Monday, August 6, 2012
Sometimes, as this article froom Bloomberg Businessweek points out, it pays not to work. John Krenicki, a former executive of GE, will be paid $89,000 a month until 2022 to keep him from working for a competitor for three years. That doesn't mean,(as my misleading first sentence indicates), that he can't work for anyone, In fact, according to a WSJ article (that I won't link to because you hit a subscriber paywall), Mr. Krenicki is going to take a job as a partner at a private equity firm. As the Bloomberg article notes, the three year non-compete is three times as long as the average because Krenicki is, apparently, worth it.
Wednesday, June 20, 2012
I'm a little late with this post but I'm going to open up a political can of worms here on the blog and talk about pension reform. In California, two cities (including my hometown, San Diego) have voted to approve changes to their city's pension plans. The San Jose measure seems to make changes to plans for retired workers. I can understand how changes to plans for new employees might be legal, but I'm not sure how changes to existing plans and vested benefits can be considered legal. The contract law issues boggle the mind. Not surprisingly, the proposed changes to the San Jose plan are being legally challenged. It's going to get messy....
Monday, June 4, 2012
Council 31 of the American Federation of State, County and Municipal Employees, AFL-CIO (the Union) represents 40,000 employees in the state of Illinois. It agreed to certain cost-saving measures, including deferred wage increases, in order to help Illinois address significant budget pressures. When Illinois did not emerge from its financial woes, it instituted a wage freeze, repudiating the earlier deal.
The Union brought suit, citing inter alia the Contracts Clause, and seeking an injunction forcing the state to pay the wage increases as they came due. Illinois brought a motion to dismiss, which the District Court granted. In Council 31 v. Quinn, the Seventh Circuit affirmed.
The case is procedurally complex, especially since the parties proceeded with arbitration, in which the Union prevailed in part, and that ruling is subject to an on-going appeal in the state courts. Meanwhile, the 7th Circuit addressed only constitutional claims brought pursuant to the Contracts Cluase and the Equal Protection Clause against Illinois Governor Quinn and from the State's Department of Central Management Services Director Malcolm Weems, both in their offiical capacities.
Although the Union characterized its claims as seeking only injunctive and declaratory relief, the true aim was to get the state to make expenditures from its treasury. As such, not withstanding Ex parte Young, the Eleventh Amendment barred the Union's Contracts Clause claims against the defendants.
Even if there were no Eleventh Amendment bar to the suit, the Court also found that the Union could not state a claim under the Contracts Clause because it alleged only an ordinary breach of contract, which is insufficient to constitute an "impairment" of contractual relations for the purposes of the Contracts Clause. The reasons why this is so have to do with the state's defenses to the Union's claims in the arbitration proceedings and the state court appeals thereof. The basic argument is that appropriate legislative appropriations were a condition precedent to its duties to pay the wage increases. If that argument succeeds, there was no contractual impairment. If it fails, there is no need for a federal court injunction because the Union will have prevailed.
The Court dismissed the Union's Equal Protection claim because the challenged state rules withstand rational basis scrutiny.
Wednesday, April 25, 2012
Clickwrap Isn’t Just for Consumers… Employee's Pattern-or-Practice Claim Does Not Trump Class Action Waiver
Bretta Karp sued her employer, CIGNA Healthcare, in the U.S. District Court of Massachusetts, alleging systematic gender discrimination. She purported to bring the suit as a class action. CIGNA moved to compel arbitration and argued that a class action and class-wide arbitration was waived under the company’s Dispute Resolution Policy.
In 1997, when Karp began her job with CIGNA she signed an acknowledgment of receipt of the dispute resolution policy in the Employee Handbook. At that time, the policy did not mention class actions or arbitrations. In 2005, CIGNA sent a company-wide e-mail informing employees that the Handbook had been updated to reflect changes in the policy. The e-mail contained a link to the Handbook and instructed employees to complete an electronic receipt indicating that they had received the Handbook. The e-mail indicated that failure to fill out the receipt could impact the employee’s future employment with the company. After two follow up emails reminding Karp to acknowledge receipt of the policy changes, she clicked “yes” on the Employee Handbook acknowledgment. The acknowledgment mentioned mandatory arbitration but did not mention the class arbitration waiver. In fact, the Employee Handbook referenced the dispute resolution policy and stated that full details were contained on CIGNA’s website; on the website, the dispute resolution policy specifically waived class-wide arbitration.
