Main Offices at: Courthouse Plaza Twelfth Floor 2200 Clarendon Boulevard Arlington, VA 22201 (703) 312-0410 Interested in receiving this newsletter? Click above. If you do not want to receive this newsletter, please click here and send the email. We will immediately remove your name from our subscription list.		Fall 2006 , Volume 5, Issue 3 In This Issue... Damages for Emotional Distress and Loss of Reputation Held not Taxable by D.C. Federal Appeals Court Racist Comment Regarding Sniper Attacks Did Not Create a Hostile Work Environment Security Guards for Saudi Royal Family Were Entitled To Overtime Pay Reassignment of Co-worker Was a Sufficient Response To Severe Sexual Harassment Epileptic Heavy Equipment Operator Is Entitled To a Jury Trial on His Disability Discrimination Claim An Update on Employment Non-compete Law in Virginia Federal Court Rules That Blackballing Previous Whistleblowers Is Illegal Reinstatement of Job Under FMLA Is Not Absolute Employee Claims His Employer Unlawfully Disclosed That He Was HIV-Positive Eliminating an Employee's Travel Responsibilities Is a De Minimus Change That Does Not Violate the FMLA Employee Picketing for One-person Bargaining Unit Was Not Protected JUDGE FOR YOURSELF (See how well you would do wearing a black robe)

Feature Article

DAMAGES FOR EMOTIONAL DISTRESS AND LOSS OF REPUTATION
HELD NOT TAXABLE BY D.C. FEDERAL APPEALS COURT
A recent decision by the District of Columbia Circuit Court of Appeals that exempts emotional damages from taxation is likely to reverberate across the national employment law arena.  The IRS has consistently held the position that money awarded to an employee in an employment case, either at trial or through a settlement, is in most cases taxable, even if it is for emotional damages and other things not directly related to lost wages.  This stance has affected settlement negotiations in the employment realm, since employees usually have required a larger settlement to account for the tax deductions from the settlement funds.  For the first time, a federal appellate court has come out against the IRS’s position and held that emotional damages are not taxable.  This decision is only binding in the D.C. jurisdiction, but will likely set up a showdown on appeal to the United States Supreme Court to decide this issue for the whole nation.

Martina Murphy filed a whistle-blower action against her former employer and alleged that her former employer “blacklisted” her and provided unfavorable references to potential employers after she complained to state authorities of environmental hazards at one of her former employer’s job sites. She claimed that as a result of her former employer’s treatment of her, she suffered mental and physical injuries including stress, anxiety attacks, shortness of breath, and dizziness. She was awarded $70,000 in damages of which $45,000 was for emotional distress or mental anguish and $25,000 was for injury to her professional reputation.

On her income tax return, Murphy included the $70,000 award as “gross income” and paid taxes on the award. Thereafter, Murphy filed an amended tax return and sought a refund of the taxes she had paid based upon an IRS regulation. The IRS regulation at issue provides that “gross income does not include . . . damages . . . received . . . on account of physical injuries or physical sickness.”

The IRS denied Murphy’s request for a refund. Murphy sued the IRS and the United States in the District of Columbia district court and claimed that the IRS regulation at issue as applied to her award was unconstitutional because the award was not “income” within the meaning of the Sixteenth Amendment. In pertinent part, the Sixteenth Amendment provides that “Congress shall have the power to lay and collect taxes on incomes, from whatever source derived . . .” The Government argued that the power of the Congress under the Sixteenth Amendment to tax income extends broadly to all economic gains and Murphy had more money after receiving damages than she had prior to receiving the award.

The district court rejected all of Murphy’s claims and ruled in favor of the Government. Murphy appealed the district court’s decision to the U.S. Court of Appeals for the District of Columbia Circuit. The D.C. Circuit Court reversed the district court and ordered the Government to refund the taxes paid by Murphy plus interest.

To determine whether the damages Murphy received from her former employer were income, the Circuit Court considered whether the damages were “in lieu of” something that was normally untaxed. If the compensation was a substitute for something normally untaxed, then it could not be considered an economic gain under the Sixteenth Amendment.

Applying the “in lieu of” test to Murphy, the Circuit Court ruled that the damages Murphy received were not something that was normally taxed. Instead, the damages were awarded to make Murphy “emotionally and reputationally” whole and not to compensate her for lost wages or taxable earnings of any kind. As the emotional well-being and good reputation that Murphy enjoyed before they were diminished by her former employer were not taxable as income, the compensation she received as a substitute (e.g., “in lieu of”) for what she lost cannot be considered income under the Sixteenth Amendment.

Although this case may not affect the day-to-day operations of a company, it will influence the manner in which employers settle disputes with employees -- specifically, when confronted with discrimination charges or claims. An employer may be able to offer an employee less to settle a dispute by agreeing to characterize the settlement payment (or a portion of the settlement payment) as compensation for emotional distress or mental anguish. Indeed, in light of the Court’s ruling, an employee may very well accept less compensation as such compensation would not be taxable.

