Sixth Circuit Does Not Require Clear and Convincing Evidence for Each Preliminary Injunction Element Unless Required by Statute

Yesterday, the Sixth Circuit reversed the denial of a preliminary injunction sought by an employer against a former employee who allegedly absconded with trade secret information for the benefit of his new employer, a competitor. PCC Airfoils LLC v. Daughterty, No. 25-3794 (6h Cir. 5-19-26).    The Court found that the employer need not prove each element of its claim by clear and convincing evidence in order to obtain preliminary injunctive relief.  “Rather than requiring clear and convincing evidence for each preliminary injunction factor, a court should consider all four factors to determine whether, taken together, they clearly weigh in favor of granting injunctive relief.”

According to the Court’s opinion,  a long time employee who had designed turbine airfoils was promoted to director in 2020 and then demoted a year later during a restructuring.  Frustrated, he later resigned to become a director at a competitor.  He did not have a non-compete agreement.  After his resignation, the employer discovered that he had prepared to print four confidential documents two days before leaving and that he had not left those documents in his office upon his departure.    The employer alleged that he “printed several documents containing trade secrets on his way out the door,”  but it could not prove that he actually printed them.   It sued him and his new employer to prevent him from disclosing trade secrets or working on similar products for the competitor.   The trial court denied the requested injunction on the grounds that the employer had failed to prove each element by clear and convincing evidence.

When faced with requests for a preliminary injunction, district courts consider four factors: (1) the plaintiff’s likelihood of success on the merits; (2) the risk of irreparable harm to the plaintiff in the absence of an injunction; (3) the risk that an injunction will harm others; and (4) the broader public interest. . . .

 . . . Courts, generally speaking, should engage with all four factors in a sliding-scale inquiry. A strong showing as to one factor may “outweigh[]” a weaker showing as to another factor. Winter, 555 U.S. at 23–24. After weighing the four factors against one another, a court may grant a preliminary injunction only if a plaintiff has made “a clear showing that [it] is entitled to such relief.” Id. at 22. All of this means that a movant does not need to establish a quantum of proof, whether a preponderance or clear and convincing evidence, with respect to each factor to be eligible for preliminary relief.

Two qualifications exist. If the plaintiff has “no likelihood of success on the merits,” there is nothing left to balance and the plaintiff’s request for a preliminary injunction must fail regardless of its showing on the other factors. Higuchi Int’l Corp. v. Autoliv ASP, Inc., 103 F.4th 400, 409 (6th Cir. 2024) (quotation omitted). Likewise, a court must reject a plaintiff’s request for a preliminary injunction if it fails to show any risk of irreparable injury.

Measured by these requirements, the district court erred in requiring [the employer] to establish “clear and convincing evidence” with respect to each of the four factors in order to be eligible for preliminary relief.  . . .  While a court should “consider” all four factors, it is a sliding-scale inquiry that turns “as much on the equities of a given case as the substance of the legal issues it presents.”  . . .  The necessary showing for any one factor turns on the strength of the plaintiff’s showings for the other factors. Because generalizations are dangerous when it comes to equity, and because the Supreme Court has cautioned that the clear and convincing evidence standard applies in only a few rare circumstances, . . .  a court may not require every plaintiff to meet a heightened standard of proof for every preliminary injunction factor to qualify for injunctive relief. The district court erred in reaching a contrary conclusion.

 . . . .

 . . . Requiring a “clear showing” to obtain a preliminary injunction—because it is an extraordinary form of relief—is not the same thing as requiring “clear and convincing evidence” to establish each of the four factors to establish eligibility for this relief.

Instead of creating a heightened standard of evidentiary proof for each factor individually, the “clear showing” phrase clarifies that, on balance, the four preliminary injunction factors must clearly weigh in the plaintiff’s favor to qualify for injunctive relief.

The Court agreed that an unpublished Sixth Circuit had applied the clear and convincing evidence standard to all four factors, but was not bound by that precedents or later decisions that relief on it.  The Court also agreed that Ohio state court apply the clear and convincing standard to all four elements, but the federal court procedural rules apply to claims brought in federal court, even if the substantive law is governed by Ohio law.  Further, there was no substantive statute requiring use of a higher standard of proof.

Ohio’s rules of equity generally apply the clear and convincing evidence standard to the four preliminary injunction factors.  . . .  Because one of his claims seeks relief under an Ohio statute, [the defendant employee] contends that Ohio’s preliminary injunction rules should apply. But a federal court applies federal procedural rules, even when deciding cases under state law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). The preliminary injunction inquiry falls on the procedural side of the line,  . . . requiring us to apply federal, not Ohio, rules. And we treat the preliminary injunction considerations as equitable factors to be weighed, not elements to be proved by clear and convincing evidence.

 . . . .

The clear and convincing evidence standard thus had no role to play in this case. Indeed, as it pertains to the plaintiff’s likelihood of success on the merits, it seems particularly odd to require the plaintiff to prove its case by a higher standard than will be required at trial even before the parties have had the benefit of discovery.  . . .  . . . .

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 Supreme Court Issues Two Procedural Decisions: FLSA Subject to Regular Preponderance Burden of Proof

This morning, a unanimous Supreme Court issued two procedural opinions of interest to employees and employers.  In the first, the unanimous court held that the default “preponderance of the evidence” standard (rather than “clear and convincing evidence") applied to FLSA actions (as they do in Title VII and other federal employment statutes) and the employer’s burden of proving whether an employee is exempt.  E.M.D. Sales, Inc. v. Carrera, No. 23-217 (1/15/25).   In the second, the unanimous Court held that a plaintiff could amend their complaints to remove any possible federal question jurisdiction and the case must then be remanded back to state court.  Royal Canin USA, Inc. v. Wullschleger, No. 23-677 (1/15/25).  

In Carrera, the plaintiff sales representatives for a food distributor argued that they were non-exempt and entitled to overtime compensation when they visited grocery stores and took orders, etc.  The district court held that employer failed to provide clear and convincing evidence that they were exempt outside sales reps and ruled in favor of the plaintiff employees.  “The court found that the employees primarily executed the terms of sales already made rather than making new sales themselves.” 

Preponderance simply means more likely than not. The Court held that preponderance of the evidence is the default standard in civil cases, was the default standards at the time the FLSA was enacted, and would apply to the employer’s burden of proof.  The preponderance standard is also the same standard used in other employment statutes, like Title VII.  Only one appellate circuit court applied the clear and convincing standard.   The clear and convincing standard is only used when specified in the statute, when the Constitution is at stake (like in a First Amendment case or severing of parental rights), and when the government is taking unusually coercive action (like taking away citizenship).  Nothing in the FLSA indicates that a different burden of proof would apply. The Court took no position on the merits of the claim or defense.  

We hold that the preponderance-of-the-evidence standard applies when an employer seeks to show that an employee is exempt from the minimum-wage and overtime pay provisions of the Fair Labor Standards Act.

