Don’t be right, be reasonable.

A good reminder about following the right substantive standard appears in Clark v. Boyd-Tunica Inc., in which an employee of “Sam’s Town” disputed her termination for drinking at work. The employer relied on tests performed by a reputable company, which it rechecked after she complained about them. The Fifth Circuit sided with the employer: “The focus of the pretext inquiry is not whether the alcohol in Clark’s sample was, in fact, attributable to her improper consumption of alcohol, but whether Sam’s Town reasonably believed it was and acted on that basis.” No. 16-60167 (Dec. 9, 2016).

Oklahoma law wins “Red River Shootout” in noncompete case

texas-ouCardoni v. Prosperity Bank, an appeal from a preliminary injunction ruling in a noncompete case, involved a clash between Texas and Oklahoma law, and led to these noteworthy holdings from the Fifth Circuit in this important area for commercial litigators:

  • Under the Texas Supreme Court’s weighing of the relevant choice-of-law factors, Oklahoma has a stronger interest in the enforcement of a noncompete than Texas, “with the employees located in Oklahoma and employer based in Texas”;
  • As also noted by that Court, “Oklahoma has a clear policy against enforcement of most noncompetition agreements,” which is not so strong as to nonsolicitation agreements;
  • The district court did not clearly err in declining to enforce a nondisclosure agreement, given the unsettled state of Texas law on the “inevitable disclosure” doctrine; and
  • “[T]he University of Texas leads the University of Oklahoma 61-44-5 in the Red River Rivalry.”

No. 14-20682 (Oct. 29, 2015).

Welcome back, NLRB.

nlrb_1In 2013, a Fifth Circuit panel reversed the NLRB and held that “an employer does not engage in unfair labor practices by maintaining and enforcing an arbitration agreement prohibiting employee class or collective actions and requiring employment-related claims to be resolved through individual arbitration.”  D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013).  The NLRB, not bound in other jurisdictions by that holding, reaffirmed its original holding in the D.R. Horton case in another matter involving Murphy Oil. Unfortunately for the NLRB, the venue rules for review of its decisions allowed Murphy to appeal to the Fifth Circuit, which – unsurprisingly – again reversed the NLRB.  As in the prior case, the Court did not reverse as to a requirement that the employer clarify its documents to be clear that employees were not waiving the right to make Board charges. Murphy Oil USA, Inc. v. NLRB, No. 14-60800 (Oct. 26, 2015).

No flip-flip about the flip-flop

jackup rigMyers slipped in the shower while working aboard a drilling rig in the Gulf of Mexico.  In an echo of Blanton v. Newton Associates (a recent employment cases that turned on a prompt investigation into the facts), the rig operator quickly obtained a statement from Myers that said: “When getting out of shower, my shower shoe on left foot broke causing my left foot to slip and twist and resulted in falling out of shower.”  When Myers took an inconsistent position in trial (arguing that he fell because of inadequate rails and mats), this statement was key to affirmance of a defense judgment.  The Fifth Circuit also rejected an argument about the trial court’s review of the evidence: “Myers does not allege that the court did not see the flip flops; instead, he appears to object to the court’s failure to inspect them more closely. . . . When physical evidence is introduced at a bench trial, neither caselaw nor common sense establishes a minimum distance the judge must be from that evidence before the judge’s obligation to consider the evidence is satisfied.”  Myers v. Hercules Offshore Services, No. 15-30020 (Sept. 25, 2015, unpublished).

(12 ÷ 30) = Fact Issue = Summary Judgment Reversed

40_percent_off_light_redA security company required that its employees travel to a designated break location at lunchtime, substantially eating into their 30-minute lunch break.  The Fifth Circuit reversed summary judgment for the company on FLSA claims, reasoning:  “Unlike a requirement that the employee stay in uniform, or even one that may result in the employee having to perform a duty on rare occasions, a jury could find that preventing the employee from eating—ostensibly the main purpose of the break—for twelve out of thirty minutes during every break is a meaningful limitation on the employee’s freedom. The travel obligation thus cannot be deemed a mere ‘inconvenience’ as a matter of law.”  Naylor v. Securiguard, Inc., No. 14-60637 (Sept. 15, 2015).  Whether the “40 percent rule” carries over to other areas of summary judgment practice remains to be seen, but Naylor still stands as a cogent and highly readable review of a basic part of the modern workplace.

