court’s opinion, the defendant employees each signed a non-competition agreement which precluded them from working for a competitor for one year after leaving employment with the plaintiff employer. Their contracts also contained a provision which provided in relevant part that:

I further agree to pay any and all legal fees, including without limitation, all attorneys’ fees, court costs, and any other related fees and/or costs incurred by the Company in enforcing this Agreement.

When the employer learned that they were working for a competitor in violation of their non-competition agreements, it filed suit for breach of contract and breach of the duty of loyalty and sought damages, including attorney’s fees.  A preliminary injunction hearing was held and the employees preliminarily enjoined from working for competitor in violation of their non-compete agreements.   The Court did not lift the preliminary injunction until approximately four months after the one-year period in the non-compete had passed.  The parties subsequently both moved for summary judgment.  The employees argued, among other things, that the non-compete agreements were not enforceable and they were entitled to a jury trial under the Seventh Amendment to determine their financial liability for, and the reasonability of, the attorney’s fees.  The employer argued that it had already obtained all of the relief that it sought (i.e., to keep the employees from working for the first year after their employment for a competitor)  and were, thus, automatically entitled to an award of attorneys’ fees for obtaining enforcement of the agreement.  Indeed, the employer asserted that the contracts did not require the employer to prevail on the merits in order to be entitled to attorneys’ fees when seeking to enforce the agreement.  The trial court ruled in favor of the employer and rejected the request for a jury trial on the amount of fees.

The contracts by their terms do not require a final determination of liability in favor of [the employer] as a condition for the award of fees.  Unlike numerous similar agreements, these contracts do not employ the words “prevailing party,” nor by their literal language do they require a final determination of liability.  In fact, as the district court correctly noted, defendants argued below that these provisions were not prevailing party provisions.  . . .

In reasoning that a final determination of contract breach was not required, the district court may have stated too freely that the contract required former employees to pay attorneys’ fees “if [the employer] merely sought to enforce the contracts.”  De Steno, 2017 WL 4786105, at *2.  One can imagine cases where efforts to “seek enforcement” could for instance be unreasonable, made with little or no basis, or made for purposes of oppression or harassment, or could be simply unsuccessful.  A court might read the words “reasonable . . . fees . . . involved in enforcing” and “fees . . . incurred . . . in enforcing this Agreement” not to extend to such situations.  We do not address the possibility of such a limited interpretation, however, because the record is clear that none of these situations is present in this case.  The district court entered a preliminary injunction that resulted in substantial relief, based on a determination that [the employer] had shown a strong likelihood of success on the merits.  Indeed, defendants withdrew their appeal from the grant of that relief. . . .

The Court rejected the Seventh Amendment argument on the grounds that calculating attorney’s fees for the pending case is an equitable power better left to a judge, as previously explained by the Second Circuit:

Accordingly, although plaintiff had the right to a jury decision on whether defendants should recover attorneys’ fees, plaintiff did not have the right to a jury decision on a reasonable amount of attorneys’ fees. Unlike the client in Simler v. Conner, [372 U.S. 221 (1963),] no party here claimed that the contract directed the amount of attorneys’ fees to be awarded by specifying a percentage of an ascertainable sum. Therefore, the district court, in its equitable role, should have determined a reasonable fee.

The Court found it would be “highly impractical” to require a jury to determine a reasonable amount of attorney’s fees.  The trial would become a trial about the cost of the trial itself.  It would also be impractical to require a jury to “look behind the curtain” and determine the proper cost of pretrial motions, etc. before the trial was even complete.  Therfore, it distinguished prior cases where juries ruled on the amount of attorneys’ fees to be awarded concerning disputes which had already been concluded (as in indemnification cases).  In this case, the Court also found that summary judgment was properly granted to the employer on the liability question, so it did not need to be submitted to a jury.

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.

