Sixth Circuit Affirms Enforcement of Technically Deficient Investigatory Subpoena on Affiliate Employer Over Objections to Relevance and Burden

Last month, the Sixth Circuit affirmed enforcement of an EEOC investigatory subpoena served on an affiliate company of the Charging Party’s alleged employer.   EEOC v. Ferrellgas, LP, No. 23-1719 (6^th Cir. 3/26/24).  After addressing and rejecting a number of technical objections to service of the subpoena and alleged waiver of objections, the Court observed that the employer had not shown that the subpoena was unduly burdensome by merely describing the amount of time and effort to comply.  Proving undue burden is a comparative exercise and the employer failed to also explain how limited (or not) its resources were in light of the burden imposed.   The subpoena was also not overly broad because the Charging Party’s allegations touched on similar issues and the EEOC is given broad powers to investigate most employment-related issues. 

According to the Court’s opinion, the operating partnership, holding company and affiliate corporation all had similar names.  The Charge named the holding company as the employer, but the EEOC served its Request for Information (RFI) on the affiliate corporation.  HR and outside counsel responded to the RFI, provided some requested documents, objected to the RFI’s scope (but not to the addressee)  and did not identify which of the entities employed either of them.  The investigation continued for almost two years.  The EEOC then mailed a subpoena to outside counsel, who provided some responsive documents and objected to the scope of the subpoena, but did not challenge the addressee or manner of service.  The EEOC then sent another RFI to HR, but the only response was an objection that it should have been sent instead to outside counsel.   The EEOC then mailed a subpoena addressed to the corporate affiliate but sent to outside counsel, which objected not to the corporate addressee, but to the fact that it was overly broad, was unduly burdensome, was not sent by certified mail and was not signed.   The EEOC then sent the identical, but signed, subpoena by certified mail.  Without filing a formal objection with the EEOC, outside counsel reiterated its objection to the scope of the subpoena.  The EEOC then obtained enforcement of the subpoena from federal court against the operating partnership (not the named employer or corporate affiliate named in the subpoena) and this appeal ensued. 

The Court rejected the respondents’ objection to manner of service because it had already directed the EEOC several times to communicate only with outside counsel. “To hold otherwise would reward duplicity and allow potential defendants to easily avoid the Commission’s subpoenas. What is more, it would ‘create a rule that would allow a lawyer with actual notice of a subpoena to take no action, in hope that the [Commission] will not seek enforcement, and to make objections only if enforcement proceedings ensue.’”  In addition, “when ‘[a]ctual notice reached counsel promptly and counsel responded on the merits,’ service not in strict conformity with the  . . .  regulations does not preclude a district court’s enforcement of a  . . . subpoena.”

The Court agreed that the respondent raised a valid objection that the EEOC had served it with a subpoena whose response date pre-dated the service date (making compliance an impossibility) and identified an entity other than the employer identified in the Charge or even the entity named in the federal court enforcement action.  “[A]t a surface level, the Commission issued a subpoena with an invalid response date and now seeks court enforcement of that subpoena against an entity that was not, strictly speaking, the target of the subpoena itself.  These technical oversights are blameworthy, and the Commission should have rectified them well before this juncture.”   Nonetheless, the Court refused to “exalt form over substance” because the respondents had failed to raise any of these objections to the EEOC.   Moreover, one purpose of the EEOC’s investigatory process involves identifying the correct defendant employer.  Finally, the EEOC’s errors did not prevent the respondents from raising substantive objections to the subpoena to the EEOC, federal court or appellate court.

Similarly, while the Court agreed that EEOC regulations only gave the respondent 5 days to object to a subpoena, it refused to enforce that deadline here because service of the subpoena was not technically correct. “It is self-evident, [respondents] argues, that an employer’s obligation to exhaust its administrative remedies under § 161(1) and 29 C.F.R. § 1601.16(b)(1), if it exists at all, is contingent upon proper service of a subpoena that complies with the statute and its implementing regulations. This argument carries considerable logical force, and we find support for it in our caselaw.”