The building blocks of pleading SOX

bricks blocksWallace sued Tesoro Corporation for retaliation, alleging he was fired for activity protected by the Sarbanes-Oxley Act.  he district court dismissed.  The Fifth Circuit affirmed in part, finding that Wallace had not exhausted his administrative remedies as to his claims about Tesoro that he did not present to OSHA.  Wallace v. Tesoro Corp., No. 13-51010 (July 31, 2015).  The Court reversed as to other claims dismissed on the pleadings, holding:

  • As to the objective reasonableness of Wallace’s belief about an accounting practice — “The basis for that belief in this case, including the level and role of Wallace’s accounting expertise and how that should weigh against him, are grounded in factual disputes that cannot be resolved at this stage of the case.”
  • As for Wallace’s reasonable belief that a fraud was occurring, Rule 9(b) is not implicated because “an employee who is providing information about potential fraud or assisting in a nascent fraud investigation might not know who is making the false representations or what that person is obtaining by the fraud; indeed, that may be the point of the investigation.”
  • Wallace adequate pleaded the basis for his reasonable belief that Tesoro was not making proper SEC disclosures, and that Tesoro acted with the requisite mental state (primarily by detailing the steps he took to inform Tesoro management).  The opinion provides more detail about the specific allegations made by Wallace.

Ask not for whom the bell tolls . . .

bellAfter the EEOC sent two inconsistent letters about a claimant’s case – one in June, and one in July – a confusing limitations problem arose.  The Fifth Circuit found that equitable tolling applied and prevented a bar to filing suit.  It agreed with the district court that testimony about what the EEOC told counsel on the phone was inadmissible for the truth of the matter asserted, but disagreed that it was completely inadmissible — when offered to prove why counsel acted as he did, the conversation was not offered for a hearsay purpose.  The Court also noted that counsel, and his client, had proceeded diligently throughout the matter, noting: “Th[e] desire to have an EEOC letter with all the t’s crossed and i’s dotted is a sign of diligence rather than dawdling.”  Alvarado v. Mine Service, Ltd., No. 14-50668 (July 30, 2015, unpublished).

Noncompete Nonenforceable.

An architectural firm sued a former employee and a competitor.  The Fifth Circuit affirmed judgment for the defendants in Hunn v. Dan Wilson Homes, No. 13-11297 (June 15, 2015).  As to the firm’s claim for breach of fiduciary duty, the Fifth Circuit found no error in the district court’s finding that “the plans in the AutoCAD files were the same as the physical copies of the plans that [had] already been disseminated by [Plaintiff]” to various homeowners.  A noncompete claim failed for lack of an express promise related to confidential information.  Other claims based on copyright, the Lanham Act, contract, and the Computer Fraud and Abuse Act failed for similar proof problems.  Particularly as to the elements of a noncompete claim under Texas law, the opinion provides a practical summary of potential claims related to an employee’s departure, as well as several commonly-litigated factual issues related to those claims.

No damages = no injunction = no fees. (UPDATED)

chopperDan Peterson sued his former employer, Bell Helicopter Textron, for age discrimination under the TCHRA. The jury found that age was a motivating factor in his termination, but also found that Bell would have terminated him even without consideration of his age.  The district court awarded no damages, but imposed an injunction on Bell about future age discrimination, and awarded Peterson attorneys fees of approximately $340,000.  The Fifth Circuit reversed.  Noting that the TCHRA allowed an injunction even in light of the unfavorable causation finding, the Court found that plaintiff’s request came too late, as Fed. R. Civ. P. 54(c) “assumes that a plaintiff’s entitlement to relief not specifically pled has been tested adversarially, tried by consent, or at least developed with meaningful notice to the defendant.”  Here, Bell showed that it would have tried the case differently had it known an injunction was at issue.  Accordingly, the fee award was also vacated. Peterson v. Bell Helicopter Textron, Inc., No. 14-10249 (June 4, 2015).  A revised opinion honed the opinion’s analysis as to a potential alternative ground of fee recovery; the same day it issued, the full Court denied en banc review over a lengthy dissent.

Why conduct due diligence in hiring?

causationA medical practice hired an employment agency, which recommended an office manager who then embezzled $60,000.  The practice sued the agency and lost.  The Fifth Circuit observed that under the Texas definition of a “producing cause”:

  • “when boys meet a man because he volunteers with their Boys Club, but the boys and their family then befriend the man outside of the club context, the club’s misrepresentation that it thoroughly checks the background of its volunteers is not a producing cause of the man’s later molestation of the boys outside of the club,” and
  • “when a church advertises a teenage boy as a babysitter and parents hire him, the
    church’s advertisement is not the producing cause of his later molestation of
    their children because the parents themselves chose to hire the teenager as a
    babysitter.”