Given the potential ramifications of this case on the IRS and its ability to tax certain damages, it is likely the Government will appeal the Circuit Court’s decision to the U.S. Supreme Court. As such, an employer (and its counsel) should ensure that any settlement agreement providing compensation to an employee for emotional distress or loss of reputation contains an indemnification provision. An indemnification provision basically says that if there is a challenge to the taxability of the settlement payment by the IRS (court or otherwise), the employee agrees to be liable for any taxes deemed owed from the challenge and will hold the employer harmless for the payment of such taxes. An artfully drafted indemnification provision in a settlement agreement will protect the employer from potential liability (e.g., for not withholding taxes) if the Circuit Court’s decision is reversed.
Full court opinion(PDF)...
Back to Index
Learn more about Albo & Oblon

The Court Report

EXTREME RACIST COMMENT REGARDING SNIPER ATTACKS
DID NOT CREATE A HOSTILE WORK ENVIRONMENT
In a decision that has garnered significant attention among Virginia employment lawyers, the Fourth Circuit Court of Appeals recently affirmed the dismissal of an employee’s claim of retaliation, which was based upon one appallingly racist statement by a co-worker. The statement was made while the two employees were watching news coverage of the D.C. area Sniper attacks immediately after the police captured the perpetrators, Muhammad and Malvo. The white co-worker exclaimed, while in the presence of the African American employee, “[t]hey should put those two black monkeys in a cage with a bunch of black apes and let the apes f*** them.” Shortly after the employee complained to two supervisors about his co-worker’s racist comment, the company fired him. The employee sued the company asserting retaliatory discharge. However, the Fourth Circuit Court of Appeals decided that this isolated, racist statement was not pervasive enough to constitute discrimination to support a retaliation claim.

According to the decision, the employee had never heard a racist comment in the office other than his co-worker’s statement. Although this statement was not directed at the African American employee, he was nonetheless offended. The supervisors alleged in firing the African American employee that he was “disruptive,” his position “had come to an end,” and the company’s employees and officials “don’t like you and you don’t like them.”

The company argued that the single statement by the co-worker, no matter how racially charged, was insufficient to create a racially hostile work environment, and therefore, it could not support a subsequent claim of retaliation. On appeal, the employee maintained that, as a policy, employees should not be put in a position where they risk being fired by reporting harassing conduct early. The Court disagreed and stated that the employee overlooked the difference between an isolated racial slur and a hostile work environment – the latter being that which is prohibited by Title VII discrimination laws. The Court recognized that the statement was unacceptably crude and racist, but indicated that this was not a workplace permeated by racism and affirmed the dismissal of his claims.
Full court opinion(PDF)...
Back to Index
Learn more about Albo & Oblon

SECURITY GUARDS FOR SAUDI ROYAL FAMILY
WERE ENTITLED TO OVERTIME PAY
A recurring issue for employers who use independent contractors as part of their labor pool is how to ensure that the independent contractor designation can withstand scrutiny.  For instance, independent contractors are not entitled to overtime pay under the federal Fair Labor Standards Act, whereas employees generally are so entitled.  But as a recent Fourth Circuit case illustrates, the simple use of the term “independent contractor” does not necessarily mean that a worker is not entitled to overtime benefits.  Such was the case in a recent Fourth Circuit decision involving security guards for the Saudi royal family.  That case held that the key question in determining whether a worker is covered under the FLSA depends upon whether he is, as a matter of economic reality, dependent on the business he serves, or, conversely, whether he is in business for himself.  Under that standard, the Court determined that the security guards, despite being labeled independent contractors, were actually employees of the Saudi royal family and should have been paid overtime for excess hours worked.

The plaintiffs in this case were security agents for Prince Faisal bin Turki bin Nasser Al-Saud of the Saudi royal family.  They provided personal security for him and his family at their residence in McLean, Virginia.  Initially, these individuals were employed by a contractor, who had contracted with the royal family for security services.  However, in an effort to assert more control over the manner in which security was provided, the Prince and his long-time driver and travel agent, Sammy Hebri, formed a separate company (CIS) for security services.  Under the arrangement, both the Prince and CIS exerted some level of control over the security operation, including providing equipment and instruction as to how security operations were to be carried out.  The plaintiff employees were hired by CIS to continue their work.

Shortly after the formation of CIS, Mr. Hebri sent a memo to the employees requesting that they obtain private security business licenses from the Virginia Department of Criminal Justice Services (VDCJS) “so they could be classified as independent contractors.”  However, none of the plaintiffs ever did so, and CIS, although suggesting it was important, never actually pressed the issue.

Eventually, CIS and Hebri were sued for unpaid overtime under the FLSA.  The defendants argued that the plaintiffs were exempt since they were “independent contractors.”  The district court agreed with the defendants, and the employees appealed.

In analyzing the issue, both the district court and the Fourth Circuit Court of Appeals considered the so-called “Silk Factors,” which were first articulated by the Supreme Court in United States v. Silk, 331 U.S. 704 (1947).  Specifically, these factors, which courts look to in order to determine whether an employee is indeed an independent contractor, include: 1) the degree of control the employer exerts; 2) the worker’s opportunity for profit/loss depending on his managerial skill; 3) the worker’s investment in equipment or employment of other workers; 4) the degree of skill required for the work; 5) the permanence of the working relationship; and, 6) the degree to which services rendered are an integral part of the putative employer’s business.

The district court simply focused on the first factor.  Since CIS exercised little control over the employees, the court held that they were independent contractors.  However, the Fourth Circuit held that this analysis did not go far enough.  Instead, they held that the heart of the issue was whether the employee in question is, as a matter of economic reality, dependent on the business he serves or conversely, whether he is in business for himself.  Using this analysis and considering all six factors, the Fourth Circuit Court of Appeals ruled that the plaintiffs were actually not independent contractors, and thus entitled to FLSA overtime pay.

