HRWatchdog?has frequently blogged on the increased activity by the National Labor Relations Board (NLRB) as it relates to employer discipline for social media postings made by employees. In the past year, the NLRB has seen an increase in the number of charges related to social media and has filed several complaints against employers who discharged employees for social media postings in which the employees complained about workplace conditions.

Employees, in both union and non-union workplaces, have the right under Section 7 of the National Labor Relations Act (NLRA) to engage in concerted activities. Such activities might include two or more employees discussing working conditions, pay or other work-related issues. The typical example of a protected activity is when employees gather around the water cooler to complain about their supervisor. These days, that water cooler conversation might take place online – on Facebook, Twitter or some other social media outlet.

There has been some uncertainty for employers as to when social media postings will be regarded by the NLRB?as a protected concerted activity and when employers can and cannot take disciplinary action against employees for their social media postings. Last month, the NLRB's Office of General Counsel issued a report outlining some of the social media cases. The report detailed the outcome of the NLRB's investigation into these cases. The purpose of releasing the document was to provide guidance to labor law counsel and human resource professionals.

Now, for the first time, a NLRB?Administrative Law Judge (ALJ) has weighed in on the issue after a full hearing. The ALJ ruled against a Buffalo non-profit organization and found that the organization unlawfully discharged five employees after they posted comments on Facebook concerning working conditions, including work load and staffing issues.

An employee at Hispanic United of Buffalo, Inc. (HUB), a non-union employer, posted the following on her Facebook page: “Lydia Cruz, a coworker feels that we don’t help our clients enough at HUB I about had it! My fellow employees how do u feel?” Several other HUB employees then went on Facebook and commented on the original post. These comments expressed negative opinions about Cruz’s criticism, defended employee job performance, and complained about working conditions. The comments were often sarcastic and some used profanity.

None of the posts were made during work hours and none were made using a work computer. After learning of the posts, HUB discharged the employees who had participated, claiming that the comments constituted harassment of Lydia Cruz, who was originally mentioned in the post.

The ALJ?disagreed with HUB’s position and found that the Facebook discussion was protected because it involved a discussion among coworkers about the terms and conditions of employment, including job performance and staffing levels. The ALJ noted that expressions related to defense of job performance are a protected activity, especially where the employees could reasonably believe that they would need to defend their job performance to management.

The ALJ ordered reinstatement of the five employees and also awarded the employees back pay because they were unlawfully discharged.

The ALJ?also found that the employees did not engage in any conduct that forfeited their protection under the NLRA. The ALJ noted that there was not a violation of HUB’s anti-harassment policy because there was no evidence that the complaining individual was harassed and no evidence that she was harassed based on a protected characteristic.

Copyright: HR California/CCC

With profuse apologies to the Gershwins.? This post is not about show tunes.? It’s about a new case from the California court of appeal, which offers good insight on how courts out here view vacation and related matters.

In Paton v. Advanced Micro Devices, the court faced the question whether a promised company sabbatical (remember when some tech employers — and even law firms — offered those?) constituted “extra vacation” which had to be paid if not taken by the employee before his employment ended.? AMD offered paid eight-week sabbaticals?to salaried employees after seven years of service.? (Later the program was changed to offer four-week sabbaticals for employees after five years of service, and the program was later abolished entirely.)? Eric Paton was a salaried employee who worked for AMD for seven years, but (for a variety of reasons) never got his sabbatical.

When he quit, Paton contended that he should be paid for the sabbatical, because it was (in Paton’s view) “really just extra vacation.”? And, as we all now know, a departing employee must be paid for accrued but unused vacation when he leaves.? When AMD refused, Paton filed a class action suit seeking the usual remedies (back pay, penalties, and, let us never forget, attorneys’ fees).? The trial court threw the suit out, finding that the sabbatical program was not equivalent to vacation.

The court of appeal said not so fast.? First, the court (admirably) tried to come up with a workable definition of “vacation” under California law, something that no court had yet tried to do.? After reviewing prior legal and regulatory pronouncements on the subject, the court stated:

We take from the foregoing a rough idea of what constitutes vacation.? It is paid time off that accrues in proportion to the length of the employee’s service, is not conditioned upon the occurrence of any event or condition [like a particular length of service, or an illness], and usually does not impose conditions upon the employee’s use of the time away from work [as compared to a traditional academic sabbatical for research or scholarship purposes].

