Association of Corporate Counsel May 10, 2018 Program · 10/05/2018 · Atty. George is the recipient of several prestigious awards including the Manuel Carballo Governor’sAward

Association of Corporate CounselMay 10, 2018 Program

Employment Law in 2018-Understanding Current Issues and Changes at the State and Federal Levels

Panelists

• Sunila Thomas George, Esq., Chairwoman - Massachusetts Commission Against Discrimination

• Bret A. Cohen, Esq., Nelson Mullins, Partner and Chair of Labor and Employment Practice

• Erika Birg, Esq., Nelson Mullins, Partner

• Robert O. Sheridan, Nelson Mullins, Of Counsel

2

Sunila Thomas George, Esq., Chairwoman - Massachusetts Commission Against Discrimination

Appointed as the Chairwoman on September 12, 2017 by Governor Charles D. Baker, Attorney George continuesto serve the people of the Commonwealth in her fourth term as a Commissioner for the MassachusettsCommission Against Discrimination (MCAD).

As a Commissioner, Atty. George is responsible for the administration, adjudication, and education of civil rightsmatters in the Commonwealth of Massachusetts. She serves as the Investigating Commissioner on cases filedsouth of Boston, in the southeastern part of the state, Cape Cod and the Islands, and holds public hearings onvarious cases found to have Probable Cause. Atty. George is a certified mediator and trainer in areas ofdiscrimination and sexual harassment. Atty. George is an adjunct professor at Suffolk University Law School; sheserves as a faculty presenter in seminars and on panels for the Massachusetts Continuing Legal Education (MCLE);and she is a frequent speaker at local, state and affinity Bar Association events.

Atty. George is the recipient of several prestigious awards including the Manuel Carballo Governor’s Award forExcellence in Public Service, the Executive Branch Award for Excellence in Government Legal Services, and in 2016,she received an Honorary Doctorate of Law degree from Wheaton College. Atty. George serves as a member ofthe Advisory Board for the South Asian Bar Association of Greater Boston (SABA GB). She is a graduate ofWheaton College and Western New England University School of Law.

3

Bret A. Cohen, Esq., Nelson Mullins, Partner and Chair of Labor and Employment Practice

Bret Cohen chairs the Labor and Employment Practice. His practice covers a range of industries in thedrafting and enforcement of non-compete, confidentiality, and other employment-related agreementsthroughout the United States. He has also represented individual employees, typically high level executives,in such matters on behalf of the companies who seek to hire them. Mr. Cohen’s practice has also regularlyinvolved advising public company executives on terminations and employment issues and providing adviceon a range of matters involving employment agreements, termination of high level executives, workerclassification, deal diligence, and hiring oversight and best practices. His practice covers both the negotiationand drafting of relevant agreements and the regular enforcement in litigation of the claims of employersseeking to enforce those agreements.

Mr. Cohen writes and presents on employment law issues and has authored a range of articles relating tothe Defend Trade Secrets Act. He frequently lectures on practice before the Massachusetts CommissionAgainst Discrimination and on practice before state and federal courts. Mr. Cohen has served as acontributing author for the Employment Litigation chapter of the Annual Review of Developments inBusiness and Corporate Litigation, American Bar Association, for a number of years.

4

Erika C. Birg, Nelson Mullins, Partner

Erika Birg is a partner at Nelson Mullins in the Atlanta and Jacksonville offices. She has an active practice representing individuals and businesses in trade secret, restrictive covenant, and related matters, and is Co-Chair of the Trade Secrets and Employee Mobility Group at the firm.

She helps in counseling, litigation in state and federal court around the country, and in arbitration in all types of commercial matters/ She is an arbitrator with the American Arbitration Association on the commercial panel. A full listing of her representative engagements, speaking appearances, and written materials are available at https://www.nelsonmullins.com/people/erika-birg#main

5

Robert O. Sheridan, Nelson Mullins, Of Counsel

Rob Sheridan is of counsel in Nelson Mullins Riley & Scarborough LLP’s Boston office where his practiceencompasses a variety of litigation matters, with an emphasis on litigation and counseling on federal andstate labor and employment issues.

Mr. Sheridan has counseled his clients on a wide variety of employment issues, such as discrimination andharassment, wage-and-hour law compliance, independent contractor and employee classification,reasonable accommodation for disabled employees, employee discipline and terminations, and theenforcement of non-compete, non-disclosure and other employment-related agreements. He has handledemployment and business litigation before federal and state courts and administrative agencies, includingstate fair employment and human rights agencies. In addition, Mr. Sheridan manages and conducts internalinvestigations of harassment and discrimination claims, wage and hour compliance issues, andwhistleblower claims. Mr. Sheridan regularly negotiates and drafts executive employment, separation, andother employment-related agreements on behalf of both privately and publicly held companies as well asexecutives.

