Download PDF
GOOD TO THE LAST DROP? Court Holds that Preparing To Compete Is Not Competing and that Customer Lists Are Not Always Trade Secrets
By Lois A. Gruhin
The Ohio Court of Appeals, Eighth Appellate District, recently
held that preparing to compete does not constitute competition in
violation of a non-compete agreement. In
Berardi’s Fresh Roast, Inc. v. PMD Enterprises, Inc., et al.,
as part of a divorce settlement, a husband sold his interest in the
couple’s coffee roaster business to his spouse and entered into a
non-compete agreement which prevented him from re-entering the coffee
industry for three years. The ex-wife subsequently sold the company to
her divorce attorney. Prior to the expiration of his non-compete
agreement the ex-husband began seeking financing of a new coffee
business; signed a lease for a warehouse two months prior to the
expiration his non-compete agreement; and two weeks before the
expiration of his non-compete agreement took possession of the warehouse
and equipment so his company would be ready for business when his
non-compete agreement expired.
The Court found in favor of the defendant husband and concluded
that preparations to compete do not constitute competition. The Court
stated that the husband's actions prior to the expiration of the
non-compete agreement did not show that he “actively engage[ed]” in the
coffee industry and that in any case, “preparing to compete is not
equivalent to competing.”
On appeal, the Appellate Court upheld the lower Court’s decision
that preparations to compete do not constitute competition. In
responding to the other issues on appeal, the Appellate Court held that
misappropriation of trade secrets under the Uniform Trade Secrets Act
depends on whether the information at issue “derives its independent
economic value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use.” After
acknowledging that client lists may constitute trade secrets even if
obtained in part from public sources, the Court of Appeals held the
subject client list did not constitute a trade secret because the new
company’s list contained only “the client’s name, address and telephone
number.”
The 10th Appellate District in
Chornyak & Associates, Ltd. v. Nadler
affirmed a trial court’s decision denying trade secret status to an
employer computer file containing customer preference information and
other items because the employer shared that information with the
customers in question, with no restrictions on the customers’ ability to
use or redistribute the document.
Employers need to be proactive in protecting their trade secrets.
Precautions must be taken to guard the secrecy of the information. All
confidential and proprietary information, including trade secrets,
should be marked confidential and proprietary and kept locked and
secured. Only employees who need to access the information should have
access to those documents. If the information is kept in electronic form
it needs to be password protected and be accessible only by certain
employees, not by every employee in the company. The employees should
sign a form that pops up every time he/she accesses the information
acknowledging the employee’s understanding that the information is
confidential and proprietary. Remember to only disclose confidential and
proprietary information to those employees who need to access it to
perform their job. Otherwise your trade secrets slowly will drip away
from you.
UNEASY COMPANY: Court Determines Temporary Agencies and Employers Are Joint Employers Under the FLSA
By Michele L. Jakubs*
Employers who utilize temp agencies can constitute joint
employers with the temporary agency under the Fair Labor Standards Act
(“FLSA”.) Such joint employment relationship may occur even when the
employer does not have “formal control” over the temporary workers and
the temporary employees receive pay from the referral agency.
In
Barfield v. New York City Health and Hospitals Corp.,
a temporary employee received pay from three referral agencies for
continuous work performed at one hospital. The 2nd Circuit Court of
Appeals held that the hospital still amounted to a joint employer under
the FLSA. As a result, the court determined that the hospital had to pay
the worker any overtime she accrued while working there, because it had
“sufficient control” over her and the work she did.
In that case, the plaintiff sought overtime pay while working
at a single place of employment at the behest of three referral
agencies. In order to collect overtime, the employee therefore had to
show that the hospital was her employer. Because the FLSA defines an
“employer” as “any person…acting directly or indirectly in the interest
of an employer in relation to an employee,” and the referring agencies
had already paid the employee’s wages, the employee sought to prove that
the hospital was also her employer for purposes of the FLSA.
According to the court’s application of the “Economic
Realities” test, the hospital was her joint employer and thus
responsible for paying her overtime. In its analysis, the 2nd Circuit
found that the hospital had the power to hire and fire referred agency
employees, supervised or controlled agency employees’ work schedules and
conditions of their employment and that the hospital kept employment
records of the referred workers’ shifts. The court noted that even
though the hospital never retained “formal control” over the employee
since it did not pay her wages, “the fact that the hospital also
exercised some authority … helps establish the economic realities of its
status as a joint employer.”
The court also used the “functional control” test. Under that
test, the Court found that the agency employee performed all work
discreetly, in a single place, integral to the hospital’s “process of
production,” and that each referral agency assigned temporary employees
to the same hospitals wherever possible to promote continuity of care
and productivity. The court noted that the plaintiff’s responsibilities
remained constant regardless of the referring agency, she worked
predominately or exclusively for the hospital, the hospital exhibited
control over the plaintiff’s schedule and that her supervisors
“demonstrated effective control over the terms and conditions of the
plaintiff’s employment.” According to the court, these factors created a
joint employer relationship between the hospital and the temporary
agencies under the FLSA.
