ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

A Member of the Law Professor Blogs Network

Tuesday, May 19, 2015

Employers Must Continually Monitor 401(k) Plans

Yesterday, I blogged here about a proposed Labor Department rule that would require investment brokers to contractually bind themselves as fiduciaries of their clients. 

Somewhat relatedly, the United States Supreme Court just issued an opinion finding employers to be fiduciaries in relation to the employment plans offered to their employees.  The petitioning employees argued that respondent employers acted imprudently by offering six higher priced retail-class mutual funds as 401(k) plan investments when materially identical lower-priced institutional-class mutual funds were available.  The higher-priced funds also carried higher fees.   The Ninth Circuit Court of Appeals applied the ERISA statute of limitations to the initial selection of funds without considering whether there is also a continued duty to monitor the funds.  There is.  The Supreme Court found that because the fiduciary duty can be traced to trust law, there is “a continuing duty of some kind to monitor investments and remove imprudent ones.  A plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely.  The Ninth Circuit erred by applying a 6- year statutory bar based solely on the initial selection of the three funds.”

May 19, 2015 in Current Affairs, Famous Cases, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Friday, May 8, 2015

Victory at the Smelliest Place on Earth

 

Disney Tree of Life
Disney Tree of Life by Clavet

The Orlando Sentinel reported that an arbitrator has reinstated Disney workers who had refused to perform in a Disney Animal Kingdom Show, the Festival of the Lion King.  The workers refused to perform because the unitards they were expected to wear for the show were not clean and dry as required in the Collective Bargaining Agreement between Disney and Teamsters Local 385 of the Services Trade Council Union (Attachment 6, Part C).  

Disney was forced to cancel a performance of the show and then terminated the objecting workers.  Disney will have to pay the workers back-pay for the time they were out of work (minus what they earned at other jobs), and reprimands will be removed from their files.

May 8, 2015 in Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, March 19, 2015

When Contractual Consent Isn't Enough

The problem with constructive consent, or substituting "manifestations of assent" for actual assent, in consumer contracts is that consumers often aren't aware what rights they've relinquished or what they have agreed to have done to them.  Too bad for consumers, right?  Well, it's also too bad for companies.  Companies that rely on contracts to obtain consumer consent may find that what suffices for consent in contract law just won't cut it under other law that seeks actual consumer consent.  Michaels, the arts and crafts store chain, found that out the hard way.  They were recently hit with two class action lawsuits alleging that their hiring process violates the Fair Credit Reporting Act (FCRA).  Job applications clicked an "I Agree" box which indicated "consent" to the terms and conditions which authorized a background check on the applicant.  As this article in the National Law Review explains, the FCRA requires that job applicants receive "clear and conspicuous" standalone notice if they are seeking consent from applicants to obtaining a background report.  A click box likely won't (and shouldn't) cut it.  Contracts that everybody knows nobody reads shouldn't be considered sufficient notice.  It would, of course, be much simpler if contractual consent were more aligned with actual human behavior....

March 19, 2015 in Commentary, Current Affairs, Labor Contracts, Legislation | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 3, 2015

Want a Class with that Barrista Job?

Last year, Starbucks announced a new corporate-supported educational program that one year later is still viable: Starbucks will reimburse its full-time workers for taking online classes with Arizona State University.  Partial tuition (58%) will be offered to freshmen and sophomores and full tuition for juniors and seniors as long as credits are earned within the past 18 months so as to keep students on track.  

As you may have noticed if you are a Starbucks customer, very many of its employees appear to be college-aged.  In fact, 70% of Starbucks’ workforce are either in school already or have had to drop out because of various personal difficulties.  

This program seems to be a benefit to employees who cannot afford to go to school full time (or even part time), but who desire and education.  What is remarkable is also how few “strings” are attached to the program.  For example, the employees do not even have to stay with Starbucks after the completion of their degree.  Said CEO Howard Schultz (still the CEO): "We want to attract and retain great people. We want to provide [our employees] with new tools and new resources to have advancements in the company.” 

What is in it for ASU?  This has been said to be a coup for the university, which already has one of the nation’s largest and most highly regarded online programs.   Of course, Starbucks has a large amount of employees with, presumably, many coming and going, so ASU now has access to a large database of potential students, something many universities – private and public - are craving in these competitive times.

For the students and the university, rates may be discounted.  This is normal in this type of situation.   What would truly make a difference would be if the rates could become so reduced for students that they would, in effect, have no out-of-pocket costs altogether. 

What, to me, is interesting about this situation is that a public university has found out workable model for online classes and cooperation with a private business venture when many private universities have not. 

The somewhat strange catch here is that ASU cannot enter into any other arrangement with a for-profit business for four years, but that Starbucks is free to advertise its partnerships with a few other schools.

See the contract at issue here.

See Starbucks’ description of the program here.

March 3, 2015 in Commentary, Current Affairs, E-commerce, Food and Drink, Labor Contracts, Teaching, True Contracts | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 11, 2015

Construction Contracts that Kill

Property development is often considered a way for local communities to earn more taxes and evolve with times in general.  But when construction and other development is approved in geologically risk areas such as flood zones and things go awfully wrong, is this a mere property and contracts issue, or may criminal liability lie?

In France, the answer is the latter.  The former mayor of the small French seaside town La Faute-sur-Mer  was just sentenced to jail for four years for deliberately hiding flood risks so that he and the town could benefit from the “cash cow” of property development, a French court has held.  His deputy mayor received a two-year sentence in the same plot.

