$15 Minimum Wage Bill Heads to Governor Christie’s Desk

In a close 21-18 vote the New Jersey State Senate passed bill S15, the $15 Minimum Wage Bill. The bill will now head to Governor Christie’s desk after its previous stamp of approval from the New Jersey State Assembly.  The vote proceeded along party lines with the 18 Republican legislators raising objections to the increased costs on businesses and the 21 Democratic legislators fighting to provide a living wage.

Governor Christie has not commented on whether he will veto the bill but it is highly unlikely he accepts the $15 wage increase. State Democratic leaders have promised to submit the $15 minimum wage to the voters in a constitutional referendum if Governor Christie vetoes the bill.

$15 minimum wage bills have already been signed into law in New York and California.  Massachusetts, Vermont and Connecticut are currently considering similar bills. In addition to the $15 minimum wage there are potential costs for insurance and payroll taxes.  Employers should continue to stay informed on the movement of this legislation with an eye on implementation in early 2018.

For more information regarding the potential impacts of Bill S15, or regarding any other wage and hour issues, please contact John R. Vreeland, Esq. Director of the Firm’s Wage & Hour Compliance Practice Group, at 973-535-7118 or jvreeland@nullgenovaburns.com, or Aaron C. Carter, Esq. at 973-646-3275 or acarter@nullgenovaburns.com.

New Jersey Senate Budget and Appropriations Committee Passes $15 Minimum Wage

Following in the footsteps of the New Jersey State Assembly, the New Jersey Senate Budget and Appropriations Committee moved forward on legislation (S15) increasing the New Jersey State minimum wage to $15 by 2021. The legislation made it out of the Senate Committee in a close 7-6 vote with one Democrat crossing the aisle. The legislation will now head to the full Senate for a vote.

The proposed bill would immediately increase the state minimum wage to $10.10 on January 1, 2017. The minimum wage would then increase year by year by about $1.25 an hour until 2021.  After 2021, any wage increase would be tied to changes in the consumer price index (CPI).

If the full Senate passes the bill, Governor Christie is all but guaranteed to veto it.  In 2013, Gov. Christie vetoed a bill that would have raised the minimum wage from $7.25 to $8.50. The Democratic-controlled legislature then put the wage increase to voters at the ballot box.  The voters passed the constitutional referendum codifying the wage increase.

Employers should expect similar procedural steps and a 2017 vote on the constitutional referendum if the full senate approves the $15 minimum wage bill. The imposition of the wage would then not take effect until 2018.

For more information regarding the potential impacts of Bill A15, or regarding any other wage and hour issues, please contact John R. Vreeland, Esq. Director of the Firm’s Wage & Hour Compliance Practice Group, at 973-535-7118 or jvreeland@nullgenovaburns.com, or Aaron C. Carter, Esq. at 973-646-3275 or acarter@nullgenovaburns.com.

Please, Take Your Time: NJ Supreme Court Voids Contracts That Limit Workers’ Time to Sue

On June 15, 2016, the New Jersey Supreme Court issued its long-awaited decision in Sergio Rodriguez v. Raymours Furniture Company, Inc., in which it addressed whether the two-year statute of limitations under the New Jersey Law Against Discrimination (“LAD”), N.J.S.A. 10:5-1 to -49, may be altered pursuant to a private agreement.  The issue was a matter of first impression for New Jersey courts.  In a unanimous opinion authored by Justice Jaynee LaVecchia, the Court held that “a private agreement that frustrates the LAD’s public-purpose imperative by shortening the two-year limitations period for private LAD claims cannot be enforced.”

Plaintiff, Sergio Rodriguez, was hired by defendant, Raymours Furniture Company, Inc., the parent company of furniture retailer Raymour & Flanigan, in September 2007, and sustained an injury to his knee in April 2010.  After having undergone surgery for the injury, along with a brief recovery period, Rodriguez was cleared to resume his work duties in September 2010.  Just two short days after his return to Raymour & Flanigan, Rodriguez was terminated as part of a company-wide reduction in force. Rodriguez instead contended that he was targeted because of his injury and asserted that others with less seniority or distinguishing features were retained.

Rodriguez brought a lawsuit in the Superior Court against Raymours in July 2011, seven months after his termination, alleging wrongful termination based on an actual or perceived disability under the LAD, which carries a two-year statute of limitations. However, Raymour & Flanigan’s employment application, which Rodriguez signed, included a provision shortening the period for an employee to file a claim against the company to six months. The provision stated that “I agree that any claim or lawsuit relating to my service with Raymour & Flanigan must be filed no more than six (6) months after the date of the employment action that is the subject of the claim or lawsuit,” adding, “I waive any statute of limitations to the contrary.”

