NLRB Reaffirms Controversial Decision that Class Action Waivers in Employment Agreements Violate the NLRA.

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NLRB Reaffirms Controversial Decision that Class Action Waivers in Employment Agreements Violate the NLRA.

Nov 20 2014 | in , | by Loni Mahanta

In Murphy Oil USA, Inc., 361 NLRB No. 72 (Oct. 28, 2014), a noteworthy and controversial decision that contradicts numerous federal and state courts, the National Labor Relations Board (“NLRB” or the “Board”) reaffirmed its earlier decision in D.R. Horton, Inc., 357 NLRB No. 184 (2012), in which it held that the National Labor Relations Act (“NLRA”) prohibits contracts requiring employees to waive their rights to participate in class proceedings.

Background

In D.R. Horton, the NLRB invalidated class action waivers in employment agreements on the ground that such waivers interfere with the exercise of employees’ right to engage in collective action in violation of the the NLRA.

In December 2013, the Fifth Circuit Court of Appeals in D.R. Horton, Inc. v. National Labor Relations Board, 737 F.3d 344 (2013) expressly disagreed with the NLRB, observing that compelling bilateral arbitration does not deny the exercise of any statutory rights under the NLRA.  The Fifth Circuit, relying on recent Supreme Court precedent, found that interpreting the NLRA to prohibit class action waivers disfavors arbitration and is therefore inconsistent with the Federal Arbitration Act (“FAA”).  The NLRA and the FAA are equally important federal statutes, and the NLRA reflects no congressional intent to override the FAA.

The Fifth Circuit’s ruling is consistent with numerous other state and federal courts, which have rejected the NLRB’s D.R. Horton precedent.  See, e.g. Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013); Owens v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013); Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014).

Murphy Oil USA, Inc.

In Murphy Oil USA, Inc., the employer required employees to sign an agreement requiring arbitration of employment disputes and waiving the right to file or participate in a group, class or collective action in court, arbitration or other forum.  After four employees filed a collective action against the company, the company sought to compel individual arbitration of the claims.  The lead plaintiff then filed an unfair labor practice charge with the NLRB, and the NLRB issued a complaint against the company.

In adjudicating the labor violation charge, the NLRB decided by a 3-2 margin that that rationale of D.R. Horton was “straightforward, clearly articulated, and well supported at every step,” stating, “[m]andatory arbitration agreements that bar employees from bringing joint, class, or collective workplace claims in any forum restrict the exercise of the substantive right to act concertedly for mutual aid or protection that is central” to the NLRA.  361 NLRB No. 72, at 5. The Board fundamentally disagreed with the Fifth Circuits interpretation of the proper interplay between the NLRA and the FAA. In the Board’s estimation, the NLRA has a special character setting it apart from other employment statutes, and because mandatory arbitration agreements purport to extinguish a substantive right to engage in concerted activity under the NLRA, they are invalid.  The Board concluded that the NLRA demonstrates “contrary congressional command” sufficient to  override the FAA’s strong federal policy favoring arbitration,” and that as between the NLRA and the FAA, the Fifth Circuit did not explain why the NLRA must give way.

The controversy around the Board’s decision is highlighted by the vigorous dissents of two NLRB Board members, who asserted among other things that the majority opinion was an “unfortunate example of a Federal agency refusing to follow the clear instructions of our nation’s Supreme Court on the interpretation of the statute entrusted to our charge,” and that the “majority effectively ignores the opinions of nearly 40 Federal and State courts that, directly or indirectly, all recognize the flaws in the Board’s use of a strained, tautological reasoning of the [NLRA] in order to both override the [FAA] and ignore the commands of other Federal statutes.  Instead, the majority chooses to double down on that mistake that, by now, is blatantly apparent.”  Id. at 35.