In Wullschleger, the plaintiff had filed a complaint in state court alleging deceptive sales practices.  The defendant removed the case to federal court based on the asserted federal law claim (i.e., federal question court jurisdiction).  The plaintiff then moved to amend her complaint to eliminate the federal law claim and for the court to remand the case back to state court since it no longer had federal question jurisdiction.  The court declined to remand and continued to exercise supplemental jurisdiction over her remaining state law claims.  The Court of Appeals reversed and the Supreme Court affirmed. 

This case presents a further question: What happens if, after removal, the plaintiff amends her complaint to delete all the federal-law claims, leaving nothing but state-law claims behind? May the federal court still adjudicate the now purely state-law suit? We hold that it may not. When an amendment excises the federal-law claims that enabled removal, the federal court loses its supplemental jurisdiction over the related state-law claims. The case must therefore return to state court.

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.

HR's Failure to Document Leads to Factual Dispute and Dooms Employer's Summary Judgment on ADA Claims

Last month, the Sixth Circuit reversed an employer’s summary judgment on an ADA disability discrimination claim based on disputed issues of important facts about exactly what the employer did or did not do or say to the employee after she requested an accommodation for her COPD and the paint fumes.  Root v. Decorative Paint, Inc., No. 23-3404 (6^th Cir. 9/3/24).   She claims she was fired, but the employer claimed that management merely sent her home and wanted more information from her physician.  Ultimately, she was fired a few days later for an unexcused absence.  HR’s failure to document its actions or to give the plaintiff a reasonable accommodation form for her physician to complete doomed the employer’s summary judgment chances and required the entire matter to be submitted to a jury.  

According to the Court’s opinion, the plaintiff had worked for the small parts painting company on the Rework line (pulling and sanding blemished parts for repainting) for several years before the pandemic.   She also would fill in sometimes on the A and D lines for a couple of hours here or there.   She occasionally suffered from symptoms of COPD and asthma, but managed them well for several years.  During the pandemic, the company had laid off its employees and called them back in batches, but expecting them to work multiple roles while they slowly increased production.   However, all of the Rework employees remained assigned to their former duties, except for the plaintiff.  She was initially recalled and reassigned only to the D-line, working near heavy paint fumes for her entire 10-hour shift, instead of just a couple of hours as before.

When she experienced difficulty breathing, she called her doctor, explained her symptoms and requested to return to the Rework Department.  He then gave her a note explaining that she could not work around paint fumes, and did not explain or clarify that she could still perform her former Rework duties in the plant.   She gave her note to her supervisor, who gave it to HR.  No one agrees on what happened next.

• ·       HR contended that the entire management team discussed it and decided that the plaintiff should go home and re-visit with her physician what she could and could not do working in a paint plant if she could not be around paint fumes. The production manager, however, disputed that he participated in this conversation.
• ·       There was a meeting with the production manager, HR and the plaintiff where it was explained that her presence was a liability and she was sent home. 

o   The plaintiff testified that she was fired.

o   HR contended that the plaintiff was requested to get clarification from her physician, but did not give her any forms to have completed and did not take any notes.

• ·       HR contended that she called the plaintiff to follow up, but the plaintiff denied this and indicated her cell phone records do not show any such call.

·       When the plaintiff did not return to work after two days, HR backdated forms to indicate that her absences were unexcused and she was fired for attendance.

The trial court found that the plaintiff was not qualified to work in the plant since her physician had indicated that she could not be around paint fumes (which were everywhere in the plant) and had not clarified that she could still work in her former Rework department.   In essence, it was conceded that being able to work around paint fumes was an essential function of every job and her doctor’s note was viewed as a zero tolerance for paint fumes.

The Court agreed with the plaintiff that the employer was required to conduct an individualized assessment of her toleration for paint fumes.  However, there was a disputed issue of fact as to whether it did so.  HR contended that it did so and directed the plaintiff to get clarification and followed up with her a few days later.  The plaintiff contended that she was immediately fired and no one attempted to call her days later to get more information.  Accordingly, it was up to a jury to decide whether the employer attempted to conduct an individualized assessment as required by the ADA.

The Court also agreed that the plaintiff had proposed a reasonable accommodation of being reassigned to the Rework department since she had successfully worked there for 3 years before the pandemic.  Nonetheless, again, there was a disputed issue of fact for a jury to resolve whether the plaintiff had proposed a reasonable accommodation of her reassignment or whether she had requested zero tolerance to paint fumes.  Everyone seemed to agree that she never mentioned the reassignment in the meeting with HR or the production manager.  

The Court also found that there was a disputed issue of fact as to why the plaintiff was fired – her accommodation request or her unexcused absence.  Different burdens of proof would apply depending on whose version the jury believed.  It could be direct evidence of discrimination if the plaintiff were believed and indirect (i.e., the McDonnell-Douglas burden shifting) if the employer’s explanation were believed.  The trial court had not addressed this issue at all because it had found the plaintiff to be unqualified to work in a paint plant.

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 Significantly Alters Burden of Proof for Hostile Work Environment Claims

Yesterday, the Sixth Circuit affirmed the summary judgment dismissal of an age discrimination claim, but reversed dismissal of the companion hostile work environment claim brought by a former police officer.    McNeal v. City of Blue Ash, No. 23-3180 (6^th Cir. 9/23/2024).  The Court agreed that the plaintiff officer could not show that his termination – or the underlying disciplinary actions – were discriminatory or pretextual.  However, he could possibly show a hostile work environment based on the cumulative effect of closer scrutiny and supervision than his younger co-workers received, a denigrating assignment that could be designed for him to fail and his supervisor’s “glee” in imposing disciplinary actions against him.   The Court’s opinion suggests that hostile work environments need not be severe or subjectively hostile when discriminatory employment actions need not be significant in order to be actionable: “Because hostile-work- environment claims arise out of the same statutory language as disparate-treatment claims, Muldrow’s holding that Title VII does not require plaintiffs to show “significant” harm applies to both types of claims. . . Thus, when we consider whether a hostile-work environment was severe or pervasive enough to violate Title VII, we effectively ask whether it left an employee “worse off respecting employment terms or conditions.”

According to the Court’s opinion, the plaintiff worked for 33 years as a police officer and was the oldest officer in the department.  After his supervisor was promoted to his role, the plaintiff claimed that he was subjected to closer scrutiny.  For instance, after he challenged his 2015 performance evaluation, he was assigned to conduct a traffic study which had never been assigned to a patrol officer before and which he lacked qualifications to conduct.  He alleged that it was both retaliatory for his performance evaluation challenge and based on his age.   He then received progressive disciplinary actions over the next two years for infractions, such in April 2016 for failing to turn on his microphone during traffic stops (after he had first been informally counselled when he had been identified as a primary offender of that policy).   In June 2018, the plaintiff and another officer violated a number of policies when responding to a medical emergency, including failing to use lights and sires, failing to notify that they were not using lights and sirens, and speeding without lights and sires, etc.  