The trial court granted summary judgment in favor of Raymours, upholding the validity of the contractual limitation as clear and unambiguous and neither unreasonable nor against public policy.  On appeal, the Appellate Division also sided with Raymours, holding that employers are generally able to shorten a statutory limitation through an employment contract so long as the provided language is clear and unambiguous.  While pointing out that the language of the provision was acceptable and not misleading, the Appellate Division noted that “[t]he disputed contract provision was not buried in a large volume of documents.  It was contained in a two-page application and set forth very conspicuously in bold oversized print and capital lettering, just above the applicant’s signature line. The terminology was clear and uncomplicated.”  Ultimately, the trial court and Appellate Division held that the provision met the aforementioned threshold and by signing the document, Rodriguez waived his rights to access the LAD after the six-month period expired.

On appeal to the Supreme Court, the plaintiff made two arguments, generally focusing on principles of contract unenforceability based on unconscionability.  Because this contract was one of adhesion, the plaintiff contended that it was both procedurally and substantively unconscionable and unenforceable due to the inherent imbalance of power in an employment application.  Furthermore, the plaintiff argued that permitting such a contractual shortening of the limitations period would frustrate the remedial scheme of the LAD.  The defendant-employer argued that it is well established under New Jersey law that parties may privately contract to shorten statutes of limitation and that the waiver at issue here was clear and unambiguous.

This case drew significant interest from the legal community.  The New Jersey State Bar Association, the New Jersey Association for Justice, the American Civil Liberties Union of New Jersey, and the National Employment Lawyers Association all submitted amicus curiae briefs generally supportive of the plaintiff’s position, focusing on the “singular public-interest importance of the LAD.”  The Academy of New Jersey Management Attorneys filed a brief in support of the defendant, arguing that shortening the limitations period under the LAD did not frustrate public policy and was within private parties’ ability to contract.

While recognizing the “strong belief” in the freedom to contract in New Jersey, the Court emphasized the public interest that the LAD serves to protect in trying to eliminate discrimination.  In making its determination, the Court relied heavily on its decision in Montells v. Haynes, 133 N.J. 282 (1993), where the two-year statute of limitations for claims under the LAD was first established.  In addition, the Court looked to the State Legislature’s more than two-decades-long acceptance of that limitations period, noting that the LAD has been amended in other respects during that time period.  The Court offered several reasons in support of its decision:

  • Shortening the time period for bringing an LAD action in the Superior Court would undermine the integrated nature of the statutory avenues of relief and election of remedies made available to claimants;
  • A limitations period of shorter than two-years would effectively eliminate claims because it takes time for an individual to bring the claim forward and the two-year period established in Montells was purposefully designed to impose uniformity and certainty;
  • A shortened limitations period might compel a person to file a premature LAD action where investigation might reveal a lack of a meritorious claim; and
  • Case law has incentivized employers to first receive workplace complaints, investigate them, and respond and any shortening of the period would “seriously affect an employer’s ability to protect itself.”

The Court emphasized that its decision was “rooted in the unique importance of our LAD and the necessity for its enforcement.”  The Court further noted that “[r]estricting the ability of citizens to bring LAD claims is antithetical to that societal aspiration and defeats the public policy goal” of the law.  While the Court’s decision was rooted in the public policy importance of the LAD, the Court also noted that it would have reached the same outcome based on the argument of unconscionability, though it did not go into a detailed analysis.  The Court said that if such an analysis were to be performed, it would have struck down the agreement because the provision was located in an employment application, the plaintiff could not bargain, and it was an adhesion contract containing “indicia of procedural unconscionability.”

What does this decision mean for employers in New Jersey?  The Court’s decision affirms its longstanding commitment to the public policy goals and remedial nature of the LAD.  Unless and until the State Legislature decides to alter the limitations periods for claims under the LAD, it remains a two-year period and that time frame may not be amended through a private agreement.

While it appears that employers can no longer alter the two-year statute of limitations for LAD claims by private agreement, employers need to take action to ensure that they are in the best positon possible when litigation does arise, which can be achieved by:

  • Thorough documentation of performance issues;
  • Regular Anti-Discrimination and Harassment Training;
  • Proper paperwork for all reductions-in-force; and
  • Ensuring that prompt and thorough investigations of employee complaints are conducted.

Finally, when terminating an employee, employers may want to consider severance payments in exchange for a release of all claims. Most importantly, employers should consult with counsel to evaluate their arbitration agreements, employment policies and procedures, and ensure conformity with the Court’s ruling.  For more information, please contact John C. Petrella, Esq., Director of the firm’s Employment Litigation Practice Group at jpetrella@nullgenovaburns.com, or Dina M. Mastellone, Esq, Director of the firm’s Human Resources Practices Group, at dmastellone@nullgenovaburns.com, or 973-533-0777.

New Jersey Assembly Picks Up Fight For $15 Minimum Wage

The fight for a $15 minimum wage is gaining steam in the New Jersey Legislature. On May 26, 2016, the New Jersey Assembly passed Bill A15, which would raise the minimum wage to $15 an hour by 2021. Currently, the New Jersey State minimum wage is $8.38 per hour.

