Articles Posted in Employment Contracts

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A key question in many wage and hour claims is whether the complainant is an “employee,” and therefore protected by said laws, or an “independent contractor,” who is not covered. The New Jersey Supreme Court, in response to a certified question from the Third Circuit Court of Appeals, applied a very broad definition of “employee” for the purposes of state wage and hour laws. Hargrove, et al v. Sleepy’s, LLC (“Hargrove III“), Nos. A-70 Sept. Term 2012, 072742, slip op. (N.J., Jan. 14, 2015). It applied the definition used in state unemployment law, which is much more favorable to employees than state wage and hour laws have been.

The plaintiffs work as delivery drivers for the defendant, a mattress company. They contend that they are employees, while the defendant argues that they are independent contractors. They signed an “Independent Driver Agreement” (IDA) when they began working for the defendant, which they claim was “a ruse to avoid payment of employee benefits.” Id. at 3. They filed suit in federal court in 2010, alleging that the defendant was wrongfully denying them employment benefits under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., and the Family and Medical Leave Act (FMLA), 29 U.S.C. § 2601 et seq.

The U.S. district court granted summary judgment for the defendant, finding that the plaintiffs did not meet the definition of an “employee” under ERISA. Hargrove, et al v. Sleepy’s, LLC (“Hargrove I“), No. 3:10-cv-01138, mem. and order (D.N.J., Mar. 29, 2012), citing Nationwide Mutual v. Darden, 503 U.S. 318 (1992). While the court acknowledged that the defendant had “extensive control of deliverer’s activities,” Hargrove I at 10, it noted other factors that led to its conclusion, including the IDAs and the facts that each plaintiff had set up their own business entities, kept their own business records, had relationships with the IRS as business entities, and purchased and maintained their own delivery trucks.
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The social media network LinkedIn played a prominent role in a recent dispute over a non-compete agreement, demonstrating that employees’ use of social media can affect not only their current employment and their future prospects for employment, but also their relationships with past employers. A federal court rejected an employer’s motion for a temporary restraining order (TRO) and preliminary injunction (PI) against a former employee, which was based in part on a claim that the description of her new job on her LinkedIn profile indicated that she was in breach of her employment agreement. Nicklas Associates, Inc. v. Zimet, mem. op. (D. Md., Dec. 9, 2014). The employer did not establish one of the four elements required to obtain a TRO or PI, the court held, meaning that it was not rejecting the merits of the underlying breach of contract claim. The parties dismissed the lawsuit by stipulation, however, before the court reached the merits.

The plaintiff/employer operates a staffing company specializing in “interactive, creative, and marketing personnel.” Id. at 1. The defendant/employee began working for the employer as a branch manager in Iselin, New Jersey in November 2011 and moved into an account manager position in December 2013. Her employment agreement included a non-compete clause with a duration of 12 months and a range of 50 miles, which applied to the business of “placing temporary workers and permanent hires in the fields of creative, marketing, communications, marketing and web.” Id. at 3.

The employee resigned from her position in July 2014. The employer claimed that it learned about one month later that she was working for a direct competitor about 25 miles from the employer’s location. It came to believe that this position violated the non-compete agreement because the employee updated her LinkedIn profile to describe her occupation as a “creative recruiter.” Id. at 4. Two emails sent to the employee’s old account also allegedly supported this view. The employer sent a cease and desist letter and then filed suit in December 2014. It alleged breach of contract against the employee and tortious interference with a contract against her new employer.
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Employees often rely on their employers for more than just a regular paycheck. While employers are not necessarily required to provide benefits for their employees, such as health insurance and retirement plans, those that do must follow certain requirements intended to protect employees’ interests. The federal Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., for example, sets minimum standards for private employee pension plans. These include the establishment of a fiduciary relationship between the employer, which administers the plan, and the employees, who are its beneficiaries. The U.S. Department of Labor (DOL) recently settled a claim against a New York-based employer, in which the department alleged unlawful withholding of employee retirement contributions in violation of ERISA. Perez v. Herring, No. 1:15-cv-10034, consent judgment and order (D. Mass., Jan. 12, 2015).