This case illustrates the danger for employers who simply pay “lip service” to the independent contractor label without looking to the actual job functions and economic realities of the position.  In this particular situation, the lesson learned was quite costly, as the litigation expenses at the district court and appellate level most assuredly exceeded any liability for overtime.  Though the temptation is there for employers to direct the actions of those working for them, employers must adopt a truly hands off approach in order to maintain the independent contractor status.
Full court opinion(PDF)...
Back to Index
Learn more about Albo & Oblon

REASSIGNMENT OF CO-WORKER WAS A SUFFICIENT
RESPONSE TO SEVERE SEXUAL HARASSMENT
A recent case underscores the importance for an employer to take swift and effective corrective action when it receives a complaint for sexual harassment.  A former Navy employee claimed that she was the victim of prolonged and quite severe harassment, including sexual assault.  According to the decision, the female employee did inform her supervisors of the incidents, though she apparently did not provide details to management of how severe.  Management transferred the alleged harasser to another department, and there were no more reported incidents following that transfer.  The female employee felt that the transfer of the harasser was insufficient to remedy her claim, and she eventually sued the Navy.  The Court found that the Navy was not liable for sexual harassment because its response in addressing and putting a stop to the harassment was appropriate, given the information it had received from the female employee regarding the harassment.

Appellant Stephanie Howard is a former employee of the Naval Air Systems Command (NAVAIR), where she provided administrative services to 55 staff members.  Howard alleges one of the staff members named Randy McCall sexually harassed her from June 1995 to November 1996.  She claims McCall often “spoke to her in a sexually provocative manner, and fondled her breasts, backside, and face,” and then on March 15, 1996, when Howard entered McCall’s cubicle to read his newspaper, he “placed his fingers up her dress and inside her vagina.”  After this incident, Howard sent a letter to McCall explaining “his advances were unwanted and he had gone too far,” and told the human resources specialist she wished to be transferred to another division.  Howard told the specialist McCall “put his hands on her,” but did not disclose any further specifics of the alleged harassment.  The specialist advised her to record any future harassment and notify her supervisor if the problem persisted, but took no further action. 

McCall continued to make inappropriate comments, and on November 18, 1996, he cornered Howard while she was sorting mail, this time “placing his hand on her face, neck, and breast.”  Howard informed a coworker named Pace of McCall’s behavior, and Pace went to his supervisor to explain the situation.  Pace’s supervisor went to McCall’s supervisor, and the two immediately reassigned McCall to another division on a different floor, and the harassment ceased.
           
In January 1997, Howard filed a complaint with NAVAIR alleging the Navy discriminated against her on the basis of her sex in violation of Title VII.  The EEOC administrative judge entered a decision against Howard finding McCall had no supervisory authority over her, and the Navy responded with immediate and appropriate action once it was on notice of the situation. Howard appealed the EEOC’s decision, and it was affirmed.

On March 18, 2002, Howard filed a civil complaint and the court granted the Navy’s motion for summary judgment. The court found action was not taken earlier by the Navy because Howard failed to “give the employer adequate information to trigger the kind of response she requested.”  On appeal, Howard claimed the Navy was liable for McCall’s harassment because he was her supervisor for the purposes of Title VII, and even if he was not her supervisor, the Navy was still liable because it knew or should have known of the harassment and failed to take measures to stop it.  The court stated: “The most powerful indication of supervisory status is the ability to take tangible employment actions against the victim, such as hiring, firing, failing to promote, reassignment, or changing benefits.” Mikels v. City of Durham, 183 F.3d 323, 333 (4th Cir. 1999).  There is no evidence to suggest McCall had the power to make any decisions affecting Howard’s employment, as he was merely one of 55 staff members to whom Howard provided administrative support.

Because the court ruled McCall was Howard’s coworker, the Navy was only liable for his conduct if it was negligent “in failing, after actual or constructive knowledge, to take prompt and adequate action to stop it.” Id. at 332.  Howard argued the Navy’s 1993 sexual harassment policy was inadequate, and McCall’s previous behavior put the Navy on constructive notice that he was a harasser even before she went to the human resources department in March of 1996.  The Court stated: “Liability could be imputed to the employer if its sexual harassment policy failed to provide reasonable procedures for victims to register complaints.”  However, the Navy had an eleven page “Department of the Navy Policy on Sexual Harassment” and issued memoranda “for all hands” explaining that sexual harassment would not be tolerated. 

Howard also contended the Navy was on notice of his sexually volatile conduct before her report to the human resources department, because McCall’s previous supervisor had to ask him on more than one occasion to remove “girlie” pictures hung in his cubicle and had “given him verbal warnings about language that could not be used in the work environment.”  The court did not find this evidence convincing: “An employee’s display of inappropriate images or use of foul language does not suffice to put an employer on notice that the employee is by nature a sexual harasser.”

Finally, Howard asserted it was unreasonable for the Navy not to take any action against McCall other than the reassignment.  The court recognized “McCall’s alleged behavior was beyond unacceptable and plainly criminal in nature.” However, Title VII requires a claimant to show “more than just severe harassment to hold an employer liable for a coworker’s behavior.”  The court stated: “What is most important is there were no further instances of harassment after he was reassigned.  When an employer’s remedial response results in the cessation of the complained of conduct, liability must cease as well.”  Id. at 329-330.