The $15 minimum wage would not get there all at once. Under the recently passed bill, the minimum wage first would increase to $10.10 per hour on January 1, 2017.  Then, between 2018 and 2021, the minimum wage would increase by the greater of $1.25 an hour or $1.00 an hour plus the CPI each year. An identical version of the Assembly’s bill has already passed the New Jersey Senate’s Labor Committee (Bill S15). If the full Senate passes the bill it will head to the Governor’s desk where it most likely will be vetoed.

But the Governor’s veto may not be the end of the bill. The Legislature is proposing that in the event of a Governor veto, the bill be put to a constitutional referendum for the voters to decide during the New Jersey General Election on November 7, 2017. This would not be the first time the Legislature managed to get around a veto to increase the minimum wage. The minimum wage was previously raised by constitutional referendum in 2013 when voters amended the State’s Constitution to increase the minimum wage to $8.25 per hour despite a Governor Christie veto.

While the proposed $15 minimum wage may seem a long way away, employers should start thinking now about how this would affect their business. Many employers are still struggling from the more than 15% increase in the minimum wage over the last two years. An increase to just $10.10 in 2018 (which is when the increase would take effect if the bill is vetoed but then approved through referendum) would reflect another 20% increase, or an almost 40% increase since 2013.  Such increased labor costs may be more than some employers can or are willing to absorb. For instance, Wendy’s recently stated it would replace some workers with automated machines in response to significant increases in minimum wage.

For more information regarding the potential impacts of Bill A15, or regarding any other wage and hour issues, please contact John R. Vreeland, Esq. Director of the Firm’s Wage & Hour Compliance Practice Group, at 973-535-7118 or jvreeland@nullgenovaburns.com, or Aaron C. Carter, Esq. at 973-646-3275 or acarter@nullgenovaburns.com.

Tick-Tock Goes the Clock: SCOTUS Clarifies the Statute of Limitations in Constructive Discharge Actions

On May 23, 2016, the United States Supreme Court issued its opinion in Green v. Brennan, Postmaster General, in which the Court gave aggrieved employees in workplace discrimination cases more time to file complaints against their employers.  The Court in Green addressed when the 45-day clock during which an employee must file a Charge of Discrimination with the U.S. Equal Employment Opportunity Commission (“EEOC”) when pursing a claim for employment discrimination begins to run.  In a 7-1 opinion by Justice Sotomayor, the Court held that because part of the “matter alleged to be discriminatory” in a constructive-discharge claim is an employee’s resignation, the 45-day limitations period for such an action begins to run when the employee “gives notice of his resignation,” not the last day of the last discriminatory workplace incident. Justice Thomas, a former chairman of the EEOC, dissented.  Justice Alito concurred with the majority’s outcome, but not with its reasoning.

In Green, the petitioner complained to his employer, the United States Postal Service (“USPS”), because he believed he was passed over for a promotion due to his race.  After making the complaint, his supervisors accused petitioner of intentionally delaying mail, a federal offense.  On December 16, 2009, petitioner and the USPS entered into an agreement whereby the USPS agreed not to pursue criminal charges in exchange for the petitioner either retiring or accepting another position in a less desirable location for less pay.  The petitioner chose to retire, and submitted his resignation on February 9, 2010, with an effective date of March 31, 2010.

On March 22, 2010, 41 days after submitting his intention to retire but 96 days after signing the agreement with USPS, the petitioner contacted the EEOC to report an unlawful constructive discharge, which is a prerequisite to filing a complaint under Title VII of the Civil Rights Act of 1964.  The Federal District Court dismissed his complaint as untimely because it ruled that petitioner did not contact the EEOC within 45 days of the complained discriminatory action.  The Tenth Circuit affirmed, holding that the 45-day window began to run on December 16, 2009, when the agreement with the USPS was signed.

In holding that the “matter alleged to be discriminatory” in a constructive-discharge claim includes the employee’s resignation, the majority in Green offered three reasons to start the 45-day period with the notice of resignation:

  • The employee’s resignation is a part of the completed cause of action, which has two elements: discriminatory conduct such that a reasonable employee would have felt compelled to resign and the actual resignation. Relying on Pennsylvania State Police v. Suders, 542 U.S. 149 (2004), the majority held that it is only after an employee has resigned that they have a complete and present cause of action to trigger the limitations period.
  • The majority held that the natural reading of “matter alleged to be discriminatory” includes the allegations that form the basis of the claim, e. the employee’s resignation.
  • Lastly, the majority relied on practical considerations of its holding in order to further the policy goals of Title VII’s remedial structure. Otherwise, the majority noted, an employee would be forced to file a complaint only to later amend it to allege a constructive discharge after resigning.

Importantly, the majority concluded that the constructive-discharge claim accrues, and the limitations period begins to run, when an employee gives notice of their resignation, not from the effective date of that resignation.  So, if an employee gives their two-week notice to their employer, their claim would run from the date that notice was given, not from their last day of work two weeks later.  The Court did not rule on the merits of the petitioner’s claim, instead remanding the matter to the Tenth Circuit Court of Appeals to determine when exactly Green gave notice of his resignation.