When Willful Misconduct Is not Necessarily All Other Intentional Misbehavior

Earlier this month the Montgomery County Court of Appeals affirmed a $655,733.44 jury verdict (in addition to$262, 227 in costs,  interest and attorney fees)  in favor of an executive who it found was terminated in violation of his employment agreement and in bad faith.   Becker v. Direct Energy, LP, 2018-Ohio-4134.   The Court concluded that the trial court’s jury instruction explaining when the defendant company could terminate “for cause” the executive was correct and that there was sufficient evidence to show that the company acted in bad faith.  Thus, when the employment agreement provided that the executive could only be terminated “for cause” if the company “in good faith” believed that he had “engaged in acts of fraud, material dishonesty, or other acts of willful misconduct in the course of his duties hereunder,” the “other acts of willful misconduct” referred to conduct which was similar to “fraud” and “material dishonesty.”    Therefore, the jury could conclude that the plaintiff’s behavior did not constitute willful misconduct that the employer acted in bad faith in terminating him for yelling at and poking a subordinate employee who twice in three weeks had violated significant safety rules when the plaintiff had a long history of excellent performance and no prior disciplinary infractions, when other employees had received far less severe sanctions and when circumstantial evidence showed that his potential severance pay could have been a motivating factor for his termination.

According to the Court’s opinion, the plaintiff’s employment agreement provided that the executive could be terminated for cause or without cause.  However, if he was terminated without cause, he would be entitled to severance pay (including 24 months of salary and 18 months of COBRA payments), or he could resign with three months’ notice (entitling him up to 3 months of pay if the company opted for an earlier separation).  The executive had worked for many years for the company and its predecessors and his performance reviews reflected that his division was one of the most profitable.  The company had also been more focused on employee safety.  

The plaintiff was responsible for conducting random surprise inspections of employees and found an employee, who had been suspended during the prior year for safety issues, engaged in a number of unsafe practices and serious quality issues.  After discussing the issues with the employee, the plaintiff spoke with the employee’s supervisor about taking disciplinary action, but the supervisor never spoke to or terminated the employee.  Two weeks later, the plaintiff spoke with the supervisor about whether that employee was even teachable because the supervisor had not properly handled the situation.   He then decided to inspect that employee’s work again on his way to another meeting and found some of the same safety violations he had previously noted just two weeks earlier.   Stressed because he was running late, the plaintiff lost his temper with the employee.  He poked the employee (who was much larger than him) in the chest and yelled at him in a very unprofessional manner.  Although he apologized, he also believed that the employee should be fired because of his unsafe practices.

The employee called his wife, who worked in HR for another company and told her that he thought that he was going to lose his job.  The next day, he filed several internal complaints about the executive’s unprofessional treatment of him the prior day.  The executive admitted that much of the complaint was true.  While he denied harassing the employee, he was embarrassed by his behavior.  Up to this point, there was no allegation about violence, pushing or physical harm.  HR conducted an investigation and the current and former manager both recommended that the executive receive no more than a written reprimand or warning based on his prior record and level of the offense.   After a conference call with senior management, HR forwarded a copy of the executive’s employment agreement to legal counsel.  During the next conference call, the decision was made to terminate the executive for willful misconduct under his employment agreement.

The executive was informed of his termination and asked to remain until the end of the month. The script prepared for his termination indicated that he was not to be permitted to resign (even though the company’s practice had always been to permit employees to resign at any time for any reason) and that the remaining employees would be told that he was passing the torch, instead of being terminated.  The plaintiff filed suit for breach of contract, breach of the duty of good faith and fair dealing, and defamation.  

On appeal, the Court rejected the employer’s arguments that the court should have ruled in its favor as a matter of law on the grounds that the plaintiff materially breached the employment agreement.  The court found this to involve an issue of fact, which was resolved against the employer at trial.

The Court also agreed that “willful misconduct” under the employment agreement was ambiguous.  Under the doctrine of ejusdem generis, because “the agreement used the term “or other acts of willful misconduct,” it  can be read, under an established principle of construction, to indicate that willful misconduct was intended to relate back and be confined to the same general nature as the previous, more specific terms, which were fraud and material dishonesty.”  Indeed, the former executive who had hired the plaintiff testified (without objection) that this is what he meant when that term was inserted into the employment agreement.  In addition, “[t]here is no dispute about the  fact that [the defendant’s] legal counsel prepared the agreement, and Ohio law is settled that  ambiguities in contracts are construed strictly against the drafter.”  The employer could have avoided the ambiguity by defining the term “other acts of willful misconduct”  or deleted “other,” which had referred back to the earlier specific acts.