In 2010, the cyclone Xynthia hit western Europe and knocked down seawalls in the French town, leading to severe floods and 29 deaths. 

Wait… a cyclone in France?  Yes.  Climate change is real and it’s here.  Unless we do something about it (which apparently we don’t), things will only get worse.  As on-the-ground steps that could prevent extreme results such as the above are often simply ignored or postponed while more and more research is done and money saved at various government scales, lawsuits will necessarily follow.  The legal disciplines, including contracts law, will have to conform to the new realities of a rapidly changing climate.  For starters, we need to seriously question the wisdom and continued desirability of constructing more and more homes in coastal and other flood prone areas.  Ignoring known risks is, well, criminal.

February 11, 2015 in Commentary, Current Affairs, Government Contracting, Labor Contracts, Science | Permalink | Comments (0) | TrackBack (0)

Monday, January 26, 2015

Supreme Court: Sixth Circuit Reasoning Incompatible with Contracts Principles

A group of retirees had worked for the Pleasant Point Polyester Plant.  They retired before Petitioner M&G Polymers (M&G) acquired the plant in 2000.  At the time of that acquisition, M&G entered into a collective bargaining agreement and a pension agreement with a union that represented retirees.  Those agreements created a right to lifetime, contribution-free health care benefits for the retirees, their surviving spouses, and their dependents.  However, in 2006, M&G  announced that it would begin requiring retirees to contribute to the cost of their health care benefits.   Retirees objected that their rights had already vested and could not be withdrawn.  

Scotus-2014
Retirees sued, but M&G claimed that the benefits expired with the termination of the earlier agreements.   The Sixth Circuit, relying on a 1983 precedent sided with the retirees, reasoning that retiree health benefits would not likely be subject to future negotiations.  Earlier precedent in similar cases had found that, even if the agreements at issue are ambiguous, the parties likely intended for them to apply in perpetuity for workers whose rights had vested and who, as retirees, would no longer be able to engage in collective bargaining.  In M&G Polymers USA, LLC v. Tackett, Justice Thomas, writing for the unanimous Court, reversed, finding the Sixth Circuit opinion inconsistent with ordinary principles of contracts law.  

In this and prior cases, the Court held, the Sixth Circuit had departed from contracts principles by placing a thumb on the scales in favor of retiree benefits.    The Sixth Circuit's "assessment of likely behavior in collective bargaining is too speculative and too far removed from the context of any particular contract to be useful in discerning the parties’ intention," the Court found.  In addition, the Sixth Circuit approach misapplies the presumption against illusory promises.  The Sixth Circuit  found that agreements such as the one at issue would be illusory if benefits could be withdrawn from some potential beneficiaries.  The Court pointed out that a contract cannot be partly illusory.  If it provides benefits some poetntial beneficiaries, that suffices to render the contract non-illusory.   Moreover, the Sixth Circuit ignoreed both the traditional contracts presumption that contractual rights usually terminate with the underlying agreement and the presumption against contracts rights that vest for life.  The Court remanded the case with instructions that the lower courts should apply ordinary contracts principles

Justices Ginsburg, Breyer, Sotomayor and Kagan concurred.  They agreed that ordinary contracts principles should govern the interpretation of the agreements at issue.  However, they rejected M&G's contention that the retirees need to show "clear and express" language that their rights had vested.  The concurring Justices pointed to provisions that might support the retirees' claims and joined the opinion of the Court in urging the lower courts to review the agreements in light of ordinary contracts principles and without a thumb on the scales in favor of a finding of vested rights.

 

January 26, 2015 in Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Monday, December 29, 2014

No-tipping policies and increased minimum salaries

CNN reports that more and more restaurants are implementing no-tipping policies as, perhaps, a way of differentiating themselves from competitors.  For example, one restaurant builds both tax and gratuity into menu prices, allegedly resulting in its servers averaging about $16.50 an hour.  I have argued here before that it seems fair to me that the burden of compensating one’s employees should fall on the employer and not on, as here, restaurant patrons feverishly having to do math calculations at the end of a meal.

The law does not yet support employment contracts ensuring fair compensation of restaurant and hotel employees.  For example, federal law requires employers to pay tipped workers only $2.13 an hour as long as the workers earn at least the federal minimum wage of $7.25 an hour.  Talk about burden shifting…

But change seems to be on the way with private initiatives such as the restaurant no-tipping policy.  In Los Angeles, the City Council has approved an ordinance that raises the minimum wage for workers in hotels of more than 300 rooms to $15.37 an hour.  Of course, this will mainly affect large hotel chains, which predictably resisted the ordinance citing to issues such as the need to stay competitive price-wise and threatened circumventing the effect of the new law by laying off or not hiring workers to save money.  Funny since many of these hotels have been making vast amounts of money for a long time on, arguably, overpriced hotel rooms attracting a clientele that does not seem overly concerned about paying extra for things that are free in most lower-priced hotels (think wifi) and thus probably could somehow internalize the cost of fairly compensating its blue-collar workers. 

Much has been said about the “1%” problem and a fair living wage.  No reason to repeat that here.  However, it is thought-provoking that whereas the U.S. recession officially ended in June 2009 – five years ago - 57% of the U.S. population still believed that the nation was in a recession in March 2014.