When the individual died from the medical emergency, an investigation was conducted into the police response.  The investigation revealed that the plaintiff had previously violated the same policies.  When the investigators checked his prior traffic stops, they discovered that he had not used his audio (which he had received formal disciplinary action for in 2016).  As they checked his prior traffic stops, they discovered that he only turned on his audio in 8 stops that year (out of 38) and that he had never checked his video equipment in his109 shifts so far that year as required by departmental policy.  When he claimed that he generally turned on his audio and checked his equipment, they concluded that he was being intentionally dishonest, which by itself, is a terminable offense.   He was given the option of retiring or submitting to a pre-disciplinary hearing.  He rejected both offers and was terminated.  His grievance was rejected in arbitration.    He then filed suit.    The trial court granted the City and individual defendants summary judgment on all claims. 

The Court agreed that the plaintiff could not show that he was terminated on account of age discrimination.   The ADEA requires that age be the determinative factor in his termination:  that he would not have been fired but for his age.  In this case, assuming that he could show a prima facie case of discrimination, he could not show that his employer lacked a legitimate basis for his termination based on his misconduct and prior disciplinary history.  The plaintiff conceded that he could not disprove the factual basis of any of his prior disciplinary actions or his termination.

The Court rejected his argument that his termination was pretextual because it did not actually motivate the decision to terminate his employment: 

Even if it is true that the Department generally scrutinized the performance of older officers to a greater degree than younger officers, [the plaintiff] has not presented sufficient evidence that the reasons given for his termination—an extensive list of disciplinary infractions that included untruthfulness—were not the true reasons. [He] does not contest, for example, that the Department would be required to disclose his untruthfulness to defendants at trial, rendering him unable to perform an essential job duty. Nor does [he] dispute that the Department was legitimately concerned that his pervasive failure to follow the recording policies jeopardized the Department’s ability to gather evidence and limit its exposure to liability. Because the ADEA requires plaintiffs to show that age is the “but-for” cause of the disciplinary action—not simply a motivating factor—[he] cannot proceed if his termination was at least partly caused by Defendants’ non-discriminatory reasons.  . . .  He does not meet this burden on the second prong.

The Court also rejected the argument that his conduct was insufficient to warrant his termination, mostly because the other responding officer was treated similarly to him and given the same option to voluntary retire or submit to a pre-disciplinary hearing.  For that matter, the plaintiff did not address the dishonesty issue at all in his briefs.

That being said, the standard for proving a hostile work environment is much less than proving discrimination.  However, “allegations of discrete discriminatory acts otherwise actionable as independent disparate-treatment claims do not by themselves constitute harassment supporting a hostile-work-environment claim.” (italics added for emphasis).  Thus, it was conceded that his suspensions and termination could not be considered as evidence of a hostile work environment.   Rather, a hostile-work-environment claim is “based on the cumulative effect of individual acts,” many of which are not actionable on their own.”

an adverse employment action can affect employment terms or conditions on two registers. By definition, an adverse action can cause a change in the terms or conditions of employment. But an adverse action deployed strategically as harassment can also add to a climate of hostility that represents a different change in the terms or conditions of the job. To use the Supreme Court’s words, a discrete discriminatory act may have “occurred” on one day and thus be actionable, but it also may be part of a separate harm that “occurs over a series of days or perhaps years.”  . . . . In the hostile-work-environment context, we exclude adverse actions that operate only on the first register, but consider the ones that operate on the second. (emphasis added). 

In this case, the plaintiff “cited testimony that older officers were regularly subjected to greater scrutiny, and highlighted examples showing that younger officers did not face discipline for their policy violations.”    He also alleged that he was the only officer whose performance was investigated over an entire year (when the investigators reviewed each of his traffic stops).   “We focus on the harassing effect of these incidents to assess whether the ongoing monitoring created a climate of hostility in the aggregate (and combined with other actions), not whether each incident alone changed [his] employment status. Therefore, [his] evidence of higher and disproportionate scrutiny may be used to support his hostile-work-environment claim.”  In addition, a number of officers provided evidence that he was disciplined for infractions that other officers violated with impunity. 

He also cited the traffic study that he had been assigned:

Thus, the evidence supporting a hostile-work-environment claim is not the unfavorable assignment itself but the fact that the Department allegedly engaged in conduct designed to (1) frustrate, demean, and embarrass him in front of his coworkers; (2) justify more disciplinary action against him when he inevitably fell short of the unreasonable expectations; and (3) force him further under the microscope by requiring him to report to two supervisors on his progress weekly. The significance of the traffic study for hostile-work-environment purposes is that the Department allegedly used the assignment strategically in a broader effort to discredit [the plaintiff].

                   . . .

                  The [Supreme] Court has held that a hostile-work-environment claim is “based on the cumulative effect of individual acts” occurring over the span of weeks, months, or years.  . . .  An individual act within a hostile-work-environment claim “may not be actionable on its own,”  . . . —but there is no requirement that the act not be independently actionable. As the Court recently explained, a hostile-work-environment claim “includes every act composing that claim, whether those acts are independently actionable or not.”  . . .  Thus, “even if a claim of discrimination based on a single discriminatory act is time barred, that same act could still be used as part of the basis for a hostile-work-environment claim.”  . . . That conclusion makes good sense. Whether a given act contributes to a hostile work environment does not turn on whether that act might support a separate claim.

To reconcile Ogbonna-McGruder with Morgan and Green, we read Ogbonna-McGruder to bar a plaintiff from including in a hostile-work-environment claim only those discrete acts that result in a separate discriminatory harm to the terms and conditions of employment that does not “contribut[e]” to the alleged environment of harassment. (emphasis added).

The plaintiff also claimed that most of his prior disciplinary actions were part of this campaign of harassment against him:

even if some of these disciplinary incidents were separately actionable, we would still consider whether the incidents were also weaponized as tools of harassment in the “same actionable hostile work environment practice.”  . . .  Here, there is evidence indicating that the Department imposed discipline as a vehicle to target and belittle [the plaintiff]. Notably, [he] points to testimony that [the Chief] was “grinning from ear to ear,” “smiling,” and “giggling” when discipline was meted out to [him]. . . . .  [The Chief] reportedly asked about [his] reaction to some discipline with excitement and enthusiasm, as though “he [was] getting off, he [was] enjoying the fact that an employee of his [was] being messed with.”

At any rate, these disciplinary incidents would not be independently actionable. Only discipline causing “some harm respecting an identifiable term or condition of employment” is actionable on its own.  . . .  For example, this court previously held that “[a] written reprimand, without evidence that it led to a materially adverse consequence such as lowered pay, demotion, suspension, or the like, is not a materially adverse employment action.”  . . .  Here, [the plaintiff] was disciplined in several ways that likely do not meet the definition of an “adverse employment action,”  . . . , including “documented counseling,” an “oral reprimand,” and a “written reprimand.”  . . .  When considering the facts in the light most favorable to [him], none of these incidents is actionable on its own in a disparate-treatment claim.

The Court also lowered the evidentiary bar on proving “severe” harassment:

Because hostile-work-environment claims arise out of the same statutory language as disparate-treatment claims, Muldrow’s holding that Title VII does not require plaintiffs to show “significant” harm applies to both types of claims.  . . .  Instead, the employer’s discriminatory action—or, as is the case here, the work environment—needs to produce “some harm respecting an identifiable term or condition of employment.”  . . . .  Thus, when we consider whether a hostile-work environment was severe or pervasive enough to violate Title VII, we effectively ask whether it left an employee “worse off respecting employment terms or conditions.” . . .