The Court also rejected the employer’s argument that there was no evidence (i.e., admissions) that the plaintiff had been fired in order to avoid paying his severance pay because circumstantial evidence may support a verdict as well as direct evidence.  The jury had ample circumstantial evidence that the employer had acted in bad faith.  The HR employees had not initially recommended more than a written warning for the plaintiff’s misconduct.  After this, she then learned that the plaintiff’s most recent performance evaluation had been “exceeds expectations,”  and she provided his employment agreement to counsel.  Consideration of the employment agreement could support a plausible inference that the severance pay factored into the decision, particularly because none of the witnesses recalled any discussion as to whether violation of the harassment/workplace violence policies would similarly constitute willful misconduct under the agreement or whether there were any grounds to terminate him for cause under the agreement.  The employer also prepared a script for the termination meeting which did not permit the plaintiff to voluntarily retire and which gave a false reason for his separation.  The actual decisionmaker was not called to testify as to the basis for their decisions.  There was also testimony that the employer did not have a zero tolerance workplace violence policy and comparisons to other similar situations show that the plaintiff was treated much more harshly for a first time disciplinary infraction.

As for the jury instructions, the Court found that the trial court’s instruction were proper:  “the terms fraud or material dishonesty may be instructive regarding the seriousness  required for behavior * * * to constitute an other act of willful misconduct.”  Moreover,

As indicated above, the agreement provides that the termination must be made in, quote, “good faith.”  Thus, a second issue is whether [the defendant’s] termination of [the plaintiff] on the basis that his conduct was an act of willful misconduct, breached [its] obligation to exercise good faith and fair dealing in interpreting the agreement to justify terminating [his] employment.

The jury was also instructed that “it could not find for [the plaintiff] regarding a breach of good faith and fair dealing unless it found that [the employer’s] action in terminating [him] from his position for cause

“was not an act of honesty in interpreting and applying the language in the Employment Agreement, but was instead an act of dishonesty in applying the definition of cause for an ulterior purpose or motive, and not a truthful interpretation or application of the definition of “cause” as contemplated by the parties.

As for the award of attorney’s fees, they generally are not awarded in the absence of punitive damages or statute.  However, the Court recognized an exception for when “a prevailing party may be awarded attorney fees after demonstrating the unsuccessful litigant’s bad faith.”  In this case, “[b]ad faith can involve conduct during litigation, but can also involve conduct giving rise to a party’s claim.”  “The jury did not just find that [the employer] had breached the duty of good faith and fair dealing; it specifically found that [it] had acted to take advantage of [the plaintiff].”  The jury unanimously agreed that the employer had acted in bad faith when responding to one of the jury interrogatories:

Do you find that Plaintiff proved by the preponderance of the evidence that Defendant’s decision to terminate him “for cause” was made in bad faith to take advantage of Plaintiff and improperly deny him the benefits he would have received if he had been terminated “without cause” under the contract? 

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 Verdict for Successful FMLA Plaintiff

Last week, the Sixth Circuit affirmed a jury verdict for a successful FMLA plaintiff in the amount of $31,000 for compensatory damages as well as liquidated damages in an equal amount, court costs, pre and post-judgment interest and attorneys’ fees in the amount of $77,233 (i.e., more than the amount of the plaintiff’s recovery).  Clements v. Prudential Protective Services LLC, No. 15-1603 (6^th Cir. 8-3-16).  As earlier reported here, the plaintiff former security guard had been laid off following her 2009 maternity leave and ultimately filed suit under the FMLA.  The Court rejected the employer’s arguments about unfair rulings at trial.  It also refused to reduce the attorneys’ fees by more than the 10% already reduced by the trial court to address the plaintiff’s unsuccessful claims.   Finally, it also rejected the argument that the plaintiff’s 30% contingency fee agreement prevented the attorneys from recovering fees as a prevailing party.