According to the DOL’s complaint, the defendant was the sole member and manager of a limited liability company (LLC) that operated a weight-loss business through a Jenny Craig franchise. The LLC, which was organized in Massachusetts, operated eight locations in New York state. It established a retirement savings plan for its employees in May 2012, with the LLC as the plan’s sponsor and the defendant acting as the plan’s named fiduciary and trustee. Funding for the plan came from employee salary deferrals, which the defendant remitted to participating employees’ plan accounts. Under ERISA, amounts withheld from employees’ paychecks automatically became assets of the retirement plan.

The defendant, according to the DOL, failed to remit employee contributions to the plan for five pay periods in 2012 and 2013, in the total amount of $8,646.00. This allegedly breached his fiduciary duty to participating employees under ERISA. In May 2014, the defendant individually filed for Chapter 7 bankruptcy. The DOL filed an adversary proceeding in bankruptcy court, seeking a judgment finding any debts resulting from the defendant’s ERISA violations to be non-dischargeable because of “defalcation while acting in a fiduciary capacity.” 11 U.S.C. § 523(a)(4). The defendant and the DOL filed a stipulation with the bankruptcy court in November 2014, in which the defendant stipulated that his actions constituted defalcation under the Bankruptcy Code. The DOL filed its ERISA civil suit in January 2015.
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An employment agreement from a national chain of sandwich shops includes a non-competition clause that purports to impose remarkably broad restrictions on employees, according to a story in the Huffington Post. This type of clause typically states that an employee may not accept employment with the employer’s competitors while still working for the employer, or for a period of time after their employment ends. The clause was reportedly included in employment agreements for relatively low-level employees, which seems unusual because non-competition agreements are usually used for employees who gain a substantial amount of knowledge about the employer’s operations. Most states allow employers to enforce non-competition agreements in some circumstances, although the details vary from state to state. The general policy of New Jersey is that employers do not have a “legitimate interest in preventing competition” by former employees, Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 33 (1971), unless the employer can show some risk to proprietary information.

A typical non-competition, or “non-compete,” agreement may state that an employee cannot work for a competitor while he or she works for the employer, or for a specific period of time after his or her employment ends. To be enforceable as a general rule, a non-compete agreement must specifically identify the type of employment, or employer, that is prohibited. It must have reasonable geographic restrictions, such as within a limited radius of the employer’s location. It must also have a reasonable duration, such as six months or one year. New Jersey imposes additional restrictions on non-compete agreements, as do some other states.

The Huffington Post story involves an employment agreement produced by an employee of the sandwich chain Jimmy John’s in a Fair Labor Standards Act (FLSA) lawsuit. Brunner v. Jimmy John’s Enterprises, Inc., et al, No. 1:14-cv-05509, 1st am. complaint (N.D. Ill., Sep. 19, 2014). The agreement includes a provision prohibiting the employee from working for a competitor, defined as a business that obtains at least 10 percent of its revenue from the sale of various types of sandwiches. Id. at Exhibit A at 3. The non-compete clause has a duration of two years after the end of employment with Jimmy John’s, and it applies to any competing business located within a three-mile radius of any Jimmy John’s store.
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Employees of numerous major fast-food restaurant chains have mounted campaigns to improve their working conditions, including higher wages and fewer unpaid hours. A major hurdle for these campaigns has been the franchise model used by many chain restaurants, in which one company, the “franchisor,” owns the restaurant’s brand, logo, menu, and other intellectual property, while other companies, “franchisees,” operate the actual restaurants. This has created what has been called the “fissured workplace,” since it often limits any legal claims employees can make to the franchisee that operates the restaurant where they work. The General Counsel of the National Labor Relations Board (NLRB), however, recently announced that it will treat McDonald’s USA, LLC, the franchisor of McDonald’s restaurants, and its franchisees as “joint employers.” This means that employees may file complaints against both the individual franchisee that employs them and the franchisor.

