Another Ohio Appellate Court Rejects Non-Compete Clause that Restricts Ordinary Competition

Last week, the Montgomery County Court of Appeals affirmed a declaratory judgment in favor of an employee that the non-compete agreement which he had signed just six months earlier was unenforceable because it sought to prevent regular competition instead of unfair competition.  Geloff v. R.C. Hemm's Glass Shops, Inc., 2021-Ohio-394.  The Court found that the employer failed to show that the employee had memorized or was familiar with its entire customer list or that this list was in fact confidential.  The employee was familiar with the identities of the customers he had serviced, but the employer had also publicized the names of some customers on its website.  Moreover, the fact that the employee learned the skills of a common trade during his employment did not make those skills a protectable interest or trade secret.  Because the non-compete clause was unenforceable, the trial court did not need to narrow it in order to make it enforceable.

According to the Court’s opinion, the plaintiff employee had been hired in 2015 as a glazier and was promoted to foreman in January 2019.   He signed a non-compete upon being hired and upon his promotion.  He resigned his employment six months later, joined the union and was assigned to a new employer, which hired him as a glazier.   His employer then threatened to file suit for breach of his non-compete (and presumably for tortious interference against his new employer), prompting the plaintiff to seek a declaratory judgment.  His new employer terminated his employment.  A year later, the trial court entered summary judgment in the employee’s favor.  The Court of Appeals affirmed.

The trial court concluded that the employer failed to show that the employee possessed confidential information because the identities of its customers were public knowledge.  The plaintiff only had knowledge of the customers which he served.  While he may have been aware of a customer list, there was no allegation that he memorized it or possessed a copy.  The employee’s “awareness of the identities of some customers, moreover, is not the equivalent of possession of a complete customer list.“  The plaintiff disputed that he had information about marketing, pricing, or customer acquisition techniques, etc.     Because the employer “itself voluntarily discloses the identities of certain customers on its website, presumably for promotional purposes, it cannot establish that the identities of individual customers are entitled to protection as trade secrets or otherwise confidential information.”

The court also rejected the employer’s argument that the employee’s training and experience as a field glazier constituted a trade secret..  “[S]uch experience and skills “cannot qualify as trade secrets if they are of common knowledge * * * in the trade.”

The Court also refused to enforce a six-state restrictive territory. The plaintiff had only been assigned outside Ohio twice during his four-year employment and the employer itself had only ever performed 30 projects outside Ohio.

The trial court found that [the employer] did not produce evidence suggesting that the Agreement’s restrictions were necessary to restrain [the employee], “a field installer of the products [that the employer distributes,” from engaging in unfair competition.  . . . [The employer] did not explain how [the employee’s] subsequent employment as an installer “in Ohio or within the other five * * * states” listed in the Agreement “[would] subjectively harm” [its] business, inasmuch as [it] did not establish that its out-of-state work was a significant component of its business overall, or more importantly, that the nature of [his] subsequent employment as an installer, as opposed to employment involving sales and marketing, constituted anything other than ordinary competition.

The employer did not understand why the trial court was influenced by the fact that the employee was not involved in sales. The employer

fails to distinguish between unfair competition and ordinary competition. The distinction depends on whether the “form of competition [a] covenant [not to compete] restricts is in its nature and character unfair” to the employer; if the form of competition is not unfair, then the restriction is unenforceable.  . . .The trial court reasoned that in the absence of any evidence that [the employee] worked subsequently in sales and marketing for a competitor of [the employer], and in the absence of any evidence that [he] “established his own business in direct competition” with [it], the enforcement of the Agreement would serve only to prevent [him] from working as an installer.

We concur with the trial court. [The employer] has not demonstrated that [the employee] engaged in unfair competition merely by installing glass products for a competing business, nor did [it] produce evidence showing that [he] possessed trade secrets or other confidential information that he could have used to give his subsequent employer or employers an unfair advantage over [it].

Further, “The trial court found, in effect, that the Agreement would not provide any benefit to [the employer], because the evidence on record did not show that [the employee] possessed any confidential information or trade secrets, or that [he] had engaged in unfair competition.
 Agreeing, the Court stated that “Absent evidence that [the employee] misappropriated confidential information or trade secrets, or otherwise engaged in unfair competition, enforcement of the Agreement would not discernibly benefit [the employer], whereas it would needlessly prevent [him] from working as an installer.”

 

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.