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.FM

Ohio Appeals Court Orders Double Damages and Attorneys Fees for Successful Minimum Wage Claim

Yesterday, the Cuyahoga County Court of Appeals reversed the denial of liquidated double damages and attorneys’ fees to two successful plaintiffs who sued for denial of both minimum wage and overtime compensation under Ohio law.  Porter v. AJ Automotive Group, Inc., 2015-Ohio-3769.   The Court found that the employer bore the burden of proving that it was exempt from Ohio’s wage laws and it had not argued that it was exempt.  Therefore, the plaintiffs were entitled to liquidated damages and attorneys’ fees under their minimum wage claim under Ohio Revised Code § 4113.14 and Ohio Constitution Article 34a and to their unpaid overtime compensation under §4113.03.

The plaintiffs worked as car washers for the defendant employer.  They sued for unpaid minimum wages and overtime compensation under state and federal law.  The employer argued that they were tipped employees and that it was not subject to the Fair Labor Standards Act because it did not meet the sales volume or enterprise test.   The trial court concluded that the defendant was not an “employer” under federal or state wage laws, but used its equitable power to award the plaintiffs unpaid minimum wages and overtime compensation.  However, it denied them liquidated damages and attorneys’ fees. They appealed.

On appeal, there was no dispute about the amount of wage liability or applicability of the FLSA.   The trial court had concluded that the plaintiffs failed to prove that the defendant was a statutory employer under §4113.02(D), which is the overtime compensation statute and includes everyone as an employer, except businesses with gross annual sales of less than $150,000.   However, the Court agreed with the Franklin County Court of Appeals that the employer – not the plaintiff – bears the burden of proving its exemption from the statute by proving its sales meet the annual threshold.   Moreover, the defendant had never raised or argued any defense that it was not an employer under Ohio law.   Finally, the minimum wage statute at §4113.14 incorporates by reference the FLSA definition of employer, which is “’any person acting directly or indirectly in the interest of an employer in relation to an employee * * *.’ 29 U.S.C. 203(d).”

 

Accordingly, the Court found that the plaintiffs were entitled to the full remedies of ORC §4114.14 and §34a, which includes liquidated damages of twice the amount of unpaid minimum wages and attorneys’ fees.  (Ohio’s overtime compensation does not provide for liquidated 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 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 Remands Consideration of Attorneys Fees in Successful FLSA Settlement

Litigation is not for sissies.  On Friday, the Sixth Circuit remanded for additional consideration an award of attorneys fees of almost $517K where the five plaintiffs each recovered between $2.2K and $58K (for a total of approximately $82K).  Smith v. ServiceMaster Corp., No. 14-5481 (6^th Cir. 11-14-14).  The plaintiffs worked in different states for affiliated national companies.  Some claim to have been shorted overtime pay and some claimed to have been misclassified as exempt.  They sought permission to pursue their claims as a collective (aka class) action. The employer successfully moved to compel arbitration. However, after the arbitrator ruled that the arbitration could proceed as a collective action, but before any such class was certified or the process began to identify and notify other potential class members – the employer made an offer of judgment and paid all of the plaintiffs the entire amount of their claimed wages (and presumably liquidated damages).  The plaintiffs’ attorneys then moved for their attorneys fees as well as almost $19K in costs.   The district court granted the plaintiffs’ request in full and the employer appealed.

As noted by the Court, successful FLSA plaintiffs are entitled to receive reasonable attorneys’ fees in addition to their wages:

The FLSA provides that “[t]he court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.” 29 U.S.C. § 216(b). An award of attorney’s fees under § 216(b) is mandatory.

These are the issues upon which the Court remanded for further consideration:

·        How much of the approximately $3.6K in computer research charges is recoverable.  There was no record about the general practice in the local legal community to bill for computer research.  There was also an insufficient billing description of the charge so that that it was apparent – without more information – that each “charge was reasonably related to the issues raised in the case.”  