Accordingly, “[b]ecause the doctors of the Medical Group decided to hire Brown based upon their own observations, we conclude that [the agency’s] conduct was not the producing cause of the Medical Group hiring Brown and its resulting injuries.”  Cox, Chanez & Williams v. Howroyd-Wright Employment Agency, Inc., No. 14-10799 (May 14, 2015, unpublished).

How to enjoin a former employee

stopsignHalliburton obtained an injunction in an arbitration against a former employee.  The employee sought vacatur under the FAA, arguing that it allows judicial review of an injunction for vagueness.  After reviewing some dispute as to whether such review is allowed after Hall Street, the Court rejected the challenge.  The employee challenged a provision that enjoined him from “utilizing in any fashion” certain documents “that concern [Halliburton’s] products or services, arguing that “utilization” was undefined, the limitation had no time period, and the document description was vague.  The Court found that, “read in context,” it was clear that the arbitrator was referring to material that the employee had improperly taken from Halliburton.  Because this gave the employee “fair notice of what he may, and must not, do,” it was “clearly capable of being implemented and enforced.” McVay v. Halliburton Energy Services, No. 10-10172 (April 22, 2015).  The entire injunction appears on pages 6-7 of the opinion and is of general interest to noncompete and trade secret litigation.

En banc review denied, barely, in high-profile whistleblower case

In November, a Fifth Circuit panel affirmed the NLRB’s $30,000 award in a retaliation case based on the employer’s handling of a whistleblower.  Halliburton Co. v. Administratve Review Board, U.S. Dep’t of Labor, No. 13-60323.  The full court has now denied the petition for en banc review, by the close margin of 7 judges for review and 8 against.  A 3-judge dissent criticizes the “ad hoc nature” of the panel opinion and warns that it will lead to confusion about what specific conduct can amount to a materially adverse employment action in the context of a retaliation claim.

How to plead a retaliation claim — UPDATED

Richardson alleged that he was terminated, in violation of Louisiana’s whistleblower statute, for revealing fraudulent time records and overbilling.  The district court granted summary judgment and the Fifth Circuit reversed.  Richardson v. Axion Logistics, No. 14-30306 (revised March 23, 2015).  Applying the Twombly “plausibility” standard, the Court found adequate pleading about his employer’s knowledge of the alleged misconduct, as well as the timeline of events leading up to his termination.  The pleading itself is available for review here; the specific paragraphs identified by the Court as to the employer’s knowledge are highlighted in yellow, and those identified about his termination in orange.

Compliance matters — swift investigation defeats discrimination claim.

‘Blanton sued for employment discrimination, and after trial, “[t]here is no question that Blanton was subjected to egregious verbal sexual and racial harassment by the general manager of the Pizza Hut store where he worked.”  Blanton v. Newton Associates, Inc., No. 14-50087 (Feb. 10, 2015, unpublished).  The issue on appeal was whether the employer had established “the Ellerth/Faragher affirmative defense”; essentially, that the employer acted reasonably to stop the harassment and the employee unreasonably failed to enlist the employer’s aid.  The evidence showed a lack of training about the employer’s anti-discrimination policies, and that two low-level supervisors hesitated to report the harassment for fear of retaliation by the general manager, but that “[o]nce Blanton did complain to a manager with authority over the general manager, Pizza Hut completed an investigation and fired her within four days.”  Accordingly, the verdict and resulting judgment for the employer was affirmed.

How not to manage a whistleblower

Menendez complained about his employer’s accounting practices to the SEC.  The employer received a letter from the SEC asking for retention of certain documents.  The employer then emailed Menendez’s colleagues, “instructing them to start retaining certain documents because ‘the SEC has opened an inquiry into the allegations of Mr. Menendez.'”  Relations with his co-workers deteriorated and he ultimately resigned.  In a detailed opinion, the Fifth Circuit affirmed a $30,000 damages award to Menendez on his claim for retaliation: “The undesirable consequences, from a whistleblower’s perspective, of the whistleblower’s supervisor telling the whistleblower’s colleagues that imagehe reported them to authorities for what are allegedly fraudulent practices, thus resulting in an official investigation, are obvious.”  Halliburton, Inc. v. Administrative Review Board, U.S. Dep’t of Labor, No. 13-60323 (Nov. 12, 2014).  The case has received considerable attention in employment and compliance circles; the Wall Street Journal‘s coverage is a short example.