The parties did not dispute that Karp knowingly agreed to arbitrate her claims of gender discrimination. They disagreed, however, about whether Karp was entitled to bring a class-based pattern-or-practice claim. Karp argued that she did not agree to the class arbitration waiver. In an interesting contortion, the court held that CIGNA did not agree to permit class arbitration and could not be compelled to proceed on a class-wide basis. Here’s the reasoning (some citations omitted; emphasis in original):
The Court can only compel class arbitration if there is a “contractual basis for concluding that [the parties] agreed to do so.” Stolt-Nielsen, 130 S. Ct. at 1775 (emphasis in original)… The Supreme Court has recently emphasized that “the ‘changes brought about by the shift from bilateral arbitration to class-action arbitration’ are ‘fundamental,’” and thus non- consensual, “manufactured” class arbitration “is inconsistent with the FAA.” AT&T Mobility, 131 S. Ct. at 1750 (quoting Stolt-Nielsen, 130 S. Ct. at 1776).
Class arbitration is thus permissible only if both parties agree. Put another way, a party cannot be compelled to arbitrate class claims unless something in the contract indicates, at least implicitly, that it agreed to permit class arbitration. See Stolt-Nielsen, 130 S. Ct. at 1776; Jock v. Sterling Jewelers Inc., 646 F.3d 113, 124 (2d Cir. 2011) (“Stolt-Nielsen does not foreclose the possibility that parties may reach an ‘implicit’—rather than ‘express’—agreement to authorize class-action arbitration.”).
Here, the Handbook is silent on the issue of class arbitration. However, it states: “[b]y accepting employment . . . you have agreed to arbitrate serious employment-related disagreements between you and the Company . . . using the Company’s Employment Dispute Arbitration Policy and Employment Dispute Arbitration Rules and Procedures.” The company policy and procedures unambiguously provide that “[n]o class-wide arbitrations are allowed under the CIGNA Companies’ Employment Dispute Arbitration Policy or the Rules and Procedures,” and that “[e]ach party seeking resolution of its, his or her claims pursuant to an agreement to arbitrate under these Rules and Procedures must proceed individually. There shall be no class or representative actions permitted.”
Plaintiff disputes whether, under the circumstances, she agreed to the bar on class arbitration, or agreed to waive her class arbitration rights. There is certainly some question whether defendant’s policies and procedures can be enforced against plaintiff simply because she agreed to the terms of the Handbook. But there is no doubt that defendant did not agree to permit class arbitration. Indeed, its policies and procedures state clearly that class arbitration is not permitted. Accordingly, defendant cannot be compelled to submit to class arbitration. See AT&T Mobility, 131 S. Ct. at 1750 (stating that class arbitration must be consensual).
The court did state in a footnote that Karp may not have been provided with sufficient notice of the waiver because the Handbook incorporated the policies which were posted on the company’s website. The court also held that, by agreeing to arbitration, Karp could not litigate her claims in court as a class action.
Karp argued that her pattern-or-practice claim could not be vindicated in a bilateral arbitration because (1) case precedent required it to be brought as a class action and (2) as a practical matter, discovery would be too limited in arbitration. Plus, she could not obtain injunctive relief. The court essentially said that the pattern-or-practice claim is “unusual” with a “peculiar genesis” and was only a method of proof, not a claim in itself. The court broke from precedent requiring a pattern-or-practice to be established in a class action and held that Karp's substantive rights could still be vindicated in bilateral arbitration.
Karp v. Cigna, Case 4:11-cv-10361-FDS (D. Mass. April 18, 2012) (Saylor, J).
[Meredith R. Miller]
Thursday, February 9, 2012
We have not gotten much use out of our "Labor Contracts" category on this blog, but we've got a big story to report today, about a union really is flexing its muscles. Today's New York Times, reports that the Israeli labor union, the Histadrut, which represents hundreds of thousands of public sector workers, has called a general strike.that started yesterday and has shut down everything from government offices and the stock exchange to hospitals and even the Ben-Gurion national airport.
Ahh, general strikes! Those were the days. The very words are like a madeleine conjuring up images of Rosa Luxemburg and Karl Liebknecht rousing the forces of the Social Democratic and Independent Social Democratic Parties in post-WW I Berlin (see announcement at left). Meanwhile, closer to home, Mitch Daniels has signed legislation making Indiana a "right-to-work" state.