We see no reason for an absolute rule that the cost of computer research is or is not recoverable. Any recovery should be for the actual cost of the online access or service. If the lawyer or firm pays a blanket access fee, rather than per search, there is no reason to distinguish the on-line research cost from the cost of the books that at one time lined the walls of legal offices, which was treated as overhead. If distinct charges are incurred for specific research directly relating to the case, and the general practice in the local legal community is to pass those charges on to the client, we see no reason why such properly documented charges should not be included in the recoverable expenses.

·        Whether it was reasonable to charge between $300 – $450/hour for the time of associate attorneys (who were located in San Francisco) when the case was pending in Tennessee and those amounts exceeded the $190-$335/hour charged by local associate attorneys.  While the court is not required to consider only the local attorneys in the venue, there did not seem to be any discussion about why it was departing from this practice.

·        Whether the amount of fees should be reduced based on the unsuccessful challenge of the motion to compel arbitration and pursue collective discovery and litigation.   

“‘[T]he most critical factor’ governing the reasonableness of a fee award ‘is the degree of success obtained.’”  . . . Where “a plaintiff obtains ‘limited success, the district court should award only that amount of fees that is reasonable in relation to the success obtained.’”  . . . However, “where the plaintiff’s claims for relief involve common facts or related legal theories, such that much of counsel’s time will have been devoted generally to the litigation as a whole, the court should focus on the significance of the overall relief obtained by the plaintiff in relation to the hours reasonably expended on the litigation.”  . . .  Further, this court has held that attorney’s fees related to a failed effort to pursue collective action can be recovered if “these expenses benefitted the . . . plaintiffs’ individual claims.”

·        Whether the time entries were sufficiently descriptive of the work performed. While the Court had no objection to block billing and cited authority that attorneys were not required to explain how every single minute was explained, it remanded the issue of the time descriptions for elaboration by the district court.

·        Whether the plaintiffs’ attorneys charged $1.7K for performing clerical functions.

·        Whether the plaintiffs’ attorneys should be permitted to charge for duplicative services – such as when several or all attorneys participated in the same meeting or conference call.  Nonetheless, the Court noted that no legal authority was cited showing that this was improper.

·        Whether the attorneys should be permitted to charge $49K  for travel time when they were not also working.  The Court noted that this was generally permissible.

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.

Unanimous Sixth Circuit Affirms $300K Sexually Hostile Work Environment Judgment, But Divides in Affirming Order for Employer to Pay Over $600K in Plaintiff’s Legal Fees

On Friday, the Sixth Circuit affirmed a trial court’s decision to award the prevailing plaintiff in a sexual harassment lawsuit the maximum amount under federal law ($300K) and to award to her attorney almost the full amount he requested as attorney fees ($684,506.25) even though the employer won the first trial in 2009 and all but one of the plaintiff’s initial claims were dismissed or withdrawn.  Waldo v. Consumers Energy Co., No. 12-1518 (6^th Cir. 8-9-13).  A unanimous Court agreed that she had proven her hostile work environment claim (based on events between 2001 and 2005) and rejected the employer’s technical defenses. The second jury had awarded her $7,900,000, but that amount was reduced because of Title VII’s statutory cap.  However, Court divided on the propriety of her attorney fees (which the employer had been ordered to pay).  The majority agreed that her attorney earned his fees, and that they should not be reduced to reflect that the first jury ruled in favor of the defendant, that virtually all of her claims had failed and that she had recovered only $300K because all of the claims arose around a common core of facts.  The dissent explained that the plaintiff’s attorneys “were the true winners. This is good work if you can get it.” 