Columbus Adopts CROWN Ordinance

In December, the Columbus City Council amended its anti-discrimination ordinance to modify the definition of race discrimination at §2331.01 to include “traits historically associated with race, including, but not limited to, hair textures and protective and cultural hairstyles,” which, in turn, is defined to include, “but is not limited to, such hairstyles as braids, locs, cornrows, bantu knots, afros, and twists, whether or not hair extensions or treatments are used to create or maintain any such style, and whether or not hair is adorned by hair ornaments, beads, or headwraps.”  Ordinance No. 2880-2020 , § 1 became effective in mid-January.   Chapter 2331 covers several types of discrimination, including employment, housing, public accommodations, and ethnic intimidation.  Such legislation is part of a movement for Creating a Respectful and Open World for Natural hair.

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 Shortened Limitations Periods Under Title VII, the ADA and the ADEA, but Affirms that Employee Could Not Show She Was Singled Out

 

Last month, the Sixth Circuit expanded its earlier prohibition against the contractual shortening of limitations periods from Title VII claims to cover the ADA and the ADEA as well, but agreed that the contract would still apply to shorten the limitations periods applying to ERISA, §1981 and Ohio Civil Rights Act claims.    Thompson v. Fresh Products LLC, No. 20-3060 (6^th Cir. Jan. 15, 2021).    In addition, the Court affirmed the employer’s summary judgment on the employee’s discrimination and failure to accommodate claims on the grounds that she failed to show that she was singled out for the RIF on account of her race, age or disability and because being able to work a full shift on the assembly line was an essential function of her job.  Among other things, her sample sizes were too small to provide a meaningful statistical analysis. 

According to the Court’s decision the Plaintiff was hired in July 2016, worked the third shift and was one of the company’s most productive employees on the assembly line.  Upon being hired, she signed an Employee Handbook Acknowledgment which shortened the time period for suing the employer to six months, or such reasonable time if a court later found six months to be too short.     In October, she requested to work part-time on account of arthritis in her back.  While her supervisor agreed to look into it, no one responded to her request.  Later, the company realized that it needed to reduce its workforce and requested which staff would agree to work 10-hour shifts instead of 8-hour shifts.  Plaintiff was the only employee who did not agree to work a 10-hour shift (due to child care responsibilities) and was ultimately laid off at the end of January along with three other employees (and two others who had either had indicated that they could or would no longer work). 

The Plaintiff promptly filed OCRC and EEOC Charges under Title VII, the ADA and the ADEA.  She filed suit within 90 days after her Charge was dismissed.  The trial court granted summary judgment to the employer and the Sixth Circuit affirmed that she failed to satisfy her prima facie burden of proof.  

The first issue involved whether her lawsuit was timely when it was filed more than six months after she was laid off.   The Court agreed that the Employee Handbook Acknowledgement barred her OCRA claims under Ohio law.  However, it found that the limitations periods for claims under Title VII, the ADA and the ADEA were substantive statutory rights which could not be limited by contract, especially considering the national policy in favor of a uniform limitations period.  (Of course, never mind that the limitations period to file a Charge is not uniform).  Accordingly, it found her federal claims to be timely.

The Court rejected her failure to accommodate claim because her request to work part-time was unreasonable and because the Sixth Circuit does not recognize an independent cause of action for an employer’s failure to engage in the interactive process.    While the duty to engage in the interactive process is mandatory, “failure to engage in the interactive process does not give rise to an independent claim.”  She failed to carry her burden of proving that her requested accommodation was objectively reasonable.  No other employee was permitted to work part-time on that production line and the Court refused to consider the fact that the employer permitted one employee to work part-time in a different department under different working conditions.  It also did not discuss the employer’s obligation to discuss potential transfers to a different position.

Although the handbook does not state that employees must work full time, it states that production workers must be able to work 10–12 hours at a time—at least the length of a full shift. Shaferly testified that Fresh Products does not have part-time production workers because it is too difficult to manage with the amount of turnover at the company, and Hartman testified that it would be very difficult to have someone leave in the middle of a shift because it would require “figur[ing] out how to move someone else to take their spot” or “cover [their] machine.”

The Court also rejected her discrimination claim because she could not show that she was singled out for the RIF on account of her disability in light of her admission that she had never indicated a willingness or ability to work the 10-hour shifts.  Indeed, she “was the only employee who stated she could not work either shift, never selected a preference for one of the shifts when Shaferly followed up after the survey, and did not voluntarily quit.” 

The Court rejected the argument that she could not prove that she had a disability because she did not have any lifting restrictions imposed by her physician after she had been hired and had continued to work full-time until she was laid off because she had such medical restrictions imposed while working at a prior employer.  The Court also rejected the argument that she was unqualified for her position because she was unwilling to work 10-hour shifts because of the ambiguity in the employer’s request in seeking “preferences” instead of willingness or ability. 