EPILEPTIC HEAVY EQUIPMENT OPERATOR IS ENTITLED
TO A JURY TRIAL ON HIS DISABILITY DISCRIMINATION CLAIM
Employers often find themselves in a bind when an employee’s medical condition poses a safety threat to others in the workplace.  Such was the situation in the recent case of Dark v. Curry County, involving a heavy equipment operator who had epilepsy.  The epilepsy resulted in periodic seizures.  One such seizure happened when the employee was driving a company pick-up truck, resulting in an accident--though fortunately with no injuries.  The employee was fired after the accident, and he sued, claiming disability discrimination under the Americans with Disabilities Act (ADA).  Though the case was thrown out at the trial court level, a federal appeals court recently reinstated the lawsuit, and has directed that the employee be allowed to have his case heard before a jury.

Mr. Dark has suffered from epilepsy since he was 16 years old and controls it with medication.  Nonetheless, he occasionally experiences seizures.  His seizures are usually preceded by an “aura,” which is similar to a nervous jerk.  Mr. Dark began working for the county in 1985, and his job performance was always satisfactory at a minimum.  One of his job requirements was to operate heavy equipment, such as trucks and construction vehicles.  On January 15, 2002, before leaving for work, Mr. Dark experienced an aura.  Mr. Dark reported for work as scheduled and had a seizure while operating a county pickup truck.  Fortunately, no one was injured because of this incident.

Following this incident, Mr. Dark was examined by a doctor at the county’s request.  The doctor concluded that Mr. Dark’s condition inhibited his ability to perform his job.  The county terminated Mr. Dark in a letter stating that he could not perform essential job functions and that his continued employment constituted a threat to others.  The ADA permits employers to terminate employees whose disabilities are determined to pose a direct safety threat to others in the workplace.

On appeal following the trial court’s dismissal of the case, the Ninth Circuit Court of Appeals reinstated the case after finding that there was a question to be resolved by a jury as to whether the epileptic employee truly posed a “direct threat” to others, and even if he did, whether there was some type of accommodation that could be granted to mitigate this safety threat.

It is important to remember that when terminating an employee for misconduct that may be related to fitness to perform job duties, a physician’s opinion is not required before terminating the employee.  Indeed, requiring a medical examination after employee misconduct and actions that recklessly endanger the safety of others, will sometimes undermine the termination for misconduct.  Moreover, it may make it more difficult for the employer to demonstrate it had a legitimate, nondiscriminatory motive for terminating the employee.
Dark v. Curry County, 9th Cir., No. 04-36087, July 6, 2006
Back to Index
Learn more about Albo & Oblon

AN UPDATE ON EMPLOYMENT NON-COMPETE LAW IN VIRGINIA
Most every Virginia lawyer knows that the field of employment non-competes is full of potential traps for the unwary.  In balancing the opposing interests of employer and employee concerning post-employment competition, Virginia law has long left the attorney with little in the way of guarantees regarding enforceability or lack thereof.  Rather than create safe harbors for the lawyer seeking certainty in drafting and enforcing – or seeking to invalidate – a non-compete, recent decisions of the Virginia Supreme Court require lawyers to carefully examine and apply the case law to the specific facts surrounding the employee’s employment and subsequent competition.

A number of different types of contracts and clauses fall within the definition of a non-compete.  These include: 

• “traditional” non-competes, which prohibit an employee from engaging in competitive employment following the employee’s termination of employment;
• non-piracy agreements, which seek to prevent an employee from taking clients, business, or fellow employees of the employer with the employee following termination;
• non-solicitation agreements, a subset of non-piracy agreements that prohibit initiating business contact with customers and/or fellow employees of the employer following termination; and
• confidentiality agreements, which prohibit an employee from using or disclosing confidential information or trade secrets during or following employment.

In many instances, an employer will desire several different types of restrictive covenants to be included in one agreement to prevent the employee from harming the employer’s business following termination of employment.  With the multiple layers of protection provided by these various covenants, however, comes the possibility that a court will find one or more of the protections overbroad and, in some instances, will invalidate the agreement as a result.

Modern Virginia Supreme Court case law in the area of non-competes began in 1937 with the case of Stoneman v. Wilson, 169 Va. 239, in which the Court recognized that “generally these agreements are valid” in most U.S. jurisdictions, but also cautioned that “they are not favored in the law and courts are slow to grant injunctive relief.”  The Court warned even way back then that a non-compete’s restrictions generally must be reasonable in terms of “space and time” to be enforceable.  It further required that a non-compete could not restrain an employee from all positions for which the employee is suited, must not be injurious to the public, and must further a legitimate business interest needing protection.  Applying these criteria to a non-compete prohibiting a former salesman and minority shareholder of a hardware store from “go[ing] in the hardware business” for 5 years and a radius of 5 miles following employment, the Court in Stoneman vacated the trial court’s injunction enforcing the agreement because the salesman was not a position to possess trade secrets or confidential information.

While the considerations articulated in Stoneman remain the general standards for enforceability of non-competes almost 70 years later, recent Virginia Supreme Court decisions apply a heightened level of scrutiny to the requirements for enforceability set forth in Stoneman.  As the recent cases discussed below show, the Virginia Supreme Court has closely analyzed the restrictions contained in facially valid non-competes to ensure that the types of positions and nature of business that the employee is restricted from after termination are sufficiently limited.  In so doing, the Court has not shied away from invalidating provisions that bar an employee from working in any capacity for a competitor or working in an entire segment of the market.  Likewise, in 2005, the Virginia Supreme Court limited the types of employer interests that may support a non-compete, and the extent to which an interest may support broad limitations on competition.

As shown by the Court’s analysis in Stoneman, an enforceable non-compete must be narrowly tailored to protect a legitimate business interest of the employer, must not be unduly harsh and oppressive so as to restrict the employee from earning a living, and must be reasonable from the standpoint of public policy.  But what do these factors really mean?  Or more importantly for us lawyers, what do the courts in Virginia say they mean?