The plaintiff’s allegations  -- which were largely corroborated, uncontradicted and/or conceded at trial – was that she had been subjected to a hostile work environment by her co-workers between 2001 and April 2005.  (Among other things, and as detailed in the Court’s opinion, they called her foul names, locked her in a porta-potty, and otherwise ostracized her).  She repeatedly complained to her supervisor and human resources, but no investigation was conducted, no disciplinary actions were issued and the employer’s diversity training did not cover name-calling.  Her supervisor never repeated her allegations to upper management or human resources.  The employer defended that there had been no illegal events in the 300 days before she filed her EEOC Charge and that some of the misconduct had not been specifically related to her gender.  The plaintiff also alleged retaliation when she was removed from a training program in June 2005 for making mistakes during a snap inspection in April.  The first jury rendered a verdict in favor of the employer, but the plaintiff was granted a new trial on only the hostile work environment claim and the second jury awarded her $7,900,000.

The Court rejected the employer’s argument that the harassment was not gender-based because some of the incidents were not sexual in nature (i.e., not sexual advances, physical contact or touching):   

This argument fails, because it construes too narrowly the types of conduct that can contribute to a work environment permeated with sexual harassment. We have held that “non-sexual conduct may be illegally sex-based where it evinces anti-female animus, and therefore could be found to have contributed significantly to the hostile environment.”

Moreover, a jury is to consider “the totality” of the facts and circumstances, so that evidence of the non-sexual incidents can be considered along with the evidence of the sexually-based incidents to “provide a basis for inferring that even the facially neutral incidents were based on [the plaintiff’s] gender.”   

The employer’s “failure to respond to known complaints demonstrated that [it] tolerated or condoned the harassing behavior, or, at the very least, that the company failed to take appropriate remedial action.” 

The employer attempted to exclude evidence of all incidents that took place more than 300 days before she filed her EEOC Charge and argued that she failed to identify any sexually harassing incidents within the 300-day limitations period.  The Court disagreed.  The Supreme Court has held that a hostile work environment that violates Title VII “occurs over a series of days or perhaps years . . . . Such claims are based on the cumulative effect of individual acts.”  Therefore, the jury could consider evidence of several years’ worth of harassing incidents as long as one of the incidents took place within the 300-day period. 

In addition, the Court found that she had identified sufficiently harassing incidents within the 300 days before she filed her EEOC Charge.  In particular, there was evidence that her co-workers continued to ostracize and isolate her within the relevant 300-day period: 

It was not an abuse of discretion for the district court to find that the clear weight of the evidence demonstrated ongoing isolation and an atmosphere of hostility towards Waldo, and that this atmosphere continued into 2005, when Waldo participated in the Step IV class. There was testimony from both Waldo and Cutts that Waldo’s coworkers ignored her and refused to speak with her during her Step IV class in 2005.  . . . Barnes, one of Waldo’s instructors in 2005, further corroborated this testimony when he stated that he reprimanded one of Waldo’s coworkers for making comments that he did not want to work with women and that women were not strong enough to do the job. . . . This type of conduct—ignoring and ostracizing a coworker—if motivated by gender-based animus, can be a form of gender-based harassment that contributes to a hostile work environment. . . . Because there was strong evidence that Waldo continued to face hostility and isolation in April 2005, the district court acted within its discretion by finding that the clear weight of the evidence demonstrated that at least one incident of harassing behavior contributing to the hostile environment occurred after March 12, 2005. Thus all of the relevant harassment could be considered.

The Court divided on the issue of requiring the employer to pay her attorney fees.  Prevailing civil rights plaintiffs are entitled to an award of attorney fees, but the amount of those fees is within the discretion of the court.  The plaintiff’s lead attorney fees were calculated at $400/hour as the “reasonable hourly rate” based on the court’s assessment of  the “prevailing market rate in the relevant community’”   The majority explained that 

the prevailing market rate is “that rate which  lawyers of comparable skill and experience can reasonably expect to command within the venue of the court of record.” Id. A district court is permitted to “rely on a party’s submissions, awards in analogous cases, state bar association  guidelines, and its own knowledge and experience in handling similar fee requests.”

“The district court considered appropriate factors in its analysis, and its determination of a reasonable hourly rate is not outside the range of reported rates for highly experienced attorneys in the area.”

 

The majority also concluded that the fee request should not be reduced based on the number of claims which were reduced.   The most critical factor is the “degree of success obtained.” 