The Court also found that she could not prove that she was singled out for the RIF on account of her age.  Only five employees were laid off and all of them were over the age of 40.  However, two of them were not comparable because one volunteered for the RIF and the other announced that she had to leave on February 1 (to go to jail).    The other two employees had admittedly poor production records.  When the Plaintiff pointed to the retention of a younger female, the Court pointed out that there was no evidence that that the comparator was less qualified than Plaintiff.  When the Plaintiff pointed to one young employee who was retained even though he had poor production and attendance compared to her, the Court pointed out that:

The probative value of this evidence in the age-discrimination context is undermined by the fact that, according to the final list of those considered for layoff (excluding those who quit or were terminated for cause before the layoff), half of the other employees who had lower production numbers or higher absenteeism than Thompson and were retained were members of the protected class (i.e., forty or older), and two were older than Thompson at the time of the RIF. This evidence does not tend to show that Thompson was singled out because of her age.

The Court also rejected her statistical “evidence” that she was singled out for the RIF on account of her race.

[W]ith the exception of [the employee] who informed Fresh Products that she would be incarcerated, the five employees terminated as part of the RIF were all black, Hispanic, or biracial; and 2) of the 18 people considered for layoff, 78% were black. These statistics suffer from the same shortcomings as those provided in support of Thompson’s ADEA claim: the sample sizes are too small to be reliable, and Thompson has failed to provide any analysis of the statistics’ significance. They also do not address a comparison to the relevant pool: roughly 70% of Fresh Products’ employees are black, Hispanic, or biracial.

When the Plaintiff identified a white employee who was retained with poorer production and attendance that her, the Court pointed out that:

[O]f the ten employees with lower productivity or higher absenteeism than Thompson who were considered for layoff but retained, only [that employee] and one other employee . . . are white.  Six are black, and one is biracial. In light of this context, Fresh Products’ retention of [that employee] does not tend to indicate that Thompson was laid off because of her race.

The dissenting judge would have found a factual dispute as to pretext when a non-disabled employee who had requested to work part-time to accommodate her class scheduled was retained even though that employee had also – unlike the Plaintiff – initially agreed to work a 10-hour shift before resigning.

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.

NLRB's New General Counsel Rescinds Predecessor's Guidance on Employee Handbooks as Simply Unnecessary.

As expected, the NLRB’s new General Counsel has begun rolling back some of the initiatives pursued by his predecessor.   On Monday, he issued a Memorandum rescinding a number of his predecessor’s initial actions as being inconsistent with the promotion of collective bargaining and protection of employee rights, or as being unnecessary.  Of interest to most employers, he rescinded one of his predecessor’s earliest actions --  a Memorandum explaining how the NLRA applies to employee handbooks.  However, instead of describing this as inconsistent with the NLRA, the NLRB’s General Counsel explained that this Memorandum was simply no longer necessary in light of the number of NLRB decisions since December 2017 that have explained and applied the Boeing decision.  The introductory explanation for this action is stated as follows:

Section 1 of the Act makes clear that the policy of the United States is to encourage the practice and procedure of collective bargaining and to protect the exercise by workers of their full freedom of association, self-organization, and designation of representatives of their own choosing for the purpose of negotiating the terms and conditions of their employment. As a career employee of the NLRB, I have endeavored to effectuate this policy. As Acting General Counsel, I will continue to work to realize the Act’s purpose.

I have determined that a number of outstanding General Counsel Memoranda are either inconsistent with the above-described policies and/or Board law, or are no longer necessary. Accordingly, I am rescinding the following General Counsel Memoranda:

· GC 18-04, Guidance on Handbook Rules Post-Boeing (June 6, 2018) (instructing Regions on the placement of various types of employer rules into the three categories set out in the then-recent Board decision in The Boeing Company, 365 NLRB No. 154 (Dec. 14, 2017)). Note that this Memorandum is being rescinded as it is no longer necessary, given the number of Board cases interpreting Boeing that have since issued.

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.

DOL Issued FLSA Opinion Letters Concerning Longevity Pay, Referral Bonuses and Employee Education.

 

The DOL was busy in 2020 issuing FLSA opinion letters.  Three of those opinion letters concerned whether referral bonuses should be included in the regular rate for purposes of calculating overtime compensation, one concerned a similar question about longevity bonuses and one concerned whether employers must pay employees for participating in voluntary training during or outside normal working hours.  The Obama Administration did not issue any such opinion letters and it remains to be seen whether the Biden Administration will continue this practice.

