Critical Developments in Employment Law

1. Nancy L. Abell Howard C. Hay Cheryl R. Saban P A U L , H A S T I N G S J A N O F S K Y W A L K E R L L P & Critical Developments in Employment Law 1

2. Employment Discrimination Law • Title VII of the Civil Rights Act of 1964 • Age Discrimination in Employment Act • Older Workers’ Benefit Protection Act • Americans with Disabilities Act • Executive Order 11246; Rehabilitation Act of 1973; Vietnam Era Veterans Readjustment Assistance Act

3. Title VII • Disparate treatment cases • Most often individual cases • Intent of decision maker is critical • Remove from the decisionmaking role people with a record of biased remarks, harassment and biased decisions • Disparate impact cases • Turn on statistical proof

4. New standard for punitive damages • Good faith efforts to comply are important • Burden is on the employer to prove them • A compliance program is useful • Documentation is important

5. Age Discrimination in Employment Act • Most cases allege disparate treatment • Conflict among circuits as to whether disparate impact age cases may be filed • Ageist remarks often play a key role • Age of replacement and statistics also have a significant impact in age cases

6. Older Workers’ Benefit Protection Act • A release of federal age claims must strictly comply with the release requirements of the Act • For a group layoff, the employer must give the employee age census data in the form prescribed by the Act

7. Americans with Disabilities Act • Two types of cases: • Discrimination • Federal and state provisions sometimes differ • Failure to reasonably accommodate • Interactive process required • Documentation of the process and accommodations offered is critical

8. Americans with Disabilities Act • Reasonable accommodations may include: • Additional unpaid leave time • Special equipment or instructions • Modified hours • Job coach • Elimination of marginal functions

9. Important compliance activities • Training • Attorney-client privileged compliance audit: • Review and update of policies, procedures, practices and forms • Compensation and hiring/promotion/termination statistical analysis • Affirmative action compliance for covered contractors/subcontractors

10. Changes Impacting Federal Contractors and Subcontractors • VETS-100 • OFCCP survey of thousands of government contractors and subcontractors • New OFCCP desk audit rules: compensation summaries required

11. The Latest Employer Nightmare: The Wage and Hour Class Action • Why are employers paying millions of dollars to settle wage-hour class actions? • Misclassification of employees as exempt • “Off-the-clock” work by non-exempt employees

12. Misclassification • Often positions classified as exempt positions are really non-exempt positions for which overtime pay is required • Frequent targets: • Secretaries • Assistant managers • Inside sales reps

13. Caution • Some state laws, California for example, define “exempt” differently than the federal Fair Labor Standards Act • Example: California does not recognize the “programmer” exemption

14. What law applies when federal and state differ? • The law most advantageous to the employee

15. The typical scenario where the employer mis-classifies • It has no accurate records of time actually worked • The government typically will “take the employee’s word for it” as to the number of overtime hours worked

16. The three principal exemptions if other prerequisites re pay and primary duties are satisfied • Executive • Administrative • Professional

17. Other exemptions in some places • Motor carrier exemption • Commissioned salesperson exemption • Outside salesperson exemption

18. Proactive steps to avoid misclassification and wage-hour class actions • Audit your workforce to ensure that you are properly classifying employees as exempt • Develop a classification check list for the three basic types of exemptions • Administer it individually • Record and save the responses

19. Avoid the primary duty problem • Specify in exempt employee job descriptions the requisite exempt duties • Consider requiring periodic certification from exempt employees that they perform the requisite exempt work • Discipline in writing those who do not spend the required percentage of their time on exempt work • Reclassify employees if necessary to stop accrual of further liability

20. What do successful claimants often recover? • Unpaid wages • Unpaid overtime • Attorneys’ fees • Costs of suit • Sometimes statutory penalties

21. Generally when are class – rather than individual – claims made? • Ascertainable class • Predominant common questions of law or fact • Class representatives with claims or defenses typical of the class • Class representatives who can adequately represent the class