6

Agenda

• Non-Disclosure Agreements in the Post Weinstein ERA

• The Defend Trade Secrets Act

• Employment Law in Massachusetts

• Public Policy Developments

• Regulatory Scrutiny ofNo-Hire Provisions

7

Non-Disclosure Agreements in the Post Weinstein ERA

8


• Non-disclosure agreements (NDAs) are intrinsic to settlement agreements in employment cases

• But in the post Weinstein / Me-Too era, NDAs have come under rigorous attack

• Prominently, the tax code joined the fray through a small section of the December 2017 tax reform bill, Section 13307 – which is titled “Denial of Deduction for Settlements Subject to Nondisclosure Agreements Paid in Connection with Sexual Harassment or Sexual Abuse.”

o This provision prohibits employers from deducting payments made to individuals alleging sexual harassment or sexual abuse if the settlement or payment requires the claimant/plaintiff to execute a NDA

9


• Specifically, the provision reads, “No deduction shall be allowed under this chapter for: (1) any settlement or payment related to sexual harassment or sexual abuses if such settlement or payment is subject to a non-disclosure agreement, or (2) attorneys fees related to such a settlement or payment”

• Previously, while the tax code did not specifically address sexual misconduct settlements, the IRS used to allow employers to take tax deductions for confidential settlements and for attorneys fees incurred in defense of such claims

• Commentators have rightly suggested that this provision will make sexual harassment claims more expensive to settle—for employers and claimants alike

10


• Implications

o Take a proactive approach to non-harassment

More rigorous policies including, training, handbook overhauls

o When faced with a claim, address head-on with immediate investigation

o Not settle? NDAs have utility far beyond “hush-money”

Finality / non-disparagement

11

The Defend Trade Secrets Act

12


• What is the effect of the Defend Trade Secrets Act (DTSA) of 2016 as it turns one year old?

• What steps do companies need to take to establish the existence of trade secrets and a right to enforce their proprietary rights?

• Civil seizure under the DTSA – how does it work

• Whistleblower immunity under the DTSA and its consequences

• Recent cases of consequence

• Early steps to “win” the trade secret litigation at the outset

• Drafting consequences

13


• The Defend Trade Secrets Act of 2016, 130 STAT. 376, permits U.S. employers to protect against and remedy misappropriation of trade secret information in federal court

o Prior to the DTSA, absent diversity jurisdiction, aggrieved employers seeking redress and remedy for misappropriation of trade secrets had to proceed in state courts

o The DTSA, however, does not preempt existing state trade secret law.

14


• The DTSA Ex Parte Seizure Provision

o Under the DTSA, a court may seize misappropriated trade secrets without requiring the aggrieved party to provide notice to the alleged wrongdoer beforehand.

o An ex parte seizure order is an extraordinary remedy and may only be issued if explicit requirements under the DTSA are met. 18 U.S.C. §1836(b)(2)(A)(ii).

15


• A party seeking an ex parte seizure order establish 8 separate elements

1) Equitable relief, including an order pursuant to Fed. R. Civ. P. 65, is inadequate;

2) An immediate and irreparable injury will occur if seizure is not ordered;

3) Harm to the applicant from denial of a seizure order: (A) outweighs the harm to the person against whom seizure is ordered; and (B) substantially outweighs the harm to any third parties by such seizure;

4) The applicant is likely to succeed on the merits;

16


• A party seeking an ex parte seizure order establish 8 separate elements

5) The person against whom the order will be issued has possession of the trade secret and any property to be seized;

6) The application describes with reasonable particularity the property and the property’s location;

7) The person against whom seizure is ordered would destroy, move, hide, or otherwise make such property inaccessible to the court if put on notice; and

8) The applicant has not publicized the requested seizure.

17


• Pitfalls to avoid under the DTSA

o Avoid Disclosure. The complaint or motion seeking ex parte seizure must put the defendants on notice of what is at issue but need not disclose trade secrets, i.e. disclosure of the trade secrets in question in a public complaint would destroy those trade secrets.

o Equitable Remedies Inadequate. Ensure that all other equitable remedies are inadequate to protect the trade secrets from dissemination. To demonstrate an “extraordinary circumstance” sufficient for a plaintiff to obtain an ex parte seizure under the DTSA, the DTSA requires a plaintiff to demonstrate that an injunction or other equitable relief would be inadequate to protect the plaintiff’s rights. As a necessary part of this showing, a plaintiff must go so far as to demonstrate that the party subject to the court order is likely to disregard such an order, a heavy burden.

o Do Not Publicize. Take precautions to ensure that the seizure is not publicized.