Contracting and the economy is, of course, to a large extent a matter of seeking the best bargain one can obtain for oneself.  But even in industrialized nations such as ours, there is something to be said for also ensuring that not only the strongest, most sophisticated and wealthiest reap the benefits of the improved economy.  So here’s to hoping that more initiatives such as the ones mentioned above are taken in 2015.  At the end of 2014, it’s still “the economy, s$%^*&.”

December 29, 2014 in Commentary, Current Affairs, Labor Contracts, Legislation | Permalink | TrackBack (0)

Friday, December 5, 2014

Driven to Extreme Lengths to Earn a Dollar

In today’s “sharing economy,” more and more private individuals attempt to earn some (additional) money in untraditional ways such as selling various things on eBay, driving cars for alternative passenger transportation services such as Uber and Lyft, and providing lodging in private homes on sites such as airbnb.  Not only do these services raise many regulatory, licensing, insurance zoning and other issues, they also present a real risk to many hopeful 1099 workers who – as the relevant companies themselves – can vastly misjudge the potential of new attempted products or services.

Take, for example, Lyft drivers.  In May, the shared ride company introduced luxury rides via its Lyft Plus program.   At least in San Francisco, the drivers had to pay $34,000 out of their own pockets for the large, “loaded” Ford Explorers required by Lyft for drivers to participate in the program.  The idea was that passengers would pay twice the normal Lynx rate to get the extra space and perceived luxury of being whisked around town in a large SUV.  A bit behind the curve, you think?  Indeed.  The program was an instantaneous fiasco in San Francisco (the company still advertises the program, but at “only” 1.5 times the price of a regular ride and touting the program as having space enough for six people).  Soon, drivers were back to simply getting regular rides– often just at $5 or $6 – just to stay busy.   This is obviously not viable in a city with expensive gasoline and cars that get only around $14 miles per gallon, not to mention the purchase price of the new SUVs. 

Responding to drivers’ initial concerns, Lyft had promised that they should “not worry about demand, we have that covered.”  Realizing that many of its drivers were upset about being stuck with a huge, new gas guzzler without a realistic return on investment, Lyft has offered their Plus drivers help selling the SUVs or a $10,000 bonus… subject to income tax, no less.   None of these options, of course, will bring the drivers back to the pre-contractual position.  Some drivers admitted to having borrowed money from family members, selling existing cars, even “forgoing other job opportunities for the chance to make more money with Lyft Plus.”  

A sad story all the way around.  Companies are continually trying to introduce new products and services to find the next “big thing.”  This, of course, is laudable, but not so much so when they seemingly cross the line and make unfounded promises to the less savvy or financially strong.  Of course, this also does not mean that workers or customers should not exercise a hefty dose of “caveat emptor” in connections such as this, but it is a somewhat concerning aspect of today’s sharing economy that failed product launches can simply be shared with “smaller fish” with less bargaining power and, apparently, a dangerously high risk-willingness bordering desperation in trying to make a dollar in these financially tough times.  Whether in this case, the promise that the demand was “covered” could be a contractual misrepresentation or whether it was simply puffery is another story best left to another forum.

December 5, 2014 in Commentary, Current Affairs, E-commerce, Labor Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 14, 2014

Want to make sandwiches? First, sign this non-compete...

Jimmy John's, a sandwich chain that frankly I had never heard of but which has over 2,000 franchise locations, apparently makes its employees sign pretty extensive confidentiality and non-compete agreements , as reported by Bob Sullivan and this Huffington Post article.  It's not clear to me what trade secrets are involved in making sandwiches, although I am a big fan of more transparency when it comes to what goes in my food and how it's made. As Bob Sullivan points out, in this economy, employment-related agreements for most employees are typically adhesion contracts. Making workers sign non-competes to get a job makes it much harder for them to get their next job.  In this case, the employee is prohibited from working for two years at any place that makes 10% of its revenue from any sandwich-type product (broadly defined to include wraps and pitas) that is within 3 miles of any Jimmy Johns location.  Given that there are 2,000 such locations, it could make it difficult for some food industry workers to find other jobs.

October 14, 2014 in Current Affairs, Food and Drink, Labor Contracts, Miscellaneous | Permalink | Comments (3) | TrackBack (0)

Monday, August 25, 2014

Some additional thoughts about the Salaita case

As Jeremy Telman previously noted, the unhiring of Steven Salaita has caused quite a stir in academic circles.  There was even an article in the Chronicle of Higher Education briefly discussing the contractual issues, which included the arguments made by Prof. Michael Dorf and Prof. David Hoffman.  I think they both have good arguments but I tend to think  this is a real contract and not an issue of promissory estoppel.  The reason I believe this has to do with what constitutes a "reasonable interpretation" under these circumstances.  I think both parties intended a contract and a "reasonable person" standing in the shoes of Salaita would have believed there was an offer.  The offer was clearly accepted.  What about the issue regarding final Board approval? Does that make his belief there was an offer - which he accepted -  unreasonable?  I don't think so given the norms surrounding this which essentially act as gap fillers and the way the parties acted both before and after the offer was accepted.  I think the best interpretation - really, the only reasonable one given the hiring practices in academia - is that the Board approval was a rubber stamp but one that could be withheld if the hired party did something unexpected, like commit a crime.  In other words, I think there was an offer that was accepted and that the discretionary authority of the board to approve his appointment was subject to the duty of good faith and fair dealing - i.e. the Board would only withhold approval for good cause.  I don't think this was a conditional offer - the language would have to be much more explicit than it seemed to be and to interpret it that way would constitute a forfeiture (which courts don't like) - and yes, I considered whether it could be a condition to the effectiveness of a contract.  That question caused me some angst but I still don't think it was given the hiring norms in general, and the way the parties acted. 