According to the Times, the central issue in the dispute is the government's increasing use of contract workers, whose pay is considerably less than that of Histadrut members. However, as reported here in Ha'aretz, talks are expected to conclude as early today to reach a deal that will end the general strike. The government has apparently agreed to re-classify some of the contract workers as government employees, thus entitling them to higher salaries and benefits. However, that change in status will effect only a few thousand out of approximately 300,000 contract workers.
Monday, January 9, 2012
Continuing our series of posts on Professor Richard Craswell's first-year contracts course in song. Previous installments have included Professor Craswell takes on Frigaliment, Lumley, and Wood v. Lady Duff Gordon. Today, we present this little ditty about Alaska Packers v. Domenico, a case we have posted about previously here and here. Professor Craswell's summar is provided below:
In 1902, some inexperienced sailors (many of them Italian immigrants) signed a contract to work the gill nets in Pyramid Harbor, Alaska, for the Alaskan Packer's Association, a cartel made up of most of Alaska's canneries. The sailors' pay was to be determined partly by the size of their catch, at a rate of 2¢ per fish. When they arrived in Alaska, however, some of the sailors complained that the nets were inadequate and threatened to strike. They returned to work only when the cannery promised them higher wages -- a promise the cannery later refused to keep.
The Goetz & Scott article referred to in the song is Charles J. Goetz & Robert E. Scott, "Principles of Relational Contracts," 67 Va. L. Rev. 1089 (1981). For the history of this case in particular, and of the Alaska canning business generally, see Deborah L. Threedy, "A Fish Story: Alaska Packer's Association v Domenico," 2000 Utah L. Rev. 185 (2000). There is also a well-made video ("Sockeye and the Age of Sail -- The Story of the Alaska Packer's Association") that can be found here:
Thursday, December 15, 2011
In Jim Walter Resources Inc. v. United Mine Workers of America, plaintiff Jim Walter Resources (Jim Walter) alleged that the defendant Union had conducted a work stoppage in violation of the parties' collective bargaining agreement (the Agreement). The District Court had dismissed Jim Walter's claim, holding that the dispute was subject to arbitration under the terms of the Agreement. The Eleventh Circuit reversed and remanded the claim of back to the District Court for trial.
The Agreement permitted the Union to designate "memorial periods" for legitimate purposes not exceeding a total of ten days during the term of the Agreement. The Union did so on October 14, 2008 and again on October 28, 2008. The Union justified the memorial days based on the workers' desire to attend local hearings of the Department of Labor, Mine Safety and Health Administration. Jim Walter countered that the justification was pretextual, and that the memorial days constituted improper work stoppages as a protest in connection with disputes at one of the mines. Jim Walter sued and sought damages.
The Union argued that the Agreement provided a "settlement of disputes" mechanism designed to avoid resort to the courts. Jim Walter countered that the contract did not "contemplate or provide for . . . the arbitration of any claim or grievance asserted by the employer." Drawing on caselaw from the old 5th Circuit, which included the states now comprising the 11th Circuit and is therefore binding on the 11th Circuit, the Court adopted the rule that an employer is not bound to arbitrate a claim for damages flowing from an alleged breach of a collective bargaining agreement where “the contractual grievance machinery is wholly employee oriented." The Court noted similar rules adopted in the 1st, 3rd, 7th and 9th Circuits, while conceding that decisions from the 2nd, 3rd and 4th Circuits are arguably to the contrary. The District Court had relied on the 2nd Circuit's decision in ITT World Communications, Inc. v. Communications Workers of America, 422 F.2d 77 (2d Cir. 1970), but the Supreme Court subsequently called that decision into question in Rock Company v. International Brotherhood of Teamsters, U.S., 130 S. Ct. 2847, 2859, n. 8 (2010).
Here, the Court ruled that the grievance procedure at issue was "wholly employee oriented" and thus did not apply to Jim Walter's claim.
Wednesday, December 7, 2011
We have shown Sotheby’s the love before on this blog. Perhaps it was the financial difficulties attendant to Sotheby’s onerous SEC obligations that has led the corporation to try to save in other areas. Regardless of the cause, Sotheby’s and its unionized employees have been engaged in a protracted labor dispute. According to the New York Times, art handlers for Sothebys have been locked out since August.