With regard to protectable employer interests, Virginia courts have generally recognized several business interests to be legitimate and worthy of protection.  Among other things, the courts typically recognize that employers have a valid interest in maintaining client relationships that the employer formed or facilitated through client contact.  In addition, courts have recognized the importance of protecting the confidential information and trade secrets that employers provide to employees to perform their job duties. 

In evaluating a non-compete, Virginia courts will generally consider the activities it prohibits, the geographic scope of its restrictions, and the length of time those restrictions are in place.  Virginia courts have tended to reach fairly consistent results regarding the types of agreements, the geographic scope, and the duration of agreements that are generally deemed enforceable.  As a general rule, Virginia courts have been inclined to enforce restrictions on competitive employment within a 50 to 75 mile radius of the location in which the employee performed services for up to two to three years following the termination of employment. 

Moreover, some Virginia courts have enforced certain types of restrictions, such as confidentiality agreements, without any geographic or time limitation where the evidence shows that this is reasonably necessary to protect the employer’s legitimate business interests.  See e.g., McKeever Assocs. v. Guiseppe, 29 Va. Cir. 362, 1992 WL 885059 (Fairfax Cty. Cir. Ct. 1992) (enforcing confidentiality agreement without temporal or geographic limitation).  In this instance, Virginia courts are far more likely to enforce a non-compete when the employer can show that, in so doing, the court will be preventing an employee from breaching a valid confidentiality agreement or disclosing trade secrets.

While a non-compete may contain numerous restrictions, some of which may be overbroad and some of which may not be, Virginia courts generally will not “blue pencil,” or selectively remove, provisions of a non-compete or otherwise modify a non-compete to create an enforceable agreement.  While it has not rendered a decision specifically prohibiting blue penciling, decisions of the Virginia Supreme Court generally require that a non-compete be narrowly tailored as a whole in order for any part to be enforceable.   

Recent Virginia Supreme Court decisions regarding non-competes have significantly changed and refined the general law stated above in ways that Virginia lawyers must be aware of to effectively represent their clients.  For instance, one line of cases has produced what is sometimes referred to as the “janitor” defense, as employees seeking to invalidate overly restrictive non-competes have argued that they would be prevented from even working as janitors at other companies if the agreement were to stand.

In the 2001 case of Motion Control Systems, Inc. v. East, 262 Va. 33, the Virginia Supreme Court refused to enforce a non-compete that prohibited the employee from working for a “similar business” within 100 miles of the employer for 2 years following employment.  In that case, the employer manufactured brushless motors, yet the non-compete defined as a “similar business” any business that designed, manufactured, or distributed any type of motor.  As a result, the Court deemed the agreement overbroad and unenforceable – despite the fact that the employee was actually working for a competitor manufacturing brushless motors, and thus the agreement likely could have been enforced in a narrowly tailored fashion.

In 2002, the Virginia Supreme Court affirmed a trial court judgment declaring a non-compete unenforceable in Modern Environments v. Stinnett, 263 Va. 491.  In that case, the non-compete provided the employee could not “directly or indirectly own, manage, operate, control, be employed by, participate in or be associated in any manner with” owning, managing, operating or controlling a competing business following termination.  The Court held that the non-compete was overbroad and unenforceable because it prohibited the employee from working in any capacity for a competitor of the former employer. 

Similarly, in a 2005 decision entitled Omniplex World Services Corporation v. US Investigations Services, Inc., 270 Va. 246, the Virginia Supreme Court declined to enforce a non-compete containing a “non-poaching” provision designed to protect the employer’s supply of qualified employees with federal government security clearances.  In that case, the employer was a government contractor that recently took over a contract to provide security services to a federal agency, and thus needed to employ qualified individuals with government security clearances to staff the contract.  In exchange for a $2,000 bonus, each Omniplex employee was required to sign an employment agreement which stated that, if the employee’s employment was terminated within one year, the employee could not be employed by or provide services to the federal agency in any type of employment that required the same level of security clearance for the rest of the one-year period.  Despite this extra compensation and the employer’s obvious interest in retaining employees with the required government security clearance for one year after taking over a federal government contract, the Virginia Supreme Court held that the non-compete was unenforceable because the restriction included all positions with the agency and its contractors, and thus was not limited to the specific government contract that Omniplex was working on, or positions directly competitive with Omniplex’s line of business.

In contrast, in its very recent 2006 decision in Saks Fifth Avenue v. James, LTD., 272 Va. 177, the Virginia Supreme Court declined to review a trial court injunction enforcing a non-compete against a former suit salesman in a high-end clothier that restricted the employee from owning, operating, or being employed by a retail men’s clothing store or men’s clothing sales department, within one mile of the employer for three years after employment.  In that case, the trial court narrowly enforced the non-compete’s provision by enjoining the employee from working for his new employer, the men’s department of a nearby retailer, for a three-year period.  See id. at 181, 185 n.10. The Virginia Supreme Court’s passivity on this issue in Saks Fifth Avenue was surprising to some practitioners, given the Court’s holding in Modern Environments, which invalidated as overbroad a non-compete prohibiting employment in any capacity by a competitor, and the Court’s reluctance to narrowly enforce an overbroad non-compete in Motion Control Systems.  

