Tuesday, June 17, 2014
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.
Tuesday, June 10, 2014
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.
Tuesday, April 22, 2014
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…
Monday, March 17, 2014
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.
Monday, March 10, 2014
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
Tuesday, February 11, 2014
... 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  [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  [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  [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)
Wednesday, January 15, 2014
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.
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.
Monday, January 6, 2014
As 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.
Tuesday, December 24, 2013
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.
The 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."
Tuesday, November 26, 2013
Monday, October 7, 2013
After one year of negotiations and one cancelled Gala, Carnegie Hall and its stagehands' union were able to come to an agreement last Friday, October 4th. According to The New York Times, both sides have declared victory. The union will play a role in Carnegie Hall's new $230 million educational facility, but it will not be the same role that it plays in the Hall itself.
Under the new deal, people can move things without calling in union help unless they are heavy. When asked how heavy something has to be before a stagehand must be called, Carnegie Hall's executive director explained “Heavy enough that a person says, ‘I need some help from the union person.’" Now that's a clear standard.
Thursday, October 3, 2013
We don't get to use our Labor Contracts category very often on this blog, so a story in today's New York Times was welcome news, even if it isn't very happy news. According to the Times, stage hands at Carnegie Hall (right) have gone on strike to protest a decision by Carnegie Hall that the stagehands union will not participate in a new educational wing to be 0pened next year.
The strike seems to have caught Carnegie Hall off-guard, as it forced the cancellation of this year's opening gala event, which was the feature the Philadelphia Orchestra, Joshua Bell and other liminaries of the classical music world. The Philadelphia Orchestra, by the way, decided to play for free at its usual home, the Verizon Center, which despite its crass, corporate name, is an absolutely spectacular concert venue. Last year's opening gala raised $2.7 million for the Hall.
The problem, of course, is that the stagehands are expensive. The Times claims that their average compensation comes out to $400,000 a year, but that can't be right -- nobody can live in New York City on only $400,000 a year. In any case, Carnegie Hall claims that it can rely on far cheaper union workers in its educational wing, because, e.g., moving pianos around for educational purposes is completely different from moving pianos around for theatrical purposes.
Carnegie employs only five full-time stagehands, but each of them earned more last year than the Hall's finance director. This same union shut down Broadway for over two weeks in 2007. Nobody is predicting how long it will be before one hears nothing in Carnegie Hall louder than a pin drop.
Thursday, August 15, 2013
The WSJ had an interesting article about the effects of noncompete agreements on entrepreneurship. The article quotes contracts prof Alan Hyde of Rutgers University School of Law who notes that while non-competes benefit employers, jurisdictions that enforce them have "slower growth, fewer start-ups, fewer patents and the loss of brains to jurisdictions that don't enforce" them. In California, these non-competes are generally not enforceable unless they are in conjunction with the sale of a business or partnership. Confidentiality agreements, on the other hand, are enforceable. That's why it's puzzling that those who favor noncompetes argue that they are necessary to protect valuable trade secrets. Since most employees have to sign confidentiality agreements anyway as part of their employment - and would likely be prevented from using company trade secrets under state law even if they didn't - it seems that noncompetes are providing a different function which is to make sure that employees, well, don't compete. It's not surprise then that non-competes would have an adverse effect on innovation and entrepreneurship. Most would-be entrepreneurs don't relish the thought of an expensive lawsuit with a former employer. The article states that employers are less likely to bring trade secret misappropriation claims than they are non-compete ones because they are more costly. I think their "costliness" is why confidentiality agreements are a more desirable mechanism for protecting trade secrets than non-competes. Many believe that one of the reasons Silicon Valley exists in California - and not Florida, for example - is because non-competes are not enforceable. I think this is definitely one factor (other reasons include the awesome computer science and engineering departments at UC Berkeley and Stanford, immigration, proximity to the Pacific Rim, the less formal cultural environment in California generally, and a type of historical path dependence).
Monday, August 27, 2012
In July, 2009, DiPonio Construction Company, Inc. (DiPonio) terminated its collective bargaining agreement (CBA) with the International Union of Bricklayers and Allied Craftworkers Local 9’s (the Union). The Union brought a claim for unfair labor practices (ULP) before the National Labor Relations Board (NLRB) alleging that DiPonio was required by the National Labor Relations Act (NLRA) to bargain for a new CBA. Five days before the NLRB filed a ULP complaint against DiPonio, DiPonio sought a declaratory judgment from the district court stating that it had properly terminated the CBA. When the NLRB moved to dismiss DiPonio’s claim for lack of subject matter jurisdiction, DiPonio amended its complaint to include a breach of contract claim and filed a motion to stay the NLRB proceedings. The timing of the contract claim made it seem motivated by a desire to create jurisdiction in federal court over a dispute over which the NLRB would otherwise have exclusive jurisdiction.