Next, the court compared corporate sabbatical programs in general to its? “rough idea” of vacation:

By attempting to incorporate the characteristics of a traditional sabbatical into the [non-binding regulatory] test, the Labor Commissioner implicitly recognized that legitimate sabbaticals?would be those that were designed to achieve purposes similar to the purposes for which traditional sabbaticals are used, namely to provide incentive for experienced employees to continue with and improve their service to the employer.? Where a corporate sabbatical is granted for a specified sabbatical project (other than rest and recreation) one would have little trouble concluding that it is not vacation.? The thornier problem is where the sabbatical is granted based only upon the length of service and is unconditional with regard to the employee’s use of the time away.? Such a program has elements in common with regular vacation.? But it could still be a legitimate sabbatical if the facts show that the leave is designed as an incentive for continued and improved performance by the most experienced employees and not merely as a reward for a prior period of service.

The court proposed a four-part test to determine whether a corporate sabbatical program was a “true sabbatical”, instructing lower courts and employers to consider: (1)? the frequency of the leave (the less frequent the leave, the more likely a sabbatical); (2) the length of the leave (the longer the leave, the more likely a sabbatical); (3) whether the leave supplants or supplements regular vacation (true sabbaticals are offered in addition to regular vacation); and (4) whether the program requires the employee to return to work after the sabbatical (yes, sabbatical; no, vacation).

Finally, the court looked at the specifics of AMD’s sabbatical program, and found it was too close a question for summary judgment:

As to the elements of plaintiff’s wage claim, the undisputed evidence shows that defendant’s sabbatical program contained the elements of a vacation.? It was based upon the employee’s length of service; if he worked seven (or five) years he was eligible for eight (or four) weeks off with pay.? Although the program required that the employee bring his performance up to company standards before he could use the leave, and it allowed defendant to postpone a planned leave if it had business reasons for the postponement, the written policy does not impose any conditions upon earning the time off.? Both the policy itself and the benefits brochure indicate that the employee was eligible after service for the prescribed number of years.? The leave was granted without any conditions as to how the time was to be spent and did not require the employee to account in any manner for what he or she did while away.

As to defendant’s claim that the leave was a legitimate sabbatical, defendant produced evidence to support that claim.? The policy provides that employees on sabbatical “will return to their same job,” which suggests that the program is designed as a retention incentive.? But that feature alone is not dispositive.? Although defendant asserted that the leave was also offered for a longer period than what was “normally” offered for vacation, and that it was not offered “too” frequently in that it was offered only every five or seven years, these are qualitative parameters upon which reasonable minds could differ.? If a jury were presented with only the sabbatical and vacation policies, we cannot say that a reasonable jury would reach but one conclusion.? It would not be unreasonable for a jury to decide that a four-week sabbatical is not “normally” longer than vacation of four-weeks, or that an eight-week sabbatical is not longer than that “normally” allowed for vacation where eight-weeks equals the length of time an employee could be gone on vacation if he took the maximum amount he could accrue all at once.? And, although we know that defendant also offered a vacation policy, we do not know how defendant’s vacation policy compared to vacation benefits offered by defendant’s competitors.

So what can employers and employees glean from the Paton case?

• Get used to risk.? There’s no real guarantee with a sabbatical program, unless you’re a university or the California court system.? The court’s conclusion that a fact issue existed could be applied to virtually every sabbatical program that could be written.? And the four-part, no-single-part-conclusive, test proposed does not create a friendly environment for dispostive motions.


• Length matters.? If you offer a sabbatical, make it long — much longer than your vacation accrual cap.


• Leave out the welcome mat.? Make it clear that you expect employees to return to work.? A sabbatical should not be an early retirement program.? Obviously you can’t force them to return, but make the expectation clear.? And back it up with policies to get in touch with employees on sabbatical as their return date approaches.


• Do it for a reason.? If you can tie the purpose of the sabbatical to something that will assist the employer upon return — research into a relevant academic field, for instance — do so.?? By the same token, make sure that the sabbatical program materials state that the program is intended to induce long-term employees to stay, and to increase their productivity.

It will also be interesting to see what other purported synonyms of “vacation” come out of the woodwork after this opinion.? Any time a court says something can’t be decided on summary judgment, the employee bar smiles.

Something to remember during the next bubble.? Until then, sabbatical programs are likely to be rarer than hen’s teeth.? (Which aren’t that rare, but that’s another post for another blog.)

By: Kevin Christiansen

On September 14, 2011, the IRS issued updated guidance(pdf) on the tax treatment of employer-provided cell phones, effectively treating both business and personal use of such phones as exempt from an employee’s wages.