As a result of this decision, and others like it, employers
must understand their relationships with temporary agencies. Only with
an understanding of the actual relationship can an employer accurately
measure its potential employment based liabilities.
*Michele L. Jakubs, an OSBA Certified
Specialist in Labor and Employment Law, practices in all areas of
employment litigation and wage and hour compliance and administration.
For more information concerning or any aspect of the FLSA, please
contact Michele at 216.696.4441 or mlj@zrlaw.com.
YOU CAN'T HANDLE THE TRUTH: Altered Documents May Satisfy USERRA's Minimum Requirement for Reemployment
By Patrick J. Hoban*
In a recent case illustrating the difference between a
returning service member’s right to re-employment and his employer’s
need to satisfy its interest that the employee remains fit for his job,
the Sixth Circuit held that a returning serviceman satisfied the
documentation requirement for reemployment under the Uniformed Services
Employment and Reemployment Rights Act (“USERRA”), despite submitting an
altered version of his discharge papers to his employer.
In
In re Petty, a police department required all
returning service members to furnish a copy of their discharge papers,
or DD-214, as a compliment to other paperwork before reinstatement. The
police department also conducted evaluations of all officers returning
from leave for any extended period of time, regardless of reason, to
ensure their fitness for duty. Despite an honorable discharge, the
employee, a sergeant with the police department, omitted specific facts
stemming from a serious but contentious disciplinary infraction he
incurred overseas that required him to resign his command.
After discovering the employee’s altered DD-214 and the
omission in his personal history, the police department initiated an
investigation into the employee’s conduct, citing the police
department’s “zero tolerance” policy for dishonesty. While the police
department returned the employee to work, it placed him in a desk job
taking reports and answering phones, as opposed to his previous position
as a patrol sergeant.
The employee charged that his reinstatement violated his
rights under USERRA, especially in light of the fact that the police
department’s investigation ultimately agreed with his position that his
military charges were unfounded. The employee complained that the police
department had to return him to work as a patrol sergeant or to a
“substantially similar position.” He also charged that the police
department impermissibly denied him the right to work off-duty security
jobs, and that the Department’s return-to-work process impermissibly
delayed his rehire. The Sixth Circuit Court of Appeals agreed.
Stating that USERRA focuses on securing rights for returning
veterans and “not on ensuring that any particular document is produced,”
the Court held that the documents met the minimum USERRA requirements.
USERRA only requires that the employee receive a discharge “under
honorable conditions,” and that an employee need not explain all
circumstances surrounding conduct overseas. The Court stated also that
the congressional intent behind and the language of USERRA trumped the
police department’s stated interest in maintaining its return-to-work
process to ensure their officers’ continued qualifications to serve:
In USERRA, Congress clearly expressed its view that
returning veterans’ reemployment rights take precedence over such
concerns. [The police department]…questions only whether [the
employee’s] conduct during his military service would disqualify him
from returning to service in the police department. But [the employee’s]
separation from military service is classified as ‘under honorable
conditions,’ which Congress has made clear suffices to qualify him for
USERRA benefits.
Citing the police department’s ability to investigate its
employees’ continued fitness to serve upon reinstatement and that USERRA
allows terminations “for cause” after reinstatement, the Court remanded
the case back to the district court and ordered summary judgment in
favor of the employee on his reemployment claims.
This case serves as a reminder that if a returning employee
presents an honorable discharge, an employer generally may not deny that
employee reinstatement rights. This proposition holds true despite the
fact that the returning employee may have engaged in unacceptable
behavior while in military service.
*Patrick J. Hoban practices in all areas
of labor and employment law, with a focus on private and public sector
labor law. For more information on USERRA or any other labor or
employment issue, contact Pat at 216.696.4441 or pjh@zrlaw.com.
ECONOMY DOWN, EEOC FILINGS UP: Job Bias Claims Reach Their Highest Point in Years
By Stephen S. Zashin*
In 2007, the EEOC received 82,792 private sector discrimination
charges. At the time, the filings represented a 9% across the board
increase from 2006, representing the largest annual uptick in filings
since 1993.
In fiscal year 2008, the EEOC reported receiving 95,402 charges.
This represents a 15.2% increase from 2007, perhaps the largest
one-year increase ever. Many bloggers and analysts predict the trend to
continue. As long as the economy continues to go downhill, employers
should expect to see more EEOC and OCRC charges filed against them.
Ultimately, a good percentage of these charges will result in lawsuits.
*Stephen S. Zashin, an OSBA Certified
Specialist in Labor and Employment Law, has extensive experience
defending employers involved in employment litigation, as well as
administrative hearings before the Equal Employment Opportunity
Commission and various state administrative civil rights agencies. For
more information about the defense of an administrative hearing,
lawsuit, or EPLI, please contact Stephen at 216.696.4441 or ssz@zrlaw.com.