The district court granted the NLRB’s motion to dismiss and imposed sanctions against DiPonio under Rule 11 of the Federal Rules of Civil Procedure. DiPonio appealed to the Sixth Circuit and the Union sought further sanctions. Last month, in DiPonio Constrcution Company, Inc. v. Interaitonal Union of Bricklayers and Allied Craftworkers Local 9, the Sixth Circuit affirmed the district court’s ruling in its entirety, while refusing to impose further sanctions. The Sixth Circuit found that the question at issue was primarily one of representation rather than of contractual interpretation, and thus that resolution of the dispute in a federal court was inappropriate.
The NLRB has exclusive jurisdiction over controversies concerning sections 7 or 8 of the NLRA, but federal courts have concurrent jurisdiction with the NLRB over contracts interpretation issues. However, where the matter is primarily one of representation instead of contractual interpretation, courts defer to the NLRB.
The nature of DiPonio’s bargaining obligations depends on whether the parties entered into the CBA pursuant to § 8(f) or § 9(a) of the NLRA. Section 9(a) requires employers to “bargain with a union that has been designated by a majority of the employees in a unit for the purposes of collective bargaining with the employer,” while section 8(f) “allows unions and employers in the construction industry to enter into CBA’s without requiring the union to establish that it has the support of a majority of the employees in the unit covered by the CBA.” In short, if the CBA is a § 8 contract, DiPonio has no duty to negotiate for a new CBA, but if it is a § 9(a) contract, it does.
In a 2006 decision, the Sixth Circuit found that a dispute will be treated as “primarily representational” (1) “where the NLRB has already exercised jurisdiction over a matter and is either considering it or has already decided the matter,” or (2) “where the issue is an ‘initial decision’ in the representation area.” Here, the question of whether the contract was entered into pursuant to § 8(f) or § 9(a) was already before the NLRB (the Union’s ULP Complaint). Thus, the matter was deemed primarily representational, and the Sixth Circuit handed the case over to the NLRB.
The Sixth Circuit upheld the Rule 11 sanctions that the district court imposed because DiPonio’s breach of contract claim was without merit and was filed in order to delay the NLRB proceedings.[JT and Christina Phillips]
Monday, August 20, 2012
As reported in Saturday's New York Times, 780 members of the International Association of Machinists ended their fifteen-week strike when, against the recommendation of union leaders, the workers voted to ratify a six-year contract that contained almost all of the concessions that Caterpillar demanded.
The contract that the Caterpillare offered included a six-year wage freeze for workers hired before May 2005, a move that Caterpillar justified by claiming that its senior workers were being paid above market levels. At the time Caterpillar made this pooposal, it was reporting record profits.
The workers were losing a war of attrition. 105 workers had alredy crossed the picket line and returned to work and no concessions were in sight. In addition to the pay freeze, the workers agreed to a pension freeze for the same group of senior workers and an increase in employee contributions for health care. They were able to get Caterpillar to increases the "ratification bonus" form $1000 to $3100. Caterpillar also agreed to a single 3% increase for workers hired after 2005 at the end of this year. Finally, workers won a concession on the reasignment of workers, regardless of seniority. Caterpillar wanted to be able to assign workers to new jobs indefinitely, regardless of seniority. Under the new agreement, they may do so for a maximum of 90 days. k
The senior workers subject to the pay freeze earn, on the average, $26/hour, which comes out to about $50,000/year gross, plus overtime. Caterpillar reported profits of $4.9 billion last year and expects earnings to be stronger still in 2012. Its chief executive, Douglas R. Oberhelman, increased by 60 percent in 2011 to $16.9 million. That means his raise was about $8000 per striking worker.
Saturday, August 18, 2012
Last week, a federal judge denied AMR Corporation's request to abandon collective bargaining agreements with its pilots' union. AMR Corp. is the parent company of American Airlines. AMR is undergoing bankruptcy and the motion was part of its reorganization efforts. You can read more here.
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]