While Justice Alito concurred in the outcome of the majority’s decision as it applied to the petitioner, he did not agree with the majority’s bright-line rule for all constructive-discharge claims. Rather, Justice Alito would start the 45-day period from the employer’s last discriminatory act, which could include the employee’s resignation if it was the employer’s intent to force that employee to resign.  Without that intent however, Justice Alito argued that the resignation is not an “independent discriminatory act but merely a delayed consequence of earlier discrimination” that does not give rise to a fresh limitations period.  In his dissent, Justice Thomas would have affirmed the Tenth Circuit because, he argued, only an employer’s action can trigger the 45-day period, and not the action of an employee.  To Justice Thomas, an employee’s decision to resign does not fall within the meaning of a “matter alleged to be discriminatory” because it is an action taken solely by the employee.

The effect of this decision is that it eliminates procedural uncertainties for when the limitations period begins for a claim of constructive discharge.  It is important for employers to remember that this decision only applies to the claims of constructive discharge, and not for other claims of discriminatory conduct.  As noted by Justice Sotomayor, the “limitations-period analysis is always conducted claim by claim.”  The 45-day period for those other claims will begin to run from when those alleged acts occur, but for claims of constructive discharge, the clock does not start until the employee gives notice of their resignation.

For more information regarding the potential impact of this decision, please John C. Petrella, Esq., Chair of the firm’s Employment Law & Litigation Practice Group, at jpetrella@nullgenovaburns.com, or at 973-533-0777 or contact Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com.

Transgender Accommodation Issues at the Forefront of Employment and Education

Earlier this month, the Equal Employment Opportunity Commission (EEOC) released a new Fact Sheet, announcing its formal position on bathroom access rights for transgender employees.  The Fact Sheet provides employers with a nuanced look into what practices and procedures the EEOC will be investigating should a charge be brought alleging sex discrimination in the context of bathroom usage by transgendered individuals.

As noted therein, the EEOC defines the term “transgender” as referring to “people whose gender identity and/or expression is different from the sex assigned to them at birth,” and specifically notes that “[a] person does not need to undergo any medical procedure to be considered a transgender man or a transgender woman.”

The EEOC reiterates that it enforces Title VII of the Civil Rights Act of 1964 in instances of discrimination against transgendered individuals, as Title VII prohibits employer discrimination on the basis of sex where the action is “motivated by hostility, by a desire to protect people of a certain gender, by gender stereotypes, or by the desire to accommodate other people’s prejudices or discomfort.” The EEOC also noted that employers cannot and should not rely on state laws contrary to this guidance.

Bathroom Access Rights for Transgender Employees Under Title VII

The EEOC’s interpretation of “transgender” in the context of Title VII and bathroom usage is based upon two cases before the EEOC: Macy v. Dep’t of Justice, EEOC Appeal No. 0120120821, 2012 WL 1435995 (Apr. 12, 2012) and Lusardi v. Dep’t of the Army, EEOC Appeal No. 0120133395, 2015 WL 1607756 (Mar. 27, 2015), as well as a recent opinion from the Fourth Circuit in G.G. ex rel. Grimm v. Gloucester Cty. Sch. Bd., — F.3d –, 2016 WL 1567467 (4th Cir. 2016).

Lusardi held that prohibiting equal access to a common restroom corresponding to the employee’s gender identity is sex discrimination.  Further, in Macy, the EEOC noted that an employer cannot avoid the requirement to provide equal access to a common restroom for transgender employees by providing single-user restroom access instead.  However, the EEOC advised that an employer can make single-user bathrooms available to all employees who might choose to use them. In G.G., the U.S. Court of Appeals for the Fourth Circuit followed the Department of Education’s position that sex discrimination under Title IX is prohibited and that educational institutions are to give transgender students access to bathrooms and locker rooms consistent with their gender identity.

In the Fact Sheet, the EEOC reaffirms its position that any state law to the contrary of these decisions and interpretations is not a defense under Title VII.  Thus, employers would be wise to update their policies and procedures to conform with the EEOC’s directives as to transgendered individuals, rather than look to their resident state for guidance.

Transgender Access to School Bathrooms

On May 13, 2016, President Obama issued a directive that requires every public school to provide appropriate access for transgender students or risk the loss of federal funds. The directive has received strong backlash from conservative leaders who have accused the President of blackmailing and the federal government of getting involved in local issues.

On the same day, the Department of Education and the Department of Justice (“the Departments”) issued a Dear Colleague letter to assist in ensuring that transgender students can “enjoy a supportive and nondiscriminatory school environment.” Although the joint letter does not carry force of law, the intent is clear: schools must agree or lose federal funding.  Specifically, schools must agree that that it will not exclude, separate, deny benefits, or otherwise treat students differently on the basis of sex in its educational programs or activities unless Title IX so authorizes. Schools are required to treat transgender students according to the gender that they identify as soon as a parent or guardian notifies the district that the identity is different from previous records.