 In cases when “a plaintiff has obtained excellent results, his attorney should recover a fully compensatory fee.”  Id. at 435. Accordingly, we have explained that “a reduction in attorney fees [awarded to a prevailing plaintiff] is to be applied only in rare and exceptional cases where specific evidence in the record requires it.”  . . . Specifically, a court should not measure a plaintiff’s success simply by using a ratio of successful claims to claims raised. . . . This is because when several claims arise from a common core of facts, “[m]uch of counsel’s time will be devoted generally to the litigation as a whole, making it difficult to divide the hours expended on a claim-by claim basis. Such a lawsuit cannot be viewed as a series of discrete claims.”

The majority also concluded that the plaintiff’s attorney had deserved the greater fee because  -- acting as a private attorney general – he proved the case; the second jury awarded her $7,900,000 and the amount was only reduced as required by statute.

Although the dissent insinuates that the attorney fee award was unreasonable because it was slightly more than twice as much as the damages award to Waldo, see Dissent at 30, 32, “[i]n the civil rights area, there is no requirement that the amount of an award of attorneys’ fees be proportional to the amount of the underlying award of damages.”  . . .  In City of Riverside, the Supreme Court upheld an attorney fee award that was more than seven times greater than the damages awarded to plaintiffs. We similarly have affirmed an attorney fee award that was more than five times the damages awarded to a plaintiff in a civil rights case, stating that “the value of the rights vindicated goes beyond the actual monetary award, and the amount of the actual award is not controlling.” McHenry v. Chadwick, 896 F.2d 184, 189 (6th Cir. 1990). As the Supreme Court explained in City of Riverside: “Congress enacted § 1988 specifically because it found that the private market for legal services failed to provide many victims of civil rights violations with effective access to the judicial process. . . . In order to ensure that lawyers would be willing to represent persons with legitimate civil rights grievances, Congress determined that it would be necessary to compensate lawyers for all time reasonably expended on a case.” 477 U.S. at 576, 578. Notwithstanding the dissent’s apparent displeasure with Congress’s chosen policy, our precedents establish that an attorney fee award in a civil rights case is not unreasonable merely because it is greater than the damages awarded to the plaintiff.

Finally, the majority refused to discount the fees for the first trial, where the jury ruled in favor of the employer on all claims.  ““[T]he question of whether a party ‘prevailed’ and whether a fee award is ‘reasonable’ is not one to parse too thinly . . . [based on] the number of trials required to reach a result.” 

The dissent objected to the reduction of only $1,000 of the requested attorney fees, “including for all work incurred to lose the first jury trial, all work incurred to lose six of the seven claims (four of them state law claims) and for all work incurred to win $300,000 in the second jury trial. One can be forgiven for thinking that Waldo’s two attorneys, not Waldo, were the true winners. This is good work if you can get it.” 

But the acceptance of these points in the aggregate here gives trial court discretion a bad name. I know of no case in which an appellate court upheld all fees for the first (losing) trial when the only reason for the second trial was the trial court’s granting of a new trial under Civil Rule 59(a)(1)(A), which is to say that the verdict was merely against the weight of the evidence, which is to say that the evidence would havepermitted a defense verdict to stand. See White v. Pence, 961 F.2d 776, 780 (8th Cir. 1992). There was nothing unfair about the first trial. Defense counsel did nothing wrong. The trial court did nothing wrong. And the jury did nothing wrong, as the evidence would have permitted a defense verdict to stand. All that happened was that the trial judge disagreed with the jury. If anyone did anything wrong, it was plaintiff’s counsel in failing to convince the jury to rule his way in the initial trial. No reduction, any reduction, for all of the work on the first trial? That is a heavy lift. Where, moreover, would this end? Would a second lost jury verdict and a second successful Civil Rule 59 motion for a second do-over permit fees as well? Some reduction was in order.  

. . . .  

I am prepared to hold my nose in upholding a lot of fee awards, whether they seem too small or too large at the time. But a blanket fee award of $684,506 for losing six of seven claims, including for all of the work in losing the first jury trial, is not one of them.

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.