There was, however, an implied term in the contract that Salaita would not do anything or that no information would come out that would change the nature of the bargain for the university.  For example, if it turned out that he didn't really have a PhD or that he plagiarized some of his work, that would be grounds for the Board to refuse to approve his appointment.  In that case, the Board could refuse to approve his hiring without breaching its good faith obligation.

The real dispute here is whether Salaita's tweets constituted a breach of that implied term (i.e. did it undermine the bargain that the university thought it was getting?)  I think that's really what the disagreement in the academic community is about and why the real contractual issue has to do with interpretation - and the meaning of academic freedom.

 

August 25, 2014 in Commentary, Current Affairs, Labor Contracts, Miscellaneous | Permalink | Comments (4) | TrackBack (0)

Thursday, August 7, 2014

Supremes Settle Their Breach of Contract Action

Oblique_facade_3,_US_Supreme_CourtIt is not often that the Supreme Court of the United States entertains a contract issue (which is, coincidentally, one of the main reasons it is such a delight to teach contract law).  The Supreme Court did, however, recently settle a contract dispute of its own.

According to reporting by Tony Mauro at the National Law Journal:

The curious case of the trapezoidal windows at the U.S. Supreme Court is closed.

Documents filed recently in lower courts indicate that a contentious seven-year dispute over mistakes and delays in the renovation project at the high court has been settled.

“Everybody was worn out by the litigation,” Herman Braude of the Braude Law Group said this week. Braude represented Grunley Construction Company, the main contractor for the modernization project on the nearly 80-year-old building. “All good things have to come to an end,” he said.

The most contested feature of the litigation was the belated discovery by contractors that more than 150 large windows, many of which look out from justices’ chambers, were trapezoidal—not strictly rectangular. The building's persnickety architect, Cass Gilbert, designed them that way so they would appear rectangular from below, both inside and outside the building.

But Grunley and its window subcontractor failed to measure all four sides of the windows before starting to manufacture blast-proof replacements, so some of them had to be scrapped.

Grunley claimed it was not obliged to make the measurements, asserting that the government had “superior knowledge” of the odd shape of the windows that it should have shared with contractors. The company asked for an extra $757,657 to compensate for the extra costs of fabricating the unconventional windows.

But the federal Contract Appeals Board in 2012 rejected Grunley’s claim, stating: “We find inexcusable the firms’ failure to measure a necessary component of the windows prior to installation.”

Grunley appealed to the U.S. Court of Appeals for the Federal Circuit and placed other contract disputes before that court and the U.S. Court of Federal Claims. Both sides eventually agreed to settlement negotiations.

In February, both parties reported to the federal circuit that “the parties are now in the final process of closing out the underlying construction contract and settling various requests for equitable adjustment.” They also told the federal circuit that “the settlement discussion are at a very high level between the parties … and are being primarily led by the principals of each party, not the litigation counsel.”

Subsequent orders by both courts have dismissed the litigation, but no details of the settlement are available on the docket of either court.

Attempts to obtain details of the settlement have been unsuccessful so far. The Architect of the Capitol—the congressional agency that has jurisdiction over the Supreme Court building and was the defendant in the litigation—did not respond to a request for comment. The U.S. Department of Justice’s civil division, which handled the litigation for the architect's office, did not respond as of press time, and neither did anyone from the Supreme Court.

Braude, Grunley's attorney, was reluctant to give details. “The dollar figure doesn’t matter,” he said. But when pressed, Braude said his client “got some” of the $15 million in extra compensation it was seeking from the government, beyond its original $75 million contract for the work.

“Everybody agreed to an adjusted contract price that recognizes the budget limitations of the government,” Braude said, adding that the settlement was “satisfactory to all parties. Nobody was jumping for joy, but everybody was a little happy.” Braude also said the Supreme Court signed off on the settlement.

John Horan of McKenna Long & Aldridge, an expert on government contract disputes, said there is no general rule about the confidentiality of settlements, and sometimes “the government doesn’t go out of its way to make settlements public.” But a document spelling out terms of the agreement is sometimes made part of the public record or can be obtained through the Freedom of Information Act, he said. The Supreme Court and the Architect of the Capitol, an arm of Congress, are exempt from the FOIA.

The modernization project at the Supreme Court broke ground in 2003 and the target completion date was 2008, though some follow-up work is still underway. The court's aging infrastructure—including one of the oldest Carrier air-conditioners in existence—was the trigger for the project, which has cost an estimated $122 million overall.

More here.  Great basis for an exam hypo.  And, wow! -- to be the attorney that sues the Supreme Court!

August 7, 2014 in Government Contracting, In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 17, 2014

Hardball Tactics by 7-Eleven or Franchisee Fraud?

Over the past few years, more than a dozen 7-Eleven franchisees have sued the company claiming that it operated in bad faith by untruthfully accusing the franchisees of fraud and by strong-arming them to “voluntarily” surrender their franchise contracts based on such false accusations.  The franchisees claim that the tactic, which is known in the franchise community as “churning,” is aimed at retaking stores in up-and-coming areas where the franchise can now be sold at a higher contractual value or from franchisees who are too outspoken against the company.