Much like the EEOC guidance pertaining to employers, the Departments do not require a medical diagnosis or treatment as a prerequisite to be considered transgender; they also explicitly state that accommodating the discomfort of others cannot be justified by excluding or singling out a particular class of students. The Departments provide specific guidance on sex-segregated activities and facilities and reiterate that schools may provide separate facilities (including housing) but must allow transgender student to access those which align with the gender that which the student identifies. Records must be kept consistent with the gender that which the student identifies with as well. There are some limitations. The Departments note that non-vocational elementary and secondary schools and private undergraduate institutions are permitted under Title IX to set their own sex-based admissions policies.

New York City Commission on Human Rights’ Transgender Guidance

On May 19, 2016, New York City’s Commission on Human Rights (NYCCHR) issued new guidelines requiring employers and landlords to implement transgender pronouns (“ze/hir”) as requested by transgender workers or tenants. Failure to comply may open organizations and individuals up to $250,000 in fines if that failure is motivated by malicious intent.

NYCCHR specifically notes that “harassment motivated by gender is a form of discrimination” and outlines examples of violation of its guidance in the context of failure to use an individual’s preferred name or pronoun, refusing to allow individuals to utilize single-sex facilities and programs consistent with an individual’s preferred gender, sex stereotyping, imposing different uniforms or grooming standards based on sex or gender, providing employee benefits that discriminate based on gender, considering gender when evaluating requests for accommodation, and engaging in discriminatory harassment and retaliation.

For more information regarding the EEOC’s Fact Sheet, related guidelines, and best practices with respect to transgender individuals in the workplace, please contact Dina M. Mastellone, Esq., Director of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com or 973-533-0777.

Major Changes to Federal Overtime Regulations Take Effect December 1. Are You Prepared?

This week, President Obama and Secretary of Labor Thomas Perez announced the publication of a final rule to take effect December 1 that will overhaul the Fair Labor Standard Act’s overtime regulations. The U.S. Department of Labor (USDOL) estimates that these changes will add more than four million employees to the overtime rolls.

Right now, in general, an employee is exempt from overtime pay if the employee satisfies three tests:

  • Duties Test: The employee’s primary job duties qualify as executive, administrative, or professional in nature, as these terms are defined in the regulations.
  • Salary Basis Test: The employee is paid on a salary basis, meaning the employee receives a predetermined and fixed salary that is not reduced because of variations in the quality or quantity of the work performed (i.e., no docking).
  • Salary Level Test: The employee’s weekly salary meets the minimum amount specified in the regulations.

The most significant change in the USDOL’s new rule is to the Salary Level Test. Today, the minimum salary needed to qualify for exempt status is $455 per week, or $23,600 annually. On December 1, 2016, this minimum will increase to $913 per week! This means in order to be exempt, an employee must be paid an annual salary of at least $47,476.

By more than doubling the minimum salary amount, many salaried employees who work long hours and currently qualify for an overtime exemption will on December 1 become eligible for overtime pay unless their salaries are increased. An employee whose weekly salary is below $913 will become overtime-eligible and you will have to track the employee’s hours of work through a verifiable timekeeping method and pay time-and-a-half for each hour worked over 40 in a workweek.

Employers need to start preparing now. First, you must identify your exempt employees whose salaries are below the new salary threshold. Then perform a business analysis to determine whether it is more cost effective to increase employee salaries to the minimum threshold, or treat these employees as overtime-eligible. We also recommend that you take this opportunity to evaluate whether your exempt employees are satisfying the other two tests. Many times we find that an employee’s exempt status is based on a job description that no longer accurately reflects the employee’s actual job duties. We recommend that employers self-audit their job classifications at least every two years to ensure employees classified as exempt currently satisfy a duties test and that pay practices for exempt employees meet the Salary Basis Test. Periodic self-audits are especially important now because the USDOL’s new rule establishes a mechanism for automatically updating the salary level every three years.

Employers cannot afford to be out of compliance with the FLSA. The Departments of Labor at both the federal and state levels have already signaled that they intend to aggressively enforce wage and hour laws. In addition, plaintiffs’ lawyers have become focused on wage and hour claims. Wage and hour litigation is by far the fastest growing type of employment litigation. Last year, more than 9,000 FLSA lawsuits were filed in the United States; many of them were filed as “collective actions” – the FLSA’s version of a class action. That is a 450% increase since 2000. This trend will almost certainly continue as plaintiffs’ lawyers hope to catch employers flat-footed and out of compliance with the new overtime regulations.

Wage and hour litigation can be expensive for employers. The FLSA provides for 100% liquidated damages – or double damages. It also shifts the plaintiff’s legal costs to the employer, meaning if the plaintiff proves a single violation of the law, the employer pays the plaintiff’s attorneys’ fees. This typically makes it difficult to resolve these types of suits early as the FLSA creates an incentive for a plaintiff’s lawyer to work the case and then recover attorneys’ fees when the lawsuit finally ends.

Again, the time to prepare is now, not when you receive the lawyer’s demand letter or the Department of Labor’s enforcement notice. A thorough self-audit, especially with the assistance of counsel, is an employer’s best protection against costly wage and hour enforcement actions and lawsuits.