In a franchise system, a franchisor enters into agreements with franchisees to operate one or more business locations. The franchise agreement includes various requirements that the franchisees must follow related to branding, marketing, and business operations. Employment issues are often left to the individual franchisees, at least according to the written agreements. Since workers at individual business locations are employed by a franchisee, they cannot assert claims directly against the franchisor. A major criticism of this system is that the terms of franchise agreements have expanded in scope, to the point that they often have direct effects on employment matters. The franchisors, however, remain shielded from liability to the franchisees’ employees.

The NLRB’s Office of the General Counsel (OGC) decided in July 2014 to allow workers to file complaints against both their employer and the national franchisor. At the time of this announcement, the NLRB had received 181 complaints against McDonald’s franchisees since November 2012. While 64 complaints were still under investigation, it had already found 43 of them to have merit. If the NLRB is unable to settle the meritorious complaints, it may file lawsuits naming the individual franchisees and the franchisor as defendants.
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A man’s lawsuit against his former employer alleges that the company created multiple pretexts ito justify firing him, and that the company discriminated against him because he is homosexual. Housh v. Home Depot USA, Inc., et al, No. 30-2013-00678843, complaint (Cal. Super. Ct., Orange Co., Oct. 1, 2013). The plaintiff further alleges that the company has sought out pretexts for firing other employees who, like the plaintiff, are older gay men. He claims that the company is acting out of concern for supposedly increased costs associated with such employees. The lawsuit asserts a total of 17 causes of action under common law and state statutes, including age discrimination, gender discrimination, wrongful termination, sexual harassment, and retaliation.

The plaintiff began working for the defendant, Home Depot, in 1987, and worked continuously for the company at several California locations for more than 25 years. He states in his complaint that management used a “Value Wheel” to protect employees from discrimination and other improper treatment. Id. at 5. He alleges that the “Value Wheel” and assorted representations made by management in connection with it constituted promises made to induce him and other employees to continue working for the company, including non-discrimination, merit-based pay and promotion, adequate benefits to prepare for retirement, and no retaliation for reporting “illegal and/or improper conduct.” Id. at 5-6. The company largely followed these promises, the plaintiff claims, until the 2008 recession.

The real estate recession that began in 2008, according to the plaintiff, had a serious impact on the company’s profits and stock price. The plaintiff alleges that the company “set a quota of employees that had to be terminated.” Id. at 8. Managers were allegedly instructed to target employees in three categories for termination: “Older/Higher Paid,” “Gay Males,” and “employees who disclosed improper or illegal conduct.” Id. The company’s management allegedly believed that benefits for gay male employees were more expensive “because of the HIV and AIDS virus.” Id. The plaintiff also claims that the company believed that the passage of California’s Domestic Partnership Equality Act in 2011, which requires employers to provide certain forms of coverage for domestic partners, would be financially damaging.
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A gym teacher at a Bronx school filed a petition in the Supreme Court for New York County challenging her “unsatisfactory” job performance rating and subsequent termination. Gaylardo v. City of New York, et al, No. 14/100400, verif. pet. (N.Y. Sup. Ct., N.Y. Co., Apr. 8, 2014). She alleged that she received an “unsatisfactory” rating based on statements made by a teacher who sought to retaliate against her for rejecting the teacher’s sexual overtures. While her petition included allegations of a sexual nature, the key legal issue involved wrongful termination. The case nevertheless sparked a substantial amount of media coverage, demonstrating the difficulty of asserting such claims in any sort of public forum. Several weeks after filing the petition, she reportedly dropped the case, at least partly due to the publicity.

The petitioner began working for the New York City Department of Education (DOE) as a physical education teacher in 2008, according to her petition. She began working at Riverdale/Kingsbridge Academy (RKA), a middle school and high school in the Bronx, in the fall of 2011.