Nevertheless, in Saks Fifth Avenue, the Virginia Supreme Court reversed the $1.6 million verdict against the employee and his new employer Saks Fifth Avenue for breach of the duty of loyalty and statutory civil conspiracy in acting together to violate the non-compete, during and immediately after the employee’s employment.   Id. at 189.  In reversing the verdict, the Virginia Supreme Court cited the requirement of Virginia law that causation of damages must be proved to a “reasonable certainty,” and held this standard was not satisfied by the former employer’s expert testimony regarding its lost profits following the employee’s resignation.  This decision thus suggests that an employer cannot support an award of damages flowing from an employee’s violation of a non-compete absent more detailed proof of piracy of each client or contract.

Virginia has made several legislative attempts to codify the permissible restrictions for non-competes, but so far, none has garnered enough support to become law.  As a result, unlike some other states, such as California and Texas, Virginia does not have a statutory presumption against non-competes. 

Because of the growing complexity of Virginia law in this area, drafting non-competes is no longer a simple matter of pulling a form from the internet or similar one-size-fits-all approach of the past.  When drafting a non-compete, a practitioner must engage in detailed discussions with the employer to determine what legitimate business interests are at issue, and should create restrictions that further these business goals and nothing more. 

In fact, when drafting an agreement, it is often a good idea to state in the agreement itself what business interest the company is concerned about protecting, so that the departing employee cannot later feign ignorance of what he or she was signing.  For instance, if as in the Omniplex case discussed above the employer needs to protect employees with security clearances, it makes sense to make specific reference to that business interest in the non-compete.  By being so specific, it makes it much more difficult for a departing employee to claim ignorance of the reasons behind the restrictions.

Moreover, when analyzing the enforceability of a non-compete for an employee client, a Virginia attorney should sit down with the employee and obtain information regarding all of the circumstances and consider the business interests sought to be protected, the extent to which that interest supports the full breadth of the restrictions in the non-compete, and how and to what extent the employer can claim to be damaged by a breach of the agreement. 

Finally, given the many significant Virginia Supreme Court decisions regarding non-competes in recent years, lawyers should periodically review the case law to remain apprised of the Virginia Supreme Court’s concerns regarding the enforcement of employment non-competes.
http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=va&vol=1042287&invol=1
Back to Index
Learn more about Albo & Oblon

FEDERAL COURT RULES THAT BLACKBALLING
PREVIOUS WHISTLEBLOWERS IS ILLEGAL
James Ruggieri was an electrical engineer who was selected to fill a vacancy at the Minerals Management Service (MMS), an arm of the Interior Department which collects royalties from oil and gas production on public lands.  Ruggieri was later told by an MMS official that he would not be hired because he had been a whistleblower at a previous position in the U.S. Coast Guard.  MMS then cancelled the vacancy announcement, waited a few months, and reposted the same job.  The employee sued, and the US Court of Appeals for the Federal Circuit ruled that federal agencies may not cancel a vacancy announcement as a means of refusing to hire a job applicant because the applicant has a history of blowing the whistle.  This ruling expands coverage of the federal Whistleblower Protection Act and overruled a longstanding policy of the MSPB.   

Armed with a tape of his conversation with the MMS official, Ruggieri filed a complaint of whistleblower retaliation with the U.S. Office of Special Counsel which, after 18 months, ruled that the tape recording was not sufficient evidence of a retaliatory motive by MMS.  Ruggieri then appealed to the Merit Systems Protection Board (MSPB), which ultimately ruled that since MMS had cancelled the vacancy announcement there was no “personnel action,” and therefore it was not covered by the Whistleblower Protection Act.  Ruggieri then successfully appealed his complaint to the U.S. Court of Appeals for the Federal Circuit, which currently has exclusive jurisdiction over appeals from the MSPB.

Some employment law practitioners were surprised by this ruling because the Federal Circuit has been seen by some as historically unsympathetic to whistleblower claims.  According to figures compiled by the Government Accountability Project, a non-profit whistleblower defense organization, the Federal Circuit has, prior to this decision, ruled in favor of a whistleblower in only one of 119 cases since 1994.  Congress is now considering legislation to remove whistleblower jurisdiction from the Federal Circuit and allow “all circuit review” in which cases could be appealed to the federal appellate circuit court from the region where they originated. 
Full court opinion(PDF)...
Back to Index
Learn more about Albo & Oblon

REINSTATEMENT OF JOB UNDER FMLA IS NOT ABSOLUTE
 Where an employee’s job position was eliminated due to a company restructuring while he was out on Family and Medical Leave (FMLA), the Fourth Circuit Court of Appeals joins most other federal appellate jurisdictions in holding that the employee was not entitled to absolute reinstatement with the company at the conclusion of his leave.  The Circuit Court noted that the employee’s job was slated to be eliminated even if he had not gone on FMLA leave, and the federal statute did not require the company to provide him any greater job protections simply because he was out on FMLA leave.  The Court rejected the employee’s contention that the duty of an employer to reinstate is absolute, even in those cases as here where the position was legitimately eliminated, saying that the results of such an application could lead to anomalous results.

The employee, Edward Yashenko, was hired by an affiliate of Harrah’s Casino Company in 1994, and eventually wound up in North Carolina as manager of employee relations for a casino Harrah’s managed for a Cherokee Indian tribe.  During his tenure with Harrah’s, Yashenko requested and was granted several medical leaves of absence, most of which fell under the FMLA.  After each leave of absence, Yashenko was permitted to return to his management position at the casino--that is, until his final request for FMLA leave in the summer 2003 necessitated by his heart surgery.