22. Off-the-clock claims • Both federal and state law require an employer to pay for any time that an employee is “suffered or permitted to work”

23. Many employees work before or after hours, or through lunch, on or off the premises • Some want to do more than they are able to do during a 40-hour work week in order to get ahead • Some feel pressure to produce more in order to remain employed • Modem connections and voicemail have increased the frequency and magnitude of off-the-clock work

24. More proactive steps • Make clear in employee policies that unauthorized overtime by non-exempt employees is not permitted and is grounds for termination • Require employees to record all time worked • Require employees to obtain advance written permission for overtime work (or after-the-fact permission if an emergency occurred)

25. More proactive steps • Circulate periodic reminders that unauthorized overtime is prohibited • Instruct supervisors • Provide an avenue for employees to complain if they are forced or permitted to work off-the-clock

26. Investigate any complaints of “off-the-clock” work • Take statements under oath of the circumstances and amount of “off-the- clock work” • Pay employees who have worked “off-the-clock” for their work • Periodically follow up

27. Preventing competitors and former employees from taking your company’s assets • Trade Secrets • Customers • Employees

28. Protecting your Company’s trade secrets • All states have statutes and/or common law prohibiting misappropriation of trade secrets • Most states have adopted the Uniform Trade Secrets Act • E.g., California Civil Code, §3426, etseq. • See Milgrim on Trade Secrets (Matthew Bender) (1999); Trade Secrets Law (West Group) (1999)

29. Company steps to maximize protection of trade secrets • Identify the trade secrets you want to protect • Have employees sign agreements promising to maintain the confidentiality of such trade secrets during/after employment • See example in Exhibit 1

30. Make other reasonable efforts to maintain confidentiality • See Advising California Employers, Chapter 11, Sections 11.15-11.35 and 11.66 (CEB) (1996)

31. Preventing former employees from soliciting your customers • Customer lists can be protected as trade secrets if: • Customers are not readily ascertainable from public sources • List is maintained in confidence

32. Non-competition agreements are valid in many states if narrowly drawn • See Covenants Not to Compete, A State-By-State Survey, 2d Ed. (BNA) (1999) • But generally not enforceable in California • See California Business and Professions Code §16600

33. “Non-solicitation of customers” agreement may be enforceable: • Where the customer list itself is a “trade secret” • Where limited to a small part of the market • General Commercial Packaging v. TPS Packaging, 114 F.3d 888, 889-91 (9th Cir. 1997) • Where limited to former employee’s utilization of your proprietary information

34. Preventing former employees from soliciting your employees • Could be a misappropriation of trade secrets if the former employee is using your trade secret personnel information to identify key performers and soliciting such employees based on your trade secret information • Non-competition agreements could also limit such activity if the agreement is enforceable in the state in which you seek to enforce it

35. “Non-solicitation of employees” agreement is enforceable in most states • E.g., Loral Corp. v. Moyes, 174 Cal.App.3d. 268, 219 Cal.Rptr. 836 (1985) (one year limitation on solicitation of employees)

36. Preventing competitors from hiring your employees • Argue “inevitable disclosure” of trade secrets • Pepsico, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995) • Electro Optical Industries v. White, 76 Cal.App.4th 653, 90 Cal.Rptr. 2d 680 (1999)

37. Utilize term employment agreements with key employees • Provides a basis to sue competitor for inducing breach of contract • May provide basis to enjoin key employee from working with competitor as well • California Civil Code §3423(e)

38. Utilize agreements whereby employees lose money by leaving and/or working for a competitor • Deferred compensation agreements • Stock option agreements where employees lose options if they go to work for a competitor within six months • IBM v. Bajorek, 191 F.3d 1033 (9th Cir. 1999)

39. Severance agreements where severance payments stop if former employee begins working for a competitor

40. Questions? • Nancy Abell (213) 683-6162 • Howard Hay (714) 668-6266 • Cheryl Saban (212) 318-6022