The Court rejected the employer’s argument that the subpoena was overly broad in seeking information about its hiring practices when the Charge was focused only on compensation and termination issues.    Courts do not strictly construe relevance against the EEOC “and have afforded the Commission access to virtually any material that might cast light on the allegations against the employer.”  Moreover, in this case, the Charging Party had also made allegations about discriminatory statements made to her during her job interview and her initial job assignment, making inquiries into those matters relevant.  In addition,

The application and hiring information that the Commission seeks could cast light on whether [respondents] discriminated against other job applicants — in the same region and during the same timeframe as [Charging Party’s] employment — based on sex or race. In turn, that information might illuminate whether [it] discriminated against [her] on those same bases but in other employment contexts — i.e., in her pay and termination.

The Court also rejected the employer’s arguments that the subpoena was unduly burdensome.   

“[W]hether a subpoena is overly burdensome turns on the nature of the materials sought and the difficulty the employer will face in producing them.”  . . .  Given its “fact-intensive” nature, the burdensomeness inquiry is “generally not amenable to broad per se rules.”  . . . . The employer bears the obligation to show that compliance would impose an undue burden.

First, the respondent only provided an unsigned and undated declaration, which is not valid evidence in any legal proceeding.   In any event, the argument was unpersuasive because it only described the amount of effort that would be required to respond and did not also describe the respondent’s available resources.  The respondent

“fails to explain why they represent an undue burden. Assessing whether the burden of compliance is undue is a comparative exercise; what is unduly burdensome to a small business with a handful of employees may not be unduly burdensome to a Fortune 500 company. . . . While [its] figures provide an estimate of the burden it might face, [it] offers up no baseline against which we can compare its estimates to decide whether the burden it faces is undue. Merely pointing out that compliance with the subpoena will divert employee attention from ordinary tasks is insufficient — if that were enough, then nearly every EEOC subpoena would fail. We are not blind to the fact that compliance with the Commission’s subpoena will require significant time and effort, but without some metric of how significant that time and effort is, we cannot find that an employer has met its burden to show that compliance would be unduly burdensome.

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 Appeals Court: Employee Handbook is Not a Binding Non-compete Agreement.

Last month, the Lake County Court of Appeals affirmed the dismissal of a fraud lawsuit brought by an employer against an employee after the plaintiff-employer incurred substantial litigation expenses in an earlier case brought by the employee’s former employer. Freedom Steel, Inc. v. Rorabaugh, 2008-Ohio-1330 (3/21/08). The employee salesperson left his long-time employer and was hired by the plaintiff-employer after assuring it that he had never signed a non-competition agreement with his long-time employer. However, he did not inform the plaintiff-employer that he had signed an employee handbook acknowledgment because it was not a non-compete agreement and he did not think that handbook’s non-competition provision was enforceable. The court ultimately ruled that the employee was correct.

When the employee resigned his long-time employment, he did not reveal the identity of his new employer. When the long-time employer asked him to not call on any of their customers, he responded that he did not have a non-compete and would do what he had to do to get and keep a job. In response, the long-time promised that it would sue him if he competed against it.

Not surprisingly, the employee generated sales by means of his prior customer relationships. In “March of 2005, [the employee] was served with a lawsuit filed by [his long-time employer] in Summit County. In the complaint, [the long-time employer] alleged violations of Ohio's Trade Secrets Act, interference with contractual business relations, conversion, and breach of contract. Shortly after being served, [the employee] notified [the plaintiff-employer] of the pending lawsuit [and was] questioned . . . again regarding whether he had signed anything "that would drag us into a lawsuit." [The employee] again denied signing such a document insisting "I will prove it to you, and you're going to apologize to me ***." Based on these assurances, the plaintiff-employer did not fire the employee at that time.

“Eventually, however, [the plaintiff-employer] was served with a subpoena from [the long-time employer] seeking disclosure of . . . . the names of ‘customers, where they are located, their addresses, who they are, what they buy, what you're selling them price wise, everything about the customers, it's an open book in other words.’ [The plaintiff-employer] fought the subpoena by filing a motion for protective order; however, the trial court overruled the motion. The trial court rendered the ruling a final appealable order and appellant subsequently filed an appeal with the . . . Court of Appeals. Before the appeal was heard,” the employee settled the lawsuit with his long-time employer.

On April 4, 2006, after the dismissal, [the plaintiff-employer] filed suit against [the employee] in the Lake County Court of Common Pleas alleging fraud. [The plaintiff-employer] asserted [the employee] defrauded [the plaintiff-employer] by concealing relevant information regarding his past employment which caused it to expend over $18,000.00 in attorney's fees to defend against the subpoena issued by [the long-time employer] in the Summit County case. . . . In February of 2007, the matter proceeded to jury trial. After deliberating, the jury returned a verdict” in favor of the employee.