Members of the union decided to up the pressure on the corporation recently by confronting a member of Sotheby’s board, Diana L. Taylor, a/k/a New York City Mayor Michael Bloomberg’s girlfriend. The result was not pretty. According to the New York Times, Ms. Taylor told Sotheby's president and chief executive that if acceded to any of the union's demands, "I will resign from the board."
Here’s the video.
Thursday, September 29, 2011
Today's New York Times reports that the United Automobile Workers (UAW) union has reached a four-year contract agreement with General Motors (GM). This is shockingly good news in a time of general economic contraction when much is being blamed on the power of unions and their long-term contracts.
GM (whose corporate headquarters is pictured) is willing to put $215 million into increased labor costs in the next three years, but that will represent only a 1 percent increase in its labor costs over that period, according to the Times. The Times also reports that the contract calls for the creation of 6,400 new jobs, the transfer of some work from Mexico to the United States and an increase in entry-level pay.
The deal also includes incentives for workers to accept early retirement. GM expects ten percent of its skilled-trade employees to take the $75,000 being offered and estimates that it will save itself $30 million if they do.
One onion in the ointment is that the company plans to offset much of the costs associated with new bonuses and wage hikes by eliminating a program that provided free legal services for employees. An additional wrinkle, at some plans, the Times reports, fewer than 40% of those eligible bothered to vote.
Apparently the UAW is also close to a deal with Ford.
Tuesday, September 20, 2011
The WSJ reports an unusual situation created by a non-compete agreement. Johnson & Johnson is apparently preventing a former senior executive, Michael Mahoney, from joining its rival, Boston Scientific, Corp., as its chief executive. Because of a non-compete that Mahoney signed with Johnson & Johnson, Boston Scientific has to wait an entire year before Mahoney can become CEO. During his waiting period, Mahoney will be president but can't work with those businesses that compete with Johnson & Johnson. As the article notes, this situation is markedly different from the one faced by Mark Hurd when he left Hewlett Packard for Oracle. The issue with Hurd was framed as one involving trade secrets, because non-competes are typically unenforceable as such in California. Johnson & Johnson is based in New Jersey, and while the article doesn't expressly state the governing law in the contract between J & J and Mahoney, it was probably New Jersey (or a state other than California....)
Wednesday, August 31, 2011
Judge Margaret Chan (New York County Supreme Court) recently invalidated a non-compete in an employment contract as unduly restrictive. [Ed. side note: Is "Eyes of the World," a Grateful Dead song title, really a good name for a personal grooming business?] Anyway, the facts:
Defendant Boci ("Boci") was an employee of plaintiffs Eyes of the World, Inc. D/B/A Shobha and Shobha, Inc. (collectively "Shobha") performing hair removal services at plaintiffs' business locations from 2006 to 2009. On February 15, 2009, defendant Boci voluntarily resigned her position with Shobha and began working for NYC Waxing, LLC. Plaintiffs settled their claim against NYC Waxing, LLC, which is no longer a party to this action.
Boci's employment agreement with Shobha, dated March 24, 2006, stated in part:
For a period of one (1) year following termination of your employment for any reason, you agree not to provide Salon Services in New York City to any client of Eyes of the World, Inc. or Shobha, Inc. for whom you provided services during the last twelve (12) months of your employment with Eyes of the World, Inc.
Plaintiffs seek to enforce this restrictive covenant in the employment agreement and seek damages. Plaintiffs allege that Boci performed services on former Shobha clients at her new place of employment. In fact, plaintiffs assert Boci performed services for eighty six (86) former plaintiffs' clients at her new employer within one (1) year of her termination.