For more information regarding these recent developments, please contact John R. Vreeland, Esq. Director of the firm’s Wage & Hour Compliance Practice Group, at jvreeland@nullgenovaburns.com or 973-533-0777.

Federal Trade Secrets Act Now Law: What Companies Should Know

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (“DTSA”).[i]  The measure had previously been passed by the U.S. House of Representatives 410-2 on April 27, 2016, quickly following the U.S. Senate’s unanimous passage of the bill on April 4, 2016.[ii]  The DTSA amends the Economic Espionage Act of 1996 to create a federal private right of action for trade secret misappropriation.  Its passage represents a major overhaul of intellectual property law in the United States, as companies were previously left to seek redress for trade secret misappropriation under a patchwork of state laws, the majority of which were adoptions of the Uniform Trade Secrets Act (“UTSA”).[iii]  While the DTSA mirrors many of the provisions and remedies found in the UTSA, which New Jersey and Pennsylvania have versions of, it does not do away with those state law protections, but rather provides additional tools for companies to utilize in protecting their intellectual property.

Here are some beneficial takeaways for companies:

A. DTSA Definition of a Trade Secret

The DTSA creates a broad, universal definition for the term “trade secret,” encompassing “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing” provided that:

  1. The company has taken reasonable measures to keep the information secret, and
  1. The information derives independent economic value to the company from not generally being known and not being readily ascertainable by others.

B. DTSA Definition of “Misappropriation”

The DTSA also details when “misappropriation” has occurred—i.e., when a trade secret holder may seek redress—as follows:

  1. When a trade secret has been acquired by someone who knew or should have known that the trade secret was obtained through “improper means,” or
  1. When a trade secret has been disclosed or utilized, without consent of its owner, by someone who knew or had reason to know either that (a) it is a trade secret or (b) it was obtained through “improper means.”

The term “improper means” is defined in the DTSA to include “theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means.”  However, the DTSA leaves an exception in the term for “reverse engineering, independent deviation, or any other lawful means of acquisition.”

C. Federal Cause of Action

While the majority of states have enacted the UTSA, there are slight differences between several of the state laws, and New York and Massachusetts have chosen not to adopt the UTSA.  Thus, companies seeking redress for trade secret misappropriation can now bring a suit in federal court without the requirement of diversity of citizenship between the parties.  Importantly, the DTSA does not replace or preempt the states’ existing trade secrets laws.  Thus, it provides more options to trade secret holders, who can now bring an action in federal court to assert parallel federal and state rights.  Note that while federal courts are normally the preferred venue for employers in employment discrimination suits, the same calculus does not necessarily hold as to equity matters, where state courts, for example in New Jersey with its chancery courts, are often the preferred venue for seeking to enforce restrictive covenants.

D. Remedies for Trade Secret Holders

The DTSA provides for several different measures of damages once misappropriation has been found.  These include the actual damages caused by the misappropriation, unjust enrichment damages, reasonable royalties in lieu of other damages, exemplary damages for willful or malicious misappropriation, and attorneys’ fees if the trade secret is found to have been misappropriated willfully or maliciously.  Notably, similar to the state statutes based upon the UTSA such as the New Jersey Trade Secrets Act, N.J.S.A. 56:15-1 et seq. (“NJSTA”), and Pennsylvania Uniform Trade Secrets Act, 12 Pa.C.S. 5301 et seq. (“PUTSA”), the DTSA allows for attorneys’ fees to be awarded if the claim of misappropriation was made in bad faith.  This reverse fee-shifting often leads to hesitation by companies and their attorneys in utilizing these statutes because of the possibility that a court may award fees if it holds that the claim was made in bad faith.  The same reluctance will attach to the use of the DTSA.

 E. Unique Provisions of the DTSA

  1. Early Seizure: Under extraordinary circumstances, a trade secret holder may apply ex parte to a court to seize the property that encompasses the trade secret “to prevent [its] propagation or dissemination.” This provision—certainly the DTSA’s most controversial—gives trade secret holders a remedy akin to a preliminary injunction by which they can prevent dissemination of a trade secret early in a case.  Such an application will be granted when a trade secret holder can show that immediate and irreparable harm will occur if a seizure is not ordered, that the harm to the alleged individual who misappropriated the trade secret is less than the harm to the holder, and that the holder is likely to succeed in their case on the merits.
  1. Remedies Against Former Employees: The DTSA makes clear that any injunction granted by a court with respect to trade secret misappropriation shall not be entered where it “prevent[s] a person from entering into an employment relationship,” or “otherwise conflict[s] with an applicable State law prohibiting restraints on the practice of a lawful profession, trade or business.” Moreover, the DTSA states that any “conditions placed on such [new] employment shall be based on evidence of threatened misappropriation” and not simply “information the person knows.”  These provisions address a frequent criticism often levied at restrictive covenants that prevent former employees from working for competitors in a certain geographic area for a certain time period—that they are preventing someone from earning a living.  The same rationale is the reason why non-solicitation agreements are more likely to be enforced by some courts as opposed to non-competition agreements, which restrict a former employee from working for a competitor.
  1. Whistleblower Immunity: The DTSA provides a safe harbor for employees who make a disclosure of a trade secret to the government “for the purpose of reporting or investigating a suspected violation of law,” as well as for employees who confidentially disclose a trade secret in an anti-retaliation action against their employer. Importantly, the DTSA provides that notice of this immunity must be provided by employers in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.  This may be accomplished by cross-referencing a separate policy document.  A failure to do so could result in exemplary damages and attorneys’ fees should the employee win on his or her anti-retaliation action.  Employers should immediately add this immunity language to all new or updated restrictive covenant agreements, non-solicitation agreements, and confidentiality agreements going forward from May 11, 2016, in order to ensure conformity with the DTSA.