While Yashenko was out on this last period of FMLA leave, lasting eleven weeks, he received notice from Harrah’s that his position was being eliminated as part of a company reorganization.  Yashenko was strongly encouraged by Harrah’s to apply for other positions, but he did not do so because he said he was on medication and did not feel up to searching for a new position.  Consequently, Harrah’s discharged him upon his return from FMLA leave on July 21, 2003, and Yashenko sued the company for violations of the FMLA.

The main issue in the case was just how much of an obligation an employer has to reinstate an employee who is returning from FMLA leave.  The statute requires an employer to restore an FMLA qualified employee to the same or an equivalent position upon return from leave.  However, the statute goes on to say that a returning employee is not entitled to any right or job benefit that he would not have been entitled to had he not been out on FMLA leave. 

The trial court dismissed Yashenko’s FMLA claims before trial, and that decision was upheld on appeal by the Fourth Circuit Court of Appeals.  Calling the issue a case of first impression in the Fourth Circuit, the Appeals Court held that the FMLA does not require an employee to be restored to his prior job after FMLA leave, if he would have been discharged had he not taken such leave.

 The Circuit Court noted that Yashenko’s job was slated to be eliminated even if he had not gone on FMLA leave, and the statute did not require Harrah’s to provide him any greater job protections just because he was out on FMLA leave.  The Court rejected Yashenko’s contention that the duty of an employer to reinstate is absolute, even in those cases as here where the position was legitimately eliminated, saying that the results of such an application could lead to anomalous results.

In this case, the Court was very careful to perform a close examination of the reason for the job elimination, to ensure that it was truly motivated by a legitimate business reason and not merely as a way to get rid of the employee.  Therefore, employers must keep careful records of any planned reorganizations and the basis for same, in the event of a later challenge such as the one faced by Harrah’s.
Full court opinion(PDF)...
Back to Index
Learn more about Albo & Oblon

EMPLOYEE CLAIMS HIS EMPLOYER UNLAWFULLY
DISCLOSED THAT HE WAS HIV-POSITIVE
 A recent case pending in federal court in the District of Columbia reminds employers of the need to take extra care and precaution when they are in the possession of confidential, and potentially embarrassing, medical or other private information pertaining to an employee.  The case of John Doe v. United States Postal Service involved a government employee of the U.S. Postal Service who was HIV-positive.  The employee was required to divulge information as to his medical condition in order to obtain rights to certain medical leave benefits.  Upon disclosure, his HIV diagnosis was passed on throughout the workplace.  The employee sued, alleging violations of the Federal Privacy Act and the Rehabilitation Act, which provides the same protection for federal workers as the Americans with Disabilities Act (ADA).  The case was initially dismissed by the trial court, but on appeal, the D.C. Federal Appeals Court recently ruled that the employee’s claim should go to a jury.

The Privacy Act prohibits the disclosure of any information that has been retrieved from a protected record, unless there is consent from the employee or the information is exempt.  The Rehabilitation Act requires the control of private medical files that could lead to discrimination.  However, the Privacy Act and the Rehabilitation Act have limited applications. The first applies to federal agencies and any government contractors in support of that agency, and the latter only applies to federal agencies. 

While some private employers may feel that there is no concern because they are not government contractors, the Americans with Disabilities Act, as well as other federal and state laws, have similar requirements for private employers designed to ensure unnecessary disclosure of employees’ private medical information.  These requirements were created in order to protect employees from having their privacy invaded and from being discriminated against based on the information.  In addition, some jurisdictions permit employees to bring common law tort actions against their employers for invasion of privacy and public disclosure of private facts.

Bottom line is that employers need to be acutely aware that private information, including those typically found on employee forms, need to be secured in separate files.  Access and disclosure of such information should be limited to those management officials who need access to complete their job and who have been instructed on the proper handling of the information.  Those instructed should include Human Resource professionals, managers, and supervisors who have authorized access to confidential employee records.  The instruction should not only encompass the requirements and exemptions governing disclosure of such information, but it should also be supplemented with case examples on how violations can occur and their potential impact.

The following are some examples of documents containing private employee information which should be safeguarded:

1. Immigration Form I-9 (indicates age and alien status);
2. Medical forms (may indicate an illness or disability);
3. Wage and hour records (may reveal age);
4. Group health and life insurance coverage (indicates age and marital status);
5. Family and Medical Leave Act (FMLA) forms (may indicate health status of employee or dependents);
6. Certain Equal Employment Opportunity forms (which reveal race, sex or age); and
7. Workers’ Compensation claim information.

http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=dc&navby=case&no=015395A
Back to Index
Learn more about Albo & Oblon

ELIMINATING AN EMPLOYEE’S TRAVEL RESPONSIBILITIES IS
A DE MINIMUS CHANGE THAT DOES NOT VIOLATE THE FMLA
One issue that has been the source of much litigation in the employment field is the requirement under the Family and Medical Leave Act (FMLA) that an employee is entitled to be reinstated to the same position, or a substantially similar position, upon return from leave. A recent case centered on whether reinstatement to a position that no longer involved travel constituted a substantially similar position under the FMLA. On appeal, the Fifth Circuit Court of Appeals recently held that since the job duties upon return were virtually identical to those the employee performed before going out on leave, it will be considered an equivalent position that does not violate the FMLA.

The East Baton Rouge Parish School Board (the Board) employed Phyllis Smith as its Assistant Supervisor of School Accounts. This position required her to travel to various schools and directly assist school principals and staff in keeping accurate accounting records. During Ms. Smith’s maternity leave, the Board restructured the School Accounts department and revised Ms. Smith’s job description so that she would audit the schools’ books from a central office rather than traveling to the schools to work with the principals and their staffs directly.