The court invalidated the restrictive covenant in its entirety. The court waxed poetic:
"In order to be enforceable, an anticompetitive covenant ancillary to an employment agreement must be reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the public, and not unreasonably burdensome to the employee" (Crown IT Servs., Inc. v. Koval-Olsen, 11 AD3d 263 [App Div, 1st Dept 2004] citing BDO Seidman v. Hirshberg, 93 NY2d 382 [Ct App 1999]). Restrictive covenants are generally frowned upon by courts due to public policy considerations that seek to prevent restrictions on a person's livelihood (see Kanan, Corbin, Schupak & Aronow, Inc. v. FD International, Ltd., 8 Misc3d 412 [Sup Ct, NY Cty 2005] citing Purchasing Associates, Inc. v. Weitz, 13 NY2d 267, 271 [Ct App, 1963]). It has been held that "[s]ince there are 'powerful considerations of public policy which militate against sanctioning the loss of a [person's] livelihood' restrictive covenants which tend to prevent an employee from pursuing a similar vocation after termination of employment are disfavored by the law" (Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 42 NY2d 496, 499 [Ct App 1977]). Consequently these covenants, "will be enforced only if reasonably limited temporally and geographically and then only to the extent necessary to protect the employer from unfair competition which stems from the employee's use or disclosure of trade secrets or confidential customer lists", or if the employee's services are unique or extraordinary (id. at 499; Reed, Roberts Assoc. v. Strauman, 40 NY2d 303, 307-308 [Ct App 1976]).
Plaintiffs attempted to establish that the services provided by Boci are unique and extraordinary, however, there is nothing to support such a contention. Boci did not have access to trade secrets, client lists, or proprietary information (see Columbia Ribbon & Carbon Mfg. Co., Inc. v. A-1-A Corp., 42 NY2d 496 [Ct App 1977]; Reed, Roberts Assoc. v. Strauman, 40 NY2d 303; Maltby v. Harlow Meyer Savage, Inc., 223 AD2d 516 [App Div, 1st Dept 1996]; Michael G. Kessler & Associates, Ltd. v. White, 28 AD3d 724 [App Div, 2nd Dept 2006]).
The covenant at bar is unreasonable in its limitation, burdensome to the employee, and not necessary to protect the employer's legitimate interests. The Appellate Division First Department in Investor Access Corp. v. Doremus & Co., Inc., 186 AD2d 401, did not enforce a restrictive covenant of one (1) year that prevented the employee, a public relations account executive, from soliciting or servicing any current or former client of the plaintiff employer. The court held that the restrictive covenant did not protect the legitimate interests of the employer because the defendant did not provide unique or extraordinary services to his employer, and had not misappropriated any trade secrets or confidential information. The court went on to find that clients' decisions to follow the defendant were based upon the clients' needs and the employee's outstanding ability in the field (id. at 404).
Similarly here, when considering all the prongs necessary to enforce such an agreement, the employers' legitimate interests do not mandate such a restrictive covenant (see BDO Seidman v. Hirshberg, 93 NY2d 382 [restrictive covenant will not be enforced in the absence of circumstances evincing a need for the protection of the former employer]). As discussed above, despite Boci's training, her job and skills used for that job are not legally considered unique or extraordinary. Likewise to the situation in Investor Access Corp. v. Doremus & Co., Inc., it appears that clients opted to follow Boci based on their needs and her ability. Shobha's restrictive covenant is overly broad and unenforceable.
Eyes of the World v. Boci, CV 46549/09, NYLJ 1202512541125, at *1 (Sup., NY, Decided August 19, 2011).
[Meredith R. Miller]
Monday, August 15, 2011
In March the National Football League Owners (NFL) elected to lockout the players organized through the National Football League Players Association (NFLPA) as the parties could not agree on a new Collective Bargaining Agreement (CBA). This lead to several star players, including Tom Brady and Payton Manning, brining an antitrust suit against the NFL. Four and a half months later, as reported here on National Football Post.com, the two sides have agreed to a new CBA that will last through the 2020 season and the 2021 draft. ESPN reports that as a condition of the new CBA, all pending litigation needed to be settled. In the end, as ESPN reports here, NFL players agreed to release their claims without any compensation.
National Football Post.com provides a detailed summary of the 300-page plus CBA. The new CBA introduces several changes from the prior agreement, focusing on the players’ health and safety, benefits for retired players, the draft and free agency, compensation for rookies entering the league, and the economics surrounding the salary cap. In order to promote player health and safety, the new CBA reduces the length of off-season programs and organized team activities. If limits on-field practice time and the amount of contact practices, and increases the number of days off for players. In addition, the CBA allows current players to remain in the player medical plan for life and offers enhanced financial protection for injured players. The NFL and NFLPA also agreed to a $50 million per year joint fund for medical research, healthcare programs and charities.
Increased benefits for retired players include the creation of a “Legacy Fund” devoted to increasing the pension for those players who retired before 1993. The two sides also agreed to improve post-career medical options, the disability plan, the 88 plan (which provides assistance to disabled players and those with certain diseases developed due to playing), career transition and degree completion programs, and player care plan.