The Small Business Jobs Act removed cell phones from the definition of “listed property” beginning January 1, 2010, meaning they no longer required heightened levels of substantiation to qualify as a business expense. However, Congress had not altered the use of an employer-provided cell phone as a fringe benefit. As a result, the value of employer-provided cell phones was still subject to inclusion in an employee’s wages unless a specific exclusion applied.

In Notice 2011-72 the IRS observed that “[m]any employers provide their employees with cell phones primarily for noncompensatory?business reasons.” Accepting what is a common business reality today, the IRS announced that if an employer provides an employee with a cell phone “primarily for noncompensatory business purposes,” the cell phone will be treated as a working condition fringe benefit and the value of the cell phone usage will be excluded from the employee’s wages.

The IRS explained that “noncompensatory business purposes” can include “the employer’s need to contact the employee at all times for work-related emergencies, the employer’s requirement that the employee be available to speak with clients at times when the employee is away from the office, and the employee’s need to speak with clients located in other time zones at times outside of the employee’s normal work day.” It added that providing cell phones to “promote the morale or good will of an employee, to attract a prospective employee or as a means of furnishing additional compensation to an employee” do not qualify as being “primarily for noncompensatory business purposes.”

In addition to the business use of a cell phone, the IRS also announced that it will treat the value of any personal use of such a cell phone as a nontaxable?de minimis fringe benefit. Therefore, personal use will also be excluded if the business use of the phone is for noncompensatory business purposes.

These new administrative rules are effective for periods beginning January 1, 2010. They apply to both employer-provided cell phones, as well as reimbursement of employee-owned cell phones.

In light of these changes, employers should consider reviewing their cell phone policies. Many policies prohibited any personal use of employer-provided cell phones. Companies may want to reconsider those policies in light of the IRS’ new guidance. Employers should also ensure that any employer-provided cell phone or reimbursement is for a noncompensatory?business purpose and is not merely to promote morale, attract employees or to add to an employee’s compensation.

By: William Weissman

In the recently decided case of Rogers v. County of Los Angeles, the California Court of Appeal issued an opinion favorable to employers regarding family/medical leave under the California Family Rights Act of 1993 (“CFRA”).

CFRA, codified at California Government Code ? 12945.2, expressly allows an employee to take up to a total of 12 workweeks?in any 12 month period. The statute also requires an employer to provide a guarantee of employment in the same or a comparable position upon the expiration of leave. To establish a violation of CFRA, a plaintiff must show that: (1) the defendant was a covered employer; (2) the plaintiff was eligible for CFRA?leave; (3) the plaintiff exercised his or her right to take a qualifying leave; and (4) the plaintiff suffered an adverse employment action because he or she exercised the right to take CFRA leave.

In Rogers v. County of Los Angeles, the plaintiff worked as the personnel officer in the executive office of Los Angeles County. In April 2006, plaintiff took a stress-related leave of absence, which the County characterized as “family/medical/CFRA” leave. Shortly after plaintiff began her leave of absence, the County appointed a new executive officer, who decided to reorganize the office. This reorganization included the hiring of a new personnel officer and transferring the plaintiff to a new position. Plaintiff did not return to work until August 2006, nineteen (19) weeks after beginning her leave. After learning of her new position upon her return to work she became upset and hostile because she believed it was a demotion. She called in sick for the rest of the week and then retired.

In December 2007, plaintiff sued the County for violations of CFRA. Her lawsuit ultimately proceeded to a jury trial on her allegations that the County had interfered with her CFRA?rights by transferring her to a non-comparable position and had retaliated against her for exercising her CFRA rights. The jury found in favor of plaintiff on both issues and the County appealed.

The Court of Appeal overturned the jury’s verdict in its entirety, holding that “CFRA’s reinstatement rights only apply when an employee returns to work on or before the expiration of the 12 week protected leave.” The Court explained that this ruling was based on several factors, including that: (1) CFRA’s statutory language expressly allows an employee “to take up to a total of 12 workweeks?in any 12 month period”; (2) Other obligations under CFRA?are expressly tied to the 12 week protected leave policy (i.e. requirements regarding sick leave); (3) Other courts have previously held that CFRA and the Family Medical Leave Act (“FMLA”) only ensure protected leave for a 12 week period; and (4) the Legislature’s intent in enacting CFRA and FMLA is supported by this ruling limiting protected leave to 12 weeks.

