Employee Handbook

Home Field Advantage to Protect Your Business Secrets

No matter what the game, you want the home field advantage.  That's true even when you're prosecuting a lawsuit against an ex-employee who took your business secrets.  You'd often rather be in federal court. And your employee manual may let you clinch that advantage.

The federal Computer Fraud and Abuse Act ("CFAA") could be your ticket to federal court.  The CFAA imposes civil and criminal liability on folks who exceed "authorized access" to protected computers.  Several federal courts, including the Fifth Circuit that covers Texas, say the CFAA comes into play when your employees violate your written computer use policies to steal or misuse your business secrets.  That federal claim can land you in federal court.

The Ninth Circuit in California just jumped on the band wagon. In Nosal, the court upheld the CFAA indictment of an ex-employee who had allegedly broken his company's computer use policy.  According to the federal indictment, he hired three current employees to download the company's business secrets from its server and start a competing business.  The company's computer use policy restricted the use or disclosure of business secrets to legitimate company business.

Your employee manual should cast a wide net on prohibited computer use.  That way, you have several hooks into CFAA liability.  Many companies get mileage out of prohibiting employees from:

  • Using or disclosing business secrets for anything other than legitimate company business;
  • Transferring business secrets to any storage device other than the company's server; and
  • E-mailing business secrets to an employee's non-work e-mail accounts.

Arbitration Can Deter Plaintiff's Overtime Lawyers

Plaintiff's overtime lawyers love class warfare.  A well-written overtime lawsuit always asks the court to create a class of your current and ex-employees to sue you as a group.  Lawyers call that an overtime collective action.  It's deadly—plaintiff's lawyers leverage the high potential liability to broker class-wide settlements with eye-popping dollars.

One way to curb the problem is to break up these classes before they form.  A plaintiff's lawyer is less likely to aggressively pursue a single employee's overtime claim against you because the lawyer's up-side is much smaller.  Employee arbitration programs may let you duke out an overtime dispute mano y mano.

Arbitration agreements and policies may prohibit your employees from ganging up on you in a class.  You can insist that all employment disputes go to arbitration, but strip away the arbitrator's power to lump individual claims into a class.  But can you get away with that?  Probably so.

In AT&T Mobility v. Concepcion, the US Supreme Court looked at a consumer contract with an arbitration provision that forced consumers to litigate their claims individually.  No class actions allowed.  Despite the plaintiff lawyer's sleek argument for class warfare, the Court sent him to arbitration with one client.  This ruling bodes well for employers too.

Think about starting an arbitration program for your employee disputes.  If you go arbitration, look carefully at your policy or agreement.  Does it specifically prohibit class arbitration?  Does it limit pre-arbitration discovery to capture the speed and cost efficiencies of arbitration?  What about limiting how long the claim can linger before the final arbitration hearing?

But arbitration programs aren't for everybody.  Jury trial waivers are another realistic option to get a handle on runaway jury awards.  Either way, put some thought into how you'll resolve employee disputes.  You always want the home field advantage.

As Good As It Gets?

Key employees don't always have a non-compete or non-solicit agreement.  You might, however, pay a high price for missing that detail.

Think about HP's predicament after ousting Mark Hurd from its CEO slot.  Hurd turned around and took a senior executive role with Oracle which competes head-to-head with HP.  HP could only sue Hurd for breaching his non-disclosure agreement because he didn't sign a non-compete agreement.  A copy of HP's  is complaint posted on-line.

To win, HP must prove that Hurd has used or inevitably will use its business secrets.  Assume for a second that the lawsuit was in Texas.  Unless Hurd took confidential HP documents with him, that may be a hard sell.

Is that good enough?  We're talking about an ex-CEO who, no doubt, got boatloads of business secrets.  And he's now working for a direct competitor.  According to HP, Hurd had been privy to a top secret report that analyzed HP's competitiveness against Oracle.

It's a different game with a non-compete or non-solicit agreement.  HP would have Hurd in its crosshairs simply by proving that the non-compete was enforceable and reasonable.  At least in Texas, courts have made non-compete and non-solicit agreements far more enforceable since 2006.  That's why many companies insist on them.

Take Back the Driver's Seat

Overtime lawsuits alleging that you misclassified a position as salaried exempt follow a common path--the plaintiff's lawyer always hands you a huge tab.  What the lawyer doesn't tell you is that he crunched his numbers using the method that spits out the highest liability.  There's a better way.