Under the new CBA players become unrestricted free agents (UFA) after four accrued seasons in the league. Players can become restricted free agents (RFA) after three accrued seasons in the league. Teams with RFAs have a right of first refusal on players who sign an offer sheet with another team allowing teams the opportunity to match the offer or receive draft pick compensation for the players.
Another new element to the CBA is the creation of a rookie pay scale. Under the new agreement, all drafted players will receive 4 year contracts and all undrafted players receive 3 year contracts. The teams have a maximum total compensation they can spend for each draft class and there are limited contract terms within the rookie contracts. The CBA also contains strong rules against rookies holding out and not signing with the teams, and teams also have the option to extended the rookie contract of a first round draft pick to a fifth year based on an agreed upon tender amount. The money saved by teams based on this structure is creating a new fund starting in 2012 to redistribute the money to current and retired players as well as into a veteran player performance pool.
The two sides also agreed upon a new salary cap and revenue sharing agreement that will be in place over the length of the new CBA. Starting with the 2012 season the salary cap will now be based on a share of “all revenue,” and the players are to receive 55% of the national media revenue, 45 % of NFL ventures revenue, and 40% of local club revenue. Player minimum salaries also saw a 10% increase for this year and will continue to increase throughout the length of the agreement.
Finally, the agreement also stipulates that there is to be no judicial oversight of the CBA, and that if there are disputes the NFL and NFLPA will employ an independent third party arbitrator which they agree upon to settle the dispute. To insure labor peace, the new agreement contains a clause stating that the players will not strike nor will the owners lock out the players during the duration of the agreement.
Boogity, boogity, boogity, Amen.
[JT & Jared Vasiliauskas]
Thursday, March 24, 2011
The NFL’s owners entered into a collective bargaining agreement with the players after the 2008 season. The agreement expired on March 4th of this year. As ESPN.com reports, after several delays and a 16-day federal mediation, the owners locked the players out. A lock-out means that the players can have no contact with teams or their personnel, do not get paid, and also cannot negotiate new contracts with their respective teams or any other teams. This is the NFL's first work stoppage since 1987.
The players union has now dissolved itself, enabling individual players to bring a class-action antitrust suit in federal court. The matter is scheduled to be heard by a federal judge on April 6. The Washington Post reports that the owners have asked the judge to allow the lockout to continue until the National Labor Relations Board has ruled on its claim that the union's decertification was an unfair labor practice.
As the New York Times reports, the main issue dividing the parties is revenue sharing. Under the old deal, the players received nearly 60% of the league revenue from 2006 to 2009 after the owners took $1 billion off the top. The owners are currently proposing a 50/50 split after the owners take $2 billion off the top. The owners need the added money to cover the cost of building new stadiums, and the players should still make at least as much in absolute terms because the new deal would prolong the season to 18 games, thus leading to more revenue -- largely from television deals.
Sporting News provides this run-down of the two sides' positions on the other issues, including the proposed rookie pay scale, benefits for retired players, and the level of the salary cap. The two sides' positions started off $1 billion apart. They negotiated down to around $185 million apart, but then talks broke down when the owners refused the players' request for financial information about the various NFL franchises.
The final major dispute between the two sides is level of the salary cap. The players have said the owners’ current offer is based on unrealistically low revenue proposals. According to ESPN.com the owners’ have offered an increase in the salary cap from $131 million to $141 million for next season in their most recent proposal. The players reportedly seek a cap of $151 million.
The New Yorker's James Surowiecki is most eloquent on the reasons why "in a contest between millionaire athletes and billionaire socialists it’s the guys on the field who deserve to win."
[Jared Vasiliauskas & JT]
Friday, March 11, 2011
All eyes have been on Wisconsin lately, as Republican Governor Scott Walker has succeeded in pushing through legislation that repeals collective bargaining rights for state employees and requires state workers to make financial contributions for their health care and retirement benefits. New York Times coverage of that saga is available here and here. Little noticed has been New Hampshire’s push for reforming state employee benefits, as reported by the Union Ledger. The proposed plan would raise the retirement age for police and firefighters, reduce the amount of each worker’s salary included in the formula for pensions, and require workers to contribute more of their salary toward their retirement benefits.