                   . . . [The plaintiff] is not required to show that the harassment “seriously affect[ed] [his] psychological well being” or caused him to “suffe[r] injury”—only that the environment “would reasonably be perceived . . . as hostile or abusive.”  . . .  Importantly, [he] does not need to show that “each incident of harassment standing alone is sufficient to sustain the cause of action,” but that the incidents, taken together, make out such a case.  . . . . Because the facts here present a close call regarding severity, we decline to do the jury’s job for it: [he] cites enough evidence for a reasonable juror to conclude he was subjected to a hostile work environment.

                   . . . .

Here, a jury could reasonably conclude that McNeal’s conditions of employment were altered. For example, if a jury agrees that McNeal was uniquely targeted for minor policy violations and subject to significant surveillance, he would have had a different level of discretion than other officers.

(emphasis added)

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 Adopts "Strong Likelihood" Standard to Determine When Other Employees Should Be Invited to Join FLSA Collective Action

On Friday, a divided Sixth Circuit addressed the proper standard for determining what “other employees” are “similarly situated” and should be notified of a FLSA collective action and given the opportunity to join the lawsuits as plaintiffs.  Clark v. A&L Homecare and Training Center, LLC, No. 22-3101 (6^th Cir. 2023).  The scope of the notification of “other employees” can involve hundreds of employees (and “potential plaintiffs”) and often forces defendant employers to settle the lawsuit prior to any discovery or evaluation of the merits or similarly situatedness.  The Court’s majority rejected the prevailing lax standard first utilized in New Jersey and the Fifth’s Circuit’s recent, more stringent preponderance of the evidence standard.  Instead, the Court determined that “for a district court to facilitate notice of an FLSA suit to other employees, the plaintiffs must show a ‘strong likelihood’ that those employees are similarly situated to the plaintiffs themselves.”  This is similar to the standard already used in preliminary injunction hearings, which is less than a preponderance of the evidence standard, but higher than a summary judgment standard.   The plaintiffs will bear the burden of proving similarly situatedness.  The Court also rejected the employer’s arguments that individualized defenses – such as the existence of arbitration agreements or expired limitations period -- of “other employees” would necessarily prevent them from being similarly situated and exclude them from notification, but those defenses should be considered when evaluating whether they are similarly situated.

The lawsuit was brought by former home health aides who alleged that they were not paid for all overtime hours worked and were under reimbursed for travel expenses, thereby unlawfully reducing their minimum wages.  Under the FLSA, employees may bring suit on behalf of themselves and other employees similarly situated.   The other employees must give written consent to joining the lawsuit.  The Supreme Court had held that a trial court has discretion to notify these other potential plaintiffs of the lawsuit in appropriate cases.  FLSA collective actions are not Civil Rule 23 class actions because the “other employees” who elect to join the lawsuits become party plaintiffs, just like the original plaintiffs.  The original plaintiffs are not class representatives.   

A district court’s determination to facilitate notice in an FLSA suit is analogous to a court’s decision whether to grant a preliminary injunction. Both decisions are provisional, in the sense that the court renders a final decision on the underlying issue (whether employees are “similarly situated” here, success on the merits there) only after the record for that issue is fully developed; yet both decisions have immediate consequences for the parties.  . . . . What the notice determination undisputedly shares in common with a preliminary-injunction decision, rather, is the requirement that the movant demonstrate to a certain degree of probability that she will prevail on the underlying issue when the court renders its final decision.

We adopt that part of the preliminary-injunction standard here; and we hold that, for a district court to facilitate notice of an FLSA suit to other employees, the plaintiffs must show a “strong likelihood” that those employees are similarly situated to the plaintiffs themselves. See, e.g., id. That standard requires a showing greater than the one necessary to create a genuine issue of fact, but less than the one necessary to show a preponderance. The strong-likelihood standard is familiar to the district courts; it would confine the issuance of court-approved notice, to the extent practicable, to employees who are in fact similarly situated; and it would strike the same balance that courts have long struck in analogous circumstances.

In applying this standard, district courts should expedite their decision to the extent practicable. The limitations period for FLSA claims typically is two years. 29 U.S.C. § 255(a). If the plaintiffs in an FLSA suit move for court-approved notice to other employees, the court should waste no time in adjudicating the motion. To that end, a district court may promptly initiate discovery relevant to the motion, including if necessary by “court order.” Fed. R. Civ. P. 26(d)(1).

 . . .

As for the plaintiffs’ argument itself, “the different defenses to which the plaintiffs may be subject” is already a factor when determining whether other employees are similarly situated to the original plaintiffs.  . . .  And for that purpose a defense based on an alleged arbitration agreement is a defense like any other. The parties can present whatever evidence they like as to such a contention; the district court should consider that evidence along with the rest in determining whether the plaintiffs have made the requisite showing of similarity. Moreover, to be clear, “[e]mployees bear the burden of satisfying this requirement.” Id. A defense based on putative arbitration agreements does not shift that burden more than any other defense does. 

 . . . The very point of the “similarly situated” inquiry is to determine whether the merits of other-employee claims would be similar to the merits of the original plaintiffs’ claims—so that collective litigation would yield “efficient resolution in one proceeding of common issues of law and fact arising from the same alleged discriminatory activity.” Hoffman-LaRoche, 493 U.S. at 170. Thus, on remand, the district court should consider the parties’ evidence as to arbitration agreements along with all the other evidence in determining whether the plaintiffs have met the strong-likelihood standard.

Finally, as to the plaintiffs’ remaining argument, a limitations defense is likewise a defense like any other for purposes of determining similarity. Hence the district court should consider the parties’ respective showings on that issue when making its notice determination on remand.

The dissent argued that the Court’s new standard will make it too difficult for plaintiffs and employees to pursue their right to unpaid wages, but agreed with the rejection of the Fifth Circuit’s new standard.   The concurring opinion asserted that equitable tolling of the limitations period should apply to the claims of “other employees.”

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 Appellate Court Remands Physician Non-Compete Case To Evaluate Whether Continuing Education Investment Was Sufficient Protectible Interest

In October, the Hamilton County Court of Appeals reversed a hospital employer’s summary judgment in a declaratory judgment action brought by a former employee-physician on the grounds that the trial court had incorrectly increased the employee’s burden of proof.   Wigton v. University of Cincinnati Physicians, Inc., No. 2021-Ohio-3576.  There was no issue of stealing patients or confidential information.  The employer justified the non-compete clause on the basis of the investment which it had made in the physician’s continuing education.  Neither party moved for injunctive relief and both moved for summary judgment.  Nonetheless, the trial court ruled that the physician failed to carry his burden of clear and convincing evidence (as required for injunctive relief).   The court of appeals ruled that the burden of proof should have been the simple no dispute of material fact and judgment as a matter of law standard and remanded the case to decide whether the employer’s investment in continuing education was significant enough to restrict otherwise fair competition.  In particular, the trial court was instructed to evaluate “whether the doctor’s “expertise was increased * * * more than would have been through experience as [a physician] in solo practice,” . . . and/or whether the training provided by the hospital facilitates some type of unfair competition.”