Franchisees split their gross profits evenly with 7-Eleven.  The chain claims that it has hours of in-store covert footage showing franchisees voiding legitimate sales and not registering others to keep gross sales lower than the true numbers in order to pay smaller profits to 7-Eleven.  Similarly, the chain uses undercover shoppers to spot-check the recording of transactions.  This level of surveillance is uncommon among similar companies, says franchise attorney Barry Kurtz.  A former corporate investigations supervisor for 7-Eleven calls the practice “predatory.”

Japanese-owned 7-Eleven asserts that a few of their franchisees are stealing and falsifying the sales records, thus depriving the company of its full share of the store profits.  It maintains in court records that its investigations are thorough and lawful.  It also complains that groups of franchisees often group together to create a “domino of lawsuits, pressuring the company to settle.”

It seems that a company installing hidden cameras to monitor not customers for safety reasons, but one’s own franchisees raises questions of whether or not these people had a reasonable expectation of privacy in their work-related efforts under these circumstances.  If not, the issue certainly raises an ethical issue: once one has paid not insignificant franchise fees and continue to share profits with the franchisor at no less than 50-50%, should one really also expect to be monitored in hidden ways by one’s business partner, as the case is here?  That has an inappropriate Big-Brother-is-Watching-You feel to it. 

In the 1982 hit Dire Straits song Industrial Disease, Mark Knopfler sings that “Two men say they're, Jesus one of them must be wrong.”  When it comes to this case, the accusations of “bogus” reasons asserted by the franchisees and returned fire in the form of theft accusations by 7-Eleven, somebody must not follow the contractual duty of good faith and fair dealings. 

This case seems thus to be one that could appropriately be settled… oh, wait, the company apparently perceives that to be inappropriate pressure.  Perhaps a fact finder will, then, have to resolve this case of mutual mud-slinging.  In the meantime, 7-Eleven prides its “good, hardworking, independent franchisees” of being the “backbone of the 7-Eleven brand.”  That is, until the company itself deems that not to be the case anymore, at which point in time it imposes a $100,000 “penalty” on those of its franchisees who do not volunteer to sign away their stores.  The company does not reveal how it imagines that its hardworking, but probably not highly profitable, franchisees will be able to hand over $100,000 to a company to avoid further trouble.

 

June 17, 2014 in Commentary, Food and Drink, In the News, Labor Contracts, True Contracts | Permalink | Comments (1) | TrackBack (0)

Tuesday, June 10, 2014

NYT Article on Noncompete Clauses: They're Everywhere!

In August of last year, the WSJ reported that companies were easing up on executive noncompetes.  Two days later, the WSJ reported that litigation over noncompetes was on the rise.  As Jeremey Telman wrote here on the blog yesterday, the NY Times reported that noncompetes are everywhere.  So which is it?

My guess is that noncompetes are increasingly widespread in non-executive contracts - the examples in the NY Times piece involved a 19-year old summer camp counselor, a pesticide sprayer and a hair stylist.  At the same time, the popularity of the non-compete may be waning in executive contracts where they are less likely to have an in terrorem effect.  

Here's a taste of the NY Times article: 

Noncompete clauses are now appearing in far-ranging fields beyond the worlds of technology, sales and corporations with tightly held secrets, where the curbs have traditionally been used. From event planners to chefs to investment fund managers to yoga instructors, employees are increasingly required to sign agreements that prohibit them from working for a company’s rivals.

There are plenty of other examples of these restrictions popping up in new job categories: One Massachusetts man whose job largely involved spraying pesticides on lawns had to sign a two-year noncompete agreement. A textbook editor was required to sign a six-month pact.

A Boston University graduate was asked to sign a one-year noncompete pledge for an entry-level social media job at a marketing firm, while a college junior who took a summer internship at an electronics firm agreed to a yearlong ban.

“There has been a definite, significant rise in the use of noncompetes, and not only for high tech, not only for high-skilled knowledge positions,” said Orly Lobel, a professor at the University of San Diego School of Law, who wrote a recent book on noncompetes. “Talent Wants to be Free.” “They’ve become pervasive and standard in many service industries,” Ms. Lobel added.

Because of workers’ complaints and concerns that noncompete clauses may be holding back the Massachusetts economy, Gov. Deval Patrick has proposed legislation that would ban noncompetes in all but a few circumstances, and a committee in the Massachusetts House has passed a bill incorporating the governor’s proposals. To help assure that workers don’t walk off with trade secrets, the proposed legislation would adopt tough new rules in that area.

Here's a link to the rest of the article.

June 10, 2014 in In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 22, 2014

A Respite from after-hours Work Email

In France, two labor unions and two corporate business groups have signed an agreement guaranteeing managers eleven consecutive hours of “rest” per day.  During these eleven hours, managers are not to “check or feel pressured to check” their email after hours. http://www.wired.co.uk/news/archive/2014-04/11/france-work-emails-out-of-hours, the New York Times, April 12, 2014. Companies must develop their own specific policies on how to implement the agreement, which is yet to be approved by the Labor Ministry.  They could, for example, do so by shutting down servers entirely for the required amount of time or instructing managers not to check their email or communicate with their associates after hours.  In 2013, the German Labor Ministry similarly ordered its supervisors not to contact employees outside of office hours.  This is supposed to have a positive spill-over effect on non-managers whose bosses will have to leave them alone because of these no-email rules.  The rules are considered necessary in times of much around-the-clock global business communication.