What makes New Hampshire’s plan interesting is an amendment that was added to the bill that would effectively penalize workers who sue the state for breach of contract in court and win. These workers would pay “an additional 3% of their salary in pension contributions starting 10 days after a court victory.” Practically speaking, this provision makes a breach of contract suit by the state workers a lose-lose proposition: either pay the increased contributions, or hire a lawyer, win your lawsuit, and pay increased contributions anyway. Diana Lacey, the president of the State Employees Association, argues that punishing workers who seek to protect their rights in court is a “chilling attack on democracy.” As reported in the Nashua Telegraph, supporters of the legislation argue that reforming state-employee retirement benefits is “essential to the long-term viability of the system.”
How likely is it that the bill will pass? Talking Points Memo points out that the New Hampshire GOP has veto-proof majorities in the State House and Senate. While it is possible that there may be some Republican defections, the State House just passed Right-to-Work legislation, which demonstrates GOP solidarity on labor issues. If Republicans don’t break ranks on the bill, Democratic Governor John Lynch will have little to no power to stop the bill’s passage.
One wonders, however if the penalty provision could survive court scrutiny. Is it an unconstitutional state impairment of the obligation of contracts? Is it a possible due process violation because it chills access to the courts as a remedy for contractual wrongs?
[Jon Kohlscheen & JT]
Wednesday, February 23, 2011
In United Automobile, Aerospace, Agricultural Implement Workers of America International Union v. Fortuño, Puerto Rico's labor unions sued its governor in order to challenge Act No. 7, enacted to address a budget crisis through, among other things, layoffs and salary freezes. Plaintiffs challenged this act as an unreasonable and unnecessary -- and thus unconstitutional -- infringement of the unions' collective bargaining agreements. See U.S. Const. art. I, § 10, cl. 1 ("No State shall. . . pass any . . .Law impairing the Obligation of Contracts").
In order to determine whether the Contracts Clause has been violated, courts employ a two-part test, first determining whether the challenged state action causes a substantial impairment of contractual obligations and, if so, determining whether the impairment is reasonable and necessary to serve some government purpose. The court assumed an affirmative answer to the first issue but nonetheless upheld the District Court's dismissal of the claim on the ground that plaintiffs had not adequately pled that the Act was not reasonable or necessary.
The First Circuit's finding turned in large part on its determination that plaintiffs bear the burden of establishing that the challenged legislation is not reasonable or necessary, despite clear law that courts need not defer to legislative findings on the subject when the government is the beneficiary of the challenged contract modification. The issue appears to be one of first impression for the First Circuit, although the court acknowledged that both it and the Supreme Court had previously used language that might be construed as placing the burden on the state. The Sixth and Ninth Circuits place the burden on the state; the Second Circuit places the burden on plaintiffs.
Having determined that plaintiffs have the burden, the court set out a multi-factor test for determining when state action that impairs contractual relations is reasonable and necessary. The court's application of this multi-factor test is complicated, but the upshot of it seems to be a severely heightened pleading standard, suggesting that one would have to hire economic experts and crunch some numbers in order to meet the burden and survive a motion to dismiss.
NB: In describing Act No. 7, the opinion indulges in a classic misuse of the word "plethora," viz:
Finally, Phase III temporarily suspended, for a period of two years, a plethora of statutory, contractual, and other provisions governing the conditions of employment for the remaining affected public employees.
Please don't make us tell you again. "Plethora" means "an unhealthy excess." It does not mean "a whole bunch."
Monday, February 7, 2011
Last week, we brought you news of a stand-off between the Transportation Security Administration and Congress over whether or not airports should have complete freedom to choose to hire private screeners. Over the weekend, courtesy of The New York Times, we learned of more breaking TSA news. According to the Times, TSA director, John Pistole, has agreed to allow a union to bargain on behalf of the working conditions of TSA employees.
But many traditional areas of collective bargaining will be off limits, and the TSA employees cannot strike. Although TSA employees already have the right to join a union, those unions can only represent TSA employees on individual issues; they are not currently authorized to represent employees for the purposes of collective bargaining.
Democrats applaud Mr. Pistole's decision; Republicans decry it, calling it a gift from the Obama Administration to organized labor. The decision may in part be prompted by surveys suggesting low morale among TSA workers. The hope is that collective bargaining can help with morale. As we indicated last week, private screeners' compensation packages must be equivalent to those of federal employees. Does this mean that, if TSA employees decide to join a union, that union will also effectively represent the interests of private screeners?