Misclassification liability might instead be calculated with the fluctuating workweek method.  Applying this method normally reduces liability by 60-70%.  That deflates a plaintiff's lawyer pretty quick, putting you in the driver's seat to broker a settlement deal.

In Toletino v. C&J Spec-Rent, a federal court in Houston's backyard endorsed the fluctuating workweek method.  The plaintiff employees admitted that they had received a fixed salary and understood their hours would vary without any additional overtime pay.  With that admission, the court ruled that the more company-friendly liability model applied.  But what if the plaintiffs hadn't admitted this obvious truth about their salary during the lawsuit?

Your company's employee manual should nail down the admission long before a plaintiff's lawyer gets involved.  Your manual should say that salaried employees understand their salary will be their only pay for all hours worked.  Carefully wording this part of the employee manual is critical to triggering the fluctuating workweek method.  And it is your most fundamental line of defense.

Play the Hand You're Dealt

Sexual harassment claims often come from things you can't fully control.  A rouge supervisor.  An on-the-side workplace romance that goes bad.  On top of that, you can't pick the employee who gets harassed and turns plaintiff.

The plaintiff's background, I think, can make or break a case--just look at O'Dell v. Wright.  The plaintiff testified that she had been abducted and sexually assaulted when she was five years old.  She also said that her supervisor had barraged her with lewd comments and touched her twice.  A Fort Worth jury awarded $425,000 for the plaintiff's mental anguish alone.  And the appellate court let the jury verdict stand.

Let's talk about what you can control.  A few simple steps will help keep you away from angry juries and preserve your defenses against higher damage awards.  You can:

  • Avoid a runaway jury by implementing an arbitration policy or jury waiver agreement for your employees;
  • Have a solid discrimination and harassment policy;
  • Train your employees on your policies; and
  • Investigate any reports of harassment and respond appropriately.

Trust But Verify

Authorities in Pennsylvania believe a teacher played hooky by faking an inoperable brain tumor.  She fooled the system for over 10 years—even asking for 8 weeks off to get chemotherapy.  But the teacher didn't have any of a brain tumor's normal symptoms, so the school district finally got suspicious.  The district called the doctor whose name was on the teacher's sick notes, and he said he'd never treated her.  AOL news broke the story.

Link to full story.

Chances are the teacher claimed FMLA leave to cover her 8-week absence for chemotherapy.  Under the FMLA, covered employees may take up to 12 weeks of unpaid time off to care for a "serious health condition."  The FMLA lets you implement written policies to police abuses of family and medical leave.

Do you require medical certification that your employee's or his relative's condition qualifies for FMLA leave before fully approving the leave?  Are you checking back in with your folks every 30 days or so to have the medical condition recertified?  How about having HR contact the treating physician if a certification smells fishy?

An employee who abuses FMLA leave may be the suing type.  If he sues you, you might use the medical certifications to build your case.  Let's say you can prove dead-to-rights that the employee forged a medical certification.  That's a legitimate basis for firing him.  Even if you discover the forgery after firing the employee, it can still cut off his lost wages claim from the day you discover the fraud.  Either way, your diligence on monitoring FMLA leave just saved you.

Luby's Gets Served by its Own Policies

HR folks spend hours writing and re-writing policies.  There's good reason for that—your policies are the first place a plaintiff's lawyer will look to launch an overtime lawsuit.

Luby's tip pooling policies recently cost the company a collective action against its waiters.  In overtime land, that's like a class action where a group of your employees and ex-employees gang up on you in a single lawsuit.  It gives your employees a lot more leverage than filing a bunch of individual lawsuits.  Bad policies are often ground zero for a nasty collective action.

Although Luby's tried to convince the federal judge that the big collective action should be shaved down to individual lawsuits, the judge didn't buy it.  Employees can get together in a collective action if they are "similarly situated."  According to the judge, the waiters were all "similarly situated" because the tip pooling policy under fire had applied the same to all of them.

One bad policy can cause an expensive problem.  For example, a job description might fuel a lawsuit alleging that a group of employees has been misclassified as salaried exempt if the job description shows the position has non-exempt duties.  Exempt status can also be jeopardized by a pay docking policy.

Plewinski v. Luby's Inc.