In many northern European countries, including France, employees already typically enjoy labor and vacation laws mandating five to six weeks of paid vacation leave per year and work weeks of around 37 hours.  In Denmark, women get a year off for maternity leave.  Men have a right to paternity leave as well.  In France, the workers’ rights rules have been criticized for being a significant impediment to economic growth, a problem in times with unemployment there hovering around 10%.

In the United States, on the other hand, both daily and yearly work requirements are largely up to individually negotiated employment contracts between employers and employees.  The Fair Labor Standards Act (FLSA) does not limit the number of hours per day or per week that employees aged 16 years and older can be required to work.  The United States is the only advanced economy in the world that does not guarantee its workers any paid leave. The gap between paid time off in the United States and the rest of the world is even larger if legally mandated paid public holidays are included as the United States offers none whereas most of the rest of the world's rich countries offer between five and 13 paid public holidays per year.

In fact, the International Labour Office has found that after passing the Japanese as the world’s most overworked population in the mid-1990s, Americans have pulled way ahead of the pack. Americans now work an average of 1,979 hours a year, about three-and-a-half weeks more than the Japanese, six-and-a-half weeks more than the British and about twelve-and-a-half weeks more than their German counterparts.   A 2008 Harvard Business School survey of a thousand professional-level employees found that 94% worked fifty hours or more a week, and almost half worked in excess of sixty-five hours a week.

In certain industries such as the legal field, the system can reward workers for working longer, not smarter, via billable hour requirements. Seen from a company’s point of view, it may, at first blush, be considered to be cheaper to pay one person to work a hundred hours a week than two people to work fifty hours apiece, even if the overworked person is less productive

But does that hold true?  It seems obvious that an overworked, tired employee is not as productive as a rested employee and that quality of the work product may also suffer.  A Stanford study demonstrated that an employee who works 60 hours is actually a third less productive overall than an employee who puts in only 40 hours.  In other words, productivity during 60-hour weeks is, in total, less than two-thirds of what it is when only 40-hour weeks are worked.   This dramatic decrease in average productivity can be explained by the fact that due to the stress, fatigue and lack of sleep commonly associated with working too many hours, a worker’s average productivity becomes substantially less than what it is during normal working hours.  “Normal,” in this case, is considered 40, still hours more than what is considered a normal work week in Europe where productivity levels in several nations with such “low” weekly work hours exceed those in the USA.

The facts seem clear: overwork is inexpedient seen from both employers’ and employees’ point of view.  Nonetheless, the state of these affairs is unlikely to change in the foreseeable future in the United States.  Why is that?  In contrast to Europe, labor unions are, for the most part, frowned upon here, making it largely up to each individual employee to negotiate his/her employment contract.  Of course, the bargaining powers in that respect are very often highly unequal, especially in times of high unemployment.  That makes it hard to ask for more vacation and shorter work weeks.  Culture plays a role too: in Europe, there is not only more focus on employees’ rights and welfare than what is the case in many American work environments, but also much value placed on taking vacations.  In the United States, many employees do not even take the vacation they have earned, whether to appear more beneficial to the employer and thus avoid getting laid off or because work flows in this country may be expected to proceed so completely uninterruptedly that it is simply impossible for employees to be away from work for more than a few days at a time without client dissatisfaction.  The American work/life imbalance ought to be addressed for the benefit of the employees, the employers, and the future productivity of our nation in general.  Now, back to my email…

April 22, 2014 in Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, March 17, 2014

“Strictly Confidential” Means Don’t Boast about Settlement on Facebook

An employee sues his employer for age discrimination and retaliation.  The parties reach an $80,000 settlement agreement pursuant to which the existence and terms of the settlement are to be kept “strictly confidential.”  The employee is only allowed to tell his wife, attorneys and other professional advisers about the settlement.  A breach of the agreement will result in the “disgorgement of the Plaintiff’s portion of the settlement payments,” although the attorney would, in case of a breach, be allowed to keep the separately agreed-upon fee for his services.  The employee tells his teenage daughter about the settlement and being “happy about it.”  Four days later, she boasts to her 1,200 Facebook friends:

“Mama and Papa Snay won the case against Gulliver.  Gulliver is now officially paying for my vacation to Europe this summer.  SUCK IT.”

The employer does not tender the otherwise agreed-upon settlement amount, citing to a breach of the confidentiality clause of the contract.  The employee brings suits, wins at trial, but loses on appeal.  The employee’s argument?  He felt that it was necessary to tell his daughter “something” about the agreement because, some sources state, she had allegedly been the subject of at least some of the retaliation against her father.

The appellate court emphasized the fact that the agreement had called for the employee not to disclose “any information” about the settlement to anyone either directly or indirectly.  Settlement agreements are interpreted like any other contract.  Thus, the unambiguous contractual language “is to be given a realistic interpretation based on the plain, everyday meaning conveyed by the words,” according to the court.  The employee did precisely what the confidentiality agreement was designed to prevent, namely advertise to the employer’s community that the case against them had been successful.

What could the employee have done here if he truly felt a need to tell his daughter about the deal?  Pragmatically, he could have made it abundantly clear to his daughter that she was not to tell anyone, obviously including her thousands of Facebook “friends,” about it.  Hopefully she would have abided by that rule...  The court pointed out that the employee could also have told his attorney and/or the employer about the need to inform his daughter in an attempt to reach an agreement on this point as well.  Having failed to do so, “strictly confidential” means just that.  As we know, consequences of breaches of contract can be ever so regrettable, but that does not change any legal outcomes. 