Smith sued, claiming travel elimination meant that the job was no longer equivalent to her prior job and thus violated the FMLA. The district court granted summary judgment to the Board and denied Ms. Smith’s motion to reconsider, holding that as a matter of law, Ms. Smith position after her FLMA leave was equivalent to her former position. This dismissal was affirmed by the Fifth Circuit.

In discussing the meaning of equivalent, the Circuit Court cited the FMLA and stated that the position must be virtually identical to the former position in pay, benefits, working conditions, must involve substantially similar duties, skills and authority, must have similar opportunities for promotion and pay increases, and must be viewed as equally desirable to employees. The Court concluded that “de minimis, intangible changes” to an employee’s position do not violate the FLMA and cited to Montgomery v. Maryland, a Fourth Circuit decision, as an example of de minimis changes to an employee’s position that did not violate the FMLA. In Montgomery, the court determined that a secretarial position in a shared working space, with no loss in benefits, was equivalent to an employee’s position as an administrative aid with her own work area.

In this case, the Court found that the circumstances were similar to those in Montgomery and held that the de minimis changes in the new position the Board offered Ms. Smith did not violate the FMLA. The Court concluded that eliminating her travel responsibilities when the position no longer required her to travel to audit the schools’ accounts, combined with receiving the same salary and similar job description and title, constituted an intangible difference in employment position that did not rise to the level of a FMLA Violation.

It is important to remember that when an employee returns to work after taking FMLA leave, he/she should be returned to an equivalent position. However, the employer need not place the employee in the exact same position or be afraid to reorganize the department in the employee’s absence. So long as the employee receives the same pay, benefits and working conditions, including status, duties and responsibilities, changes which eliminate unnecessary job responsibilities or other similar superficial job elements will not violate the FMLA.

Smith v. East Baton Rouge Parish School Board, 4th Cir., No. 04-31199, June 22, 2006.
Back to Index
Learn more about Albo & Oblon

EMPLOYEE PICKETING FOR ONE-PERSON
BARGAINING UNIT WAS NOT PROTECTED
An employee whose position was ineligible for union representation, but who nevertheless picketed to obtain recognition of a union as her representative, was not protected from discipline under the National Labor Relations Act (NLRA), the U.S. Court of Appeals for the D.C. Circuit ruled. The opinion rejected a 40-year-old decision [Teamsters Local Union No. 115 (Vila-Barr Co.), 157 NLRB 588 (1966)], of the National Labor Relations Board (NLRB) that deemed such picketing to be protected concerted activity.
International Transportation Service Inc. (ITS) was a terminal operator that was part of a multi-employer association employing longshoremen represented by the International Longshore and Warehouse Union (ILWU). In addition to longshoremen, ITS also employed office clerical workers represented by the ILWU and a single payroll and billing representative. The ILWU had previously agreed with the employer that the payroll position was not a part of the office clerical employees bargaining unit.
When Deanna Tartaglia was hired into the payroll position in 1999, the position was excluded from the office clerical workers bargaining unit, and the union was not authorized to bargain on her behalf. Upon hire, Tartaglia and the union sought to have the position recognized as a single-employee unit represented by the ILWU, despite the fact that single-employee units cannot be certified under the NLRA.
ITS refused to recognize such a unit. To protest this decision, Tartaglia and two union representatives picketed ITS and caused other ILWU represented employees to stop work at the facility. This resulted in a major traffic jam and losses of more than $90,000 to ITS.
Once work resumed, ITS fired Tartaglia for this disruptive conduct. In response, the union filed an unfair labor practice charge, alleging that Tartaglia’s termination violated the NLRA by discouraging union membership and by punishing protected concerted activity. The NLRB ruled in Tartaglia’s favor, and ITS appealed to the D.C. Circuit.
The appeals court reversed the NLRB’s decision and held in favor of the employer, finding that Tartaglia’s actions were not protected concerted activity. Rather, the appeals court relied on decisions by other federal appeals courts holding that employees who picket to obtain recognition of other types of improper collective bargaining units, such as mixed units of both security guards and the employees whom they monitor, may be disciplined for such picketing. The court further held that Tartaglia’s behavior was not concerted union activity because she was not acting on behalf of other workers, but only sought to serve her own interests by picketing for recognition of a personal representative.
This case demonstrates that the federal courts of appeals are more closely scrutinizing employee claims that they have been terminated in retaliation for concerted union activity. While the NLRB interpreted concerted activity broadly to include conduct in support of unions that the act does not expressly permit, the appeals court reasoned that because the act does not allow the union representation sought by the employee, the conduct itself was unprotected. Although employers should be careful not to discipline employees for conduct in support of a union that they are permitted to engage in under federal labor law, when employees have no legal support for their disruptive conduct, employers may apply their standard disciplinary policies to deter such conduct and prevent further loss of business.
Full court opinion(PDF)...
Back to Index
Learn more about Albo & Oblon

JUDGE FOR YOURSELF

Subscribe/Unsubscribe

We welcome new subscribers. If you would like to join our growing list please: click here.

If you do not want to receive this newsletter, please click here and send the email. We will immediately remove your name from our subscription list.

© Copyright 2006   Albo & Oblon, L.L.P.,  All rights reserved.
David Oblon, Managing Partner, Albo & Oblon
Courthouse Plaza, Twelfth Floor
2200 Clarendon Boulevard Arlington, VA 22201
(703) 312-0410