F. How the DTSA Compares to State Equivalent Statutes in the Region

As the DTSA does not do away with state equivalent statutes, it is important to note that there remain benefits to utilizing the state statutes for companies operating in the region.

For example, the NJSTA is broader than many other state adoptions of the UTSA.  This is because where other states’ adoption of the UTSA may have pre-empted common law claims for trade secret misappropriation, the NJTSA included an express provision stating that:

The rights, remedies and prohibitions provided under this act are in addition to and cumulative of any other right, remedy or prohibition provided under the common law or statutory law of this State and nothing contained herein shall be construed to deny, abrogate or impair any common law or statutory right, remedy or prohibition . . . .

In interpreting this provision, at least one court has refused to dismiss common law counts brought in addition to a count for violation of the NJTSA.[iv]  Likewise, the PUTSA contains additional avenues for redress apart from the DTSA because its provisions have been interpreted to permit the issuance of preliminary and permanent injunctions preventing a former employee from accepting employment with a competitor where it can be shown that the employment will result in the trade secret’s utilization or disclosure.[v]

By contrast, as New York does not have an equivalent statute adopting the UTSA, its common law interpretation of trade secret misappropriation is very fact-intensive, as its courts have adopted the definition of a trade secret from the Restatement of Torts.  New York defines a trade secret as “any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it,” and the factors that New York courts utilize in deciding a trade secret claim include:

(1) the extent to which the information is known outside of [the] business; (2) the extent to which it is known by employees and others involved in [the] business; (3) the extent of measures taken by [the business] to guard the secrecy of the information; (4) the value of the information to [the business] and [its] competitors; (5) the amount of effort or money expended by [the business] in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.[vi]

As the DTSA’s definition is more straight-forward, its enactment may make it easier for New York companies to demonstrate a trade secret and misappropriation thereof than under New York’s existing common law.

Finally, companies should still be aware that in other states, such as New Jersey, even if information does not rise to the level of a trade secret, it may still be protected under the individual state’s common law.[vii]

For questions about the Defend Trade Secrets Act and its implications, please contact Harris S. Freier, Esq., a Partner in the firm’s Employment Law and Appellate Practice Groups, at hfreier@nullgenovaburns.com or (973) 533-0777.

 

[i] https://www.whitehouse.gov/photos-and-video/video/2016/05/11/president-obama-signs-s1890-defend-trade-secrets-act

[ii] https://www.congress.gov/bill/114th-congress/senate-bill/1890

[iii] http://www.uniformlaws.org/shared/docs/trade%20secrets/utsa_final_85.pdf

[iv] See SCS Healthcare Mktg., LLC v. Allergan USA, Inc., 2012 N.J. Super. Unpub. LEXIS 2704, at *19 (N.J. Super. Ct. Ch. Div. Dec. 7, 2012).

[v] See, e.g., Solar Innovations v. Plevyak, 2013 Pa. Super. Unpub. LEXIS 1230 (Pa. Super. Ct. 2013).

[vi] See Restatement of Torts § 757 cmt. b, at 5 (1939) (quoted in Ashland Mgmt. v. Janien, 82 N.Y.2d 395, 399, 624 N.E.2d 1007, 1008, 604 N.Y.S.2d 912, 913 (N.Y. 1993)).

[vii] See e.g., Ingersoll-Rand v. Ciavatta, 110 N.J. 609, 626 (N.J. 1988); Platinum Mgmt., Inc. v. Dahms, 285 N.J. Super. 274, 295 (N.J. Super. Ct. Law Div. 1995).

A Troubling Decision for Employment Arbitration Agreements with Potentially Ambiguous Language and What it Means for Employers Going Forward

On April 5, 2016, in a rare rebuke of an employment arbitration agreement by a federal court, the United States District Court for the District of New Jersey (Hon. Madeline Cox Arleo, U.S.D.J.) held that it would not compel arbitration mandated by an employment agreement because the agreement at issue was too ambiguously drafted.

In Ranieri v. Banco Santander S.A., Civil Action No. 15-3740, Plaintiffs were former Mortgage Loan Officers with the Defendants in their New Jersey branches who brought a collective action claim for wage and hour violations under federal and state law.  The collective action was on behalf of all current and former employees of Defendants whose job duties included working as a mortgage loan officer and who were not paid overtime or minimum wage in the past three years.