18


• Mission Capital Advisors, LLC v. Romaka (U.S. District Court, Southern District of New York, 2017)

o Mission Capital brought an ex parte motion against Mr. Romaka, a former director of debt and equity finance, for seizure of certain property containing its trade secrets.

o Plaintiff alleged that it made a significant investment to source its key investors and other contacts into confidential contact lists. Plaintiff protected this data with a password and with a confidentiality agreement in the employment agreement and employee handbook.

o The Court issued an order granting the ex parte motion for seizure of property.

o Importantly, the Court narrowed the scope of the seizure order by denying without prejudice Mission Capital’s request for seizure of certain proprietary information and limiting seizure to the information compiled in the contact lists on Mr. Romaka’s computer.

19


• OOO Brunswick Rail Management v. Sultanov, et al. (U.S. District, Northern District of California, 2017)

o Brunswick filed a verified complaint and motion for injunctive relief alleging that defendants Richard Sultanov and Paul Ostling misappropriated its confidential information.

o Importantly, Brunswick sought both a seizure order under the DTSA and a seizure and preservation order under Fed. R. Civ. P. 64 and 65 for the purpose of seizing the company-issued laptop and mobile phone in Mr. Sultanov’s possession.

o This dual request killed Brunswick’s application for seizure under DTSA because the DTSA requires a showing that Rule 65 or other forms of equitable relief are inadequate. Here, the court reasoned that seizure under the DTSA was unnecessary because it could just order Mr. Sultanov to deliver the devices to the court at the time of the hearing scheduled.

20


• The Inevitable Disclosure Doctrine

o Under this common law doctrine, courts may enjoin a company’s former employee from working for a competitor if the company establishes that the employee would “inevitably” use its trade secrets in his or her new position. PepsiCo, Inc. v. Redmond (7th Circuit Court of Appeals, 1995)

o Since its inception, DTSA was thought to prohibit injunctive relief based on the inevitable disclosure doctrine because the statute provides that an injunction to prevent misappropriation may not “prevent a person from entering into an employment relationship,” and that any conditions placed on a person’s employment in an injunction must be based on “evidence of threatened misappropriation and not merely on the information the person knows.”

21


• Panera, LLC v. Nettles and Papa John’s International, Inc. (U.S. District Court, Eastern District of Missouri, 2016)

o Panera brought this matter seeking a temporary restraining order against Defendants Michael Nettles and Papa John’s seeking to enjoin Nettles, a former technology executive, from using its trade secrets with its competitor.

o As a condition of Nettles’ employment with Panera, he signed a confidentiality and non-competition agreement and the revised version specifically listed Papa John’s as a competitor.

o Panera claimed that Nettles stored and had access to confidential and proprietary Panera materials on his personal laptop, and potentially on other electronic personal devices.

o Although Missouri has yet to adopt the inevitable disclosure doctrine and the court did not fully rely on the doctrine when determining its holding, the court did find that, “the rationale underpinning such a theory [was] helpful to understanding why Nettles' performance of his new role would almost certainly require him to draw upon and use trade secrets and the confidential strategic planning to which he was privy at Panera.”

22

Employment Law in Massachusetts

23


• The Equal Pay Act (MEPA)

o Enacted in July 2016, G.L. c. 149 S. 105A goes into effect on July 1, 2018

Designed to close the gender gap in wages, it revised and expanded existing law

Long run up from enactment to effective date designed to give employers time to comply. The witching hour for compliance is now

o Key Provisions:

Prohibits discriminating “in any way on the basis of gender in the payment of wages” and from “paying any person . . . a salary or wage rate less than the rates paid to employees of a different gender for comparable work”

Comparable work defined as “work that is substantially similar in that it requires substantially similar skill, effort and responsibility and is performed under similar working conditions”

24


• MEPA (Key Provisions Continued)

o Inquiries to applicants related to salary history are prohibited (both directly and through an agent like a headhunter)

• Enforcement

Double damages, attorneys fees and three year statute of limitations

No administrative prerequisite, aggrieved individuals (or the Attorney General) can file directly with the court

Complete Affirmative Defense - Employer Self Evaluation: (1) within the previous three years and prior to the filing of a lawsuit have; (2) performed a good faith reasonable evaluation of compensation practices and; (3) show that “reasonable progress has been made towards eliminating compensation differentials based on gender for comparable work in accordance with that evaluation”

25


• MEPA Exceptions for Pay Inequities – note entire pay difference must be based entirely on one or a combination of the below

o Bona fide seniority system (so long as time spent on pregnancy-related leave or protected family leave (e.g. FMLA leave) does not reduce seniority)

o Bona fide merit system

o Bona fide productivity system (i.e. sales productivity)

o Geographic location in which job is performed

o Education, training, experience

o Travel requirement

26


• The Equal Pay Act (MEPA)

o Compliance:

Audit – self evaluation

Train HR and managers concerning avoiding salary history questions

Revise employee applications to confirm with MEPA

Update handbooks

See the Appendix for guidance from the Massachusetts Attorney General’s Office issued in March 2018