According to the Court, the plaintiff physician signed a non-compete clause which prohibited him from practicing medicine for 18 months within 10 miles of any location where he had previously worked in the prior 12 months.  After four years of employment , he accepted another position and sought a declaratory judgment on the enforceability of the non-compete clause, but did not move for injunctive relief (which requires clear and convincing evidence).  Instead, he sought a summary judgment (which only requires no disputes of material fact and judgment as a matter of law).  In opposing the summary judgment motion and moving for its own summary judgment, the employer’s attorneys argued the injunctive relief standard of proof (i.e., clear and convincing evidence).  There was no dispute about the physician attempting to steal patients or possessing any trade secrets or confidential information.  The employer was relying simply on the amount of training it claimed to have provided the physician to justify the restriction.

The appellate court observed that while reasonable restrictions are enforceable, physician non-complete clauses are disfavored:

Noncompete restraints on physicians are, therefore, “strictly construed in favor of professional mobility and access to medical care and facilities.” Id. Nevertheless, “covenants not to compete in the medical profession are not per se unenforceable, and will be upheld if they are reasonable.” Id. That said, we only enforce noncompete restraints on physicians “to the extent necessary to protect an employer’s legitimate interests; if there is no legitimate interest to be protected, the noncompete is unreasonable.”

             . . . Generally, noncompete restraints are only enforceable when the employee possesses protected business information (such as trade secrets or customer lists) that she can use against her former employer. . . . . Indeed, this is why noncompete caselaw focuses on preventing unfair competition, not simply ordinary competition.

Without ruling on whether the employer’s investment in the physician’s training was a sufficiently strong interest to justify a restriction on competition, the Court observed:

It concluded that UCP’s position as a nonprofit academic hospital provided a legitimate business interest in deterring defections like Dr. Wigton’s and that UCP invested in Dr. Wigton’s training. We take no position on the merits of these conclusions because they were assessed under an incorrect standard, but we do point out that in considering a physician’s training, a court should not simply evaluate whether a doctor received training (as all doctors do) but whether the doctor’s “expertise was increased * * * more than would have been through experience as [a physician] in solo practice,” id. at ¶ 28, and/or whether the training provided by the hospital facilitates some type of unfair competition.

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 Rejects Whistleblowing Claims of Quarrelsome Employee

Last week, the federal Sixth Circuit Court of Appeals affirmed the dismissal of whistleblowing claims after a trial on the grounds that the employer was justified in terminating the plaintiff because of repeated interpersonal conflicts.  Ma v. AEP, Inc. No. 15-2105 (6^th Cir. 5-10-16).   The plaintiff had been fired for contributing to a dysfunctional department and us-and-them mentality despite a long history of superior job performance.  She claimed that she was fired for protesting an unsafe working environment.  Following a bench trial, the employer agreed that the plaintiff could not show that it was her safety concerns that motivated her termination.  On appeal, the Sixth Circuit affirmed.

According to the Court’s opinion, the plaintiff’s “engineering talents garnered her recognition for maintaining safety at AEP over her eleven-year career. But interpersonal conflict ultimately overshadowed her technical prowess . . .. Tempers flared and workflow slowed, culminating in a verbal altercation between” her and others after she made a safety complaint against another team and made another safety complaint when they objected.  Notwithstanding coaching on teamwork and professionalism, disciplinary action and an mandatory counseling, she continued  her combative behavior.  After a competing proposal was selected over her suggestion, she claimed it was unsafe and refused to work on it.  Believing that her safety objections was merely a continuation of her us-vs-them mentality, she was terminated.   Following a five-day bench trial, the court found that the plaintiff was fired for interpersonal shortcomings instead of legitimate safety objections.

The Energy Reorganization Act protects workers who report safety concerns from retaliatory termination. See 42 U.S.C. § 5851(a). To this end, the Act places an initial burden on employees to offer preponderating evidence that protected activity contributed to an adverse employment action; if the employee succeeds, the burden shifts to the employer to show by “clear and convincing evidence, that it would have taken the same unfavorable personnel action in the absence of such behavior.”

Despite this heightened burden of proof, the employer was found to have met it in this case (after lengthy and expensive pre-trial discovery and a week-long bench trial).  Despite the fact that the plaintiff was undisputedly fired after expressing protected safety concerns, the employer showed that it would have fired her without those safety concerns based on the manner of her expression.

Here, it was not Ma’s safety reports and LOTIC2 objections that irked colleagues, but rather the aggressive tone with which she delivered them. And testimony showed that colleagues avoided going to Ma with concerns because of her confrontational attitude and unwillingness to accept criticism. AEP elicited sufficient testimony on these points to support the district court’s conclusion that Ma’s inability to talk, collaborate, or otherwise work with peers caused her termination. See Am. Nuclear Res., Inc., 134 F.3d at 1295 (“[A]n employer may terminate an employee who behaves inappropriately, even if that behavior relates to a legitimate safety concern.”).

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.

Supreme Court Creates New Legal Standard For Pregnancy Discrimination Claims

This morning, a divided Supreme Court reversed the employer’s summary judgment in a disparate treatment pregnancy discrimination case, but rejected the legal and statutory interpretation arguments submitted by the government, EEOC, employer and plaintiff.  Instead, the Court created a new standard which applies only to pregnancy discrimination claims.  Young v. UPS, No. 12-1226 (3-25-15).  The issue confronting the Court was how an employer must treat a pregnant employee who requires an accommodation offered to some, but not all, other non-pregnant employees with similar physical restrictions.  The Court rejected most-favored-nations status for pregnant employees based simply on the grounds that accommodations have been offered to only some employees. It also rejected the employer’s argument that pregnant employees only need to be treated the same as other non-pregnant employees.  Instead, the Court slightly relaxed the similarly-situated standard in the prima facie case, rejected certain business justifications, and expanded what could constitute pretext for discrimination. 

According to the Court’s opinion, the employer requires delivery drivers to carry up to 70 pounds.  During her pregnancy, the plaintiff was medically restricted to carrying only 20 pounds.  The employer refused to waive the lifting requirement, to temporarily transfer her to an alternative position or to permit her to work.  She took unpaid leave and ultimately lost her medical coverage.  This lawsuit followed. 

The employer defended its refusal to waive its lifting requirements or to transfer her to a light duty position on the basis that it only accommodated employees with workers’ compensation injuries, who lost their DOT certifications, or who were covered by the ADA (which, should be noted, does not include pregnancy as a disability or require an employer to eliminate an essential job function, but could require a transfer to another, open position).  The plaintiff contended (over the employer’s objection) that it also accommodated other employees with physical limitations.  A union steward testified that the only physical limitations that the employer did not accommodate with a transfer were pregnant employees.   The employer was given summary judgment (on the basis that the plaintiff did not identify similarly situated employees who were treated better), which was affirmed on appeal.  Those courts would only permit the pregnant plaintiff to compare herself to employees injured off the job.