Consequences for Employers

Employers who utilize or are considering whether to implement arbitration agreements with class or collective action waivers should understand that, while federal courts have, to date, rejected the Board’s argument, the Board has staked the clear position that such agreements violate the NLRA.  It appears that the Board will hold to its position until the U.S. Supreme Court resolves the issue.  Until resolved by the Supreme Court, employers using agreements with class arbitration waivers are at continued risk of facing unfair labor practice charges.

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In Fifth Circuit Appeal, Folger Levin Files Amicus Brief On Behalf Of PFLAG In Support Of Same-Sex Marriage

Oct 02 2014 | in | by Drew Davis

In September, Folger Levin represented Parents, Families and Friends of Lesbians and Gays, Inc. (“PFLAG”) in filing an amicus brief with the United States Court of Appeals for the Fifth Circuit supporting  the right of same-sex couples to marry.  The case, De Leon v. Perry, Case No. 14-50196, involves an appeal from a district court’s ruling that Texas’s prohibition on same-sex marriage conflicts with the United States Constitution’s guarantees of equal protection and due process.  A copy of PFLAG’s amicus brief supporting affirmance may be found here.

Founded in 1973 by mothers and fathers of gay and lesbian children, PFLAG is a national, nonprofit organization that promotes the health, well-being and civil rights of lesbian, gay, bisexual and transgender (“LGBT”) persons, as well as their families and friends.  Nationwide, PFLAG has more than 200,000 members and supporters, with approximately 350 affiliates.  In 2013, PFLAG’s founder, Jean Manford, posthumously received the nation’s second-highest civilian honor, the Presidential Citizen’s Medal.

Over the past two years, Folger Levin has represented PFLAG in filing ten amicus briefs in same-sex marriage cases throughout the country.  Last year, Folger Levin was the recipient of PFLAG’s “Flag Bearer Award,” in recognition of its efforts to “elevat[e] our family voices to the Supreme Court of the United States to change hearts, minds and laws on behalf all lesbian, gay, bisexual, and transgender people, their families and friends.”

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Spoliation and the $9 Billion Verdict

Jul 30 2014 | in | by Jiyun Cameron Lee

In April 2014, a Louisiana jury awarded $1.4 million in compensatory damages and $9 billion – that’s right, billion – in punitive damages against Takeda, a Japanese pharmaceutical company and manufacturer of Actos, a drug used to combat diabetes. The plaintiff, a diabetic, alleged that Actos caused him to develop bladder cancer, and the jury overwhelmingly agreed.

I don’t know enough about this case, or any other case alleging that Actos causes cancer, to know whether the jury got it right here. The punitive damage award is obviously too large – it’s roughly 6,100 times the amount of the compensatory award – and it won’t stand.

The $9 billion award, however, followed a jury instruction that Takeda had destroyed evidence in bad faith. Judge Rebecca F. Doherty of the United States District Court for the Western District of Louisiana instructed the jury that she concluded spoliation had occurred, and further instructed that the jury was “free to infer those [destroyed] documents and files would have been helpful to the plaintiffs or detrimental to Takeda.” What is interesting to me is not the size of the award that followed this instruction, but the evidence relied on by Judge Doherty to justify the instruction.

The key to Judge Doherty’s ruling was her conclusion that Takeda had destroyed files belonging to 46 custodians. These 46 custodians had been employed by Takeda in Japan, United States, and Europe. Each of them had left Takeda in 2011 or earlier. The breakdown of the 46 custodians by year of departure is as follows:

Year of Departure
2011 or later
2007-2010
2002-2006
2001 or earlier
# of Custodians
1
14
26
5

The destruction of files of one custodian, in particular, drew the judge’s ire.  That custodian, Katsuhisa Saito, had held the position of Senior Director, Pharmaceutical Development Division at Takeda Japan.  Judge Doherty cited the “select and methodical destruction” of documents belonging to Mr. Saito and those who reported directly to him as evidence of Takeda’s bad faith.