While the Rogers v. County of Los Angeles ruling is favorable to employers with regard to CFRA, employers should be cautioned that if an employee makes a claim under the Americans with Disabilities Act (ADA) or the California Fair Employment and Housing Act (FEHA), an employee may be entitled to additional leave as a reasonable accommodation. For some unknown reason, the Rogers case did not include any claims under the ADA or FEHA. Both California courts and the Equal Employment Opportunities Commission have established that inflexible leave policies that end after a specified period of time may violate the ADA and FEHA. Accordingly, when an employee requests additional leave for medically related reasons, employers should be prepared to discuss possible accommodations or offer further accommodations, including extra leave before moving to terminate.

By: Debra Meppen & AshleyColeman

California employers and insurers scored a victory in a recent California Supreme Court decision on annual cost-of-living adjustments for certain workers' compensation claimants.

In the case of Christine Baker v. Workers' Compensation Appeals Board and X.S., the court looked at how the Legislature intended cost-of-living adjustments to be calculated for total permanent disability and life pension payments.

The question before the court was whether a 2002 law required the total permanent disability and life pension payment cost-of-living adjustments to be calculated:

• prospectively from January 1 following the year in which the worker first becomes entitled to receive benefits;


• retroactively to January 1 following the year in which the worker is injured; or


• retroactively to January 1, 2004 for every case regardless of the date of injury or the date the first benefit payment becomes due.

Supreme Court Ruling

The Supreme Court ruling agreed with a friend-of-the-court brief filed by the California Chamber of Commerce that the Legislature intended that cost-of-living adjustments be calculated and applied prospectively beginning on the January 1 following the date on which the injured worker first becomes entitled to receive and actually begins receiving benefit payments.

Background

The case involved "X.S.," a shortened version of a fictitious name assigned by the presiding workers' compensation administrative law judge to protect the applicant’s medical privacy.

X.S. was injured in January 2004 while employed as an accountant/controller, and eventually was deemed eligible to receive $728 weekly for life.

A dispute arose when the applicant claimed the weekly payments that began on October 20, 2006 should be increased to reflect annual increases in the state’s average weekly wage by calculating retroactive cost-of-living adjustments from the January 1 following the date on which he was injured to the date on which his total permanent disability payments began.

The Workers' Compensation Appeals Board said the cost-of-living adjustment should apply on the January 1 following the date of injury, regardless of when the first payment was received.

The Court of Appeal, however, annulled the board’s decision and sided with the California Applicants’ Attorneys Association, finding that the cost-of-living adjustment begins to accrue January 1, 2004, without regard to the date of injury. The appeals court reasoned that otherwise a worker whose total permanent disability does not become permanent and stable for a number of years would see payments "exposed to the ravages of inflation over time, eroding the real value of the benefits."

Double Windfall Nixed

The Supreme Court overruled the Court of Appeal, finding the lower court’s interpretation to be at odds with the language of the law and could result in a “windfall ‘double escalator’” by applying the cost-of-living adjustment retroactively from January 1, 2004 until the date the worker was injured. Because the indemnity payments owed to the injured worker were already increased by statute, there was no reason for the Legislature to have further included a cost-of-living adjustment increase.

Pointing to the very same legislative records highlighted by the CalChamber during oral argument in May, the state high court also cited the language of the law in finding "no compelling reason" to conclude the Legislature intended the cost-of-living adjustments in the law to “broadly redress all the potentially erosive effects of inflation” in the two categories of disability benefits covered by the section of law in dispute.

This ruling results in the most favorable interpretation possible for California employers and insurers, representing potential savings of billions of dollars in these two categories.

Copyright: HR California/CCC

During an address to Congress on September 8, 2011, President Obama presented the American Jobs Act, which includes the Fair Employment Opportunity Act of 2011 (the “Act”).? The proposed Act, also entitled “Prohibition of Discrimination in Employment on the Basis of an Individual’s Status as Unemployed,” aims to prohibit employers and employment agencies from discriminating against unemployed job-seekers.? If passed, the Act would essentially create a new protected class under Title VII; namely, the unemployed.

The Act defines the “unemployed” as individuals who do not have jobs but who are available and searching for work. Under the proposed Act, it would be an unlawful employment practice for employers with 15 or more employees and employment agencies to publish advertisements or announcements for jobs with provisions indicating that an individual’s status as unemployed will disqualify him or her for any employment opportunity, or that an individual will not be considered or hired for a position based on his or her status as unemployed.? Likewise, employers would be prohibited for failing to consider or refusing to hire someone because he or she was? unemployed.? It would further be unlawful for an employer to request that an employment agency take an individual’s status as unemployed into account to disqualify him or her for consideration, screening, or referral for employment.? Unemployed individuals would also be protected from retaliation under the proposed Act.