RUNNING WITH THE DEVIL: Drug and Alcohol Tests for Transportation Employees
By Steve Dlott
Any employer who conducts the drug and alcohol tests required
by the Department of Transportation (“DOT”) is subject to regulations
set forth in the United States Code. The DOT’s regulations do not permit
employers from removing or “standing down” employees, even from safety
sensitive functions, until the employer receives a verified test result,
or a waiver of the result. Upon receipt of a verified positive test
result, the regulations require that an employer immediately remove the
employee from performing safety-sensitive functions. While the length
and the consequences of the employee’s removal depend on the severity of
the test result and the employee’s history, once the employer receives a
verified positive test result, the initial course of action for the
employer remains the same: immediate removal.
Under the regulations, a verified test result must come from a
Health and Human Services (“HHS”) certified laboratory. That certified
laboratory must have the test reviewed by a Medical Review Officer – a
licensed physician who, among other things, evaluates medical
explanations for certain drug test results.
If an employer subject to the regulations receives the
results of a verified drug or alcohol test indicating the employee
somehow substituted or adulterated the employee’s sample in any way to
mask the presence of banned substances, the regulations treat it as a
“refusal to test.” Under such circumstances, and employer may
immediately remove the employee from safety-sensitive functions.
Sometimes, an employer may receive an invalid test result for
other reasons (e.g., too small of a sample, a mechanical testing error,
etc.). In such cases, the results are not invalid; they are
“cancelled.” If an employer receives verified, but cancelled, test
results, an employer must immediately:
- Direct the employee to provide a new test specimen
(typically urine) under direct supervision, with NO advance notice to
the employee;
- Attach NO consequences to the initial invalid test, other than collecting a new specimen;
- Instruct the specimen supervisor and/or collector to note
the reason for the subsequent test on the Federal Drug Testing Custody
and Control Form (“CCF”) as the same reason for the original test; and
- Ensure that the new test specimen is produced under direct supervision.
Some situations, such as pre-employment tests, return-to-duty
tests, or follow-up tests demand a negative result as a requisite for
employment. When an employer receives a cancelled test in these
instances, the regulations direct employers to get another specimen
immediately.
An employer must check the drug and alcohol testing record
of any new hire the employer intends to use to perform safety-sensitive
duties. As a result, the regulations require that an employer do the
following:
- Obtain the employee’s prior written consent for the
release of this information. If the employee refuses to provide this
consent, the employer “must not permit the employee to perform
safety-sensitive functions.”
- Request the following information about the new hire from all previous employers regulated by the DOT:
- Alcohol tests with a 0.04 or higher result;
- Verified positive drug tests;
- Refusals to be tested;
- Any violations of DOT drug and alcohol regulations; and
- Documentation that any employee who violated DOT drug and alcohol regulations successfully completed a return-to-work program.
Even the most diligent and safety-conscious employer can have
difficulty navigating drug-testing regulations. Concerns range from
employee pay during the pendency of test results to community and
employee safety and fallout from false-positive and false-negative test
results. As a consequence, employers conducting the drug and alcohol
tests required by the DOT must proceed with caution.
Z&R Shorts
Zashin & Rich Co., L.P.A. Welcomes Two Attorneys to its Growing Employment and Labor Group
Zashin & Rich recently welcomed David Vance
and Rick Hanrahan to the firm and its expanding Employment and Labor
Group. Both defend employers in a wide variety of labor and employment
matters, including all aspects of labor relations, harassment,
discrimination, and federal and state civil rights. David received his
undergraduate degree, cum laude, in business from Ohio University and
graduated from The Ohio State University Moritz College of Law. Rick
received his undergraduate degree, cum laude, in education from Ohio
University and graduated from the Toledo College of Law.
Please join us in welcoming David and Rick to Z&R!
Upcoming Seminars
Stephen Zashin will present “The New FMLA Regulations” at
the American Payroll Association Greater Cleveland Chapter’s Chapter
Meeting at the Holiday Inn in Independence.
George Crisci will present “The Advancement of Collective
Bargaining: After Lorain, ODOT, Youngstown, Defiance, Toledo, Twinsburg –
Are we on course or have we lost our way?” at the State Employment
Relations Board’s (“SERB”) 25th Anniversary Conference in Columbus,
Ohio.
Steve Dlott will be part of a panel presentation on
“Advanced Workers’ Compensation in Ohio” at the Hilton Garden Inn in
Cleveland, Ohio. For more details or registration, please contact
Sterling Education Services at 715.855.0498 or on the web at
Steve Dlott and Patrick Watts will present “Navigating
Leave of Absence Issues, Including ADA, FMLA, and Workers’ Compensation”
at the Ohio Health Care Association Convention.
Steve Dlott and Patrick Watts will present “New Issues in
ADA, FMLA, and Workers’ Compensation” at the Lake/Geauga County Chapter
of the Society for Human Resource Management (“SHRM”).