The case is Gulliver Sch., Inc. v. Snay, 2014 Fla. App. LEXIS 2595.

March 17, 2014 in Contract Profs, Current Affairs, Famous Cases, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, March 10, 2014

NewYork City Ballet Dancers Agree to New Contract

As the New York Times reports here, dancers with the New York City Ballet (NYCB)  have been operating without a contract since the summer of 2012.  No details of the agreement are available, beyond the fact that the dancers are guaranteed pay for 38 weeks of work now, up from 37.  

A bit of quick internet research suggests that a member of the NYCB corps de ballet makes $1500 a week.  Let's assume the new contract is more generous and round up to $2000/week.  If they get paid for 38 weeks of work, that comes out to $76,000/year, which is a good salary in New York City, so long as you can share a studio apartment in an outer borrough with two or more other members of of the corps (or you can marry and investment banker).  There was a bit of controversy about five years ago when tax returns for Peter Martins, the NYCB's Ballet Master-in-Chief, surfaced and revealed that he made about $700,000.  Some of that money comes from royalties he earns on his choreographies.  In any case, it seems that was considered a lot of money for a dancer.

To put that in some perspective, the median salary for an NBA player is $1.75 milion, if we include players on short-term contracts.  The top salary exceeds $30 million, and the lowest salary, as of the 2011-12 season according to nba.com, was just under $500,000 for a rookie.

And now, here is the New York City Ballet performing an excerpt from George Balanchine's Agon

 

 

March 10, 2014 in Celebrity Contracts, Commentary, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 11, 2014

A NY Court Finally Holds that Florida is "Truly Obnoxious"...

Sunshine-state... at least, Florida's non-compete law is "truly obnoxious" to New York public policy.  The intermediate appellate court in New York (Fourth Department) recently refused to enforce a Florida choice of law provision in a non-compete agreement. Here's the analysis:

We nevertheless conclude that the Florida choice-of-law provision in the Agreement is unenforceable because it is “ ‘truly obnoxious’" to New York public policy (Welsbach, 7 NY3d at 629). In New York, agreements that restrict an employee from competing with his or her employer upon termination of employment are judicially disfavored because “ ‘powerful considerations of public policy . . . militate against sanctioning the loss of a [person’s] livelihood’ ” (Reed, Roberts Assoc. v Strauman, 40 NY2d 303, 307, rearg denied 40 NY2d 918, quoting Purchasing Assoc. v Weitz, 13 NY2d 267, 272, rearg denied 14 NY2d 584; see Columbia Ribbon & Carbon Mfg. Co. v A-1-A Corp., 42 NY2d 496, 499; D&W Diesel v McIntosh, 307 AD2d 750, 750). “So potent is this policy that covenants tending to restrain anyone from engaging in any lawful vocation are almost uniformly disfavored and are sustained only to the extent that they are reasonably necessary to protect the legitimate interests of the employer and not unduly harsh or burdensome to the one restrained” (Post v Merrill Lynch, Pierce, Fenner & Smith, 48 NY2d 84, 86-87, rearg denied 48 NY2d 975 [emphasis added]). The determination whether a restrictive covenant is reasonable involves the application of a three-pronged test: “[a] restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public” (BDO Seidman v Hirshberg, 93 NY2d 382, 388-389 [emphasis omitted]). “A violation of any prong renders the covenant invalid” (id. at 389). Thus, under New York law, a restrictive covenant that imposes an undue hardship on the restrained employee is invalid and unenforceable (see id.). Employee non-compete agreements “will be carefully scrutinized by the courts” to ensure that they comply with the “prevailing standard of reasonableness” (id. at 388-389).

By contrast, Florida law expressly forbids courts from considering the hardship imposed upon an employee in evaluating the reasonableness of a restrictive covenant. Florida Statutes § 542.335(1) (g) (1) provides that, “[i]n determining the enforceability of a restrictive covenant, a court . . . [s]hall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought” (emphasis added). The statute, effective July 1, 1996, also provides that a court considering the enforceability of a restrictive covenant must construe the covenant “in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement” and “shall not employ any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint, or against the drafter of the contract” (§ 542.335 [1] [h]; see Environmental Servs., Inc. v Carter, 9 So3d 1258, 1262 [Fla Dist Ct App]). Thus, although the statute requires courts to consider whether the restrictions are reasonably necessary to protect the legitimate business interests of the party seeking enforcement (see § 542.335 [1] [c]; Environmental Servs., Inc., 9 So3d at 1262), the statute prohibits courts from considering the hardship on the employee against whom enforcement is sought when conducting its analysis (see Atomic Tattoos, LLC v Morgan, 45 So3d 63, 66 [Fla Dist Ct App]).

Based on the foregoing, we conclude that Florida law prohibiting courts from considering the hardship imposed on the person against whom enforcement is sought is “ ‘truly obnoxious’ ” to New York public policy (Welsbach, 7 NY3d at 629), inasmuch as under New York law, a restrictive covenant that imposes an undue hardship on the employee is invalid and unenforceable for that reason (see BDO Seidman, 93 NY2d at 388-389). Furthermore, while New York judicially disfavors such restrictive covenants, and New York courts will carefully scrutinize such agreements and enforce them “only to the extent that they are reasonably necessary to protect the legitimate interests of the employer and not unduly harsh or burdensome to the one restrained” (Post, 48 NY2d at 87; see BDO Seidman, 93 NY2d at 388-389; Columbia Ribbon & Carbon Mfg. Co., 42 NY2d at 499; Reed, 40 NY2d at 307; Purchasing Assoc., 13 NY2d at 272), Florida law requires courts to construe such restrictive covenants in favor of the party seeking to protect its legitimate business interests (see Florida Statutes § 542.335 [1] [h]). 