Wednesday, January 12, 2011
Balletomanes throughout the Great Flyover let out a collective "Hot Diggety!" when we learned that the New York City Ballet was to create a touring company so that the unwashed masses can soon be awash in the creations of George Balanchine and Jerome Robbins. Alas, there is trouble in paradise. Who'da thunk there could be tension or conflict within a dance company? Not Natalie Portman, that's for sure!
As Crain's New York reports here, the union that represents the dancers contends that the plan to create a touring company that does not include the entire company violates the dancers' contracts. The plan requires the union's consent, the dancers claim, and the NYCB did not get it. In fact, the union claims that it was not even consulted before the NYCB announced its plans to create a touring company.
If I could, I would now include a video of the NYCB performing, but they are very careful not to let any of their performances make it onto YouTube, so we'll have to make due with with this video of the San Francisco Ballet performing Balanchine's "Serenade"
I have to add that, although the San Francisco ballet is absolutely fabulous, this video does not come close to capturing the emotional punch that "Serenade" packs. You have to see it live and hopefully, once this little squabble is put behind us, audiences throughout the country will be able to do so.
Thursday, January 6, 2011
As many readers of this blog already know, many of us are currently in San Francisco attending the annual meeting of our bricks and mortar mother ship, the Association of American Law Schools. That meeting has been the subject of some controversy this year, as its official home is San Francisco's Hilton Union Square Hotel, which has been the subject of a union-organized boycott for over a year now.
Unfortunately, this is not the sort of situation that lends itself to neutrality. The workers are encouraging consumers to boycott the affected hotels rather than striking. Consumers thus choose whether to side with management or with the union by booking at the Hilton or booking elsewhere. And the union faces a challenge because without a strike and picket lines, boycotted hotels look pretty much like other hotels. You would not know when you walked by or entered the hotel that it is the subject of a labor dispute. Information about the boycott can be found here.
The AALS is caught in the middle, as it made its contractual commitment to the Hilton long before the boycott began and apparently could not back out without incurring very high costs. The AALS's leadership set forth their reasoning for not cancelling or relocating here. Subsequently, the vast majority of section organizers determined that their sessions will be held elsewhere, including two very exciting sessions organized by the Contracts section, as detailed in Keith's post below. I believe that our other regular bloggers will be in attendance, and we would all welcome the opportunity to meet with our readers and discuss ways to improve the blog.
Tuesday, November 17, 2009
I was amused to come across this 19th-century account of how "refined" people concluded contracts in the 19th century. It comes from Little Dorrit, by Charles Dickens (left). The exchange is between William Dorrit, recently released from the debtors prison and now (suddenly and rather mysteriously) a wealthy man, and a Mrs. General, whom he is contemplating as an agent for the cultivation of his daughters' manners -- or mannerisms.
Tuesday, October 20, 2009
The New York Times reports that the Sotheby's auction house has refused to provide government regulators with information on bonuses paid to Sotheby's executives. Sotheby's justifies this refusal by pointing out that if that information were to become public, its arch-rival Christie's, could use it to lure executives away from Sotheby's by offering still more lucrative compensation. In correspondence with the SEC, posted here, Sotheby's pointed out that its "chief competitor" -- i.e., Christie's -- is a private corporation not subject to disclosure rules.
This news fascinates me for three reasons:
1. Sotheby's and Christie's are undoubtedly at the top of the heap in the art dealing industry. Based on my circle of acquaintances, which includes many unemployed or underemployed artists, art curators and art experts, it seems likely to me that Sotheby's and Christie's benefit from being in a buyer's market when it comes to hiring executives. If both companies under-compensated their executives, where would those executives go? And if they left, so what? Couldn't Sotheby's and Christie's easily find highly competent replacements who would work on paint fumes just for the honor of getting those great auction houses on their resumes?
2. But even if I'm wrong about that, if Christie's were really interested in luring executives away from Sotheby's, couldn't they just ask the executives about what sort of compensation package it would take to motivate them to move? Is there a number one rule of Sotheby's Club that you don't talk about Sotheby's Club?
3. In any case, didn't Sotheby's waive its right to whine about the hassles of disclosure when it went public?