But consider this:  Mr. Saito left Takeda in 2004.  In contrast, the very first lawsuit against Takeda alleging that Actos causes bladder cancer was not filed until 2011.

Unfortunately for Takeda, it had been the target of other product liability lawsuits involving Actos before 2011.  The earliest such lawsuit was filed in 2002, and in response, Takeda had issued a broadly worded litigation hold, stating:

Until further notice, you are instructed to preserve any and all documents and electronic data which discuss, mention, or relate to Actos®.  This means do not destroy, delete, throw away or otherwise discard any such documents or electronic data.

The 2002 lawsuit did not allege that Actos caused bladder cancer.  Nevertheless, in light of the 2002 litigation hold, Judge Doherty ruled that Takeda should have preserved all documents, including the documents belonging to Mr. Saito and the other custodians who left Takeda after 2002.

There is no question that Takeda failed to take adequate steps to implement the litigation hold.  Judge Doherty’s decision does not explain whether Takeda’s failure to implement the litigation hold was intentional or negligent, apparently because Takeda did not provide an explanation.  But the opinion does raise the following questions, among many others.

  1. Is a finding of “bad faith” appropriate in this case when the document hold was issued in response to a different case?
    At the time Mr. Saito left the company in 2004, Takeda did not know that 7 years later, it would be the subject of lawsuits alleging that Actos causes bladder cancer.  Is it fair to say in this lawsuit, filed in 2011, that Takeda’s destruction of Mr. Saito’s files in 2004 was done in “bad faith”?  How can Takeda “selectively and methodically” have destroyed documents if it did not know that those documents would become an issue in this lawsuit, filed 7 years after the destruction?  Or is the “bad faith” finding justified because Takeda itself recognized the need to preserve documents but ignored its obligations?  Does it matter – or should it matter – that both cases allege product liability claims?
  2. What if the 2002 hold had not been issued?
    The key to Judge Doherty’s “bad faith” finding is the 2002 litigation hold.  What if Takeda hadn’t issued that hold?  Would Judge Doherty have had a basis for ruling that Mr. Saito’s documents should have been subject to a hold in 2004?  Alternatively, what if the litigation hold issued in 2002 had not been so broadly worded, but specifically limited to the malady at issue in the 2002 lawsuit?
  3. How broadly – or narrowly – should you craft a litigation hold?
    The decision in 2002 to put a litigation hold on all documents related to Actos was a logical one.  But going forward, will companies err on the side of drafting litigation holds that are more narrow in scope to avoid a similar outcome?

No doubt mistakes were made.  But a spoliation instruction to the jury allows the jury to infer that had these documents been available, they would have shown that Takeda knew of the causal connection between Actos and bladder cancer.  As proven by the $9 billion verdict, the ability to draw such an inference is powerful.  The question is whether such a powerful tool should have been handed to the jury in this instance.

A copy of Judge Doherty’s amended ruling dated June 23, 2014, regarding her finding of spoliation can be found here.

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Customer Lists and the Distinction Between “Solicit” and “Announce”

May 22 2014 | in | by Jiyun Cameron Lee

The trade secret question asked most often by clients is:  can I use my customer list after moving to a new job?

We are asked this – or some variation on this – question from individuals contemplating a change in employment, from companies about to hire a new employee, as well as from companies losing a key employee (or employees) to a competitor.  The frequency of the question is not surprising, because every business relies on its customers, every individual relies on his or her contacts to advance their career, and everyone wants to protect its customer base from competitors.

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The lawyerly answer is: “it depends.”  Important in each situation is the context, including the nature of the business and the type of customer list at issue.  But here are five general principles to keep in mind.