Employment agencies under the Act could not limit, segregate or classify any individual in any manner that would tend to limit his or her access to information about jobs or his or her consideration, screening or referral for jobs solely because of his or her status as unemployed.

Of significant note, however, the Act would not preclude an employer or employment agency from considering an individual’s employment history or from examining the reasons underlying an individual’s status as unemployed in assessing his or her ability to perform a job.? The Act specifically states that employers may evaluate whether an individual’s recent employment in a similar position is job-related or consistent with business necessity.? As has been demonstrated in the context of employee criminal background checks, however, this may prove to be a relatively high hurdle.

The EEOC?would have enforcement power under the Act with respect to complaints of discrimination based on unemployment status, and the procedures applicable to a claim alleged by an individual for a violation of the Act would be the same procedures applicable to a claim for a violation of Title VII.? The remedies available for a violation of the Act would include injunctive relief, reimbursement of costs expended as a result of the unlawful employment practice, liquidated damages of up to $1,000 for each day of the violation, and reasonable attorney’s fees and costs.

Although newly packaged as part of the proposed American Jobs Act, the Fair Employment Opportunity Act had been introduced before.? Both the House and the Senate have previously introduced similar bills carrying the same name.? In the House, Representatives Rosa DeLauro?(D-CT, 3rd District) and Hank Johnson (D-GA, 4th District) introduced H.R. 2501 on July 12 2011.? The bill currently has 35 cosponsors and has been referred to the Subcommittee on Health, Employment, Labor and Pensions.? In the Senate, Senators Richard Blumenthal (D-CT), Kirsten Gillibrand?(D-NY) and Sherrod Brown (D-OH) introduced S. 1471 on August 2, 2011, and the bill has been referred to the Committee on Health, Education, Labor and Pensions.? Similarly, the EEOC recently held a public meeting to evaluate whether employers using the fact that an applicant was unemployed had a disparate impact on certain protected groups in violation of Title VII.
Given the prevailing unemployment rate, the passage of the Act would impact most employers looking to hire prospective employees.? As such, employers should continue to monitor developments with respect this proposed legislation.? In the meantime, although the proposed Act states that it will not be applied retroactively, employers should begin evaluating their hiring practices and hiring criteria, and in particular review how “resume gaps” or similar periods of unemployment are considered in the hiring process.

By:?Pamela Devata and Ashley Kircher

Under the new California Transparency in Supply Chains Act of 2010, beginning January 1, 2012, retail sellers and manufacturers conducting business in California with over $100 million in annual worldwide gross receipts will be required to disclose what efforts, if any, are being made by the company to address and eliminate slave labor and human trafficking in their direct supply chains for tangible goods. The Act also requires the Franchise Tax Board to provide the Attorney General with a list of retail sellers and manufacturers required to disclose their efforts and intentions to eliminate slavery and human trafficking in supply chains according to the provisions specified in the Act.

To comply with the Act, a qualifying company must make, at a minimum, the five following disclosures listed in Section 1714.43 to the Civil Code:

1. Verification Process:? Whether it verifies its product supply chains to evaluate and address the risks of human trafficking and slavery, including disclosure of how the verification is performed through an internal or independent party.


2. Audit Process:? Whether it conducts audits of suppliers to evaluate their compliance with company policies and procedures regarding slavery and human trafficking, including disclosure if the audit is not performed by an independent third party on an unannounced basis;


3. Certification Process:? Whether it requires direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business.


4. Accountability Standards:? Whether it maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and human trafficking.


5. Training:? Whether it provides training on human trafficking and slavery to company employees and management who have direct responsibility for supply chain management, particularly with respect to mitigating risks within the supply chain of products.

Under the Transparency in Supply Chains Act, companies will be required to include their disclosures on company websites (companies without a website must make this information available in writing within 30 days of a customer request for their disclosure).? The Act requires no other action beyond disclosing whether the employer has made efforts in the five areas listed.? It is anticipated that activists and investors will use the disclosures to pressure companies to take further action in this area.? Moreover, retailers and others may require their suppliers to engage in these actions.? If a company fails to make the requisite disclosures, action may be taken by the Attorney General for injunctive relief.? We do not yet know how the Attorney General intends to enforce the law.

If you are interested in examples of corporate disclosures or advice on the applicability of specific measures, please contact the Seyfarth attorney responsible for your work.