During the trial, the trial court had instructed the jury that as a matter of law the employee handbook signed by the employee was not a binding non-compete or trade secrets agreement. Therefore, the employee had truthfully denied ever signing a non-compete agreement. On appeal, the Court of Appeals agreed that the employee handbook could NOT constitute a binding contract because the Acknowledgment page signed by the employee contained the following disclaimer:

"NOTHING CONTAINED IN THIS HANDBOOK IS INTENDED AS A CONTRACT AND THE POLICIES, RULES AND BENEFITS DESCRIBED IN IT ARE SUBJECT TO CHANGE AT THE SOLE DISCRETION OF FAMOUS ENTERPRISES WITHOUT NOTICE AT ANY TIME."

“Although the document indicates, by signing the receipt, [the employee] agreed to be bound by the statements contained within it, the document does not mention and thus does not bind [the employee] (or any acknowledging employee) to a non-compete clause. Moreover, although the document indicates that, by signing the document, [the employee] would not disseminate or use confidential information "CRITICAL TO THE SUCCESS OF FAMOUS ENTERPRISES" (emphasis sic), it does not use the term nor set forth any general trade secrets any current or past employee must not publish. The document merely states that confidential information, e.g., customer lists, pricing policies or other sensitive information, shall not be disseminated or used "OUTSIDE OF COMPANY PREMISES." As this statement appears in an employee handbook and, moreover, is vague as to what it specifically relates, it is reasonable to conclude that it simply reflects a policy requiring current and past employees not to disclose the information it stipulates as confidential.”

Not discussed by the Court is the fact that the plaintiff-employer likely would have been subpoenaed regardless of the arguable existence of a non-compete agreement because the trade secrets claim does not require the existence of an underlying breach of contract. However, the court of appeals incorrectly noted in a footnote that the use of the customer information from memory (as opposed to taking a list) was not actionable under Ohio's Trade Secret Act. (This issue was previously the subject of an earlier Ohio Supreme Court opinion on February 6, 2008 in Al Minor & Assoc., Inc. v. Martin, 2008-Ohio-292).

Insomniacs can read the full decision at http://www.sconet.state.oh.us/rod/docs/pdf/11/2008/2008-ohio-1330.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.

Unanimous Supreme Court: OCRC Must Issue Subpoena Requested by Employer During Preliminary Investigation.

In late March, a unanimous Ohio Supreme Court ruled that Ohio Revised Code § 4112.04(B) requires the Ohio Civil Rights Commission to issue a subpoena requested by an employer during the OCRC’s preliminary investigation. In doing so, the Court invalidated OCRC Rule, Ohio Administrative Code 4112-3-13(B), for conflicting with the controlling statute. State ex rel. Am. Legion Post 25 v. Ohio Civ. Rights Comm., Slip Opinion No. 2008-Ohio-1261 (3/26/08).

The case arose because an American Legion Post was notified by the OCRC that a former employee had filed a Charge claiming to have been sexually harassed and then fired for complaining. The Post asserted that the Claimant had been fired after it received an anonymous letter alleging that the Claimant was a convicted felon. The Post requested the OCRC to issue a subpoena to the Claimant’s parole officer so that it could inspect her criminal and probation records to prove a non-discriminatory/retaliatory reason for firing her. The OCRC declined to issue a subpoena on the Post’s behalf, and instead, issued a subpoena on its own behalf and reviewed the records itself. The OCRC declined to permit the employer to review the subpoenaed records and issued a probable cause finding that the Post had probably committed an unlawful discriminatory practice. When conciliation failed, the OCRC instituted formal proceedings against the Post.

In the meantime, the Post initiated mandamus proceedings in court against the OCRC for refusing to issue the requested subpoena. The trial court granted the OCRC’s motion to dismiss. However, that decision was reversed on appeal. As mentioned, the Supreme Court affirmed the reversal on the grounds that the OCRC was required by statute to issue the requested subpoena.

Insomniacs may read the decision in full at http://www.supremecourtofohio.gov/rod/docs/pdf/0/2008/2008-Ohio-1261.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.