In FLSA Op. No. 2020-3, the City employer passed a resolution entitling employees to incentive compensation after five years of full-time employment in the amount of $2/month for each year of employment.  The City currently pays it out every two weeks, but was considering paying it in a year-end lump sum.   The DOL explained that its longevity pay was not a gift because the employees were legally entitled to the payments, even though the legislation left it to the City officials to determine the timing and form of the payments.   If the legislation had indicated that the City “may” provide longevity pay up to a certain amount, instead of “shall” provide longevity pay in a specific amount, then the resolution would have merely authorized the payments instead of requiring them.  Lump sum longevity payments whose amount, if any, would not be measured by or dependent on hours worked, production or efficiency, were not legally required and were awarded, if at all, in the discretion of the employer could be excluded from the regular rate as “payments in the nature of gifts.”  Because the resolution mandated both the payment and amount of the bonus, it was a legally enforceable part of the employees’ wages and must be included in the regular rate when calculating overtime pay.

In FLSA Op. No. 2020-4, the employer paid a generous referral bonus to an employee upon the hiring of a worker whom the employee referred and another generous bonus if both the worker and the employee were still employed a year later.    Because the first bonus was paid upon the hiring of the worker and it was not part of the employee’s duties to recruit or hire the worker, the bonus was not related to the employee’s work and need not be included in the employee’s regular rate.

[S]ums paid to an employee for recruiting another to join his or her employer’s workforce are not part of the recruiting employee’s remuneration for employment, if the following conditions are met (1) participation in recruitment activities is strictly voluntary, (2) the employee’s efforts in connection with recruitment activities are limited to after-hours solicitation among friends, relatives, neighbors and acquaintances as part of the employee’s social affairs.

Otherwise, referral bonuses “generally would constitute remuneration for employment and must be included in the regular rate unless another statutory exclusion applies.”  For instance, there is a statutory exclusion for payments similar to gifts made at Christmas time “or on other special occasions, as a reward for service” and the amount of the payment is not measured by or “dependent on hours worked, production, or efficiency.”  In addition, “if the bonus ‘is so substantial that it can be assumed that employees consider it part of” their wages or is paid pursuant to a legally binding contract, then it would not be considered as a gift.

Nonetheless, because the second part of the bonus was contingent in part on the employee remaining employed, it was similar to a longevity bonus which rewards the referring employee for an additional year of service.   If the bonus was payable regardless of whether the referring employee remained employed or was payable after a brief period of time (like a single pay period), then it would not be contingent on the employee’s longevity and would similarly not be includable in the regular rate.  In addition, if there was no contractually binding obligation to pay the second part of the referral bonus, and the policy merely announced the “timing and amount of the payment,” it may still qualify as a type of gift instead of a longevity bonus.   “Mere preannouncement of the timing and amount of a longevity bonus does not prevent that bonus from being excludable as a gift . . .”

Finally, FLSA Op. No. 2020-15 explored when an employer was required to compensate employees while attending voluntary training (whether continuing professional education, courses directly related to their jobs and courses unrelated to their job).  Generally, training the employee receives during normal working hours is compensable even though the employee could have received the training outside normal work hours.  An employer is permitted to require employees to attend such training outside normal work hours, when it would generally not be compensable.  The DOL did not approve the employer’s practice of requiring employees to use paid time off to attend courses during working hours.

In general, the DOL regulations provide that ‘attendance at lectures, meetings, training programs and similar activities need not be counted as working time” if the following criteria are met: the employee’s attendance is voluntary and not during her regular working hours; the employee does not perform any productive work during the attendance and, with two exceptions, the course/lecture is not directly related to the employee’s job.  One of the exceptions is when the employer establishes educational programs which correspond to courses offered by independent bona fide educational institutions and are voluntarily attended by employees outside of working hours.  Another exception is when the employee voluntarily attends an independent school, etc. after working hours even if the courses are related to her job.

Assuming that employee attendance was voluntary and the employee did not perform any productive work, the DOL addressed the following situations:

1.      The employer is NOT required to compensate an employee who uses tuition reimbursement to attend outside working hours a webinar that is directly related to her job and also satisfies professional continuing educational requirements.

2.      It is questionable whether an employer is required to compensate an employee who uses tuition reimbursement to attend a webinar outside working hours that is directly related to his job, but does not satisfy professional continuing educational requirements because it was unclear whether the webinar corresponds to courses offered by educational institutions.

3.      The employer is required to compensate the same employee who attends the webinar during working hours.  It is irrelevant that the employee could have chosen to attend outside normal working hours.

4.      The employer is required to compensate an employee who uses tuition reimbursement to attend during working hours a webinar that does not satisfy professional continuing education requirements and is not directly related to his job.

5.      The employer is required to compensate an employee who uses tuition reimbursement to attend a webinar during working hours that is required for professional continuing education, but is not directly related to her job.

6.      The employer is NOT required to compensate an employee who uses tuition reimbursement to attend a weekend seminar outside her normal working hours that is directly related to her job and satisfies professional continuing educational requirements and is also not required to compensate her for her personal time traveling to and from the seminar even though the travel occurred during her normal working hours.   The travel at her own option for her sole convenience is not considered to be working hours.

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.