By: Ken Sulzer, Colleen Regan, Dana Howells and Kristina Launey

Although the U.S. Department of Labor’s Administrative Review Board (ARB) has limited common defenses to whistleblower retaliation claims under Section 806 of the Sarbanes-Oxley Act of 2002 (SOX), and some federal courts have deferred to those decisions, federal district courts in Pennsylvania and Nevada recently handed down rulings that help level the playing field for employers.? More specifically, the Eastern District of Pennsylvania strictly construed the scope of protected activity in Wiest v. Lynch, No. 10-cv-3288, 2011 U.S. Dist. LEXIS 79283 (E.D. Pa. July 21, 2011), and the District of Nevada directed that the prohibition on pre-dispute arbitration agreements covering SOX whistleblower claims in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) (signed July 21, 2010) is not retroactive in Henderson v. Masco Framing Corp., No. 11-cv-00088, 2011 U.S. Dist. LEXIS 80494 (D. Nev. July 22, 2011).

Wiest v. Lynch

In Wiest, the plaintiff alleged that he refused to process certain event expenditures for his employer, Tyco Electronics Corp. (Tyco), because he believed they did not meet reimbursement or payment standards set by Tyco’s accounting department, violated rules and regulations of the Securities and Exchange Commission or tax laws, and raised ethical concerns.? He further contended that, in reaction to this refusal, Tyco retaliated against him by initiating an investigation into his purported misconduct.? He brought suit under Section 806 of SOX against Tyco and individual employees.? The court granted the defendants’ motion to dismiss per Rule 12(b)(6) of the Federal Rules of Civil Procedure, holding that the plaintiff failed to plead that he engaged in protected activity.

In so ruling, the court stressed that Section 806 of SOX only protects an employee who has provided information to a supervisor regarding conduct he “reasonably believes” violates one of the laws enumerated in Section 806 of SOX, and that the complaint must “definitively and specifically” relate to such laws.? The court further emphasized that an employee’s complaint must convey an objectively reasonable belief that the company “intentionally misrepresented or omitted certain facts to investors, which were material and which risked loss.”? In addition, the court made it clear that a protected communication must provide information relating to an “existing” violation.

Applying this legal framework, the court determined that the plaintiff’s allegations did not pass muster under Rule 12(b)(6), as he simply recommended in the communications at issue that the defendants review expenditures to ensure proper tax and accounting treatment and that the defendants comply with Tyco’s expense approval process.? Such communications, in the court’s view, did not “definitively and specifically” relate to the laws referenced in Section 806 of SOX.

In addition, the court rejected the plaintiff’s claim that his refusals to process payments constituted protected activity, noting that “a refusal to act without any explanation generally does not ‘provide information’ about a potential SOX violation.”? The court also found that complaints about “potential violations” of a company’s internal policies do not constitute protected conduct.

The Wiest decision is noteworthy because it is at odds with the ARB’s May 25, 2011 ruling in Sylvester v. Parexel International LLC, ARB?No. 07-123.? There, the ARB limited the scope of protected activity by ruling, among other things, that a complainant need not describe an “actual” violation of one of the categories of law in Section 806 of SOX (it simply could allege that a violation of law was imminent), the “definitively and specifically” standard is not appropriate, and a complaint need not involve a fraud on shareholders to be actionable.

Henderson v. Masco Framing Corp.

In Henderson, the plaintiff brought suit under Section 806 of SOX alleging he was discharged in retaliation for complaining that the company improperly withheld FICA Medicare taxes from his retention bonuses.? Prior to July 2010 (when Dodd-Frank was signed), the plaintiff and the defendant–employer entered into a pre-dispute arbitration agreement governing all claims under federal law, including SOX whistleblower claims.? The plaintiff moved to compel arbitration of the lawsuit, and the court focused on whether Dodd-Frank applies retroactively.

Dodd-Frank expressly prohibits pre-dispute arbitration agreements that cover SOX whistleblower claims, but does not indicate whether this ban is retroactive.? The court recognized that there were “two non-binding, diametrically-opposed cases supporting [the parties’] respective positions” — Riddle v. DynCorp Int’l Inc., 733 F. Supp. 2d 743 (N.D. Tex. 2010) (denying retroactive application) and Pezza v. Investors Capital Corp., No. 10-cv-10113, 767 F. Supp. 2d 225 (D. Mass. Mar. 1, 2011) (giving retroactive application).? The court rejected the approach taken in Pezza, and ruled that Dodd-Frank’s ban on pre-dispute arbitration agreements covering SOX whistleblower claims does not apply retroactively.? In so ruling, the court stressed that the presumption against retroactivity is particularly strong where, as in this case, a retroactive application would eliminate established contractual rights.? Accordingly, the court granted the employee’s motion to compel arbitration.