The Court noted that the Pregnancy Discrimination Act has two provisions at issue in the litigation:  the incorporation of pregnancy into the definition of Title VII’s sex discrimination and a duty to treat pregnancy physical limitations “the same . . . .as other persons not so affected but similar in their ability or in­ability to work.” 

The Court rejected the employer’s argument that the second clause in the PDA merely clarifies the meaning of sex discrimination because the clarification would render the first clause superfluous.  Therefore, the Court rejected the employer’s proposed analysis that “courts would compare the accommodations an employer provides to pregnant women with the accommodations it provides to others within a facially neutral category (such as those with off-the-job injuries) to determine whether the em­ployer has violated Title VII.”  That analysis would exist even in the absence of the second clause: “If the second clause of the Act did not exist, we would still say that an employer who disfa­vored pregnant women relative to other workers of similar ability or inability to work had engaged in pregnancy discrimination.”

The  Court also rejected the plaintiff’s argument that an employer must accommodate every pregnant employee’s restrictions if it accommodates any other employee’s restrictions.  The Court found that this granted pregnant employees  “most favored nation” status which would discourage an employer from accommodating the physical restrictions of long-time employees, those employees with special, extraordinarily hazardous and/or necessary skills or elderly employees.  Indeed, seniority is a enumerated defense to a Title VII claim.

The language of the statute does not require that unqualified reading. The second clause, when referring to nonpregnant persons with simi­lar disabilities, uses the open-ended term “other persons.” It does not say that the employer must treat pregnant employees the “same” as “any other persons” (who are similar in their ability or inability to work), nor does it otherwise specify which other persons Congress had in mind.

Moreover, disparate-treatment law normally permits an employer to implement policies that are not intended to harm members of a protected class, even if their imple­mentation sometimes harms those members, as long as the employer has a legitimate, nondiscriminatory, nonpre­textual reason for doing so.

The Court refused to give any significant weight to last year’s EEOC PDA guidance which advised employers to provide the same accommodations to pregnant employees that it provides to employees with work injuries. Both before and immediately after the passage of the PDA, the EEOC guidelines required only that pregnancy be treated the same as other medical conditions:

“Disabilities caused or contributed to by preg­nancy . . . for all job-related purposes, shall be treated the same as disabilities caused or contributed to by other medical conditions.”

  In rejecting the recent EEOC guidance, the Court cited concerns with its

timing, “consistency,” and “thor­oughness” of “consideration.” The EEOC promulgated its 2014 guidelines only recently, after this Court had granted certiorari in this case. In these circumstances, it is fair to say that the EEOC’s current guidelines take a position about which the EEOC’s previous guidelines were silent. And that position is inconsistent with positions for which the Government has long advocated. . . . Nor does the EEOC explain the basis of its latest guidance. Does it read the statute, for example, as embodying a most-favored-nation status?   Why has it now taken a position contrary to the litigation position the Government previously took?   Without further explanation, we cannot rely significantly on the EEOC’s determination.

The Court observed that the PDA was enacted to overrule the Court’s prior decision in General Elec. Co. v. Gil­bert, 429 U. S. 125 where the employer provided sickness and accident insurance to non-pregnant employees and the Court found no sex discrimination because women received the same coverage that men did.  Simply including pregnancy into Title VII would not have changed the result in Gilbert, which was the intent of the second clause in the PDA.

While pregnancy discrimination claims are to be treated similarly to any other sex discrimination claims, they will differ in three material respects.  For instance, the similarly-situated standard must be relaxed:

an individual plaintiff may establish a prima facie case by ‘showing actions taken by the employer from which one can infer, if such actions remain unexplained, that it is more likely than not that such actions were based on a discriminatory criterion illegal under’ Title VII. . . . Nei­ther does it require the plaintiff to show that those whom the employer favored and those whom the employer disfa­vored were similar in all but the protected ways.

In particular, the Court laid out the shifting burdens of proof as follows:

First, the plaintiff must show:

a) that she belongs to the protected class,

b) that she sought accommodation,

c) that the employer did not accommodate her, and that the employer did accommodate others “simi­lar in their ability or inability to work.”

Second, the employer would need to provide a legitimate and nondiscriminatory reason for refusing to provide the requested accommodation.

 

But, consistent with the Act’s basic objective, that reason normally cannot consist simply of a claim that it is more expensive or less convenient to add pregnant women to the category of those (“similar in their ability or inability to work”) whom the employer accom­modates. After all, the employer in Gilbert could in all likelihood have made just such a claim.

Third, the plaintiff must show that the employer’s reason is pretextual.

We believe that the plaintiff may reach a jury on this issue by providing sufficient evidence that the employer’s policies impose a significant burden on preg­nant workers, and that the employer’s “legitimate, nondis­criminatory” reasons are not sufficiently strong to justify the burden, but rather—when considered along with the burden imposed—give rise to an inference of intentional discrimination.

The plaintiff can create a genuine issue of material fact as to whether a significant burden exists by providing evidence that the employer accommodates a large per­centage of nonpregnant workers while failing to accommo­date a large percentage of pregnant workers. Here, for example, if the facts are as Young says they are, she can show that UPS accommodates most nonpregnant employ­ees with lifting limitations while categorically failing to accommodate pregnant employees with lifting limitations. Young might also add that the fact that UPS has multiple policies that accommodate nonpregnant employees with lifting restrictions suggests that its reasons for failing to accommodate pregnant employees with lifting restrictions are not sufficiently strong—to the point that a jury could find that its reasons for failing to accommodate preg­nant employees give rise to an inference of intentional discrimination.

In response to the dissent’s concern that the  Court was imposing liability under a disparate impact theory, it notes that it intends for “continued focus on whether the plaintiff has introduced sufficient evidence to give rise to an inference of intentional discrimination.”

Ultimately, the Court reversed the employer’s summary judgment, but left open the possibility that the employer’s explanation could ultimately prevail on summary judgment because it was expressing no opinion as to whether the plaintiff had introduced sufficient evidence to show pretext.

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: A Tale of Two RIFS With Different Endings

This week, the Sixth Circuit released two opinions in two days addressing claims that the plaintiff was selected for a reduction in force in violation of federal employment laws. In one, the Sixth Circuit affirmed summary judgment for the employer and in the other it reversed it and sent the case back for trial. In one case the plaintiff claimed she was selected for the RIF because of her age; in the other the plaintiff claimed that she was selected because of medical leave. In one case, the managers may have violated the employer’s RIF policy which they claimed they were following; in the other the managers likely violated the employer’s RIF policy, which they blamed on ignorance. This comparison highlights how even the slightest difference in facts can lead to much different results.