27


• Pregnant Workers Fairness Act (PWFA)

o Went into effect April 1, 2018, and amends the Massachusetts anti-discrimination statute (G.L. c. 151B)

Reminder: applies to employers with six or more employees

o Key provisions of the PWFA:

Prohibits employment discrimination on the basis of pregnancy or a pregnancy-related condition (i.e. morning sickness, lactation)

Stringent notice requirements on Massachusetts employers; notice of rights under the PWFA must be provided (1) to all employees by April 1, 2018; (2) to all new employees prior to commencement of employment; (3) to pregnant employees within ten days of being notified of pregnancy or condition related to pregnancy

28


• Key provisions of the PWFA (continued)

o Employers must engage in a good faith interactive dialogue with employees who request accommodations for pregnancy-related conditions. The MCAD has issued guidance on the PWFA (see Appendix), which includes some examples of reasonable accommodations like, (1) more frequent bathroom, food or water breaks, (2) seating; (3) limitations on lifting more than 20 pounds; and (4) private non-bathroom space for expressing milk

Note for any of these four accommodations, employers cannot require documentation. Additionally while employers may request documentation for other accommodations, this documentation does not need to necessarily come from a physician

o Employers must provide a private, non-bathroom space for employees who need to express milk

29


• Recommendations for compliance with the PWFA

o Get notices out early and often (revise handbooks, or create electronic notices)

o Engage in a good faith interactive dialogue with employees requesting reasonable accommodations

o Employers must provide a private, non-bathroom space for employees who need to express milk

At a minimum, this space must: (1) have a lockable door; (2) be free from intrusion from other employees or visitors; (3) be equipped with an electrical outlet; (4) have a table or other surface; and (5) have seating

30


• New Wage Act Case, Mui v. Massachusetts Port Authority, 478 Mass. 710 (2018)

Unused sick time is not “wages” under the Massachusetts Wage Act

Practical implications

• Unused sick time does not have to be paid out upon separation

• Courts recognize that the Wage Act (M.G.L. c. 149 c. 148) is strict, with its treble damages and attorneys fees provisions. Courts are therefore reluctant to expand the Wage Act’s reach beyond the express terms of the statute

31

Public Policy Developments

32


• The Massachusetts legislature has tried for almost a decade to enact non-compete reform

• In 2016, both chambers of the legislature passed bills related to non-compete reform in the summer of 2016

o The Massachusetts House and Senate failed to reach a compromise on their respective versions of non-competition legislation, notably:

The House version called for a twelve (12) month temporal limit to non-competition terms (with a two-year carve-out for instances involving fiduciary breach or misappropriation of employer property)

The Senate version, limited the duration of non-competition terms to just three (3) months

33


• On April 17, 2018 the House introduced Bill 4419—An Act Relative to the Judicial Enforcement of Noncompetition Agreements, which builds on past momentum on non-compete reform. Some of the key features include:

o A twelve (12) limit on non-competes, except in the instance of fiduciary breach or misappropriation

o Advance notice to prospective employees that a non-compete is a condition to employment

o For non-competes entered into after the inception of employment, continued employment alone will not be sufficient consideration

“Fair and reasonable” consideration is required

34


• Key features of House Bill 4419 (continued):

o Required “Garden leave” component

o Enforcement would be prohibited against:

non-exempt employees under the FLSA;

undergraduate and graduate students engaged in short term employment;

employees laid off or discharged without cause; and

employees 18 years or younger

35


• Implications of House Bill 4419:

o Not retroactive

o This time it counts?

We have been down this road before, we will see this summer if this non-compete reform passes and what the final legislation looks like

If enacted, employers will have to take a long and hard look at their approach to non-competes and employee mobility

36

Regulatory Scrutiny ofNo-Hire Provisions

37

Antitrust Traps

• The threat is real

• DOJ is interested in bringing criminal and civil claims

• Can be turned in by anyone (and actively looking for whistleblowers)

• Any type of industry or competitor agreement that could be seen as reducing the marketability and competition for employees will be viewed askance

• Should view agreements among industry participants regarding workforce with the same concerns as products

38

Questions?

39

Appendix

40

Appendix

A. “Recourse for Trade Secret Misappropriation under the Federal Defend Trade Secrets Act” by Bret Cohen and Amanda Carozza

B. Guidance Issued by the Massachusetts Attorney General concerning the Pay Equity Act

C. MCAD Guidance and Questions and Answers on the PWFA

D. DOJ Antitrust Guidance for Human Resources Professional

E. FTC Antitrust Red Flags for Employment Practices

41

Documents

Association of Corporate Counsel May 10, 2018 Program · 10/05/2018 · Atty. George is the recipient of several prestigious awards including the Manuel Carballo Governor’sAward