Implications

The Wiest and Henderson decisions illustrate how some federal courts are beginning to take an arguably balanced approach to SOX whistleblower claims (even though the Henderson?court ruled in the plaintiff’s favor).? However, with increasing frequency, plaintiffs are opting to litigate?SOX claims through the DOL’s administrative regime rather than in federal courts, especially in cases where there are serious questions as to whether they engaged in protected activity.? In addition, it remains to be seen whether the ARB will embrace the Henderson decision.? Accordingly, employers should continue to proceed conservatively.

By:? Steven J. Pearlman, Erin McPhail?Wetty?and Dawn Mertineit

On Tuesday, the U.S. Senate voted to end debate on the America Invents Act – generally known as the Patent Reform Bill –setting up the likely Congressional approval by the end of this week.? The House of Representatives previously approved its version of the bill, and President Obama is expected to sign the present version of the bill.? Therefore, the U.S. patent laws will likely have significant changes impacting companies and inventors.

The key provisions of the expected new law include the following: (i) change the U.S. patent system to a “first-to-file” system from the present “first-to-invent” system in order to bring the U.S. patent system into conformance with the patent laws of other industrialized nations and to create better certainty with respect to priority of patent protection; (ii) expand post-patent grant review procedures to further reduce costly litigation over unpatentable inventions; and (iii) allow false patent marking claims to be filed only by the U.S. Government or a competitor who can show competitive injury, rather than allowing any member of the public to bring such suits.

“First-To-File” System

The change to a “first-to-file” system will likely have a significant impact on how companies and individual inventors pursue patent protection.? In essence, the first entity to file an application for an invention will have priority over subsequent filers, even if that first-to-file entity was not the first to invent the new technology.? Presently, under the “first-to-invent” system, inventors can? establish prior-inventorship?even if they were not the first to seek patent protection.? However, prior-inventorship?disputes lead to costly and time consuming litigation and other related proceedings in the U.S. Patent and Trademark Office.

The new “first-to-file” system is meant to provide the proper incentives for inventors to timely file applications for their inventions and thereby reduce prior-inventorship disputes.? In addition, the “first-to-file” system is presently used by most other industrialized nations.? Accordingly, this change would bring the U.S. Patent Laws into conformance with the laws of other such nations.

Post-Patent Grant Review Procedures

The bill includes an expansion of post-patent grant review procedures, including the ability of third parties to submit information to the U.S. Patent and Trademark Office in response to issued patents.? This change is intended to reduce litigation over patents that should not have been issued in the first instance.

False Patent Marking Litigation

False patent marking claims recently surged after the Federal Circuit’s rulings in various cases expanded the relief available through these qui tam suits (suits brought by members of the public on behalf of the U.S. Government).? Such cases have exploded into another type of patent-troll litigation.? The new bill seeks to limit such suits to only those actually brought by the U.S. Government or by a competitor who can establish competitive injury due to the false-patent marking.

Other Changes

The present version of the act includes several other amendments to the patent laws, including changes to the “best mode” requirement, identification and inventors/assignees, and fee diversion (the use of fees of collected by the U.S. PTO to fund other Congressional programs).

What Happens Next

Assuming the present version of the bill gets enacted shortly, companies and individual inventors should consider their patent application filing strategy and procedures.? For example, rather than waiting to file patent applications, it may now be more prudent to file such applications more quickly in order to ensure they are the “first-filed” application.? With respect to the post-grant review procedures, companies should consider whether the new procedures provide them with the recourse and certainty needed to ward off potential patent litigation, and also consider whether their own portfolios have similar exposure to these new procedures.

Our Intellectual Property attorneys can discuss these strategies with you.

By: Daniel Schwartz, Joseph Lanser and Brian Michaelis

In early 2010, California's Department of Fair Employment and Housing (DFEH) proposed a series of new procedural regulations to govern the receipt, investigation, and conciliation of administrative complaints received by the department. Following a series of public hearings and a public comment period, the final regulations now have been approved by the Office of Administrative Law and filed with the Secretary of State. They will go into effect on October 17, 2011, and are codified at Title 2, California Code of Regulations, sections 10000 through 10066.

According to the DFEH, these new regulations were meant to "capture and replace" its directives on the handling of administrative complaints, so as to formally adopt its procedures. In fact, however, these new regulations will change the DFEH's administrative procedures in several significant respects. The new procedures are part of a broader effort by the current head of the DFEH, Phyllis Cheng, to redirect the department's limited resources away from individual complaints and towards "high impact" cases of systemic discrimination.