In the first case, Cutcher v. KMart Corporation, No. 09-1145 (6th Cir. 2010), six employees were selected to be laid off from a particular store as part of a nationwide layoff. According to the Court’s opinion, the plaintiff was selected for the RIF a few weeks after beginning FMLA leave and her duties distributed among the remaining sales associates. In the selection process, the employer considered her most recent performance evaluation and then conducted an updated evaluation (measuring the same competencies as the annual evaluations and containing a space for additional comments). The plaintiff had received an “exceeds expectations” or “exceptional” overall evaluation rating in the prior three years and then began a six-week medical leave involving surgery a few days after her last performance evaluation. A few weeks into her medical leave, the employer announced the RIF and selected plaintiff and five other employees to be laid off.

The employer’s updated evaluation form prohibited managers from considering a medical leave of absence as a factor, and required the manager to specifically explain if the employee had been downgraded since the last annual evaluation. It also required managers to base the updated evaluations on objective, observable performance. Notwithstanding these instructions, the plaintiff’s managers downgraded her updated performance evaluation rating even though they admittedly could not identify any performance issues in the 20 days between her annual evaluation and the updated evaluation conducted for the RIF. Rather, they explained that they felt her prior evaluation had been inflated and she possessed undocumented poor customer service and teamwork skills. In addition, they mentioned her poor customer service and teamwork skills and wrote “LOA” in the comments section when asked to explain on the form the difference in the ratings. Nonetheless, the managers denied that the plaintiff’s medical leave of absence affected their decision and claimed that the notation was simply to remind them to delay the date of her layoff. The depressed evaluation rating the plaintiff received after beginning her medical leave put her in the bottom six of the employees’ ranking and caused her to be selected for layoff.

In reversing the summary judgment which had been entered for the employer, the Court noted that the unique facts of this case created factual dispute on the plaintiff’s FMLA claims (for interference with her medical leave and retaliation for taking medical leave) which could only be resolved by a jury in that a jury could disbelieve the employer’s explanation and find it pretextual based on the circumstantial evidence that had been provided:

The jury could also conclude that [Plaintiff’s] termination was based on her FMLA leave, because none of Kmart’s asserted reasons for her lower RIF appraisal scores were documented, and Kmart admitted that nothing in her performance changed during the twenty-day period between her last annual appraisal and the RIF appraisal. Although Kmart contends that variations between annual appraisal scores and the RIF appraisal scores were common, that [Plaintiff’s direct supervisor] inflated the annual appraisal scores, and that [Plaintiff’s] performance had been declining, a reasonable jury could reject Kmart’s contentions. Given [Plaintiff’s] prior annual appraisal scores, the minimal amount of time that passed between her most recent annual appraisal and the RIF appraisal, Kmart’s admission that [Plaintiff’s] performance did not change during that short period of time, the inclusion of the “LOA” notation on the Associate Performance Recap Form, and the lack of any documented evidence demonstrating a prior concern with her job performance, a jury could infer that her leave status impacted her RIF appraisal ratings, thus leading to her termination.

. . ..

[Plaintiff] also argues—and the jury could conclude—that the same circumstantial evidence supporting the causal connection between her FMLA leave and her termination demonstrates that Kmart’s proffered non-discriminatory reason was pretextual. Specifically, the following facts could show pretext: the temporal proximity between her leave and termination; the lack of documentation to corroborate her lower RIF appraisal scores; the lack of temporal proximity between the events that Kmart alleges justified her lower RIF appraisal scores and her termination; her documented favorable work history; the discrepancy between her prior annual appraisals and her RIF appraisal, and the “LOA” notation next to [Plaintiff’s] name on the Impacted Associates Form.

In the second case, Schoonmaker v. Spartan Graphics Leasing, No. 09-1732 (6th Cir. 2010), the employer laid off the two oldest employees on the third shift (both over 55) and kept the third employee, age 29. One of the employees was admittedly laid off because she was less than a year from retirement. Even though the plaintiff had more seniority than the younger employee who was retained, and even though the younger employee had been disciplined in the prior year for poor attendance, management felt that he got along better with the two supervisors than the plaintiff did. Management also felt the younger employee was more productive, but never documented that belief.

The Company’s RIF policy favored retaining the plaintiff over the younger employee and provided:

Business circumstances may result in a temporary or permanent reduction in the size of the work force. Making such decisions is not easy. However, the Company will attempt to identify employees who are the most qualified to perform the work available based on qualifications, productivity, attendance, general performance record and other factors the Company considers relevant in each case. When the Company considers these factors to be relatively equal, decisions will be guided by relative length of service.

Summary judgment was granted to the employer because the plaintiff could not show that she had been replaced, as the remaining, younger employee assumed her former duties in addition to continuing to perform his own regular duties. Nonetheless, the Court of Appeals recognized that the plaintiff might be able to show that she had been replaced if she could show that her qualifications were superior to the younger employee who had been retained. However, her subjective belief of superior performance and her admittedly better disciplinary history were insufficient to meet this prima facie burden. Moreover, although she would arguably be entitled to rely on statistical evidence to satisfy her burden (in that the two oldest employees of the three person department were laid off), the Court found the sample size to be too small to be statistically significant. While the district court believed that it would have been relevant if management had deliberately ignored the RIF policy; their ignorance of the policy was insufficient to meet the plaintiff’s burden of proof.


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 Ohio Court of Appeals: Inevitable Disclosure Doctrine Is No Substitute for a Non-Compete Agreement.

Just before Christmas, the Franklin County Court of Appeals reversed a six-month injunction precluding an employee from working for the competitor of his former employer when he signed a confidentiality agreement, but was never requested and never signed a non-compete agreement. Hydrofarm, Inc. v. Ordendorff, 2008-Ohio-6819. The Court held that it was an abuse of the trial court’s discretion to enter the injunction because the employer failed to show by clear and convincing evidence that the employee’s working for a competitor – 18 months after he had left his prior job -- would necessarily or inevitably result in the disclosure of the trade secrets of his former employer. Accordingly, the Court held that this situation was distinguishable from other cases when an Ohio appellate court has precluded – in the absence of a non-compete agreement -- an employee from working for a competitor because it would inevitably result in the disclosure of trade secret information.

According to the Court’s opinion, the employee worked for the plaintiff employer for approximately 14 years in the area of sales. During his employment, the employee necessarily became aware of trade secrets, as well as confidential and proprietary information that belonged to the plaintiff employer. The parties executed a Separation Agreement on November 30, 2005 “which, among other things, prohibited [the employee] from disclosing confidential information, unless compelled by legal process, but did not require [the employee] to forego employment with any competitors . . . Approximately one and one-half years later, on May 14, 2007, [the employee] was hired by . . . a direct competitor of [the plaintiff employer], for a position that was substantially similar to his” last position with the plaintiff employer.

The plaintiff employer filed suit for compensatory damages and injunctive relief “[a]lleging, among other things, breach of contract; unfair competition; misappropriation of trade secrets, a violation of the Ohio Uniform Trade Secrets Act, R.C. 1333.61, et seq.; disclosure of confidential information without [the plaintiff employer’s] consent, a violation of R.C. 1333.81; breach of a confidential relationship; breach of fiduciary duty; and conversion.” The employee counterclaimed, “[a]lleging breach of contract; tortious interference with a business relationship; tortious interference with a contract; and malicious prosecution.” Over objections from both parties, the common pleas court accepted the magistrate’s recommendation that the employee be enjoined from working for any competitor for six months. Both parties appealed and the employer was initially required to post a $25,000 bond in the event that the employee prevailed on appeal. However, the trial court reconsidered, stayed in the injunction and required the employee to post a $10,000 bond in the event that the employer prevailed on appeal.