  1. A customer list can be a trade secret.
    A customer list is entitled to protection under California law if it derives “independent economic value” from not being generally known, and the owner undertakes reasonable efforts to maintain its secrecy.  So ask yourself this question about your customer list:  how easy would it be to duplicate the list?  Also important is the way in which the list was generated.  Was it generated by a number of different employees over a number of years, or is it a personal list of industry contacts that you compiled over the course of your career?
  2. Even if the customer list is a trade secret, you can use the list to “announce” your new job.
    Trade secret law prohibits the “use” of another’s trade secret.  But in California, you can announce your change in employment without running afoul of trade secret laws.  So even if the customer list at issue is a confidential list belonging to the former employer, the law permits you to announce your new business affiliation to those customers.
  3. But you may not use your former employer’s confidential customer list to “solicit.”
    You can announce, but you may not solicit.  According to the California Supreme Court, “solicit” means asking for with earnestness, endeavoring to obtain, appealing to, or inviting.  So you may not “invite” the customer to do business with you, or appeal to the customer to send you business.
  4. “Solicit” does not include the willingness to respond to an invitation.
    While “solicitation” is prohibited, if a customer asks you to make a proposal, you can respond without running afoul of the law.  Of course, you must take steps to ensure that in responding to the customer’s request for a proposal, you are not using any other trade secrets of your former employer, such as confidential cost or pricing information.
  5. Remember, “solicit” is in the eye of the beholder.
    Even if the law permits you to announce your departure to the customers on your former employer’s confidential list, keep in mind that the line between “announce” and “solicit” is often blurred.  And even if you are vindicated in the end, vindication may come at a significant cost in attorneys’ fees.

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Ideas Are Protectable As Trade Secrets

May 14 2014 | in | by Jiyun Cameron Lee

In Silvaco Data systems v. Intel Corp., 184 Cal. App. 4th 210 (2010), the Court of Appeals described the difference between a patent and a trade secret as follows:

The sine qua non of a trade secret … is the plaintiff’s possession of information of a type that can, at the possessor’s option, be made known to others, or withheld from them, i.e., kept secret. This is the fundamental difference between a trade secret and a patent. A patent protects an idea, i.e., an invention, against appropriation by others. Trade secret law does not protect ideas as such. Indeed a trade secret may consist of something we would not ordinarily consider an idea (a conceptual datum) at all, but more a fact (an empirical datum), such as a customer’s preferences, or the location of a mineral deposit. In either case, the trade secret is not the idea or fact itself, but information tending to communicate (disclose) the idea or fact to another. Trade secret law, in short, protects only the right to control the dissemination of information.

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Seizing on the sentence, “[t]rade secret law does not protect ideas as such,” the losing defendant in Altavion v. Konica Minolta Systems Laboratory Inc., ___ Cal. App. 4th ____ (2014), argued that design concepts – i.e., the ideas – underlying the plaintiff’s digital stamping technology was not protectable as a trade secret.
 
The Court of Appeal in Altavion soundly rejected the defendant’s arguments, and upheld the trial court’s finding of misappropriation. Trade secret law protects “information.” Civ. Code § 3426.1(d). Unlike patentable ideas, which must be novel, useful and new, “a trade secret in the broad sense consists of any unpatented idea which may be used for industrial and commercial purposes.” Sinclair v. Aquarius Electronics, Inc., 42 Cal. App. 3d 216, 222 (1974) (citation omitted). In other words, whether an idea is patentable or not is irrelevant; the key is whether the idea itself has been kept secret.
 
The evidence at trial in Altavion was that the trade secrets at issue were not disclosed to anyone other than the defendant, and that the disclosure to the defendant was subject to an NDA. Not only did the plaintiff testify that he knew of no other similar technology at the time his company made a significant investment to develop it, but the Court of Appeal found that the trial court could reasonably infer that the trade secrets were not generally known from the fact that the defendant obtained patents based on the technology.
 
Altavion confirms the critical importance of the plaintiff’s ability to demonstrate that the trade secret was not generally known and that the plaintiff took reasonable steps to maintain its secrecy. Carefully employed, trade secret laws can be an important tool for protecting commercially valuable information and should not be overlooked.

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