Statutory Requirements for Filing an Administrative Complaint with the DFEH

Pursuant to California Government Code section 12960, a person claiming a violation of California's Fair Employment and Housing Act (FEHA) first must submit a complaint to the DFEH and exhaust his or her administrative remedies before filing a lawsuit in court. Once the claimant has exhausted his or her administrative remedies, the DFEH issues a "right-to-sue" letter permitting the claimant to proceed with a lawsuit.

By statute, the administrative complaint filed with the DFEH must be: (1) verified; (2) in writing; (3) comprised of facts that would give rise to a violation of FEHA; and (4) filed within one year of the date of the alleged violation.

Each of these basic statutory requirements is affected by the DFEH's new procedural regulations. Although the DFEH has no authority to modify statutory requirements, its new procedural regulations make it much easier for claimants to satisfy them. As a result, employers should expect more claimants to exhaust the administrative process with little, if any, DFEH involvement.

DFEH's New Procedural Regulations Ease the Way for Claimants

The changes lower the bar on exhausting administrative remedies. The new procedural regulations will make it much easier for claimants to file a complaint to initiate a DFEH investigation. Additionally, once a complaint is accepted, the issuance of a right-to-sue letter is automatic upon request, thereby permitting individuals to, in effect, bypass the administrative process. Changes to the claim filing process and administrative procedures include:
•Verification: Despite the statutory requirement that a complaint be "verified," the DFEH will no longer require the claimant to sign the complaint. Instead, the complaint may be signed by the claimant's attorney or any other person whom the claimant has designated to sign on his or her behalf. In order to "verify" the complaint, the claimant need only submit an "oath or affidavit" confirming the truth of the allegations. It is unclear what form this oath or affidavit must take. But if the claimant is unable to sign the complaint, it raises the question of whether he or she would be able to sign a written oath or affidavit. As a result, it is possible that an oral oath or affidavit may be deemed sufficient.
•Unsigned Complaints: The DFEH now will accept an unsigned complaint when neither the claimant nor an authorized representative is able to sign it before the statute of limitations expires. Notably, California's Fair Employment and Housing Commission (FEHC), which conducts hearings and issues administrative decisions in cases brought before it by the DFEH, objected to this proposed regulation as being inconsistent with the statute's requirements. The FEHC argued that a complaint must be signed in order to qualify as being verified and in writing, but the DFEH disagreed, stating that "[n]owhere in the statute does it provide that the complaint must be signed in order to be filed." See Updated Final Statement of Reasons, Summary and Response to Comments Received During the Initial Notice Period of February 19, 2010 through May 26, 2010, Fair Employment and Housing Commission memo dated 5/26/10, Comment C2d.
•Liberal Construction: The DFEH now has codified its liberal construction of complaints to extend to all claims that are or could have been asserted based on the facts alleged. Thus, where the facts are alleged to support a discrimination claim but also could support a retaliation claim, the DFEH will construe the complaint to include both a discrimination claim and a retaliation claim – even though the claimant did not assert a retaliation claim. As a result, employers may have more difficulty in obtaining dismissal of civil claims not expressly asserted in the administrative complaint, which previously would have been dismissed for failure to exhaust administrative remedies. See e.g., Okoli v. Lockheed Technical Operations Co., 36 Cal. App. 4th 1607 (1995) (where administrative complaint only asserted discrimination claim, claim for retaliation properly dismissed for failure to exhaust administrative remedies).
•Timeliness: Despite the clear statutory language that "no complaint may be filed after the expiration of one year" following the alleged violation, the new DFEH regulations provide that "where there is doubt about whether the statute of limitations has run," the complaint will be accepted and timeliness "investigated and analyzed" during the investigation. As a result, it is likely that fewer complaints will be rejected as untimely; rather, they simply will be deferred to the investigator to determine timeliness.

With the number of DFEH complaints already on the rise as a result of current economic conditions, employers should expect these new procedural regulations to result in even more administrative complaints being accepted for filing. Moreover, the ability to receive an automatic right-to-sue letter once a complaint is accepted fast-tracks a dispute to litigation, further increasing costs.

In short, these new procedural regulations will make it much easier for an employee to essentially bypass the administrative process and yet still be found to have exhausted his or her administrative remedies. It remains to be seen how this will affect the volume and substance of FEHA litigation.

Authors: Margaret Gillespie