During the summer of 2013, she claimed that the DOE’s Special Commissioner of Investigation (SCI) contacted her regarding her relationship with a student. She eventually learned that the SCI had searched both her and the student’s phone records and found more than 1,000 text messages sent between them during a one-month period in early 2013. The petitioner denied any impropriety, explaining that the student played three sports and sought her advice on “juggling the sports and her school schedule.” Pet. at 4. The student and the student’s parents reportedly corroborated the petitioner’s statements. SCI issued a report in September 2013 with no specific findings of misconduct. The petitioner alleged that the DOE terminated her in December 2013 based on that report.
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A former postdoctoral researcher at Yale University in New Haven, Connecticut has filed a lawsuit alleging breach of contract against the university and her former supervisor, along with several tort claims. Koziol v. Yale University, et al, No. NNH-CV14-6045144-S, complaint (Conn. Sup. Ct., New Haven, Feb. 24, 2014). The plaintiff alleges that a postdoctoral fellow, also named as a defendant, tampered with her experiments, and that her supervisor and the university retaliated against her after she reported the misconduct and the fellow was disciplined.

The plaintiff was a postdoctoral researcher at the Yale School of Medicine when the acts described in her complaint occurred. She received a three-year research grant in 2010, and was offered a postdoctoral fellowship position by Antonio Giraldez, an associate professor of genetics at Yale, in April 2011. The one-year fellowship was renewable annually up to four years. The plaintiff alleges that her acceptance of this position created a contract between her, Giraldez, and Yale. She began working at Yale on June 1, 2011.

Giraldez’s lab provided her with zebrafish for use in her experiments. Beginning in July 2011, her experiments began failing because her fish kept dying for unknown reasons. She obtained approval fto install a hidden camera in the lab in January 2012. Camra footage reportedly showed that another postdoctoral fellow, Polloneal Jymmiel Ocbina, had been poisoning her fish. Ocbina reportedly admitted to the sabotage, and either resigned or was fired in March 2012.
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A former fashion model has filed suit against a major designer for alleged misappropriation of his likeness, claiming that it reused photographs taken of him more than a decade ago without his consent. Hamideh v. Dolce & Gabbana S.r.L., et al, No. BC502164, complaint (Cal. Super. Ct., Los Angeles Co., Mar. 4, 2013). In addition to the intellectual property claims, the plaintiff is asserting a claim related to breach of contract, seeking restitution for commercial benefits the defendant allegedly received from the use of his pictures. The case resembles situations faced by employees who contribute intellectual property to an employer, and who may continue to have rights to that intellectual property even after their employment ends.

According to the plaintiff’s complaint, Dolce & Gabbana (D&G), an Italian company known for high-end fashion, hired the plaintiff in 2002 for an advertising campaign. He was the featured male model of the campaign, appearing alongside world-famous female model Giselle Bundchen. D&G’s rights to the plaintiff’s likeness allegedly expired at the end of 2003. The plaintiff alleges that, in May 2012, D&G published photos of him taken for the campaign in 2002 without his permission. He claims that D&G did so “for the purpose of advertising [its] products and promoting [its] brand.” Hamideh, complaint at 4.
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A federal court ruled in favor of a former employee in a key portion of the former employer’s request for a preliminary injunction. Pre-Paid Legal Services, Inc. v. Cahill, No. 12-cv-346, order affirming magistrate’s report (D. Okla., Feb. 12, 2013). The decision is one of the first to address employees’ use of social media versus their contractual obligations to a former employer. The employer alleged that social media activity by the former employee, such as posts to his Facebook page, breached a non-solicitation agreement. The court disagreed, finding that his activities on Facebook and Twitter were not expressly targeted to employees of the former employer, and as such did not violate the specific terms of his non-solicitation agreement.

The defendant, Todd Cahill, worked for Pre-Paid Legal Services, Inc. (PPLSI) in San Diego from 2004 until August 2012. PPLSI sells legal service plans, using a multi-level marketing model that allows sales associates to recruit additional sales associates to work “downline” from them. A sales associate receives commissions for their own sales and those of downline associates. Cahill began as a sales associate, and received a promotion to regional manager in 2008. He signed an “Associate Agreement” when he began working for PPLSI, which included a clause prohibiting him from “proselytiz[ing], recruit[ing], or solicit[ing]” other associates while employed by PPLSI and for two years after termination or departure. Cahill, magistrate’s report at 3 (Jan. 22, 2013).
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