According to the NYLJ, courts in Alabama, Georgia and Illinois have also rejected the Florida law.

You know what else is truly obnoxious?  All of the Floridians who complain about how cold it is when it hits 55 degrees...

Brown & Brown v. Johnson (N.Y. App. Div. 4th Dep't Feb. 7, 2014)

February 11, 2014 in In the News, Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 15, 2014

Minnesota Orchestra Agrees to New Contract, Ends Lock-out

As The New York Times reports, the Minnesota orchestra has ended "one of the most contentious labor battles in the classical music world."  The musicians agreed to a new contract, with smaller pay cuts than management had previously proposed, ending a fourteen-month lock-out.  Concerts are due to resume in Minneapolis's newly-renovated Orchestra Hall (pictured) in February. 

Orch_hall

The musicians accepted a fifteen percent pay cut, having successfully fought off a proposed 30% pay cut, and management has promised pay increases in the coming years so that by year three musicians will only be about ten percent below were they were in 2012.  Musicians also must share a larger burden of their health insurance costs.  

Some of these musicians might consider a change of careers.  Stagehands seem to do pretty well.

January 15, 2014 in In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, January 6, 2014

Union Contract Paves the Way for Boeing to Remain in Seattle Area

777sAs reported here in The New York Times, Boeing's machinists union has agreed to a new eight-year labor contract in which the union sacrificed some benefits in order to guarantee that Boeings 777X aircraft will be built at is Washington State plant.  The union local's leaders opposed the new contract, but the national union urged them to hold a vote, and 51% of those participating voted to accept the contract.

According to the Times, Washington state was the logical choice for  the construction of Chicago-based Boeing's 777X.  However, the company sought tax breaks and a new union contract before agreeing to use its existing infrastructure on the new project.  The state legislature quickly approved tax breaks that will be good through 2040 and save the company an estimated $9 billion, but when the machinists originally rejected the new contract offer, Boeing began shopping around for a new location for its plant.  

[JT]

January 6, 2014 in In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 24, 2013

Seventh Circuit Compels Union into Arbitration by Ratification

Since I am getting ready to teach Business Associations for the first time in three years, it is nice to have a case that reviews basic agency principles:

On November 25, 2013, a panel of the Seventh Circuit issued a per curiam decision in NECA-IBEW Rockford Local Union 364 Health and Welfare Fund v. A & A Drug Co. and upheld a district court's grant of defendant's motion to compel arbitration.  Plaintiff (the Fund) provides health benefits to a Rockford union of electrical workers (Local 364).  In 2002, it negotiated an agreement (the Local Agreement) with Sav-Rx, a provider of prescription drug benefits.  In 2003, Sav-Rx also negotiated a different agreement (the National Agreement) with the International Brotherhood of Electrical Workers, with which Local 364 is affiliated.  The National Agreement offers locals reduced charges, but it, unlike the Local Agreement, contains an arbitration clause.

While the Fund's trustees never voted on the matter, the Fund accepted Sav-Rx services provided under the National Agreement between 2003 and 2011.  The process by which this occurred is unclear.  The Fund never actually signed the Local Agreement, but Sav-Rx began providing services under the agreement as of January 1, 2003.  After the National Agreement was announced at at a meeting attended by the Chair of the Fund's Board of Trustees, the Chair requested that Sav-Rx reduce its rates to comport with those of the National Agreement.  Sav-Rx did so effective April 1, 2003.  Sav-Rx included Local 364 in its annual audits under the National Agreement, and the Fund's administrative manager communicated with Sav-Rx about these annual audits.

7th CirThe Fund is now suing Sav-Rx for charges not authorized under either the Local or the National Agreements.  Sav-Rx moved to compel arbitration pursuant to the National Agreement.  The Fund claimed that it had never signed the National Agreement and should not be bound to its terms.  The district court found that the Fund had knowingly accepted benefits under that Agreement and had thereby ratified it, thus acceeding to its arbitration clause.  The Seventh Circuit affirmed.   

The Seventh Circuit noted that the Fund is bound to the National Agreement if the Fund or an agent with actual, implied, or apparent authority, assented to it, or if the Fund ratified it.  As the Fund's Trustees had never voted on the National Agreement, the Fund was not bound under actual authority.  Nor did the Chair of the Board of Trustees possess implied authority to bind the Fund to the National Agreement, which did not relate to ordinary day-to-day affairs but was an "extraordinary," "once-in-a-decade transaction" that also caused the Fund to forego an important right -- access to the courts.  Sav-Rx could not establish that the Chair of the Board of Trustees had apparent authority to bind the Fund to the National Agreement.  The Board had never held out the Chair as having such authority and Sav-Rx in fact knew that only the Board itself could bind the Fund.

Nevertheless, the Fund is bound by the National Agreement because it ratified that agreement through its conduct.  By imputation or direct knowledge, the Trustees knew of both the National and the Local Agreements and of their differences.  They also knew that the Fund was receiving discounted prices.  The Seventh Circuit concluded that "knowing that the Fund received the benefits of the National Agreement and never repudiating those benefits, the trustees ratified the National Agreement."

[JT]

December 24, 2013 in Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)