ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, October 3, 2013

Strike at Carnegie Hall

Carnegie_Hall_WikipediaWe 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.


October 3, 2013 in In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, August 15, 2013

Noncompetes and Entrepreneurship

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). 


[Nancy Kim]

August 15, 2013 in Commentary, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, August 27, 2012

Sixth Circuit Upholds Sanctions and Remands Union Dispute to the NLRB

6th CirIn 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 9the 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]

August 27, 2012 in Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Monday, August 20, 2012

Strike Settlement Considered a Win for Caterpillar

"Strike" from the National Museum in Warsaw, Poland

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.  


August 20, 2012 in In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Saturday, August 18, 2012

AMR Corporation motion to end pilots' contract denied

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

[Nancy Kim]

August 18, 2012 in In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, August 6, 2012

Covenants Not to Compete, for a (Hefty) Price

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.

[Nancy Kim]

August 6, 2012 in In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 20, 2012

Contracts and Pension Reform

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....


[Nancy Kim]




June 20, 2012 in Current Affairs, Labor Contracts, Legislation | Permalink | Comments (0) | TrackBack (0)

Monday, June 4, 2012

Seventh Circuit Affirms Dismissal of Labor Union's Contracts Clause Claims

7th CirCouncil 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.


June 4, 2012 in Government Contracting, Labor Contracts, Legislation, Recent Cases | Permalink | Comments (0) | TrackBack (0)

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]

April 25, 2012 in E-commerce, Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, February 9, 2012

General Strike in Israel

General StrikeWe 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.


February 9, 2012 in Current Affairs, In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, January 9, 2012

Professor Craswell on Alaska Packers

Continuing our series of posts on Professor Richard Craswell's first-year contracts course in song.  Previous installments have included Professor Craswell takes on FrigalimentLumley, 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:



January 9, 2012 in Contract Profs, Famous Cases, Labor Contracts, Recent Scholarship, Teaching | Permalink | Comments (0) | TrackBack (0)

Thursday, December 15, 2011

Employees Cannot Rely on Arbitration Clause, 11th Circuit Rules


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.


December 15, 2011 in Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 7, 2011

Diana Taylor to Sotheby's Workers: Go Pound Sand!

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.



December 7, 2011 in In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, September 29, 2011

Surprising Good News out of GM

Detroit_Renaissance-Center  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.


September 29, 2011 in In the News, Labor Contracts | Permalink | Comments (1) | TrackBack (0)

Tuesday, September 20, 2011

A non-compete benches a CEO

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....)




September 20, 2011 in Labor Contracts, True Contracts | Permalink | TrackBack (0)

Wednesday, August 31, 2011

Fun With Non-competes: Hair Removal Service is Not Unique and Extraordinary

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]

August 31, 2011 in Labor Contracts, Recent Cases | Permalink | Comments (1) | TrackBack (0)

Monday, August 15, 2011

New Collective Bargaining Agreement Ends NFL Lock-Out

Football 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, 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 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]

August 15, 2011 in In the News, Labor Contracts, Science | Permalink | Comments (0) | TrackBack (0)

Thursday, March 24, 2011

The NFL Lock-Out, Part I

NFL 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 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 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]

March 24, 2011 in In the News, Labor Contracts, Sports | Permalink | Comments (0) | TrackBack (0)

Friday, March 11, 2011

The New Hampshire Approach to Breach of Contract Suits by State Employees

New_Hampshire 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]

March 11, 2011 in Government Contracting, In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 23, 2011

Circuit Split on Burdens in Contracts Clause Claims

1st_circuit_seal 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."


February 23, 2011 in Government Contracting, Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)