As noted by the Court, different courts have evaluated the inevitable disclosure doctrine differently. “The rule against inevitable disclosure "holds that a threat of harm warranting injunctive relief exists when an employee with specialized knowledge commences employment with a competitor." Berardi's Fresh Roast, Inc. v. PMD Ent., Inc., Cuyahoga App. No. 90822, 2008-Ohio-5470, at ¶27. ‘[T]his doctrine is applied when a former employer seeks `injunctive' relief when a former employee begins work with a competitor while the noncompetition clause has not expired.’ Id. (Emphasis added.) Cf. Dexxon Digital Storage, Inc. v. Haenszel, 161 Ohio App.3d 747, 2005-Ohio-3187, discretionary appeal and cross-appeal not allowed, 107 Ohio St.3d 1682, 2005-Ohio-6480 (applying the "inevitable disclosure" doctrine to enjoin a former employee in the absence of a noncompetition agreement).”

The Court found that the inevitable disclosure doctrine may rarely substitute for a non-compete agreement to preclude an employee from working for a competitor only in different circumstances. “Although in Dexxon, the Fifth District Court of Appeals applied the "inevitable disclosure" doctrine to enjoin a former employee in the absence of a noncompetition agreement, Dexxon is factually distinguishable because in Dexxon both entities were engaged in the highly technical business of large-scale electronic data storage. Moreover, Dexxon does not reveal what sort of trade secrets the former employee possessed, or how these former employees afforded the rival entity an irreparable competitive advantage over the plaintiff.”

“In cases in which courts have enforced the "inevitable disclosure" doctrine in absence of a noncompetition agreement, the former employee possessed timely, sensitive strategic and/or technical, or both, information that, if it was proved, posed a serious threat to his former employer's business, or a specific segment thereof. See PepsiCo, Inc. v. Redmond (C.A.7, 1995), 54 F.3d 1262; Barilla Am., Inc. v. Wright (S.D.Iowa, 2002), No. 4-02-CV-90267; Proctor & Gamble Co. v. Stoneham (2000), 140 Ohio App.3d 260. On the record before us, the present case is distinguishable from those cases.”

Ultimately, the Court held that the employer failed to support its burden of proving entitlement to injunctive relief under its legal theory about the inevitable disclosure doctrine. “When resolving a matter involving trade secrets, "[a] court must balance `* * * the conflicting rights of an employer to enjoy the use of secret processes and devices which were developed through his own initiative and investment and the right of employees to earn a livelihood by utilizing their personal skill, knowledge and experience.' . . . Neither this court nor the Supreme Court of Ohio has applied the "inevitable disclosure" doctrine in a case that did not involve an enforceable noncompetition agreement. An employee possessed of his former employer's trade secrets ‘[has] the right to take employment in a competitive business, and to use his knowledge (other than trade secrets) and experience, for the benefit of the new employer[.]’ . . . . Although Ohio passed its version of the Uniform Trade Secrets Act after B.F. Goodrich, see, generally, R.C. 1333.61 et seq., the Act did not so much alter the common law as codify it. Consistent with common law, Ohio's version of the Uniform Trade Secrets Act provides that threatened misappropriation of trade secrets may be enjoined. See R.C. 1333.62. If the General Assembly had intended to permit injunction of competition or employment under the Act, it easily could have so specified. Instead, it left the law substantially intact; that is, employers or employees are free to, and frequently do, enter into noncompetition agreements, while the state has an interest in promoting morality in business affairs and innovation.”

In this case, the Court found that the fact that the employee both possessed knowledge of trade secret and confidential information and held substantially similar jobs with the plaintiff employer and, 18 months later, its competitor was insufficient to justify precluding the employee from working for the competitor in the absence of a non-compete agreement. Rather, the plaintiff employer would be required “to demonstrate by clear and convincing evidence not only that [the employee] possesses [plaintiff employer’s] trade secrets, but, also, that [the employee] will inevitably disclose them to [the direct competitor], or will utilize those trade secrets in his competitive work on behalf of [the direct competitor], and that those trade secrets will enable [the competitor] to achieve a substantial competitive advantage over [the plaintiff employer]. In other words, [the plaintiff employer] must demonstrate that the danger of misappropriation in this case threatens irreparable harm. ‘Actual irreparable harm is usually not presumed, but instead must be proved.’ Levine, supra, paragraph four of the syllabus.”

“Although the Ohio Trade Secrets Act permits injunction of threatened misappropriation of trade secrets, the usual elements for an injunction must be proved by clear and convincing evidence, even where the plaintiff seeks to invoke the "inevitable disclosure" doctrine to enjoin a former employee's employment with a competitor.” In this case, the plaintiff employer’s “executive vice president, testified that the information involved includes [the plaintiff employer’s] price lists and sales goals, but these are created annually, and it is unclear how 2-year-old price lists and sales goal information would produce a competitive advantage for [the competitor]. [He] testified that defendant [employee] possesses production information related to [plaintiff employer’s] "private label" sales, but because defendant [employee] was a salesman and not involved in the actual production of such products, it appears that his knowledge was limited to pricing and marketing efforts. Such information is hardly static. “

The executive “also testified that [the employee] possessed consumer research analysis; that is, the results of customer polling conducted in advance of each trade show, which was used to determine the product selection and display for each particular show. According to [the executive], there are numerous trade shows in North America every year. Thus, it is difficult to imagine, and [the executive] did not explain, how two-year-old customer polling results for shows that have already occurred poses the threat of an unfair competitive advantage. [The executive] also testified that [the employee] possessed information about new product concepts. However, he also testified that it was [the employee] who would suggest new products based on his conversations at trade shows and with customers. This information seems more the product of [the employee’s] own 14 years of sales and marketing experience than technical information posing a threat of misappropriation.”

The executive “further testified that [the employee] possessed information about [the plaintiff employer’s] marketing and advertising strategies. More specifically, this meant sales leads, pricing information, decisions as to which trade shows to attend, and information about the way in which [the plaintiff employer’s] products would be displayed and marketed at each trade show. Again, the pricing, sales leads and trade show selection information is out-of-date, and product displays would have been visible to anyone attending the same trade shows attended by [the plaintiff employer]. Finally, the record contains no evidence that the employee has misappropriated or disclosed any of [the plaintiff employer’s] trade secrets or other confidential business information, or that he engaged in any nefarious activities or attempts to circumvent any of the parties' agreements. In fact, [the executive] testified that he has no reason to believe that [the employee] has shared any confidential information with [the competitor].

Insomniacs may read the full opinion at http://www.sconet.state.oh.us/rod/docs/pdf/10/2008/2008-ohio-6819.pdf

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.