At the start of their employment, Plaintiffs received an offer of employment which mandated that Plaintiffs execute “the enclosed Mortgage Retail Development Officer Agreement” (“MDO”) and all attached exhibits, on or before the first day of work.  The offer letter also attached a copy of the Mortgage Sales Commission Plan.  The MDO Agreement contained six sections, including an arbitration clause which prohibited class, collective, and representative actions against Defendants.  Both Plaintiffs signed the MDO agreements on the bottom of the final page under a bolded sentence that read: “I certify, by my signature below, that I have received a copy of the Mortgage Sales Commission Plan, which has been provided to me.”  The MDO Agreement contained a Pennsylvania choice of law provision.

While the Court acknowledged that ordinarily a party’s signature on an agreement implies agreement to the entire contract, here the Court found that the language in the MDO Agreement was ambiguous, specifically the sentence above the signature line.  The Court found that the purpose of the signatures was too unclear: either the Plaintiffs could memorialize only that they received the Mortgage Sales Commission Plan or that they agreed to all of the terms of the MDO Agreement and that they were confirming receipt of the Mortgage Sales Commission Plan.  Due to the ability to logically construe the agreement in more than one way, the Court held that it would not compel arbitration because the intent of the parties could not be determined on the pleadings alone, and because the ambiguous language in the MDO Agreement should be construed against the drafters, the Defendants.  Defendants’ motion to compel arbitration was denied without prejudice and the Court ordered discovery on the question of arbitrability.

The Court’s decision is important because federal courts have traditionally viewed employment arbitration agreements very favorably based upon the Federal Arbitration Act and significant U.S. Supreme Court precedent.  Such agreements have also become more widespread.  Employers with arbitration agreements should have these agreements regularly reviewed by counsel, as the law is in a constant state of flux regarding the effectiveness of arbitration agreements as to state claims and the prohibitions on class claims that any good arbitration agreement contains.  Carefully drafted arbitration agreements are more likely to be enforced.  Note that beyond having employment counsel review arbitration agreements, employers should also discuss the need for such agreements to start with.  Employers often mistake employment arbitration agreements as a panacea to liability from claims by current and former employees, however, legal fees and discovery are often not significantly reduced and with appeal options severely limited, a bad decision by an arbitrator can be disastrous for an employer.  Instead, arbitration agreements are often most useful in industries and for employers who face significant potential wage and hour class and collective action exposure.  Careful consultation with an employment attorney is critical both in deciding whether to use employment arbitration agreements and if the decision is made to use such agreements, how to make sure that they remain enforceable in a constantly changing legal landscape.

For more information regarding employment arbitration agreements, please contact Harris S. Freier, Esq., a Partner in the firm’s Employment Law and Appellate Practice Groups, at hfreier@nullgenovaburns.com or 973-533-0777.

New York Passes Trailblazing Paid Family Leave Starting in 2018

On March 31, 2016, the New York State Legislature passed a bill that included the country’s most wide-ranging paid family leave law. Beginning in 2018, all full-time and part-time workers employed for 6 months in New York State will be eligible for a guaranteed, job-protected 12 weeks of paid family leave (PFL), regardless of the size of their company. PFL covers time off to bond with a new child (including adopted or foster children), or to care for a seriously ill child, spouse, domestic partner, parent, grandchild, grandparent, sibling, or the parent of a spouse or partner parent. In addition, employees may also use PFL to address certain legal, financial, and childcare issues related to the military service of a spouse, domestic partner, child, or parent.

Starting in 2018, employees will receive 8 weeks of paid leave at half their salaries. The leave will be funded by employees through payroll deductions, will gradually phase up over 4 years to 12 weeks and 67 percent of pay in 2021.  Employee payroll contributions will cost from .70 cents a week up to $1.40. After the full benefits kick in, workers will be eligible for just 67% of the state’s average weekly wage, or a maximum of $848 per week for the highest paid workers. The PFL requires no additional contributions from employers or taxpayers.  The legislation also guarantees job protection for all workers who take leave, even those who work for businesses with fewer than 50 employees, which are not subject to the federal Family and Medical Leave Act (FMLA).

Within the same budget bill, the New York legislature passed a $15 minimum wage increase along with a middle-class tax cut, public education and transportation investments, and other progressive measures. The emphasis on family comes following personal challenges faced by New York’s Governor Andrew Cuomo and the evolution of the fight for workers’ rights, shifting from just a women worker’s issue to a broad workforce concern.

New York now joins New Jersey, California and Rhode Island as the only states that offer paid family leave. Despite a national 12-week unpaid family leave policy, in the United States overall, about 40% of employees are not covered under the FMLA because their employers have fewer than 50 employees, they work too few hours, or they have been employed there for under a year.

For more information regarding the potential impacts of this legislation or how your business can prepare to develop a compliant paid family leave policy, please contact Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com or 973-533-0777.